<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|x|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 28, 1996
OR
|_|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. Employer
incorporation or organization) Identification Number)
616 East Walnut Avenue,
Dalton, Georgia 30720
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 706/278-3812
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class On Which Registered
Common Stock, No Par Value The New York Stock Exchange
$1.11 Stated Value The Pacific Stock Exchange
Rights to Purchase Series A
Participating Preferred Stock The New York Stock Exchange
$.50 Stated Value The Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filled 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_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the closing sales price on The New York
Stock Exchange on March 14, 1997 was: $1,053,474,929
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title of Each Class Outstanding at March 14, 1997
Common Stock, No Par Value 133,248,201 Shares
DOCUMENTS INCORPORATED BY REFERENCE
1996 Annual Report to Shareholders --- Part II.
Definitive Proxy Statement for the 1997 Annual Meeting of Shareholders on
April 24, 1997 --- Part III.
<PAGE>
PART I
Item I. Business
Shaw Industries, Inc. ("Shaw" or the "Company") is the world's largest
carpet manufacturer based on both revenue and volume of production. Shaw designs
and manufactures approximately 2,500 styles of tufted and woven carpet for
residential and commercial use under the PHILADELPHIA, TRUSTMARK, CABIN CRAFTS,
SHAW COMMERCIAL CARPETS, STRATTON, NETWORX, SHAWMARK, EVANS BLACK, SALEM,
SUTTON, KOSSET, CROSSLEY, ABINGDON, REDBOOK, MINSTER and INVICTA trade names and
under certain private labels. The Company's manufacturing operations are fully
integrated from the processing of yarns through the finishing of carpet. The
Company's carpet is sold in a broad range of prices, patterns, colors and
textures with the majority of its sales in the medium to high retail price
range. Shaw sells its wholesale products to retailers, distributors and
commercial users throughout the United States, Canada, Mexico, Australia and the
United Kingdom; through its own residential retail and commercial contract
distribution channels to various residential and commercial and end users in the
United States; and to a lesser degree, exports to additional overseas markets.
On May 31, 1994, the Company formed a joint venture (the "Terza 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
primarily in Mexico and South America. The Company originally acquired a 51
percent interest in the Terza Joint Venture for $14,050,000 and, accordingly,
the joint venture's financial statements were consolidated with the Company's
financial statements at December 31, 1994. Effective January 1, 1995, the
Company sold a 2 percent interest in the Terza Joint Venture for $550,000
reducing its interest to 49 percent. As a result, the Company's investment in
the Terza Joint Venture is being accounted for using the equity method. The
deconsolidation of the Terza Joint Venture had an insignificant effect on the
Company's consolidated total assets and net sales as of and for the year ended
December 30, 1995.
On January 9, 1995, the Company acquired through its wholly owned
subsidiary, Carpets International (U.K.) Plc, substantially all the operating
assets of the Carpets Division of Coats Viyella Plc for approximately
$29,503,000. The acquisition was accounted for as a purchase and, accordingly,
the purchase price has been allocated to the assets acquired and liabilities
assumed based on management's estimate of their fair values as of the
acquisition date.
In December 1995, the Company announced a new retail and contract
distribution strategy to acquire several companies which own and franchise
residential floorcovering centers throughout the United States, as well as
several commercial carpet contractors. During 1996, the Company acquired several
residential retail and commercial contractors including Bell-Mann, Inc.,
Carpetland USA, Inc., New York Carpet World, Inc. and several others. In
addition, the Company opened 57 Shaw Carpet Showplace residential retail stores
in California and Pennsylvania and 3 CarpetSmart retail stores in New York. Net
sales for the Company's retail and commercial contract business totaled $498.6
million in 1996 and at December 28, 1996, the Company has approximately 350
retail and commercial contract locations throughout the United States.
The Company believes that, by combining the resources of the manufacturer
and retailer and developing a contract distribution network, it can provide a
full range of products and services to more effectively meet the needs of the
end-users 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 December 28, 1996,
the Company has approximately 1400 aligned dealers.
The Company, based upon its international expansion which began in 1993 and
continued into 1995, is now positioned to supply the Australian, Pacific Rim and
European markets with high quality products. For 1996, 1995 and 1994,
international operations accounted for 10.5, 12.6 and 10.4 percent,
respectively, of the Company's net sales. As a result of its foreign expansion,
the Company has limited exposure to fluctuations in foreign currency exchange
rates on its intercompany payables. The Company may employ foreign exchange
contracts when, in the normal course of business, they are determined to
effectively manage and reduce such exposure. Geographical information about the
Company's sales, operating profit and identifiable assets is incorporated by
reference to page 20 of Exhibit 13 to this report.
<PAGE>
Products and Marketing
Substantially all carpet manufactured by the Company is tufted carpet made
from nylon, polypropylene yarn and wool. In the tufting process, yarn is
inserted by multiple needles into a synthetic backing, forming loops which may
be cut or left uncut, depending on the desired texture or construction.
According to industry estimates, tufted carpet accounted for 91.6% of unit
volume shipments of carpet manufactured in the United States during 1996.
Substantially all carpet manufactured in the United States is made from
synthetic fibers, with nylon accounting for 62.3% of the total, polypropylene
31.5%, polyester 5.8% and wool 0.4%. During 1996, the Company processed
approximately 96% of its requirements for carpet yarn in its own yarn processing
facilities.
The Company believes that its significant investment in modern,
state-of-the-art equipment has been an important factor in achieving and
maintaining its leadership position in the marketplace. During the past five
fiscal years, the Company has invested approximately $824 million (including
acquisitions) in property additions. The Company continually seeks opportunities
for increasing its sales volume and market share. For example, the Company
continues to expand its product lines of carpet manufactured from polypropylene
fiber, including fibers produced by the Company's own extrusion equipment. The
Company also has a manufacturing facility for the production of carpet tiles for
the commercial market which is currently being expanded to facilitate the
Company's growing demand for its tile products.
The overall level of sales for the Company and the carpet industry is
influenced by a number of factors, including consumer confidence and spending
for durable goods, interest rates, turnover in housing, the condition of the
residential construction industry and the overall strength of the economy. The
Company's international operations are also impacted by the markets in which
they operate.
The marketing of carpet is influenced significantly by current trends in
style and fashion, principally color trends. The Company believes it has been a
leader in the development of color technology in the carpet industry and that
its dyeing facilities are among the most modern and versatile in the industry.
The Company maintains an in-house product development department to identify
developing color and style trends which are expected to affect its customers'
buying decisions. This department is strengthened by the Company's Research and
Development Center. This state-of-the-art complex includes a 75,000 square foot
pilot plant featuring sample extrusion, yarn processing, tufting, dyeing,
coating and shearing equipment, and three fiber and dye development
laboratories.
Sales and Distribution
The Company's wholesale products are marketed domestically by approximately
960 salaried sales personnel in its various marketing divisions directly to
retailers and distributors and to large national accounts through the Company's
National Accounts Division. The Company's ten (10) regional warehouse facilities
and eight (8) redistribution centers, along with its centralized management
information system, enable it to provide prompt delivery of its products to both
its retail customers and wholesale distributors. The Company's substantial
investment in management information systems permits efficient production
scheduling and control of inventory levels.
The Company sells its wholesale products to approximately 39,660 retailers,
distributors and national accounts located throughout the United States,
Australia, Mexico, the United Kingdom and Canada. Retailers and national
accounts, on a combined basis, accounted for approximately 75.4% of the
Company's carpet sales for 1996. Shaw also sells to approximately 80 wholesale
distributors. Approximately 9.0% of the Company's carpet sales in 1996 were to
distributors. Sales of Shaw products in foreign markets, including the sales of
foreign subsidiaries, accounted for approximately 10.5% of total sales in 1996.
No single customer accounted for more than 2% of the Company's sales during
1996.
The Company's retail and commercial contract business accounted for 15.6%
of the Company's total sales for 1996 and was substantially sold through those
businesses acquired by the Company in 1996.
<PAGE>
Competition
The carpet industry is highly competitive with more than 200 companies
engaged in the manufacture and sale of carpet in the United States. Carpet
manufacturers also face competition from the hard surface floorcovering
industry. According to industry estimates, carpet accounts for approximately 75%
of the total United States production of all flooring types. The principal
methods of competition within the carpet industry are quality, style, price and
service. The Company believes its strategically located regional warehouse
facilities and redistribution centers, together with its retail and contract
distribution network, provide a competitive advantage by enabling it to supply
carpet on a timely basis to customers. The Company's long-standing practice in
investing in modern, state-of-the-art equipment contributes significantly to its
ability to compete effectively on the basis of quality, style and price.
Raw Materials
The principal raw materials used by the Company are nylon fiber and
filament, and synthetic backing; additional raw materials include polyester,
polypropylene and wool fibers and filaments, jute, latex and dye. During 1996,
the Company experienced no significant shortages of raw materials.
Employees
At December 28, 1996, the Company had approximately 29,800 full-time
employees. In the opinion of management, employee relations are good. Employees
are involved in the Quality Improvement Process, which began in 1985 as a
program designed to improve the Company's products and services through
education and training. A small number of the Company's retail and commercial
contractor employees in the United States are represented by unions. Certain
employees of foreign subsidiaries are represented by unions.
Environmental Matters
Management believes the Company is currently in compliance in all material
respects with applicable federal, state and local statutes and ordinances
regulating the discharge of materials into the environment and otherwise
relating to the protection of the environment. Management does not believe the
Company will be required to expend any material amounts in order to remain in
compliance with these laws and regulations or that compliance will materially
affect its capital expenditures, earnings or competitive position.
The Company continued its commitment to the environment during 1996.
Because of this commitment to finding new ways of using mill waste, the Company
is agressively pursuing an environmentally friendly use for all of its waste
products. For example, future possibilities for use of fiber reinforced concrete
include road and bridge construction, military applications, building
foundations, tile, brick and concrete blocks.
Patents, Trademarks, etc.
Patent protection has not been significant to the Company's business,
although the Company does hold several patents covering machinery used in a
specific carpet coloring process.
<PAGE>
Item 2. Properties
The Company's executive offices are located in Dalton, Georgia. At December 28,
1996, the Company operated additional facilities as follows:
Domestic Facilities (wholesale)
Alabama Redistribution, yarn spinning and yarn extrusion
Michigan Redistribution
Missouri Redistribution
Florida Redistribution
North Carolina Redistribution, primary backing manufacturing
Ohio Redistribution
Pennsylvania Redistribution
Virginia Redistribution
California Warehousing
Colorado Warehousing
Illinois Warehousing
Massachusetts Warehousing
Minnesota Warehousing
New Jersey Warehousing
Texas Warehousing
Washington Warehousing
Georgia Administrative, distribution, carpet
manufacturing, yarn processing, yarn spinning,
tufting, dyeing, coating, finishing, rug
manufacturing, sample manufacturing, warehousing,
design center and research and development center.
Tennessee Carpet manufacturing, yarn spinning
Domestic Facilities (retail - number of locations in parenthesis)
California Retail stores, warehousing, administrative (59)
Colorado Warehousing, administrative (1)
Connecticut Retail stores (7)
Florida Retail stores, warehousing, administrative (36)
Georgia Retail stores, warehousing, administrative (6)
Idaho Retail stores (3)
Illinois Retail stores, warehousing, administrative (44)
Indiana Retail stores, administrative (19)
Iowa Retail stores (9)
Kansas Retail stores (9)
Maryland Retail stores, warehousing, administrative (6)
Massachusetts Retail stores, warehousing, administrative (10)
Michigan Retail stores, warehousing, administrative (56)
Minnesota Retail stores, warehousing, administrative (4)
Missouri Retail stores, warehousing, administrative (14)
Montana Retail stores (1)
New Hampshire Retail stores (2)
New Jersey Administrative (1)
New Mexico Retail stores (4)
New York Retail stores, warehousing, administrative (6)
North Carolina Retail stores (22)
Ohio Retail stores, warehousing, administrative (10)
Pennsylvania Retail stores (8)
Rhode Island Retail stores (2)
South Carolina Retail Stores (9)
South Dakota Retail stores (1)
Tennessee Retail stores (2)
Texas Warehousing, administrative (2)
Virginia Retail stores, warehousing, administrative (18)
Washington Retail stores, warehousing, administrative (5)
Foreign Facilities (facilities are located in or near the areas listed)
Bradford, England Tufting, coating, yarn processing, distribution
and administrative offices
Gwent, Wales Yarn extrusion, yarn processing
Victoria, Australia Yarn extrusion, yarn processing, tufting, dyeing,
coating, distribution and administrative offices
Donaghadee, N. Ireland Tufting, dyeing and finishing
During 1996, the wool spinning facilities and Axminister carpet production
in the United Kingdom were closed and are being phased out. The Company
maintains leased warehouses and customer service facilities in or near Dallas;
Los Angeles (2); Seattle; San Francisco; Chicago; Minneapolis; Boston; and
Cranbury, New Jersey. Each leased warehouse facility includes a sales showroom.
Substantially all of the Company's retail facilities are leased. The Company
believes that current facilities are adequately insured and well maintained,
substantially used and provide adequate production capacity for current and
anticipated future operations.
<PAGE>
Item 3. 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 is 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. 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 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
Company believes that the suit is spurious and without merit, and that once
completed, it will not have a material adverse effect on the Company's financial
condition or results of operations.
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 with regard to such employees. The
judgement 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.
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 to incur other
significant expenses to comply with environmental regulations. The Company is
not involved in any material environmental proceedings.
At the end of fiscal year 1996, there were no other pending legal
proceedings to which the Company was a party or to which any of its property was
subject which, in the opinion of management, were likely to have a material
adverse effect on the Company's business, financial condition or results of
operations.
Item 4. Submission of Matters to Vote of Security Holders
Not applicable.
<PAGE>
Item 4(A). Executive Officers of the Registrant
<TABLE>
<CAPTION>
Officer
Name Age Since Position
<S> <C> <C> <C>
Robert E. Shaw 65 1967 Chairman, Chief Executive Officer and Director
W. Norris Little 65 1978 President and Chief Operating Officer and Director
William C. Lusk, Jr 61 1971 Senior Vice President, Treasurer and Director
Vance D. Bell 45 1983 Vice President, Marketing
Kenneth G. Jackson 39 1996 Vice President and Chief Financial Officer
Carl P. Rollins 53 1991 Vice President, Administration
Bennie M. Laughter 45 1986 Vice President, Secretary and General Counsel
Douglas H. Hoskins 62 1978 Controller
</TABLE>
Officers of the Company are elected annually by the Board of Directors. All
of the executive officers of the Company except for Mr. Jackson and Mr. Rollins
have served as executive officers for the Company for more than the past five
years.
Mr. Jackson joined the Company in February 1996. Prior to February 1996,
Mr. Jackson had been a partner with Arthur Andersen LLP in Atlanta, Georgia.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The high and low sales prices for the Company's common stock as reported by
the New York Stock Exchange and the amount of dividends paid by quarter for the
last two fiscal years are set forth on page 24 of Exhibit 13.
Reference is made to Note 2 of Notes to Consolidated Financial Statements
on page 12 of Exhibit 13 for information concerning restrictions on the payment
of cash dividends.
At March 7, 1997, there were 4,253 holders of record of the Company's
common stock.
Item 6. Selected Financial Data
This information is set forth on page 1 of the Exhibit 13 under the caption
"Ten Year Financial Review."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is set forth on pages 2 - 4 of Exhibit 13 to this report.
Item 8. Financial Statements and Supplementary Data
This information is set forth on pages 5 - 24 of Exhibit 13.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors is incorporated by reference to "Election
of Class of Directors" on pages 3 - 6 of the Proxy Statement for the 1997 Annual
Meeting of Shareholders. Reference is also made to Item 4(A) of Part I of this
report, "Executive Officers of the Registrant," which information is
incorporated herein.
Item 11. Executive Compensation
This information is incorporated by reference to "Executive Compensation"
on pages 3 - 5 of the Proxy Statement for the 1997 Annual Meeting of
Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is incorporated by reference to "Voting Rights and
Principal Shareholders" and "Election of Directors" on pages 2 and 3-4
respectively, of the Proxy Statement for the 1997 Annual Meeting of
Shareholders.
<PAGE>
PART IV
Item 13. Certain Relationships and Related Transactions
This information is incorporated by reference to "Certain Relationships" on
page 4 of the Proxy Statement for the 1997 Annual Meeting of Shareholders.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Exhibit 13, a copy of which is filed with this Form 10-K, contains the
balance sheets as of December 28, 1996 and December 30, 1995, the related
statements of income, shareholders' investment and cash flows for each of the
three years in the period ended December 28, 1996, and the related report of
Arthur Andersen LLP. These financial statements and the report of Arthur
Andersen LLP are incorporated herein by reference. The financial statements
incorporated by reference include the following:
Balance Sheets -- December 28, 1996 and December 30, 1995
Statements of Income for the years ended December 28, 1996, December 30,
1995 and December 31, 1994.
Statements of Shareholders' Investment for the years ended December 28,
1996, December 30, 1995 and December 31, 1994.
Statements of Cash Flows for the years ended December 28, 1996, December
30, 1995 and December 31, 1994.
2. Financial Statement Schedules
Report of Independent Public Accountants on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for the Years Ended
December 28, 1996, December 30, 1995 and December 31, 1994.
<PAGE>
3. Exhibits incorporated by reference or filed with this report.
Number Description
3(a) Amended and Restated Articles of Incorporation. [Incorporated herein by
reference to Exhibit 3(a) to Registrant's Registration Statement filed with
the commission on December 28, 1993 (File No. 33-51719).]
3(b) Bylaws. [Incorporated herein by reference to Exhibit 3(b) to Registrant's
Registration Statement filed with the commission on December 28, 1993 (File
No. 33-51714).]
4(a) Specimen form of Common Stock Certificate. [Incorporated herein by
reference to Exhibit 2 to Registrant's Report on Form 8-A filed with the
Securities and Exchange Commission on May 12, 1989 (File No. 1-6853).]
4(b) Restated Articles of Incorporation, filed as Exhibit 3(a), and the Bylaws
of Registrant, filed as Exhibit 3(b), are incorporated herein by reference.
4(c) Rights Agreement dated as of April 10, 1989, between Registrant and
Citizens and Southern Trust Company (Georgia), N.A., as Rights Agent.
[Incorporated herein by reference to Exhibit 1 to Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on May
5, 1989 (File No. 1-6853).]
10(a) Reserved
10(b)* Deferred Compensation Plan and form of Deferred Compensation Agreement of
Registrant as adopted in April, 1980. [Incorporated herein by reference to
the Registrant's July 2, 1994 Form 10-K filed with the Securities and
Exchange Commission (File No. 1-6853).]
10(c), 10(d), 10(e) and 10(f) Reserved
10(g)Credit Agreement dated November 30, 1994, between Registrant and
Nationsbank of Georgia, National Association, regarding a $600,000,000
revolving credit facility. [Incorporated herein by reference to the
Registrant's December 31, 1994 Form 10-K filed with the Securities and
Exchange Commission (File No. 1-6853).]
10(h)* 1987 Incentive Stock Option Plan of the Registrant. [Incorporated herein
by reference to Exhibit A to Registrant's 1987 Proxy Statement, dated
September 22, 1987 (File No. 1-6853).]
10(i) Reserved
10(j)* 1989 Discounted Stock Option Plan of the Registrant. [Incorporated herein
by reference to Exhibit A to Registrant's 1989 Proxy Statement, dated
September 21, 1989 (File No. 1-6853).]
10(k)* 1992 Incentive Stock Option Plan of the Registrant. [Incorporated herein
by reference to Exhibit A to Registrant's 1992 Proxy (File No. 1-6853).]
Statement, dated September 18, 1992 (File No.1-6853).]
11 Computation of Earnings per Share for the fiscal years ended December 28,
1996, December 30, 1995 and December 31, 1994.
13 Items Incorporated by Reference from the 1996 Annual Report to
Shareholders.
21 List of Subsidiaries.
23 Consent of independent public accountants.
27 Financial Data Schedule.
*Compensatory plan or management contract required to be filed as an
exhibit to Item 14 (c) of Form 10-K.
Shareholders may obtain copies of Exhibits without charge upon written
request to the Corporate Secretary, Shaw Industries, Inc., Mail drop 061-18,
P.O. Drawer 2128, Dalton, Georgia 30722-2128.
(b) No reports on Form 8-K were filed during the last quarter of fiscal 1996.
<PAGE>
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 26, 1997 By:/s/ ROBERT E. SHAW
------------------
Robert E. Shaw
Chairman, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 26, 1997 /s/ ROBERT E. SHAW
------------------
Robert E. Shaw
Chairman, Chief Executive Officer
and Director
(Principal Executive Officer)
Date: March 26, 1997 /s/ KENNETH G. JACKSON
----------------------
Kenneth G. Jackson
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Date: March 26, 1997 /s/ J. C. SHAW
--------------
J.C. Shaw
Chairman Emeritus and Director
Date: March 26, 1997 /s/ W. NORRIS LITTLE
--------------------
W. Norris Little
President and Chief Operating Officer
and Director
Date: March 26, 1997 /s/ WILLIAM C. LUSK, JR.
William C. Lusk, Jr.
Sr. Vice President, Treasurer and
Director
Date: March 26, 1997 /s/ ROBERT R. HARLIN
--------------------
Robert R. Harlin
Director
Date: March 26, 1997 /s/ THOMAS G. COUSINS
---------------------
Thomas G. Cousins
Director
Date: March 26, 1997 /s/ TUCKER GRIGG
----------------
S. Tucker Grigg
Director
Date: March 26, 1997 /s/ CLIFFORD M. KIRTLAND, JR.
Clifford M. Kirtland, Jr.
Director
Date: March 26, 1997 /s/ J. HICKS LANIER
-------------------
J. Hicks Lanier
Director
Date: March 26, 1997 /s/ R. JULIAN McCAMY
--------------------
R. Julian McCamy
Director
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders of
Shaw Industries, Inc.:
We have audited in accordance with generally accepted auditing standards the
financial statements of SHAW INDUSTRIES, INC. included in the Annual Report to
Shareholders incorporated by reference in this Form 10-K and have issued our
report thereon dated February 21, 1997. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. Schedule
II is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 21, 1997
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
SHAW INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994
$ in thousands
<S> <C> <C> <C> <C>
Additions
Balance at Charged to
Beginning Costs and Balance at
of Year Expenses Deductions End of Year
------------------- ------------------- ------------------ -------------------
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts and
discounts $ 13,051 $ 112,978 $ 108,104 $ 17,925
=================== =================== ================== ===================
YEAR ENDED DECEMBER 30, 1995:
Allowance for doubtful accounts and
discounts $ 17,925 $ 110,541 $ 113,720 * $ 14,746
=================== =================== ================== ===================
YEAR ENDED DECEMBER 28, 1996:
Allowance for doubtful accounts and
discounts $ 14,746 $ 108,610 $ 106,689 $ 16,667
=================== =================== ================== ===================
</TABLE>
* Deductions for December 30, 1995 include $1,018,000 related to the
deconsolidation of the Terza Joint Venture.
<TABLE>
<CAPTION>
SHAW INDUSTRIES, INC. EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS
ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 and DECEMBER 31, 1994
(In Thousands, Except Share Data)
<S> <C> <C> <C>
1996 1995 1994
=============== ================ ================
PRIMARY:
Weighted average common shares outstanding 135,731 135,872 141,432
Additional shares assuming exercise of stock options 178 506 1,051
--------------- ---------------- ----------------
Average common shares outstanding, as adjusted 135,909 136,378 142,483
=============== ================ ================
Income before extraordinary item and accounting change $34,023 $64,381 $130,389
Extraordinary item, net of tax benefit - - (3,363)
Cumulative effect of accounting change, net of tax benefit - (12,077) -
=============== ================ ================
Net income $34,023 $52,304 $127,026
=============== ================ ================
Earnings per Common Share:
Income before extraordinary item and accounting change $0.25 $0.47 $0.92
Extraordinary item, net of tax benefit - - (0.02)
Cumulative effect of accounting change, net of tax benefit - (0.09) -
=============== ================ ================
Net income $0.25 $0.38 $0.89
=============== ================ ================
FULLY DILUTED:
Weighted average common shares outstanding 135,731 135,872 141,432
Additional shares assuming exercise of stock options 178 506 1,058
--------------- ---------------- ----------------
Average common shares outstanding, as adjusted 135,909 136,378 142,490
=============== ================ ================
Income before extraordinary item and accounting change $34,023 $64,381 $130,389
Extraordinary item, net of tax benefit - - (3,363)
Cumulative effect of accounting change, net of tax benefit - (12,077) -
=============== ================ ================
Net income $34,023 $52,304 $127,026
=============== ================ ================
Earnings per Common Share:
Income before extraordinary item and accounting change $0.25 $0.47 $0.92
Extraordinary item, net of tax benefit - - (0.02)
Cumulative effect of accounting change, net of tax benefit - (0.09) -
=============== ================ ================
Net income $0.25 $0.38 $0.89
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Ten-Year Financial Review
(Dollars in 000s except share data)
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Net Sales .................................... $ 3,200,964 $ 2,869,828 $ 2,788,527 $ 2,476,282 $ 2,035,962
Cost of Sales ................................ 2,486,164 2,319,894 2,187,439 1,963,206 1,641,404
Selling, General and Administrative
Expenses ................................... 540,748 393,868 366,189 301,790 240,192
Pre-opening Expenses, ........................ 13,595 -- -- -- --
Nonrecurring Charges ......................... 29,139 6,967 -- -- --
Restructuring Costs .......................... 19,963 -- -- -- --
Interest, Net ................................ 42,442 41,901 30,022 24,107 26,083
Other (Income) Expense, Net .................. (4,705) 443 (4,922) (2,530) 324
Income Before Income Taxes, Equity in
Income of Joint Venture, Extraordinary Item
and Accounting Change ..................... 73,618 106,755 209,799 189,709 127,959
As a Percentage of Net Sales ............ 2.3% 3.7% 7.5% 7.7% 6.3%
Effective Tax Rate ........................... 59.0% 40.8% 37.9% 38.0% 38.5%
Income Before Equity in Income of Joint
Venture, Extraordinary Item and Accounting
Change .................................... 30,155 63,152 130,389 117,636 78,695
Equity in Income of Joint Venture ............ 3,868 1,229 -- -- --
Extraordinary Item ........................... -- -- (3,363) -- --
Accounting Change ............................ -- (12,077) -- -- --
Net Income ................................... 34,023 52,304 127,026 117,636 78,695
As a Percentage of Net Sales ............... 1.1% 1.8% 4.6% 4.8% 3.9%
As a Percentage of Average Total Assets .... 1.9% 3.1% 8.1% 8.8% 7.7%
As a Percentage of Average Invested Capital 2.4% 3.9% 10.7% 12.1% 10.5%
As a Percentage of Average
Shareholders' Investment ................ 4.9% 7.4% 17.7% 17.5% 16.1%
Earnings Per Share:
Primary and Fully Diluted ................. 0.25 0.38 0.89 0.81 0.59
Cash Dividends Per Share ..................... 0.30 0.30 0.22 0.18 0.15
Property Additions (including acquisitions) .. 177,062 93,805 187,045 174,635 191,830
Depreciation and Amortization ................ 90,906 91,083 84,898 82,416 67,414
Weighted Average Shares Outstanding:
Primary ................................... 135,909,265 136,378,493 142,483,289 144,922,740 132,422,293
Fully Diluted ............................. 135,909,265 136,378,493 142,489,938 145,317,217 132,596,479
At Year-End:
Working Capital ........................... 670,344 641,445 617,338 437,445 448,089
Current Ratio ............................. 2.6 3.5 3.0 2.2 2.6
Property, Plant and Equipment, Net ........ 655,141 631,990 656,178 551,873 453,276
Total Assets .............................. 1,984,398 1,662,783 1,697,378 1,454,266 1,223,439
Total Long-Term Debt ...................... 825,280 627,130 612,061 317,914 281,742
Shareholders' Investment .................. 671,711 710,189 713,025 723,830 619,977
Total Invested Capital* ................... 1,496,991 1,337,319 1,325,086 1,041,744 901,719
Shareholders' Investment Per Share ........ $ 5.06 $ 5.22 $ 5.20 $ 5.04 $ 4.38
*The sum of shareholders' investment and long-term debt.
NOTE: All share data have been adjusted for two-for-one stock splits effected in
the form of stock dividends in December 1993, March 1992 and May 1989.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1991 1990 1989 1988 1987
Net Sales .................................... $ 1,618,923 $ 1,658,771 $ 1,266,142 $ 1,120,163 $ 753,378
Cost of Sales ................................ 1,341,312 1,348,808 1,017,084 905,305 613,002
Selling, General and Administrative
Expenses ................................... 188,363 179,381 138,708 126,500 81,134
Pre-opening Expenses, ........................ -- -- -- -- --
Nonrecurring Charges ......................... -- -- -- -- --
Restructuring Costs .......................... -- -- -- -- --
Interest, Net ................................ 30,973 35,026 20,828 23,776 11,305
Other (Income) Expense, Net .................. (74) (483) (640) (145) (172)
Income Before Income Taxes, Equity in
Income of Joint Venture, Extraordinary Item
and Accounting Change ..................... 58,349 96,039 90,162 64,727 48,109
As a Percentage of Net Sales ............ 3.6% 5.8% 7.1% 5.8% 6.4%
Effective Tax Rate ........................... 38.3% 38.0% 38.4% 37.8% 42.5%
Income Before Equity in Income of Joint
Venture, Extraordinary Item and Accounting
Change .................................... 35,985 59,515 55,567 40,285 27,666
Equity in Income of Joint Venture ............ -- -- -- -- --
Extraordinary Item ........................... -- -- -- -- --
Accounting Change ............................ -- -- -- -- --
Net Income ................................... 35,985 59,515 55,567 40,285 27,666
As a Percentage of Net Sales ............... 2.2% 3.6% 4.4% 3.6% 3.7%
As a Percentage of Average Total Assets .... 4.5% 8.0% 9.4% 8.1% 6.7%
As a Percentage of Average Invested Capital 6.2% 11.1% 12.7% 10.7% 8.9%
As a Percentage of Average
Shareholders' Investment ................ 12.8% 29.1% 29.4% 25.4% 19.0%
Earnings Per Share:
Primary and Fully Diluted ................. 0.32 0.50 0.46 0.33 0.21
Cash Dividends Per Share ..................... 0.125 0.125 0.10 0.083 0.078
Property Additions (including acquisitions) .. 48,230 116,739 144,308 30,362 114,882
Depreciation and Amortization ................ 62,075 60,734 38,600 41,866 27,361
Weighted Average Shares Outstanding:
Primary ................................... 113,018,088 118,909,198 120,135,363 123,830,721 131,969,354
Fully Diluted ............................. 113,220,148 118,909,198 120,135,363 123,830,721 131,969,354
At Year-End:
Working Capital ........................... 290,305 260,644 224,443 199,458 194,754
Current Ratio ............................. 2.5 2.4 2.3 3.0 2.8
Property, Plant and Equipment, Net ........ 344,182 341,266 293,030 192,194 193,237
Total Assets .............................. 816,874 790,935 690,202 496,374 500,609
Total Long-Term Debt ...................... 235,424 376,499 292,763 205,775 228,203
Shareholders' Investment .................. 358,643 201,667 207,434 170,309 147,139
Total Invested Capital* ................... 594,067 576,166 500,197 376,084 375,342
Shareholders' Investment Per Share ........ $ 2.89 $ 1.87 $ 1.73 $ 1.39 $ 1.09
*The sum of shareholders' investment and long-term debt.
NOTE: All share data have been adjusted for two-for-one stock splits effected in
the form of stock dividends in December 1993, March 1992 and May 1989.
</TABLE>
EXHIBIT 13, PAGE 1
<PAGE>
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. International markets
remained weak in 1996, but margins improved slightly after excluding
restructuring costs of $36,078,000 ($24,172,000, net of tax benefit) related to
the Company's decision to exit the woolen carpet business in the United Kingdom
as discussed in Note 8 of the Notes to Consolidated Financial Statements.
During 1996, the Company acquired several residential retailers and
commercial carpet contractors including Bell-Mann, Inc., Carpetland USA, Inc.,
New York Carpet World, Inc. and several others for cash, notes payable and
common stock totaling $188.3 million and resulting in goodwill of $132.8
million, which is being amortized over 20 years. In addition, the Company opened
57 Shaw Carpet Showplace residential retail stores in California and
Pennsylvania and 3 CarpetSmart retail stores in New York and incurred
pre-opening expenses of $13.6 million. Net sales for the Company's retail and
commercial contract business totaled $498.6 million in 1996 and at December 28,
1996, the Company has approximately 350 retail and commercial contract 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
December 28, 1996, the Company has approximately 1,400 aligned dealers.
Liquidity and Capital Resources
At December 28, 1996, the Company had working capital of $670.3 million, an
increase of $28.9 million, or 4.5 percent, over working capital of $641.4
million at December 30, 1995. Cash and cash equivalents increased $18.1 million
from $31.5 million at December 30, 1995 to $49.6 million. Cash flow provided by
operating activities was $166.3 million for 1996, principally net income of
$34.0 million adjusted for depreciation and amortization of $90.9 million and
nonrecurring charges of $29.1 million and restructuring costs of $19.1 million,
compared to $161.2 million in 1995 which included non-cash charges of $12.1
million to reflect a cumulative effect of an accounting change for samples. Cash
used in investing activities for 1996 consisted of additions to property, plant
and equipment of $106.8 million and acquisitions of business assets of $70.2
million compared to $67.3 million and $29.5 million, respectively, in 1995. Cash
flow provided by financing activities during 1996 included an increase in
long-term debt of $231.6 million, offset by payments on debt of $75.0 million,
cash dividends of $40.8 million and repurchases of 7,676,800 shares of common
stock for $87.8 million. In 1995, the Company paid cash dividends of $40.8
million and repurchased 1,384,200 shares of common stock for $20.6 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.
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 $106.8 million. Management anticipates total
capital expenditures and capitalized lease obligations of approximately $100
million in 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 $620.0
million and expires in December 1999. Interest on borrowings under this facility
is currently based on LIBOR, which was 5.69 percent at December 28, 1996 plus
margins ranging from .150 percent to .475 percent. At December 28, 1996,
borrowings outstanding under this credit facility were $599.0 million. During
1996, the Company entered into two interest rate swap agreements with notional
amounts totaling $300.0 million by which the Company agreed to pay interest at
an effective fixed rate of 6.25 percent and 6.57 percent, respectively. As a
result, the interest on approximately one half of the Company's unsecured
revolving credit facility has been fixed. The interest rate swap agreements
expire in 1998. The Company does not use interest rate swap agreements or any
other derivatives for speculative trading purposes.
In September 1996, the Company entered into a multicurrency credit facility
in the United Kingdom with a banking syndicate which provides for borrowings up
to $131.3 million and expires in 2001. Interest on borrowings under this
facility is based on LIBOR and approximated 6.80 percent at December 28, 1996.
Borrowings outstanding under this credit facility were $128.3 million at
December 28, 1996. In addition, the Company maintains a revolving credit
facility in Australia of $70.8 million with $63.6 million outstanding and $7.2
million available at December 28, 1996.
The Company believes that available borrowings under its existing credit
agreements, available cash and internally generated funds will be sufficient to
support its working capital, capital expenditures, capital expansion and debt
service requirements for the foreseeable future. In addition, the Company
believes it could expand its revolving credit and long-term bank facilities, if
necessary.
EXHIBIT 13, PAGE 2
<PAGE>
Inflation
The Company's manufacturing costs and operating expenses are affected by
price changes. The costs of fiber and other raw materials increased slightly in
1996, 1995 and 1994. The Company has historically mitigated inflationary effects
by passing price changes along to its customers and by continually developing
and implementing more cost effective manufacturing and other operational
procedures. The Company's ability to mitigate the effect of price changes will
depend on market factors.
Results of Operations
1996 Compared to 1995
Net sales increased $331.2 million, or 11.5 percent, to $3,201.0 million in
1996. The increase was primarily attributable to incremental net sales of $498.6
million related to the residential retail and commercial contract business,
offset by declines in net sales prices and volumes for the Company's wholesale
manufacturing operations in both the domestic and international markets. Gross
margin as a percentage of net sales increased 3.1 percent to 22.3 percent for
1996, compared to 19.2 percent for 1995, primarily due to higher margins for
retail sales, offset in part by slightly higher raw material costs. Domestic and
international wholesale manufacturing margins improved 1.5 percent and 1.9
percent, respectively, in 1996 compared to 1995 primarily due to improved sales
product mix and increases in the efficiency relationships of volume and fixed
costs which outweighed slightly higher raw material costs.
Selling, general and administrative expenses for 1996 were $540.7 million,
or 16.9 percent of net sales, compared to $393.9 million, or 13.7 percent of net
sales, in 1995. The increase of $146.8 million, or 3.2 percent of net sales, was
primarily due to increased advertising and other selling and administrative
expenses associated with the Company's entrance into the residential retail and
commercial contract business. Pre-opening expenses related to the retail
operations totaled $13.6 million in 1996. Interest expense, net, increased to
$42.4 million in 1996 from $41.9 million in 1995 as a result of higher
borrowings, offset in part by an overall reduction in interest rates.
Results for 1996 included nonrecurring charges of $29.1 million ($26.5
million net of tax benefit, or $.19 per share) and restructuring costs of $36.1
million ($24.2 million net of tax benefit, or $.18 per share) of which $16.1
million was charged to cost of sales. Net income before nonrecurring charges and
restructuring costs was $84.7 million, or $.62 per share compared to $68.7
million or $.50 per share in 1995. Net income after nonrecurring charges and
restructuring costs was $34.0 million, or $.25 per share in 1996 compared to net
income of $52.3 million, or $.38 per share in 1995, after recording a change in
accounting for samples and plant shutdown costs of $16.4 million, or $.12 per
share in 1995.
The effective income tax rate from 1996 was 59.0 percent, compared to 40.8
percent in 1995, as a result of lower taxable income and increases in permanent
tax differences primarily as a result of nondeductible goodwill included in the
nonrecurring charges.
1995 Compared to 1994
Net sales increased $81.3 million, or 2.9 percent, to $2,869.8 million in
1995. After excluding sales in 1994 related to the Terza Joint Venture, sales
increased 4.0 percent. The increase was primarily attributable to incremental
net sales of $134.1 million related to the acquisition of substantially all of
the operating assets of the Carpet Division of Coats Viyella Plc (the "CV
Acquisition") for approximately $29.5 million, offset by declines in net sales
at the Company's other foreign operations. Gross margin as a percent of net
sales decreased 2.4 percent to 19.2 percent for 1995, compared to 21.6 percent
in 1994, primarily due to increased production costs, competitive price
pressures and lower production volumes at the Company's international
operations.
Selling, general and administrative expenses for 1995 were $393.3 million,
or 13.7 percent of net sales, compared to $366.2 million, or 13.1 percent of net
sales, in 1994. Additionally, 1995 results include nonrecurring plant shutdown
costs of $4.3 million related to the closure of two domestic yarn spinning mills
and $2.6 million related to the closure of a yarn spinning mill in Australia.
Interest expense, net, increased $11.9 million, or 39.6 percent, as a result of
higher average borrowings due primarily to stock repurchases and the CV
Acquisition, offset in part by lower average interest rates on the Company's
borrowings. The effective income tax rate for 1995 was 40.8 percent, compared to
37.9 percent in 1994, as a result of lower taxable income which increased the
effect of permanent tax differences.
EXHIBIT 13, PAGE 3
<PAGE>
Nonrecurring Charges and Restructuring Costs
In March 1996, the Company recorded nonrecurring charges of $29.1 million
($26.5 million, net of tax benefit, or $.19 per share) for the reduction of the
carrying value of certain goodwill and property, plant and equipment at its
international operations and a provision for the disposal of certain other
assets.
In December 1996, the Company recorded restructuring costs of $36.1 million
($24.2 million, net of tax benefit, or $.18 per share) related to its woolen
yarn operations and the discontinuance of Axminster carpet production in the
United Kingdom. Of these restructuring costs, $16.1 million represented
inventory markdowns which have been charged to cost of sales.
Foreign Operations
The Company's primary foreign operations are conducted through its United
Kingdom and Australian subsidiaries, where the functional currencies are British
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.
EXHIBIT 13, PAGE 4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
<S> <C> <C> <C>
1996 1995 1994
--------------- --------------- ---------------
Net Sales ................................................ $ 3,200,964,000 $ 2,869,828,000 $ 2,788,527,000
Costs and Expenses:
Cost of sales .......................................... 2,486,164,000 2,319,894,000 2,187,439,000
Selling, general and administrative .................... 540,748,000 393,868,000 366,189,000
Pre-opening expenses ................................... 13,595,000 -- --
Restructuring costs .................................... 19,963,000 -- --
Nonrecurring charges ................................... 29,139,000 6,967,000 --
Interest, net .......................................... 42,442,000 41,901,000 30,022,000
Other (income) expense, net ............................ (4,705,000) 443,000 (4,922,000)
--------------- --------------- ---------------
Income Before Income Taxes ............................... 73,618,000 106,755,000 209,799,000
Provision for Income Taxes ............................... 43,463,000 43,603,000 79,410,000
--------------- --------------- ---------------
Income Before Equity in Income of Joint Venture,
Extraordinary Item and Accounting Change ............ 30,155,000 63,152,000 130,389,000
Equity in Income of Joint Venture ........................ 3,868,000 1,229,000 --
--------------- --------------- ---------------
Income Before Extraordinary Item and Accounting Change ... 34,023,000 64,381,000 130,389,000
Extraordinary Item, net of tax benefit ................... -- -- (3,363,000)
Cumulative Effect of Accounting Change, net of tax benefit -- (12,077,000) --
=============== =============== ===============
Net Income ............................................... $ 34,023,000 $ 52,304,000 $ 127,026,000
=============== =============== ===============
Earnings Per Common Share :
Primary and Fully Diluted Basis-
Before Extraordinary Item and Accounting Change ..... $ 0.25 $ 0.47 $ 0.91
Extraordinary Item .................................. -- -- (0.02)
Cumulative Effect of Accounting Change .............. -- (0.09) --
=============== =============== ===============
Net Income .......................................... $ 0.25 $ 0.38 $ 0.89
=============== =============== ===============
Weighted Average Shares Outstanding:
Primary ............................................. 135,909,265 136,378,493 142,483,289
Fully Diluted ....................................... 135,909,265 136,378,493 142,489,938
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EXHIBIT 13, PAGE 5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 28, 1996 and December 30, 1995
<S> <C> <C>
- - ---------------------------------------------------------------------------------------
1996 1995
- - ---------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 49,581,000 $ 31,453,000
-------------- --------------
Accounts receivable, less allowance for doubtful
accounts and discounts of $16,667,000 in 1996 and
$14,746,000 in 1995 ............................. 393,983,000 345,443,000
-------------- --------------
Inventories -
Raw materials ..................................... 251,262,000 232,693,000
Work-in-process ................................... 26,070,000 25,330,000
Finished goods .................................... 279,453,000 231,189,000
-------------- --------------
556,785,000 489,212,000
-------------- --------------
Other current assets ................................ 81,056,000 36,403,000
-------------- --------------
Total current assets ........................... 1,081,405,000 902,511,000
-------------- --------------
Property, Plant and Equipment, at cost:
Land and land improvements ........................ 29,584,000 27,173,000
Buildings and leasehold improvements .............. 293,072,000 269,715,000
Machinery and equipment ........................... 969,601,000 914,126,000
Construction in progress .......................... 45,289,000 22,986,000
-------------- --------------
1,337,546,000 1,234,000,000
Less - Accumulated depreciation and amortization .. 682,405,000 602,010,000
-------------- --------------
655,141,000 631,990,000
-------------- --------------
Goodwill, net ....................................... 212,398,000 104,280,000
-------------- --------------
Investment in Joint Venture ......................... 18,302,000 15,513,000
-------------- --------------
Other Assets ........................................ 17,152,000 8,489,000
-------------- --------------
TOTAL ASSETS ................................... $1,984,398,000 $1,662,783,000
============== ==============
EXHIBIT 13, PAGE 6
<PAGE>
- - ---------------------------------------------------------------------------------------
1996 1995
- - ---------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Notes payable ..................................... $ 35,084,000 $ --
Current maturities of long-term debt .............. 17,431,000 5,305,000
Accounts payable .................................. 195,347,000 114,326,000
Accrued liabilities ............................... 163,199,000 141,435,000
-------------- --------------
Total current liabilities ...................... 411,061,000 261,066,000
-------------- --------------
Long-Term Debt, less current maturities ............. 825,280,000 627,130,000
-------------- --------------
Deferred Income Taxes ............................... 63,453,000 51,000,000
-------------- --------------
Other Liabilities ................................... 12,893,000 13,398,000
-------------- --------------
Commitments and Contingencies
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: 132,772,548
shares at December 28, 1996 and 135,956,602 shares
at December 30, 1995 ............................ 147,379,000 150,913,000
Paid-in capital ................................... 72,335,000 101,718,000
Cumulative translation adjustment ................. 3,058,000 1,895,000
Retained earnings ................................. 448,939,000 455,663,000
-------------- --------------
Total shareholders' investment ................. 671,711,000 710,189,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT . $1,984,398,000 $1,662,783,000
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EXHIBIT 13, PAGE 7
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
<S> <C> <C> <C> <C> <C> <C>
Cumulative
Common Stock Paid-In Translation Retained Unearned
Shares Amount Capital Adjustment Earnings Compensation
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1994 ...... 143,522,462 $ 159,311,000 $ 217,348,000 $ (594,000) $ 348,234,000 $ (469,000)
Net income ................. -- -- -- -- 127,026,000 --
Purchase and retirement
of common stock ......... (7,173,300) (7,962,000) (102,427,000) -- -- --
Exercise of discounted
stock options ........... 102,840 114,000 (475,000) -- -- --
Exercise of stock options .. 565,400 627,000 814,000 -- -- --
Cumulative translation
adjustment .............. -- -- -- (1,221,000) -- --
Tax benefit on
disqualified dispositions
of stock options ........ -- -- 3,375,000 -- -- --
Amortization of unearned
compensation ............ -- -- -- -- -- 469,000
Cash dividends paid
($.22 per share) ........ -- -- -- -- (31,145,000) --
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 .... 137,017,402 152,090,000 118,635,000 (1,815,000) 444,115,000 --
Net income ................. -- -- -- -- 52,304,000 --
Purchase and retirement
of common stock ......... (1,384,200) (1,537,000) (19,053,000) -- -- --
Exercise of stock options .. 323,400 360,000 2,136,000 -- -- --
Cumulative translation
adjustment .............. -- -- -- 3,710,000 -- --
Cash dividends paid
($.30 per share) ........ -- -- -- -- (40,756,000) --
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 30, 1995 .... 135,956,602 150,913,000 101,718,000 1,895,000 455,663,000 --
Net income ................. -- -- -- -- 34,023,000
Issuance of stock in
acquisitions ............. 4,379,646 4,862,000 49,207,000 -- -- --
Purchase and retirement
of common stock ......... (7,676,800) (8,521,000) (79,275,000) -- -- --
Exercise of stock options .. 113,100 125,000 685,000 -- -- --
Cumulative translation
adjustment .............. -- -- -- 1,163,000 -- --
Cash dividends paid
($.30 per share) ........ -- -- -- -- (40,747,000) --
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1996 .... 132,772,548 $ 147,379,000 $ 72,335,000 $ 3,058,000 $ 448,939,000 $ --
====================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EXHIBIT 13, PAGE 8
<PAGE>
<TABLE>
<CAPTION>
SHAW INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
<S> <C> <C> <C>
1996 1995 1994
- - -------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net Income ........................................................ $ 34,023,000 $ 52,304,000 $ 127,026,000
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and amortization ............................. 90,906,000 91,083,000 84,898,000
Provision for doubtful accounts ........................... 10,777,000 8,629,000 12,747,000
Deferred income taxes ..................................... 12,120,000 5,028,000 (1,457,000)
Nonrecurring charges ...................................... 29,139,000 -- --
Restructuring costs ....................................... 19,963,000 -- --
Cumulative effect of accounting change .................... -- 12,077,000 --
Extraordinary loss on early extinguishment of debt ........ -- -- 3,363,000
Stock option compensation expense ......................... -- -- 469,000
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable ............................... 1,937,000 (21,137,000) (44,132,000)
Inventories ....................................... 2,250,000 2,456,000 (45,664,000)
Accounts payable .................................. 22,427,000 (32,899,000) (16,341,000)
Accrued liabilities ............................... (16,703,000) 28,277,000 (9,769,000)
Other, net ........................................ (40,560,000) 15,429,000 (22,512,000)
- - -------------------------------------------------------------------------------------------------------------------------------
Total Adjustments ......................... 132,256,000 108,943,000 (38,398,000)
- - -------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities ......... 166,279,000 161,247,000 88,628,000
- - -------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Increase in property, plant and equipment ......................... (106,848,000) (67,257,000) (148,904,000)
Acquisitions of business assets ................................... (70,214,000) (29,503,000) (8,386,000)
Investment in joint venture ....................................... -- (3,500,000) (10,001,000)
Deconsolidation of joint venture .................................. -- (3,828,000) --
- - -------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities ............. (177,062,000) (104,088,000) (167,291,000)
- - -------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings under revolving credit agreement ....................... 155,000,000 30,000,000 389,143,000
Repayment of revolving credit agreement ........................... (75,000,000) (35,000,000) --
Borrowings on other long-term debt ................................ 76,644,000 3,779,000 --
Repayment of long-term debt ....................................... -- -- (142,887,000)
Net payments on short-term debt ................................... -- -- (20,000,000)
Cash paid to retire debt .......................................... -- -- (5,513,000)
Purchase and retirement of common stock ........................... (87,796,000) (20,590,000) (110,389,000)
Payment of cash dividends ......................................... (40,747,000) (40,756,000) (31,145,000)
Proceeds from exercise of stock options ........................... 810,000 2,496,000 1,080,000
- - -------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 28,911,000 (60,071,000) 80,289,000
- - -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Net change ........................................................ 18,128,000 (2,912,000) 1,626,000
Beginning of period ............................................... 31,453,000 34,365,000 32,739,000
- - -------------------------------------------------------------------------------------------------------------------------------
End of period ..................................................... $ 49,581,000 $ 31,453,000 $ 34,365,000
===============================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for -
Interest .................................................. $ 39,997,000 $ 41,751,000 $ 31,451,000
Income taxes .............................................. $ 63,696,000 $ 36,874,000 $ 64,308,000
Noncash capital lease obligations ................................. $ 1,540,000 $ 3,450,000 $ 1,667,000
Acquisition of business assets by assuming liabilities ............ $ 121,670,000 $ -- $ --
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EXHIBIT 13, PAGE 9
<PAGE>
Notes to Consolidated Financial Statements
December 28, 1996, December 30, 1995 and December 31, 1994
Note 1 Summary of Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Shaw
Industries, Inc. and subsidiaries (the "Company"). All significant intercompany
balances and transactions are eliminated in consolidation.
Nature of Business
The Company manufactures and distributes carpet in a broad range of prices,
patterns, colors and textures for residential and commercial use. The Company
markets its wholesale products through distribution channels to floorcovering
retailers, distributors and contractors throughout the United States, Canada,
Australia, Mexico and the United Kingdom; and through its own residential retail
and commercial contract distribution channels to various residential and
commercial end users in the United States.
Fiscal Period
The Company's fiscal year-end is the Saturday closest to December 31.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized when goods are shipped for wholesale sales and
generally as installed for residential retail and commercial contract sales.
Cash and Cash Equivalents
The Company considers all investments with an original maturity of three
months or less to be cash equivalents.
Inventory Valuation
Inventories are stated at the lower of cost or market. Cost includes
materials, direct and indirect labor and factory overhead. Market with respect
to raw materials is replacement cost and for work-in-process and finished goods
is net realizable value. The Company uses the last-in, first-out (LIFO) method
of valuing certain of its domestic inventories to more properly match current
costs against current revenues, thereby reducing the effects of price changes on
earnings. If LIFO inventories were valued at current costs, the inventory
amounts would have been $1,643,000 and $9,992,000 lower than those reported at
December 28, 1996 and December 30, 1995, respectively. Although current
replacement cost for inventories was less than LIFO carrying value at December
28, 1996, the Company's management believes that the carrying value will be
recovered through profit margins on future sales. The Company's foreign 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.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Renewals and betterments
are capitalized; maintenance and repairs are charged to expenses as incurred.
The cost and accumulated depreciation of property retired or otherwise disposed
of are removed from the accounts, and any gains or losses thereon are included
in income. For financial reporting purposes, depreciation is computed using the
straight-line method over the estimated useful lives of the assets, 15 to 39
years for buildings and 5 to 14 years for machinery and equipment. Leasehold
improvements are amortized over the terms of the related leases.
EXHIBIT 13, PAGE 10
<PAGE>
Goodwill
Costs in excess of the fair value of net assets of businesses acquired are
recorded as goodwill and are amortized using the straight-line method over a
period not to exceed 40 years for acquisitions of domestic and foreign
manufacturing operations and 20 years for acquisitions of residential retail and
commercial contract operations. The recoverability of goodwill is periodically
reviewed by management based on current and anticipated conditions. The amount
of goodwill considered realizable, however, could be reduced in the near term if
changes occur in anticipated conditions. Accumulated amortization was
$11,485,000 and $6,210,000 at December 28, 1996 and December 30, 1995,
respectively.
Accrued Liabilities
Accrued liabilities include $30,599,000 and $24,879,000 for workers'
compensation claims and $32,918,000 and $26,375,000 for returns and allowances
at December 28, 1996 and December 30, 1995, respectively.
Employee Benefits
The Company's Retirement Savings Plan provides, among other things, for
voluntary contributions by domestic employees not to exceed 15 percent of their
gross salaries and wages. The Company provides matching contributions of 25 to
50 percent based on the employee's contribution percentage. During 1996, 1995
and 1994, the Company contributed $9,960,000, $9,356,000 and $8,936,000,
respectively, under the plan.
The Company has a Deferred Compensation Plan for key personnel. The plan
provides, among other things, for certain deferred compensation to become
payable on the employee's death, retirement or total disability as set forth in
the plan. During 1996, 1995 and 1994, the Company provided $2,008,000,
$1,425,000, and $2,564,000, respectively, under the plan. These amounts have
been recorded as other liabilities in the accompanying balance sheets.
The Company has a defined benefit plan covering certain employees of its
United Kingdom operations which provides for the payment of specific periodic
payments upon retirement based on years of service. The projected benefit
obligation was $64,800,000 and $54,300,000 as of December 28, 1996 and December
30, 1995, respectively, and the fair value of plan assets was $65,900,000 and
$54,700,000 as of December 28, 1996 and December 30, 1995, respectively. Net
pension cost recognized by the Company during 1996, 1995 and 1994 was
$3,800,000, $3,595,000 and $988,000, respectively.
Earnings Per Share
Earnings per share have been computed based upon the weighted average
shares and dilutive common stock equivalents outstanding during the year.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
translated into United States currency in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, "Foreign Currency Translation." Assets and
liabilities are translated into United States dollars at period-end exchange
rates. Income and expense items are translated at average rates of exchange
prevailing during the period. Translation adjustments are accumulated as a
separate component of shareholders' investment. Gains and losses which result
from foreign currency transactions are included in the accompanying statements
of income.
Accounting Change
Effective January 1, 1995, the Company changed its method of accounting for
sample costs from expensing sample costs that exceed 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. The cumulative effect
of the change was to decrease net income for the year ended December 30, 1995 by
$12,077,000, or $.09 per share, net of tax benefit of $7,885,000.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
EXHIBIT 13, PAGE 11
<PAGE>
Notes to Consolidated Financial Statements
Note 2 Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt at December 28, 1996 and December 30, 1995 consisted of the
following (000s omitted):
<S> <C> <C>
1996 1995
- - --------------------------------------------------------------------------------- ------------ ------------
Revolving credit facility, United States, at LIBOR-based rate, due in fiscal 1999 $ 599,000 $ 519,000
Multicurrency revolving credit facility, United Kingdom, at LIBOR-based rate,
due in fiscal 2001 ............................................................. 128,294 --
Revolving loan facility, United Kingdom, at LIBOR-based rate, due in fiscal 1997 -- 31,060
Revolving loan facility, Australia, at LIBOR-based rate, due in fiscal 1998 ..... 63,648 59,108
Other obligations with maturities ranging from fiscal 1997 to fiscal 1999 ....... 40,029 18,403
Capitalized lease obligations (Note 5) .......................................... 11,740 4,864
- - --------------------------------------------------------------------------------- ------------ ------------
842,711 632,435
Less: current maturities ........................................................ (17,431) (5,305)
- - --------------------------------------------------------------------------------- ------------ ------------
$ 825,280 $ 627,130
============ ============
</TABLE>
The domestic revolving credit facility provides for borrowings of up to
$620,000,000. 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. The LIBOR-based rate at December 28, 1996 was 5.73 percent. Fees
associated with the domestic revolving credit agreement include a facility fee
on the committed amount ranging from 0.10 percent to 0.15 percent. The
LIBOR-based variable interest rate on a total of $300,000,000 of the domestic
revolving credit facility has been fixed through 1998 at a rate ranging from
6.25 percent to 6.57 percent using interest rate swap agreements. The Company
also has revolving loan facilities through which its foreign subsidiaries obtain
funds necessary for operations. In September 1996, the Company completed an
unsecured multicurrency revolving credit facility in the United Kingdom which
provides for borrowings up to $131,300,000 and was used to repay the previous
revolving credit facility and certain intercompany advances. The borrowings bear
interest at a LIBOR-based rate which was 6.80 percent at December 28, 1996. The
repayment of these revolving loan facilities for its foreign subsidiaries is
guaranteed by the Company.
The domestic revolving credit facility contains covenants which, among
other provisions, (i) limit the Company's ability to incur indebtedness or
assume liens, (ii) limit the payment of cash dividends and repurchases of common
stock, (iii) limit new indebtedness and lease obligations and (iv) require the
Company to satisfy certain ratios related to net worth, debt-to-equity and
interest coverage. At December 28, 1996, retained earnings of $21,056,000 are
available for the payment of cash dividends. The foreign revolving loan
facilities have covenants that are no more restrictive than those of the
domestic revolving credit agreement. At December 28, 1996, the Company was in
compliance with the terms of these agreements.
In 1994, the Company elected to exercise its option to prepay certain term
notes payable. An extraordinary charge of $3,363,000, net of income tax benefit
of $2,150,000, was incurred as a result of the early extinguishment of the notes
payable.
The aggregate annual maturities of long-term debt, including the
capitalized lease obligations, as of December 28, 1996 are as follows:
1997-$17,431,000; 1998-$67,023,000; 1999-$626,225,000; 2000-$1,893,000;
2001-$129,018,000; and thereafter-$1,121,000.
The following is presented with respect to amounts outstanding under
revolving credit facilities in 1996 and 1995 (000s omitted):
Revolving Credit: 1996 1995
- - ------------------------------------------------ ---------- ----------
Available at year-end .......................... $819,102 $710,168
Unused at year-end ............................. 28,160 101,000
EXHIBIT 13, PAGE 12
<PAGE>
Notes to Consolidated Financial Statements
Note 3 Shareholders' Investment
Under the Company's 1987 and 1992 Incentive Stock Option Plans, 8 million
and 6 million shares of common stock, respectively, were reserved for issuance
at a price no less than the market value on the date granted. These options are
exercisable over five to ten years.
The following is a summary of stock option information for the 1987 and
1992 Incentive Stock Option Plans:
1996 1995
- - --------------------------------------------------------------------------------
Options outstanding, beginning of year ......... 4,300,100 2,828,900
Options granted ................................ 1,510,800 1,939,200
Options exercised .............................. (113,100) (323,400)
Options canceled ............................... (232,600) (144,600)
Options outstanding, end of year ............... 5,465,200 4,300,100
Option price range per share ................... $11.975-$17.02 $2.07-$17.02
Options exercisable, end of year ............... 2,456,800 2,114,500
Options available for grant .................... 3,143,000 4,421,200
- - --------------------------------------------------------------------------------
The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," under which no compensation was recognized in 1996, 1995
and 1994 for its incentive stock option plans. The Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," for disclosure purposes in 1996,
which is effective for fiscal years beginning in 1995. Accordingly, the fair
value of each incentive stock option grant for 1996 and 1995 has been estimated
as of the date of the grant using the Black-Scholes option pricing model with
the following weighted average assumptions for the 1996 and 1995 grants,
respectively: risk-free interest rates of 6.64 percent and 6.21 percent;
dividend yields of 2.30 percent and 1.80 percent; expected volatilities of 35
percent for both years; and expected life of 5 years for both years. Using these
assumptions, the fair value of the stock option grants for 1996 and 1995 was
$7.2 million, or $4.78 per option granted and $13.7 million, or $7.07 per option
granted, respectively. Had compensation cost been determined utilizing the
assumptions detailed above, the Company's net income and net income per common
share would have been reduced to the following pro forma amounts:
1996 1995
- - --------------------------------------------------------------------------------
Net income (in thousands):
As reported ............................ $ 34,023 $ 52,304
Pro forma .............................. 31,981 51,694
Net income per common share:
As reported ............................ $ .25 $ .38
Pro forma .............................. .24 .38
- - --------------------------------------------------------------------------------
The Company's 1989 Discounted Stock Option Plan provided for the issuance
of up to 880,000 shares of common stock to key employees. Options for 880,000
shares were granted to three officers at $.25 per share and all 880,000 had been
exercised at December 31, 1994. The difference between the option price and
market price at the date of grant was amortized over the option period resulting
in compensation expense of $469,000 in 1994.
During March 1989, the Company adopted a Shareholder Rights Plan and
pursuant thereto declared a dividend of one Right for each outstanding share of
common stock. When exercisable, each Right will entitle its holder to buy one
one-hundredth of a share of Series A Participating Preferred Stock at a price of
$12.50 per share (the "Purchase Price"). If a person or group acquires or makes
a tender or exchange offer to acquire 20 percent or more of the Company's common
stock without the consent of the Company (an "Acquiring Shareholder"), the
Rights will become exercisable and each Right will entitle the holder, other
than the Acquiring Shareholder, to receive, upon payment of the Purchase Price,
in lieu of preferred stock, a number of shares of common stock of the Company
having a market value equal to twice the Purchase Price. The Rights may be
redeemed by the Company under certain circumstances at a price of $.01 per
Right. The Rights have no voting power and, until exercised, no dilutive effect
on net income per common share. If not previously redeemed, the Rights will
expire in April 1999. The Company has designated 200,000 shares, of the 250,000
shares of preferred stock authorized, as Series A Participating Preferred Stock
for issuance upon exercise of the Rights.
The Company's board of directors has approved a stock repurchase plan
whereby the Company's management is authorized to repurchase an additional
9,416,252 shares of the Company's common stock. For the year ended December 28,
1996, a total of 7,676,800 shares of the Company's common stock had been
purchased and retired at a cost of $87,796,000. During the year ended December
30, 1995, a total of 1,384,200 shares were repurchased and retired at a cost of
$20,590,000. At December 28, 1996, the Company has authority to repurchase up to
7,736,000 shares of the Company's common stock under the stock repurchase plan.
In 1995, the Company's board of directors approved a dividend reinvestment
plan whereby all holders of record of the Company's common stock are eligible to
participate. The plan provides a method of investing cash dividends and optional
cash payments in shares of the Company's common stock. All costs associated with
administering the plan are paid by the Company.
EXHIBIT 13, PAGE 13
<PAGE>
Notes to Consolidated Financial Statements
Note 4 Income Taxes
The provision for income taxes consisted of the following (000s omitted):
Current: 1996 1995 1994
- - --------------------------------------------------------------------------------
Federal .............................. $ 51,429 $ 45,579 $ 59,254
State ................................ 7,824 6,907 10,656
Foreign .............................. -- -- 2,558
- - --------------------------------------------------------------------------------
59,253 52,486 72,468
Foreign operating loss carryforwards ..... (8,268) (10,688) --
Deferred ................................. (7,522) 1,805 6,942
- - --------------------------------------------------------------------------------
$ 43,463 $ 43,603 $ 79,410
- - --------------------------------------------------------------------------------
The differences between the federal statutory income tax rate and the
Company's effective tax rate were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
- - ---------------------------------------------------------------------------------------
Federal statutory rate .................................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit ............ 4.6 4.4 3.9
Nondeductible goodwill .................................... 13.2 .8 .2
Difference in foreign tax rates versus U.S. statutory rates 5.2 1.6 .1
Other, net ................................................ 1.0 (1.0) (1.3)
- - ---------------------------------------------------------------------------------------
59.0% 40.8% 37.9%
=======================================================================================
</TABLE>
EXHIBIT 13, PAGE 14
<PAGE>
Note 4 Income Taxes (cont)
<TABLE>
<CAPTION>
Components of the net deferred income tax liability at December 28, 1996
and December 30, 1995 are shown below (000s omitted):
<S> <C> <C>
1996 1995
- - ---------------------------------------------------------------------------------------
Deferred income tax assets:
Accrued advertising expenses not currently deductible .... $ 2,253 $ 4,221
Reserve for cash discounts and bad debts ................. 5,179 4,850
Employee benefit accruals not currently deductible ....... 19,672 20,893
Reserve for returns and allowances ....................... 12,082 10,526
Foreign net operating loss carryforwards ................. 24,491 16,223
Reorganization provision ................................. 10,950 --
Other .................................................... 2,586 612
- - ---------------------------------------------------------------------------------------
77,213 57,325
- - ---------------------------------------------------------------------------------------
Deferred income tax liabilities:
Book basis of inventory over tax basis ................... (10,708) (14,054)
Sample costs ............................................. -- (2,073)
Book basis of property, plant and equipment over tax basis (69,307) (56,405)
Other .................................................... (1,114) (4,499)
- - ---------------------------------------------------------------------------------------
(81,129) (77,031)
- - ---------------------------------------------------------------------------------------
$ (3,916) $(19,706)
=======================================================================================
</TABLE>
The Company has recorded a deferred tax asset of $24,491,000 for income tax
loss carryforwards related to its foreign operations. Realization is dependent
on generating sufficient future taxable income at the related foreign
operations. Although realization is not assured, management believes it is more
likely than not that all of the deferred tax asset will be realized. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income are reduced.
EXHIBIT 13, PAGE 15
<PAGE>
Notes to Consolidated Financial Statements
Note 5 Commitments and Contingencies
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 Department
of Justice relating to an investigation of the industry. 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
Company believes that the suit is spurious and without merit, and that once
completed, it will not have a material adverse effect on the Company's financial
condition or results of operations. 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.
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.
The Company has entered into several capitalized leases for machinery and
equipment, including computer equipment, at a cost of $61,746,000 at December
28, 1996 and $57,113,000 at December 30, 1995. These assets are amortized on a
straight-line basis over the lease terms and amortization is included in
depreciation expense. Accumulated amortization of capital lease cost was
$52,389,000 and $45,218,000 at December 28, 1996 and December 30, 1995,
respectively. The related obligations are included in long-term debt (Note 2).
The Company also leases warehouses and showroom space, customer service centers
and certain equipment under operating leases.
<TABLE>
<CAPTION>
At December 28, 1996, future minimum lease payments for all capital and
operating leases exceeding one year were as follows (000s omitted):
<C> <C> <C> <C>
Capital Operating Total Future
Leases Leases Payments
- - -----------------------------------------------------------------------------------------
1997 $ 4,120 $ 44,968 $ 49,088
1998 3,159 38,314 41,473
1999 2,701 30,009 32,710
2000 1,915 23,508 25,423
2001 709 17,200 17,909
2002 and thereafter 235 49,905 50,140
- - -----------------------------------------------------------------------------------------
Total Payments 12,839 $203,904 $216,743
Less: amount representing interest 1,099 ========================
- - --------------------------------------------------
Present value of capitalized lease payments with a
weighted average interest rate of 9.40% $ 11,740
=========================================================
</TABLE>
Rental payments under noncancelable operating leases were $44,667,000,
$32,187,000 and $30,389,000 in 1996, 1995 and 1994, respectively.
At December 28, 1996, the Company had commitments to purchase certain
capital assets of approximately $38,500,000.
EXHIBIT 13, PAGE 16
<PAGE>
Notes to Consolidated Financial Statements
Note 6 Derivative Financial Instruments and Fair Value of Financial Instruments
The Company does not use derivatives for speculative trading purposes. The
Company may employ foreign currency exchange contracts when, in the normal
course of business, they are determined to effectively manage and reduce foreign
currency exchange rate fluctuation risk. As of December 28, 1996, the Company
had no foreign currency exchange contracts outstanding. Interest rate swap
agreements may be used to effectively manage interest costs. The Company entered
into two interest rate swap agreements in 1996 with a total notional amount of
$300,000,000 to fix the interest rate paid on a portion of the domestic
revolving credit facility. The fixed interest rate paid on the two interest rate
swap agreements was 6.00 percent while the floating rate received averaged 5.44
percent.
The carrying amount and fair value of the Company's financial instruments
are as follows (000s omitted):
December 28, 1996 December 30, 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
- - --------------------------------------------------------------------------------
Debt:
Revolving credit facilities ...... $790,942 $790,942 $609,168 $609,168
Other obligations ................ 51,769 51,769 23,267 23,267
Interest rate swap agreements .... -- 814 -- --
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Revolving Credit Facilities
The carrying values of the revolving credit facilities approximate their
fair values due to the floating market interest rates charged on those
facilities.
Other Obligations
The carrying values of other obligations approximate their fair values due
to the interest rates charged on those agreements: either floating market rates
or fixed rates which approximated market rates available at December 28, 1996
and December 30, 1995.
Interest Rate Swap Agreements
The fair values of the interest rate swap agreements were estimated by
obtaining quotes from brokers.
EXHIBIT 13, PAGE 17
<PAGE>
Notes to Consolidated Financial Statements
Note 7 Acquisitions
On May 31, 1994, the Company formed a joint venture (the "Terza 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
primarily in Mexico and South America. The Company originally acquired a 51
percent interest in the Terza Joint Venture for $14,050,000, and accordingly,
the joint venture's financial statements were consolidated with the Company's
financial statements at December 31, 1994 and for the period from the
acquisition date to December 31, 1994. Effective January 1, 1995, the Company
sold a 2 percent interest in the Terza Joint Venture for $550,000 reducing its
interest to 49 percent. As a result, the Company's investment in the Terza Joint
Venture is being accounted for using the equity method. The deconsolidation of
the Terza Joint Venture had an insignificant effect on the Company's
consolidated total assets and net sales as of and for the year ended December
30, 1995.
In January 1995, the Company increased its operations in the United Kingdom
by acquiring substantially all of the operating assets of the Carpets Division
of Coats Viyella Plc for approximately $29,503,000.
During 1996, the Company acquired certain residential retail and commercial
contractors in order to develop and expand its presence in the retail
distribution channel. To complete the acquisitions, the Company paid $70,214,000
in cash, net of cash acquired, and issued 4,379,646 shares of common stock at an
aggregate value of $54,069,000, notes payable of $35,000,000 due January 15,
1997, and notes payable of $24,000,000 due June 1999 convertible to 1,500,000
shares of the Company's common stock at the option of the note holders. As a
result of these acquisitions, the Company recorded goodwill of $132,756,000.
EXHIBIT 13, PAGE 18
<PAGE>
Notes to Consolidated Financial Statements
Note 8 Restructuring Costs and Nonrecurring Charges
Nonrecurring Plant Shutdown Costs
During 1995, the Company closed two of its domestic yarn spinning mills and
one yarn spinning mill in Australia. As a result, the Company recorded a charge
of $4,360,000 related to the domestic plant closings and $2,607,000 related to
the foreign plant closing. These charges related primarily to termination
benefits and to recording affected property, plant and equipment at its net
realizable value.
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 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.
Restructuring Costs
In December 1996, the Company recorded $36,078,000 ($24,172,000, net of tax
benefit, or $.18 per share) of restructuring costs related to woolen yarn
operations and the discontinuance of Axminster carpet production in the United
Kingdom. The restructuring costs include $16,115,000 of markdowns of inventory
to estimated realizable value which have been recorded as a charge to cost of
sales.
EXHIBIT 13, PAGE 19
<PAGE>
Notes to Consolidated Financial Statements
Note 9 Foreign Operations
The following information is presented regarding the Company's consolidated
foreign operations for the years ended December 28, 1996, December 30, 1995 and
December 31, 1994 (000s omitted):
<TABLE>
<CAPTION>
1996
============================================================================================
<S> <C> <C> <C> <C>
Adjustments
and
Domestic Foreign Eliminations Consolidated
- - --------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 2,865,147 $ 335,817 $ -- $ 3,200,964
============================================================================================
Operating profit (loss) ....... $ 169,638 $ (58,283) $ -- $ 111,355
============================================================================
Interest expense, net ......... (42,442)
Miscellaneous income, net ..... 4,705
------------
Income before income taxes $ 73,618
============
Identifiable assets ........... $ 1,770,386 $ 266,014 $ (52,002) $ 1,984,398
============================================================================================
1995
============================================================================================
Adjustments
and
Domestic Foreign Eliminations Consolidated
- - --------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 2,509,443 $ 360,385 $ -- $ 2,869,828
============================================================================================
Operating profit (loss) ....... $ 168,500 $ (19,401) $ -- $ 149,099
============================================================================
Interest expense, net ......... (41,901)
Miscellaneous expense, net .... (443)
------------
Income before income taxes $ 106,755
============
Identifiable assets ........... $ 1,504,756 $ 292,850 $(134,823) $ 1,662,783
============================================================================================
1994
============================================================================================
Adjustments
and
Domestic Foreign Eliminations Consolidated
- - --------------------------------------------------------------------------------------------
Sales to unaffiliated customers $ 2,498,090 $ 290,437 $ -- $ 2,788,527
============================================================================================
Operating profit .............. $ 228,168 $ 6,731 $ -- $ 234,899
============================================================================
Interest expense, net ......... (30,022)
Miscellaneous income, net ..... 4,922
------------
Income before income taxes $ 209,799
============
Identifiable assets ........... $ 1,439,260 $ 340,790 $(82,672) $ 1,697,378
============================================================================================
</TABLE>
Sales and transfers between geographic areas and export sales are not
material. Operating profit is total revenue less operating expenses. In
computing operating profit, none of the following items has been added or
deducted: net interest expense, net miscellaneous income, income taxes, equity
in income of joint venture, the cumulative effect of an accounting change or the
extraordinary item related to early extinguishment of debt.
Identifiable assets are those assets of the Company that are identified
with the operations in each geographic area, including goodwill.
EXHIBIT 13, PAGE 20
<PAGE>
Notes to Consolidated Financial Statements
Note 10 Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1996, 1995 and 1994 is as follows
(000s except per share amounts):
1996 Quarters***** First* Second Third Fourth**
================================================================================
Net Sales .................... $ 657,742 $ 785,735 $ 881,506 $ 875,981
Gross Profit ................. 129,504 170,949 207,904 206,443
Net Income (Loss) ............ (15,584) 28,099 24,179 (2,671)
Earnings (Loss) Per Share-
Primary and Fully Diluted (0.11) 0.21 0.18 (0.02)
- - --------------------------------------------------------------------------------
1995 Quarters First*** Second Third Fourth
================================================================================
Net Sales .................... $ 676,550 $ 738,326 $ 748,364 $ 706,588
Gross Profit ................. 117,081 144,516 142,716 145,621
Net Income (Loss) ............ (7,600) 18,673 21,905 19,326
Earnings (Loss) Per Share-
Primary and Fully Diluted (0.06) 0.14 0.16 0.14
- - --------------------------------------------------------------------------------
1994 Quarters First Second**** Third Fourth
================================================================================
Net Sales .................... $ 620,126 $ 722,219 $ 734,100 $ 712,082
Gross Profit ................. 126,198 165,926 156,880 152,084
Net Income ................... 25,325 40,479 33,162 28,060
Earnings Per Share-
Primary and Fully Diluted 0.17 0.28 0.24 0.20
- - --------------------------------------------------------------------------------
* The first quarter net income and per share amounts for 1996 include
nonrecurring charges of $26,519,000, or $.19 per share, net of tax benefit,
for the reduction in the carrying value of certain goodwill and property,
plant and equipment at its international operations related to the adoption
of SFAS No. 121 and a provision for the disposal of certain other assets.
** The fourth quarter net income and per share amounts for 1996 include
restructuring costs of $24,172,000, or $.18 per share, net of tax benefit,
related to woolen and Axminster production in the United Kingdom.
*** The first quarter net income and per share amounts for 1995 include a
charge of $12,077,000, or $.09 per share, net of tax benefit, from the
cumulative effect of a change in the method of accounting for sample costs.
**** The second quarter net income and per share amounts for 1994 include
the effect of an extraordinary loss on early extinguishment of debt of
$3,363,000, or $.02 per share, net of tax benefit.
***** The sum of the 1996 quarterly net earnings per share amounts is
different from the annual net earnings per share amounts because of
differences in the weighted average number of common shares outstanding
used in the quarterly and annual computations.
EXHIBIT 13, PAGE 21
<PAGE>
Notes to Consolidated Financial Statements
Note 11 Subsequent Event
In January 1997, the Company acquired G & S Investments, Inc. and
affiliates, collectively doing business as The Carpet Exchange, for cash.
EXHIBIT 13, PAGE 22
<PAGE>
Report of Independent Public Accountants
To the Shareholders of Shaw Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Shaw
Industries, Inc. (a Georgia corporation) and subsidiaries as of December 28,
1996 and December 30, 1995 and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in the
period ended December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shaw Industries, Inc. and
subsidiaries as of December 28, 1996 and December 30, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 28, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 21, 1997
EXHIBIT 13, PAGE 23
<PAGE>
<TABLE>
<CAPTION>
Stock Information
HIGH AND LOW STOCK PRICES AND CASH DIVIDENDS PAID BY FISCAL QUARTER
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------------------
1996 1995 1994 Dividends Paid
- - ---------------------------------------------------------------------------------------------------------------
High Low High Low High Low 1996 1995 1994
1st Quarter 14 7/8 10 3/4 17 1/8 12 25 17 7/8 7.50 cents 7.50 cents 5.50 cents
2nd Quarter 13 3/4 11 1/8 17 3/8 12 1/4 25 1/2 15 3/4 7.50 cents 7.50 cents 5.50 cents
3rd Quarter 15 3/8 11 1/2 17 1/4 14 1/4 17 7/8 13 7/8 7.50 cents 7.50 cents 5.50 cents
4th Quarter 13 3/8 11 16 3/8 12 5/8 15 3/4 12 7/8 7.50 cents 7.50 cents 5.50 cents
----------------------------------------------
Total 30.00 cents 30.00 cents 22.00 cents
----------------------------------------------
Number of Shareholders
As of March 7, 1997, there were 4,253 holders of record of the Company's Common
Stock.
EXHIBIT 13, PAGE 24
</TABLE>
EXHIBIT 21
Wholly-owned subsidiaries of the Registrant are Shaw Financial Services,
Inc., a Georgia corporation; Shaw Transport, Inc., a Georgia corporation; Shaw
Industries Australia, Pty., Ltd., an Australian corporation; Carpets
International, PLC., a United Kingdom corporation; Shaw Contract Flooring
Services, Inc., a Georgia corporation; Shaw Carpet Showplace, Inc., a Georgia
corporation; Shaw Retail Properties, Inc., a Georgia corporation; Shaw Contract
Properties, Inc., a Georgia corporation; New York Carpet World, Inc., a Michigan
corporation; Carpetland USA, Inc., an Indiana corporation; G & S Investments,
Inc., a Washington corporation. The Company also has a 49% owned subsidiary,
Terza, S.A. de CV., a Mexican corporation.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included and incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statements file no. 33-45089, file
no. 333-04247, and file no. 333-17303.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 21, 1997
<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 December 28, 1996
and the related consolidated statements of income, shareholders' investment and
cash flows for the year ended December 28, 1996, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 49,581,000
<SECURITIES> 0
<RECEIVABLES> 393,983,000
<ALLOWANCES> (16,667,000)
<INVENTORY> 556,785,000
<CURRENT-ASSETS> 1,081,405,000
<PP&E> 1,337,546,000
<DEPRECIATION> 682,405,000
<TOTAL-ASSETS> 1,984,398,000
<CURRENT-LIABILITIES> 411,061,000
<BONDS> 0
0
0
<COMMON> 147,379,000
<OTHER-SE> 524,332,000
<TOTAL-LIABILITY-AND-EQUITY> 1,984,398,000
<SALES> 3,200,964,000
<TOTAL-REVENUES> 3,200,964,000
<CGS> 2,486,164,000
<TOTAL-COSTS> 2,486,164,000
<OTHER-EXPENSES> 587,963,000
<LOSS-PROVISION> 10,777,000
<INTEREST-EXPENSE> 42,442,000
<INCOME-PRETAX> 73,618,000
<INCOME-TAX> 43,463,000
<INCOME-CONTINUING> 30,155,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,023,000
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
