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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998
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 March 1, 1999, there were 8,761,417 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 $77,081,150.
Documents incorporated by reference:
PART OF FORM 10-K INTO WHICH
DOCUMENT DOCUMENT IS INCORPORATED
- -------------------------------------------------- ----------------------------
Registrant's annual report to stockholders for
1998............................................. Part II, Items 5-8
Registrant's definitive proxy statement to be
filed for 1999 annual meeting.................... Part III, Items 10-13
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PART I
ITEM 1. BUSINESS
The registrant, Shelby Williams Industries, Inc. ("Shelby Williams" or the
"Company"), a Delaware corporation incorporated in February, 1976, is the
successor to a business formed in Chicago, Illinois in 1954. Its principal
executive offices are located at 11-111 Merchandise Mart, Chicago, Illinois
60654, telephone (312) 527-3593. The Company has additional executive,
operational and administrative offices at 150 Shelby Williams Drive, Morristown,
Tennessee 37813, telephone (423) 586-7000.
In the third quarter of 1996, the Company sold the business and related
manufacturing facility of its "Preview" line of contemporary upholstered seating
products at its approximate carrying value. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note to
Consolidated Financial Statements captioned "Restructuring Charge."
On July 14, 1998, the Company's Board of Directors approved management's
plan to discontinue the Company's distribution operation of textile and floor
covering products manufactured by outside suppliers. The plan was completed in
December, 1998. During the second quarter 1998, the Company recorded a loss on
the disposition of these operations of approximately $9.7 million, or $7.1
million after taxes. The losses recorded on the disposition of these operations
were not materially different from those incurred on the actual amounts realized
in the sale and liquidation process. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note to Consolidated
Financial Statements captioned "Discontinued Operations."
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 82% of the Company's 1998 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. The hospitality, food service, and leisure industries continued
to expand in 1998 providing opportunities for additional contract seating sales.
Despite ongoing economic difficulties in the export markets served by the
Company, the Company's position as market leader abroad leaves management
confident that it will garner a significant share of export business as the
international situation normalizes, although there can be no assurance in this
regard.
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. The Company markets these products under
the brand name SELLERS & JOSEPHSON. Shelby Williams manufactures approximately
350
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standard furniture products for the hospitality and food service industries, and
approximately 200 standard products for the university, healthcare and other
institutional markets. The majority of these products are supplied under special
order and finished and upholstered to customer specifications.
Shelby Williams estimates that, of its 1998 net sales of $165.9 million,
approximately 82% 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 are listed under the
heading "Customers and End Users." The Company's ten largest customers accounted
for approximately 19% of 1998 net sales, and no single customer accounted for
more than 5% of 1998 net sales.
The Company's sales and marketing staff consists of approximately 103
full-time employees, of which 68 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 13 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 68
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) seating for other 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 room furniture, as well as a full range of vinyl
wallcoverings. Shelby Williams' products are primarily sold: (i) directly to
hospitality and food service providers, gaming establishments, universities and
other institutions, (ii) to interior designers, architects and
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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.
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 103 full-time employees, approximately 68 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. 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.
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DISTRIBUTION
Shelby Williams distributes its products both domestically and
internationally. Shelby Williams has showrooms and sales offices in 13 cities in
the United States, as well as distributors in 33 foreign countries. Many of
these distributors are concentrated in Europe and Asia. 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
Bass Hotels & Resorts
Boykin Lodging Co.
Bristol Hotel Co.
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.
Intercontinental Hotels
Interstate Hotel Corp.
La Quinta Inns, Inc.
Loews Hotel Corp.
Marcus Corp. (Budgetel Inns)
Marriott Hotel Corp.
MeriStar Hotels
Prime Hospitality Corp.
Promus Hotel Corp. (Embassy Suites, Hampton Inns Homewood Suites)
Renaissance Hotel Corp.
The Ritz Carlton Hotel Co.
The Sheraton Corp.
Starwood Lodging Corp.
Westin Hotels
Wyndham Hotels
RESTAURANTS
Applebees Restaurants
Au Bon Pain Restaurants
Brinker International Inc. (The Corner Bakery, Macaroni Grill, Maggiano's)
Champs Restaurants
Club Corporation of America
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
Bellagio Hotel & Casino
Carnival Hotel & Casino
Caesars Palace
Circus Circus Enterprises, Inc.
Cow Creek Indian Gaming Center
Churchill Downs Race Track
The Desert Inn
Delaware Park Race Track & Casino
Grand Casino
Harrah's Entertainment Inc.
Menominee Tribal Gaming
MGM Grand Hotel & Casino
The Mirage Resorts
Muckleshoot Tribal Gaming
Rio Suite Hotel & Resort
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
other customers and end users:
HEALTHCARE AND
UNIVERSITIES
Albert Einstein Medical Center
Assisted Living Concepts
Carson Newman College
Columbia/HCA Hospitals
Eby Development Company
Geisinger Medical Center
Georgia Institute of Technology
Health Systems of Tennessee, L.L.C.
Kaiser Foundation Hospitals
Michigan State University
Purdue University
Roosevelt University
Rutgers University
Sterling House
The University of Chicago Hospitals
University of Michigan
University of Tennessee
WALLCOVERING
Duron Paints
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.
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In 1998, the Company also sold products to over 350 country clubs in 34
states.
The Company's ten largest customers accounted for approximately 19% of net
sales in 1998, and no single customer accounted for more than 5% of 1998 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, and wallcoverings
under the Sellers & Josephson-Registered Trademark- name.
BACKLOG
The Company's backlog of orders at December 31, 1998, was $34.2 million, a
year-end record level, as compared to $31.8 million at December 31, 1997. The
Company expects to ship substantially all of its backlog by the end of 1999.
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, 1999):
<TABLE>
<CAPTION>
LOCATION PRODUCTS
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<S> <C>
Morristown, TN....................................... Hospitality, food service and gaming
seating, banquet seating (1)
Statesville, NC...................................... Healthcare and university seating;
banquet seating and products
Canton, MS........................................... Upholstered products
Zacatecas, MX........................................ Furniture components
Englewood, NJ........................................ Wallcoverings
Carlstadt, NJ........................................ Wallcoverings
</TABLE>
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(1) Product information is summarized for two manufacturing facilities located
in Morristown, Tennessee.
Shelby Williams operations primarily consist of wood bending, wood working
and finishing, assembly, metal forming and fabrication, electrostatic wood and
metal finishing. Shelby Williams also prints and laminates vinyl wallcoverings.
For certain chair styles, Shelby Williams purchases components manufactured by
other companies. These components, which are manufactured to the Company's
specifications, are assembled, finished and upholstered by Shelby Williams. All
outsourced components are available domestically except for rattan, which is
indigenous to the Philippines 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,
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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. The Company also plans to add a
state-of-the-art aluminum production facility and a new wood-finishing system.
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, 1998, the Company had 1,720 full-time employees. Of
these, 1,513 were engaged in manufacturing, 104 in administrative and clerical
positions, and 103 in sales and marketing. Those engaged in manufacturing
included 251 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, 1999, 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, 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)
Carlstadt, NJ...................... Mfg./Warehousing 35,000 Leased April, 2004
</TABLE>
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(1) Approximately 238,100 square feet are owned and 167,900 are leased.
(2) The Company has an option to renew the lease for 10 additional years at a
nominal rental increase.
The Company has showrooms and sales offices in 13 United States cities,
including Atlanta, Chicago, Dallas, Los Angeles, New York and Plantation,
Florida.
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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.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
AGE AT PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
NAME 2-1-99 AND POSITION AND OFFICE WITH REGISTRANT
- ----------------------------------------------- --------- ----------------------------------------------
<S> <C> <C>
Paul N. Steinfeld.............................. 44 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.............................. 56 President and Chief Operating Officer since
May, 1990; prior thereto President and
Treasurer. Director during past five years.
Manfred Steinfeld.............................. 74 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................................ 56 Executive Vice President since May, 1990.
Sam Ferrell.................................... 57 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
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father of Paul N. Steinfeld; there is no other family relationship between any
director or executive officer of the Company.
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 20 of the Company's 1998 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 15 of the Company's 1998 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 24-25 of the Company's
1998 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 16 (Consolidated Statements of Income),
17 (Consolidated Balance Sheets), 18 (Consolidated Statements of Cash Flows), 19
(Consolidated Statements of Stockholders' Equity), 20-23 (Notes to Consolidated
Financial Statements) and 24 (Report of Independent Auditors) of the Company's
1998 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, 1998.
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,
1998, 1997, and 1996
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996
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Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996
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) Report on Form 8-K for an event dated December 14, 1998, reporting
disposition of certain assets constituting the Company's "Pacific Home
Furnishings" division.
(c) List of exhibits: See Exhibit Index immediately preceding exhibits
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[LOGO]
SHELBY WILLIAMS INDUSTRIES, INC.
Corporate Offices
11-111 Merchandise Mart
Chicago, IL 60654
PHONE: (312) 527-3593
FAX: (312) 527-3597
Executive and Administrative Offices
150 Shelby Williams Drive
Morristown, TN 37813
PHONE: (423) 586-7000
FAX: (423) 586-2260
SHELBY WILLIAMS IS THE LEADING MANUFACTURER OF SEATING PRODUCTS FOR THE
HOSPITALITY AND FOOD SERVICE MARKETS.
THE COMPANY IS A MAJOR PROVIDER OF SEATING PRODUCTS FOR UNIVERSITY, HEALTHCARE
AND OTHER INSTITUTIONAL FACILITIES.
SHELBY WILLIAMS ALSO MANUFACTURES AND DISTRIBUTES WALLCOVERINGS.
<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 23, 1999
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 March 23, 1999
--------------------------------------- Director (Principal
(Paul N. Steinfeld) Executive Officer)
ROBERT P. COULTER* President and Director March 23, 1999
---------------------------------------
(Robert P. Coulter)
MANFRED STEINFELD* Chairman of the Executive March 23, 1999
--------------------------------------- Committee and Director
(Manfred Steinfeld)
SAM FERRELL* Vice President of Finance, March 23, 1999
--------------------------------------- Treasurer and Assistant
(Sam Ferrell) Secretary (Principal
Financial and Accounting
Officer)
WILLIAM B. KAPLAN* Director March 23, 1999
---------------------------------------
(William B. Kaplan)
ROBERT E. LOWE* Director March 23, 1999
---------------------------------------
(Robert E. Lowe)
DOUGLAS A. PARKER* Director March 23, 1999
---------------------------------------
(Douglas A. Parker)
TRISHA WILSON* Director March 23, 1999
---------------------------------------
(Trisha Wilson)
*By PAUL N. STEINFELD
-----------------------------------
Paul N. Steinfeld, Attorney-in-fact
</TABLE>
11
<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.
2.2 Asset Purchase Agreement dated December 2, 1998 by and between the Registrant and PHF Hawaii,
Incorporated, filed as Exhibit 10.1 to Registrant's report on Form 8-K filed December 22, 1998, 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 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.
*10.2 1998 Senior Management Incentive Plan, filed as Exhibit 10.3 to Registrant's annual report on Form 10-K
for 1997 and hereby incorporated by reference.
*10.3 1999 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 1998.
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).
</TABLE>
- ------------------------
* Compensation plan.
12
<PAGE>
EXHIBIT 10.3
1999
SENIOR MANAGEMENT INCENTIVE PLAN
For Fiscal 1999, 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>
$ 1.22-1.25 30
1.26-1.33 40
1.34+ 50
</TABLE>
If unusual major factors significantly change Fiscal 1999 Earnings, decisions
regarding any adjustments will be made by the Compensation Committee of the
Board of Directors.
The Company's 1999 Senior Management Incentive Plan shall be governed by the
following rules:
A. The incentive compensation for the 1999 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 2000, and the other on the first day
of February 2001 (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
(In thousands except for per share amounts)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 165,937 $ 157,779 $ 149,481 $ 144,525 $ 135,011
Cost of goods sold 126,388 120,849 114,998 112,412 107,635
Restructuring charge -- -- -- -- 5,575
Selling, general and administrative expenses 22,994 22,268 22,100 22,301 21,683
Interest expense 391 622 969 1,257 1,207
Interest income (539) (614) (18) (9) --
Miscellaneous expense (income) (102) (89) (44) 37 106
Income (loss) from continuing operations
before income taxes 16,805 14,743 11,476 8,527 (1,195)
Income taxes 6,191 5,066 3,720 2,330 (575)
Income (loss) from continuing operations 10,614 9,677 7,756 6,197 (620)
PER SHARE DATA
Net sales per share $ 18.28 $ 17.15 $ 16.98 $ 16.14 $ 14.92
Income (loss) per share from continuing
operations-basic and diluted 1.17 1.05 0.88 0.69 (0.07)
Cash dividends per share 0.36 0.32 0.30 0.28 0.28
Equity per share 7.31 7.68 6.38 5.81 5.41
Weighted average number of
common shares outstanding 9,078 9,198 8,805 8,955 9,049
Weighted average number of
common shares outstanding-assuming dilution 9,108 9,250 8,838 8,981 9,070
CHANGES IN FINANCIAL POSITION
Cash provided by operating activities $ 12,136 $ 10,088 $ 8,069 $ 9,199 $ 4,953
Capital expenditures 3,919 3,557 1,189 2,250 2,183
Depreciation and amortization 2,478 2,298 2,457 2,629 2,511
Cash dividends 3,293 2,944 2,643 2,511 2,533
FINANCIAL POSITION
Stockholders' equity $ 64,695 $ 71,772 $ 55,970 $ 51,724 $ 48,658
Long-term debt (including current portion) 3,000 7,000 8,000 8,895 8,944
Total assets 89,633 97,238 83,213 87,613 86,306
Working capital 39,164 48,494 37,606 32,016 28,092
Current assets 62,111 68,929 55,712 56,962 54,865
Net investment in plant and equipment 25,985 24,611 23,476 26,547 26,989
FINANCIAL RATIOS
Continuing operations:
Gross margin as percent of sales 23.8% 23.4% 23.1% 22.2% 20.3%
Pre-tax return on net sales 10.1% 9.3% 7.7% 5.9% --
Effective income tax rate 36.8% 34.4% 32.4% 27.3% --
After-tax return on net sales 6.4% 6.1% 5.2% 4.3% --
Dividend payout ratio 31% 30% 34% 41% --
Current ratio 2.7 3.4 3.1 2.3 2.1
Debt as percent of total invested capital 4% 9% 13% 15% 16%
Current assets as percent of total assets 69% 71% 67% 65% 64%
PRODUCTIVITY STATISTICS
Average inventory turnover 6.3X 6.4X 5.6X 5.3X 5.0X
Average receivable turnover 6.1X 6.4X 6.5X 6.5X 6.2X
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996
<S> <C> <C> <C>
NET SALES $ 165,937,000 $ 157,779,000 $ 149,481,000
Cost of goods sold 126,388,000 120,849,000 114,998,000
Selling, general and administrative expenses 22,994,000 22,268,000 22,100,000
16,555,000 14,662,000 12,383,000
OTHER DEDUCTIONS (INCOME):
Interest expense 391,000 622,000 969,000
Interest income (539,000) (614,000) (18,000)
Miscellaneous income (102,000) (89,000) (44,000)
(250,000) (81,000) 907,000
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 16,805,000 14,743,000 11,476,000
INCOME TAXES:
Current 7,626,000 4,926,000 3,247,000
Deferred (1,435,000) 140,000 473,000
6,191,000 5,066,000 3,720,000
Income from continuing operations 10,614,000 9,677,000 7,756,000
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations,
net of taxes (48,000) 915,000 661,000
Loss on disposal of discontinued operations,
net of taxes (7,081,000)
NET INCOME $ 3,485,000 $ 10,592,000 $ 8,417,000
INCOME PER SHARE:
Continuing operations $ 1.17 $ 1.05 $ 0.88
Income (loss) from discontinued operations,
net of taxes (0.01) 0.10 0.08
Loss on disposal of discontinued operations,
net of taxes (0.78) -- --
Net income $ 0.38 $ 1.15 $ 0.96
INCOME PER SHARE-ASSUMING DILUTION:
Continuing operations $ 1.17 $ 1.05 $ 0.88
Income (loss) from discontinued operations,
net of taxes (0.01) 0.10 0.07
Loss on disposal of discontinued operations,
net of taxes (0.78) -- --
Net income $ 0.38 $ 1.15 $ 0.95
Weighted average number of
common shares outstanding 9,078,000 9,198,000 8,805,000
Weighted average number of
common shares outstanding-assuming dilution 9,108,000 9,250,000 8,838,000
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED BALANCE SHEETS
SHELBY WILLIAMS INDUSTRIES, INC.
<TABLE>
<CAPTION>
December 31, 1998 and 1997 1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,355,000 $11,124,000
Accounts receivable, less allowance for doubtful
accounts of $375,000 in 1998 and $325,000 in 1997 28,025,000 26,165,000
Inventories:
Raw materials 11,818,000 8,147,000
Work in process 5,492,000 4,978,000
Finished goods 5,234,000 4,643,000
22,544,000 17,768,000
Prepaid expenses 5,187,000 5,015,000
Net assets of discontinued operations -- 8,857,000
TOTAL CURRENT ASSETS 62,111, 000 68,929,000
NET ASSETS OF DISCONTINUED OPERATIONS -- 2,335,000
EXCESS OF COST OVER NET ASSETS OF ACQUIRED COMPANIES 151,000 160,000
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and land improvements 2,560,000 2,392,000
Buildings and leasehold improvements 20,974,000 20,176,000
Machinery and equipment 26,746,000 22,720,000
Construction in progress -- 1,690,000
50,280,000 46,978,000
Less accumulated depreciation and amortization 24,295,000 22,367,000
25,985,000 24,611,000
OTHER ASSETS 1,386,000 1,203,000
$89,633,000 $97,238,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,063,000 $ 4,730,000
Customer deposits on orders in process 5,717,000 4,225,000
Accrued liabilities 6,278,000 5,629,000
Income taxes 889,000 1,851,000
Current portion of long-term debt 3,000,000 4,000,000
TOTAL CURRENT LIABILITIES 22,947,000 20,435,000
LONG-TERM DEBT -- 3,000,000
DEFERRED INCOME TAXES 1,991,000 2,031,000
COMMITMENTS (SEE NOTES)
STOCKHOLDERS' EQUITY:
Common stock, $.05 par value; authorized 30,000,000 shares;
issued 11,876,000 shares (1997-11,848,000) 593,000 592,000
Capital in excess of par value 10,128,000 9,837,000
Retained earnings 77,012,000 76,820,000
87,733,000 87,249,000
Less common stock held in
treasury; 3,025,000 shares at cost (1997-2,500,000) 23,038,000 15,477,000
TOTAL STOCKHOLDERS' EQUITY 64,695,000 71,772,000
$89,633,000 $97,238,000
</TABLE>
See accompanying notes.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,485,000 $ 10,592,000 $ 8,417,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,478,000 2,298,000 2,457,000
Provision for losses on accounts receivable 207,000 110,000 136,000
Change in net assets of discontinued operations 9,692,000 (468,000) (314,000)
Changes in assets and liabilities net of effects
from sale of facility:
Accounts receivable (2,067,000) (2,953,000) (540,000)
Inventories (4,776,000) 2,380,000 (640,000)
Prepaid expenses (172,000) (2,051,000) (267,000)
Accounts payable and accrued liabilities 4,474,000 (818,000) (2,706,000)
Income taxes payable (962,000) 147,000 921,000
Increase (decrease) in deferred taxes (40,000) (106,000) 34,000
Pension liability adjustment -- 789,000 119,000
Other (183,000) 168,000 452,000
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,136,000 10,088,000 8,069,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of business and facility 1,500,000 -- 2,000,000
Proceeds from disposal of property,
plant and equipment 76,000 133,000 5,000
Capital expenditures (3,919,000) (3,557,000) (1,189,000)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (2,343,000) (3,424,000) 816,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of treasury stock at public offering -- 7,953,000 --
Repayment of short-term borrowings -- -- (5,900,000)
Principal payments of long-term debt (4,000,000) (1,000,000) (32,000)
Sale of common stock under stock option plan 292,000 296,000 290,000
Purchase of common stock for the treasury (7,561,000) (884,000) (1,937,000)
Dividends declared and paid (3,293,000) (2,944,000) (2,643,000)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (14,562,000) 3,421,000 (10,222,000)
Net increase (decrease) in cash
and cash equivalents (4,769,000) 10,085,000 (1,337,000)
Cash and Cash Equivalents at Beginning of Year 11,124,000 1,039,000 2,376,000
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,355,000 $ 11,124,000 $ 1,039,000
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 447,000 $ 632,000 $ 969,000
Income taxes 4,557,000 6,104,000 3,277,000
$ 5,004,000 $ 6,736,000 $ 4,246,000
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SHELBY WILLIAMS INDUSTRIES, INC.
Years Ended December 31, 1998, 1997 and 1996
Common Stock Capital in Accumulated other
Shares excess of Retained comprehensive
issued Amount par value earnings income
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 11,779,000 $ 589,000 $ 7,855,000 $ 63,398,000 $ (908,000)
Net income 8,417,000
Other comprehensive income:
Pension liability adjustment 198,000
Tax expense (79,000)
Comprehensive income 8,417,000 119,000
Sale of common stock under
stock option plan 35,000 2,000 288,000
Common stock purchased for
treasury (168,000 shares)
Cash dividends-$.30 per share (2,643,000)
BALANCE AT DECEMBER 31, 1996 11,814,000 591,000 8,143,000 69,172,000 (789,000)
Net income 10,592,000
Other comprehensive income:
Pension liability adjustment 1,315,000
Tax expense (526,000)
Comprehensive income 10,592,000 789,000
Sale of treasury stock at public offering
(619,000 shares) 1,399,000
Sale of common stock under
stock option plan 34,000 1,000 295,000
Common stock purchased for
treasury (72,000 shares)
Cash dividends-$.32 per share (2,944,000)
BALANCE AT DECEMBER 31, 1997 11,848,000 592,000 9,837,000 76,820,000 0
Net income and comprehensive income 3,485,000
Sale of common stock under
stock option plan 28,000 1,000 291,000
Common stock purchased for
treasury (525,000 shares)
Cash dividends-$.36 per share (3,293,000)
BALANCE AT DECEMBER 31, 1998 11,876,000 $ 593,000 $ 10,128,000 $ 77,012,000 $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Treasury
other
stock,
at cost Total
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995 $(19,210,000) $ 51,724,000
Net income 8,417,000
Other comprehensive income:
Pension liability adjustment 198,000
Tax expense (79,000)
Comprehensive income 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-$.30 per share (2,643,000)
BALANCE AT DECEMBER 31, 1996 (21,147,000) 55,970,000
Net income 10,592,000
Other comprehensive income:
Pension liability adjustment 1,315,000
Tax expense (526,000)
Comprehensive income 11,381,000
Sale of treasury stock at public offering
(619,000 shares) 6,554,000 7,953,000
Sale of common stock under
stock option plan 296,000
Common stock purchased for
treasury (72,000 shares) (884,000) (884,000)
Cash dividends-$.32 per share (2,944,000)
BALANCE AT DECEMBER 31, 1997 (15,477,000) 71,772,000
Net income and comprehensive income 3,485,000
Sale of common stock under
stock option plan 292,000
Common stock purchased for
treasury (525,000 shares) (7,561,000) (7,561,000)
Cash dividends-$.36 per share (3,293,000)
Balance at December 31, 1998 $(23,038,000) $ 64,695,000
</TABLE>
See accompanying notes.
<PAGE>
December 31, 1998, 1997 and 1996
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, and other institutional markets
through its "Thonet" division with health care and university furniture,
including chairs, tables, and other institutional products. The Company also
processes and distributes vinyl wallcoverings for residential, hotel and
office use under the name "Sellers & Josephson."
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 are denominated in U.S. dollars and have been eliminated
in consolidation.
REVENUE RECOGNITION
Sales are recognized when the products are shipped.
INCOME TAXES
Income tax expense includes Federal and state income taxes currently
payable and deferred taxes arising from temporary differences between the tax
bases of assets or liabilities and their reported amounts in the financial
statements.
CASH AND CASH EQUIVALENTS
Cash equivalents include highly liquid investments, with original
maturities of three months or less, that are readily convertible to known
amounts of cash.
INVENTORIES
Inventories are carried at the lower of cost or market, determined by the
last-in, first-out (LIFO) method. The current replacement cost of inventories
exceeded carrying value by approximately $ 10,828,000 at December 31, 1998 and
$9,997,000 at December 31, 1997.
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 $ 20,204,000 at December 31, 1998 and $ 22,278,000 at December
31, 1997. Related 1998 disposition cost of $ 616,000 was not a deduction for
tax.
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.
COMMITMENTS
LEASES
The Company leases certain manufacturing facilities under operating leases which
expire over the next seven 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,
1998 are:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999 $ 1,058,000
2000 968,000
2001 573,000
2002 532,000
2003 469,000
</TABLE>
Subsequent to 2003 62,000 Total minimum lease payments $ 3,662,000 Total rental
expense for all operating leases aggregated $ 1,899,000 in 1998, $ 1,955,000 in
1997, and $ 1,912,000 in 1996.
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, 1998, all of these lines
were unused.
LONG-TERM DEBT
Long-term debt at December 31, 1998, and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
7.8% senior notes due in quarterly
installments through July 1999 $3,000,000 $7,000,000
Less amounts due within one year 3,000,000 4,000,000
$ -- $3,000,000
</TABLE>
The terms of the senior note agreement contain certain restrictions. At December
31, 1998, the Company was 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.
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>
1998 1st Quarter 17 1/8 14 5/8
2nd Quarter 16 1/8 14 5/8
3rd Quarter 15 3/4 11 7/8
4th Quarter 13 1/8 11 7/8
1997 1st Quarter 17 7/8 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, 1998, 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
1998 1997
<S> <C> <C>
1st Quarter $ 0.09 $ 0.08
2nd Quarter 0.09 0.08
3rd Quarter 0.09 0.08
4th Quarter 0.09 0.08
$ 0.36 $ 0.32
</TABLE>
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly results for the two years ended December 31, 1998 follows
(dollars in thousands, except for per share amounts):
<TABLE>
<CAPTION>
1998 1997
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 44,237 $ 42,387 $ 40,829 $ 38,484 $ 41,966 $ 39,608 $ 39,749 $ 36,456
Gross profit 10,962 10,095 9,937 8,555 10,256 9,435 9,182 8,057
Income from continuing operations 3,120 2,727 2,689 2,078 2,862 2,532 2,450 1,833
Net income (loss) 3,120 2,727 (4,476) 2,114 2,985 2,734 2,707 2,166
Income (loss) per share (basic and diluted):
Continuing operations 0.35 0.30 0.29 0.22 0.31 0.27 0.26 0.21
Net income (loss) 0.35 0.30 (0.49) 0.23 0.32 0.29 0.29 0.25
</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, 1998 and 1997, there were 276,000 and 308,000 shares, respectively,
reserved for issuance under the plans. Of options granted, 20,000 in 1997 and
16,000 in 1996 have five year terms and vest and become fully exercisable at the
end of six months service. The remaining options granted in 1997 and 1996 and
all of the options granted in 1998 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 under-lying 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>
1998 1997 1996
Options Weighted-Average Options Weighted-Average Options Weighted-Average
(000) Exercise Price (000) Exercise Price (000) Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 217 $ 12.17 147 $ 9.97 119 $ 8.30
Granted 43 16.69 107 13.96 63 12.25
Exercised (28) 10.37 (34) 8.61 (35) 8.38
Forfeited (4) 14.00 (3) 8.38 -- --
Outstanding-end of year 228 $ 13.21 217 $ 12.17 147 $ 9.97
Exercisable at end of year 111 $ 11.62 88 $ 10.89 79 $ 9.14
Weighted-average fair
value of options granted
during the year $ 5.17 $ 4.05 $ 3.68
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$7.94 to $8.73 for 33,000 options and $12.12 to $18.15 for 195,000 options, with
weighted-average exercise prices of $8.03 and $14.10, respectively. The
weighted-average remaining contractual life of those options is 1 year and 3
years, respectively, or 2.7 years as a whole. Exercise prices for options
exercisable at December 31, 1998 ranged from $7.94 to $8.73 for 33,000 shares
and $12.12 to $15.25 for 78,000 shares, with weight-average exercise prices of
$8.03 and $13.15, 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 1996, 1997 and 1998, respectively: risk-free interest rates of
6.5%, 6.2% and 5.3%; dividend yields of 2.7%, 2.6% and 2.2%; volatility factors
of the expected market price of the Company's common stock of .32, .31 and .35;
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 1998, 1997 and 1996, was 30,000,
52,000 and 33,000 shares, respectively.
<PAGE>
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.
At December 31, 1995, accrued liabilities included $439,000 related to the plan.
These costs were paid and charged against the liability in 1996, completing the
plan. In 1996, revenues and net operating income for the upholstery business
that was sold amounted to $5,858,000 and $182,000, respectively.
DISCONTINUED OPERATIONS
On July 14, 1998, the Company's Board of Directors approved management's plan to
discontinue the Company's distribution operations of textile and floor covering
products manufactured by outside suppliers. Of the two businesses comprising
these operations, one was sold and one was liquidated. The plan was completed in
December, 1998. During the second quarter 1998, the Company recorded a loss on
the disposition of these operations of $9,698,000, or $7,081,000 after taxes,
including a provision for losses prior to disposal, which is summarized below:
<TABLE>
<S> <C>
Reduction of inventory value $4,706,000
Reduction of property to net realizable value 2,198,000
Reduction of accounts receivable and prepaids value 629,000
Other liabilities 1,445,000
Losses through disposition 720,000
Total 9,698,000
Income tax benefit 2,617,000
$7,081,000
</TABLE>
The operating results of the discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Net sales $ 6,981,000 $21,849,000 $22,950,000
Income (loss) before
income taxes (77,000) 1,474,000 1,052,000
Income taxes (benefit) (29,000) 559,000 391,000
Net income (loss) (48,000) 915,000 661,000
Net income (loss) per share (0.01) 0.10 0.08
Net income (loss) per
share-assuming dilution (0.01) 0.10 0.07
</TABLE>
The net assets of the discontinued operations follows:
As of December 31, 1997
Current assets $ 9,947,000
Current liabilities 1,090,000
Net assets of discontinued operations, current $ 8,857,000
Property, net $ 2,235,000
Net assets of discontinued operations, non-current $ 2,235,000
The consolidated financial statements of the Company have been restated to
reflect the results of operations and net assets of these operations as a
discontinued operation in accordance with generally accepted accounting
principles. The losses recorded on the disposition of these operations were not
materially different from those incurred on the actual amounts realized in the
sale and liquidation process.
RETIREMENT PLANS
The Company has several defined pension plans covering essentially all of its
employees in the United States. These plans held 66,000 shares of the Company's
common stock at December 31, 1998 and December 31, 1997.
Weighted-average assumptions used in the accounting were as follows:
<TABLE>
As of December 31, 1998 1997
<S> <C> <C>
Discounts rates 7.0% 8.3%
Rates of compensation increase 3.5% 3.5%
Expected return on plan assets 8.5% 8.5%
</TABLE>
Components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Benefit cost:
Service cost $ 1,062,000 $ 964,000 $ 966,000
Interest cost 1,496,000 1,354,000 1,151,000
Expected return on
plan assets (1,654,000) (1,350,000) (1,143,000)
Amortization:
Transition asset (25,000) (25,000) (25,000)
Net actuarial loss -- 38,000 102,000
Net benefit cost $ 879,000 $ 981,000 $ 1,051,000
</TABLE>
Changes in plan assets and benefit obligation, indicating the end of year funded
status and prepaid pension, included in prepaid expenses of the accompanying
consolidated balance sheets, were as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997
<S> <C> <C>
Fair value of plan assets:
Beginning of year $ 19,485,000 $ 15,142,000
Actual return on plan assets 2,318,000 3,169,000
Employer contribution 1,462,000 1,858,000
Benefits paid (809,000) (684,000)
End of year 22,456,000 19,485,000
Benefit obligation:
Beginning of year 18,484,000 15,983,000
Service cost 1,062,000 964,000
Interest cost 1,496,000 1,354,000
Actuarial loss 3,859,000 867,000
Benefits paid (809,000) (684,000)
End of year 24,092,000 18,484,000
Funded status (1,636,000) 1,001,000
Unrecognized net asset (137,000) (163,000)
Unrecognized net loss 4,184,000 989,000
Unrecognized prior service cost 60,000 61,000
Prepaid pension at end of year $ 2,471,000 $ 1,888,000
</TABLE>
The Company has an employee stock ownership plan covering essentially all
salaried employees. The contributions were $83,000 for 1998, $69,000 for 1997,
and $63,000 for 1996. The plan held 52,000 shares of the Company's common stock
at December 31, 1998 and 44,000 shares at December 31, 1997.
Retirement plan expense was $962,000, $1,050,000, and $1,114,000 for 1998, 1997,
and 1996 respectively.
OPERATING SEGMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Applying the criteria from this statement, the Company has
three segments. The hotel and foodservice furniture segment manufactures and
distributes chairs, tables, and guest, banquet and function room furnishings,
along with specialty items for banquet use, for the hospitality market. The
healthcare and university furniture segment produces and markets seating
products used for healthcare, university and other institutional facilities. The
wallcoverings segment processes and distributes vinyl wallcoverings for the
hospitality and other markets.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Cash and cash equivalents are
considered corporate assets and interest expense and interest income are
unallocated. Intersegment sales are not significant. The Company evaluates
performance based on income before income taxes.
The Company's segments are strategic business units that offer different
products or serve different markets. They are managed separately because each
requires different technology and marketing strategies, which are coordinated to
the extent practical.
Segment information follows:
<TABLE>
<CAPTION>
December 31, Hotel and Healthcare
and year foodservice and university
then ended furniture furniture Wallcoverings Totals
<S> <C> <C> <C> <C> <C>
Net sales: 1998 $ 126,726,000 $ 23,478,000 $ 15,733,000 $ 165,937,000
1997 117,707,000 24,868,000 15,204,000 157,779,000
1996 113,436,000 22,135,000 13,910,000 149,481,000
Depreciation and amortization: 1998 1,564,000 431,000 483,000 2,478,000
1997 1,396,000 417,000 485,000 2,298,000
1996 1,501,000 419,000 537,000 2,457,000
Segment profit: 1998 13,990,000 1,022,000 1,645,000 16,657,000
1997 11,991,000 1,178,000 1,582,000 14,751,000
1996 10,626,000 504,000 1,297,000 12,427,000
Capital expenditures: 1998 2,390,000 684,000 845,000 3,919,000
1997 2,737,000 465,000 355,000 3,557,000
1996 751,000 115,000 323,000 1,189,000
Segment assets: 1998 59,685,000 15,797,000 7,796,000 83,278,000
1997 52,387,000 15,346,000 7,189,000 74,922,000
</TABLE>
Reconciliation of segment profits to consolidated income from continuing
operations before income taxes, follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Total profit for segments $ 16,657,000 $ 14,751,000 $ 12,427,000
Unallocated:
Interest expense (391,000) (622,000) (969,000)
Interest income 539,000 614,000 18,000
Income from continuing
operations before
income taxes $ 16,805,000 $ 14,743,000 $ 11,476,000
</TABLE>
Reconciliation of segment assets to consolidated assets,
follows:
<TABLE>
<CAPTION>
As of December 31, 1998 1997
<S> <C> <C>
Total assets for segments $83,278,000 $74,922,000
Net assets of discontinued operations -- 11,192,000
Cash and cash equivalents 6,355,000 11,124,000
Consolidated assets $89,633,000 $97,238,000
</TABLE>
Geographic information for net sales follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Net sales:
United States $151,727,000 $140,834,000 $135,025,000
Foreign (exports) 14,210,000 16,945,000 14,456,000
Total $165,937,000 $157,779,000 $149,481,000
</TABLE>
Geographic information for long-lived assets follows:
<TABLE>
<CAPTION>
As of December 31, 1998 1997
<S> <C> <C>
Long-lived assets:
United States $23,070,000 $21,527,000
Mexico 3,066,000 3,244,000
Total $26,136,000 $24,771,000
</TABLE>
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, 1998 1997
<S> <C> <C>
Current:
Allocated costs of
acquisition inventories $ 796,000 $1,005,000
Prepaid pension 850,000 763,000
Other-net (1,641,000) (368,000)
Total included in current
income taxes 5,000 1,400,000
Noncurrent:
Property, plant and equipment 1,991,000 2,031,000
Net deferred tax liabilities $ 1,996,000 $3,431,000
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 6,806,000 $4,414,000 $2,790,000
State 820,000 512,000 457,000
7,626,000 4,926,000 3,247,000
Deferred:
Federal (1,435,000) 140,000 473,000
$6,191,000 $5,066,000 $3,720,000
</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, 1998 1997 1996
<S> <C> <C> <C>
Statutory rate $ 5,714,000 $ 5,013,000 $ 3,902,000
State income taxes, net
of Federal tax benefit 541,000 337,000 302,000
Other (64,000) (284,000) (484,000)
$ 6,191,000 $ 5,066,000 $ 3,720,000
Effective rate 36.8% 34.4% 32.4%
</TABLE>
<PAGE>
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, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
January 29, 1999
Atlanta, Georgia
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for working capital to support
its accounts receivable and inventory requirements. The Company has historically
financed its short-term liquidity needs with internally generated funds and
short-term bank borrowings. At December 31, 1998, the Company had $ 39.2 million
of working capital and $ 20.0 million of unused short-term bank credit lines.
At December 31, 1998, total debt of $ 3.0 million amounted to only 4% of total
capitalization. The indebtedness consisted of a note payable to an institutional
investor bearing interest at an annual rate of 7.8%. Amortization of $ 1.0
million per quarter 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 $ 12.1 million in 1998.
Net cash used by investing activities was $ 2.3 million in 1998, which included
capital expenditures of $ 3.9 million consisting of $ 0.3 million to finish the
installation begun in 1997 of a modern powder coating system completed in March
1998 at a total cost of $ 2.0 million, approximately $ 0.8 million for
facilities expansion and improvements which increased wallcovering production
capacity by about 25%, and the balance primarily for automated machinery. The
Company plans to expend approximately $ 6 million in 1999 for additional
automated machinery and facilities expansion including a state- of-the-art
aluminum production facility and a new wood-finishing system. On July 14, 1998,
the Company's Board of Directors approved management's plan to discontinue the
Company's distribution operations of textile and floor covering products
manufactured by outside suppliers. Of the two businesses comprising these
operations, one was liquidated and one was sold. Cash proceeds from the sale
amounted to $ 1.5 million. The plan was completed in December 1998. Proceeds
from other disposals amounted to $ 0.1 million.
Net cash used by financing activities in 1998 was $ 14.6 million which
principally reflects the repayment of $ 4.0 million of total indebtedness, the
payment of $ 3.3 million in dividends and the repurchase of $ 7.6 million of
treasury stock. The Company received $ 0.3 million for common stock issued under
stock option plans.
The Company's stockholders' equity at December 31, 1998, was $ 64.7 million, or
$ 7.31 per share. The Company purchased 525,000 shares of its common stock in
1998 for $ 7.6 million at an average repurchase price of $ 14.40 per share.
These repurchases were made to be used for proper corporate purposes as
authorized and unissued shares. The Company's Board of Directors has authorized
the repurchase of an additional 420,000 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. Inventories, excluding those
of the discontinued operations, increased during the year 1998 by 26.9% to $
22.5 million. This was mainly due to a 7.5% increase in backlog of unshipped
orders during the same period and the timing of receipt of raw material as
reflected by the $ 2.3 million increase in accounts payable.
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 $
3.1 million for 1998, $ 3.2 million for 1997, and $ 3.5 million for 1996. All
items produced at the plant are shipped to facilities of the Company in the
United States for further processing. The value of these transfers amounted to $
2.1 million in 1998, $ 2.3 million in 1997, and $ 2.1 million in 1996.
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 has inventoried all
computer controlled equipment and assessed the exposure of each system to ensure
all computer controlled equipment is Year 2000 compliant. Based upon this
review, the Company believes that all critical equipment is compliant.
The Company has completed an assessment of its centralized information system
and has modified or replaced portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The project, according to plan, has been completed. The Year 2000
project cost was approximately $ 163,000 of which approximately $ 118,000 was
capitalized and the remainder expensed.
The Company believes that with modifications to existing software which have
been completed and conversions to new software which have been made, the Year
2000 Issue will not pose significant operational problems
for its computer systems. However, actual results could differ from those
anticipated and have a material impact on the operations of the Company. In
addition, disruptions in the general economy resulting from Year 2000 issues
could also materially adversely affect the Company. The amount of potential lost
revenue and additional cost cannot be reasonably estimated at this time. The
Company has contingency plans for certain critical applications. These
contingency plans involve, among other actions, manual workarounds and adjusting
staffing strategies.
The Company's centralized information systems do not interface with third party
systems. The Company has queried its significant suppliers, all of whose
products are available from alternative sources. To date, the Company is not
aware of any supplier with a Year 2000 issue that would materially impact the
Company's results of operations, liquidity, or capital resources. However, the
Company has no means of ensuring that its suppliers will be Year 2000 ready. The
inability of suppliers to complete their Year 2000 resolution process in a
timely fashion could materially impact the Company, the effect of which is not
determinable.
This is a Year 2000 readiness disclosure entitled to protection as provided in
the Year 2000 Information and Readiness Disclosure Act.
1998 COMPARED TO 1997
Net sales increased 5.2% to $ 165.9 million in 1998 from $ 157.8 million for
1997. This increase was due almost entirely to volume increases. Volume growth
was primarily attributable to continued robust activity in the hospitality and
foodservice markets. The Company's products sold in these markets include
virtually all of its hotel and foodservice furniture, which amounted to $ 126.7
million in 1998, or a 7.7% increase from the prior year, and most of its
wallcoverings, which increased 3.5% to $ 15.7 million. Reflecting consolidation
within the healthcare industry in 1998, sales of healthcare and university
furniture declined 5.6% to $ 23.5 million.
Notwithstanding ongoing economic difficulties in the export markets served by
the Company, its overall business remains strong. In 1998, export sales
decreased $ 2.7 million, or 16.1%, from 1997. The Company's position as market
leader abroad leaves management confident that it will garner a significant
share of export business as the international situation normalizes, although
there can be no assurance in this regard. The Company's backlog of unshipped
orders at December 31, 1998 increased 7.5%, to a year-end record of $ 34.2
million, compared to $ 31.8 million a year earlier.
Gross profit increased 7.1% to $ 39.5 million in 1998 from $ 36.9 million in
1997. The gross profit margin increased to 23.8% in 1998, compared to 23.4% in
1997, reflecting higher factory utilization rates and improved productivity
resulting from recent investments in automated machinery.
Selling, general and administrative expenses increased 3.3% to $ 23.0 million in
1998 from $ 22.3 million in 1997. As a percentage of net sales, selling, general
and administrative expenses decreased to 13.9% in 1998 from 14.1% in 1997,
principally due to function of volume.
As a result of the factors described above, operating profit increased 12.9% to
$ 16.6 million in 1998 from $ 14.7 million in 1997. The operating margin
improved to 10.0% in 1998 compared to 9.3% in 1997.
Net interest income of $ 0.1 million in 1998, contrasted to net interest expense
of almost nil in 1997, which reflects the reduction in outstanding indebtedness
to $ 3.0 million at December 31, 1998 from $ 7.0 million at December 31, 1997.
The effective tax rate increased to 36.8% in 1998 from 34.4% in 1997 primarily
due to increased state income taxes resulting, in part, from the effect of
reduced export sales and loss of federal income tax benefits also related to
export sales.
As a result of the foregoing, income from continuing operations increased 9.7%
to $ 10.6 million in 1998, or $ 1.17 per share, compared to $ 9.7 million, or $
1.05 per share in 1997.
During the second quarter 1998, the Company recorded a loss on the disposition
of the discontinued operations, indicated under Liquidity and Capital Resources
above, of $ 9.7 million, or $ 7.1 million after taxes. These operations did not
make a contribution to profits in 1998, and management believed they offered
limited upside potential. The losses recorded on the disposition of these
operations were not materially different from those incurred on the actual
amounts realized in the sale and liquidation process. See Note to Consolidated
Financial Statements captioned "Discontinued Operations." 1997 Compared to 1996
This comparison reflects restatement for operations discontinued in 1998.
Net sales increased 5.6% to $ 157.8 million in 1997 from $ 149.5 million in
1996. The Company divested its contemporary upholstered seating product line,
Preview, and a related manufacturing facility in August 1996. See Note to
Consolidated Financial Statements captioned "Restructuring Charge." Excluding
Preview, net sales increased 9.9% to $ 157.8 million in 1997 from $ 143.6
million in 1996. Approximately 2% of this increase was due to increased pricing
and favorable product mix with the remainder attributable to volume increases.
Efforts to strengthen foreign marketing capability resulted in increased export
sales for 1997 to $ 16.9 million, compared to $ 14.5 million in 1996. The demand
for hotel rooms across the U.S. remained strong in 1997. 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. Sales of these products increased from 1996 to 1997 by 3.8%, or 9.4%
excluding Preview, to $ 117.7 million for hotel and foodservice furniture, and
9.3% to $ 15.2 million for wallcoverings. Sales of healthcare and university
furniture also increased from 1996, amounting to $ 24.9 million for 1997, or an
increase of 12.3%. At December 31, 1997, the Company's backlog of unshipped
orders was approximately $ 31.8 million, compared to $ 30.7 million at December
31, 1996.
Gross profit increased 7.1% to $ 36.9 million in 1997 from $ 34.5 million in
1996. The gross profit margin increased to 23.4% in 1997, compared to 23.1% in
1996, reflecting higher capacity utilization and favorable product mix.
Selling, general and administrative expenses were $ 22.3 million in 1997 and $
22.1 million in 1996. As a percentage of net sales, selling, general and
administrative expenses decreased to 14.1% in 1997 from 14.8% 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.
As a result of the factors described above, operating profit increased 18.4% to
$ 14.7 million in 1997 from $ 12.4 million in 1996. The operating margin
improved to 9.3% in 1997 compared to 8.3% in 1996. Excluding Preview, operating
profits in 1997 and 1996 were $ 14.7 million and $ 12.2 million, respectively,
and as a percentage of sales, were 9.3% and 8.5%, respectively.
Net interest expense in 1996 of $ 1.0 million was reduced to almost nil in 1997
as a result of reduced debt and increased cash equivalents.
The effective tax rate increased to 34.4% in 1997 from 32.4% in 1996 due to the
absence of tax credits which were no longer available.
As a result of the foregoing, income from continuing operations for 1997 was $
9.7 million, a 24.8% increase over $ 7.8 million for 1996. Income per share from
continuing operations increased 19.3% to $ 1.05 from $ .88 on 4.5% more average
shares outstanding.
<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, 1999,
included in the 1998 Annual Report to Shareholders of Shelby Williams
Industries, Inc.
Ernst & Young LLP
Atlanta, Georgia
January 29, 1999
<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, 1998.
Ernst & Young LLP
Atlanta, Georgia
March 24, 1999
<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, 1998 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 23rd day of March, 1999.
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/ William B. Kaplan
-----------------------------
William B. Kaplan
Director s/ Robert E. Lowe
-----------------------------
Robert E. Lowe
Director s/ Douglas Parker
-----------------------------
Douglas Parker
Director s/ Trisha Wilson
-----------------------------
Trisha Wilson
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,355
<SECURITIES> 0
<RECEIVABLES> 28,400
<ALLOWANCES> 375
<INVENTORY> 22,544
<CURRENT-ASSETS> 62,111
<PP&E> 50,280
<DEPRECIATION> 24,295
<TOTAL-ASSETS> 89,633
<CURRENT-LIABILITIES> 22,947
<BONDS> 0
0
0
<COMMON> 593
<OTHER-SE> 64,102
<TOTAL-LIABILITY-AND-EQUITY> 89,633
<SALES> 165,937
<TOTAL-REVENUES> 165,937
<CGS> 126,388
<TOTAL-COSTS> 126,388
<OTHER-EXPENSES> 22,994
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 391
<INCOME-PRETAX> 16,805
<INCOME-TAX> 6,191
<INCOME-CONTINUING> 10,614
<DISCONTINUED> (7,129)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,485
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
