UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 28, 1997
-----------------------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from________________________to________________________
Commission file number 1-6853
SHAW INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1032521
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
616 E. WALNUT AVENUE, DALTON, GEORGIA 30720
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area
code (706) 278-3812
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check [x] whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x]. No ______.
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: August 4, 1997 - 134,613,589 shares
<PAGE>
SHAW INDUSTRIES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBERS
--------------------- ------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 28, 1997
and December 28, 1996 3-4
Condensed Consolidated Statements of Income and Retained
Earnings - For the Three Months Ended June 28, 1997 and
June 29, 1996 5
Condensed Consolidated Statements of Income and Retained
Earnings - For the Six Months Ended June 28, 1997 and
June 29, 1996 6
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended June 28, 1997
and June 29, 1996 7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10-12
PART II - OTHER INFORMATION 12
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SIGNATURES 13
2
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PART 1 - ITEM ONE - FINANCIAL INFORMATION
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
June 28, December 28,
1997 1996
----------- -----------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents ................... $ 14,549 $ 49,581
----------- -----------
Accounts receivable, less
allowance for doubtful accounts and
discounts of $20,619 and $16,667 .......... 446,088 393,983
----------- -----------
Inventories -
Raw materials ............................. 284,718 251,262
Work-in-process ........................... 30,224 26,070
Finished goods ............................ 306,117 279,453
----------- -----------
621,059 556,785
----------- -----------
Other current assets ........................ 78,759 81,056
----------- -----------
TOTAL CURRENT ASSETS .......... 1,160,455 1,081,405
----------- -----------
PROPERTY, PLANT AND EQUIPMENT,
at cost:
Land and land improvements .................. 29,380 29,584
Buildings and leasehold improvements ........ 305,456 293,072
Machinery and equipment ..................... 983,585 969,601
Construction in progress .................... 62,047 45,289
----------- -----------
1,380,468 1,337,546
Less - Accumulated depreciation and
amortization ......................... (717,805) (682,405)
----------- -----------
662,663 655,141
----------- -----------
GOODWILL, net ................................ 258,222 212,398
----------- -----------
INVESTMENT IN JOINT VENTURE .................. 18,601 18,302
----------- -----------
OTHER ASSETS ................................. 17,227 17,152
----------- -----------
TOTAL ASSETS .................. $ 2,117,168 $ 1,984,398
=========== ===========
3
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
June 28, December 28,
1997 1996
----------- -----------
(UNAUDITED)
CURRENT LIABILITIES:
Notes payable ............................... $ 397 $ 35,084
Current maturities of long-term debt ........ 16,815 17,431
Accounts payable ............................ 227,005 195,347
Accrued liabilities ......................... 173,946 163,199
----------- -----------
TOTAL CURRENT LIABILITIES .............. 418,163 411,061
----------- -----------
LONG-TERM DEBT, less current maturities ...... 916,046 825,280
----------- -----------
DEFERRED INCOME TAXES ........................ 67,684 63,453
----------- -----------
OTHER LIABILITIES ............................ 12,668 12,893
----------- -----------
SHAREHOLDERS' INVESTMENT:
Common stock, no par, $1.11 stated value,
authorized 500,000,000 shares; issued and
outstanding: 134,038,368 shares at June
29, 1997 and 132,772,548 shares at
December 28, 1996 .......................... 148,784 147,379
Paid-in capital ............................. 86,905 72,335
Cumulative translation adjustment ........... 2,021 3,058
Retained earnings ........................... 464,897 448,939
----------- -----------
TOTAL SHAREHOLDERS' INVESTMENT ......... 702,607 671,711
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT ........................... $ 2,117,168 $ 1,984,398
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
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SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
June 28, 1997 June 29, 1996
----------- ------------
NET SALES .................................... $ 915,232 $ 785,957
COSTS AND EXPENSES:
Cost of sales .............................. 678,240 613,992
Selling, general and administrative ........ 184,093 113,735
Pre-opening expenses, retail operations .... 1,183 1,651
Interest expense, net ...................... 15,342 10,133
Other (income), net ........................ (5,619) (792)
----------- -----------
INCOME BEFORE INCOME TAXES ................... 41,993 47,238
PROVISION FOR INCOME TAXES ................... 17,398 19,696
----------- -----------
INCOME BEFORE EQUITY IN INCOME OF JOINT VENTURE 24,595 27,542
EQUITY IN INCOME OF JOINT VENTURE ............ 636 557
=========== ===========
NET INCOME ................................... $ 25,231 $ 28,099
=========== ===========
DIVIDENDS PAID PER COMMON SHARE .............. $ 0.075 $ 0.075
=========== ===========
EARNINGS PER COMMON SHARE:
Primary and fully diluted basis - .......... $ 0.19 $ 0.21
=========== ===========
RETAINED EARNINGS:
Beginning of period ........................ $ 449,704 $ 429,833
Add - net income ........................... 25,231 28,099
Deduct - dividends paid .................... (10,038) (10,179)
----------- -----------
End of period .............................. $ 464,897 $ 447,753
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
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SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
June 28, 1997 June 29, 1996
----------- ------------
NET SALES .................................... $ 1,723,885 $ 1,443,813
COSTS AND EXPENSES:
Cost of sales .............................. 1,286,803 1,141,928
Selling, general and administrative ........ 351,490 217,592
Pre-opening expenses, retail operations .... 2,943 1,809
Nonrecurring charges ....................... -- 29,139
Interest expense, net ...................... 29,070 19,699
Other (income), net ........................ (6,103) (1,355)
----------- -----------
INCOME BEFORE INCOME TAXES ................... 59,682 35,001
PROVISION FOR INCOME TAXES ................... 25,022 23,972
----------- -----------
INCOME BEFORE EQUITY IN INCOME OF JOINT VENTURE 34,660 11,029
EQUITY IN INCOME OF JOINT VENTURE ............ 1,319 1,486
=========== ===========
NET INCOME ................................... $ 35,979 $ 12,515
=========== ===========
DIVIDENDS PAID PER COMMON SHARE .............. $ 0.150 $ 0.150
=========== ===========
EARNINGS PER COMMON SHARE:
Primary and fully diluted basis ............ $ 0.27 $ 0.09
=========== ===========
RETAINED EARNINGS:
Beginning of period ........................ $ 448,939 $ 455,663
Add - net income ........................... 35,979 12,515
Deduct - dividends paid .................... (20,021) (20,425)
----------- -----------
End of period .............................. $ 464,897 $ 447,753
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
6
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SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
SIX MONTHS SIX MONTHS
ENDED ENDED
June 28, 1997 June 29, 1996
----------- ------------
OPERATING ACTIVITIES:
Net income .................................. $ 35,979 $ 12,515
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ............. 46,213 44,669
Provision for doubtful accounts ........... 4,435 4,654
Deferred income taxes ..................... 2,065 (221)
Nonrecurring charges ...................... -- 29,139
Other, net ................................ (27,145) (9,047)
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable .................. (34,671) (33,323)
Inventories .......................... (52,234) 1,680
Other current assets ................. 3,591 3,192
Accounts payable ..................... 17,695 49,234
Accrued liabilities .................. 7,723 15,409
----------- -----------
Total adjustments .................. (32,328) 105,386
----------- -----------
Net cash provided by operating
activities ............................... 3,651 117,901
----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment .. (39,416) (38,905)
Acquisitions of business assets ............. (27,709) (35,007)
----------- -----------
Net cash used in investing activities ..... (67,125) (73,912)
----------- -----------
FINANCING ACTIVITIES:
Decrease in notes payable ................... (38,996) --
Increase in long-term debt .................. 87,230 51,583
Dividends paid .............................. (20,021) (20,425)
Purchase and retirement of common stock ..... -- (22,759)
Proceeds from exercise of stock options ..... 229 431
----------- -----------
Net cash provided by financing
activities .............................. 28,442 8,830
----------- -----------
NET INCREASE (DECREASE)IN CASH AND CASH
EQUIVALENTS ................................ (35,032) 52,819
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .................................. 49,581 31,453
=========== ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD ... $ 14,549 $ 84,272
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
---------------------------------------------------------------
1. Basis of Presentation
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information not misleading. These financial statements should be read
in conjunction with the financial statements and related notes contained in the
Company's 1996 Annual Report on Form 10-K. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments necessary to
present fairly the Company's financial position, results of operations and cash
flows at the dates and for the periods presented. Interim results of operations
are not necessarily indicative of the results to be expected for a full year.
Certain prior period amounts have been reclassified to conform with the current
period presentation.
2. Inventories
The Company uses the last-in, first-out (LIFO) method of valuing
substantially all of its domestic inventories. If LIFO inventories were valued
at current costs, the inventories would have been $3,000,000 and $1,643,000
lower at June 28, 1997 and December 28, 1996, respectively. The Company's
foreign inventories and certain of its finished goods inventories, representing
25.2 percent of total inventories, are valued at the lower of first-in,
first-out (FIFO) cost or market.
3. Long-term Debt
In March 1997, the Company completed a new domestic revolving credit
facility which provides for borrowings of up to $900,000,000 and expires in
March 2002. The borrowings bear interest at variable rates equal to the London
Interbank Offered Rate (LIBOR) plus margins ranging from 0.150 percent to 0.475
percent, depending on the Company's consolidated funded debt to earnings ratios,
as defined. Fees associated with the domestic revolving credit agreement include
a facility fee on the committed amount ranging from 0.10 percent 0.15 percent.
The LIBOR-based rate at June 28, 1997 was 6.16 percent and borrowings
outstanding under this new facility totaled $698,000,000.
4. Acquisitions
During the six months ended June 28, 1997, the Company acquired G & S
Investments, Inc. and affiliates collectively doing business as the Carpet
Exchange; Walters Carpet One; Sun Control Tile, Co., doing business as Baker
Bros.; Circle Floors, Inc.; and several other residential retailers and
commercial contractors for cash and common stock totaling $47.8 million and
resulting in goodwill of $34.1 million as part of its continuing retail
acquisition strategy which commenced in December 1995.
5. Long-Lived Asset and Goodwill Impairment
The Financial Accounting Standards Board issued SFAS NO. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which establishes, among other things, accounting standards for the
impairment of long-lived assets and certain identifiable intangibles. The
Company adopted the new standard effective December 31, 1995 and in connection
with management's review of the Company's international operations in March
1996, management determined that certain of its international production
equipment would not provide sufficient cash flows to recover the carrying value
of such equipment and related goodwill. As a result, the Company recorded
nonrecurring charges of $29,139,000 ($26,519,000, net of tax benefit, or $.19
per share for the first quarter and $.20 for the first six months) in March 1996
for the reduction of the carrying value of certain goodwill and property, plant
and equipment at its international operations related to the adoption and a
provision for the disposal of other assets.
8
<PAGE>
6. Transfers and Servicing of Financial Assets and Extinguishment of Liabilities
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities". SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996 and is applied prospectively.
The Company anticipates that the adoption of this statement will not have a
material effect on the financial statements.
7. Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, " Earnings Per Share" which
specifies the computation, presentation and disclosure requirements for earnings
per share. The Company will be required to adopt SFAS No. 128 in the fourth
quarter of 1997. All prior period earnings per share data will be restated to
conform with the provision of SFAS No. 128. Based on a preliminary evaluation of
this Standards' requirements, the Company does not expect the per share amounts
reported under SFAS No. 128 to be materially different from those calculated and
presented under Accounting Principles Board Opinion No. 15.
Earnings per share of $25,231,000, or $0.19 per share, for the second
quarter ended June 28, 1997 include a gain on the sale of fixed assets of
$3,696,000, net of income taxes, or $0.03 per share.
8. Derivative Transactions
The Company uses interest rate swaps to fix interest rates on current and
anticipated borrowings to reduce exposure to interest rate fluctuations. Under
existing accounting literature, these interest rate swaps are accounted for as
hedging activities. The Company may also employ foreign currency exchange
contracts when, in the normal course of business, they are determined to
effectively manage and reduce foreign currency exchange fluctuation risk. At
June 28, 1997, the Company had no material foreign currency exchange contracts
outstanding.
To qualify as a hedge, the item to be hedged must expose the Company to
interest rate risk and the related contract must reduce that exposure and be
designated by the Company as a hedge.
The net cash paid or received on interest rate hedges is included in
interest expense. Gains or losses on the termination of hedges are deferred and
recognized in interest over the period covered by the interest rate hedge.
The Company does not enter into financial derivatives for speculative or
trading purposes.
9
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
ITEM TWO-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - --------------------------------------------------------------------------------
GENERAL
The Company's business, as well as the U.S. carpet industry in general, is
cyclical in nature and is significantly affected by general economic conditions.
The level of domestic carpet sales tends to reflect fluctuations in consumer
spending for durable goods and, to a lesser extent, fluctuations in interest
rates and new housing starts. The Company's international operations are also
impacted by the economic climates in the markets in which they operate
(primarily the United Kingdom, Australia and Mexico). Sales prices and demand
for the Company's domestic wholesale manufacturing business declined slightly in
1996 with the decision in December 1995 to enter the residential retail and
commercial contractor business, while margins improved. During the first six
months of 1997, demand for the Company's domestic wholesale manufacturing
business improved over that of the first six months of 1996, sales prices
improved and margins were comparable. International markets were weak in 1996
and the first six months of 1997, but margins improved substantially in the
first six months of 1997 over the first six months of 1996 as a result of
recording restructuring costs of $36.1 million ($24.2 million, net of tax
benefit) in December 1996 related to the Company's decision to exit the woolen
carpet business in the United Kingdom.
During the first six months of 1997, the Company continued to implement its
retail acquisition strategy by acquiring several residential retailers and
commercial contractors for cash and common stock totaling $47.8 million and
resulting in goodwill of $34.1 million which is being amortized over 20 years.
Net sales for the Company's residential retail and commercial contractor
business totaled $437.1 million for the six months ended June 28, 1997 compared
to $86.3 million for the six months ended June 29, 1996. At June 28, 1997 the
Company has 435 residential retail and commercial contractor locations
throughout the United States. The Company believes that by combining the
resources of the manufacturer and retailer and developing a commercial contract
distribution network, it can provide a full range of products and services to
more effectively meet the needs of the end-user of both residential and
commercial carpet products at significantly improved margins. As part of this
strategy, the Company continues its efforts to develop an alignment program with
dealers of both residential and commercial carpet products to provide a
collection of services, benefits and programs that will encourage dealers to
purchase more from the Company. At June 28, 1997, the Company has approximately
1,400 aligned dealers.
LIQUIDITY AND CAPITAL RESOURCES
At June 28, 1997, the Company had working capital of $742.3 million, an
increase of $72.0 million, or 10.7 percent, over working capital of $670.3
million at December 28, 1996. Cash and cash equivalents decreased $35.1 million
from $49.6 million at December 28, 1996 to $14.5 million at June 28, 1997. Cash
provided by operating activities was $3.7 million in the first six months of
1997 primarily as the result of net income of $36.0 million adjusted for
depreciation and amortization of $46.2 million, provision for doubtful accounts
of $4.4 million and deferred income taxes of $2.1 million, which were offset in
part by larger increases in inventories and accounts receivables of $52.2
million and $34.7 million, respectively. Cash flow provided by operating
activities for the first six months of 1996 totaled $117.9 million, principally
due to net income of $12.5 million adjusted for depreciation and amortization of
$44.7 million, nonrecurring charges of $29.1 million as discussed in note 5 of
notes to condensed consolidated financial statements, and substantial increases
in accounts payable and accrued liabilities of $64.6 million, which were offset
in part by increases in inventories, accounts receivable and other assets, net
of $28.5 million. Cash used in investing activities for the first six months of
1997 consisted of additions to property, plant and equipment of $39.4 million
and acquisitions of business assets of $27.7 million compared to $38.9 million
and $35.0 million, respectively, in the first six months of 1996. Cash flow
provided by financing activities during the first six months of 1997 of $28.4
million principally included an increase in long-term debt of $87.2 million
offset in part by cash dividends of $20.0 million and payments on notes payable
of $39.0 million. During the first six months of 1996, cash provided by
financing activities included an increase in long-term debt of $51.6 million
offset in part by cash dividends of $20.4 million and common stock repurchses of
$22.8 million.
The Company has continued to maintain a strong working capital position.
Effective use of capital and the Company's ability to generate cash flow from
operations has enabled it to make investments which reduce production costs,
generate operating margins that have historically exceeded industry averages and
implement its retail strategy.
10
<PAGE>
Capital expenditures for property, plant and equipment necessary to
maintain the Company's facilities in a modern state-of-the-art condition and
expand its production capacity were $39.4 million for the six months ended June
28, 1997. Management anticipates total capital expenditures and capitalized
lease obligations of approximately $40 million for the remainder of 1997 to
expand and upgrade its manufacturing and distribution equipment to meet
anticipated increases in sales volume, to improve efficiency and to open new
retail stores and upgrade its current retail operations.
The Company's primary source of financing is an unsecured revolving credit
facility with a banking syndicate which provides for borrowings of up to $900.0
million and expires in March 2002. Interest on borrowings under this facility is
currently based on LIBOR, and was 6.16 percent at June 28, 1997. At June 28,
1997, borrowings outstanding under this credit facility were $698.0 million.
RESULTS OF OPERATIONS
Three Months Ended June 28, 1997 Compared To Three Months Ended June 29, 1996
Net sales increased $129.2 million, or 16.4 percent, to $915.2 million in
the second quarter of 1997. The increase was primarily attributable to
incremental net sales of $175.7 million related to the residential retail and
commercial contract business, offset by declines in the net sales volumes of
$46.5 million for the Company's wholesale manufacturing operations in both the
domestic and international markets. Gross margin as a percentage of net sales
increased 4.0 percent to 25.9 percent in the second quarter of 1997 compared to
the second quarter for 1996, primarily due to higher margins for retail sales,
improved sales product mix and increases in the efficiency relationships of
volume and fixed costs for both the domestic and international wholesale
manufacturing business.
Selling, general and administrative expenses for the second quarter of 1997
were $184.1 million, or 20.1 percent of net sales, compared to $113.7 million,
or 14.4 percent of net sales, in the comparable period of 1996. The increase of
$70.4 million, or 5.7 percent of net sales, was primarily due to increased
advertising and other selling and administrative expenses associated with the
Company's residential retail and commercial contract business. Pre-opening
expenses related to the retail operations totaled $1.2 million for the second
quarter of 1997 compared to $1.7 million for the second quarter of 1996.
Interest expense, net increased to $15.3 million for the second quarter of 1997
from $10.1 million for the second quarter of 1996 as a result of higher
borrowings.
The effective income tax rate for the second quarter of 1997 was 41.4
percent compared to 41.7 percent for the second quarter of 1996.
Six Months Ended June 28, 1997 Compared to Six Months Ended June 29, 1996
Net sales increased $280.1 million, or 19.4 percent, to $1,723.9 million in
the first six months of 1997. The increase was primarily attributable to
incremental net sales of $350.8 million related to the residential retail and
commercial contract business, offset by declines in the net sales volumes of
$70.7 million for the Company's wholesale manufacturing operations in both the
domestic and international markets. Gross margin as a percentage of net sales
increased 4.5 percent to 25.4 percent in the first six months of 1997 compared
to the first six months for 1996, primarily due to higher margins for retail
sales, improved sales product mix and increases in the efficiency relationships
of volume and fixed costs for the both the domestic and international wholesale
manufacturing business.
Selling, general and administrative expenses for the first six months of
1997 were $351.5 million, or 20.4 percent of net sales, compared to $217.6
million, or 15.1 percent of net sales, in the comparable period of 1996. The
increase of $133.9 million, or 5.3 percent of net sales, was primarily due to
increased advertising and other selling and administrative expenses associated
with the Company's residential retail and commercial contract business.
Pre-opening expenses related to the retail operations totaled $2.9 million for
the first six months of 1997 compared to $1.8 million for the first six months
of 1996. Interest expense, net increased to $29.1 million for the first six
months of 1997 from $19.7 million for the first six months of 1996 as a result
of higher borrowings.
Results for the first six months of 1996 included nonrecurring charges of
$29.1 million ($26.5 million net of tax benefit, or $.20 per share) as discussed
in note 5 of notes to condensed consolidated financial statements. Net income
before nonrecurring charges was $39.0 million, or $0.29 per share. Net income
after nonrecurring charges was $12.5 million, or $0.09 per share for the first
six months of 1996.
The effective income tax rate for the first six months of 1997 was 41.9
percent compared to 41.5 percent for the first six months of 1996, before
nonrecurring charges of $29.1 million.
FOREIGN OPERATIONS
The Company's primary foreign operations are conducted through its United
Kingdom and Australian subsidiaries, where the functional currencies are British
11
<PAGE>
pounds and Australian dollars, respectively. Fluctuations in the value of
foreign currencies create exposures which can impact the Company's operating
results. The Company may employ foreign currency forward exchange contracts
when, in the normal course of business, they are determined to effectively
manage and reduce such exposure. The Company does not enter into foreign
currency forward exchange contracts for speculative trading purposes.
PART II - OTHER INFORMATION
ITEM ONE - LEGAL PROCEEDINGS
The Company is a party to several lawsuits incidental to its various
activities and incurred in the ordinary course of business. The Company believes
that it has meritorious claims and defenses in each case. After consultation
with counsel, it is the opinion of management that, although there can be no
assurance given, none of the associated claims, when resolved, will have a
material adverse effect upon the Company.
From time to time, the Company is subject to claims and suits arising in
the course of its business. The Company is a defendant in certain litigation
alleging personal injury resulting from personal exposure to volatile organic
compounds found in carpet produced by the Company. The complaints seek
injunctive relief and unspecified money damages on all claims. The Company has
denied any liability. The Company believes that it has meritorious defenses and
that the litigation will not have a material adverse effect on the Company's
financial condition or results of operations.
In June 1994, the Company and several other carpet manufacturers received a
grand jury subpoena from the Antitrust Division of the United States 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.
The Company is subject to a variety of environmental regulations relating
to the use, storage, discharge and disposal of hazardous materials used in its
manufacturing processes. Failure by the Company to comply with present and
future regulations could subject it to future liabilities. In addition, such
regulations could require the Company to acquire costly equipment or to incur
other significant expenses to comply with environmental regulations. The Company
is not involved in any material environmental proceedings.
ITEM TWO - CHANGES IN SECURITIES
None
ITEM THREE - DEFAULTS UPON SENIOR SECURITIES
None
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Stock option plan approved on April 24, 1997, as set forth in
definitive proxy materials.
ITEM FIVE - OTHER INFORMATION
None
ITEM SIX - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
11 - Statement re: Computation of Per Share Earnings
27 - Financial Data Schedule
Shareholders may obtain copies of Exhibits without charge upon written
request to the Corporate Secretary, Shaw Industries, Inc., Mail drop 061-22,
P.O. Drawer 2128, Dalton, Georgia 30722-2128.
(B) No reports on Form 8-K have been filed during the fiscal quarter
ended June 28, 1997.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHAW INDUSTRIES, INC.
(The Registrant)
DATE: August 11 , 1997 s/ Robert E. Shaw
- - ----------------------------- -----------------
Robert E. Shaw
Chairman of the Board, Chief Executive
Officer and President
DATE: August 11, 1997 /s/ Kenneth G. Jackson
- - ------------------------------ ----------------------
Kenneth G. Jackson
Vice President and Chief Financial Officer
(Principal Financial Officer)
13
<TABLE>
<CAPTION>
EXHIBIT 11.0
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1)
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
================== ==================
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average common shares outstanding ............................ 133,766 135,793 133,404 135,971
Additional shares assuming exercise of stock options .................. 15 0 211 87
-------- -------- -------- --------
Weighted average common and common equivalent shares outstanding ...... 133,781 135,793 133,615 136,058
======== ======== ======== ========
Income ................................................................ $ 25,231 $ 28,099 $ 35,979 $ 12,515
======== ======== ======== ========
Earnings per common share ...................................... $ 0.19 $ 0.21 $ 0.27 $ 0.09
======== ======== ======== ========
FULLY DILUTED:
Weighted average common shares outstanding ..................... 133,766 135,793 133,404 135,971
Additional shares assuming exercise of stock options (2) ...... 15 174 211 174
-------- -------- -------- --------
Weighted average common and common equivalent shares outstanding 133,781 135,967 133,615 136,145
======== ======== ======== ========
Income ......................................................... $ 25,231 $ 28,099 $ 35,979 $ 12,515
======== ======== ======== ========
Earnings per common share ...................................... $ 0.19 $ 0.21 $ 0.27 $ 0.09
======== ======== ======== ========
</TABLE>
(1) All numbers of shares in this exhibit are weighted on the basis of the
number of days the shares were outstanding or assumed to be
outstanding during each period.
(2) Based on the treasury stock method using the higher of the average or
period-end market price.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS OF SHAW INDUSTRIES, INC. AND SUBSIDIARIES
AS OF JUNE 28, 1997 AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> 14,549,000
<SECURITIES> 0
<RECEIVABLES> 446,088,000
<ALLOWANCES> (20,619,000)
<INVENTORY> 621,059,000
<CURRENT-ASSETS> 1,160,455,000
<PP&E> 1,380,468,000
<DEPRECIATION> 717,805,000
<TOTAL-ASSETS> 2,117,168,000
<CURRENT-LIABILITIES> 418,163,000
<BONDS> 0
0
0
<COMMON> 148,784,000
<OTHER-SE> 553,823,000
<TOTAL-LIABILITY-AND-EQUITY> 2,117,168,000
<SALES> 1,723,885,000
<TOTAL-REVENUES> 1,723,885,000
<CGS> 1,286,803,000
<TOTAL-COSTS> 1,286,803,000
<OTHER-EXPENSES> 348,330,000
<LOSS-PROVISION> 4,435,000
<INTEREST-EXPENSE> 29,070,000
<INCOME-PRETAX> 59,682,000
<INCOME-TAX> 25,022,000
<INCOME-CONTINUING> 34,660,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,979,000
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
