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 September 27, 1997
----------------------------------------
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)
Registrant's telephone number, including area
code (706) 278-3812
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check |X|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: October 31, 1997 - 134,938,065 shares
<PAGE>
SHAW INDUSTRIES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBERS
--------------------- ------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 27, 1997
and December 28, 1996 .................................... 3-4
Condensed Consolidated Statements of Income and Retained
Earnings - For the Three Months Ended
September 27, 1997 and September 28, 1996 ...... 5
Condensed Consolidated Statements of Income and Retained
Earnings - For the Nine Months Ended
September 27, 1997 and September 28, 1996 ............... 6
Condensed Consolidated Statements of Cash Flows -
For the Nine Months Ended September 27, 1997
and September 28, 1996 .......................... 7
Notes to Condensed Consolidated Financial Statements ..... 8-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ......... 10-12
Item 3. Quantitative and Qualitative Disclosure about Market Risks 12
PART II - OTHER INFORMATION 12-13
SIGNATURES 14
2
<PAGE>
PART 1 - ITEM ONE - FINANCIAL INFORMATION
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS September 27, December 28,
1997 1996
----------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents ................... $ 28,810 $ 49,581
----------- -----------
Accounts receivable, less
allowance for doubtful accounts and
discounts of $18,968 and $16,667 .......... 439,454 393,983
----------- -----------
Inventories -
Raw materials ............................. 270,485 251,262
Work-in-process ........................... 29,957 26,070
Finished goods ............................ 301,481 279,453
----------- -----------
601,923 556,785
----------- -----------
Other current assets ........................ 88,673 81,056
----------- -----------
TOTAL CURRENT ASSETS .......... 1,158,860 1,081,405
----------- -----------
PROPERTY, PLANT AND EQUIPMENT,
at cost:
Land and land improvements .................. 31,522 29,584
Buildings and leasehold improvements ........ 315,844 293,072
Machinery and equipment ..................... 998,246 969,601
Construction in progress .................... 52,872 45,289
----------- -----------
1,398,484 1,337,546
Less - Accumulated depreciation and
amortization ......................... (738,507) (682,405)
----------- -----------
659,977 655,141
----------- -----------
GOODWILL, net ................................ 263,401 212,398
----------- -----------
INVESTMENT IN JOINT VENTURE .................. 19,812 18,302
----------- -----------
OTHER ASSETS ................................. 18,109 17,152
----------- -----------
TOTAL ASSETS .................. $ 2,120,159 $ 1,984,398
=========== ===========
3
<PAGE>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
September 27, December 28,
1997 1996
----------- ------------
(UNAUDITED)
CURRENT LIABILITIES:
Notes payable ............................... $ 12 $ 35,084
Current maturities of long-term debt ........ 16,590 17,431
Accounts payable ............................ 192,183 195,347
Accrued liabilities ......................... 171,319 163,199
----------- -----------
TOTAL CURRENT LIABILITIES .............. 380,104 411,061
----------- -----------
LONG-TERM DEBT, less current maturities ...... 940,771 825,280
----------- -----------
DEFERRED INCOME TAXES ........................ 61,670 63,453
----------- -----------
OTHER LIABILITIES ............................ 13,919 12,893
----------- -----------
SHAREHOLDERS' INVESTMENT:
Common stock, no par, $1.11 stated value,
authorized 500,000,000 shares; issued and
outstanding: 134,619,189 shares at
September 27, 1997 and 132,772,548 shares
at December 28, 1996 ....................... 149,428 147,379
Paid-in capital ............................. 92,484 72,335
Cumulative translation adjustment ........... 1,647 3,058
Retained earnings ........................... 480,136 448,939
----------- -----------
TOTAL SHAREHOLDERS' INVESTMENT ......... 723,695 671,711
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT ........................... $ 2,120,159 $ 1,984,398
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
September 27, September 28,
1997 1996
----------- ------------
NET SALES .................................... $ 922,997 $ 881,760
COSTS AND EXPENSES:
Cost of sales .............................. 686,762 673,602
Selling, general and administrative ........ 177,445 155,097
Pre-opening expenses, retail operations .... 578 3,354
Interest expense, net ...................... 15,795 10,347
Other expense(income), net ................. 1,286 (1,003)
----------- -----------
INCOME BEFORE INCOME TAXES ................... 41,131 40,363
PROVISION FOR INCOME TAXES ................... 17,048 17,049
----------- -----------
INCOME BEFORE EQUITY IN INCOME OF JOINT
VENTURE ..................................... 24,083 23,314
EQUITY IN INCOME OF JOINT VENTURE ............ 1,252 865
=========== ===========
NET INCOME ................................... $ 25,335 $ 24,179
=========== ===========
DIVIDENDS PAID PER COMMON SHARE .............. $ 0.075 $ 0.075
=========== ===========
EARNINGS PER COMMON SHARE:
Primary and fully diluted basis - .......... $ 0.19 $ 0.18
=========== ===========
RETAINED EARNINGS:
Beginning of period ........................ $ 464,897 $ 447,753
Add - net income ........................... 25,335 24,179
Deduct - dividends paid .................... (10,096) (10,273)
----------- -----------
End of period .............................. $ 480,136 $ 461,659
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
September 27, September 28,
1997 1996
----------- ------------
NET SALES .................................... $ 2,646,882 $ 2,325,593
COSTS AND EXPENSES:
Cost of sales .............................. 1,973,565 1,815,530
Selling, general and administrative ........ 528,935 372,689
Pre-opening expenses, retail operations .... 3,521 5,163
Nonrecurring charges ....................... -- 29,139
Interest expense, net ...................... 44,865 30,046
Other (income), net ........................ (4,817) (2,358)
----------- -----------
INCOME BEFORE INCOME TAXES ................... 100,813 75,364
PROVISION FOR INCOME TAXES ................... 42,070 41,021
----------- -----------
INCOME BEFORE EQUITY IN INCOME OF JOINT
VENTURE ..................................... 58,743 34,343
EQUITY IN INCOME OF JOINT VENTURE ............ 2,571 2,351
=========== ===========
NET INCOME ................................... $ 61,314 $ 36,694
=========== ===========
DIVIDENDS PAID PER COMMON SHARE .............. $ 0.225 $ 0.225
=========== ===========
EARNINGS PER COMMON SHARE:
Primary and fully diluted basis ............ $ 0.46 $ 0.27
=========== ===========
RETAINED EARNINGS:
Beginning of period ........................ $ 448,939 $ 455,663
Add - net income ........................... 61,314 36,694
Deduct - dividends paid .................... (30,117) (30,698)
----------- -----------
End of period .............................. $ 480,136 $ 461,659
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS NINE MONTHS NINE MONTHS
(UNAUDITED AND IN THOUSANDS) ENDED ENDED
September 27, September 28,
1997 1996
------------- -------------
OPERATING ACTIVITIES:
Net income .................................. $ 61,314 $ 36,694
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ............. 70,152 69,454
Provision for doubtful accounts ........... 7,510 8,154
Deferred income taxes ..................... (4,060) 3,782
Nonrecurring charges ...................... -- 29,139
Other, net ................................ (27,767) (6,696)
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable .................. (28,258) (27,366)
Inventories .......................... (31,351) (2,187)
Other current assets ................. (3,237) (24,626)
Accounts payable ..................... (19,165) 35,020
Accrued liabilities .................. 1,952 14,187
----------- -----------
Total adjustments .................. (34,714) 98,861
----------- -----------
Net cash provided by operating
activities ............................... 27,090 135,555
----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment .. (60,279) (61,545)
Acquisitions of business assets ............. (28,926) (68,006)
----------- -----------
Net cash used in investing activities ..... (89,205) (129,551)
----------- -----------
FINANCING ACTIVITIES:
Decrease in notes payable ................... (39,381) --
Increase in long-term debt .................. 110,546 66,649
Dividends paid .............................. (30,117) (30,698)
Purchase and retirement of common stock ..... -- (22,759)
Proceeds from exercise of stock options ..... 296 784
----------- -----------
Net cash provided by financing
activities .............................. 41,344 13,976
----------- -----------
NET INCREASE (DECREASE)IN CASH AND CASH
EQUIVALENTS ................................ (20,771) 19,980
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .................................. 49,581 31,453
=========== ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD ... $ 28,810 $ 51,433
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
---------------------------------------------------------------
1. Basis of Presentation
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
Company's 1996 Annual Report on Form 10-K. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments necessary to
present fairly the Company's financial position, results of operations and cash
flows at the dates and for the periods presented. Interim results of operations
are not necessarily indicative of the results to be expected for a full year.
Certain prior period amounts have been reclassified to conform with the current
period presentation.
2. Inventories
The Company uses the last-in, first-out (LIFO) method of valuing
substantially all of its domestic inventories. If LIFO inventories were valued
at current costs, the inventories would have been $4,454,000 and $1,643,000
lower at September 27, 1997 and December 28, 1996, respectively. The Company's
foreign inventories and certain of its finished goods inventories, representing
25.8 percent of total inventories, are valued at the lower of first-in,
first-out (FIFO) cost or market.
3. Long-term Debt
In March 1997, the Company completed a new domestic revolving credit
facility which provides for borrowings of up to $900,000,000 and expires in
March 2002. The borrowings bear interest at variable rates equal to the London
Interbank Offered Rate (LIBOR) plus margins ranging from 0.150 percent to 0.475
percent, depending on the Company's consolidated funded debt to earnings ratios,
as defined. Fees associated with the domestic revolving credit agreement include
a facility fee on the committed amount ranging from 0.10 percent 0.15 percent.
The LIBOR-based rate at September 27, 1997 was 6.16 percent and borrowings
outstanding under this new facility totaled $778,000,000.
4. Acquisitions
During the nine months ended September 27, 1997, the Company acquired G & S
Investments, Inc. and affiliates collectively doing business as the Carpet
Exchange; Walters Carpet One; Sun Control Tile, Co., doing business as Baker
Bros.; Circle Floors, Inc.; Plywood Paneling, Inc.; The Carpet Group, Inc. and
several other residential retailers and commercial contractors for cash and
common stock totaling $53.0 million and resulting in goodwill of $39.7 million
as part of its continuing retail acquisition strategy which commenced in
December 1995.
5. Long-Lived Asset and Goodwill Impairment
The Financial Accounting Standards Board issued SFAS NO. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which establishes, among other things, accounting standards for the
impairment of long-lived assets and certain identifiable intangibles. The
Company adopted the new standard effective December 31, 1995 and in connection
with management's review of the Company's international operations in March
1996, management determined that certain of its international production
equipment would not provide sufficient cash flows to recover the carrying value
of such equipment and related goodwill. As a result, the Company recorded
nonrecurring charges of $29,139,000 ($26,519,000, net of tax benefit, or $.19
per share for the first quarter and $.19 for the first nine months) in March
1996 for the reduction of the carrying value of certain goodwill and property,
plant and equipment at its international operations related to the adoption and
a provision for the disposal of other assets.
8
<PAGE>
6. Transfers and Servicing of Financial Assets and Extinguishment of Liabilities
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities". SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996 and is applied prospectively.
The Company anticipates that the adoption of this statement will not have a
material effect on the financial statements.
7. Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, " Earnings Per Share" which
specifies the computation, presentation and disclosure requirements for earnings
per share. The Company will be required to adopt SFAS No. 128 in the fourth
quarter of 1997. All prior period earnings per share data will be restated to
conform with the provision of SFAS No. 128. Based on a preliminary evaluation of
this Standards' requirements, the Company does not expect the per share amounts
reported under SFAS No. 128 to be materially different from those calculated and
presented under Accounting Principles Board Opinion No. 15.
Earnings per share of $61,314,000, or $0.46 per share, for the nine months
ended September 27, 1997 include a gain on the sale of fixed assets of
$3,696,000, net of income taxes, or $0.03 per share.
8. Derivative Transactions
The Company uses interest rate swaps to fix interest rates on current and
anticipated borrowings to reduce exposure to interest rate fluctuations. Under
existing accounting literature, these interest rate swaps are accounted for as
hedging activities. The Company may also employ foreign currency exchange
contracts when, in the normal course of business, they are determined to
effectively manage and reduce foreign currency exchange fluctuation risk. At
September 27, 1997, the Company had no material foreign currency exchange
contracts outstanding.
To qualify as a hedge, the item to be hedged must expose the Company to
interest rate risk and the related contract must reduce that exposure and be
designated by the Company as a hedge.
The net cash paid or received on interest rate hedges is included in
interest expense. Gains or losses on the termination of hedges are deferred and
recognized in interest over the period covered by the interest rate hedge.
The Company does not enter into financial derivatives for speculative or
trading purposes.
9
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
ITEM TWO-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
GENERAL
The Company's business, as well as the U.S. carpet industry in general, is
cyclical in nature and is significantly affected by general economic conditions.
The level of domestic 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 international operations are also
impacted by the economic climates in the markets in which they operate
(primarily the United Kingdom, Australia and Mexico). Sales prices and demand
for the Company's domestic wholesale manufacturing business declined slightly in
1996 with the decision in December 1995 to enter the residential retail and
commercial contractor business, while margins improved. During the first nine
months of 1997, demand for the Company's domestic wholesale manufacturing
business improved over that of the first nine months of 1996, and margins were
comparable. International markets were weak in 1996 and the first nine months of
1997, but margins improved substantially in the first nine months of 1997 over
the first nine months of 1996 as a result of recording restructuring costs of
$36.1 million ($24.2 million, net of tax benefit) in December 1996 related to
the Company's decision to exit the woolen carpet business in the United Kingdom.
During the first nine months of 1997, the Company continued to implement
its retail acquisition strategy by acquiring several residential retailers and
commercial contractors for cash and common stock totaling $53.0 million and
resulting in goodwill of $39.7 million which is being amortized over 20 years.
Net sales for the Company's residential retail and commercial contractor
business totaled $684.7 million for the nine months ended September 27, 1997
compared to $278.5 million for the nine months ended September 28, 1996. At
September 27, 1997 the Company has 432 residential retail and commercial
contractor locations throughout the United States. The Company believes that by
combining the resources of the manufacturer and retailer and developing a
commercial contract distribution network, it can provide a full range of
products and services to more effectively meet the needs of the end-user of both
residential and commercial carpet products at significantly improved margins. As
part of this strategy, the Company continues its efforts to develop an alignment
program with dealers of both residential and commercial carpet products to
provide a collection of services, benefits and programs that will encourage
dealers to purchase more from the Company. At September 27, 1997, the Company
has approximately 1,440 aligned dealers.
LIQUIDITY AND CAPITAL RESOURCES
At September 27, 1997, the Company had working capital of $779.2 million,
an increase of $108.9 million, or 16.2 percent, over working capital of $670.3
million at December 28, 1996. Cash and cash equivalents decreased $20.8 million
from $49.6 million at December 28, 1996 to $28.8 million at September 27, 1997.
Cash provided by operating activities was $27.1 million in the first nine months
of 1997 primarily as the result of net income of $61.3 million adjusted for
depreciation and amortization of $70.2 million and provision for doubtful
accounts of $7.5 million, which were offset in part by larger increases in
inventories and accounts receivables of $28.3 million and $31.3 million,
respectively, a decrease in accounts payable of $19.2 million and other, net of
$33.1 million. Cash flow provided by operating activities for the first nine
months of 1996 totaled $135.6 million, principally due to net income of $36.7
million adjusted for depreciation and amortization of $69.5 million,
nonrecurring charges of $29.1 million as discussed in note 5 of notes to
condensed consolidated financial statements, and substantial increases in
accounts payable and accrued liabilities of $49.2 million, which were offset in
part by increases in inventories, accounts receivable and other assets, net of
$54.2 million. Cash used in investing activities for the first nine months of
1997 consisted of additions to property, plant and equipment of $60.3 million
and acquisitions of business assets of $28.9 million compared to $61.5 million
and $68.1 million, respectively, in the first nine months of 1996. Cash flow
provided by financing activities during the first nine months of 1997 of $41.3
million principally included an increase in long-term debt of $110.5 million
offset in part by cash dividends of $30.1 million and payments on notes payable
of $39.4 million. During the first nine months of 1996, cash provided by
financing activities of $14.1 million included an increase in long-term debt of
$66.6 million offset in part by cash dividends of $30.7 million and common stock
repurchases of $22.8 million.
The Company has continued to maintain a strong working capital position.
Effective use of capital and the Company's ability to generate cash flow from
operations has enabled it to make investments which reduce production costs,
generate operating margins that have historically exceeded industry averages and
implement its retail strategy.
10
<PAGE>
Capital expenditures for property, plant and equipment necessary to
maintain the Company's facilities in a modern state-of-the-art condition and
expand its production capacity were $60.3 million for the nine months ended
September 27, 1997. Management anticipates total capital expenditures and
capitalized lease obligations of approximately $20 million for the remainder of
1997 to expand and upgrade its manufacturing and distribution equipment to meet
anticipated increases in sales volume, to improve efficiency and to open new
retail stores and upgrade its current retail operations.
The Company's primary source of financing is an unsecured revolving credit
facility with a banking syndicate which provides for borrowings of up to $900.0
million and expires in March 2002. Interest on borrowings under this facility is
currently based on LIBOR, and was 6.16 percent at June 28, 1997. At September
27, 1997, borrowings outstanding under this credit facility were $778.0 million.
RESULTS OF OPERATIONS
Three Months Ended September 27, 1997 Compared To Three Months Ended September
27, 1996
Net sales increased $41.2 million, or 4.7 percent, to $923.0 million in the
third quarter of 1997. The increase was primarily attributable to incremental
net sales of $55.4 million related to the residential retail and commercial
contract business, offset by declines in the net sales volumes of $14.2 million
for the Company's wholesale manufacturing operations in both the domestic and
international markets. Gross margin as a percentage of net sales increased 2.0
percent to 25.6 percent in the third quarter of 1997 compared to the third
quarter for 1996, primarily due to improved sales product mix and increases in
the efficiency relationships of volume and fixed costs for both the domestic and
international wholesale manufacturing business.
Selling, general and administrative expenses for the third quarter of 1997
were $177.4 million, or 19.2 percent of net sales, compared to $155.1 million,
or 17.6 percent of net sales, in the comparable period of 1996. The increase of
$22.3 million, or 1.6 percent of net sales, was primarily due to increased
advertising and other selling and administrative expenses associated with the
Company's residential retail and commercial contract business. Pre-opening
expenses related to the retail operations totaled $0.6 million for the third
quarter of 1997 compared to $3.4 million for the third quarter of 1996. Interest
expense, net increased to $15.8 million for the third quarter of 1997 from $10.3
million for the third quarter of 1996 as a result of higher borrowings.
The effective income tax rate for the third quarter of 1997 decreased to
41.4 percent compared to 42.2 percent for the third quarter of 1996 due to more
profitable foreign operations in 1997 which are taxed at a lower effective
income tax rate.
Nine Months Ended September 27, 1997 Compared to Nine Months Ended September 28,
1996
Net sales increased $321.3 million, or 13.8 percent, to $2,646.9 million in
the first nine months of 1997. The increase was primarily attributable to
incremental net sales of $406.1 million related to the residential retail and
commercial contract business, offset by declines in the net sales volumes of
$84.8 million for the Company's wholesale manufacturing operations in both the
domestic and international markets. Gross margin as a percentage of net sales
increased 3.5 percent to 25.4 percent in the first nine months of 1997 compared
to the first nine months for 1996, primarily due to improved sales product mix
and increases in the efficiency relationships of volume and fixed costs for the
both the domestic and international wholesale manufacturing business.
Selling, general and administrative expenses for the first nine months of
1997 were $528.9 million, or 20.0 percent of net sales, compared to $372.7
million, or 16.0 percent of net sales, in the comparable period of 1996. The
increase of $156.2 million, or 4.0 percent of net sales, was primarily due to
increased advertising and other selling and administrative expenses associated
with the Company's residential retail and commercial contract business.
Pre-opening expenses related to the retail operations totaled $3.5 million for
the first nine months of 1997 compared to $5.2 million for the first nine months
of 1996. Interest expense, net increased to $44.9 million for the first nine
months of 1997 from $30.0 million for the first nine months of 1996 as a result
of higher borrowings.
Results for the first nine months of 1996 included nonrecurring charges of
$29.1 million ($26.5 million net of tax benefit, or $.19 per share) as discussed
in note 5 of notes to condensed consolidated financial statements. Net income
before nonrecurring charges was $63.2 million, or $0.46 per share. Net income
after nonrecurring charges was $36.7 million, or $0.27 per share for the first
nine months of 1996.
The effective income tax rate for the first nine months of 1997 was 41.7
percent compared to 41.5 percent for the first nine months of 1996, before
nonrecurring charges of $29.1 million.
FOREIGN OPERATIONS
The Company's primary foreign operations are conducted through its United
Kingdom and Australian subsidiaries, where the functional currencies are British
11
<PAGE>
pounds and Australian dollars, respectively. Fluctuations in the value of
foreign currencies create exposures which can impact the Company's operating
results. The Company may employ foreign currency forward exchange contracts
when, in the normal course of business, they are determined to effectively
manage and reduce such exposure. The Company does not enter into foreign
currency forward exchange contracts for speculative trading purposes.
FORWARD-LOOKING INFORMATION
Certain Statements contained in this section, including but not limited to,
statements regarding the effects of the Company's retail strategy and dealer
alignment program, levels of future capital expenditures and the anticipated
effects of pending litigation, may constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements involve a number of risks and uncertainties. The Company cautions
that a number of important factors could, individually or in the aggregate,
cause actual results to differ materially from those referred to or reflected in
the forward-looking statements, including, but not limited to, the following:
market conditions in the carpet industry; raw material prices; timing and level
of capital expenditures; adverse results of litigation; the Company's ability to
integrate acquisitions successfully; the Company's ability to introduce new
products successfully; and other risks and uncertainties identified from time to
time in the Company's reports filed with the Securities and Exchange Commission
and in public announcements.
ITEM THREE - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Not applicable
PART II - OTHER INFORMATION
ITEM ONE - LEGAL PROCEEDINGS
The Company is a party to several lawsuits incidental to its various
activities and incurred in the ordinary course of business. The Company believes
that it has meritorious claims and defenses in each case. After consultation
with counsel, it is the opinion of management that, although there can be no
assurance given, none of the associated claims, when resolved, will have a
material adverse effect upon the Company.
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 Depart of
justice relating to an investigation of the industry. In October, 1997, the
Company received formal notification from the Department of Justice that the
investigation has been closed. In December 1995, the Company learned that it was
one of six carpet companies named as additional defendants in a pending
antitrust suit filed in the United States District Court in Rome, Georgia. The
amended complaint alleges price-fixing regarding certain types of carpet
products in violation of Section 1 of the Sherman Act. The amount of damages
sought is not specified. If any damages were to be awarded, they may be trebled
under the applicable statute. The Company has filed an answer to the complaint
that denies plaintiffs' allegations and sets forth several defenses. In
September 1997, the Court issued an order certifying a nationwide plaintiff
class of persons and entities who purchase `mass production" polypropylene
carpet directly from any of the defendants from June 1, 1991 through June 30,
1995, excluding, among others, any persons or entities whose only purchases were
from any of the Company's retail establishments. Discovery will begin in
November 1997. The Company is also a party to two consolidated lawsuits pending
in the Superior Court of the State of California, City and County of San
Francisco, both of which were brought on behalf of purported class of indirect
purchasers of carpet in the State of California and which seek damages for
alleged violations of California antitrust and fair competition laws. The
Company believes that it has meritorious defenses to plaintiffs' claims in the
lawsuits described in this paragraph and intends to defend these actions
vigorously. After consultation with counsel, it is the opinion of management
that, although there can be no assurance given, none of the claims described in
this paragraph, when resolved, will have a material adverse effect upon the
Company.
In February 1996, a jury in Greensboro, North Carolina, returned a verdict
against the Company in litigation brought by four former employees of Salem
Carpet Mills, acquired by the Company in 1992, alleging age discrimination and
sex discrimination in employment decisions made with regard to such employees.
The judgment is being appealed by both parties. The Company believes that the
litigation will not have a material adverse effect on the Company's financial
condition or results of operations.
12
<PAGE>
The Company is subject to a variety of environmental regulations relating
to the use, storage, discharge and disposal of hazardous materials used in its
manufacturing processes. Failure by the Company to comply with present and
future regulations could subject it to future liabilities. In addition, such
regulations could require the Company to acquire costly equipment or to incur
other significant expenses to comply with environmental regulations. The Company
is not involved in any material environmental proceedings.
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
11 - Statement re: Computation of Per Share Earnings
27 - Financial Data Schedule
Shareholders may obtain copies of Exhibits without charge upon written
request to the Corporate Secretary, Shaw Industries, Inc., Mail drop 061-22,
P.O. Drawer 2128, Dalton, Georgia 30722-2128.
(B) No reports on Form 8-K have been filed during the
fiscal quarter ended September 27, 1997.
13
<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: November 10 , 1997 s/ Robert E. Shaw
- - --------------------------- -----------------
Robert E. Shaw
Chairman of the Board, Chief Executive
Officer and President
DATE: November 10, 1997 /s/ Kenneth G. Jackson
- - -------------------------- ----------------------
Kenneth G. Jackson
Vice President and Chief Financial Officer
(Principal Financial Officer)
14
EXHIBIT 11.0
<TABLE>
<CAPTION>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1)
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
============================= =============================
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average common shares outstanding ..................... 134,577 136,717 133,795 136,220
Additional shares assuming exercise of stock options ........... 119 456 146 191
-------- -------- -------- --------
Weighted average common and common equivalent shares outstanding 134,696 137,173 133,941 136,411
======== ======== ======== ========
Income ......................................................... $ 25,335 $ 24,179 $ 61,314 $ 36,694
======== ======== ======== ========
Earnings per common share ...................................... $ 0.19 $ 0.18 $ 0.46 $ 0.27
======== ======== ======== ========
FULLY DILUTED:
Weighted average common shares outstanding ..................... 134,577 136,717 133,795 136,220
Additional shares assuming exercise of stock options (2) ...... 602 456 380 191
-------- -------- -------- --------
Weighted average common and common equivalent shares outstanding 135,179 137,173 134,175 136,411
======== ======== ======== ========
Income ......................................................... $ 25,335 $ 24,179 $ 61,314 $ 36,694
======== ======== ======== ========
Earnings per common share ...................................... $ 0.19 $ 0.18 $ 0.46 $ 0.27
======== ======== ======== ========
</TABLE>
(1) All numbers of shares in this exhibit are weighted on the basis of the
number of days the shares were outstanding or assumed to be outstanding
during each period.
(2) Based on the treasury stock method using the higher of the average or
period-end market price.
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS OF SHAW INDUSTRIES, INC. AND SUBSIDIARIES
AS OF SEPTEMBER 27, 1997 AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF
INCOME AND CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 28,810,000
<SECURITIES> 0
<RECEIVABLES> 458,422,000
<ALLOWANCES> 18,968,000
<INVENTORY> 601,923,000
<CURRENT-ASSETS> 1,158,860,000
<PP&E> 1,398,484,000
<DEPRECIATION> 738,507,000
<TOTAL-ASSETS> 2,120,159,000
<CURRENT-LIABILITIES> 380,104,000
<BONDS> 0
0
0
<COMMON> 149,428,000
<OTHER-SE> 574,267,000
<TOTAL-LIABILITY-AND-EQUITY> 2,120,159,000
<SALES> 2,646,882,000
<TOTAL-REVENUES> 2,646,882,000
<CGS> 1,973,565,000
<TOTAL-COSTS> 1,973,565,000
<OTHER-EXPENSES> 527,639,000
<LOSS-PROVISION> 7,510,000
<INTEREST-EXPENSE> 44,865,000
<INCOME-PRETAX> 100,813,000
<INCOME-TAX> 42,070,000
<INCOME-CONTINUING> 58,743,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,314,000
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>