SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended January 1, 2000
OR
|_|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File
Number 1-6853
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[OBJECT OMITTED](R) Shaw Industries, Inc.
(Exact name of registrant as specified in its charter)
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Georgia 58-1032521
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
616 East Walnut Avenue,
Dalton, Georgia 30720
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 706/278-3812
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class On Which Registered
Common Stock, No Par Value The New York Stock Exchange
$1.11 Stated Value The Pacific Stock Exchange
Rights to Purchase Series A
Participating Preferred Stock The New York Stock Exchange
$.50 Stated Value The Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filled by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the closing sales price on The New York
Stock Exchange on March 21, 2000 was: $1,201,474,573
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title of Each Class Outstanding at March 21, 2000
Common Stock, No Par Value 132,676,198 Shares
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DOCUMENTS INCORPORATED BY REFERENCE
1999 Annual Report to Shareholders --- Part II.
Definitive Proxy Statement for the Annual Meeting of Shareholders for fiscal
1999 on April 27, 2000 --- Part III.
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PART I
Item I. Business
Shaw Industries, Inc. ("Shaw" or the "company") is the world's largest
carpet manufacturer based on both revenue and volume of production. Shaw designs
and manufactures approximately 1,800 styles of tufted and woven carpet for
residential and commercial use under the PHILADELPHIA, TRUSTMARK, CABIN CRAFTS,
SHAW COMMERCIAL CARPETS, STRATTON, NETWORX, SHAWMARK, EVANS BLACK, SALEM,
SUTTON, PATCRAFT, CUMBERLAND, DESIGNWEAVE, QUEEN CARPET, QUEEN COMMERCIAL,
TUFTEX, REDBOOK, MINSTER and INVICTA trade names and under certain private
labels. The company's manufacturing operations are fully integrated from the
processing of yarns through the finishing of carpet. The company's carpet is
sold in a broad range of prices, patterns, colors and textures with the majority
of its sales in the medium to high retail price range. Shaw sells its wholesale
products to retailers, distributors and commercial users throughout the United
States, Canada, Mexico and Australia; through its own residential and commercial
contract distribution channels to various residential and commercial end-users
in the United States; and to a lesser degree, exports to additional overseas
markets. The company also provides installation services and sells laminate
flooring, ceramic tile and beginning in 2000, hardwood flooring.
The company has a joint venture (the "Terza Joint Venture") with Grupo
Industrial Alfa, S.A. de C.V. of Monterrey, Mexico, for the manufacture,
distribution and marketing of carpets, rugs and related products primarily in
Mexico and South America. The company's investment in the Terza Joint Venture is
being accounted for using the equity method.
On April 3, 1998, the company completed the disposition of Carpets
International, Plc, a wholly-owned U.K. subsidiary, which resulted in a removal
of certain assets of $16,566,000, net of liabilities. The disposal resulted in a
charge to earnings of $20,300,000, net of tax benefit, which was recorded in the
fourth quarter of the year ended January 3, 1998.
On August 9, 1998, the company sold substantially all of its remaining
residential retail operations to The Maxim Group, Inc. ("Maxim"), now Flooring
America, Inc., in exchange for 3,150,000 shares of Maxim stock, $25,000,000 cash
and a one year note of approximately $18,000,000, subject to adjustment. Retail
stores not sold were closed. The company incurred a charge to record the loss on
the sale of the residential retail operations, store closing costs and
write-down of certain assets of $132,303,000 ($92,660,000, net of tax benefit)
related to exiting its residential retail operations. In December 1999, the
company recorded an additional charge for exiting the residential retail
business of $4,061,000 ($2,441,000, net of tax benefit).
On October 6, 1998, the company merged with Queen Carpet Corporation for
consideration of approximately $579,000,000 consisting of 19,444,444 shares of
common stock, 3,150,000 shares of Maxim stock, cash of approximately $36,000,000
and assumed debt of approximately $216,000,000. As a result of the sale of the
3,150,000 shares of Maxim stock during the fourth quarter ended January 2, 1999,
the company incurred a loss on the sale of equity securities of approximately
$22,247,000 ($13,370,000, net of tax benefit).
In December 1999, the company closed a yarn processing facility and
recorded a nonrecurring charge of $1,834,000 ($1,102,000, net of tax benefit).
The company has a 75% interest in Nylon Polymer Company, L.L.C., a
Georgia corporation, which polymerizes nylon chips for use in the company's
nylon extrusion operations. The results of operations for Nylon Polymer company,
L.L.C. are consolidated with the company's results of operations.
The company supplies the Australian, Pacific Rim and other international
markets with a range of products targeted to the needs of those markets. For
1999, 1998 and 1997, international operations accounted for 3.1, 4.8, and 9.2
percent, respectively, of the company's net sales. Geographical information
about the company's sales and long-lived assets is incorporated by reference to
page 20 of Exhibit 13 to this report.
In 1998, the company adopted EVA(R) ("EVA" is a registered trademark of
Stern, Stewart & Company), a financial measurement tool which is designed to
emphasize profitability, effective asset allocation, the cost of capital and the
creation of shareholder wealth. During 1999, the company produced a positive EVA
of approximately $90,600,000 which represents essentially the company's net
operating income, net of tax, in excess of a charge for the cost of capital
utilized in the company's business.
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On March 27, 2000, the company reached an agreement in principle to sell
Shaw Industries, Pty. Ltd., its wholly-owned Australian subsidiary for
approximately $73,000,000 including the assumption of debt. The sale is expected
to be completed during the company's second quarter of 2000.
Products and Marketing
Substantially all carpet manufactured by the company is tufted carpet
made from nylon, polypropylene, polyester and wool. In the tufting process, yarn
is inserted by multiple needles into a synthetic backing, forming loops which
may be cut or left uncut, depending on the desired texture or construction.
According to industry estimates, tufted carpet accounted for 89.9% of unit
volume shipments of carpet manufactured in the United States during 1999.
Substantially all carpet manufactured in the United States is made from
synthetic fibers, with nylon accounting for 59.4% of the total, polypropylene
33.4%, polyester 6.8% and wool 0.4%. During 1999, the company processed
approximately 97% of its requirements for carpet yarn in its own yarn processing
facilities.
The company believes that its significant investment in modern,
state-of-the-art equipment has been an important factor in achieving and
maintaining its leadership position in the marketplace. During the past five
fiscal years, the company has invested approximately $598 million (including
acquisitions) in property additions. The company continually seeks opportunities
for increasing its sales volume and market share. For example, the company
continues to expand its product lines of carpet manufactured from polypropylene
fiber, including fibers produced by the company's own extrusion equipment. The
company also has a manufacturing facility for the production of carpet tiles for
the commercial market to facilitate the company's growing demand for its tile
products.
The overall level of sales for the company and the carpet industry is
influenced by a number of factors, including consumer confidence and spending
for durable goods, turnover in housing, the condition of the residential
construction industry and the overall strength of the economy. The company's
international operations are also impacted by the markets in which they operate.
The marketing of carpet is influenced significantly by current trends in
style and fashion, principally color trends. The company believes it has been a
leader in the development of color technology in the carpet industry and that
its dyeing facilities are among the most modern and versatile in the industry.
The company maintains an in-house product development department to identify
developing color and style trends which are expected to affect its customers'
buying decisions. This department is strengthened by the company's Research and
Development Center. This state-of-the-art complex includes a 75,000 square foot
pilot plant featuring sample extrusion, yarn processing, tufting, dyeing,
coating and shearing equipment, and three fiber and dye development
laboratories.
Sales and Distribution
The company's wholesale products are marketed domestically by
approximately 1,420 salaried and commissioned sales personnel in its various
marketing divisions directly to retailers and distributors and to large national
accounts. The company's eleven (11) regional warehouse facilities and thirteen
(13) redistribution centers, along with its centralized management information
system, enable it to provide prompt delivery of its products to both its retail
customers and wholesale distributors. The company's substantial investment in
management information systems permits efficient production scheduling and
control of inventory levels.
The company sells its wholesale products to approximately 53,300
retailers, distributors and national accounts located throughout the United
States, Australia, Mexico, and Canada. Retailers and national accounts, on a
combined basis, accounted for approximately 97.1% of the company's carpet sales
for 1999. Shaw also sells to approximately 40 wholesale distributors.
Approximately 2.9% of the company's carpet sales in 1999 were to distributors.
Sales of Shaw products in foreign markets, including the sales of its foreign
subsidiary, accounted for approximately 3.1% of total sales in 1999. No other
single customer accounted for more than 4% of the company's sales during 1999.
Competition
The floor covering industry is highly competitive with more than 200
companies engaged in the manufacture and sale of carpet in the United States and
numerous manufacturers engaged in hard surface floor covering production and
sales. According to industry estimates, carpet accounts for approximately 70% of
the total United States production of all flooring types. The principal methods
of competition within the floor covering industry are quality, style, price and
service. The company believes its strategically located regional warehouse
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facilities and redistribution centers, together with its contract distribution
network, provide a competitive advantage by enabling it to supply its products
on a timely basis to customers. The company's long-standing practice of
investing in modern, state-of-the-art equipment contributes significantly to its
ability to compete effectively on the basis of quality, style and price.
Raw Materials
The principal raw materials used by the company are nylon and
polypropylene fiber and filament, and synthetic backing; additional raw
materials include polyester, wool fibers and filaments, latex and dye. During
1999, the company experienced no significant shortages of raw materials.
Employees
At January 1, 2000, the company had approximately 30,000 full-time
employees. In the opinion of management, employee relations are good. Employees
are involved in the Quality Improvement Process, which began in 1985 as a
program designed to improve the company's products and services through
education and training. A small number of the company's commercial contractor
employees in the United States are represented by unions. Certain employees of
foreign subsidiaries are represented by unions.
Environmental Matters
Management believes the company is currently in compliance in all
material respects with applicable federal, state and local statutes and
ordinances regulating the discharge of materials into the environment and
otherwise relating to the protection of the environment. Management does not
believe the company will be required to expend any material amounts in order to
remain in compliance with these laws and regulations, or that compliance will
materially affect its capital expenditures, earnings or competitive position.
However, management's expectations could change if regulatory conditions change.
The company continued its commitment to the environment during 1999.
Because of this commitment to finding new ways of using mill waste, the company
is aggressively pursuing an environmentally friendly use for all of its waste
products. For example, future possibilities for use of fiber reinforced concrete
include road and bridge construction, military applications, building
foundations, tile, brick and concrete blocks.
Patents, Trademarks, etc.
Patent protection has not been significant to the company's business,
although the company does hold several patents covering machinery used in a
specific carpet coloring process.
Item 2. Properties
The company's executive offices are located in Dalton, Georgia. At January 1,
2000, the company operated additional facilities as follows:
Domestic Facilities (wholesale)
Alabama Redistribution, yarn spinning and yarn extrusion
Arizona Yarn processing
California Administrative, coating, dyeing, tufting and warehousing
Colorado Warehousing, redistribution
Florida Redistribution
Georgia Administrative, distribution, carpet manufacturing, yarn
processing, yarn spinning, tufting, dyeing, coating,
finishing, rug manufacturing, sample manufacturing,
warehousing, design center and research and development
center.
Illinois Warehousing
Massachusetts Warehousing
Michigan Redistribution
Minnesota Warehousing
Missouri Redistribution
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New Jersey Warehousing
North Carolina Redistribution, primary backing manufacturing
Ohio Redistribution
Pennsylvania Redistribution
South Carolina Yarn spinning
Tennessee Carpet manufacturing, yarn spinning
Texas Warehousing
Virginia Redistribution
Washington Warehousing
Domestic Facilities (commercial distribution - number of locations in
parenthesis)
Arizona Warehousing, administrative (1)
California Warehousing, administrative (6)
Colorado Warehousing, administrative (1)
Florida Warehousing, administrative (7)
Georgia Retail store, warehousing, administrative (5)
Illinois Retail store, warehousing, administrative (2)
Kansas Warehousing, administrative (1)
Maryland Retail store, warehousing, administrative (1)
Massachusetts Warehousing, administrative (3)
Michigan Warehousing, administrative (2)
Minnesota Retail store, warehousing, administrative (3)
New Jersey Administrative (1)
New York Warehousing, administrative (4)
Ohio Warehousing, administrative (4)
Oregon Warehousing, administrative (1)
Pennsylvania Warehousing, administrative (3)
Texas Warehousing, administrative (4)
Utah Warehousing, administrative (1)
Virginia Warehousing, administrative (1)
Washington Warehousing, administrative (2)
Wisconsin Warehousing, administrative (1)
Foreign Facilities (facilities are located in or near the area listed)
Victoria, Australia Yarn extrusion, yarn processing, tufting, dyeing, coating,
distribution and administrative offices
The company maintains leased full-service warehouses in or near Dallas;
Los Angeles; La Mirada, California; Seattle; Chicago; Minneapolis; Boston; and
Cranbury, New Jersey. Each leased warehouse facility includes a sales showroom.
The company believes that current facilities are adequately insured and well
maintained, substantially used and provide adequate capacity for current and
anticipated future operations.
Item 3. Legal Proceedings
The company is a party to several lawsuits incidental to its various
activities and incurred in the ordinary course of business. The company believes
that it has meritorious claims and defenses in each case. After consultation
with counsel, it is the opinion of management that, although there can be no
assurance given, none of the associated claims, when resolved, will have a
material adverse effect upon the company.
The company is a defendant in certain litigation alleging personal
injury resulting from personal exposure to volatile organic compounds found in
carpet produced by the company. The complaints seek injunctive relief and
unspecified money damages on all claims. The company has denied any liability.
The company believes that it has meritorious defenses and that the litigation
will not have a material adverse effect on the company's financial condition or
results of operations.
In 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
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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 recently concluded. The
company believes that it has meritorious defenses to plaintiffs' claims in the
lawsuits described in this paragraph and intends to vigorously defend these
actions. 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 that denies plaintiff's allegations and sets forth several defenses.
Discovery has recently begun and is ongoing. The company believes it has
meritorious defenses to plaintiffs' claims in the lawsuit described in this
paragraph and intends to vigorously defend these actions. 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 also a party to four consolidated lawsuits pending in
the Superior Court of the State of California, City and County of San Francisco,
all 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 vigorously defend these actions.
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.
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.
At the end of fiscal year 1999, there were no other pending legal
proceedings to which the company was a party or to which any of its property was
subject which, in the opinion of management, were likely to have a material
adverse effect on the company's business, financial condition or results of
operations.
Item 4. Submission of Matters to Vote of Security Holders
Not applicable.
Item 4(A). Executive Officers of the Registrant
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Officer
Name Age Since Position
Robert E. Shaw 68 1967 Chairman, Chief Executive Officer and Director
W. Norris Little 68 1978 Vice Chairman and Director
Julian D. Saul 59 1998 President and Director
Vance D. Bell 48 1983 Executive Vice President, Operations
Kenneth G. Jackson 42 1996 Executive Vice President and Chief Financial Officer
Julius C. Shaw, Jr. 46 1999 Executive Vice President, Investor Relations
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Carl P. Rollins 56 1991 Vice President, Administration
Bennie M. Laughter 48 1986 Vice President, Secretary and General Counsel
Douglas H. Hoskins 65 1978 Controller
</TABLE>
Officers of the company are elected annually by the Board of Directors.
All of the executive officers of the company except for Messrs. Saul, Jackson
and Julius C. Shaw, Jr. have served as executive officers for the company for
more than the past five years.
Mr. Jackson joined the company in February 1996. Prior to February 1996,
Mr. Jackson had been a partner with Arthur Andersen LLP in Atlanta, Georgia.
Mr. Saul joined the company in October 1998. Prior to October 1998, Mr.
Saul was the Chief Executive Officer and Chairman of the Board of Queen Carpet
Corporation.
Mr. Julius C. Shaw, Jr. joined the company in 1976. Prior to 1999, Mr.
Shaw held several executive positions in marketing and investor relations with
the company.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
The high and low sales prices for the company's common stock as reported
by the New York Stock Exchange the amount of dividends paid by quarter for the
last three fiscal years are set forth on page 23 of Exhibit 13.
Reference is made to Note 2 of the Notes to Consolidated Financial
Statements on page 13 of Exhibit 13 for information concerning restrictions on
the payments, as defined, including cash dividends.
At March 21, 2000, there were 3,166 holders of record of the company's
common stock.
Item 6. Selected Financial Data
This information is set forth on page 22 of the Exhibit 13 under the
caption "Five-Year Financial Review."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is set forth on pages 1-5 of Exhibit 13 to this report.
Item 7 (a). Quantitative and Qualitative Disclosures About Market Risk
This information is set forth on page 2 of Exhibit 13 to this report,
under the caption "Market Risk Exposure and Derivative Financial Instruments."
Item 8. Financial Statements and Supplementary Data
This information is set forth on pages 6-23 of Exhibit 13.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors is incorporated by reference to
"Election of Class of Directors" on pages 3-4 of the Proxy Statement for the
Annual Meeting of Shareholders to be held on April 27, 2000. Reference is also
made to Item 4A of Part I of this report, "Executive Officers of the
Registrant," which information is incorporated herein.
Item 11. Executive Compensation
This information is incorporated by reference to "Executive Compensation"
on pages 6-8 of the Proxy Statement for the Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is incorporated by reference to "Voting Rights and
Principal Shareholders" and "Election of Directors" on pages 2 and 3-4
respectively, of the Proxy Statement for the Annual Meeting of Shareholders.
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PART IV
Item 13. Certain Relationships and Related Transactions
This information is incorporated by reference to "Certain Relationships"
on page 4 of the Proxy Statement for the Annual Meeting of Shareholders.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
o Exhibit 13 to this Form 10-K, contains the consolidated balance sheets
as of January 1, 2000 and January 2, 1999, the related consolidated
statements of income, shareholders' investment and cash flow for each of
the three years in the period ended January 1, 2000, and the related
report of Arthur Andersen LLP. These financial statements and the report
of Arthur Andersen LLP are incorporated herein by reference. The
financial statements incorporated by reference include the following:
o Consolidated Balance Sheets - January 1, 2000 and January 2, 1999
o Consolidated Statements of Income for the years ended January 1, 2000,
January 2, 1999 and January 3, 1998.
o Consolidated Statements of Shareholders' Investment for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998.
o Consolidated Statements of Cash Flow for the years ended January 1,
2000, January 2, 1999 and January 3, 1998.
2. Financial Statement Schedules
o Report of Independent Public Accountants on Financial Statement Schedule
o Schedule II - Valuation and Qualifying Accounts for the Years Ended
January 1, 2000, January 2, 1999 and January 3, 1998.
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3. Exhibits incorporated by reference or filed with this report.
Number Description
3(a) Amended and Restated Articles of Incorporation. [Incorporated herein by
reference to Exhibit 3(a) to Registrant's Registration Statement filed
with the commission on December 28, 1993 (File No. 33-51719).]
3(b) Bylaws. [Incorporated herein by reference to Exhibit 3(b) to
Registrant's Registration Statement filed with the commission on
December 28, 1993 (File No. 33-51714).]
4(a) Specimen form of Common Stock Certificate. [Incorporated herein by
reference to Exhibit 2 to Registrant's Report on Form 8-A filed with the
Securities and Exchange Commission on May 12, 1989 (File No. 1-6853).]
4(b) Restated Articles of Incorporation, filed as Exhibit 3(a), and the
Bylaws of Registrant, filed as Exhibit 3(b), are incorporated herein by
reference.
4(c) Rights Agreement dated as of April 10, 1989, between Registrant and
Citizens and Southern Trust Company (Georgia), N.A., as Rights Agent.
[Incorporated herein by reference to Exhibit 1 to Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
May 5, 1989 (File No. 1-6853).]
10(a) Share Transfer Agreement dated as of April 3, 1998 among the Registrant,
Shaw UK Holdings Limited on Form 8-K filed with the Securities and
Exchange Commission on April 20, 1998 (File No. 1-6853).]
10(b)* Deferred Compensation Plan and form of Deferred Compensation Agreement
of Registrant as adopted in April, 1980. [Incorporated herein by
reference to the Registrant's July 2, 1994 Form 10-K filed with the
Securities and Exchange Commission (File No. 1-6853).]
10(c) Agreement and Plan of Merger dated as of June 23, 1998 among the
Registrant, The Maxim Group, Inc., CMAX Acquisition, Inc. and Shaw
Carpet Showplace, Inc., and forms of Subordinated Promissory Note and
Shareholder's Agreement attached thereto as Exhibits B and C,
respectively. [Incorporated herein by reference to Exhibit 99.1 to the
Registrant's Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 26, 1998 (File No. 1-6853).]
10(d) Amendment, dated August 9, 1998, to Agreement and Plan of Merger dated
as of June 23, 1998 among the Registrant, The Maxim Group, Inc., CMAX
Acquisition, Inc. and Shaw Carpet Showplace, Inc. [Incorporated herein
by reference to Exhibit 99.2 to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission on September 2,1
998 (File No. 1-6853).]
10(e) Agreement and Plan of Merger dated as of August 13, 1998 among the
registrant, Chessman Acquisition Corp., Queen Carpet Corporation, Julian
Saul, Linda Saul, Anita Saul Family Trust, Julian Saul Family Trust, and
Linda Saul Schejola Family Trust. [Incorporated herein by reference to
Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on August 28, 1998 (File no.
1-6853).]
10(f) First Amendment to Agreement and Plan of Merger dated as of October 6,
1998 among the Registrant, Chessman Acquisition Corp., Queen Carpet
Corporation, Julian Saul, Linda Saul, Anita Saul Family Trust, Julian
Saul Family Trust, and Linda Saul Schejola Family Trust. [Incorporated
herein by reference to Exhibit 99.2 to the Registrant's Current Report
on Form 8-K filed with the Securities and Exchange Commission on October
21, 998 (File No. 1-6853).]
10(g)* Employment Agreement dated as of October 6, 1998 between the Registrant
and Julian D. Saul.
10(h) [Reserved.]
10(i)* Form of Shaw Industries, Inc. Outside Directors Stock Plan.
[Incorporated herein by reference to Exhibit 99 to the Registrant's
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on September 1, 1998 (Reg. No. 333-62645).]
10(j) [Reserved.]
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10(k)* 1992 Incentive Stock Option Plan of the Registrant. [Incorporated herein
by reference to Exhibit A to Registrant's 1992 Proxy (File No. 1-6853).]
Statement, dated September 18, 1992 (File No.1-6853).]
10(l) 1997 Stock Incentive Plan of the Registrant [Incorporated herein by
reference to Exhibit A to Registrant's 1997 Proxy (File no. 1-6853).]
10(m) Amended and Restated Credit Agreement dated as of March 16, 1998, among
the Registrant, the lenders appearing on the signature pages thereto,
NationsBank, N.A. and SunTrust Bank, Atlanta.
10(n)* Form of Shaw Industries, Inc. Nonqualified Retirement Savings Plan.
[Incorporated herein by reference to Exhibit 4(c) to the Registrant's
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on September 4, 1998 (Reg. No. 333-62915).]
10(o) First Amendment to the Amended and Restated Credit Agreement dated as of
August 7, 1998 among the Registrant, the lenders appearing on the
signature pages thereto, NationsBank, N.A. and SunTrust Bank, Atlanta.
[Incorporated herein by reference to Exhibit 99.3 to the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 21, 1998 (File No. 1-6853).]
10(p) Second Amendment to the Amended and Restated Credit Agreement dated as
of October 6, 1998 among the Registrant, the lenders appearing on the
signature pages thereto, NationsBank, N.A. and SunTrust Bank, Atlanta.
[Incorporated herein by reference to Exhibit 99.4 to the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 21, 1998 (File No. 1-6853).]
10(q) Third Amendment to the Amended and Restated Credit Agreement dated as of
October 15, 1998 among the Registrant, the lenders appearing on the
signature pages thereto, NationsBank, N.A. and SunTrust Bank, Atlanta.
[Incorporated herein by reference to Exhibit 99.5 to the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 21, 1998 (File No. 1-6853).]
10(r) 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. [Incorporated herein by reference to Exhibit
99.1 to the Registrant's Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 17, 1998 (File No.
1-6853).]
10(s) Receivables Purchase Agreement dated as of September 3, 1998 between the
Registrant and Shaw Funding Company and Form of Subordinated
Non-Negotiable Revolving Note. [Incorporated herein by reference to
Exhibit 99.2 to the Registrant's Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on November 17, 1998 (File
No. 1-6853).]
10(t) [Reserved.]
10(u) 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. [Incorporated herein by reference to Exhibit 99.1 to
the Registrant's Quarterly Report on Form 10-Q filed with the Securities
and Exchange Commission on August 17, 1999 (File No. 1-6853).]
10(v) 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. [Incorporated herein by reference to Exhibit 99.2 to the
Registrant's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 17, 1999 (File 1-6853).]
10(w) Fourth Amendment to the Amended and Restated Credit Agreement dated as
of August 20, 1999 among Shaw Industries, Inc., the lenders appearing on
the signature pages thereto and Bank of America, N.A. [Incorporated
herein by reference to Exhibit 99.1 to the Registrant's Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission on
November 16, 1999 (File 1-6853).]
12
<PAGE>
10(x) Fifth Amendment to the Amended and Restated Credit Agreement dated as of
October 15, 1999 among Shaw Industries, Inc., the lenders appearing on
the signature page thereto, Bank of America and SunTrust Bank, Atlanta.
[Incorporated herein by reference to Exhibit 99.2 to the Registrant's
Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on November 16, 1999 (File 1-6853).]
10(y) $200,000,000 Credit Agreement dated as of November 5, 1999 by and among
the Registrant, the lenders named therein, Bank of America, N.A., as
administrative agent, and SunTrust Bank, Atlanta, as documentation
agent, together with Form of Syndicate Note, Form of Guaranty and Form
of Assignment and Assumption Agreement. [Incorporated herein by
reference to Exhibit 99.3 to the Registrant's Quarterly Report on Form
10-Q filed with the Securities and Exchange commission on November 16,
1999 (File No. 1-6853).]
10(z) Guaranty dated as of November 5, 1999, delivered by Shaw Contract
Flooring Services, Inc. in favor of Bank of America, N.A. [Incorporated
herein by reference to Exhibit 99.4 to the Registrant's Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission on
November 16, 1999 (File 1-6853).]
13 Items Incorporated by Reference from the Annual Report to Shareholders
for the fiscal year ended January 1, 2000.
21 List of Subsidiaries.
23 Consent of independent public accountants.
27 Financial Data Schedule.
*Compensatory plan or management contract required to be filed as an exhibit to
Item 14 (c) of Form 10-K.
Shareholders may obtain copies of Exhibits without charge upon written request
to the Corporate Secretary, Shaw Industries, Inc., Mail Drop 061-18, P.O. Drawer
2128, Dalton, Georgia 30722-2128.
(b)1. A report on Form 8-K was filed on April 6, 1999, announcing the
amendment and restatement the Registrant's Shareholders' Rights Plan.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SHAW INDUSTRIES, INC.
Date: March 28, 2000 By:/s/ ROBERT E. SHAW
------------------
Robert E. Shaw
Chairman, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 28, 2000 /s/ ROBERT E. SHAW
------------------
Robert E. Shaw
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 28, 2000 /s/ KENNETH G. JACKSON
----------------------
Kenneth G. Jackson
Executive Vice President and Chief Financial
Officer (Principal Financial and Accounting
Officer)
Date: March 28, 2000 /s/ J. C. SHAW
--------------
J.C. Shaw
Chairman Emeritus and Director
Date: March 28, 2000 /s/ W. NORRIS LITTLE
--------------------
W. Norris Little
Vice Chairman and Director
Date: March 28, 2000 /s/ JULIAN D. SAUL
------------------
Julian D. Saul
President and Director
Date: March 28, 2000 /s/ WILLIAM C. LUSK, JR.
-----------------------
William C. Lusk, Jr.
Director
Date: March 28, 2000 /s/ ROBERT R. HARLIN
--------------------
Robert R. Harlin
Director
Date: March 28, 2000 /s/ THOMAS G. COUSINS
---------------------
Thomas G. Cousins
Director
Date: March 28, 2000 /s/ S.TUCKER GRIGG
------------------
S. Tucker Grigg
Director
Date: March 28, 2000 /s/ ROBERT J. LUNN
------------------
Robert J. Lunn
Director
Date: March 28, 2000 /s/ J. HICKS LANIER
-------------------
J. Hicks Lanier
Director
14
<PAGE>
Date: March 28, 2000 /s/ R. JULIAN McCAMY
--------------------
R. Julian McCamy
Director
Date: March 28, 2000 /s/ ROBERTO GARZA DELGADO
-------------------------
Roberto Garza Delgado
Director
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders of
Shaw Industries, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements of SHAW INDUSTRIES, INC. included in the
Annual Report to Shareholders incorporated by reference in this Form 10-K and
have issued our report thereon dated February 11, 2000. Our audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. Schedule II is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 11, 2000
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
SHAW INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 1, 2000, JANUARY 2, 1999 AND JANUARY 3, 1998
$ in thousands
<S> <C> <C> <C> <C>
Additions
Balance at Charged to
Beginning Costs and Balance at
of Year Expenses Deductions End of Year
---------------- --------------- ---------------- ------------------
YEAR ENDED JANUARY 3, 1998
Allowance for doubtful accounts and
discounts $ 16,667 $ 117,271 $ 117,655 $ 16,283
================ =============== ================ ==================
YEAR ENDED JANUARY 2, 1999
Allowance for doubtful accounts and
discounts $ 16,283 $ 123,233 * $ 118,004 $ 21,512
================ =============== ================ ==================
YEAR ENDED JANUARY 1, 2000
Allowance for doubtful accounts and
discounts $ 21,512 $ 145,628 $ 148,209 $ 18,931
================ =============== ================ ==================
*Includes $6,943,000 recorded on the books of Queen Carpet Corporation at
October 6, 1998, the acquisition date.
</TABLE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
The company manufactures, markets and distributes a broad range of soft floor
covering products primarily consisting of broadloom tufted carpet. The company
also distributes hard surface floor covering products through its highly
developed sales and distribution channels. The company operates in a business
environment comprised of numerous small customers and several large retailers
and buying groups. The company's customers in turn market floor covering and
other products to retail and other wholesale residential and commercial
end-users. The company experiences demand for its products primarily as a result
of single and multi-family residential and commercial floor covering
replacement; new commercial and multi-family residential construction; and, to a
lesser extent, new single family residential construction. This demand is driven
by such end-user factors as consumer spending on durable goods and general
consumer confidence. The company's profitability is dependent upon its ability
to efficiently manage its integrated manufacturing process to produce products
meeting the style, color and quality demanded by its customers and to deliver
those products in a timely manner. During 1999, demand for the company's
domestic products improved substantially, sales prices increased and margins
improved over that of 1998. The company's Australian sales volume also improved
in 1999, although margins decreased slightly compared to 1998 on higher material
costs.
In December 1999, the company closed a yarn processing facility and recorded a
nonrecurring charge of $1.8 million ($1.1 million, net of tax benefit).
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 stock of The Maxim Group, Inc.
("Maxim"), now Flooring America, Inc., 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 the fair values of assets
and liabilities acquired, goodwill of $334.0 million has been recorded and is
being amortized over 40 years. In connection with the disposition of 3.15
million shares of Maxim stock, the company realized a loss on the sale of equity
securities of approximately $22.2 million ($13.4 million, net of tax benefit) as
a result of a decrease in market value of the stock since its acquisition.
In August 1998, the company sold substantially all of its residential retail
operations to Maxim and closed stores not sold. The company recorded
nonrecurring charges for the loss on the sale of its residential retail
operations, store closing costs, and the write-down of certain assets of $132.3
million ($92.7 million, net of tax benefit) resulting from exiting its
residential retail business. In December 1999, the company recorded an
additional charge for exiting the residential retail business of $4.1 million
($2.4 million, net of tax benefit).
In the first quarter of 1998, the company completed the disposal of its
wholly-owned U.K. subsidiary, Carpets International, Plc. A related charge to
reduce the carrying value of certain U.K. assets of $48.0 million ($20.3
million, net of tax benefit) was recorded in December 1997.
The company has experienced no material impact from Year 2000 compliance issues.
The company incurred approximately $3.0 million to perform compliance
remediation. These costs were expensed as incurred.
Liquidity and Capital Resources
At January 1, 2000, the company had working capital of $582.0 million, a
decrease of $45.6 million from working capital of $627.6 million at January 2,
1999. Cash and cash equivalents increased $21.4 million to $34.0 million at
January 1, 2000 from $12.6 million at January 2, 1999. The company's operations
generated cash flow of $393.8 million in 1999, principally from net income of
$228.0 million adjusted for depreciation and amortization of $91.6 million, a
decrease in accounts receivable of $35.0 million and an increase in accounts
payable and accrued liabilities of $29.0 million. In 1998, cash generated from
operating activities was $378.0 million primarily from net income of $20.6
million adjusted for depreciation and amortization of $80.6 million, a charge to
record the loss on the sale of its residential retail operations, store closing
costs and write-down of certain assets of $132.3 million, a decrease in accounts
receivable of $154.9 million and a decrease in other assets of $30.7 million
offset, in part, by an increase in inventories of $56.4 million.
EXHIBIT 13 -- PAGE 1
<PAGE>
In 1999, the company's investing activities primarily included additions to
property, plant and equipment, net of retirements, of $116.4 million compared
principally to additions to property, plant and equipment, net of retirements,
of $67.3 million and acquisitions of business assets of $36.0 million in 1998.
Cash used in financing activities in 1999 of $257.1 million included net
payments on long-term borrowings of $99.3 million, the purchase and retirement
of common stock of $158.5 million and cash dividends of $13.6 million, offset,
in part, by proceeds from the exercise of stock options of $14.4 million. Cash
used in financing activities in 1998 of $306.3 million principally included net
payments on long-term borrowings of $155.5 million, the purchase of common stock
of $176.6 million and the payment of cash dividends of $9.8 million, offset in
part by proceeds from the exercise of stock options of $35.5 million.
During 1998, the company implemented EVARegistration Mark ("EVA" is a registered
trademark of Stern, Stewart & Company), 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
exceed industry averages and pursue its strategy for increasing shareholder
value. During 1999, the company produced a positive EVA of approximately $90.6
million which represents essentially the company's net operating income, net of
tax, in excess of a charge for the cost of capital utilized in the company's
business. Capital expenditures for property, plant and equipment, net of
retirements, necessary to maintain the company's facilities in a modern
state-of-the-art condition, expand production capacity and increase efficiency
were $116.4 million for 1999. Management anticipates total capital expenditures
and capitalized lease obligations of approximately $120 to $140 million for 2000
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
$1.0 billion and expires in March 2003. The interest rate on borrowings under
this facility is currently based on LIBOR and was approximately 6.2 percent,
including applicable margins, at January 1, 2000. Borrowings outstanding under
this credit facility at January 1, 2000 were $763 million. To provide further
financing capacity, in November 1999, the company entered into a 364-day $200
million senior unsecured revolving credit facility which remained unutilized and
available at January 1, 2000. In addition, the company maintains a revolving
credit facility in Australia of $59.0 million with $24.8 million outstanding and
$34.2 million available at January 1, 2000.
The company maintains a receivables securitization program established on
September 3, 1998 and expanded in the second quarter of 1999 under which the
company sells a percentage ownership interest in a defined pool of its trade
receivables to a securitization conduit. The company used the proceeds from the
receivables securitization to reduce outstanding borrowings under its domestic
revolving credit facility. The receivables securitization program expires August
30, 2000, but may be extended for additional one-year terms. As of January 1,
2000, the company had approximately $239.6 million of accounts receivable sold
and outstanding under this program.
The company believes that available borrowings under its existing credit
agreements, available cash and internally generated funds will be sufficient to
support its working capital, capital expenditures, 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.
On March 13, 2000, the company commenced a "Dutch Auction" tender offer to
acquire up to 12,000,000 shares of its common stock, representing approximately
9.1 percent of its currently outstanding shares. Under the terms of the offer,
the company's shareholders may tender their shares at a price within the range
of $11.50 to $13.50 per share for a period of 20 business days.
In March 1998, the company completed a "Dutch Auction" tender offer under which
the company purchased approximately 10,622,000 shares of its common stock at a
price of $12.50 per share or approximately $133.9 million. The shares purchased
represented approximately 8.1 percent of the shares outstanding at the time of
the tender offer. Funds to purchase the tendered shares were provided primarily
from capacity under the company's $1.0 billion revolving credit facility. The
company discontinued cash dividends after paying $9.8 million in February 1998.
The company reestablished its quarterly dividend policy in the third quarter of
1999 and paid $13.6 million in 1999.
Market Risk Exposure and Derivative Financial Instruments
The company is exposed to market risk primarily in the form of changes in
interest rates and, to a lesser extent, changes in currency exchange rates and
commodity prices. To manage the volatility relating to these exposures, the
company enters into various derivative financial instruments and purchase
contracts in keeping with company policies governing financial risk management.
The company does not enter into derivative financial instruments for trading
purposes.
EXHIBIT 13 -- PAGE 2
<PAGE>
Interest rate swap agreements are employed to hedge interest rate increases on
the company's credit facilities. Under current accounting literature, the
interest rate differential on the company's existing swaps is recorded as an
adjustment to interest expense. At January 1, 2000, the company has interest
rate swap agreements with notional amounts totaling $550.7 million under which
the company has agreed to pay interest at a weighted average fixed rate of 6.07
percent. The swap agreements expire at various dates through March 2003.
The company may employ foreign currency contracts to effectively manage exposure
to fluctuations in currency exchange rates in its Australian and Mexican
operations and capital expenditures. Foreign currency contracts outstanding at
January 1, 2000 totaled approximately $13.4 million.
The company's manufacturing costs and operating expenses are affected by price
changes. The costs of fiber and other raw materials decreased approximately 2
percent, 4 percent and 3 percent in 1999, 1998 and 1997, respectively. The
company has historically mitigated inflationary effects by passing price changes
along to its customers and by continually developing and implementing more
cost-effective manufacturing and other operational\ processes. The company's
ongoing ability to mitigate the effect of price changes will depend on market
factors.
Based on the company's overall interest rate, currency exchange and commodity
price exposures, near-term changes in each of these exposures would have
immaterial effects on the company's consolidated results of operations, cash
flow, derivative and underlying instrument fair value, and financial position.
In June 1998, the Financial Accounting Standards Board (FASB) 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, as amended by SFAS No. 137, is effective for the
company's fiscal year 2001. The company has not yet quantified the impacts of
adopting SFAS No. 133 on its financial statements and has not determined the
method of adoption of SFAS No. 133. However, the Statement could increase
volatility in earnings and other comprehensive income.
Results of Operations
The company's business consists of its wholesale manufacturing operations which
sell carpet and related products manufactured primarily in the company's
manufacturing facilities, located principally 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
operations on the basis of sales, gross margin and "net divisional contribution"
which consists of gross margin less selling expense.
The following table summarizes key management information for the company's
operations for the years 1999, 1998 and 1997 (000s omitted):
- --------------------------------------------------------------------------------
Wholesale Residential
Manufacturing Retail Intercompany Consolidated
Operations Operations Eliminations Operations
- --------------------------------------------------------------------------------
Net Sales
1999 $4,107,736 $ -- $ -- $4,107,736
1998 3,419,538 341,769 (219,105) 3,542,202
1997 3,170,158 638,662 (233,046) 3,575,774
Gross Margin
1999 $1,079,488 $ -- $ -- $1,079,488
1998 772,097 128,273 (621) 899,749
1997 655,290 243,385 (3,373) 895,302
Selling Expense
1999 $ 442,216 $ -- $ -- $ 422,216
1998 321,208 135,720 -- 456,928
1997 280,174 263,902 (1,014) 543,062
- --------------------------------------------------------------------------------
EXHIBIT 13 -- PAGE 3
<PAGE>
1999 Compared to 1998
Wholesale manufacturing sales increased $688.2 million in 1999 compared to the
same period last year. The sales increase was primarily the result of the
acquisition of Queen described above and increased demand as the company
regained market share following its exit from the residential retail business,
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 26.3
percent from 24.1 percent on lower material costs and improved manufacturing
efficiencies resulting from higher demand and the ongoing integration of the
Queen operations. Wholesale manufacturing selling expense increased to 10.8
percent in 1999 from 9.4 percent in 1998 due to increased advertising and other
selling expenses and higher sample costs 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 $565.5 million, or
16.0 percent, to approximately $4.1 billion in 1999. Gross margin as a
percentage of net sales increased 0.9 percent to 26.3 percent in 1999 compared
to 1998, primarily due to improved performance in wholesale manufacturing
operations as previously described, offset, in part, by the reduction in higher
margin residential retail sales.
Selling, general and administrative expenses for 1999 were $627.1 million, or
15.3 percent of net sales, compared to $620.9 million, or 17.5 percent of net
sales in 1998. The decrease of 2.2 percent of net sales was primarily due to the
company exiting the residential retail business. Interest expense was $62.8
million for 1999 compared to $62.6 million for 1998 as higher interest rates
offset lower borrowings.
Results for 1999 included an additional nonrecurring charge for exiting the
residential retail business of $4.1 million ($2.4 million, net of tax benefit,
or $0.02 per share) and a charge to record plant closing costs of $1.8 million
($1.1 million, net of tax benefit, or $0.01 per share) both as discussed in Note
8 of the Notes to Consolidated Financial Statements. Net income before
nonrecurring charges was $231.5 million, or $1.67 and $1.65 per share on a basic
and diluted basis, respectively. After nonrecurring charges, net income was
$228.0 million, or $1.64 and $1.62 on a basic and diluted basis, respectively.
Net income before nonrecurring charges for 1998 was $126.7 million, or $0.97 per
share. After nonrecurring charges, 1998 net income was $20.6 million, or $0.16
per share on basic and diluted bases.
The effective income tax rate for 1999 and 1998 was 41.1 percent before the tax
benefit from nonrecurring charges.
1998 Compared to 1997
Wholesale manufacturing sales increased $249.4 million during 1998 as a result
of improved general demand as well as the acquisition of Queen described above,
which added sales of $207.3 million offset in part by decreased sales as a
result of the previously discussed disposal of the U.K. operations. Wholesale
manufacturing margins on outside sales improved from 22.2 percent in 1997 to
24.1 percent in 1998 primarily due to lower raw material costs, improved
manufacturing efficiencies and improved product mix. Wholesale manufacturing
operations selling expense increased to 9.4 percent in 1998 from 8.8 percent in
1997 due to increased advertising and higher sample costs after the company's
exit from the residential retail business.
As indicated above, substantially all residential retail operations were sold or
closed during 1998 and late 1997 resulting in reduced sales, gross margin and
selling expense in 1998 compared to 1997.
As a result of the above, consolidated net sales decreased $33.6 million, or 0.9
percent to approximately $3.5 billion in 1998. Consolidated gross margin as a
percentage of net sales increased 0.4 percent to 25.4 percent in 1998 compared
to 1997, due to lower raw material costs in wholesale manufacturing operations,
offset by the reduction in higher margin residential retail sales.
Selling, general and administrative expenses for 1998 were $620.9 million, or
17.5 percent of net sales, compared to $722.6 million, or 20.2 percent of net
sales, in 1997. The decrease of $101.7 million, or 2.7 percent of net sales, was
principally due to the company's exiting the residential retail business.
Interest expense increased $1.8 million to $62.6 million in 1998 due to higher
average borrowings resulting from funding stock repurchases and the acquisition
of Queen.
EXHIBIT 13 -- PAGE 4
<PAGE>
Results for 1998 included nonrecurring charges of $132.3 million ($92.7 million,
net of tax benefit, or $0.71 per share) and a loss on the sale of equity
securities of $22.2 million ($13.4 million, net of tax benefit, or $0.10 per
share) both as discussed in Note 8 of the Notes to Consolidated Financial
Statements. Net income before nonrecurring charges was $126.7 million, or $0.97
per share. After nonrecurring charges, net income was $20.6 million, or $0.16
per share on basic and diluted bases. Net income before nonrecurring charges for
1997 was $72.3 million, or $0.54 per share, including a gain on the sale of
fixed assets of $3.4 million, net of tax, or $0.03 per share. Results for 1997
include a charge to record residential retail store closing costs of $36.8
million ($23.0 million, net of tax benefit, or $0.17 per share) and a reduction
in the carrying value of the assets of Carpets International, Plc (U.K.) of
$48.0 million ($20.3 million, net of tax benefit, or $0.15 per share). Net
income in 1997 was $29.0 million, or $0.22 per share on basic and diluted bases.
The effective income tax rate for 1998 before the nonrecurring charges decreased
to 41.1 percent compared to 41.7 percent for 1997 due to more profitable foreign
operations in 1998 which are taxed at a lower effective income tax rate.
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, 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 single and multi-family construction;
competition from other carpet, rug and floor covering manufacturers; changes in
raw material prices; and other factors identified from time to time in the
company's reports and other filings with the Securities and Exchange Commission.
EXHIBIT 13 -- PAGE 5
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
January 1, 2000 and January 2, 1999
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 34,021,000 $ 12,555,000
- ---------------------------------------------------------------------------------------------------
Accounts receivable, less allowance for doubtful accounts and
discounts of $18,931,000 in 1999 and $21,512,000 in 1998 234,267,000 276,002,000
- ---------------------------------------------------------------------------------------------------
Inventories-
Raw materials 255,083,000 293,868,000
Work-in-process 92,605,000 75,060,000
Finished goods 319,046,000 290,152,000
- ---------------------------------------------------------------------------------------------------
666,734,000 659,080,000
- ---------------------------------------------------------------------------------------------------
Other current assets 140,902,000 134,733,000
- ---------------------------------------------------------------------------------------------------
Total current assets 1,075,924,000 1,082,370,000
- ---------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at cost:
Land and land improvements 31,974,000 31,425,000
Buildings and leasehold improvements 331,010,000 320,991,000
Machinery and equipment 1,064,074,000 1,105,505,000
Construction in progress 148,380,000 41,827,000
- ---------------------------------------------------------------------------------------------------
1,575,438,000 1,499,748,000
Less - Accumulated depreciation and amortization 821,633,000 783,320,000
- ---------------------------------------------------------------------------------------------------
753,805,000 716,428,000
Goodwill, net of amortization 418,923,000 416,028,000
- ---------------------------------------------------------------------------------------------------
Other Assets 43,067,000 46,621,000
- ---------------------------------------------------------------------------------------------------
Total Assets $2,291,719,000 $2,261,447,000
- ---------------------------------------------------------------------------------------------------
EXHIBIT 13 -- PAGE 6
<PAGE>
- ---------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Current maturities of long-term debt $ 4,294,000 $ 8,000
Accounts payable 217,332,000 194,352,000
Accrued liabilities 272,341,000 260,450,000
- ---------------------------------------------------------------------------------------------------
Total current liabilities 493,967,000 454,810,000
- ---------------------------------------------------------------------------------------------------
Long-Term Debt, less current maturities 823,821,000 927,434,000
- ---------------------------------------------------------------------------------------------------
Deferred Income Taxes 77,994,000 65,768,000
- ---------------------------------------------------------------------------------------------------
Other Liabilities 27,352,000 16,067,000
- ---------------------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' Investment:
Preferred stock, 250,000 shares authorized, no shares issued -- --
Common stock, no par, $1 11 stated value, authorized
500,000,000 shares; issued and outstanding: 132,663,599
shares at January 1, 2000 and 140,906,175 shares at
January 2, 1999 147,258,000 156,407,000
Paid-in capital 60,612,000 195,452,000
Cumulative translation adjustment (2,252,000) (3,156,000)
Retained earnings 662,967,000 448,665,000
- ---------------------------------------------------------------------------------------------------
Total Shareholders' Investment 868,585,000 797,368,000
- ---------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Investment $2,291,719,000 $2,261,447,000
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
EXHIBIT 13 -- PAGE 7
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
For Years Ended January 1, 2000, January 2, 1999 and January 3, 1998
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Net Sales $ 4,107,736,000 $ 3,542,202,000 $ 3,575,774,000
Costs and Expenses:
Cost of sales 3,028,248,000 2,642,453,000 2,680,472,000
Selling, general and administrative 627,075,000 620,878,000 722,590,000
Charge to record loss on sale of residential retail
operations, store closing costs and write-down
of certain assets 4,061,000 132,303,000 --
Charge to record plant closing costs 1,834,000 -- --
Pre-opening expenses -- -- 3,953,000
Charge to record store closing costs -- -- 36,787,000
Write-down of U.K. assets -- -- 47,952,000
Interest, net 62,812,000 62,553,000 60,769,000
Loss on sale of equity securities -- 22,247,000 --
Other expense (income), net 1,319,000 4,676,000 (7,032,000)
- --------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 382,387,000 57,092,000 30,283,000
Provision for Income Taxes 157,361,000 38,407,000 5,586,000
- --------------------------------------------------------------------------------------------------------------
Income Before Equity in Income of Joint Ventures 225,026,000 18,685,000 24,697,000
Equity in Income of Joint Ventures 2,925,000 1,947,000 4,262,000
- --------------------------------------------------------------------------------------------------------------
Net Income $ 227,951,000 $ 20,632,000 $ 28,959,000
==============================================================================================================
Earnings Per Common Share:
Basic $ 1.64 $ 0.16 $ 0.22
Diluted $ 1.62 $ 0.16 $ 0.22
- --------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding:
Basic 138,591,266 128,031,290 133,523,380
Diluted 140,680,923 129,915,178 133,714,496
- --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
EXHIBIT 13 -- PAGE 8
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Investment
For Years Ended January 1, 2000, January 2, 1999 and January 3, 1998
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Accumulated
Other
Comprehensive
Income -
Cumulative
Common Stock Paid-In Translation Retained
Shares Amount Capital Adjustment Earnings
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1996 132,772,548 $ 147,379,000 $ 72,335,000 $ 3,058,000 $ 448,939,000
Comprehensive Income:
Net income -- -- -- -- 28,959,000
Cumulative translation
adjustment -- -- -- (3,678,000) --
Issuance of stock in
acquisitions 2,112,517 2,344,000 23,336,000 -- --
Issuance of stock to
directors 7,000 8,000 83,000 -- --
Purchase and retirement
of common stock (3,820,000) (4,240,000) (41,822,000) -- --
Exercise of stock options 46,000 51,000 504,000 -- --
Tax benefit on disposition
of stock options -- -- 309,000 -- --
Cash dividends paid
($0.30 per share) -- -- -- -- (40,031,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1998 131,118,065 145,542,000 54,745,000 (620,000) 437,867,000
Comprehensive Income:
Net income -- -- -- -- 20,632,000
Cumulative translation
adjustment -- -- -- (2,536,000) --
Issuance of stock in
acquisitions 20,343,246 22,581,000 269,950,000 -- --
Issuance of stock to
directors 5,800 6,000 86,000 -- --
Purchase of common stock (13,102,661) (14,544,000) (162,032,000) -- --
Exercise of stock options 2,541,725 2,822,000 29,260,000 -- --
Tax benefit on disposition
of stock options -- -- 3,443,000 -- --
Cash dividends paid
($0.075 per share) -- -- -- -- (9,834,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance, January 2, 1999 140,906,175 156,407,000 195,452,000 (3,156,000) 448,665,000
Comprehensive Income:
Net income -- -- -- -- 227,951,000
Cumulative translation
adjustment -- -- -- 904,000 --
Issuance of stock to
directors 5,400 6,000 102,000 -- --
Purchase and retirement
of common stock (9,331,300) (10,358,000) (148,167,000) -- --
Exercise of stock options 1,083,324 1,203,000 11,642,000 -- --
Tax benefit on disposition
of stock options -- -- 1,583,000 -- --
Cash dividends paid
($0.10 per share) -- -- -- -- (13,649,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000 132,663,599 $ 147,258,000 $ 60,612,000 $ (2,252,000) $ 662,967,000
=======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
EXHIBIT 13 -- PAGE 9
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flow
For Years Ended January 1, 2000, January 2, 1999 and January 3, 1998
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Operating Activities:
Net Income $ 227,951,000 $ 20,632,000 $ 28,959,000
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 91,636,000 80,598,000 94,954,000
Provision for doubtful accounts 6,746,000 5,817,000 9,318,000
Deferred income taxes 12,226,000 (4,190,000) (1,841,000)
Charge to record loss on sale of residential
retail operations, store closing costs and
write-down of certain assets 4,061,000 132,303,000 --
Charge to record plant closing costs 1,834,000 -- --
Charge to record store closing costs -- -- 36,787,000
Write-down of U.K. assets -- -- 47,952,000
Changes in operating assets and liabilities,
net of acquisitions and dispositions:
Accounts receivable 34,989,000 154,911,000 35,166,000
Inventories (8,523,000) (56,444,000) 39,111,000
Other current assets (6,169,000) 30,720,000 (30,740,000)
Accounts payable 23,026,000 (1,349,000) (60,360,000)
Accrued liabilities 5,996,000 8,810,000 (35,371,000)
Other, net 39,000 6,223,000 (24,657,000)
- ------------------------------------------------------------------------------------------------------------------------
Total Adjustments 165,861,000 357,399,000 110,319,000
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 393,812,000 378,031,000 139,278,000
- ------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Additions to property, plant and equipment (117,949,000) (76,033,000) (109,883,000)
Retirements of property, plant and equipment, net 1,508,000 8,745,000 31,882,000
Acquisitions of business assets -- (35,981,000) (28,727,000)
Disposal of U.K. assets -- (16,566,000) --
Sale of residential retail operations -- 16,212,000 --
Other 1,168,000 917,000 --
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (115,273,000) (102,706,000) (106,728,000)
- ------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Borrowings under revolving credit agreements 813,000,000 1,066,930,000 330,000,000
Repayment of revolving credit agreements (916,021,000) (1,225,835,000) (220,702,000)
Borrowings on other long-term debt 3,694,000 3,449,000 --
Repayment of other long-term debt -- -- (22,937,000)
Net payments of short-term debt -- -- (39,383,000)
Purchase and retirement of common stock (158,525,000) (176,576,000) (46,062,000)
Payment of cash dividends (13,649,000) (9,834,000) (40,031,000)
Proceeds from exercise of stock options 14,428,000 35,525,000 555,000
- ------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (257,073,000) (306,341,000) (38,560,000)
- ------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents:
Net change 21,466,000 (31,016,000) (6,010,000)
Beginning of period 12,555,000 43,571,000 49,581,000
- ------------------------------------------------------------------------------------------------------------------------
End of period $ 34,021,000 $ 12,555,000 $ 43,571,000
========================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the year for-
Interest $ 63,058,000 $ 64,750,000 $ 66,223,000
Income taxes $ 131,344,000 $ (42,046,000) $ 51,619,000
Acquisition of business assets by assuming liabilities $ -- $ 344,111,000 $ 40,328,000
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
EXHIBIT 13 -- PAGE 10
<PAGE>
Notes to Consolidated Financial Statements
January 1, 2000, January 2, 1999 and January 3, 1998
Note 1 Summary of Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Shaw Industries,
Inc. and subsidiaries (the "company"). All significant intercompany balances and
transactions are eliminated in consolidation.
Nature of Business
The company manufactures and distributes carpet in a broad range of prices,
patterns, colors and textures for residential and commercial use. The company
markets its products primarily through wholesale distribution channels to floor
covering retailers, distributors and contractors throughout the U.S., Canada,
Australia, and Mexico and through commercial contract distribution channels to
various residential and commercial retailers in the United States. The company
also provides installation and project management services through its
commercial contract distribution channels and offers laminate flooring, ceramic
tile and hardwood flooring products.
Fiscal Period
The company's fiscal year-end is the Saturday closest to December 31. Fiscal
1999 and fiscal 1998 consisted of 52 weeks, and fiscal 1997 consisted of 53
weeks.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized when goods are shipped for wholesale sales and generally
as installed for commercial contract sales.
Cash and Cash Equivalents
The company considers all investments with an original maturity of three months
or less to be cash equivalents.
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 costs of
issuing its own commercial paper backed by these accounts receivable and
accounts receivable sold by other participating entities. The agreements expire
August 30, 2000, 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 of 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 the domestic
revolving credit facility and were reflected as a reduction of receivables in
the consolidated balance sheets and as an operating activity in the consolidated
statements of cash flow. As of January 1, 2000, the company had approximately
$239,634,000 of accounts receivable sold and outstanding under this program.
EXHIBIT 13 -- PAGE 11
<PAGE>
Inventory
Inventories are stated at the lower of cost or market. Cost includes materials,
direct and indirect labor and factory overhead. Market with respect to raw
materials is replacement cost and for work-in-process and finished goods is net
realizable value. The company uses the last-in, first-out (LIFO) method of
valuing certain of its domestic inven- tories to more properly match current
costs against current revenues, thereby reducing the effects of price changes on
earnings. If LIFO inventories were valued at current costs, the inventory
amounts would have been $46,915,000 and $23,556,000 lower than those reported at
January 1, 2000 and January 2, 1999, respectively. Although current replacement
cost for inventories was less than LIFO carrying value at January 1, 2000, the
company's management believes that the carrying value will be recovered through
profit margins on future sales. The company's foreign and certain of its
finished goods inventories, representing approximately 12 percent and 10 percent
of total inventories, are valued at January 1, 2000 and January 2, 1999,
respectively, at the lower of first-in, first-out (FIFO) cost or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost or fair value at date of
acquisition. Renewals and betterments are capitalized; maintenance and repairs
are charged to expense as incurred. The cost and accumulated depreciation of
property retired or otherwise disposed of are removed from the accounts, and any
gains or losses thereon are included in income. For financial reporting
purposes, depreciation is computed using the straight-line method over the
estimated useful lives of the assets, 15 to 39 years for buildings and 5 to 14
years for machinery and equipment. Leasehold improvements are amortized over the
terms of the related leases.
Goodwill
Costs in excess of the fair value of net assets of businesses acquired are
recorded as goodwill and are amortized using the straight-line method over a
period not to exceed 40 years for acquisitions of domestic and foreign
manufacturing operations and 20 years for acquisitions of commercial contract
operations. The recoverability of goodwill is periodically reviewed by
management based on current and anticipated conditions. The amount of goodwill
considered realizable could be reduced in the near term if changes occur in
anticipated conditions. Accumulated amortization was $35,335,000, $23,271,000
and $17,858,000 at January 1, 2000, January 2, 1999 and January 3, 1998,
respectively.
Accrued Liabilities
Accrued liabilities include $34,124,000 and $32,877,000 for workers'
compensation claims and $28,253,000 and $31,652,000 for returns and allowances
at January 1, 2000 and January 2, 1999, respectively.
Employee Benefits
The company's Retirement Savings Plan provides, among other things, for
voluntary contributions by domestic employees not to exceed 15 percent of their
gross wages. The company provides matching contributions of 25 to 50 percent
based on the employee's contribution percentage. At January 1, 2000,
$17,897,000, or 4.0 percent, of the plan's assets consisted of shares of the
company's common stock as elected by plan participants. During 1999, 1998 and
1997, the company contributed $15,542,000, $12,831,000 and $11,987,000,
respectively, under the plan.
The company has a Deferred Compensation Plan for key personnel. The plan
provides, among other things, for cer-tain deferred compensation to become
payable on the employee's death, retirement or total disability as set forth in
the plan. During 1999, 1998 and 1997, the company provided $2,108,000,
$1,899,000 and $1,546,000, respectively, under the plan. The actuarial present
value of obligations of the plan have been recorded as other liabilities in the
accompanying consolidated balance sheets.
Earnings Per Share
The company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
EARNINGS PER SHARE, effective January 3, 1998. Earnings per share have been
computed based upon the weighted average shares and dilutive potential common
shares outstanding during the year.
EXHIBIT 13 -- PAGE 12
<PAGE>
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
forward exchange contracts when they are determined to effectively manage and
reduce foreign currency exchange fluctuation risk. The company does not enter
into financial deriva- tives for trading purposes. In June 1998, the FASB issued
SFAS No. 133, ACCOUN TING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
which establishes accounting and reporting standards for derivative instruments
and for hedging activities. SFAS No. 133, as amended by SFAS No. 137, is
effective, and the company expects to adopt this new standard, in the first
quarter of the company's fiscal 2001. The company's management has not
determined the impact this statement will have on the financial statements.
Segment and Enterprise-Wide Information
Effective in 1998, the company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 supersedes SFAS No. 14,
FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE, replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect results of operations or financial position but did
affect the disclosure of segment information (see Note 9).
Comprehensive Income
The company had other comprehensive income in the form of cumulative translation
adjustments which resulted in total comprehensive income of $228,855,000,
$18,096,000 and $25,281,000 for 1999, 1998 and 1997, respectively.
Note 2 Long-Term Debt
Long-term debt presented in the accompanying consolidated balance sheets at
January 1, 2000 and January 2, 1999 consisted of the following (000s omitted):
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------------------
Revolving credit facility, United States, at LIBOR-based rate, due in fiscal 2003 $ 763,000 $ 844,000
Revolving loan facility, Australia, at LIBOR-based rate, due in fiscal 2001 24,806 47,057
Term loans and other 39,872 35,277
Capitalized leases 437 1,108
- -----------------------------------------------------------------------------------------------------------
828,115 927,442
Less: current maturities (4,294) (8)
- -----------------------------------------------------------------------------------------------------------
$ 823,821 $ 927,434
===========================================================================================================
</TABLE>
The company's domestic revolving credit facility provides for borrowings of up
to $1.0 billion. Borrowings bear interest at variable rates equal to the London
Interbank Offered Rate (LIBOR) plus margins ranging from 0.320 percent to 0.850
percent, depending on the company's consolidated funded debt to earnings ratio,
as defined. The LIBOR-based rate at January 1, 2000 was 6.22 percent. Fees
associated with the domestic revolving credit agreement include a facility fee
on the committed amount ranging from 0.125 percent to 0.275 percent. The
LIBOR-based variable interest rate on a total of $550,668,000 of amounts
outstanding under the company's revolving credit facilities has been fixed
through various dates through March 2003 at a weighted average rate of 6.07
percent using interest rate swap agreements. The counterparty to certain of
these interest rate swap agreements has the right, but not the obligation, to
terminate the related agreements on various dates beginning February 2000. To
provide further financing capacity, in November 1999, the company entered into a
364-day $200 million senior unsecured revolving credit facility.
The domestic revolving credit facilities contain covenants which, among other
provisions, (i) limit the company's ability to incur indebtedness or assume
liens, (ii) limit the amount of restricted payments, as defined, (iii) limit new
indebtedness and lease obligations, and (iv) require the company to satisfy
certain ratios related to debt-to-cash flow and interest coverage. The foreign
revolving loan facilities have covenants that are no more restrictive than those
of the domestic revolving credit agreement. At January 1, 2000, the company was
in compliance with the terms of these agreements.
EXHIBIT 13 -- PAGE 13
<PAGE>
The aggregate annual maturities of long-term debt, including capitalized lease
obligations, as of January 1, 2000 are as follows: 2000 - $4,294,000; 2001 -
$28,946,000; 2002 - $4,089,000; 2003 - $767,044,000; 2004 - $4,047,000;
thereafter - $19,695,000. The company has guaranteed the $22,200,000 outstanding
under the revolving credit facility held by its Mexican joint venture, which
facility expires February 2001 but may be extended for additional periods to
2003.
The following is presented with respect to the company's revolving credit
facilities for 1999 and 1998 (000s omitted):
- ------------------------------------------------------
Revolving Credit: 1999 1998
- ------------------------------------------------------
Available at year-end $1,259,040 $1,207,465
Unused at year-end 467,111 311,028
- ------------------------------------------------------
Note 3 Shareholders' Investment
Under the company's 1992 Incentive Stock Option Plan, 6 million shares of common
stock are reserved for issuance at a price not less than the market value on the
date granted. These options are exercisable over 5 to 10 years and are qualified
incentive stock options under the regulations of the Federal Internal Revenue
Code ("IRC").
Under the company's 1997 Stock Incentive Plan, 5 million shares of common stock
are reserved for issuance at a price not less than market value on the date
granted. Options granted under the 1997 Stock Incentive Plan are exercisable
over 3 to 10 years or over such accelerated periods as the Board of Directors
shall determine. The 1997 Stock Incentive Plan provides for the granting of
qualified incentive stock options and non-qualified stock options under IRC
regulations. The 1997 Stock Incentive Plan also provides for stock appreciation
rights and other stock-related incentives, although none have been granted as of
January 1, 2000.
The following is a summary of stock option information for the 1992 and 1997
Stock Option Plans:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Options outstanding, beginning of year 7,801,584 8,053,500
Options granted 1,661,200 2,816,859
Options exercised (1,083,324) (2,541,725)
Options canceled (129,900) (527,050)
Options outstanding, end of year 8,249,560 7,801,584
Option price range per share $10.625 - $18.71 $10.625 - $17.02
Options exercisable, end of year 4,129,930 3,245,615
Options available for grant 1,687,591 3,218,891
- --------------------------------------------------------------------------------
The company accounts for its stock-based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, under which no compensation expense was recognized in 1999, 1998 and
1997 for stock option plans. The company applies SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, as required for disclosure purposes. For SFAS No. 123
purposes, the fair value of each stock option grant for 1999, 1998 and 1997 has
been estimated as of the date of the grant using the Black-Scholes option
pricing model with the following weighted avera ge assumptions for 1999, 1998
and 1997, respectively: risk-free interest rates of 5.20 percent, 5.61 percent
and 6.04 percent; dividend yields of 0.50 percent, 0.60 percent and 2.70
percent; expected volatilities of 40 percent, 35 percent and 34 percent; and
expected life of 5 years for all years. Using these assumptions, the fair value
of the stock option grants for 1999, 1998 and 1997 was $12.6 million, or $7.61
per option granted, $15.0 million, or $5.36 per option granted, and $9.3
million, or $3.63 per option granted, respectively. Had compensation cost been
determined under SFAS No. 123 utilizing the assumptions detailed above, the
company's net income and net income per common share would have been reduced to
the following pro forma amounts:
- ---------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------
Net income (000s omitted):
As reported $ 227,951 $ 20,632 $ 28,959
Pro forma 219,833 14,769 23,382
Net income per common share:
As reported $ 1.64 $ 0.16 $ 0.22
Pro forma 1.59 0.12 0.18
- ---------------------------------------------------------------------
EXHIBIT 13 -- PAGE 14
<PAGE>
During March 1989, the company adopted a Shareholder Rights Plan and pursuant
thereto declared a dividend of one Right for each outstanding share of common
stock. The Shareholder Rights Plan was amended and restated on April 10, 1999.
As amended and restated, one Full Right will be associated with each share of
common stock and each Right will represent the right to purchase one
one-hundredth of a share of Series A participating preferred stock at an
exercise price of $100.00 (the "Purchase Price"). If a person or group acquires
or makes a tender or exchange offer to acquire 15 percent or more of the
company's common stock without the consent of the company (an "Acquiring
Shareholder"), the Rights will become exercisable and each Right entitles the
holder, other than the Acquiring Shareholder, to receive, upon payment of the
Purchase Price, in lieu of preferred stock, a number of shares of common stock
of the company having a market value equal to twice the Purchase Price. The
Rights may be redeemed by the company under certain circumstances at a price of
$0.01 per Right. The Rights have no voting power and, until exercised, no
dilutive effect on earnings per common share. At the option of the company,
Rights may be exchanged for shares of common stock under certain circumstances.
The amended and restated Shareholder Rights Plan extends the expiration date of
the Rights to April 10, 2009. The company has designated 200,000 shares, of the
250,000 shares of preferred stock authorized, as Series A participating
preferred stock for issuance upon exercise of the Rights.
The company's board of directors has approved a stock repurchase plan whereby
the company's management is authorized to repurchase shares of the company's
common stock. During the year ended January 1, 2000, a total of 9,331,300 shares
of the company's common stock was purchased at a cost of $158,525,000. Purchases
of approximately 13,103,000 shares at a cost of $176,576,000 in 1998 include
approximately 10,622,000 shares purchased at a purchase price of $12.50 per
share from tendering shareholders in March 1998 under a "Dutch Auction" tender
offer. In September 1998, the Board of Directors approved an additional
15,000,000 shares to be repurchased. At January 1, 2000, the company had
authority to purchase up to approximately 4,482,000 shares of the company's
common stock under the stock repurchase plan. In January 2000, the Board of
Directors approved an additional 10,518,000 shares to be repurchased which
increased the existing authority to 15,000,000 shares.
In February 1998, the company paid a quarterly dividend of $9,834,000 after
which cash dividends were discontinued until the third quarter of 1999.
Dividends in 1999 totaled $13,649,000 and were paid in the third and fourth
quarters.
Note 4 Income Taxes
The provision for income taxes consisted of the following (000s omitted):
- ------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------
Current:
Federal $116,686 $ 36,345 $ (8,568)
State 17,052 3,709 (1,918)
- ------------------------------------------------------------------------------
133,738 40,054 (10,486)
Foreign operating loss carryforwards -- (53) 17,860
Deferred 23,623 (1,594) (1,788)
- ------------------------------------------------------------------------------
$157,361 $ 38,407 $ 5,586
- ------------------------------------------------------------------------------
The differences between the Federal statutory income tax rate and the company's
effective income tax rate were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 4.9 4.6 4.9
Nondeductible goodwill 1.2 25.9 7.2
Abandonment of stock of U.K. subsidiary -- -- (28.1)
Difference in foreign tax rates versus U.S. statutory rates 0.1 1.5 1.0
Other, net (0.1) 0.3 (1.6)
- ---------------------------------------------------------------------------------------------
41.1% 67.3% 18.4%
=============================================================================================
</TABLE>
EXHIBIT 13 -- PAGE 15
<PAGE>
Components of the net deferred income tax liability at January 1, 2000 and
January 2, 1999 are shown below (000s omitted):
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------
Deferred income tax assets:
Accrued advertising expenses not currently deductible $ 3,684 $ 1,710
Reserve for cash discounts and bad debts 8,948 9,602
Employee benefit accruals not currently deductible 31,909 25,447
Reserve for returns and allowances 14,522 12,150
Foreign net operating loss carryforwards -- 1,751
Reorganization provision 3,089 8,193
Other 5,743 2,736
- ---------------------------------------------------------------------------------------------
67,895 61,589
- ---------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Book basis of inventory over tax basis (25,686) (12,382)
Book basis of property, plant and equipment over tax basis (86,613) (72,086)
Other (2,439) (341)
- ---------------------------------------------------------------------------------------------
(114,738) (84,809)
- ---------------------------------------------------------------------------------------------
$ (46,843) $ (23,220)
=============================================================================================
</TABLE>
Note 5 Commitments and Contingencies
The company is a party to several lawsuits incidental to its various activities
and incurred in the ordinary course of business. The company believes that it
has meritorious claims and defenses in each case. After consultation with
counsel, it is the opinion of management that, although there can be no
assurance given, none of the associated claims, when resolved, will have a
material adverse effect upon the company.
The company is a defendant in certain litigation alleging personal injury
resulting from personal exposure to volatile organic compounds found in carpet
produced by the company. The complaints seek injunctive relief and unspecified
money damages on all claims. The company has denied any liability. The company
believes that it has meritorious defenses and that the litigation will not have
a material adverse effect on the company's financial condition or results of
operations.
In 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 recently concluded. The
company believes that it has meritorious defenses to plaintiffs' claims in the
lawsuits described in this paragraph and intends to vigorously defend these
actions. 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
that denies plaintiffs' allegations and sets forth several defenses. Discovery
has recently begun and is ongoing. The company believes it has meritorious
defenses to plaintiffs' claims in the lawsuit described in this paragraph and
intends to vigorously defend these actions. 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.
EXHIBIT 13 -- PAGE 16
<PAGE>
The company is also a party to four consolidated lawsuits pending in the
Superior Court of the State of California, City and County of San Francisco, all
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 vigorously defend these actions. 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.
The company is subject to a variety of environmental regulations relating to the
use, storage, discharge and disposal of hazardous materials used in its
manufacturing processes. Failure by the company to comply with present and
future regulations could subject it to future liabilities. In addition, such
regulations could require the company to acquire costly equipment or to incur
other significant expenses to comply with environmental regulations. The company
is not involved in any material environmental proceedings.
The company has entered into several capitalized leases for machinery and
equipment, including computer equipment, at a cost of $30,077,000 at January 1,
2000 and $39,080,000 at January 2, 1999. These assets are amortized on a
straight-line basis over the lease terms and amortization is included in
depreciation expense. Accumulated amortization of capital lease cost was
$29,271,000 and $37,770,000 at January 1, 2000 and January 2, 1999,
respectively. The related obligations are included in long-term debt (Note 2).
The company also leases warehouses and showroom space, customer service centers
and certain equipment under operating leases.
At January 1, 2000, future minimum lease payments for all capital and operating
leases exceeding one year were as follows (000s omitted):
- -----------------------------------------------------------
Capital Operating Total Future
Leases Leases Payments
- -----------------------------------------------------------
2000 $ 289 $ 37,835 $ 38,124
2001 101 32,400 32,501
2002 47 19,081 19,128
2003 -- 4,369 4,369
2004 -- 9,884 9,884
2005 and thereafter -- 19,674 19,674
- -----------------------------------------------------------
Total payments $ 437 $123,243 $123,680
===================================
Rental payments under noncancelable operating leases were $43,783,000,
$36,351,000 and $74,718,000 in 1999, 1998 and 1997, respectively.
At January 1, 2000, the company had commitments to purchase certain capital
assets of approximately $21,500,000.
Note 6 Earnings Per Share
Net income amounts presented in the accompanying consolidated statements of
income represent amounts available or related to shareholders. The following
table reconciles the denominator of the basic and diluted earnings per share
computations:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------
Weighted average common shares 138,591,266 128,031,290 133,523,380
Dilutive incremental shares from assumed
conversions of options under stock option plans 2,089,657 1,883,888 191,116
- ----------------------------------------------------------------------------------------------------
Weighted average common shares and
dilutive potential common shares 140,680,923 129,915,178 133,714,496
====================================================================================================
</TABLE>
Note 7 Derivative Financial Instruments and Fair Value of Financial Instruments
The company has entered into interest rate swap agreements with a total notional
amount of $550,668,000 to fix the interest rate paid on portions of amounts
outstanding under its revolving credit facilities. The weighted average fixed
interest rate paid under the interest rate swap agreements was 6.07 percent in
1999 while the floating rate received averaged 6.25 percent.
EXHIBIT 13 -- PAGE 17
<PAGE>
The carrying amount and fair value of the company's financial instruments are as
follows (000s omitted):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
January 1, 2000 January 2, 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------
(Assets)/Liabilities:
Revolving credit agreements $ 787,806 $ 787,806 $ 891,057 $ 891,057
Other obligations 40,309 40,309 36,385 36,385
Interest rate swap agreements 2,292 (3,027) 1,972 8,611
Foreign currency exchange contracts (178) 7,899 -- --
- ---------------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Revolving Credit Facilities
The carrying values of the revolving credit facilities approximate their fair
values due to the floating market interest rates charged on those facilities.
Other Obligations
The carrying values of other obligations approximate their fair values due to
the interest rates charged on those agreements: either floating market rates or
fixed rates which approximated market rates available at January 1, 2000 and
January 2, 1999.
Interest Rate Swap Agreements
The fair values of the interest rate swap agreements were estimated by obtaining
quotes from brokers.
Foreign Currency Exchange Contracts
The fair values of foreign currency exchange contracts were estimated by
obtaining quotes from brokers.
Note 8 Acquisition, Sale and Disposal, and Nonrecurring Charges
Acquisition of Queen Carpet Corporation
On October 6, 1998, the company completed its merger with Queen Carpet
Corporation ("Queen") for approximately $579,135,000 consisting of approximately
19,444,000 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. As a
result of the sale of the 3,150,000 shares of Maxim stock, during the fourth
quarter ended January 2, 1999 the company recorded a loss on the sale of equity
securities of $22,247,000 ($13,370,000, net of tax benefit).
The acquisition has been accounted for as a purchase transaction, and,
accordingly, the results of operations of Queen have been included in the
accompanying consolidated financial statements since October 7, 1998. The
purchase price has been allocated to assets and liabilities based on their fair
values at the date of acquisition. The excess of the consideration paid over the
fair value at the date of acquisition of approximately $334,000,000 has been
recorded as goodwill and is being amortized on the 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 December
29, 1996 (000s omitted except per share data):
- ----------------------------------------------------------------
Year Ended Year Ended
January 2, 1999 January 3, 1998
(Unaudited) (Unaudited)
- ----------------------------------------------------------------
Net Sales $4,163,433 $4,291,140
Net Income 47,822 46,333
Earnings per common share -
Basic and Diluted 0.33 0.30
- ----------------------------------------------------------------
Plant Closing Costs
In December 1999, the company closed a yarn processing facility and recorded a
nonrecurring charge of $1,834,000 ($1,102,000, net of tax benefit, or $0.01 per
share).
Charge to Record Sale of Residential Retail Operations, Store Closing Costs and
Write-down of Certain Assets
EXHIBIT 13 -- PAGE 18
<PAGE>
On August 9, 1998, the company sold substantially all of its remaining
residential retail operations to Maxim in exchange for 3,150,000 shares of Maxim
stock, $25,000,000 cash and a one-year note in the original principal amount of
$18,000,000, subject to adjustment. Stores not sold were closed. The company
incurred a charge to record the loss on the sale of the residential retail
operations, store closing costs and write-down of certain assets of $132,303,000
($92,660,000, net of tax benefit, or $0.71 per share). Included in the charge
were reserves for exit costs, primarily lease termination fees, and employee
termination benefits of approximately $15,334,000 and $4,706,000, respectively.
As of January 1, 2000, exit cost reserves were $6,433,000. In December 1999, the
company recorded an additional charge for exiting the residential retail
business of $4,061,000 ($2,441,000, net of tax benefit, or $0.02 per share).
Disposal of Carpets International, Plc
On April 3, 1998, the company completed the disposition of Carpets
International, Plc, the company's wholly-owned U.K. subsidiary, which resulted
in a removal of certain assets, net of liabilities, of $16.6 million. The
disposal resulted in a charge to earnings of $47,952,000 ($20,300,000, net of
tax benefit, or $0.15 per share) which was recorded in the fourth quarter of the
year ended January 3, 1998.
Charge to Record Store Closing Costs
In December 1997, the company announced a plan to close approximately 100
residential retail stores which resulted in a charge to operations of
$36,349,000 ($22,817,000, net of tax benefit, or $0.17 per share) consisting
primarily of reductions in the carrying value of long-lived assets of
approximately $13,430,000 and reserves for exit costs and employee termination
benefits of approximately $17,440,000 and $5,479,000, respectively. Prior to
this charge, the company recorded store closing costs of $438,000 ($263,000, net
of tax benefit).
Note 9 Segment and Enterprise-Wide Information
Effective in 1998, the company adopted SFAS No. 131. The prior years' segment
information has been restated to present the company's two reportable segments:
wholesale manufacturing and residential retail.
The accounting policies of the segments are the same as those described in Note
1. Segment data include intersegment revenues as well as revenues generated
among marketing units.
The company's business consists of its wholesale manufacturing operations which
sell carpet and related products manufactured primarily in the company's
manufacturing facilities, located principally 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 engagedin 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. These residential retail operations were
disposed of in 1998. The company evaluates the performance of its operations on
the basis of sales, gross margin and "net divisional contribution" which
consists of gross margin less selling expense.
While allocations of various manufacturing costs such as depreciation are made
to the marketing units, long-lived assets and administrative costs are not
allocated. The table below presents information about reported segments for
1999, 1998 and 1997 (000s omitted):
- -----------------------------------------------------------------------------
Wholesale Residential
Manufacturing Retail Intercompany Consolidated
Operations Operations Eliminations Operations
- -----------------------------------------------------------------------------
Net Sales
1999 $4,107,736 $ -- $ -- $4,107,736
1998 3,419,538 341,769 (219,105) 3,542,202
1997 3,170,158 638,662 (233,046) 3,575,774
Gross Margin
1999 $1,079,488 $ -- $ -- $1,079,488
1998 772,097 128,273 (621) 899,749
1997 655,290 243,385 (3,373) 895,302
Selling Expense
1999 $ 442,216 $ -- $ -- $ 442,216
1998 321,208 135,720 -- 456,928
1997 280,174 263,902 (1,014) 543,062
- -----------------------------------------------------------------------------
EXHIBIT 13 -- PAGE 19
<PAGE>
The following are sales and long-lived asset information by geographic area as
of and for 1999, 1998 and 1997 (000s omitted):
Sales Long-Lived Assets
- -------------------------------------------------------------------------
Year ended: U.S. Foreign U.S. Foreign
- -------------------------------------------------------------------------
1999 $3,980,874 $ 126,862 $1,169,043 $ 46,752
1998 3,371,757 170,445 1,131,188 47,889
1997 3,248,014 327,760 832,087 69,114
- -------------------------------------------------------------------------
Foreign sales are based on the country in which the legal subsidiary is
domiciled. Revenue from no single foreign country was material to the
consolidated sales of the company.
Note 10 Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1999, 1998 and 1997 is as follows (000s
omitted except per share amounts):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
1999 Quarters First Second Third Fourth (1)
- ------------------------------------------------------------------------------------------------
Net Sales $ 955,803 $ 1,065,126 $ 1,082,923 $ 1,003,884
Gross Margin 239,174 287,573 292,650 260,091
Net Income 40,366 68,057 71,683 47,845
Earnings Per Share-
Basic 0.29 0.48 0.52 0.35
Diluted 0.28 0.48 0.51 0.35
- ------------------------------------------------------------------------------------------------
1998 Quarters First Second(2) Third Fourth(3)
- ------------------------------------------------------------------------------------------------
Net Sales $ 864,985 $ 873,149 $ 851,634 $ 952,434
Gross Margin 218,871 238,682 209,192 233,004
Net Income (Loss) 19,505 (65,221) 39,617 26,731
Earnings (Loss) Per Share-
Basic and Diluted(4) 0.15 (0.54) 0.32 0.19
- ------------------------------------------------------------------------------------------------
1997 Quarters First Second Third Fourth(5)
- ------------------------------------------------------------------------------------------------
Net Sales $ 808,653 $ 915,232 $ 922,997 $ 928,892
Gross Margin 200,090 236,992 236,235 221,985
Net Income (Loss) 10,478 25,231 25,335 (32,355)
Earnings (Loss) Per Share-
Basic and Diluted 0.08 0.19 0.19 (0.24)
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Fourth quarter net income and per share amounts for 1999 include a
nonrecurring charge related to the closing of one of the company's yarn
processing plants of $1,102,000, or $0.01 per share, net of tax benefit and
an additional nonrecurring charge for exiting the residential retail
business of $2,441,000, or $0.02 per share, net of tax benefit.
(2) Second quarter net income and per share amounts for 1998 include a charge
to record the sale of residential retail operations, store closing costs,
and write-down of certain assets of $92,660,000, or $0.71 per share, net of
tax benefit. The charge was previously reported as $98,203,000; however, in
the fourth quarter, a reclassification of $5,543,000 was recorded reducing
the charge and increasing operating expenses.
(3) The fourth quarter net income and per share amounts for 1998 include a loss
on the sale of equity securities of $13,370,000, or $0.09 per share, net of
tax benefit.
(4) The sum of the 1998 quarterly earnings per share amounts is different from
the annual earnings per share amounts because of differences in the
weighted average numbers of shares outstanding used in the quarterly and
annual computations.
(5) The fourth quarter net income and per share amounts for 1997 include store
closing costs of $22,817,000, or $0.17 per share, net of tax benefit, and a
write-down of certain U.K. assets of $20,300,000, or $0.15 per share, net
of tax benefit.
Note 11 Subsequent Event
On March 13, 2000, the company commenced a "Dutch Auction" tender offer to
acquire up to 12,000,000 shares of its common stock, representing approximately
9.1 percent of its currently outstanding shares. Under the terms of the offer,
the company's shareholders may tender their shares at a price within the range
of $11.50 to $13.50 per share for a period of 20 business days.
EXHIBIT 13 -- PAGE 20
<PAGE>
Report of Independent Public Accountants
To the Shareholders of Shaw Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Shaw Industries,
Inc. (a Georgia corporation) and subsidiaries as of January 1, 2000 and January
2, 1999 and the related consolidated statements of income, shareholders'
investment, and cash flow for each of the three years in the period ended
January 1, 2000. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Shaw Industries, Inc. and
subsidiaries as of January 1, 2000 and January 2, 1999 and the results of their
operations and their cash flow for each of the three years in the period ended
January 1, 2000 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 11, 2000
EXHIBIT 13 -- PAGE 21
<PAGE>
<TABLE>
<CAPTION>
Five-Year Financial Review
(000s omitted except share data)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 4,107,736 $ 3,542,202 $ 3,575,774 $ 3,201,554 $ 2,869,828
Cost of Sales 3,028,248 2,642,453 2,680,472 2,485,068 2,319,894
Selling, General and Administrative Expenses 627,075 620,878 722,590 541,338 393,868
Charge to Record Loss on Sale of Residential Retail
Operations, Store Closing Costs and Write-down
of Certain Assets 4,061 132,303 -- -- --
Charge to Record Plant Closing Costs 1,834 -- -- -- --
Pre-opening Expenses, Retail Operations -- -- 3,953 13,595 --
Charge to Record Store Closing Costs -- -- 36,787 -- --
Write-down of U.K. Assets -- -- 47,952 -- --
Nonrecurring Charges -- -- -- 49,102 6,967
Interest, Net 62,812 62,553 60,769 42,442 41,901
Loss on Sale of Equity Securities -- 22,247 -- -- --
Other Expense (Income), Net 1,319 4,676 (7,032) (3,609) 443
Income Before Income Taxes, Equity in Income
of Joint Ventures and Accounting Change 382,387 57,092 30,283 73,618 106,755
As a Percentage of Net Sales 9.3% 1.6% 0.8% 2.3% 3.7%
Effective Income Tax Rate 41.1% 67.3% 18.4% 59.0% 40.8%
Income Before Equity in Income of Joint Ventures
and Accounting Change 225,026 18,685 24,697 30,155 63,152
Equity in Income of Joint Ventures 2,925 1,947 4,262 3,868 1,229
Accounting Change -- -- -- -- (12,077)
Net Income 227,951 20,632 28,959 34,023 52,304
As a Percentage of Net Sales 5.5% 0.6% 0.8% 1.1% 1.8%
As a Percentage of Average Total Assets 9.9% 1.0% 1.5% 1.9% 3.1%
As a Percentage of Average Invested Capital 13.3% 1.3% 1.9% 2.4% 3.9%
As a Percentage of Average Shareholders' Investment 27.4% 2.9% 4.4% 4.9% 7.4%
Earnings Per Share:
Basic 1.64 0.16 0.22 0.25 0.38
Diluted 1.62 0.16 0.22 0.25 0.38
Cash Dividends Per Share 0.10 0.075 0.30 0.30 0.30
Property Additions, Net (including acquisitions) 116,441 103,623 106,728 177,062 93,805
Depreciation and Amortization 91,636 80,598 94,954 90,906 91,083
Weighted Average Shares Outstanding:
Basic 138,591,266 128,031,290 133,523,380 135,731,360 135,872,432
Diluted 140,680,923 129,915,178 133,714,496 135,915,308 136,378,159
At Year-End:
Working Capital 581,957 627,560 740,959 670,344 641,445
Current Ratio 2.2 2.4 3.3 2.6 3.5
Property, Plant and Equipment, Net 753,805 716,428 624,379 655,141 631,990
Total Assets 2,291,719 2,261,447 1,967,614 1,984,398 1,662,783
Total Long-Term Debt 823,821 927,434 930,424 825,280 627,130
Shareholders' Investment 868,585 797,368 637,534 671,711 710,189
Total Invested Capital (1) 1,692,406 1,724,802 1,567,958 1,496,991 1,337,319
Shareholders' Investment Per Share $ 6.55 $ 5.66 $ 4.86 $ 5.06 $ 5.22
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The sum of shareholders' investment and long-term debt.
EXHIBIT 13 -- PAGE 22
<PAGE>
STOCK INFORMATION
High and low stock prices and cash dividends paid by fiscal quarter
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997 Dividends Paid
- --------------------------------------------------------------------------------------------------------------
HIGH LOW High Low High Low 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter 24 1/4 18 7/16 15 3/4 10 15/16 14 1/8 11 7/8 - 7.50 cents 7.50 cents
2nd Quarter 20 3/8 16 7/8 18 3/16 14 7/16 13 10 1/2 - - 7.50 cents
3rd Quarter 21 11/16 15 7/8 19 15/16 15 1/8 12 7/8 10 1/2 5.00 cents - 7.50 cents
4th Quarter 17 15/16 13 1/2 24 1/4 12 1/16 13 7/16 10 7/8 5.00 cents - 7.50 cents
- --------------------------------------------------------------------------------------------------------------
Total 10.00 cents 7.50 cents 30.00 cents
- --------------------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT 13 -- PAGE 23
EXHIBIT 21
Wholly-owned subsidiaries of the Registrant are Shaw Financial Services,
Inc., a Georgia corporation; Shaw Transport, Inc., a Georgia corporation; Shaw
Industries Australia, Pty., Ltd., an Australian corporation; Shaw Contract
Flooring Services, Inc., a Georgia corporation; Shaw Contract Flooring
Installation Services, Inc., a Georgia corporation; Shaw Retail Properties,
Inc., a Georgia corporation; Shaw Contract Properties, Inc., a Georgia
corporation; SHX Leasing, Inc. a Tennessee Corporation; Shaw Funding Company, a
Delaware corporation; Rug Decor by Shaw Corporation, a Georgia corporation;
Queen Carpet Corporation, a Delaware corporation; Pro Installations, Inc. a
California corporation; SHX Flooring, Inc. a Delaware corporation and Shaw
Export, Inc. a Barbados corporation. The company also has a 75% owned
subsidiary, Nylon Polymer Company, L.L.C., a Georgia corporation, and a 49%
owned subsidiary, Terza, S.A. de CV., a Mexican corporation.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference in this Form
10-K, into the Company's previously filed Registration Statements file no.
33-45089, file no. 333-04247, file no. 333-17303, file no. 333-33489, file no.
333-62645, file no. 333-62915 and file no. 333-68341.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the consolidated
balance sheet of Shaw Industries, Inc. and subsidiaries as of January 1, 2000
and the related consolidated statements of income, shareholders' investment and
cash flows for the year ended January 1, 2000, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 34,021
<SECURITIES> 0
<RECEIVABLES> 234,267
<ALLOWANCES> 18,931
<INVENTORY> 666,734
<CURRENT-ASSETS> 1,075,924
<PP&E> 1,575,438
<DEPRECIATION> 821,633
<TOTAL-ASSETS> 2,291,719
<CURRENT-LIABILITIES> 493,967
<BONDS> 0
0
0
<COMMON> 147,258
<OTHER-SE> 721,327
<TOTAL-LIABILITY-AND-EQUITY> 2,291,719
<SALES> 4,107,736
<TOTAL-REVENUES> 4,107,736
<CGS> 3,028,248
<TOTAL-COSTS> 3,028,248
<OTHER-EXPENSES> 627,543
<LOSS-PROVISION> 6,746
<INTEREST-EXPENSE> 62,812
<INCOME-PRETAX> 382,387
<INCOME-TAX> 157,361
<INCOME-CONTINUING> 227,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,951
<EPS-BASIC> 1.64
<EPS-DILUTED> 1.62
</TABLE>
