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 July 3, 1999
-------------------------------------------------
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
incorporation or organization) Identification No.)
616 E. WALNUT AVENUE, DALTON, GEORGIA 30720
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(706) 278-3812
Registrant's telephone number,
including area code
NOT APPLICABLE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check |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 9, 1999 - 137,542,779 shares
<PAGE>
SHAW INDUSTRIES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBERS
--------------------- ------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - July 3, 1999
and January 2, 1999 3-4
Condensed Consolidated Statements of Income and Retained
Earnings - For the Three Months Ended
July 3, 1999 and July 4, 1998 5
Condensed Consolidated Statements of Income and Retained
Earnings - For the Six Months Ended
July 3, 1999 and July 4, 1998 6
Condensed Consolidated Statements of Cash Flow -
For the Six Months Ended July 3, 1999
and July 4, 1998 7
Notes to Condensed Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 11-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15-16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
<PAGE>
PART 1 - ITEM ONE - FINANCIAL INFORMATION
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS July 3, January 2,
1999 1999
----------- -----------
CURRENT ASSETS: (UNAUDITED)
Cash and cash equivalents ........... $ 10,832 $ 12,555
----------- -----------
Accounts receivable, less
allowance for doubtful accounts and
discounts of $25,890 and $21,512 .. 290,798 276,002
----------- -----------
Inventories -
Raw materials ..................... 264,282 293,868
Work-in-process ................... 104,000 75,060
Finished goods .................... 325,871 290,152
----------- -----------
694,153 659,080
----------- -----------
Other current assets ................ 143,787 134,733
----------- -----------
TOTAL CURRENT ASSETS .. 1,139,570 1,082,370
----------- -----------
PROPERTY, PLANT AND EQUIPMENT,
at cost:
Land and land improvements .......... 31,620 31,425
Buildings and leasehold improvements 324,924 320,991
Machinery and equipment ............. 1,065,953 1,105,505
Construction in progress ............ 107,433 41,827
----------- -----------
1,529,930 1,499,748
Less - Accumulated depreciation and
Amortization ................. (788,846) (783,320)
----------- -----------
741,084 716,428
----------- -----------
GOODWILL, net ........................ 412,746 416,028
OTHER ASSETS ......................... 47,599 46,621
----------- -----------
TOTAL ASSETS .......... $ 2,340,999 $ 2,261,447
=========== ===========
3
<PAGE>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
(IN THOUSANDS, EXCEPT SHARE
DATA)
July 3, January 2,
1999 1999
----------- -----------
CURRENT LIABILITIES: (UNAUDITED)
Current maturities of long-term debt $ 664 $ 8
Accounts payable .................... 281,634 194,352
Accrued liabilities ................. 312,556 260,450
----------- -----------
TOTAL CURRENT LIABILITIES ...... 594,854 454,810
----------- -----------
LONG-TERM DEBT, less current maturities 805,692 927,434
----------- -----------
DEFERRED INCOME TAXES ................ 68,487 65,768
----------- -----------
OTHER LIABILITIES .................... 15,113 16,067
----------- -----------
SHAREHOLDERS' INVESTMENT:
Common stock, no par, $1.11 stated value,
authorized 500,000,000 shares; issued and
outstanding: 138,389,430 shares at
July 3, 1999 and 140,906,175 shares
at January 2, 1999 ................. 153,613 156,407
Paid-in capital ..................... 147,818 195,452
Cumulative translation adjustment ... (1,666) (3,156)
Retained earnings ................... 557,088 448,665
----------- -----------
TOTAL SHAREHOLDERS' INVESTMENT . 856,853 797,368
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT ................... $ 2,340,999 $ 2,261,447
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
July 3, July 4,
1999 1998
---------- ----------
NET SALES ........................................... $1,065,126 $ 873,149
COSTS AND EXPENSES:
Cost of sales ..................................... 777,553 634,494
Selling, general and administrative ............... 157,799 175,955
Charge to record loss on sale of residential
retail operations, store closing costs and
writedown of certain assets .................... -- 132,303
Pre-opening expenses, retail operations ........... -- 23
Interest expense, net ............................. 15,097 15,581
Other expense, net ................................ 1,364 833
---------- ----------
INCOME(LOSS)BEFORE INCOME TAXES ..................... 113,313 (86,040)
PROVISION(BENEFIT)FOR INCOME TAXES .................. 46,289 (20,776)
---------- ----------
INCOME (LOSS) BEFORE EQUITY IN INCOME OF
JOINT VENTURE ..................................... 67,024 (65,264)
EQUITY IN INCOME OF JOINT VENTURE ................... 1,033 43
---------- ----------
NET INCOME (LOSS) ................................... $ 68,057 $ (65,221)
========== ==========
DIVIDENDS PAID PER COMMON SHARE ..................... $ 0.0 $ 0.0
========== ==========
EARNINGS (LOSS) PER COMMON SHARE:
Basic ............................................. $ 0.48 $ (0.54)
========== ==========
Diluted ........................................... $ 0.48 $ (0.54)
========== ==========
RETAINED EARNINGS:
Beginning of period ............................... $ 489,031 $ 447,768
Add - net income (loss) ........................... 68,057 (65,221)
(Deduct) - dividends paid ......................... -- --
(Deduct) - purchase of common stock ............... -- (230)
---------- ----------
End of period ..................................... $ 557,088 $ 382,317
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
July 3, July 4,
1999 1998
----------- -----------
NET SALES ......................................... $ 2,020,929 $ 1,738,134
COSTS AND EXPENSES:
Cost of sales ................................... 1,494,182 1,280,608
Selling, general and administrative ............. 312,628 344,103
Charge to record loss on sale of residential
retail operations, store closing costs and
writedown of certain assets .................. -- 132,303
Pre-opening expenses, retail operations ......... -- 232
Interest expense, net ........................... 31,302 30,808
Other expense, net .............................. 1,881 3,466
----------- -----------
INCOME(LOSS)BEFORE INCOME TAXES ................... 180,936 (53,386)
PROVISION(BENEFIT)FOR INCOME TAXES ................ 74,502 (7,408)
----------- -----------
INCOME (LOSS) BEFORE EQUITY IN INCOME OF
JOINT VENTURE ................................... 106,434 (45,978)
EQUITY IN INCOME OF JOINT VENTURE ................. 1,989 262
----------- -----------
NET INCOME ........................................ $ 108,423 $ (45,716)
=========== ===========
DIVIDENDS PAID PER COMMON SHARE ................... $ 0.0 $ 0.075
=========== ===========
EARNINGS(LOSS)PER COMMON SHARE:
Basic ........................................... $ 0.77 $ (0.37)
=========== ===========
Diluted ......................................... $ 0.76 $ (0.37)
=========== ===========
RETAINED EARNINGS:
Beginning of period ............................. $ 448,665 $ 437,867
Add - net income (loss) ......................... 108,423 (45,716)
(Deduct) - dividends paid ....................... -- (9,834)
----------- -----------
End of period ................................... $ 557,088 $ 382,317
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOW SIX MONTHS SIX MONTHS
(UNAUDITED AND IN THOUSANDS) ENDED ENDED
July 3, July 4,
1999 1998
--------- ---------
OPERATING ACTIVITIES:
Net income (loss) ................................... $ 108,423 $ (45,716)
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization ..................... 46,366 40,597
Provision for doubtful accounts ................... 2,587 5,056
Deferred income taxes ............................. 2,719 6,010
Charge to record loss on sale of residential
retail operations, store closing costs and
writedown of certain assets .................... -- 92,660
Changes in operating assets and
liabilities, net of disposition:
Accounts receivable .......................... (17,383) (64,538)
Inventories .................................. (35,073) (69,545)
Other current assets ......................... (9,054) 36,633
Accounts payable ............................. 87,282 18,298
Accrued liabilities .......................... 52,106 43,344
Other, net ................................... (4,415) (5,692)
--------- ---------
Total adjustments .......................... 125,135 102,823
--------- ---------
Net cash provided by operating
Activities ....................................... 233,558 57,107
--------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment .......... (64,386) (65,436)
Retirements of property, plant and
Equipment, net ..................................... 727 31,024
Disposal of U.K. assets ............................. -- (16,566)
--------- ---------
Net cash used in investing activities ............. (63,659) (50,978)
--------- ---------
FINANCING ACTIVITIES:
Decrease in notes payable ........................... -- (2)
(Decrease)increase in long-term debt, net ........... (121,086) 87,710
Dividends paid ...................................... -- (9,834)
Purchase of common stock ............................ (57,816) (133,860)
Proceeds from exercise of stock options ............. 7,280 14,843
--------- ---------
Net cash used in financing activities ............. (171,622) (41,143)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ........................................ (1,723) (35,014)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .......................................... 12,555 43,571
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 10,832 $ 8,557
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
SHAW INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 3, 1999
(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 1998 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 flow 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.
2. Accounts Receivable
In September 1998, the company entered into agreements pursuant to
which it sold a percentage ownership interest in a defined pool of the
company's trade receivables to a securitization conduit. As collections
reduce accounts receivable included in the pool, the company sells
participating interests in new receivables to the conduit to bring the
amount in the pool up to the maximum permitted by the agreements. The
receivables are sold to the conduit at a discount which reflects, among
other things, the conduit's financing cost of issuing its own commercial
paper backed by these accounts receivable and accounts receivable sold by
other participating entities. The agreement expires September 1, 1999,
but may be extended for additional one-year terms. On September 4, 1998,
the company received $198,971,000 of proceeds from the initial sale of
such receivables. During the second quarter 1999, the company amended the
agreements to increase the maximum amount of receivables able to be sold.
As a result, the company received an additional $99,488,000 of initial
sale proceeds. All proceeds were used to reduce outstanding borrowings
under its domestic revolving credit facility and were reflected as a
reduction of receivables in the condensed consolidated balance sheet and
as an operating activity in the condensed consolidated statement of cash
flow. As of July 3, 1999, the company had approximately $297,279,000 of
accounts receivable sold and outstanding under this program.
3. 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 $48,188,000 and
$23,556,000 lower at July 3, 1999 and January 2, 1999, respectively.
Certain of the company's finished goods inventories, representing
approximately 12 percent of total inventories, are valued at the lower of
first-in, first-out (FIFO) cost or market.
4. Long-Term Debt
The company's domestic revolving credit facility provides for
borrowings of up to $1.0 billion and expires in March 2003. The
LIBOR-based rate at July 3, 1999 was approximately 5.75 percent, and
borrowings outstanding under this new facility totaled $724,000,000. The
variable interest rates on $453,500,000 of amounts outstanding under the
company's revolving credit facilities have been fixed through various
dates through March 2003 by interest rate swap agreements. To provide
further financing capacity, in October 1998, the company entered into a
364-day $150 million senior unsecured revolving credit facility.
5. Earnings Per Share
Earnings per share for the three and six-month periods ended July
3, 1999 and July 4, 1998 have been computed based upon the weighted
average shares and dilutive potential common shares outstanding. The net
income (loss) amounts presented in the accompanying condensed
consolidated statements of income represent amounts available or related
to shareholders.
8
<PAGE>
The following table reconciles the denominator of the basic and diluted
earnings per share computations:
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
July 3, 1999 July 4, 1998
- ------------------------------------------------------ ----------- -----------
Weighted average common shares ....................... 140,639,491 121,034,349
Dilutive incremental shares from assumed
conversions of options under stock option plans .. 2,040,693 --
- ------------------------------------------------------ ----------- -----------
Weighted average common shares and
dilutive potential common shares ................. 142,680,184 121,034,349
- ------------------------------------------------------ ----------- -----------
Six Months Ended
July 3, 1999 July 4, 1998
- ------------------------------------------------------ ----------- -----------
Weighted average common shares ....................... 140,869,564 124,968,192
Dilutive incremental shares from assumed
conversions of options under stock option plans .. 2,438,650 --
- ------------------------------------------------------ ----------- -----------
Weighted average common shares and
dilutive potential common shares ................. 143,308,214 124,968,192
- ------------------------------------------------------ ----------- -----------
</TABLE>
6. Derivative Financial Instruments
The company uses interest rate swap agreements 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 net cash
paid or received on interest rate hedges is included in interest expense.
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 rate fluctuation risk. The company
does not enter into financial derivatives for speculative or trading
purposes. In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments and for
hedging activities. SFAS No. 133 is effective, and the company expects to
adopt this new standard, in the company's first quarter of fiscal 2001.
The company's management has not determined the impact this new statement
will have on the financial statements.
7. Comprehensive Income
The company has other comprehensive income in the form of
cumulative translation adjustments which resulted in total comprehensive
income (loss) of $69,744,000 and ($67,214,000) for the three months ended
July 3, 1999 and July 4, 1998, respectively, and $109,913,000 and
($49,415,000) for the six months ended July 3, 1999 and July 4, 1998,
respectively.
8. Acquisition and Sale
On August 9, 1998, the company sold substantially all of its
remaining residential retail operations to The Maxim Group, Inc.
("Maxim") in exchange for 3,150,000 shares of Maxim stock, $25,000,000
cash and a one-year note in the principal amount of approximately
$18,000,000, subject to adjustment. Stores not sold were closed.
On October 6, 1998, the company completed its merger with Queen
Carpet Corporation ("Queen") for approximately $579,135,000 consisting of
approximately 19,440,000 shares of common stock of the company, 3,150,000
shares of Maxim stock, cash of $35,981,000 and assumed debt of
approximately $216,000,000. The acquisition has been accounted for as a
purchase transaction, and accordingly, the results of operations of Queen
have been included in the accompanying condensed consolidated financial
statements since October 7, 1998. The purchase price has been allocated
to assets and liabilities based on their estimated fair values at the
date of acquisition. The excess of the consideration paid over the
estimated fair value at the date of acquisition, currently estimated at
$318,600,000, has been recorded as goodwill and is being amortized on a
straight-line basis over 40 years. The following table summarizes on an
unaudited pro forma basis, the consolidated results of operations as
though Queen had been acquired on January 4, 1998 (000s except per share
data):
9
<PAGE>
Three months ended Six months ended
July 4, 1998 July 4, 1998
(Unaudited) (Unaudited)
- --------------------------------------------- ------------ -------------
Net Sales ................................... $ 1,084,058 $ 2,129,161
Net Income .................................. (56,404) (31,463)
Earnings per common share-
Basic and Diluted ..................... (0.39) (0.22)
- --------------------------------------------- ------------ -------------
9. Segment Information
The table below presents information about reported segments for
the three and six months ended July 3, 1999 and July 4, 1998 (000's
omitted):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months
--------------------------------------------------------------------
Wholesale Residential
Manufacturing Retail Intercompany Consolidated
Operations Operations Eliminations Operations
------------------------ ----------------- ----------------- --------------- ----------------
Net Sales
1999 $1,065,126 $ - $ - $1,065,126
1998 763,213 147,401 (37,465) 873,149
Gross Margin
1999 287,573 - - 287,573
1998 183,937 56,218 - 240,155
Selling Expense
1999 109,320 - - 109,320
1998 68,764 58,411 - 127,175
------------------------ ----------------- ----------------- --------------- ----------------
Six Months
--------------------------------------------------------------------
Wholesale Residential
Manufacturing Retail Intercompany Consolidated
Operations Operations Eliminations Operations
------------------------ ----------------- ----------------- --------------- ----------------
Net Sales
1999 $2,020,929 $ - $ - $2,020,929
1998 1,526,517 285,024 (73,407) 1,738,134
Gross Margin
1999 526,747 - - 526,747
1998 350,843 108,183 - 459,026
Selling Expense
1999 219,619 - - 219,619
1998 140,557 115,311 - 255,868
------------------------ ----------------- ----------------- --------------- ----------------
</TABLE>
10
<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 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 Australia and Mexico). During the
first six months of 1999, demand for the company's domestic wholesale
manufacturing business improved substantially, sales prices increased and
margins improved over that of the first six months of 1998. The company's
Australian sales volume improved in the first six months of 1999, although
margins decreased slightly compared to the first six months of 1998 on higher
material costs.
In August 1998, the company sold substantially all of its residential
retail operations to The Maxim Group, Inc. ("Maxim") and closed stores not sold.
On October 6, 1998, the company completed its merger with Queen Carpet
Corporation ("Queen") for $579.1 million, including 19.4 million shares of the
company's common stock, 3.15 million shares of Maxim stock acquired in the sale
of the company's residential retail operations, approximately $36 million of
cash and approximately $216 million of assumed debt. Based on estimates of the
fair values of assets and liabilities acquired, goodwill for $318.6 million has
been recorded and is being amortized over 40 years.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company formally assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for the company's fiscal year 2001.
The company has not yet quantified the impact of adopting SFAS No. 133 on its
financial statements and has not determined the method of adoption. However, the
Statement could increase volatility in earnings and other comprehensive income.
LIQUIDITY AND CAPITAL RESOURCES
At July 3, 1999, the company had working capital of $544.7 million, a
decrease of $82.9 million from the working capital of $627.6 million at January
2, 1999.
Cash and cash equivalents decreased $1.8 million to $10.8 million at July
3, 1999 from $12.6 million at January 2, 1999. The company's operations
generated cash flow of $233.6 million in the first six months of 1999,
principally from net income of $108.4 million adjusted for depreciation and
amortization of $46.4 million, an increase in accounts payable and accrued
liabilities of $139.4 million, offset in part by an increase in current assets
of $61.5 million. In the first six months of 1998, cash generated from operating
activities was $57.1 million primarily from depreciation and amortization of
$40.6 million, a charge to record the loss on sale of its residential retail
operations, store closing costs and writedown of certain assets of $92.7 million
and an increase in accounts payable and accrued liabilities of $61.6 million,
offset in part by a net loss of $45.7 million and an increase in current assets
of $97.5 million.
In the first six months of 1999, the company's investing activities
primarily included additions to property, plant and equipment, net of
retirements, of $63.7 million compared to additions to property, plant and
equipment, net of retirements, of $34.4 million and the disposal of U.K. assets
of $16.6 million in the first six months of 1998. Cash used in financing
activities for the first six months of 1999 of $171.6 million included net
payments on long-term borrowings of $121.1 million and the purchase and
retirement of common stock of $57.8 million, offset in part by proceeds from the
exercise of stock options of $7.3 million. Cash flow used in financing
activities for the first six months of 1998 of $41.1 million principally
included the purchase and retirement of common stock of $133.9 million and the
payment of cash dividends of $9.8 million, offset in part by a net increase in
long-term borrowings of $87.7 million and proceeds from the exercise of stock
options of $14.9 million.
During 1998, the company implemented EVA(R), a financial measurement
concept which emphasizes profitability, proper asset allocation, the cost of
capital and the creation of shareholder wealth. Effective use of capital and the
company's ability to generate cash flow from operations has enabled it to invest
in technologies which reduce production costs, generate operating margins that
have historically exceeded industry averages and pursue its strategy for
increasing shareholder value. Capital expenditures for property, plant and
equipment, net of retirements, necessary to maintain the company's facilities in
11
<PAGE>
modern state-of-the-art condition, expand production capacity and increase
efficiency were $63.7 million for the six months ended July 3, 1999. Management
anticipates total capital expenditures and capitalized lease obligations of
approximately $60 million for the remainder of 1999 to expand and upgrade its
manufacturing and distribution equipment to meet anticipated increases in sales
volume and to improve efficiency.
The company's primary source of financing is an unsecured revolving
credit facility with a banking syndicate. The facility provides for borrowings
of up to $1 billion and expires in March 2003. The interest rate on borrowings
under this facility is currently based on LIBOR and was approximately 5.5
percent, including applicable margins, at July 3, 1999. Borrowings outstanding
under this credit facility at July 3, 1999 were $724 million. To provide further
financing capacity, in October 1998, the company entered into a 364-day $150
million senior unsecured revolving credit facility which remained unutilized and
available at July 3, 1999.
The company maintains a receivables securitization program established
September 3, 1998 and expanded in the second quarter 1999 under which the
company sells a percentage ownership interest in a defined pool of the company's
trade receivables to a securitization conduit. The company used the initial
proceeds from the receivables securitization to reduce outstanding borrowings
under its domestic revolving credit facility. The receivables securitization
program expires September 1, 1999, but may be extended for additional one-year
terms. As of July 3, 1999, the company had approximately $297,279,000 of
accounts receivable sold and outstanding under these programs.
The company believes that available borrowings under its existing credit
and securitization agreements, available cash and internally generated funds
will be sufficient to support its working capital, capital expenditures, stock
repurchases and debt service requirements for the foreseeable future. In
addition, the company believes it could further expand its revolving credit and
long-term bank facilities, if necessary.
YEAR 2000 READINESS DISCLOSURE
The company has completed its internal assessment of the year 2000
compliance of the systems and technologies supporting all operations of the
business. The company's assessment of external compliance readiness is ongoing.
The company has developed and is implementing plans to correct identified
compliance problems that would adversely affect the company's operations.
Compliance remediation efforts are proceeding on schedule. The majority of the
efforts have been completed, and compliance testing is underway.
The company has initiated inquiries of third parties with whom it has
significant business relationships, such as customers and vendors, to assess
their state of addressing Year 2000 issues that could materially and adversely
impact the company. The company has requested those third parties respond in
writing that they will be Year 2000 compliant by the end of 1999. The company
has incurred approximately $2 million to perform compliance remediation and
expects to incur less than $3 million in connection with the Year 2000
compliance process. These costs are expensed as incurred.
The company believes the most reasonably likely worst case Year 2000
scenario would be a failure by a non-core, peripheral system or a third-party
system impacting the availability of certain management information or the
exchange of data with certain customers or vendors.
The company has focused its remediation efforts on those problems which
it can reasonably be expected to influence and is currently developing a
contingency plan to address the most likely worst case scenario described above.
As a result, the company anticipates no significant disruption of business. If
the company cannot successfully and timely resolve its Year 2000 issues,
however, its business, results of operations and financial condition could be
materially and adversely affected.
RESULTS OF OPERATIONS
The company's primary business consists of its wholesale manufacturing
operations which sell carpet and related products manufactured primarily in the
company's manufacturing facilities, located primarily in the southeastern U.S.,
to wholesalers and retailers located primarily in the U.S., Canada, Australia
and Mexico. Beginning in 1996 and continuing through mid-1998, the company built
and acquired existing companies which were engaged in residential retail
operations which sold floor covering and related products acquired from the
company's wholesale manufacturing operations and other floor covering
manufacturers directly to residential consumers. The company evaluates the
performance of its segments and allocates resources to them on the basis of
sales, gross margin and "net divisional contribution" which consists of gross
margin less selling expenses.
12
<PAGE>
The following table summarizes key management information for the
company's reportable segments (000's omitted) for the three and six months ended
July 3, 1999 and July 4, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months
------------------------------------------------------------------
Wholesale Residential
Manufacturing Retail Intercompany Consolidated
Operations Operations Eliminations Operations
- ------------------- ----------------- -------------- ---------------- ----------------
Net Sales
1999 $1,065,126 $ - $ - $1,065,126
1998 763,213 147,401 (37,465) 873,149
Gross Margin
1999 287,573 - - 287,573
1998 183,937 56,218 - 240,155
Selling Expense
1999 109,320 - - 109,320
1998 68,764 58,411 - 127,175
----------------- -------------- ---------------- ----------------
Six Months
------------------------------------------------------------------
Wholesale Residential
Manufacturing Retail Intercompany Consolidated
Operations Operations Eliminations Operations
- ------------------- ----------------- -------------- ---------------- ----------------
Net Sales
1999 $2,020,929 $ - $ - $2,020,929
1998 1,526,517 285,024 (73,407) 1,738,134
Gross Margin
1999 526,747 - - 526,747
1998 350,843 108,183 - 459,026
Selling Expense
1999 219,619 - - 219,619
1998 140,557 115,311 - 255,868
- ------------------- ----------------- -------------- ---------------- ----------------
</TABLE>
Three Months Ended July 3, 1999 Compared to Three Months Ended July 4, 1998
- ----------------------------------------------------------------------------
Wholesale manufacturing sales increased $301.9 million in the three
months ended July 3, 1999 compared to the same period last year as a result of
the acquisition of Queen and increased overall demand. Wholesale manufacturing
margins on outside sales increased to 27.0 percent from 25.3 percent on lower
material costs and improved efficiencies resulting from higher demand and the
ongoing integration of the Queen operations. Wholesale manufacturing selling
expense increased to 10.3 percent in the second quarter 1999 from 9.5 percent in
1998 due to increased advertising and sample distribution after the company's
exit from the residential retail business. As indicated above, substantially all
residential retail operations were sold or closed during 1998.
As a result of the above, consolidated net sales increased $192.0
million, or 22 percent, to $1,065.1 million in the second quarter of 1999. Gross
margin as a percentage of net sales decreased .5 percent to 27.0 percent in the
second quarter of 1999 compared to the second quarter of 1998, primarily due to
the reduction in higher margin residential retail sales, offset in part by
improved performance in wholesale manufacturing as previously described.
Selling, general and administrative expenses for the second quarter of
1999 were $157.8 million, or 14.8 percent of net sales, compared to $176.0
million, or 20.2 percent of net sales, in the comparable period of 1998. The
decrease of $18.2 million, or 5.4 percent of net sales, was primarily due to the
company's exiting the residential retail business. Interest expense was $15.1
million for the second quarter of 1999 compared to $15.6 million for the second
quarter of 1998 as a result of less borrowings.
The effective income tax rate for the second quarter of 1999 was 40.9
percent compared to 40.8 percent for the second quarter of 1998 before the tax
benefit from nonrecurring charges.
13
<PAGE>
Six Months Ended July 3, 1999 Compared to Six Months Ended July 4, 1998
Wholesale manufacturing sales increased $494.4 million in the first six
months ended July 3, 1999 compared to the same period last year. The sales
increase was a result of the acquisition of Queen and increased overall demand,
offset in part by decreased sales as a result of the disposal of the U.K.
operations. Wholesale manufacturing margins on outside sales increased to 26.1
percent from 24.1 percent on lower material costs and improved efficiencies
resulting from higher demand and the ongoing integration of the Queen
operations. Wholesale manufacturing selling expense increased to 10.9 percent in
the first six months of 1999 from 9.2 percent in 1998 due to increased
advertising and sample distribution after the company's exit from the
residential retail business. As indicated above, substantially all residential
retail operations were sold or closed during 1998.
As a result of the above, consolidated net sales increased $282.8
million, or 16.3 percent, to $2,020.9 million in the first six months of 1999.
Gross margin as a percentage of net sales decreased .3 percent to 26.1 percent
in the first six months of 1999 compared to the first six months of 1998,
primarily due to the reduction in higher margin residential retail sales, offset
in part by improved performance in wholesale manufacturing as previously
described.
Selling, general and administrative expenses for the first six months of
1999 were $312.6 million, or 15.5 percent of net sales, compared to $344.1
million, or 19.8 percent of net sales, in the comparable period of 1998. The
decrease of $31.5 million, or 4.3 percent of net sales, was primarily due to the
company's exiting the residential retail business. Interest expense was $31.3
million for the first six months of 1999 compared to $30.8 million for the first
six months of 1998 as a result of higher borrowings.
The effective income tax rate for the first six months of 1999 increased
to 41.2 percent compared to 40.8 percent for the first six months of 1998
primarily due to increased amortization of nondeductible goodwill.
FORWARD-LOOKING INFORMATION
Certain statements in this report, including those regarding anticipated
total capital expenditures and capitalized lease obligations, availability of
funding for working capital, capital expenditures, stock repurchases and debt
service requirements, Year 2000 readiness and estimated remediation costs, and
the effects of litigation on the company's future results of operations, are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1933,
as amended, and are subject to the safe harbor provisions of those Acts. When
used in this report, the words "believes," "expects," "anticipates," "estimates"
or "intends," and similar expressions, are intended to identify forward-looking
statements. The forward-looking statements herein involve a number of risks and
uncertainties that could cause actual results to differ materially from those
expressed or reflected in such statements. The important factors which may
affect the company's future results and could cause those results to differ
materially from the results expressed or reflected in the forward-looking
statements include, but are not limited to, the following: changes in economic
conditions generally; changes in consumer spending for durable goods, interest
rates and new housing starts; competition from other carpet, rug and floor
covering manufacturers; changes in raw material prices; the degree of success in
the integration of the company's recent acquisition; failure of the company's
vendors, customers and suppliers to timely identify and adequately address Year
2000 compliance issues; and other factors identified from time to time in the
company's reports and other filings with the Securities and Exchange Commission.
ITEM THREE - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes occurred in the sources and effects of market risk
during the three months ended July 3, 1999.
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.
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.
14
<PAGE>
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 of Rome, Georgia. The amended complaint alleges
price-fixing regarding certain types of carpet products in violation of Section
1 of the Sherman Act. The amount of damages sought is not specified. If any
damages were to be awarded, they may be trebled under the applicable statute.
The company has filed an answer to the complaint that denies plaintiffs'
allegations and sets forth several defenses. In September 1997, the Court issued
an order certifying a nationwide plaintiff class of persons and entities who
purchased "mass production" polypropylene carpet directly from any of the
defendants from June 1, 1991 through June 30, 1995, excluding, among others, any
persons or entities whose only purchases were from any of the company's retail
establishments. Discovery began in November 1997 and is continuing. The company
is also a party to two consolidated lawsuits pending in the Superior Court of
the State of California, City and County of San Francisco, both of which were
brought on behalf of a purported class of indirect purchasers of carpet in the
State of California and which seek damages for alleged violations of California
antitrust and fair competition laws. The company believes that it has
meritorious defenses to plaintiffs' claims in the lawsuits described in this
paragraph and intends to defend these actions vigorously. After consultation
with counsel, it is the opinion of management that, although there can be no
assurance given, none of the claims described in this paragraph, when resolved,
will have a material adverse effect upon the company.
On October 3, 1998, the company learned that it was one of five
defendants in a pending antitrust suit filed in the United States District Court
in Rome, Georgia. The complaint alleges price fixing regarding certain types of
carpet products in violation of Section 1 of the Sherman Act. The amount of
damages sought is not specified. If any damages were to be awarded, they may be
trebled under the applicable statute. The company has filed an answer to the
complaint. The company believes it has meritorious defenses to plaintiffs'
claims in the lawsuit described in this paragraph and intends to defend itself
vigorously. After consultation with counsel, it is the opinion of management
that, although there can be no assurance given, none of the claims described in
this paragraph, when resolved, will have a material adverse effect on the
company.
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 AND USE OF PROCEEDS
None
ITEM THREE - DEFAULTS UPON SENIOR SECURITIES
None
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Shareholders of the company was held on April
29, 1999. The following matters were submitted to the shareholders for approval
at the meeting:
1. A proposal to elect four directors to Class I for a three-year and one
director to Class III for a one-year term. The results of the voting on this
proposal were as follows:
Nominee Votes For Authority Withheld
J.C. Shaw 99,355,396 5,590,245
---------- ---------
Robert E. Shaw 99,346,570 5,599,070
---------- ---------
Robert J. Lunn 99,356,143 5,589,498
---------- ---------
Julian D. Saul 99,358,159 5,587,474
---------- ---------
Roberto Garza 99,343,159 5,597,372
---------- ---------
The members of the Board of Directors whose terms of office continued after the
1999 Annual Meeting of Shareholders are as follows: (i) J. Hicks Lanier, R.
Julian McCamy, Thomas G. Cousins and S. Tucker Grigg (Class II Directors, term
expiring 2001); and (ii) W. Norris Little, William C. Lusk, Jr. and Robert R.
Harlin (Class III Directors, term expiring 2000).
15
<PAGE>
2. A proposal to approve the Executive Annual Incentive Plan. The results
of the voting on this proposal were as follows:
Votes For Votes Against Abstentions Broker Non-Votes
102,952,284 1,130,521 862,834 1,008
----------- ---------- ------- -----
ITEM FIVE - OTHER INFORMATION
None
ITEM SIX - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27 Financial Data Schedule
99.1 Amendment No. 1 dated as of April 23, 1999 to Transfer and
Administration Agreement dated as of September 3, 1998
among the Registrant, Shaw Funding Company, Enterprise
Funding Corporation, NationsBank, N.A. and the financial
institutions from time to time parties thereto.
99.2 First Amendment dated as of July 29, 1999 to Amended and
Restated Rights Agreement dated as of April 10, 1999
between the Registrant and EquiServe Trust Company, N.A.,
as successor rights agent to Wachovia Bank, N.A.
(B) Reports on Form 8-K
l. A report on Form 8-K was filed on April 6, 1999, reporting
the Board of Directors of the company had approved and
adopted an "Amended and Restated Rights Agreement" dated as
of April 10, 1999 between the company and Wachovia Bank,
N.A., the shareholder rights agent.
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.
16
<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 16, 1999 /s/ Robert E. Shaw
- --------------------------- --------------------------------------------
Robert E. Shaw
Chairman of the Board, Chief Executive
Officer and President
DATE: August 16, 1999 /s/ Kenneth G. Jackson
- --------------------------- --------------------------------------------
Kenneth G. Jackson
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS OF SHAW INDUSTRIES, INC. AND SUBSIDIARIES
AS OF JULY 3, 1999 AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND CASH FLOWS FOR THE SIX MONTHS ENDED JULY 3, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
NOTE: EARNINGS PER SHARE (E.P.S.) HAVE BEEN CALCULATED IN ACCORDANCE WITH FASB
128.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JUL-03-1999
<CASH> 10,832
<SECURITIES> 0
<RECEIVABLES> 290,798
<ALLOWANCES> 25,890
<INVENTORY> 694,153
<CURRENT-ASSETS> 1,139,570
<PP&E> 1,529,930
<DEPRECIATION> 788,846
<TOTAL-ASSETS> 2,340,999
<CURRENT-LIABILITIES> 594,854
<BONDS> 0
0
0
<COMMON> 153,613
<OTHER-SE> 703,240
<TOTAL-LIABILITY-AND-EQUITY> 2,340,999
<SALES> 2,020,929
<TOTAL-REVENUES> 2,020,929
<CGS> 1,494,182
<TOTAL-COSTS> 1,494,182
<OTHER-EXPENSES> 311,912
<LOSS-PROVISION> 2,587
<INTEREST-EXPENSE> 31,302
<INCOME-PRETAX> 180,936
<INCOME-TAX> 74,502
<INCOME-CONTINUING> 106,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,423
<EPS-BASIC> 0.77
<EPS-DILUTED> 0.76
</TABLE>
AMENDMENT NO. 1
TO
TRANSFER AND ADMINISTRATION AGREEMENT
dated as of April 23, 1999
AMENDMENT NO. 1 TO TRANSFER AND ADMINISTRATION AGREEMENT ("Amendment"),
dated as of September 3, 1998, among SHAW FUNDING COMPANY (the "Transferor"),
SHAW INDUSTRIES, INC., individually ("Shaw"), and as "Collection Agent",
ENTERPRISE FUNDING CORPORATION (the "Company"), THE FINANCIAL INSTITUTIONS FROM
TIME TO TIME PARTY TO THE "TAA" DESCRIBED BELOW (the "Bank Investors") and
NATIONSBANK, N.A., as agent for the Company and the Bank Investors (the
"Agent").
WHEREAS, the Transferor, Shaw, the Collection Agent, the Company, the
Bank Investors and the Agent are parties to a Transfer and Administration
Agreement dated as of September 3, 1998 (the "TAA");
WHEREAS, the Transferor, Shaw, the Collection Agent, the Company, the
Bank Investors and the Agent desire to amend the TAA in certain respects;
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Amendments to the TAA. Upon the satisfaction of the condition
precedent set forth in Section 2 below, the TAA is amended, effective as of the
date first above written, as follows:
1.1. The definition of "Facility Limit" in Section 1.1 is hereby amended
and restated as follows:
"Facility Limit" means $300,000,000; provided that such amount may not at
any time exceed the aggregate Commitments at any time in effect;
provided, further, that such amount shall equal $290,000,000 if the
Transferor and Shaw shall not have delivered to the Agent executed
Lock-Box Agreements within 15 Business Days of the date hereof related to
Queen Carpet Corporation's (a division of Shaw) lock-boxes and
corresponding accounts maintained in Canada which receive payments due
under Receivables.
1.2. The definition of "Loss and Dilution Reserve" is hereby amended and
restated as follows:
"Loss and Dilution Reserve" means on any day the greater of (x) ten
percent (10%) of the Outstanding Balance of Eligible Receivables and (y)
the result of:
<PAGE>
NI
-------- - NI
1-RRR
Where:
NI = Net Investment
RRR = Required Reserve Ratio
1.3. Schedule 2 to the TAA is hereby amended to delete from the Minimum
Net Worth covenant contained therein the phrase "and (3) the ability of the
Seller and its Subsidiaries to purchase, redeem, retire, or otherwise acquire
shares or other equity instruments shall continue to be subject to Section 10.5
of the Credit Agreement."
1.4. The signature page to the TAA is hereby amended and restated as set
forth on Exhibit A as attached hereto.
SECTION 2. Consent to Inclusion of Queen Carpet Corporation Receivables.
2.1 Pursuant to the requirements set forth in the definition of "Excluded
Receivables" in Section 1.1 of the TAA, each of the Seller, the Transferor, the
Agent, and the Majority Bank Investors, by its execution hereof, consents to the
inclusion of the Receivables originated by Queen Carpet Corporation, a division
of the Seller, as Eligible Receivables.
SECTION 3. Conditions Precedent.
3.1 This Amendment shall become effective and be deemed effective as of
the date first above written when the Agent shall have received six (6) copies
of (i) the Amended and Restated Fee Letter dated as of the date hereof duly
executed by the Transferor, Shaw, the Agent and the Company and (ii) this
Amendment duly executed by the Transferor, Shaw, the Collection Agent, the
Company, the Bank Investors and the Agent.
SECTION 4. Representations and Warranties.
4.1 Each of the parties hereto represents that this Amendment has been
duly authorized, executed and delivered by it pursuant to its corporate powers
and constitutes the legal, valid and binding obligation of such party.
SECTION 5. Confirmation of TAA. Except as herein expressly amended, the
TAA is ratified and confirmed in all respects and shall remain in full force and
effect in accordance with its terms. Each reference in the TAA to "this
Agreement" shall mean the TAA as amended by this Amendment, and as hereinafter
amended or restated.
2
<PAGE>
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING
SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES).
SECTION 7. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Amendment. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION 8. Majority Bank Investors. The Agent represents that
NationsBank, N.A., as a Bank Investor constitutes the Majority Bank Investors
under the TAA.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
SHAW FUNDING COMPANY
as Transferor
By________________________________
Title:
SHAW INDUSTRIES, INC.
individually and as Collection Agent
By________________________________
Title:
ENTERPRISE FUNDING CORPORATION
as the Company
By_________________________________
Title:
NATIONSBANK, N.A.
as Agent and as a Bank Investor
By__________________________
Title:
4
<PAGE>
Exhibit A
TAA Signature Page
(attached)
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Transfer and Administration Agreement as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Company
By:__________________________________
Name:
Title:
SHAW FUNDING COMPANY,
as Transferor
By:__________________________________
Name:
Title:
SHAW INDUSTRIES, INC., individually
and as Collection Agent
By:__________________________________
Name:
Title:
Commitment NATIONSBANK, N.A., as Agent
$300,000,000 and a Bank Investor
By:__________________________________
Name:
Title:
5
<PAGE>
Signature page to Transfer and Administration
Agreement
6
FIRST AMENDMENT TO AMENDED AND RESTATED RIGHTS AGREEMENT
First Amendment to the Amended and Restated Rights Agreement ("First
Amendment"), dated as of July 29, 1999, between Shaw Industries, Inc., a Georgia
corporation (the "Company"), and EquiServe Trust Company, N.A. ("EquiServe"), as
successor rights agent to Wachovia Bank, N.A. ("Wachovia"). All capitalized
terms used but not defined in this First Amendment shall have the meanings given
to them in that certain Amended and Restated Rights Agreement (the "Rights
Agreement"), dated as of April 10, 1999, between the Company and EquiServe, as
successor to Wachovia.
W I T N E S S E T H
WHEREAS, the Company has appointed EquiServe as successor to Wachovia as
Rights Agent under the Rights Agreement
WHEREAS, as a result of such appointment, EquiServe and the Company
desire to amend the Rights Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. The Rights Agreement is hereby amended as follows:
(a) The Rights Agreement is hereby amended by deleting Section
1(h) thereof and substituting in lieu thereof the following:
`"Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the
Commonwealth of Massachusetts are authorized or obligated
by law or executive order to close.'
(b) The Rights Agreement is hereby amended by deleting Section
1(i) thereof and substituting in lieu thereof the following:
`"close of business" on any given date shall mean 5:00
P.M., eastern standard time on such date; provided,
however, that if such date is not a Business Day it shall
mean such time on the next succeeding Business Day.'
(c) The Rights Agreement is hereby amended by deleting the second
sentence of Section 2 thereof and substituting in lieu thereof the
following:
"The Company may from time to time appoint such Co-Rights
Agents, as it may deem necessary or desirable, upon ten
(10) days' prior written notice to the Rights Agent. The
Rights Agent shall have no duty to supervise, and shall in
no event be liable for, the acts or omissions of any such
Co-Rights Agent."
<PAGE>
(d) The Rights Agreement is hereby amended by deleting the fifth
sentence of Section 22 thereof and substituting in lieu thereof the
following:
"Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation,
limited partnership or trust company organized and doing
business under the laws of the United States or of any
state of the United States, in good standing, which is
authorized under such laws to exercise corporate trust
powers and is subject to supervision or examination by
federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus
of at least $50,000,000 or (b) an affiliate of a
corporation, limited partnership or trust company described
in clause (a) of this sentence."
2. Except as provided in this First Amendment, all other terms of
the Rights Agreement remain in full force and effect.
3. This First Amendment may be executed by facsimile, in one or
more counterparts, each of which shall be deemed an original, and all of
which together shall constitute the same instrument.
SHAW INDUSTRIES, INC.
By: /s/ Bennie M. Laughter
---------------------------
Name: Bennie M. Laughter
Title: Vice President
EQUISERVE TRUST COMPANY, N.A.
By: /s/ James J. Robinson
---------------------------
Name: James J. Robinson
Title: Vice President
::ODMA\PCDOCS\ATL\311544\1
2
