<PAGE> 1
Exhibit C-2
Presentation to the Special Committee of the Board of Directors of:
SHAW INDUSTRIES
October 19, 2000
[MERRILL LYNCH LOGO]
<PAGE> 2
TABLE OF CONTENTS
1. Executive Summary
2. Industry Overview
3. Public Market Overview
4. Valuation Analysis
Appendix
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<PAGE> 3
-------------------------------------------------------------------------------
EXECUTIVE SUMMARY
-------------------------------------------------------------------------------
<PAGE> 4
EXECUTIVE SUMMARY
Proposed Offer Terms
<TABLE>
<S> <C>
PRICE PER SHARE: - $19.00 for each outstanding common share of Shaw Industries' ("Shaw" or the "Company")
voting capital stock
FORM OF CONSIDERATION: - Cash
TRANSACTION STRUCTURE: - Cash merger (shareholder vote)
- Acquisition to purchase approximately 87.7% of the outstanding shares
RETAINED OWNERSHIP: - Robert Shaw and Julian D. Saul together with members of their immediate families will each
retain a minimum 5.0% ownership interest
- Certain other members of the management and the board of Shaw Industries and members of the
Shaw and Saul families
FUTURE SALES PRICE CALCULATION: - Robert Shaw and Julian D. Saul would have the option to sell up to 10.0% of their shares
to Berkshire Hathaway each year at $19.00 a share, plus the increase in book value per share
based on Shaw's book value on December 31, 2000
- Other members of management and the Shaw and Saul family members not included in the
5.0% ownership requirement would have the option to sell up to 1/3 of their shares each year
at the same price formula set forth above beginning March 31, 2002
VOTING AGREEMENTS: - Certain beneficial owners of shares representing 13.6% of the Company's common shares agree
to vote in favor of the transaction
- An additional 10.8% of the Company's common shares will be voted at the special meeting in
the same proportion as all of the other shares of common stock voting
TERMINATION FEE: - None
</TABLE>
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<PAGE> 5
EXECUTIVE SUMMARY
Summary of Key Transaction Events
<TABLE>
<CAPTION>
DATE EVENT
------------ ----------------------------------------------------------------------------------------------------------
<S> <C>
September 6 Shaw announces receipt of Berkshire Hathaway proposal to acquire between 80% and 86% of the
outstanding shares for $19.00 per share in cash
Special Committee of Independent Directors formed to evaluate Berkshire Hathaway proposal
September 14 Special Committee retains Merrill Lynch to act as financial advisor to assist in evaluation of Berkshire
Hathaway proposal
September 19 Merrill Lynch meets with Shaw management to conduct due diligence. Merrill Lynch due diligence
continues through October 17
September 28 Merrill Lynch meets with Special Committee to provide preliminary evaluation of the Berkshire Hathaway
proposal
September 29 Merrill Lynch begins contact of potential competing bidders to solicit indications of interest
October 6 Special Committee meets telephonically to review status of Merrill Lynch solicitation of competing bids
October 10 Special Committee meets telephonically to review status of Merrill Lynch solicitation of competing bids.
Special Committee authorizes Merrill Lynch to contact Berkshire Hathaway to negotiate increase in offer
price and Winston & Strawn to negotiate key merger agreement terms
October 11 Merrill Lynch discusses proposal with Berkshire Hathaway. Berkshire Hathaway states "no flexibility" to
increase offer
October 13 Merrill Lynch and Winston & Strawn report discussions with Berkshire Hathaway and legal advisors to the
Special Committee via teleconference
October 19 Special Committee meets to finalize evaluation of Berkshire Hathaway proposal and make recommendation
to full board
</TABLE>
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<PAGE> 6
EXECUTIVE SUMMARY
Solicitation of Interest From Third Parties
- On September 6, the Berkshire Hathaway proposal was publicly
announced
- On September 14, the Company announced the retention of
Merrill Lynch and Winston & Strawn as financial and legal
advisor, respectively
- No unsolicited interest in regards to a competing proposal was
expressed to the Special Committee either directly or through
their advisors
- In addition, Merrill Lynch conducted an independent
solicitation of third party interest regarding the sale of
the Company
- The potential acquirors contacted included a mix of strategic
manufacturers, raw material producers and financial buyers
that had been previously identified to the Special Committee
- Six strategic manufacturers
- Five raw material producers
- Twelve financial buyers
- All potential acquirors expressed no interest due to either
strategic or valuation issues
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<PAGE> 7
EXECUTIVE SUMMARY
Implied Valuation Matrix
(Dollars in Millions, Except Per Share Amounts)
MANAGEMENT PROJECTIONS (a)
<TABLE>
<CAPTION>
ENTERPRISE VALUE AS A MULTIPLE OF: EQUITY VALUE AS A MULT. OF:
-------------------------------------------------------- ---------------------------
SALES EBITDA EBIT EPS BV
OFFER OFFER EQUITY TRANSACTION ---------------- ---------------- ----------------- -------------- -------
PRICE PREMIUM(B) VALUE(C) VALUE(C) 2000E 2001E 2000E 2001E 2000E 2001E 2000E 2001E LTM(C)
----- --------- -------- ----------- ------- -------- ------- ------- ------- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$19.00 55.9% $2,441.7 $3,628.4 0.9x 0.9x 7.3x 7.1x 8.9x 8.7x 12.8x 11.8x 3.04x
SHAW INDUSTRIES FINANCIAL PERFORMANCE $4,100.0 $4,100.0 $498.0 $510.0 $406.0 $418.0 $1.48 $1.60 $803.2
</TABLE>
WALL STREET PROJECTIONS (d)
<TABLE>
<CAPTION>
ENTERPRISE VALUE AS A MULTIPLE OF: EQUITY VALUE AS A MULT. OF:
------------------------------------------------------- ---------------------------
SALES EBITDA EBIT EPS BV
OFFER OFFER EQUITY TRANSACTION -------------- --------------- ---------------- ---------------- ------
PRICE PREMIUM(B) VALUE(C) VALUE(C) 2000E 2001E 2000E 2001E 2000E 2001E 2000E 2001E LTM(C)
----- --------- ------- ----------- ----- ----- ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$19.00 55.9% $2,441.7 $3,628.4 0.9x 0.9x 7.0x 6.3x 8.5x 7.7x 12.0x 10.1x 3.04x
SHAW INDUSTRIES FINANCIAL PERFORMANCE $4,068.6 $4,200.4 $518.3 $572.9 $426.5 $472.9 $1.59 $1.88 $803.2
</TABLE>
---------------
(a) Based on projections provided by Shaw management
(b) Based on pre-announcement price of $12.19 on September 5, 2000
(c) Based on 126.6 million basic shares outstanding, 8.2 million options
(average strike price of $14.67) and net debt of $1,186.8 million as
of July 1, 2000 (includes $297.3 million off balance sheet account
receivable facility)
(d) Based on publicly available Wall Street research estimates
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4
<PAGE> 8
EXECUTIVE SUMMARY
Implied Premiums Paid Analysis
IMPLIED PREMIUMS PAID - PRE-ANNOUNCEMENT (a)
<TABLE>
<CAPTION>
% OF OFFER % OF OFFER % OF OFFER
AVERAGE PREMIUM/ PREMIUM/ PREMIUM/
CLOSING DISCOUNT DISCOUNT DISCOUNT TO
TIME TRADING TRADING SHARE TO TRADING TO TRADING AVERAGE
PERIOD HIGH LOW PRICE HIGH LOW CLOSING PRICE
------- -------- -------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 Month $ 13.50 $ 11.56 $ 12.65 40.7% 64.3% 50.2%
3 Months 14.75 11.56 13.00 28.8% 64.3% 46.1%
6 Months 17.31 10.94 13.75 9.7% 73.7% 38.1%
1 Year 20.88 10.94 14.45 (9.0)% 73.7% 31.5%
3 Years 24.31 10.81 16.02 (21.9)% 75.7% 18.6%
5 Years 24.31 10.38 14.76 (21.9)% 83.1% 28.7%
</TABLE>
---------------
Source: Factset
(a) Based on pre-announcement date of September 5, 2000
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<PAGE> 9
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INDUSTRY OVERVIEW
-------------------------------------------------------------------------------
<PAGE> 10
INDUSTRY OVERVIEW
Recent Trends in Carpet Manufacturing
- The US carpet and rug industry is mature with moderate sales growth
- Historical compound annual growth of 1.9% for the period
1995 - 2000
- Annual sales growth fluctuated between 0.7% and 3.0% during
the period
- US carpet and rug sales are expected to continue to lag GDP going
forward
- Projected compound annual growth of 1.5% for the period 2000
to 2004
- Annual sales growth is expected to fluctuate between 2.4% and
0.9% during the period
- No major economic disruptions forecast
- Growth is driven by increased unit sales as pricing per square yard of
broadloom has been flat over the period of 1988 to 1998 with no major
catalyst for change
- In contrast, US non carpet and rug floorcovering sales are projected
to grow significantly faster driving higher growth for total
floorcoverings
- Projected compound annual growth of 2.7% for non carpet and
rug floorcovering sales for the period 2000 to 2004
- Overall floorcovering growth approaching 2.0% for the same
time period
- Overall sector health and public market valuations may be impacted by
several external factors
- GDP growth
- Interest rates
- Energy costs
- Raw material costs
- In addition, the US carpet and rug industry is characterized by
several large players and a host of smaller participants
- Shaw, Mohawk, Beaulieu of America account for roughly 65% of
US sales
- Market share of these participants has grown at the expense
of smaller players and through acquisitions
- Growth of these players is expected to continue to outpace
overall floorcovering industry growth
---------------
Source: Market Monitor Report by Market Insights/Torcivia, September 7, 2000;
Freedonia Group; CRI 1999 Report
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<PAGE> 11
INDUSTRY OVERVIEW
US Carpet and Rug Market Sales Trends
(US $ Millions)
<TABLE>
<S> <C>
1995 $ 9,942
1996 $10,238
1997 $10,365
1998 $10,607
1999 $10,676
2000 $10,932
2001 $11,135
2002 $11,264
2003 $11,507
2004 $11,605
</TABLE>
-- Carpet and Rug Market Sales
<TABLE>
<CAPTION>
GROWTH STATISTICS:
------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carpet and Rug Market Sales 3.0% 1.2% 2.3% 0.7% 2.4% 1.9% 1.2% 2.2% 0.9%
</TABLE>
-------------------------
Source: Market Monitor Report by Market Insights/Torcivia, September 7, 2000
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<PAGE> 12
INDUSTRY OVERVIEW
US Floorcovering Industry Market Sales Trends
(US $ Millions)
<TABLE>
<CAPTION>
Carpet and Rug Market Sales Non Carpet and Rug Sales Totals
--------------------------- ------------------------ ------
<S> <C> <C> <C>
1995 $ 9,942 4,113 $14,055
1996 $10,238 4,427 $14,655
1997 $10,365 4,808 $15,173
1998 $10,607 5,131 $15,738
1999 $10,676 5,152 $15,828
2000 $10,932 5,334 $16,266
2001 $11,135 5,472 $16,607
2002 $11,264 5,627 $16,891
2003 $11,507 5,808 $17,315
2004 $11,605 5,927 $17,532
</TABLE>
<TABLE>
<CAPTION>
GROWTH STATISTICS:
------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Floorcovering 4.3% 3.5% 3.7% 0.6% 2.8% 2.1% 1.7% 2.5% 1.3%
Carpet and Rug Market Sales 3.0% 1.2% 2.3% 0.7% 2.4% 1.9% 1.2% 2.2% 0.9%
Non Carpet and Rug Sales 7.6% 8.6% 6.7% 0.4% 3.5% 2.6% 2.8% 3.2% 2.0%
</TABLE>
-------------------------
Source: Market Monitor Report by Market Insights/Torcivia, September 7, 2000
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<PAGE> 13
INDUSTRY OVERVIEW
US Carpet and Rug Market Sales vs. Housing Starts and Commercial Construction
Housing starts (number of private housing units) vs. carpet and rug market sales
(U.S.$ in millions)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carpet and Rug Market Sales $9,942 $10,238 $10,365 $10,607 $10,676 $10,932 $11,135 $11,264 $11,507 $11,605
Single Family Starts 1,082 1,154 1,136 1,278 1,340 1,277 1,252 1,255 1,316 1,326
Multiple Family Starts 279 314 338 344 335 362 363 369 415 423
</TABLE>
<TABLE>
<CAPTION>
GROWTH STATISTICS:
------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carpet and Rug Market Sales 3.0% 1.2% 2.3% 0.7% 2.4% 1.9% 1.2% 2.2% 0.9%
Single Family Starts 6.7% (1.6%) 12.5% 4.9% (4.7%) (2.0%) 0.2% 4.9% 0.8%
Multiple Family Starts 12.5% 7.6% 1.8% (2.6%) 8.1% 0.3% 1.7% 12.5% 1.9%
</TABLE>
Commercial construction (U.S.$ in billions) vs. carpet and rug market sales
(U.S.$ in millions)
<TABLE>
<CAPTION>
GROWTH STATISTICS:
------------------
1995 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C>
Carpet and Rug Market Sales $9,942 $10,238 $10,365 $10,607 $10,676 $10,932
Office Construction 22.9 24.2 28.9 33.8 36.9 38.7
Hospital and Institutional Construction 17.7 18.1 20.4 19.8 18.4 18.9
</TABLE>
<TABLE>
<CAPTION>
GROWTH STATISTICS:
------------------
<S> <C> <C> <C> <C> <C>
Carpet and Rug Market Sales 3.0% 1.2% 2.3% 0.7% 2.4%
Office Construction 5.7% 19.4% 17.0% 9.2% 4.9%
Hospital and Institutional Construction 2.3% 12.7% (2.9%) (7.1%) 2.7%
</TABLE>
-------------------------
Source: Market Monitor Report by Market Insights/Torcivia, September 7, 2000
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<PAGE> 14
INDUSTRY OVERVIEW
Selected Carpet Manufacturers Growth and Margin Analysis (a)
<TABLE>
<CAPTION>
Revenue Growth
1998 1999 2000E 2001E
---- ---- ----- -----
<S> <C> <C> <C> <C>
Dixie Group NA 16.7 1.3 6.8
Interface NA (4.1) 6.0 6.0
Mohawk Industries NA 12.3 6.5 4.8
Shaw Industries NA 5.6 3.0 0.0
<CAPTION>
Gross Profit Margin
1998 1999 2000E 2001E
---- ---- ----- -----
<S> <C> <C> <C> <C>
Dixie Group 20.0 21.2 21.6 23.3
Interface 33.8 31.1 30.4 30.8
Mohawk Industries 24.8 25.2 25.0 24.7
Shaw Industries 29.9 26.5 24.9 24.9
<CAPTION>
EBITDA Margin
1998 1999 2000E 2001E
---- ---- ----- -----
<S> <C> <C> <C> <C>
Dixie Group 9.4 10.2 8.5 10.5
Interface 12.3 10.0 10.4 11.0
Mohawk Industries 11.7 13.0 12.3 12.0
Shaw Industries 11.4 13.5 12.1 12.4
<CAPTION>
EBIT Margin
1998 1999 2000E 2001E
---- ---- ----- -----
<S> <C> <C> <C> <C>
Dixie Group 5.7 6.1 4.4 6.4
Interface 9.0 6.3 7.0 7.8
Mohawk Industries 9.1 9.6 9.6 9.2
Shaw Industries 9.0 11.2 9.9 10.2
</TABLE>
-----------
Source: Wall Street research and Shaw management estimates
(a) Historical Shaw financial information pro forma for sale of retail
division and acquisitions to date
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<PAGE> 15
--------------------------------------------------------------------------------
PUBLIC MARKET OVERVIEW
-------------------------------------------------------------------------------
<PAGE> 16
PUBLIC MARKET OVERVIEW
Trading Multiples
(Dollars in Millions, Except Per Share Amounts)
Shaw Industries (a)
<TABLE>
<CAPTION>
Pre-Announcement
Offer Enterprise
Value Value (b)
----------- ----------------
<S> <C> <C>
Offer Price $19.00 $12.19
52 Week High (b) $20.88 $20.88
52 Week Low (b) $10.94 $10.94
Diluted Shares Outstanding (mm) 128.5 (c) 126.6 (c)
Equity Value of Offer / Market Value $2,441.7 $1,543.3
Plus: Total Debt (d) 1,197.2 1,197.2
Less: Cash (10.5) (10.5)
-------- --------
Value of Offer / Enterprise Value $3,628.4 $2,730.0
======== ========
5 Year Estimated EPS Growth Rate (e) 15.0% 15.0%
</TABLE>
Shaw Management Trading Multiples
<TABLE>
<CAPTION>
Price as a
Offer Value as a Multiple of: Multiple of:
------------------------------------ ------------
Year Revenue EBITDA EBIT EPS
--------- ------- ------ ----- ------------
<S> <C> <C> <C> <C>
2000E 0.88x 7.3x 8.9x 12.8x
2001E 0.88 7.1 8.7 11.8
<CAPTION>
Pre-Announcement Enterprise Price as a
Value as a Multiple of: Multiple of:
------------------------------------ ------------
Revenue EBITDA EBIT EPS
------- ------ ----- ------------
<S> <C> <C> <C> <C>
2000E 0.67x 5.5x 6.7x 8.2x
2001E 0.67 5.4 6.5 7.6
<CAPTION>
Projected Financial Results (f)
----------------------------------------------------
Revenue EBITDA EBIT EPS
-------- ------ ------ ------------
<S> <C> <C> <C> <C>
2000E $4,100.0 $498.0 $406.0 $1.48
2001E 4,100.0 510.0 418.0 1.60
</TABLE>
Wall Street Trading Multiples
<TABLE>
<CAPTION>
Price as a
Offer Value as a Multiple of: Multiple of:
------------------------------------ ------------
Year Revenue EBITDA EBIT EPS
--------- ------- ------ ----- ------------
<S> <C> <C> <C> <C>
2000E 0.89x 7.0x 8.5x 12.0x
2001E 0.86 6.3 7.7 10.1
Pre-Announcement Enterprise Price as a
Value as a Multiple of: Multiple of:
------------------------------------ ------------
Revenue EBITDA EBIT EPS
------- ------ ----- ------------
<C> <C> <C> <C>
2000E 0.67x 5.3x 6.4x 7.7x
2001E 0.65 4.8 5.8 6.5
<CAPTION>
Projected Financial Results (g)
----------------------------------------------------
Revenue EBITDA EBIT EPS (e)
-------- ------ ------ ------------
<C> <C> <C> <C>
2000E $4,068.6 $518.3 $426.5 $1.59
2001E 4,200.4 572.9 472.9 1.88
</TABLE>
-------------------------
(a) Shares outstanding and balance sheet information based on July 1, 2000
10-Q Balance Sheet
(b) As of 9/5/2000
(c) Based on 126.6 million basic shares outstanding and 8.2 million options
outstanding at a weighted average strike price of $14.67
(d) Total debt includes $297.3 million account receivable securitization
facility
(e) Based on First Call estimates
(f) Based on projections provided by Shaw management
(g) Based on publicly available Wall Street equity estimates
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11
<PAGE> 17
PUBLIC MARKET OVERVIEW
5-Year Pre-Announcement Trading History
Pre-Announcement
<TABLE>
<CAPTION>
% OF OFFER % OF OFFER % OF OFFER
AVERAGE PREMIUM/ PREMIUM/ PREMIUM/DISCOUNT TO
TIME TRADING TRADING CLOSING DISCOUNT TO DISCOUNT TO AVERAGE
PERIOD HIGH(A) LOW(A) SHARE PRICE TRADING HIGH TRADING LOW CLOSING PRICE
--------- --------- -------- ----------- --------------- -------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1 Month $13.50 $11.56 $12.65 40.7% 64.3% 50.2%
3 Months 14.75 11.56 13.00 28.8% 64.3% 46.1%
6 Months 17.31 10.94 13.75 9.7% 73.7% 38.1%
1 Year 20.88 10.94 14.45 (9.0)% 73.7% 31.5%
3 Years 24.31 10.81 16.02 (21.9)% 75.7% 18.6%
5 Years 24.31 10.38 14.76 (21.9)% 83.1% 28.7%
</TABLE>
Omitted graph shows 5-Year Pre-Announcement Trading History
-------------------------
Source: Factset
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12
<PAGE> 18
PUBLIC MARKET OVERVIEW
5-Year Pre-Announcement Indexed Performance
Pre-Announcement Share Price Performance
<TABLE>
<CAPTION>
SHAW COMPARABLE S&P
TIME PERIOD INDUSTRIES INDEX 500 INDEX
------------- ---------- ---------- ---------
<S> <C> <C> <C>
1 Month (5.8)% 9.4% 1.2%
3 Months (9.7)% 6.3% (1.7)%
6 Months 1.6% (7.8)% 3.3%
1 Year (39.8)% (25.1)% 7.2%
3 Years (1.5)% (22.9)% 59.9%
5 Years (20.7)% 32.3% 164.7%
</TABLE>
-------------------------
Omitted graph shows 5-Year Pre-Announcement Indexed Performance of Shaw
Industries, Comparable Index(a) and S&P 500 Index
(a) Comparable Index includes Dixie Group Inc., Interface Inc. and Mohawk
Industries
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<PAGE> 19
PUBLIC MARKET OVERVIEW
5-Year Rolling Next 12-Months P/E vs. Comparable Index
Pre-Announcement Average P/E
<TABLE>
<CAPTION>
SHAW COMPARABLE
TIME PERIOD INDUSTRIES INDEX
----------- ---------- ----------
<S> <C> <C>
1 Month 7.4x 7.3x
3 Months 7.3 6.5
6 Months 7.5 6.2
1 Year 7.9 6.8
3 Years 13.4 10.9
5 Years 14.5 13.0
</TABLE>
[GRAPH]
-------------------------
Omitted graph shows 5-Year Rolling Next 12-Months P/E of Shaw Industries and
Comparables Index
Source: Factset. Based on publicly available Wall Street research estimates
(a) Comparable Index includes Dixie Group Inc., Interface Inc. and Mohawk
Industries
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<PAGE> 20
PUBLIC MARKET OVERVIEW
Analysis of Shaw Pre-Announcement Trading Volume (a)
Percent of Volume Which Traded Below Stock Price - One Year
Cumulative Shares Traded
<TABLE>
<S> <C>
$13.00 22.4%
$15.00 63.9%
$17.00 94.3%
$18.00 96.7%
$19.00 99.3%
$20.00 99.7%
$22.00 100.0%
</TABLE>
Percent of Volume Which Traded Below Stock Price - Three Years
Cumulative Shares Traded
<TABLE>
<S> <C>
$12.00 9.5%
$14.00 30.3%
$16.00 47.4%
$18.00 67.7%
$19.00 79.4%
$20.00 85.4%
$22.00 96.0%
$24.00 100.0%
</TABLE>
-------------------------
Source: Factset
(a) Data prior to announcement on September 6, 2000
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15
<PAGE> 21
PUBLIC MARKET OVERVIEW
ANALYSIS OF SHAW STOCK REPURCHASE OVER THE LAST 3 YEARS (a)
<TABLE>
<CAPTION>
1998 1999 2000 YTD(c)
------------ ------------ ------------
<S> <C> <C> <C>
Total Volume 118,391,300 118,481,200 73,344,600
Shaw Repurchases
Tender Offer Repurchases 10,622,000 0 3,991,047
Open Market Repurchases 2,481,000 9,331,300 5,373,600
------------ ------------ ------------
Total Repurchases 13,103,000 9,331,300 9,364,647
Shaw Repurchases as
a % of Total Volume Traded 11.07% 7.88% 12.77%
Cost of Repurchases $176,576,000 $158,525,000 $134,735,000
Average Repurchase Price $ 13.48 $ 16.99 $ 14.39
------------ ------------ ------------
Total Non-Repurchase Volume 105,288,300 109,149,900 63,979,953
Average Non-Shaw Daily Volume (b) 417,811 433,135 371,976
</TABLE>
----------------------
Source: Factset and public financial statements
(a) Based on Shaw Industries public filings
(b) Total non-repurchase volume divided by trading days in the period
(c) All volume based on pre-announcement activity to date
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<PAGE> 22
PUBLIC MARKET OVERVIEW
WALL STREET RESEARCH ANALYST COMMENTS
<TABLE>
<CAPTION>
FYE EPS ESTIMATES(A)
-------------------- 5 YEAR EPS
DATE FIRM/ANALYST 2000E 2001E RATING (B) GROWTH RATE COMMENTS
--------- -------------------------- ------- ------- ----------- ----------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
8/2/2000 Merrill Lynch / $1.60 $1.90 Near-Term 17% Limited visibility with regard to the
Pamela Singleton Accumulate 2001 outlook does little for
confidence building that the end of
the petrochemical price increases are
within sight. We assumed that Shaw's
revenues would increase a more modest
2.3%.Clarification of energy costs,
is an important ingredient required
to shift investors attitude toward
the floorcovering segment of the
market
7/31/2000 Credit Suisse First Boston/ $1.57 $1.70 Hold NA Residential carpet sales fell short
Dennis Rosenberg of expectations because of Shaw's
exposure to the builder and
manufactured housing markets. Lowered
second half and full-year earnings
estimate to reflect gross margin
pressure owing to fiber cost
increases that are not being fully
offset by price increases. Project
fiber costs and margins will
stabilize
7/27/2000 First Union/ $1.60 $1.85 Buy 15% Stock should languish in short term
John A. Baugh until raw material pressures abate
6/26/2000 Wachovia Securities / $1.57 $1.90 Neutral NA Shaw's ability to raise prices will
Kay C. Norwood enable the company to mitigate the
effects of higher costs
6/1/2000 A.G. Edwards / $1.66 $1.94 Maintain NA Slowing industry having an effect on
Stephen F. East Position Shaw's margins. Share price recovery
will likely be very weak until at
least the fall of 2000
Management Estimates (c) $1.48 $1.60
</TABLE>
-------------------------
(a) Latest analyst estimates from First Call
(b) Latest analyst ratings from Bloomberg
(c) Estimates provided by Shaw management
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<PAGE> 23
PUBLIC MARKET OVERVIEW
ANALYST EPS ESTIMATE CHANGES OVER TIME - SHAW INDUSTRIES (a)
[GRAPH]
---------------------
(a) Based on First Call ReCall
Omitted graph shows Analyst EPS Estimate Changes Over Time for the periods
3/1/96 thru 10/17/00
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<PAGE> 24
PUBLIC MARKET OVERVIEW
WALL STREET ANALYST EPS ESTIMATE CHANGES OVER TIME - CARPETING SECTOR (a)
SHAW INDUSTRIES
[GRAPH]
MOHAWK INDUSTRIES
[GRAPH]
DIXIE GROUP
[GRAPH]
INTERFACE
[GRAPH]
-----------------
(a) Based on First Call ReCall
Omitted graphs show Wall Street Analyst EPS Estimate Changes over time for Shaw
Industries, Mohawk Industries, Dixie Group and Interface.
[LOGO] MERRILL LYNCH 19
<PAGE> 25
PUBLIC MARKET OVERVIEW
SHAW INDUSTRIES SHAREHOLDER PROFILE
<TABLE>
<CAPTION>
PERCENT OF STOCK OPTIONS DILUTED PERCENT OF
BASIC SHARES BASIC SHARES HELD(e) SHARES TOTAL
------------ ------------ ------------- ------- ----------
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL HOLDERS(a)
INVESCO PLC 8,785,575 6.94% 8,785,575 6.51%
Jennison Associates LLC 7,089,300 5.60% 7,089,300 5.26%
Private Capital Management 5,982,048 4.72% 5,982,048 4.44%
Fidelity 4,816,660 3.80% 4,816,660 3.57%
Barclay's Bank PLC 4,785,414 3.78% 4,785,414 3.55%
Omega Advisors 4,073,800 3.22% 4,073,800 3.02%
State Street Bank & Trust 2,576,364 2.03% 2,576,364 1.91%
Fidelity International 2,411,560 1.90% 2,411,560 1.79%
Putnam Investment Management 2,358,335 1.86% 2,358,335 1.75%
Reich & Tang Asset Management 2,227,600 1.76% 2,227,600 1.65%
----------- ------ ----------- ------
TOP TEN INSTITUTIONS 45,106,656 35.62% 45,106,656 33.44%
OTHER INSTITUTIONS 21,203,257 16.74% 21,203,257 15.72%
----------- ------ ----------- ------
TOTAL INSTITUTIONS(b) 66,309,913 52.37% 66,309,913 49.16%
----------- ------ ----------- ------
OFFICERS, DIRECTORS AND NON-INSTITUTIONAL 5% OWNERS(c)
Julian D. Saul 11,666,667 9.21% 11,666,667 8.65%
Linda Saul Schejola 7,777,777 6.14% 7,777,777 5.77%
Robert E. Shaw 7,303,188 5.77% 7,303,188 5.41%
J.C. Shaw 6,632,295 5.24% 6,632,295 4.92%
R. Julian McCamy 3,162,394 2.50% 3,162,394 2.34%
S. Tucker Grigg 1,800,877 1.42% 1,800,877 1.34%
OTHER OFFICERS AND DIRECTORS 1,215,402 0.96% 8,249,560 9,464,962 1.01%
----------- ------ ---------- ----------- ------
ALL OFFICERS, DIRECTORS AND NON-INSTITUTIONAL 5% OWNERS 39,558,600 31.24% 8,249,560 47,808,160 35.45%
----------- ------ ---------- ----------- ------
OTHER/PUBLIC 20,760,013 16.39% 20,760,013 15.39%
----------- ------ ----------- ------
TOTAL SHARES(d) 126,628,526 100.00% 8,249,560 134,878,086 100.00%
=========== ====== ========== =========== ======
</TABLE>
-------------------
(a) Source: CDA/Spectrum Report for the quarter ended 6/30/00
(b) Includes all 13F institutions, insurance companies, mutual
funds, pension funds and variable annuities
(c) Source: Proxy Dated 3/31/2000; includes all options regardless
of exercisability
(d) Total shares outstanding based on 10-Q for the quarter ended
6/30/00
(e) Total options outstanding based on 10-K dated 12/31/1999
[LOGO] MERRILL LYNCH 20
<PAGE> 26
-------------------------------------------------------------------------------
VALUATION ANALYSIS
-------------------------------------------------------------------------------
<PAGE> 27
VALUATION ANALYSIS
Projections Summary: Management vs. Street Estimates
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
FYE December 31, (a) Projected FYE December 31, 2000-2005
1998 1999 2000 2001 2002 2003 2004 2005 CAGR
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Shaw Management Projections(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES $3,768.4 $3,981.0 $4,100.0 $4,100.0 $4,284.0 $4,412.5 $4,544.9 $4,681.2 2.7%
% Growth 5.6% 3.0% 0.0% 4.5% 3.0% 3.0% 3.0%
EBITDA $ 431.4 $ 538.0 $ 498.0 $ 510.0 $ 550.0 $ 575.3 $ 601.7 $ 629.1 4.8%
Margin 11.4% 13.5% 12.1% 12.4% 12.8% 13.0% 13.2% 13.4%
EBIT $ 339.4 $ 446.0 $ 406.0 $ 418.0 $ 458.0 $ 483.3 $ 509.7 $ 537.1 5.8%
Margin 9.0% 11.2% 9.9% 10.2% 10.7% 11.0% 11.2% 11.5%
NET INCOME $ 157.1 $ 226.0 $ 190.7 $ 200.2 $ 229.5 $ 251.0 $ 273.9 $ 298.0 9.3%
Margin 4.2% 5.7% 4.7% 4.9% 5.4% 5.7% 6.0% 6.4%
EPS $ 1.12 $ 1.61 $ 1.48 $ 1.60 $ 1.90 $ 2.14 $ 2.41 $ 2.71 12.8%
Growth Rate 43.9% (7.7%) 8.1% 18.1% 12.8% 12.7% 12.5%
CAGR from 2000 -- -- 8.1% 13.0% 12.9% 12.9% 12.8%
AVERAGE DILUTED SHARES (MILLIONS) 140.600 140.600 128.509 124.800 121.100 117.400 113.700 110.000
Wall Street Projections(c)
NET SALES $3,768.4 $3,981.0 $4,068.6 $4,200.4 $4,368.4 $4,543.2 $4,724.9 $4,913.9 3.8%
% Growth 5.6% 2.2% 3.2% 4.0% 4.0% 4.0% 4.0%
EBITDA $ 431.4 $ 538.0 $ 518.3 $ 572.9 $ 600.2 $ 628.8 $ 658.6 $ 689.9 5.9%
Margin 11.4% 13.5% 12.7% 13.6% 13.7% 13.8% 13.9% 14.0%
EBIT $ 339.4 $ 446.0 $ 426.5 $ 472.9 $ 500.0 $ 528.4 $ 558.1 $ 589.2 6.7%
Margin 9.0% 11.2% 10.5% 11.3% 11.4% 11.6% 11.8% 12.0%
NET INCOME $ 157.1 $ 226.0 $ 204.3 $ 231.6 $ 253.2 $ 276.9 $ 301.8 $ 328.2 9.9%
Margin 4.2% 5.7% 5.0% 5.5% 5.8% 6.1% 6.4% 6.7%
EPS $ 1.12 $ 1.61 $ 1.59 $ 1.88 $ 2.14 $ 2.43 $ 2.76 $ 3.13 14.5%
Growth Rate 43.9% (1.1%) 18.5% 13.4% 13.7% 13.5% 13.4%
CAGR from-- -- -- 18.5% 15.9% 15.2% 14.8% 14.5%
AVERAGE DILUTED SHARES (MILLIONS) 140.600 140.600 128.509 123.000 118.500 114.000 109.500 105.000
</TABLE>
---------------
(a) Historical years pro forma for sale of retail division and acquisitions
to date as provided by Shaw management. Excludes extraordinary and
non-recurring items
(b) Shaw management projections provided through 2002 and extrapolated
thereafter based on guidance from Shaw management
(c) Based on publicly available Wall Street equity research through 2001
and extrapolated thereafter based on First Call estimated EPS growth
rate
[LOGO] MERRILL LYNCH 21
<PAGE> 28
VALUATION ANALYSIS
Valuation Methodologies
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
EQUITY VALUE PER
SHARE (A)
-------------------
Shaw Management Projections $ 9.50 - $ 12.75 Public Comparables
$ 10.00 - $ 13.50 Illustrative Stock Price Based on Forward EPS(c)
$ 14.25 - $ 21.75 Transaction Comparables
$ 13.50 - $ 18.50 Discounted Cash Flow Analysis(b)
$ 11.75 - $ 16.00 Leveraged Buyout Analysis
Wall Street Projections $ 11.25 - $ 15.00 Public Comparables
$ 11.25 - $ 15.50 Illustrative Stock Price Based on Forward EPS(c)
$ 15.25 - $ 22.75 Transaction Comparables
$ 15.50 - $ 20.75 Discounted Cash Flow Analysis(b)
$ 13.50 - $ 17.50 Leveraged Buyout Analysis
52-Week Share Price High/Low $ 10.94 - $ 20.88
Proposed Offer $ 19.00
Pre-Announcement Price $ 12.19
<CAPTION>
Illustrative Stock
Public Price Based Transaction Discounted Cash
Comparables on Forward EPS(c) Comparables Flow Analysis(b)
Relevant Statistics: 2001 EPS 2001 EPS 2000-2005 2000-2005 2000 2000 2005 2005
Current Year Current Year EBITDA EBITDA EBITDA EBITDA
EPS EPS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shaw Management Projections $1.60 -- $1.48-$2.71 -- $498.0 -- $ 629.1 --
Wall Street Projections -- $1.88 -- $1.59-$3.13 -- $518.3 -- $689.9
Multiple Range:
High 8.0x 8.0x 9.0x 9.0x 8.0x 8.0x 6.0x 6.0x
Low 6.0x 6.0x 7.0x 7.0x 6.0x 6.0x 5.0x 5.0x
<CAPTION>
Leveraged 52-Week
Buyout Share Price
Analysis High/Low
Relevant Statistics: 5th Yr. Return 5th Yr. Return Pre-
to Equity to Equity Announcement
Sponsor Sponsor
<S> <C> <C> <C>
Shaw Management Projections -- --
Wall Street Projections -- --
Multiple Range:
High 25% 25%
Low 30% 30%
</TABLE>
--------------
(a) Based on 126.6 million basic shares outstanding, 8.2 million options and
net debt of $1,065.8 million (including $121.0 million of option proceeds
and $297.3 million off balance sheet account receivable facility) as of
July 1, 2000
(b) Assumes a weighted average cost of capital range from 8.50% (high) to
10.50% (low)
(c) Upper end of valuation range includes present value of dividends at $0.20
per year
[LOGO] MERRILL LYNCH 22
<PAGE> 29
VALUATION ANALYSIS
Public Comparable Companies(a)
Enterprise Value/LTM Sales(b)
<TABLE>
<S> <C>
Shaw Industries* 0.68x
Interface 0.67x
Mohawk Industries 0.51x
Dixie Group 0.50x
</TABLE>
Offer = 0.90x
Mean = 0.56x
Enterprise Value/LTM EBITDA(b)
<TABLE>
<S> <C>
Interface 6.7x
Dixie Group 5.9x
Shaw Industries* 5.3x
Mohawk Industries 3.9x
</TABLE>
Offer = 7.0x
Mean = 5.5x
2001 P/E Multiples(c)
<TABLE>
<S> <C>
Interface 9.1x
Shaw Industries* 6.5x
Mohawk Industries 5.6x
Dixie Group 3.8x
</TABLE>
Offer = 10.1x
Mean = 6.2x
2001E P/E to Growth Rate(c)
<TABLE>
<S> <C>
Interface 0.61x
Mohawk Industries 0.43x
Shaw Industries* 0.43x
Dixie Group 0.26x
</TABLE>
Offer = 0.67x
Mean = 0.43x
--------------
(*) Excluded from calculation of mean
(a) Shaw multiples calculated at a pre-announcement share price of $12.19
utilizing Wall Street estimates. All other company stock prices as of
10/13/2000
(b) Source: Company SEC filings. Shaw historical financial information pro
forma for sale of retail division and acquisitions to date as provided by
Shaw management
(c) Source: First Call estimates and Merrill Lynch Research
[LOGO] MERRILL LYNCH 23
<PAGE> 30
VALUATION ANALYSIS
Future Share Price
Shaw Management Projections(a)
<TABLE>
<CAPTION>
IMPLIED STOCK PRICE
(DISCOUNTED TO DECEMBER 31, 2000)(a)
-----------------------------------------------------------------
Current Year P/E: 7.0x 8.0x 9.0x
----------------- ----------------- ---------------
<S> <C> <C> <C>
2000 $10.39 $ 11.87 $13.36
2001 $11.23 ($ 9.98) $ 12.83 ($11.41) $14.44 ($12.83)
2002 $13.27 ($10.48) $ 15.16 ($11.98) $17.06 ($13.48)
2003 $14.96 ($10.51) $ 17.10 ($12.01) $19.24 ($13.51)
2004 $16.86 ($10.53) $ 19.27 ($12.03) $21.68 ($13.53)
2005 $18.97 (10.53) $ 21.68 ($12.03) $24.39 ($13.53)
</TABLE>
EPS(b) $1.48 $1.60 $1.90 $2.14 $2.41 $2.71
Wall Street Projections
<TABLE>
<CAPTION>
IMPLIED STOCK PRICE
(DISCOUNTED TO DECEMBER 31, 2000)(a)
--------------------------------------------------------------------
Current Year P/E 7.0x 8.0x 9.0x
----------------- ----------------- ---------------
<S> <C> <C> <C>
2000 $ 11.13 $ 12.72 $ 14.31
2001 $ 13.18 ($11.72) $ 15.07 ($13.39) $ 16.95 ($15.07)
2002 $ 14.96 ($11.82) $ 17.09 ($13.51) $ 19.23 ($15.19)
2003 $ 17.00 ($11.94) $ 19.43 ($13.65) $ 21.86 ($15.35)
2004 $ 19.30 ($12.05) $ 22.05 ($13.77) $ 24.81 ($15.49)
2005 $ 21.88 ($12.14) $ 25.00 ($13.87) $ 28.13 ($15.61)
</TABLE>
EPS(b) $1.59 $1.88 $2.14 $2.43 $2.76 $3.13
--------------
(a) Based on a cost of equity of 12.5%
(b) Does not include present value of dividends (@ $0.20 per share annually
represents $0.75 per share by year 5)
MERRILL LYNCH [LOGO] 24
<PAGE> 31
VALUATION ANALYSIS
Selected Textile and Home Furnishings Acquisition Transactions
(Dollars in Millions)
<TABLE>
<CAPTION>
Date Target Target Business
Announced Acquiror Description
---------- ---------------------------------------- -----------------------------------------------------------------------------
<S> <C> <C>
07/05/2000 Fabrica International Mfg and sells high end luxury carpets to carpet retailers, interior designers
Dixie Group Inc. luxury yachts, furniture stores and other markets.
11/05/1999 Synthetic Industries Mfg polypropylene fabrics and fibres used in carpet backing,
Investcorp geotextiles, erosion control, and furniture construction fabrics.
10/13/1999 Consoltex Group Inc. Mfg man-made woven fabrics for the apparel, home furnishings,
American Industrial Partners industrial, and other technical fabric mkts throughout North America.
10/06/1999 Conso International Mfg decorative trimmings for the home; designs patterns and
Citicorp Venture Capital other instructional material for apparel and home decorations.
08/30/1999 Johnston Industries Mfg textile fabrics; produces woven and non-woven textiles
Jerry Zucker for industrial/home furnishing sectors; also mfg products for auto.
06/22/1999 Monterey Carpets Designer and manufacturer of high-style, specified, commercial
Collins & Aikman Floorcoverings broadloom carpet.
06/22/1999 Knoll, Inc. Designs, manufactures and distributes office systems and business
EM Warburg, Pincus & Co. furniture.
05/18/1999 O'Sullivan Industries Designs, manufactures, and distributes ready-to-assemble furniture
Bruckmann, Rosser, Sherrill & Co. products for the home entertainment and home office markets.
12/23/1998 Darkan Patterned Carpets Inc. Carpet Wholesaler to the hospitality market.
Mohawk Industries
11/24/1998 Multitex Corp of America Inc. Mfg of carpets and carpet yarns.
Dixie Group Inc.
11/12/1998 Image Industries (Maxim Group) Mfg and distributes carpets made from recycled plastic. Converts
Mohawk Industries plastic bottles into clean flake, polyester fibre and pellets.
10/21/1998 World Carpets Mfg woven and tufted broadloom carpet and rugs for residential
Mohawk Industries and commercial applications.
08/13/1998 Queen Carpet Corp. Mfg and finisher of tufted carpets and rugs.
Shaw Industries Inc.
09/02/1997 General Felt Industries Inc. Mfg tufted carpets, needelpunch carpets and artificial grass.
Bretling Inc. (Dixie Group Inc.)
12/10/1996 Collins & Aikman Floor Coverings Mfg of high-performance environmentally sustainable carpeting for
Quad-C corporate, healthcare, education, government and retail sectors.
08/28/1996 Foamex JPS Automotive Products Mfg. molded floor carpeting and material for air bags
Collins & Aikman
<CAPTION>
Transaction
Value to Public Company Parameters
Offer Transaction LTM Stock Price Forward P/E
Value Value EBITDA Index Index
-------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C>
$ 20.0 $ 21.8 4.9x 119% 5.8x
311.0 544.5 7.0 136% 7.5
C$81.1 C$334.8 5.9 151% 7.4
66.9 107.7 6.1 156% 7.7
31.8 154.7 5.5 173% 8.4
50.0 50.4 8.2 206% 9.6
NA 1,310.0 6.2 206% 9.6
324.0 350.0 7.2 169% 10.2
111.4 NA NA 187% 10.5
30.0 NA NA 194% 10.6
193.0 223.0 NA 136% 10.5
151.0 235.4 9.8 162% 8.9
470.0 690.0 8.4 235% 14.6
41.2 NA NA 158% 15.6
195.6 195.6 7.4 120% 23.5
26.0 220.0 5.0 103% 19.0
---------------------------------------------------------------
Maximum 9.8x 235% 23.5x
Median 6.6x 160% 9.9x
Mean 6.8x 163% 11.2x
Minimum 4.9x 103% 5.8x
---------------------------------------------------------------
</TABLE>
--------------
(a) Index based on pre-announcement date of September 5, 2000
[LOGO] MERRILL LYNCH 25
<PAGE> 32
VALUATION ANALYSIS
Discounted Cash Flow Valuation (a)
SHAW MANAGEMENT PROJECTIONS EBITDA MULTIPLE METHOD (b)
<TABLE>
<CAPTION>
EQUITY VALUE PER SHARE (b)
DISCOUNT ------------------------------------------
RATES 5.0X 5.5X 6.0X
-------- ------ ------ ------
<S> <C> <C> <C>
8.50% $15.32 $16.87 $18.42
9.00% 14.86 16.38 17.90
9.50% 14.42 15.90 17.38
10.00% 13.99 15.44 16.88
10.50% 13.57 14.98 16.40
</TABLE>
WALL STREET PROJECTIONS EBITDA MULTIPLE METHOD (c)
<TABLE>
<CAPTION>
EQUITY VALUE PER SHARE (c)
DISCOUNT ------------------------------------------
RATES 5.0X 5.5X 6.0X
-------- ------ ------ ------
<S> <C> <C> <C>
8.50% $17.46 $19.16 $20.86
9.00% 16.96 18.62 20.28
9.50% 16.47 18.09 19.72
10.00% 16.00 17.58 19.17
10.50% 15.53 17.09 18.64
</TABLE>
---------------
(a) Based on 126.6 million basic shares outstanding, 8.2 million
options and net debt of $1,065.8 million (including $121.0
million of options proceeds and $297.3 million off balance
sheet account receivable facility) as of July 1, 2000
(b) Based on 2005 EBITDA of $629.1 million
(c) Based on 2005 EBITDA of $689.9 million
[LOGO] MERRILL LYNCH 26
<PAGE> 33
VALUATION ANALYSIS
Leveraged Buyout Analysis
(Dollars in Millions, Except Per Share Amounts)
CONSTRAINTS
<TABLE>
<CAPTION>
<S> <C>
- Minimum 2000 EBITDA/Interest Coverage 2.0x
- Maximum Senior Debt to 2000 EBITDA 3.0x
- Maximum Debt to EBITDA 4.5x
- Minimum Equity Investment 25%
- Year 5 Hypothetical EBITDA Exit Multiples (a) 5.5x - 7.0x
- Minimum 5(th) Year Return on Equity 25% - 30%
</TABLE>
RESULTS
<TABLE>
<CAPTION>
Shaw Management Wall Street
Projections Projections
---------------------- ----------------------
Low High Low High
-------- -------- -------- --------
<S> <C> <C> <C> <C>
- Offer Price Per Share $ 11.75 $ 16.00 $ 13.50 $ 17.50
- Transaction Value $2,528.2 $3,074.3 $2,753.1 $3,267.1
- Implied 2000 EBITDA Multiple 5.1x 6.2x 5.3x 6.3x
- Capital Structure (% of Sources)
- Senior Bank Debt @ 9.25% 50.0% 43.0% 50.0% 41.0%
- 11.50% Sub, Debs 25.0% 25.0% 25.0% 25.0%
- Common Equity 25.0% 32.0% 25.0% 34.0%
- 5(th) Year Return to Equity Sponsor (a) 30.0% 25.0% 30.0% 25.0%
</TABLE>
---------------
(a) Low valuation range represents 5.5x EBITDA exit multiple
High valuation range represents 7.0x EBITDA exit multiple
[LOGO] MERRILL LYNCH 27
<PAGE> 34
VALUATION ANALYSIS
Analysis of Weighted Average Cost of Capital ("WACC")
<TABLE>
<CAPTION>
MACROECONOMIC ASSUMPTIONS
----------------------------------------------------------------------------
<S> <C>
Thirty Year Government Bond Yield (at 10/17/00) 5.76%
Historical Risk Premium (a) 8.07%
-----
Estimated Future Market Return 13.83%
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
LEVERED MARGINAL NET DEBT TO UNLEVERED LEVERED UNLEVERED
COMPARABLE COMPANIES BETA (b) TAX RATE EQUITY (c) BETA (d) RETURN RETURN (e)
-------- -------- ----------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dixie Group Inc. 0.80 40.0% 609.5% 0.17 12.2% 7.1%
Interface Inc. 1.03 40.0% 131.6% 0.58 14.1% 10.4%
Mohawk Industries 1.29 40.0% 61.4% 0.94 16.2% 13.4%
-------- ----------- --------- ----------
AVERAGE 40.0% 267.5% 0.56 10.3%
======== =========== ========= ==========
--------------------------------------------------------------------------------------------------------
Shaw Industries 0.84 40.0% 51.4% 0.64 12.5% 10.9%
--------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CAPITAL STRUCTURES -----------------------------------------------------------------------------
----------------------------------------- LEVERED COST OF EQUITY AT VARIOUS UNLEVERED BETA AND CAPITAL STRUCTURES (f)
NET DEBT/ NET DEBT/ -----------------------------------------------------------------------------
CAPITALIZATION EQUITY 0.46 0.51 0.56 0.61 0.66
-------------- --------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
30.0% 42.9% 10.5% 11.0% 11.5% 12.0% 12.5%
40.0% 66.7% 11.0% 11.6% 12.1% 12.7% 13.3%
50.0% 100.0% 11.7% 12.4% 13.0% 13.7% 14.3%
60.0% 150.0% 12.9% 13.6% 14.4% 15.2% 15.9%
70.0% 233.3% 14.7% 15.7% 16.7% 17.6% 18.6%
80.0% 400.0% 18.5% 19.8% 21.2% 22.6% 24.0%
</TABLE>
<TABLE>
<CAPTION>
CAPITAL STRUCTURES -------------------------------------------------------------------
----------------------------------------------------- WACC AT VARIOUS UNLEVERED BETA AND CAPITAL STRUCTURES (g)
NET DEBT/ NET DEBT/ EST. COST -------------------------------------------------------------------
CAPITALIZATION EQUITY OF DEBT 0.46 0.51 0.56 0.61 0.66
-------------- --------- --------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
30.0% 42.9% 7.50% 8.7% 9.0% 9.4% 9.7% 10.1%
40.0% 66.7% 8.00% 8.5% 8.9% 9.2% 9.5% 9.9%
50.0% 100.0% 8.50% 8.4% 8.7% 9.1% 9.4% 9.7%
60.0% 150.0% 9.00% 8.4% 8.7% 9.0% 9.3% 9.6%
70.0% 233.3% 9.50% 8.4% 8.7% 9.0% 9.3% 9.6%
80.0% 400.0% 10.00% 8.5% 8.8% 9.0% 9.3% 9.6%
--------------------------------------------------------------------
</TABLE>
---------------
(a) Historical spread between the long bond and the S&P 500. Source:
Ibbottson Associates Stocks, Bonds, Bills and Inflation: 2000 Yearbook
(b) 60 month adjusted Beta. Source: Merrill Lynch Beta Book March 2000
(c) Book Value of Net Debt to Market Value of Equity
(d) Unlevered Beta equals (Levered Beta/(1 + ((1 - Tax Rate) (*)
Debt/Equity)). Assumes Beta of debt equals zero
(e) Unlevered Return equals (Estimated Future Risk Free Rate + (Unlevered
Beta (*) Risk Premium))
(f) Levered Cost of Equity equals (Estimated Future Risk Free Rate +
(Levered Beta (*) Risk Premium))
(g) WACC equals ((Net Debt/Capitalization (*) (Cost of Debt (*) (1 - Tax
Rate))) + (Equity/Capitalization (*) Levered Cost of Equity))
[LOGO] MERRILL LYNCH 28
<PAGE> 35
--------------------------------------------------------------------------------
APPENDIX
--------------------------------------------------------------------------------
<PAGE> 36
SELECTED PUBLICLY TRADED COMPARABLE COMPANIES
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)(a)
<TABLE>
<CAPTION>
Price Value as a
as a Multiple of Multiple of
----------------------- -----------
Stock Market Enterprise CY CY
Price % of 52-Week Value Value LTM 2000 2001 Common
Company 10/17/2000 High - Low (in mil) (in mil) EPS EPS EPS Equity
---------- ---------- ----------------- --- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dixie Group Inc. $ 3.38 44% - 101% $ 39 $ 276(c) 6.8x NM 3.8x 0.3x
Interface 7.00 86% - 229% 358 829(c) 15.2 11.9 9.1 1.0
Mohawk Industries 19.19 69% - 101% 1,020 1,646 6.3 6.2 5.6 1.4
---------------------------------------------------------------------------------------
Mean 66% - 144% 9.4x 9.0x 6.2x 0.9x
Median 69% - 101% 6.8x 9.0x 5.6x 1.0x
=======================================================================================
Shaw Industries Inc. - Wall Street $12.19(b) 65% - 111% $1,543 $2,730(c) 7.3x 7.7x 6.5x 1.9x
Shaw Industries Inc. - Management $12.19(b) 65% - 111% $1,543 $2,730(c) 7.3x 8.2x(e) 7.6x(e) 1.9x
<CAPTION>
Enterprise Value
as a Multiple of P/E to
------------------------------------- 5-Year 5-Year Growth
LTM LTM CY2000 LTM Proj. EPS ---------------
Company EBIT EBITDA EBITDA Revenue Growth 2000 2001
---- ------ ------ ------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dixie Group Inc. 11.6x 5.9x 5.5x 0.50x 15% NM 0.26x
Interface 10.8 6.7 6.1 0.67 15% 0.79 0.61
Mohawk Industries 5.2 3.9 4.1 0.51 13% 0.48 0.43
--------------------------------------------------------------------------
Mean 9.2x 5.5x 5.2x 0.56x 14% 0.64x 0.43x
Median 10.8x 5.9x 5.5x 0.51x 15% 0.64x 0.43x
==========================================================================
Shaw Industries Inc. - Wall Street 6.5x(d) 5.3x(d) 5.3x 0.68x(d) 15% 0.51x 0.43x
Shaw Industries Inc. - Management 6.5x(d) 5.3x(d) 5.5x 0.68x(d) 15% 0.55x 0.51x
</TABLE>
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(a) EPS estimates, 5-year growth rates and financial projections are based on
latest First Call estimates or Wall Street Research
(b) Stock price as of 9/5/2000
(c) Includes off balance sheet accounts receivable facilities
(d) LTM revenue, LTM EBIT, LTM EBITDA based on figures from Shaw management
(e) EPS based on figures provided by Shaw management
[LOGO] MERRILL LYNCH
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