WinsLoew: 1997 Annual Report WinsLoew: Annual Report TO OUR FELLOW SHAREHOLDERS We are very pleased to report that 1997 was a record year for WinsLoew Furniture. Our efforts over the past three years have culminated in the successful restructuring of our Company into a strong organization with two high margin businesses: casual furniture and contract seating. Our goal is to leverage these core competencies by adding complementary product lines or companies. In 1997, income from continuing operations increased 28%, from $8.5 million, or $0.98 per share in 1996, to $10.9 million , or $1.44 per share. Adjusted for the 1997 sale of a non-strategic furniture business, net sales in 1997 increased approximately 14%, including a 20% increase in contract seating products. WinsLoew's gross margin in 1997 was 36.1%, compared to 35.6% in 1996, the result of improved margins in both casual furniture and contract seating. Selling, general and administrative expenses as a percentage of net sales declined from 18.8% in 1996 to 17.9% in 1997, reflecting the Company's continuous cost improvement program. Interest expense decreased $0.8 million for the year, reflecting higher cash flows from improved operating performance and the sale of non-strategic assets. The Company reduced its debt during 1997 from $40.7 million at December 31, 1996, to $16.4 million at December 31, 1997. Going forward, our strategic operating plan is focused on revenue growth and improved profitability. In casual furniture (Winston, Winston International and Texacraft), this strategy includes: increasing account penetration, broadening distribution channels, designing new products, and expanding Winston International, all with the goal to strengthen off-season markets. Specifically, we introduced three new products in the Fall of 1997: wrought iron home accents*nesting tables, planters and etageres, as well as casual furniture covers for outdoor protection and a line of indoor barstools. All three products were well received by dealers in their initial introduction. We are hopeful these products will enjoy good retail sales to consumers in the 1998 season. This program will reduce seasonality, as well as strengthen the Company's relationship with its traditional distribution network of specialty stores. In addition, we intend to expand our traditional account base by developing new channels to market. In contract seating (Loewenstein, Gregson), our strategic operating plan includes: expanding our lodging business, creating new product designs, and continuing to market our custom design service capabilities and private label program (for national office systems manufacturers). Specifically, we have strengthened our sales organization by adding experienced sales professionals to develop our burgeoning hotel/motel business. We expect that this business will provide the basis for continued growth in 1998. To meet anticipated demand, we are exploring additional manufacturing capacity for our Gregson facility in Liberty, North Carolina. In an effort to deepen the penetration of our customer base and to complement our growing presence in contract seating, we increased our product offerings in 1997 to include a line of occasional tables and lounge seating. Initial sales have been encouraging. This strategy may also include the acquisition of a table manufacturer to accelerate our penetration of the segment. The Company completed its restructuring program, begun in early 1995, by disposing of its Lyon-Shaw casual furniture unit in August 1997 and by announcing its intent to sell its ready-to-assemble ("RTA") operations in December 1997. These operations did not make a meaningful contribution to long-term growth and were inconsistent with our strategic objective to develop high margin businesses in casual furniture and contract seating. Cash proceeds from the disposition of the RTA operations in combination with anticipated cash flow are expected to eliminate the Company's long term indebtedness in 1998. In the fourth quarter of 1997, in connection with the disposal of the RTA operations, the Company recorded a pre-tax non-cash charge totaling $12.4 million, or $1.08 per share, net of taxes. The fourth quarter charge included a write-down of $3.9 million for a reduction of goodwill and $8.5 million for an increase in reserves. 0ur Board of Directors recently authorized the repurchase of an additional 0.2 million shares, making a total of approximately 1.0 million outstanding shares authorized for repurchase. Through March 1998, the Company has repurchased 1.2 million shares for a total cost of $7.9 million. Our strategy objective may be expressed simply as, "Growth in sales and growth in earnings". To help achieve this goal, we have embarked upon an aggressive acquisition strategy to invest in complimentary product lines and companies in casual and contract seating. We are very optimistic about WinsLoew's future. We believe that the combination of strategic initiatives, described above, and the Company's continuous cost improvement program will provide favorable operating comparisons in 1998. CASUAL FURNITURE WinsLoew designs, manufactures and distributes residential and contract casual furniture through its operating divisions: Winston, Texacraft and Winston International. WinsLoew's casual products include chairs, chaise lounges and tables constructed of extruded and tubular aluminum with some pieces combining both extruded and cast aluminum components. Additionally, WinsLoew imports and distributes wrought iron and cast aluminum products manufactured domestically and by offshore vendors. The furniture collections are available in a wide variety of frame colors, fabrics and vinyl strapping. During 1997, the Company introduced three new products to help offset the seasonality inherent in the outdoor casual furniture business. The first of these was a line of aluminum interior bar stools manufactured in Haleyville, Alabama. The second product was wrought iron home accent pieces. These products are imported and distributed through Winston International and consist of bakers racks, plant stands and nested occasional tables. The last new product introduced in 1997 was outdoor furniture covers. These covers are constructed of reinforced vinyl designed to protect Winston furniture from the harshness of outdoor exposure. The covers handsomely bear the Winston logo. Covers are designed to protect all Winston outdoor furniture pieces. The casual division's net sales grew approximately 7.6%, from $47.1 million in 1996 to $50.7 million in 1997, after adjusting for the sale of Lyon-Shaw. Industry sources estimate that the casual furniture market grew very little and in fact may have declined during 1997; hence, the performance of this division is excellent when considered in this light. Casual products accounted for approximately 49% of WinsLoew's revenue in 1997. Residential Products WinsLoew's residential casual products are sold under the Winston and Winston International brand names. Winston is located in Haleyville, Alabama, with 185,000 square feet comprising the aluminum manufacturing facility, upholstery sewing facility and warehouse for Winston International product. In addition, Winston leases 12,000 square feet of showroom space in Chicago at the Merchandise Mart. Winston International's warehouse consists of 20,000 square feet and is used primarily for storage of its imports. These imported products currently include a line of cast aluminum outdoor furniture and wrought iron home accent pieces. Products are marketed through 30 independent sales representatives to approximately 800 accounts that include specialty patio stores, furniture stores and national retail chains. The approximate retail price for a Winston table and four chairs ranges from $699 to $1,999. Contract Products WinsLoew's casual contract products are marketed under the Texacraft brand name. Texacraft is located in Houston, Texas, in an 89,500 square foot facility that includes all operations under one roof. Texacraft manufactures restaurant furniture, outdoor seating and site furnishings. Contract goods are marketed directly through Texacraft, as well as through independent sales representatives. Customers include apartment developers, hospitality providers and municipal governments. Competitive Strengths and Strategic Plan WinsLoew's strength is in its ability to deliver high quality, innovatively styled products on time and at competitive prices. During the retail season, Winston offers its dealers a quick ship program on all products, all made-to- order. Winston's residential products are introduced each July at its private summer market, prior to the September National Casual Furniture Market in Chicago. WinsLoew's strategic plan for growth of casual product sales will continue to emphasize the specialty patio store market for residential products and will broaden the residential distribution with new channels for this core product. WinsLoew will maintain its market strength with newly designed products and continue to expand the Winston International product line offering. The Company is continuing to explore off-season markets and products to reduce the seasonality of the casual business. Management will also consider attractive acquisition opportunities in the casual market. CONTRACT SEATING WinsLoew designs, assembles and distributes contract seating products through its operating divisions: Loewenstein and Gregson. WinsLoew's contract seating products include wood, metal and upholstered chairs, loveseats and sofas. Metal chairs are available in chrome or a wide variety of powder coat finishes. Wood frames are produced from a variety of species and are purchased as completed frames or in component parts that are assembled. Wood frames are assembled in a wide variety of standard colors, with custom finishes also available. Frames can be upholstered in a broad array of catalog fabrics, vinyls or leathers, or a customer may specify their own choice of materials. WinsLoew ensures that its contract seating products provide both superior structural integrity and aesthetics through its adherence to strict manufacturing and quality control standards. During the past two years, the Company has continued to aggressively expand its catalog offering with the introduction of lounge, executive, swivel and metal stack chairs. Additionally, Loewenstein offers a selection of tables for the restaurant and hospitality markets, along with training, folding and occasional tables. WinsLoew's contract seating products are sold in the commercial market and are generally made-to-order for a broad customer base, which includes architectural design firms, office furniture dealers, restaurants and lodging chains, universities and government installations. Products are sold through independent sales organizations. Net sales of contract seating products increased 20% to $58.4 million in 1997 from $48.6 million in 1996. The primary reason for this increase is due to the increase in lodging industry demand and strong increases in the Company's core product sales to the office furniture market. Contract seating products accounted for approximately 51% of WinsLoew's revenue in 1997. Loewenstein is located in Pompano Beach, Florida, in a 115,000 square foot facility that comprises the office and manufacturing operations. Loewenstein also leases space in the Merchandise Mart in Chicago. The primary operations at the Florida facility include assembly, glue-up, sanding, finishing, upholstery and packaging. Loewenstein has improved the consistency and speed of its finishing operation by using a state-of-the-art conveyorized paint line with electrostatic spray guns and an ultraviolet drying system. Gregson is located in Liberty, North Carolina, in buildings comprising 126,000 square feet. These buildings house offices and the Company's manufacturing facilities. During 1997, the Company re-engineered the layout of this facility in order to increase capacity and improve efficiencies. This project was substantially complete at year end, and WinsLoew was in the process of upgrading the information systems, hardware and software to provide for future growth. Competitive Strengths and Strategic Plan WinsLoew's strength lies in its ability to provide extensive customer service and product training programs for its representatives and customers. During 1997 and early 1998, the Company installed a state-of-the-art telecommunications system to provide a higher level of customer service. The Company's quick ship program, private label program and custom design services are also key to its competitive strength. WinsLoew's strategic plan for growth of contract seating product sales will continue to emphasize both the Company's core and lodging businesses. In order to grow its core business, WinsLoew will continue to introduce new products and promote its custom design capabilities. Management will also consider attractive acquisition opportunities in the contract seating market. INVESTOR INFORMATION Annual Meeting of Shareholders The Annual Meeting of Shareholders of WinsLoew Furniture, Inc., will be held on Tuesday, June 2, 1998, at 9:00 a.m. at the Grand Bay Hotel, 2669 South Bayshore Drive, Miami, Florida 33133. A formal notice of the meeting, together with a Proxy Statement and a Form of Proxy, will be mailed to each shareholder. Policy on Public Disclosure WinsLoew Furniture is committed to a policy of complete and timely disclosure of fundamental information relevant to the Company. The Company recognizes the importance of communicating on a consistent basis with the financial community, individual investors and the news media, and it is WinsLoew*s policy to do so with candor and dispatch. Investor Inquiries and SEC Reports The current financial information of WinsLoew Furniture has been posted online. This includes news releases, Forms 10-Q, Form 10-K and parts of the annual report. You may obtain this information on the Internet World Wide Web system at the following address: http://www.cfonews.com/wlfi; or by dialing direct by modem to (718) 279-3590; or by sending E-mail to rhurwitz@trivest.com. General inquiries or requests for corporate and SEC materials may be directed to: A. Richard Hurwitz Vice President, Corporate Communications WinsLoew Furniture, Inc. 2665 South Bayshore Drive Suite 800 Miami, Florida 33133 (305) 858-2200 (305) 285-0102 CORPORATE DIRECTORY Board of Directors Earl W. Powell Chairman of the Board President and Chief Executive Officer Trivest, Inc. Private Investment Firm Bobby Tesney President and Chief Executive Officer William H. Allen, Jr. Vice Chairman NationsBank South Commercial Bank Peter C. Brockway Managing Partner Brockway, Moran & Partners, Inc. Private Investment Firm Henry C. Cheek Retired Chief Executive Officer U.S. Industries Furniture Group Diversified Holding Company Phillip T. George, M.D. Chairman, Trivest, Inc. Private Investment Firm M. Miller Gorrie President Brasfield & Gorrie, Inc. Diversified General Contractor William F. Kaczynski Jr. Senior Vice President Trivest, Inc. Private Investment Firm Peter W. Klein Managing Director, Senior Vice President, General Counsel and Secretary Trivest, Inc. Private Investment Firm James S. Smith President Arnold D. Frese Foundation Private Charitable Foundation Sherwood M. Weiser Chairman and Chief Executive Officer CHC International, Inc. Hotel and Casino Management Corporate Officers Earl W. Powell Chairman of the Board Bobby Tesney President and Chief Executive Officer Vincent A. Tortorici, Jr. Vice President and Chief Financial Officer Stephen C. Hess Executive Vice President, Casual Furniture R. Craig Watts Executive Vice President, Contract Seating A. Richard Hurwitz Vice President, Corporate Communications Marilyn D. Kuffner Secretary Registrar and Transfer Agent American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 Independent Auditors Ernst & Young LLP 1901 6th Avenue North Suite 1900 Birmingham, Alabama 35203 Ends.