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 September 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 November 4, 1998, there were 8,930,517 shares of registrant's
common stock outstanding.
PART I - FINANCIAL INFORMATION
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Statements of Income
Three Months and Nine Months Ended
September 30, 1998 and 1997
(Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
________ ________ ________ _______
Net sales $42,387 $39,608 $121,700 $115,813
Cost of goods sold 32,292 30,173 93,113 89,139
______ ______ ______ ______
Gross profit 10,095 9,435 28,587 26,674
Selling, general and
administrative
expenses 5,789 5,637 16,834 16,410
______ ______ ______ ______
4,306 3,798 11,753 10,264
Other deductions
(income):
Interest expense 97 162 330 479
Interest and dividend
income (106) (185) (466) (393)
Miscellaneous expense
(income) 20 (29) 27 (54)
______ ______ ______ ______
11 (52) (109) 32
______ ______ ______ ______
Income from continuing
operations before income
taxes 4,295 3,850 11,862 10,232
______ ______ ______ ______
Income taxes:
Current 1,550 1,259 4,314 3,240
Deferred 18 59 54 177
______ ______ ______ ______
1,568 1,318 4,368 3,417
______ ______ ______ ______
Income from continuing
operations 2,727 2,532 7,494 6,815
Discontinued operations:
Income (loss) from
discontinued operations,
net of taxes - 202 (48) 792
Loss on disposal of
discontinued operations,
net of taxes - - (7,081) -
______ ______ ______ ______
Net income $ 2,727 $ 2,734 $ 365 $ 7,607
====== ====== ====== ======
Income per share (basic
and diluted):
Continuing operations $ 0.30 $ 0.27 $ 0.82 $ 0.74
Income (loss) from
discontinued operations,
net of taxes - 0.02 (0.01) 0.09
Loss on disposal of
discontinued operations,
net of taxes - - (0.77) -
Net income $ 0.30 $ 0.29 $ 0.04 $ 0.83
______ ______ ______ ______
Weighted average number
of common shares
outstanding 8,991 9,348 9,139 9,148
====== ====== ====== ======
<FN>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
(Unaudited)
(Amounts in thousands, except per share data)
September 30, 1998 December 31, 1997
_______________ __________________
ASSETS
Current assets:
Cash and cash equivalents $ 3,809 $11,124
Accounts receivable, less
allowance for doubtful
accounts of $356 at
September 30, 1998 and
$325 at December 31,
1997 28,972 26,165
Inventories:
Raw materials 14,550 8,147
Work in process 3,423 4,978
Finished goods 5,403 4,643
______ ______
23,376 17,768
Prepaid expense 5,190 5,015
Net assets of discontinued
operations 2,291 8,857
______ ______
Total current assets 63,638 68,929
Net assets of discontinued
operations - 2,335
Excess of cost over net assets
of acquired company 153 160
Property, plant and equipment
at cost:
Land and land improvements 2,480 2,392
Buildings and leasehold
improvements 20,810 20,176
Machinery and equipment 26,036 22,720
Construction in progress 166 1,690
______ ______
49,492 46,978
Less accumulated
depreciation and
amortization 23,836 22,367
______ ______
25,656 24,611
Other assets 1,315 1,203
______ ______
$90,762 $97,238
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,858 $ 4,730
Customer deposits on
orders in process 5,960 4,225
Accrued liabilities 5,832 5,629
Income taxes 1,698 1,851
Current portion of long-
term debt 4,000 4,000
______ ______
Total current liabilities 25,348 20,435
Long-term debt - 3,000
Deferred income taxes 2,085 2,031
Stockholder's equity:
Common stock, $.05 par value;
authorized 30,000 shares;
issued 11,876 shares
(1997-11,848 shares) 593 592
Capital in excess of par value 10,128 9,837
Retained earnings 74,695 76,820
______ ______
85,416 87,249
Less common stock held in
treasury; 2,945 shares
at cost (1997-2,500) 22,087 15,477
______ ______
Total stockholders' equity 63,329 71,772
$90,762 $97,238
====== ======
<FN>
SHELBY WILLIAMS INDUSTRIES, INC.
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
(Amounts in thousands)
1998 1997
___________________________
Cash flows from operating activities:
Net income $ 365 $7,607
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,853 1,795
Provision for losses on accounts
receivable 201 91
Change in net assets of dis-
continued operations 8,901 (94)
Change in assets and liabilities:
Accounts receivable (3,008) (2,413)
Inventories (5,608) 1,550
Prepaid expenses (175) (811)
Accounts payable and accrued
liabilities 5,066 507
Income taxes payable (153) (918)
Increase in deferred taxes 54 177
Other (112) 191
_____ _____
Net cash provided by operating
activities 7,384 7,682
_____ _____
Cash flows from investing activities:
Proceeds from disposal of property,
plant and equipment 74 133
Capital expenditures (2,965) (2,558)
_____ _____
Net cash used by investing activities (2,891) (2,425)
_____ _____
Cash flows from financing activities:
Sale of treasury stock at public
offering - 7,953
Principal payments of long-term debt (3,000) -
Sale of common stock under stock
option plan 292 296
Purchase of common stock for the
treasury (6,610) (884)
Dividends declared and paid (2,490) (2,196)
_____ _____
Net cash provided (used) by financing
activities (11,808) 5,169
_____ _____
Net increase (decrease) in cash and
cash equivalents (7,315) 10,426
Cash and cash equivalents at beginning
of period 11,124 1,039
_____ _____
Cash and cash equivalents at end of
period $ 3,809 $11,465
===== =====
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 366 $ 474
Income taxes 4,447 4,493
_____ _____
$4,813 $4,967
===== =====
<FN>
SHELBY WILLIAMS INDUSTRIES, INC.
September 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 Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
___________________ __________________
Net sales $ - $5,920 $6,981 $16,973
Income (loss) before income
taxes - 292 (77) 1,244
Income taxes (benefit) - 90 (29) 452
Net income (loss) - 202 (48) 792
Net income (loss) per
share (basic and diluted) - 0.02 (0.01) 0.09
The net assets of the discontinued operations at September 30, 1998 and
December 31, 1997 are as follows (in thousands):
1998 1997
__________ __________
Current assets $ 5,594 $ 9,947
Current liabilities, including
reserve for estimated losses
through disposal date 3,303 1,090
______ ______
Net assets of discontinued
operations, current $ 2,291 $ 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 meaning of 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 nine months
ended September 30, 1998 and 1997.
Consolidated Balance Sheets at September 30, 1998 and December 31,
1997.
Consolidated Statements of Cash Flows for nine months ended
September 30, 1998 and 1997.
Item 2. Managements' Discussion and Analysis of Financial Condition
and Results of Operations
Material Changes in Financial Condition
During the third quarter of 1998, the Company purchased 182,000
shares of its common stock for $2.6 million at an average repurchase price
of $14.23 per share. These repurchases were made to use in connection
with the Company's employee benefit plans and for other proper corporate
purposes. On October 13, 1998, the Board of Directors authorized repurchase
of an additional 500,000 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 three months ended September 30,
1998, amounted to $.6 million, principally for automated machinery.
The current ratio at September 30, 1998 stood at 2.5-to-one.
Inventories increased during the nine months ended September 30,
1998, by 31.6 percent to $23.4 million. This was mainly due to a 21.1
percent increase in backlog of unshipped orders during the same period
and the timing of receipt of raw material as reflected in the $3.1
million increase in accounts payable. 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.
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 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 $135,000 of this cost of which $90,000 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 September 30, 1998 totaled $42.4
million compared to $39.6 million in the third quarter of 1997. This
increase was due almost entirely to volume increases. Net income from
continuing operations totaled $2.7 million, a 7.7 percent increase over
$2.5 million in the third quarter of 1997. Earnings per share from
continuing operations of $0.30 for the third quarter increased 11.1
percent from $0.27 in the same period in 1997. Pre-tax income from
continuing operations increased 11.6 percent over the same quarter
last year. Operating margin increased to 10.2 percent from 9.6
percent due primarily to improvement in selling, general and administrative
expense as a percent of sales.
Net sales for the first nine months of 1998 increased 5.1 percent
to $121.7 million from $115.8 million in the same period of 1997. Despite
ongoing economic difficulties in the Company's export market, its overall
business remains strong. Year-to-date export sales at September 30, 1998,
were running approximately $4.2 million, or 32 percent, below the same
period in 1997. The Company's position as a 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. Net income from continuing operations was
$7.5 million, a 10.0 percent increase over $6.8 million, while earnings
per share from continuing operations of $0.82 for the first nine months of
1998 increased 10.8 percent from $0.74 in the same period of 1997. Gross
margin for the period increased to 23.5 percent of sales compared to 23.0
percent in the first nine months of 1997.
The Company's backlog of unshipped orders for continuing
operations at September 30, 1998, was approximately $38.5 million, an
increase of 21.1 percent during the first nine months of 1998 or
11.3 percent from a year earlier.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
PART II - OTHER INFORMATION
Item 5. Other Information
The Securities and Exchange Commission has recently amended Rules
14a-4 and 14a-5 promulgated under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), in respect of the Company's exercise of dis-
cretionary voting authority in connection with annual shareholder meetings,
and in particular with respect to matters not submitted under the Share-
holder Proposal rule set forth in Rule 14a-8 under the 1934 Act.
Under the amended Rules, a company is permitted discretionary
voting authority in those instances in which the company did not have
notice of the matter by a date more than 45 days before the month and
day in the current year corresponding to the date on which the company
first mailed its proxy materials for the prior year's annual meeting of
shareholders, or by a date established by an overriding advance notice
provision in a company's articles of incorporation or bylaws. The
Company has not implemented such an advance notice provision. Accordingly,
in connection with the 1999 Annual Meeting of Stockholders of the Company,
the date after which notice of a stockholder proposal submitted outside the
processes of Rule 14a-8 under the 1934 Act is considered untimely is
February 9, 1999.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule (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)
November 4, 1998 S/Robert P. Coulter
________________________________
Robert P. Coulter
President and Director
(Principal Operating Officer)
November 4, 1998 S/Sam Ferrell
________________________________
Sam Ferrell
Vice President of Finance, Treasurer
and Assistant Secretary
(Principal Financial Officer)