UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
Commission file Number 1-9457
SHELBY WILLIAMS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter.)
Delaware 62-0974443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11-111 Merchandise Mart
Chicago, Illinois 60654
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(312) 527-3593
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 of 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 [ ]
At August 4, 1998, there were 9,106,117 shares of registrant's
common stock outstanding.
PART I - FINANCIAL INFORMATION
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Statements of Income
Three Months and Six Months Ended
June 30, 1998 and 1997
(Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
________ ________ ________ _______
Net sales $40,829 $39,749 $79,313 $76,205
Cost of goods sold 30,892 30,567 60,821 58,966
______ ______ ______ ______
Gross profit 9,937 9,182 18,492 17,239
Selling, general and
administrative
expenses 5,743 5,592 11,045 10,773
______ ______ ______ ______
4,194 3,590 7,447 6,466
Other deductions
(income):
Interest expense 108 160 233 317
Interest and dividend
income (172) (182) (360) (208)
Miscellaneous expense
(income) (11) (78) 7 (25)
______ ______ ______ ______
(75) 100 (120) 84
______ ______ ______ ______
Income from continuing
operations before income
taxes 4,269 3,690 7,567 6,382
______ ______ ______ ______
Income taxes:
Current 1,562 1,181 2,764 1,981
Deferred 18 59 36 118
______ ______ ______ ______
1,580 1,240 2,800 2,099
______ ______ ______ ______
Income from continuing
operations 2,689 2,450 4,767 4,283
Discontinued operations:
Income (loss) from
discontinued operations,
net of taxes (84) 257 (48) 590
Loss on disposal of
discontinued operations,
net of taxes (7,081) (7,081)
______ ______ ______ ______
Net income (loss) $(4,476) $ 2,707 $(2,362) $4,873
====== ====== ====== ======
Income per share (basic
and diluted):
Continuing operations $ 0.29 $ 0.26 $ 0.52 $ 0.47
Income (loss) from
discontinued operations,
net of taxes (0.01) 0.03 (0.01) 0.07
Loss on disposal of
discontinued operations,
net of taxes (0.77) - (0.77) -
Net income (loss) $ (0.49) $0.29 $ (0.26) $0.54
______ ______ ______ ______
Weighted average number
of common shares
outstanding 9,130 9,353 9,213 9,048
====== ====== ====== ======
<FN>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
(Unaudited)
(Amounts in thousands, except per share data)
June 30, 1998 December 31, 1997
_______________ __________________
ASSETS
Current assets:
Cash and cash equivalents $ 8,056 $11,124
Accounts receivable, less
allowance for doubtful
accounts of $401 at
June 30, 1998 and
$325 at December 31,
1997 25,403 26,165
Inventories:
Raw materials 11,862 8,147
Work in process 3,829 4,978
Finished goods 5,076 4,643
______ ______
20,767 17,768
Prepaid expense 4,736 5,015
Net assets of discontinued
operations 2,499 8,857
______ ______
Total current assets 61,461 68,929
Net assets of discontinued
operations - 2,335
Excess of cost over net assets
of acquired company 156 160
Property, plant and equipment
at cost:
Land and land improvements 2,417 2,392
Buildings and leasehold
improvements 20,600 20,176
Machinery and equipment 25,806 22,720
Construction in progress 345 1,690
______ ______
49,168 46,978
Less accumulated
depreciation and
amortization 23,427 22,367
______ ______
25,741 24,611
Other assets 1,357 1,203
______ ______
$88,715 $97,238
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,310 $ 4,730
Customer deposits on
orders in process 5,116 4,225
Accrued liabilities 5,497 5,629
Income taxes 846 1,851
Current portion of long-
term debt 4,000 4,000
______ ______
Total current liabilities 21,769 20,435
Long-term debt 1,000 3,000
Deferred income taxes 2,067 2,031
Stockholder's equity:
Common stock, $.05 par value;
authorized 30,000 shares;
issued 11,864 shares
(1997-11,848 shares) 593 592
Capital in excess of par value 9,992 9,837
Retained earnings 72,788 76,820
______ ______
83,373 87,249
Less common stock held in
treasury; 2,763 shares
at cost (1997-2,500) 19,494 15,477
______ ______
Total stockholders' equity 63,879 71,772
$88,715 $97,238
====== ======
<FN>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997
(Unaudited)
(Amounts in thousands)
1998 1997
___________________________
Cash flows from operating activities:
Net income (loss) $(2,362) $4,873
Adjustments to reconcile net income
(loss)to net cash provided by
operating activities:
Depreciation and amortization 1,228 1,217
Provision for losses on accounts
receivable 153 43
Change in net assets of dis-
continued operations 8,693 (546)
Change in assets and liabilities:
Accounts receivable 609 (235)
Inventories (2,999) 1,363
Prepaid expenses 279 162
Accounts payable and accrued
liabilities 2,339 (1,965)
Income taxes payable (1,005) (1,339)
Increase in deferred taxes 36 118
Other (154) (26)
_____ _____
Net cash provided by operating
activities 6,817 3,665
_____ _____
Cash flows from investing activities:
Proceeds from disposal of property,
plant and equipment 8 132
Capital expenditures (2,362) (1,285)
_____ _____
Net cash used by investing activities (2,354) (1,153)
_____ _____
Cash flows from financing activities:
Sale of treasury stock at public
offering - 7,953
Principal payments of long-term debt (2,000) -
Sale of common stock under stock
option plan 156 296
Purchase of common stock for the
treasury (4,018) (884)
Dividends declared and paid (1,669) (1,449)
_____ _____
Net cash provided (used) by financing
activities (7,531) 5,916
_____ _____
Net increase (decrease) in cash and
cash equivalents (3,068) 8,428
Cash and cash equivalents at beginning
of period 11,124 1,039
_____ _____
Cash and cash equivalents at end of
period $8,056 $9,467
===== =====
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 233 $ 317
Income taxes 3,778 3,626
_____ _____
$4,011 $3,943
===== =====
<FN>
SHELBY WILLIAMS INDUSTRIES, INC.
June 30, 1998
Item 1. Financial Statements
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 is being held for sale and one
is in the process of being liquidated. It is expected the plan will be
completed by July 1999. As a result, during the second quarter 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 estimated losses prior to
disposal, which is summarized below (dollars in thousands):
Reduction of inventory value $ 4,706
Reduction of property to net realizable value 2,198
Reduction of accounts receivable and prepaids value 629
Other liabilities/reserves 1,445
Accrual for losses through disposition 720
________
Total 9,698
Income tax benefit 2,617
________
$ 7,081
========
The operating results of the discontinued operations are summarized
as follows (dollars in thousands, except for per share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
___________________ __________________
Net sales $3,447 $5,690 $6,981 $11,053
Income (loss) before income
taxes (135) 412 (77) 952
Income taxes (benefit) (51) 155 (29) 362
Net income (loss) (84) 257 (48) 590
Net income (loss) per
share (basic and diluted) (0.01) 0.03 (0.01) 0.07
The net assets of the discontinued operations at June 30, 1998 and
December 31, 1997 are as follows (in thousands):
1998 1997
__________ __________
Current assets $ 5,892 $ 9,947
Current liabilities, including
reserve for estimated losses
through disposal date 3,393 1,090
______ ______
Net assets of discontinued
operations, current $ 2,499 $ 8,857
====== ======
Property, net $ 2,335
______
Net assets of discontinued
operations, non-current $ 2,335
======
As a result of the Board approval of the plan, 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 are estimated and may be
considered "forward-looking statements" within the Federal Securities
Laws. Actual results may be materially different from these estimates
and will depend on the amounts realized in the sale and liquidation
process.
The attached unaudited statements include all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for
the interim periods presented. Except as indicated above, all such
adjustments are of a normal recurring nature. The statements are
as follows:
Consolidated Statements of Income for three months and for six months
ended June 30, 1998 and 1997.
Consolidated Balance Sheets at June 30, 1998 and December 31,
1997.
Consolidated Statements of Cash Flows for six months ended
June 30, 1998 and 1997.
Item 2. Managements' Discussion and Analysis of Financial Condition
and Results of Operations
Material Changes in Financial Condition
The Company recorded an after-tax charge in the second quarter
totaling approximately $7.1 million, or $0.77 per share, for the planned
discontinuation of its outsourced textile and floor coverings distribution
operations. These operations have not made a contribution to profits in
1998, and management believes they offer limited upside potential. See
Item 1 above for details.
During the second quarter of 1998, the Company purchased 89,000
shares of its common stock for $1.4 million at an average repurchase price
of $15.75 per share. These repurchases were made to use in connection
with the Company's employee benefit plans and for other proper corporate
purposes. The Board of Directors has authorized repurchase of an
additional 188,000 shares. The Company may purchase these shares from
time to time in the future, with purchase decisions to be dependent on
market conditions and other factors, in the open market or privately
negotiated transactions.
Capital expenditures during the six months ended June 30,
1998, amounted to $2.4 million, of which $0.3 million was for
installation of a state-of-art powder coating system completed in
March 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 current ratio at June 30, 1998 stood at
2.8-to-one.
The Company does not have a significant amount of date-depen-
dent 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 and is in the process
of modifying or replacing 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 in-
curred about $90,000 of this cost of which $55,000 is for capital
items.
The project is proceeding according to plan and 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 made and being made, the Year 2000 Issue will not pose
significant operational problems for its computer systems. However,
if such modification and conversions 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 un-
certainties.
Material Changes in Results of Operations
Net sales for the quarter ended June 30, 1998 totaled $40.8
million compared to $39.7 million in the second quarter of 1997. Net
income from continuing operations totaled $2.7 million, a 9.8 percent
increase over $2.5 million in the second quarter of 1997. Earnings
per share from continuing operations of $0.29 for the second quarter
increased 11.5 percent from $0.26 in the same period in 1997. Pre-tax
income from continuing operations increased 15.7 percent over the same
quarter last year. The Company's gross margin widened to 24.3 percent
from 23.1 percent, driven by better plant utilization and manufacturing
efficiencies. Operating margin increased to 10.3 percent from 9.0
percent.
Due to strong demand from hotel refurbishing and new
construction activity, net sales for the first half of 1997 increased
4.1 percent to $79.3 million from $76.2 million in the same period
of 1997. This increase was due almost entirely to volume increases.
Net income from continuing operations was $4.8 million, an 11.3
percent increase over $4.3 million, while earnings per share from
continuing operations of $0.52 for the first six months of 1998
increased 10.6 percent from $0.47 in the same period of 1997. Gross
margin for the first half increased to 23.3 percent of sales compared
to 22.6 percent in the first six months of 1997. Almost all of this
percentage increase was attributable to the improved margin for the
second quarter indicated above.
The Company's backlog of unshipped orders for continuing
operations at June 30, 1998, increased 21.5 percent, to approximately
$39.6 million, compared to $32.6 million a year earlier.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of stockholders held May 5, 1998, the
following matters were voted:
Election of directors:
Name Vote For Vote Withheld
____ ________ _____________
Robert P. Coulter 8,583,463 12,777
William B. Kaplan 8,583,463 12,777
Robert E. Lowe 8,583,473 12,767
Douglas A. Parker 8,583,473 12,767
Manfred Steinfeld 8,583,463 12,777
Paul N. Steinfeld 8,583,385 12,855
Trisha Wilson 8,583,473 12,767
Approval of independent auditors:
FOR: 8,588,032 AGAINST: 6,027 ABSTAIN: 2,181
No broker non-votes were recorded.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27.1 Financial Data Schedule (EDGAR only).
27.2 Financial Data Schedule-Restated (EDGAR only).
27.3 Financial Data Schedule-Restated (EDGAR only).
b. Reports on Form 8-K
No reports have been filed on Form 8-K during this quarter.
SHELBY WILLIAMS INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirement 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.
SHELBY WILLIAMS INDUSTRIES, INC.
(Registrant)
August 4, 1998 S/Robert P. Coulter
________________________________
Robert P. Coulter
President and Director
(Principal Operating Officer)
August 4, 1998 S/Sam Ferrell
________________________________
Sam Ferrell
Vice President of Finance, Treasurer
and Assistant Secretary
(Principal Financial Officer)