UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 1, 1995
-------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________________________to_______________________
Commission file number 1-6853
SHAW INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1032521
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
616 E. WALNUT AVENUE, DALTON, GEORGIA 30720
- - ----------------------------------------------------- ------------------
(Address of principal executive offices)
(Zip Code)
(706) 278-3812
Registrant's telephone number, including area code
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last report
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 ______.
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: May 8, 1995 - 135,726,502 shares
<PAGE>
SHAW INDUSTRIES, INC.
FORM 10- Q
APRIL 1, 1995
I N D E X
PART I - FINANCIAL INFORMATION PAGE NUMBER
--------------------- -----------
Consolidated Balance Sheets - April 1, 1995
and December 31, 1994 3-4
Consolidated Statements of Income and Retained
Earnings -
For the Three Months Ended
April 1, 1995 and
April 2, 1994 5
Consolidated Statements of Cash Flows -
For the Three Months Ended
April 1, 1995 and
April 2, 1994 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-10
PART II - OTHER INFORMATION 11
-----------------
SIGNATURES 12
-2-
<PAGE>
PART 1 - ITEM ONE - FINANCIAL INFORMATION
SHAW INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
ASSETS
April 1, 1995 December 31, 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $42,425,000 $34,365,000
Accounts and notes receivable, less
allowance for doubtful accounts and
discounts of $16,628,000 and $17,925,000 355,216,000 350,128,000
Inventories -
Raw materials 248,655,000 236,579,000
Work-in-process 33,546,000 22,902,000
Finished goods 242,731,000 238,670,000
-------------- --------------
524,932,000 498,151,000
Prepaid expenses 44,422,000 39,585,000
-------------- --------------
TOTAL CURRENT ASSETS 966,995,000 922,229,000
PROPERTY, PLANT AND EQUIPMENT,
at cost:
Land and land improvements 26,937,000 29,329,000
Building and leasehold improvements 267,017,000 258,119,000
Machinery and equipment 866,969,000 842,975,000
Construction in progress 27,077,000 44,336,000
-------------- --------------
1,188,000,000 1,174,759,000
Less - Accumulated depreciation 539,407,000 518,581,000
-------------- --------------
648,593,000 656,178,000
GOODWILL 105,423,000 106,960,000
OTHER ASSETS 21,859,000 12,011,000
-------------- --------------
TOTAL ASSETS $1,742,870,000 $1,697,378,000
============== ==============
-3-
<PAGE>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
April 1, 1995 December 31, 1994
CURRENT LIABILITIES:
Current maturities of long-term debt $ 21,584,000 $ 40,898,000
Accounts payable 198,088,000 150,023,000
Accrued liabilities 129,056,000 113,970,000
-------------- --------------
TOTAL CURRENT LIABILITIES 348,728,000 304,891,000
LONG-TERM DEBT, less current maturities above 656,880,000 612,061,000
DEFERRED INCOME TAXES 45,454,000 45,972,000
OTHER LIABILITIES 12,880,000 12,179,000
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY - 9,250,000
SHAREHOLDERS' INVESTMENT:
Preferred Stock, 250,000 shares authorized, no shares issued - -
Common stock, no par, $1.11 stated value,
authorized 500,000,000 shares; issued and
outstanding: 135,724,502 at April 1,
1995 and 137,017,402 shares at December 150,655,000 152,090,000
31, 1994
Paid-in capital 99,710,000 118,635,000
Foreign currency translation adjustment 2,256,000 (1,815,000)
Retained earnings 426,307,000 444,115,000
-------------- --------------
Total Shareholders' Investment 678,928,000 713,025,000
TOTAL LIABILITIES AND SHAREHOLDERS' -------------- --------------
INVESTMENT $1,742,870,000 $1,697,378,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
SHAW INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
THREE MONTHS THREE MONTHS
ENDED ENDED
<S> <C> <C>
April 1, 1995 April 2, 1994
NET SALES $676,550,000 $620,126,000
COSTS AND EXPENSES:
Cost of sales 559,469,000 493,928,000
Selling expense 69,494,000 53,496,000
General and administrative expense 28,366,000 26,750,000
------------ -----------
657,329,000 574,174,000
------------ -----------
OPERATING INCOME 19,221,000 45,952,000
OTHER EXPENSE (INCOME):
Interest expense 10,925,000 6,615,000
Interest income (151,000) (192,000)
------------ -----------
Interest, net 10,774,000 6,423,000
Miscellaneous, net (940,000) (675,000)
------------ -----------
Total 9,834,000 5,748,000
------------ -----------
INCOME BEFORE INCOME TAXES 9,387,000 40,204,000
PROVISION FOR INCOME TAXES 4,107,000 14,879,000
------------ -----------
NET INCOME BEFORE EQUITY IN JOINT VENTURE
AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 5,280,000 25,325,000
EQUITY IN JOINT VENTURE (803,000) -
------------ -----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCCOUNTING CHANGE 4,477,000 25,325,000
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (less
applicable income taxes of $7,885,000) 12,077,000 -
------------ -----------
NET INCOME (LOSS) $ (7,600,000) $25,325,000
============ ===========
EARNINGS PER COMMON SHARE:
Income before cumulative effect of
accounting change $0.03 $0.17
Cumulative effect of accounting change (0.09) -
------------ -----------
Net Income (Loss) $(0.06) $0.17
============ ===========
RETAINED EARNINGS:
Beginning of period $444,115,000 $348,234,000
Add - net income (loss) (7,600,000) 25,325,000
Deduct - dividends paid 10,195,000 7,910,000
Deduct - adjustment in equity of joint venture 13,000 -
------------ -----------
End of period $426,307,000 $365,649,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
<TABLE>
SHAW INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS THREE MONTHS
(UNAUDITED) ENDED ENDED
<S> <C> <C>
April 1, 1995 April 2, 1994
OPERATING ACTIVITIES:
Net Income (Loss) $ (7,600,000) $25,325,000
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization 21,229,000 21,143,000
Provision for doubtful accounts 1,748,000 3,558,000
Cumulative effect of accounting change 12,077,000 -
Change in assets and liabilities:
Accounts receivable (24,029,000) (27,848,000)
Inventories (36,332,000) (54,629,000)
Prepaid expenses (10,849,000) (15,608,000)
Trade accounts payable 50,863,000 25,901,000
Other accrued liabilities 22,715,000 16,968,000
Deferred income taxes 24,000 2,827,000
Other, net (1,443,000) (2,712,000)
----------- -----------
Total Adjustments 36,003,000 (30,400,000)
----------- -----------
Net Cash Provided by (Used in)
Operating Activities 28,403,000 (5,075,000)
INVESTING ACTIVITIES:
Additions to property, plant and equipment (33,482,000) (42,908,000)
----------- -----------
Net Cash Used in Investing Activities (33,482,000) (42,908,000)
FINANCING ACTIVITIES:
Increase in long-term debt 43,694,000 (8,427,000)
Increase in short-term notes payable - 65,000,000
Dividends paid (10,195,000) (7,910,000)
Purchase and retirement of common stock (20,590,000) -
Proceeds from sale of stock 230,000 948,000
----------- -----------
Net Cash Provided by Financing Activities 13,139,000 49,611,000
NET INCREASE IN CASH 8,060,000 1,628,000
CASH AT BEGINNING OF PERIOD 34,365,000 32,739,000
----------- -----------
CASH AT END OF PERIOD $42,425,000 $34,367,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for -
Interest $10,162,000 $3,509,000
Income taxes $(2,010,000) $12,052,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<PAGE>
SHAW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995
(UNAUDITED)
---------------------------------------------------------------
1. The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information not misleading. These financial statements should be read
in conjunction with the financial statements and related notes contained in the
1994 Annual Report on Form 10-K. In the opinion of management, the financial
statements contain all adjustments necessary to present fairly the financial
position as of April 1, 1995 and the results of operations for the three months
then ended and cash flows for the three months then ended. These adjustments
were of a normal recurring nature, other than the accounting change described
below in note 4. The results of operations for the three months ended April 1,
1995 are not necessarily indicative of the results to be expected for the year
ending December 30, 1995.
The Company uses the last-in, first-out (LIFO) method of valuing
substantially all of its inventories in order to more properly match current
costs against current revenues, thereby reducing the effects of inflation on
earnings. If LIFO inventories were valued at current costs, the inventories
would have been $1,481,000 and $9,050,000 lower at April 1, 1995 and at April 2,
1994, respectively. Certain of the Company's physical inventories are taken on a
weekly, monthly or quarterly basis and the Company computes the LIFO inventory
amount on a quarterly basis after considering anticipated prices, quantities and
product mix as of year-end.
2. The weighted average number of shares used in computing earnings per
share for the three months ended April 1, 1995 and April 2, 1994 were as
follows:
Three Months Ended
April 1, 1995 April 2, 1994
Primary 136,031,579 * 145,302,546
Fully diluted 136,031,579 * 145,305,967
* The effect of common stock equivalents was antidilutive in the first
quarter of 1995 and is therefore not included in the weighted average number of
shares.
-7-
<PAGE>
3. On May 31, 1994, the Company entered ito an agreement to form a joint
venture with Grupo Industrial Alfa, S.A. de C.V. of Monterrey, Mexico, for the
manufacture, distribution and marketing of carpets, rugs and related products in
Mexico and South America. The Company acquired slightly over a 50 percent
interest in Terza, S.A. de C.V. and, accordingly, the subsidiary is included in
consolidation at December 31, 1994 and the results of operations of Terza were
included in the Company's financial statements from May 31, 1994 through
December 31, 1994. In the first quarter of 1995, the Company sold approximately
one percent of its stock in Terza, reducing its interest to 49.8 percent.
Therefore, beginning January 1, 1995, this investment is accounted for by the
equity method.
On January 9, 1995, the Company acquired through its wholly owned
subsidiary, Carpets International (U.K.) Plc, substantially all of the operating
assets of the Carpets Division of Coats Viyella Plc for approximately $29.4
million.
On March 1, 1995, the Company announced that its Mexican joint venture had
acquired some of the carpet manufacturing assets of Tapetes Luxor, S.A. de C.V.
and Corporacion Santa Rosa, S.A. de C.V. for approximately $13 million.
4. As of January 1, 1995, the Company changed the method of accounting for
sample costs from expensing sample costs that exceed the estimated net
realizable value when shipped to expensing that portion of sample costs as they
are produced. This change was made in recognition of an increasing number of
samples placed with customers that do not result in future sales and in order to
place more controls over the sample order process. The cumulative effect of the
change on prior years was to decrease the net income for the quarter ended April
1, 1995 by $12,077,000 ($.09 per share).
-8-
<PAGE>
SHAW INDUSTRIES, INC.
ITEM TWO-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition, Liquidity and Capital Resources
The Company's business, as well as the United States carpet industry in
general, is cyclical in nature and is significantly affected by general economic
conditions. The level of carpet sales tends to reflect fluctuations in consumer
spending for durable goods and, to a lesser extent, fluctuations in interest
rates and new housing starts. The Company's financial condition and results of
operations reflect the continuing stability of the domestic economy and the
recovering global economy. Of the 9.1 percent increase in net sales for the
first quarter of 1995 over 1994, domestic growth was 4.8 percent. The Company's
recent international acquisitions contributed the remaining sales growth in the
first quarter of 1995.
During the first quarter of 1995, working capital increased $929,000 and
cash and cash equivalents increased $8.1 million. The principal source of cash
was provided by operating activities of $28.4 million, reflecting primarily
depreciation and amortization of $21.2 million and the cumulative effect of an
accounting change of $12.1 million which was offset in part by a net loss of
$7.6 million. Cash from operating activities was used in part to fund increases
in inventories and receivables. Financing activities provided cash of $13.1
million. Additional long-term borrowings of $43.7 million exceeded purchases of
common stock of $20.6 million and the payment of cash dividends of $10.2
million. Investing activities consisted of cash used for purchases of property,
plant and equipment of $33.5 million.
The Company's liquidity remains strong. Effective use of capital and the
Company's ability to generate excess cash flows from operations has enabled it
to invest in technologies which reduce production costs, to generate margins
that exceed industry averages and to be a preeminent force in the carpet
industry. During the first quarter of 1995, accounts receivable and inventories
increased by 1.5 percent and 5.4 percent, respectively. These increases are
primarily attributable to the increase in sales and to international
acquisitions. The allowance for doubtful accounts and discounts decreased
slightly over levels at year-end. Accounts payable increased primarily as a
result of the timing of purchases.
Capital expenditures for incremental additions and modifications to plant
and equipment necessary to maintain the facilities in a modern state-of-the-art
condition were $33.5 million for the first quarter of 1995. Management
anticipates capital expenditures and capitalized lease obligations of
approximately $90 million during 1995 to maintain its facilities and to expand
and upgrade its manufacturing and distribution equipment to meet anticipated
increases in sales volume and to improve efficiency. These expenditures will be
funded through cash flow from operations and, if appropriate, through additional
sources of long-term capital. The Company believes it could expand its lines of
credit and long-term bank facilities, if necessary.
Beginning in early 1993 and continuing in 1994, the Company has expanded
its operations through acquisitions in Australia, the United Kingdom and Mexico.
In the first quarter of 1995 and 1994, international operations accounted for
approximately 14.0 percent and 10.5 percent of the Company's net sales,
respectively. Goodwill recorded as a result of the acquisitions totals a
cumulative amount of $67.5 million. As a result of its foreign acquisitions, the
Company has exposure to fluctuations in foreign currency exchange rates on its
intercompany payables and on certain other U.S. dollar denominated net
liabilities of its foreign subsidiaries. The Company may employ foreign exchange
contracts when, in the normal course of business, they are determined to
effectively manage and reduce such exposure. Net foreign currency exchange rate
fluctuation losses were approximately $733,000 for the first quarter of 1995.
Foreign currency exchange rate fluctuation gains and losses were not material
for the first quarter of 1994.
-9-
<PAGE>
Results of Operations
Three Months Ended April 1, 1995 Compared To Three Months ended April 2, 1994
Net sales increased $56,424,000, or 9.1 percent, to $676,550,000 in the
first quarter of 1995, primarily as a result of an increase in the volume of
shipments. Results for the 1995 first quarter included sales of $94,501,000
attributable to international acquisitions and the 1994 first quarter included
sales of $64,989,000 attributable to international acquisitions. Gross profit
margins as a percentage of net sales decreased 3.1 percent to 17.3 percent for
the first quarter of 1995 from 20.4 percent for the first quarter of 1994 as a
result of slightly higher raw material costs. Selling, general and
administrative expenses increased $17,614,000 or 22.0 percent in 1995 compared
to 1994, and increased 1.6 percent to 14.5 percent of net sales. With the
continuing aggressive efforts to increase sales in an increasingly competitive
sales environment, this increase in selling, general and administrative expenses
as a percentage of net sales occurred with no one category of expense
responsible for a significant portion of the increase. Interest expense, net,
increased $4,351,000 to $10,774,000 as a result of additional borrowings and
increased to 1.6 percent of net sales in 1995 compared to 1.0 percent in 1994.
As of January 1, 1995, the Company changed the method of accounting for sample
costs from expensing sample costs that exceed the estimated net realizable value
when shipped to expensing that portion of sample costs as they are produced.
This change was made in recognition of an increasing number of samples placed
with customers that do not result in future sales and in order to place more
controls over the sample order process. The cumulative effect of the change on
prior years was to decrease the net income for the quarter ended April 1, 1995
by $12,077,000, net of applicable tax benefit of $7,885,000 ($.09 per share).
Prior to the one time charge, net earnings were $4,477,000 compared to
$25,325,000 last year. The effective income tax rate was 43.8 percent in the
first quarter of 1995 compared to 37.0 percent in the first quarter of 1994.
This increased effective rate is primarily due to a lower effective tax benefit
from foreign operations.
-10-
<PAGE>
PART II - OTHER INFORMATION
ITEM ONE - LEGAL PROCEEDINGS
From time to time the Company is subject to claims and suits arising in the
course of its business. The Company is a defendant in certain litigation
alleging personal injury resulting from personal exposure to volatile organic
compounds found in carpet produced by the Company. The complaints seek
injunctive relief and unspecified money damages on all claims. The Company has
denied any liability. The Company believes that it has meritorious defenses and
that the litigation will not have a material adverse effect on the Company's
financial condition or results of operations. In June 1994, the Company and
several other carpet manufacturers received a grand jury subpoena from the
Antitrust Division of the United States Department of Justice relating to an
investigation of the industry. The Company believes that once this investigation
is completed, it will not have a material adverse effect on the Company's
financial condition or results of operations.
ITEM TWO - CHANGES IN SECURITIES
None
ITEM THREE - DEFAULTS UPON SENIOR SECURITIES
None
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM FIVE - OTHER INFORMATION
None
ITEM SIX - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits - Letter re change in accounting principle (Exhibit 18)
Financial Data Schedule (Exhibit 27)
(B) No reports on Form 8-K have been filed during the
fiscal quarter ended April 1, 1995.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements 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
SHAW INDUSTRIES, INC.
(The Registrant)
DATE: May 12, 1995 /s/ Robert E. Shaw
- - ----- ------------ ------------------
Robert E. Shaw
President and Chief Executive
Officer
DATE: May 12, 1995 /s/ William C. Lusk, Jr.
- - ----- ------------ ------------------------
William C. Lusk, Jr.
Senior Vice President and Treasurer
(Principal Financial Officer)
-12-
EXHIBIT 18
LETTER RE CHANGE IN ACCOUNTING PRINCIPLE
May 10, 1995
Management and Board of Directors
Shaw Industries, Inc.
P.O. Box 2128
Dalton, GA 30722
Dear Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling
for a letter from a registrant's independent accountants whenever there has been
a change in accounting principle or practice.
We have been informed that, as of January 1, 1995, the Company changed its
method of accounting for carpet samples from expensing sample costs that exceed
the estimated net realizable value when samples are shipped to expensing that
portion of sample costs as they are produced. According to the management of the
Company, this change was made in recognition of an increasing number of samples
placed with customers that do not result in future sales and in order to place
more controls over the sample order process.
A complete coordinated set of financial and reporting standards for
determining the preferability of accounting principles among acceptable
alternative principles has not been established by the accounting profession.
Thus, we cannot make an objective determination of whether the change in
accounting described in the preceding paragraph is to a preferable method.
However, we have reviewed the pertinent factors, including those related to
financial reporting, in this particular case on a subjective basis, and our
opinion stated below is based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is
to an acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
We have not audited the application of this change to the financial
statements of any period subsequent to December 31, 1994. Further, we have not
examined and do not expect to express any opinion with respect to your financial
statements for the three months ended April 1, 1995.
Very truly yours,
Arthur Andersen LLP
Atlanta, Georgia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the consolidated
balance sheet of Shaw Industries, Inc. and subsidiaries as of April 1, 1995 and
the related consolidated statements of income and cash flows for the quarter
ended April 1, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> APR-01-1995
<CASH> 42,425,000
<SECURITIES> 0
<RECEIVABLES> 371,844,000
<ALLOWANCES> 16,628,000
<INVENTORY> 524,932,000
<CURRENT-ASSETS> 966,995,000
<PP&E> 1,188,000,000
<DEPRECIATION> 539,407,000
<TOTAL-ASSETS> 1,742,870,000
<CURRENT-LIABILITIES> 348,728,000
<BONDS> 656,880,000
<COMMON> 150,655,000
0
0
<OTHER-SE> 528,273,000
<TOTAL-LIABILITY-AND-EQUITY> 1,742,870,000
<SALES> 676,550,000
<TOTAL-REVENUES> 676,550,000
<CGS> 559,469,000
<TOTAL-COSTS> 559,469,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,748,000
<INTEREST-EXPENSE> 10,774,000
<INCOME-PRETAX> 9,387,000
<INCOME-TAX> 4,107,000
<INCOME-CONTINUING> 5,280,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 12,077,000
<NET-INCOME> (7,600,000)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
