-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IDVUy3id6p4L0M0D2nM2jFU9/A+ohOQaCKFJ84uqCv0rSWHIsHeke08La7ORQV0M luog5w5I9XcvHnJWK+NFJw== 0000089498-97-000049.txt : 19970825 0000089498-97-000049.hdr.sgml : 19970825 ACCESSION NUMBER: 0000089498-97-000049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970811 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHAW INDUSTRIES INC CENTRAL INDEX KEY: 0000089498 STANDARD INDUSTRIAL CLASSIFICATION: 2273 IRS NUMBER: 581032521 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06853 FILM NUMBER: 97655674 BUSINESS ADDRESS: STREET 1: 616 E WALNUT AVE STREET 2: P O DRAWER 2128 CITY: DALTON STATE: GA ZIP: 30722 BUSINESS PHONE: 7062783812 MAIL ADDRESS: STREET 1: 616 E WALNUT AVE STREET 2: P O DRAWER 2128 CITY: DALTON STATE: GA ZIP: 30720 10-Q 1 2ND QUARTER, 1997 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 28, 1997 ----------------------------------- OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________________________to________________________ Commission file number 1-6853 SHAW INDUSTRIES, INC. (Exact name of registrant as specified in its charter) GEORGIA 58-1032521 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 616 E. WALNUT AVENUE, DALTON, GEORGIA 30720 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (706) 278-3812 NOT APPLICABLE Former name, former address and former fiscal year, if changed since last report. Indicate by check [x] whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x]. No ______. APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: August 4, 1997 - 134,613,589 shares SHAW INDUSTRIES, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION PAGE NUMBERS --------------------- ------------ Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 28, 1997 and December 28, 1996 3-4 Condensed Consolidated Statements of Income and Retained Earnings - For the Three Months Ended June 28, 1997 and June 29, 1996 5 Condensed Consolidated Statements of Income and Retained Earnings - For the Six Months Ended June 28, 1997 and June 29, 1996 6 Condensed Consolidated Statements of Cash Flows - For the Six Months Ended June 28, 1997 and June 29, 1996 7 Notes to Condensed Consolidated Financial Statements 8-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-12 PART II - OTHER INFORMATION 12 ----------------- SIGNATURES 13 2 PART 1 - ITEM ONE - FINANCIAL INFORMATION SHAW INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS June 28, December 28, 1997 1996 ----------- ----------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents ................... $ 14,549 $ 49,581 ----------- ----------- Accounts receivable, less allowance for doubtful accounts and discounts of $20,619 and $16,667 .......... 446,088 393,983 ----------- ----------- Inventories - Raw materials ............................. 284,718 251,262 Work-in-process ........................... 30,224 26,070 Finished goods ............................ 306,117 279,453 ----------- ----------- 621,059 556,785 ----------- ----------- Other current assets ........................ 78,759 81,056 ----------- ----------- TOTAL CURRENT ASSETS .......... 1,160,455 1,081,405 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT, at cost: Land and land improvements .................. 29,380 29,584 Buildings and leasehold improvements ........ 305,456 293,072 Machinery and equipment ..................... 983,585 969,601 Construction in progress .................... 62,047 45,289 ----------- ----------- 1,380,468 1,337,546 Less - Accumulated depreciation and amortization ......................... (717,805) (682,405) ----------- ----------- 662,663 655,141 ----------- ----------- GOODWILL, net ................................ 258,222 212,398 ----------- ----------- INVESTMENT IN JOINT VENTURE .................. 18,601 18,302 ----------- ----------- OTHER ASSETS ................................. 17,227 17,152 ----------- ----------- TOTAL ASSETS .................. $ 2,117,168 $ 1,984,398 =========== =========== 3 LIABILITIES AND SHAREHOLDERS' INVESTMENT June 28, December 28, 1997 1996 ----------- ----------- (UNAUDITED) CURRENT LIABILITIES: Notes payable ............................... $ 397 $ 35,084 Current maturities of long-term debt ........ 16,815 17,431 Accounts payable ............................ 227,005 195,347 Accrued liabilities ......................... 173,946 163,199 ----------- ----------- TOTAL CURRENT LIABILITIES .............. 418,163 411,061 ----------- ----------- LONG-TERM DEBT, less current maturities ...... 916,046 825,280 ----------- ----------- DEFERRED INCOME TAXES ........................ 67,684 63,453 ----------- ----------- OTHER LIABILITIES ............................ 12,668 12,893 ----------- ----------- SHAREHOLDERS' INVESTMENT: Common stock, no par, $1.11 stated value, authorized 500,000,000 shares; issued and outstanding: 134,038,368 shares at June 29, 1997 and 132,772,548 shares at December 28, 1996 .......................... 148,784 147,379 Paid-in capital ............................. 86,905 72,335 Cumulative translation adjustment ........... 2,021 3,058 Retained earnings ........................... 464,897 448,939 ----------- ----------- TOTAL SHAREHOLDERS' INVESTMENT ......... 702,607 671,711 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT ........................... $ 2,117,168 $ 1,984,398 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 4 SHAW INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) THREE MONTHS THREE MONTHS ENDED ENDED June 28, 1997 June 29, 1996 ----------- ------------ NET SALES .................................... $ 915,232 $ 785,957 COSTS AND EXPENSES: Cost of sales .............................. 678,240 613,992 Selling, general and administrative ........ 184,093 113,735 Pre-opening expenses, retail operations .... 1,183 1,651 Interest expense, net ...................... 15,342 10,133 Other (income), net ........................ (5,619) (792) ----------- ----------- INCOME BEFORE INCOME TAXES ................... 41,993 47,238 PROVISION FOR INCOME TAXES ................... 17,398 19,696 ----------- ----------- INCOME BEFORE EQUITY IN INCOME OF JOINT VENTURE 24,595 27,542 EQUITY IN INCOME OF JOINT VENTURE ............ 636 557 =========== =========== NET INCOME ................................... $ 25,231 $ 28,099 =========== =========== DIVIDENDS PAID PER COMMON SHARE .............. $ 0.075 $ 0.075 =========== =========== EARNINGS PER COMMON SHARE: Primary and fully diluted basis - .......... $ 0.19 $ 0.21 =========== =========== RETAINED EARNINGS: Beginning of period ........................ $ 449,704 $ 429,833 Add - net income ........................... 25,231 28,099 Deduct - dividends paid .................... (10,038) (10,179) ----------- ----------- End of period .............................. $ 464,897 $ 447,753 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 5 SHAW INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) SIX MONTHS SIX MONTHS ENDED ENDED June 28, 1997 June 29, 1996 ----------- ------------ NET SALES .................................... $ 1,723,885 $ 1,443,813 COSTS AND EXPENSES: Cost of sales .............................. 1,286,803 1,141,928 Selling, general and administrative ........ 351,490 217,592 Pre-opening expenses, retail operations .... 2,943 1,809 Nonrecurring charges ....................... -- 29,139 Interest expense, net ...................... 29,070 19,699 Other (income), net ........................ (6,103) (1,355) ----------- ----------- INCOME BEFORE INCOME TAXES ................... 59,682 35,001 PROVISION FOR INCOME TAXES ................... 25,022 23,972 ----------- ----------- INCOME BEFORE EQUITY IN INCOME OF JOINT VENTURE 34,660 11,029 EQUITY IN INCOME OF JOINT VENTURE ............ 1,319 1,486 =========== =========== NET INCOME ................................... $ 35,979 $ 12,515 =========== =========== DIVIDENDS PAID PER COMMON SHARE .............. $ 0.150 $ 0.150 =========== =========== EARNINGS PER COMMON SHARE: Primary and fully diluted basis ............ $ 0.27 $ 0.09 =========== =========== RETAINED EARNINGS: Beginning of period ........................ $ 448,939 $ 455,663 Add - net income ........................... 35,979 12,515 Deduct - dividends paid .................... (20,021) (20,425) ----------- ----------- End of period .............................. $ 464,897 $ 447,753 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 6 SHAW INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED AND IN THOUSANDS) SIX MONTHS SIX MONTHS ENDED ENDED June 28, 1997 June 29, 1996 ----------- ------------ OPERATING ACTIVITIES: Net income .................................. $ 35,979 $ 12,515 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............. 46,213 44,669 Provision for doubtful accounts ........... 4,435 4,654 Deferred income taxes ..................... 2,065 (221) Nonrecurring charges ...................... -- 29,139 Other, net ................................ (27,145) (9,047) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable .................. (34,671) (33,323) Inventories .......................... (52,234) 1,680 Other current assets ................. 3,591 3,192 Accounts payable ..................... 17,695 49,234 Accrued liabilities .................. 7,723 15,409 ----------- ----------- Total adjustments .................. (32,328) 105,386 ----------- ----------- Net cash provided by operating activities ............................... 3,651 117,901 ----------- ----------- INVESTING ACTIVITIES: Additions to property, plant and equipment .. (39,416) (38,905) Acquisitions of business assets ............. (27,709) (35,007) ----------- ----------- Net cash used in investing activities ..... (67,125) (73,912) ----------- ----------- FINANCING ACTIVITIES: Decrease in notes payable ................... (38,996) -- Increase in long-term debt .................. 87,230 51,583 Dividends paid .............................. (20,021) (20,425) Purchase and retirement of common stock ..... -- (22,759) Proceeds from exercise of stock options ..... 229 431 ----------- ----------- Net cash provided by financing activities .............................. 28,442 8,830 ----------- ----------- NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS ................................ (35,032) 52,819 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................................. 49,581 31,453 =========== =========== CASH AND CASH EQUIVALENTS AT END OF PERIOD ... $ 14,549 $ 84,272 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 7 SHAW INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --------------------------------------------------------------- 1. Basis of Presentation The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information not misleading. These financial statements should be read in conjunction with the financial statements and related notes contained in the Company's 1996 Annual Report on Form 10-K. In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Company's financial position, results of operations and cash flows at the dates and for the periods presented. Interim results of operations are not necessarily indicative of the results to be expected for a full year. Certain prior period amounts have been reclassified to conform with the current period presentation. 2. Inventories The Company uses the last-in, first-out (LIFO) method of valuing substantially all of its domestic inventories. If LIFO inventories were valued at current costs, the inventories would have been $3,000,000 and $1,643,000 lower at June 28, 1997 and December 28, 1996, respectively. The Company's foreign inventories and certain of its finished goods inventories, representing 25.2 percent of total inventories, are valued at the lower of first-in, first-out (FIFO) cost or market. 3. Long-term Debt In March 1997, the Company completed a new domestic revolving credit facility which provides for borrowings of up to $900,000,000 and expires in March 2002. The borrowings bear interest at variable rates equal to the London Interbank Offered Rate (LIBOR) plus margins ranging from 0.150 percent to 0.475 percent, depending on the Company's consolidated funded debt to earnings ratios, as defined. Fees associated with the domestic revolving credit agreement include a facility fee on the committed amount ranging from 0.10 percent 0.15 percent. The LIBOR-based rate at June 28, 1997 was 6.16 percent and borrowings outstanding under this new facility totaled $698,000,000. 4. Acquisitions During the six months ended June 28, 1997, the Company acquired G & S Investments, Inc. and affiliates collectively doing business as the Carpet Exchange; Walters Carpet One; Sun Control Tile, Co., doing business as Baker Bros.; Circle Floors, Inc.; and several other residential retailers and commercial contractors for cash and common stock totaling $47.8 million and resulting in goodwill of $34.1 million as part of its continuing retail acquisition strategy which commenced in December 1995. 5. Long-Lived Asset and Goodwill Impairment The Financial Accounting Standards Board issued SFAS NO. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which establishes, among other things, accounting standards for the impairment of long-lived assets and certain identifiable intangibles. The Company adopted the new standard effective December 31, 1995 and in connection with management's review of the Company's international operations in March 1996, management determined that certain of its international production equipment would not provide sufficient cash flows to recover the carrying value of such equipment and related goodwill. As a result, the Company recorded nonrecurring charges of $29,139,000 ($26,519,000, net of tax benefit, or $.19 per share for the first quarter and $.20 for the first six months) in March 1996 for the reduction of the carrying value of certain goodwill and property, plant and equipment at its international operations related to the adoption and a provision for the disposal of other assets. 8 6. Transfers and Servicing of Financial Assets and Extinguishment of Liabilities In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities". SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996 and is applied prospectively. The Company anticipates that the adoption of this statement will not have a material effect on the financial statements. 7. Earnings Per Share In February 1997, the FASB issued SFAS No. 128, " Earnings Per Share" which specifies the computation, presentation and disclosure requirements for earnings per share. The Company will be required to adopt SFAS No. 128 in the fourth quarter of 1997. All prior period earnings per share data will be restated to conform with the provision of SFAS No. 128. Based on a preliminary evaluation of this Standards' requirements, the Company does not expect the per share amounts reported under SFAS No. 128 to be materially different from those calculated and presented under Accounting Principles Board Opinion No. 15. Earnings per share of $25,231,000, or $0.19 per share, for the second quarter ended June 28, 1997 include a gain on the sale of fixed assets of $3,696,000, net of income taxes, or $0.03 per share. 8. Derivative Transactions The Company uses interest rate swaps to fix interest rates on current and anticipated borrowings to reduce exposure to interest rate fluctuations. Under existing accounting literature, these interest rate swaps are accounted for as hedging activities. The Company may also employ foreign currency exchange contracts when, in the normal course of business, they are determined to effectively manage and reduce foreign currency exchange fluctuation risk. At June 28, 1997, the Company had no material foreign currency exchange contracts outstanding. To qualify as a hedge, the item to be hedged must expose the Company to interest rate risk and the related contract must reduce that exposure and be designated by the Company as a hedge. The net cash paid or received on interest rate hedges is included in interest expense. Gains or losses on the termination of hedges are deferred and recognized in interest over the period covered by the interest rate hedge. The Company does not enter into financial derivatives for speculative or trading purposes. 9 SHAW INDUSTRIES, INC. AND SUBSIDIARIES ITEM TWO-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - - -------------------------------------------------------------------------------- GENERAL The Company's business, as well as the U.S. carpet industry in general, is cyclical in nature and is significantly affected by general economic conditions. The level of domestic carpet sales tends to reflect fluctuations in consumer spending for durable goods and, to a lesser extent, fluctuations in interest rates and new housing starts. The Company's international operations are also impacted by the economic climates in the markets in which they operate (primarily the United Kingdom, Australia and Mexico). Sales prices and demand for the Company's domestic wholesale manufacturing business declined slightly in 1996 with the decision in December 1995 to enter the residential retail and commercial contractor business, while margins improved. During the first six months of 1997, demand for the Company's domestic wholesale manufacturing business improved over that of the first six months of 1996, sales prices improved and margins were comparable. International markets were weak in 1996 and the first six months of 1997, but margins improved substantially in the first six months of 1997 over the first six months of 1996 as a result of recording restructuring costs of $36.1 million ($24.2 million, net of tax benefit) in December 1996 related to the Company's decision to exit the woolen carpet business in the United Kingdom. During the first six months of 1997, the Company continued to implement its retail acquisition strategy by acquiring several residential retailers and commercial contractors for cash and common stock totaling $47.8 million and resulting in goodwill of $34.1 million which is being amortized over 20 years. Net sales for the Company's residential retail and commercial contractor business totaled $437.1 million for the six months ended June 28, 1997 compared to $86.3 million for the six months ended June 29, 1996. At June 28, 1997 the Company has 435 residential retail and commercial contractor locations throughout the United States. The Company believes that by combining the resources of the manufacturer and retailer and developing a commercial contract distribution network, it can provide a full range of products and services to more effectively meet the needs of the end-user of both residential and commercial carpet products at significantly improved margins. As part of this strategy, the Company continues its efforts to develop an alignment program with dealers of both residential and commercial carpet products to provide a collection of services, benefits and programs that will encourage dealers to purchase more from the Company. At June 28, 1997, the Company has approximately 1,400 aligned dealers. LIQUIDITY AND CAPITAL RESOURCES At June 28, 1997, the Company had working capital of $742.3 million, an increase of $72.0 million, or 10.7 percent, over working capital of $670.3 million at December 28, 1996. Cash and cash equivalents decreased $35.1 million from $49.6 million at December 28, 1996 to $14.5 million at June 28, 1997. Cash provided by operating activities was $3.7 million in the first six months of 1997 primarily as the result of net income of $36.0 million adjusted for depreciation and amortization of $46.2 million, provision for doubtful accounts of $4.4 million and deferred income taxes of $2.1 million, which were offset in part by larger increases in inventories and accounts receivables of $52.2 million and $34.7 million, respectively. Cash flow provided by operating activities for the first six months of 1996 totaled $117.9 million, principally due to net income of $12.5 million adjusted for depreciation and amortization of $44.7 million, nonrecurring charges of $29.1 million as discussed in note 5 of notes to condensed consolidated financial statements, and substantial increases in accounts payable and accrued liabilities of $64.6 million, which were offset in part by increases in inventories, accounts receivable and other assets, net of $28.5 million. Cash used in investing activities for the first six months of 1997 consisted of additions to property, plant and equipment of $39.4 million and acquisitions of business assets of $27.7 million compared to $38.9 million and $35.0 million, respectively, in the first six months of 1996. Cash flow provided by financing activities during the first six months of 1997 of $28.4 million principally included an increase in long-term debt of $87.2 million offset in part by cash dividends of $20.0 million and payments on notes payable of $39.0 million. During the first six months of 1996, cash provided by financing activities included an increase in long-term debt of $51.6 million offset in part by cash dividends of $20.4 million and common stock repurchses of $22.8 million. The Company has continued to maintain a strong working capital position. Effective use of capital and the Company's ability to generate cash flow from operations has enabled it to make investments which reduce production costs, generate operating margins that have historically exceeded industry averages and implement its retail strategy. 10 Capital expenditures for property, plant and equipment necessary to maintain the Company's facilities in a modern state-of-the-art condition and expand its production capacity were $39.4 million for the six months ended June 28, 1997. Management anticipates total capital expenditures and capitalized lease obligations of approximately $40 million for the remainder of 1997 to expand and upgrade its manufacturing and distribution equipment to meet anticipated increases in sales volume, to improve efficiency and to open new retail stores and upgrade its current retail operations. The Company's primary source of financing is an unsecured revolving credit facility with a banking syndicate which provides for borrowings of up to $900.0 million and expires in March 2002. Interest on borrowings under this facility is currently based on LIBOR, and was 6.16 percent at June 28, 1997. At June 28, 1997, borrowings outstanding under this credit facility were $698.0 million. RESULTS OF OPERATIONS Three Months Ended June 28, 1997 Compared To Three Months Ended June 29, 1996 Net sales increased $129.2 million, or 16.4 percent, to $915.2 million in the second quarter of 1997. The increase was primarily attributable to incremental net sales of $175.7 million related to the residential retail and commercial contract business, offset by declines in the net sales volumes of $46.5 million for the Company's wholesale manufacturing operations in both the domestic and international markets. Gross margin as a percentage of net sales increased 4.0 percent to 25.9 percent in the second quarter of 1997 compared to the second quarter for 1996, primarily due to higher margins for retail sales, improved sales product mix and increases in the efficiency relationships of volume and fixed costs for both the domestic and international wholesale manufacturing business. Selling, general and administrative expenses for the second quarter of 1997 were $184.1 million, or 20.1 percent of net sales, compared to $113.7 million, or 14.4 percent of net sales, in the comparable period of 1996. The increase of $70.4 million, or 5.7 percent of net sales, was primarily due to increased advertising and other selling and administrative expenses associated with the Company's residential retail and commercial contract business. Pre-opening expenses related to the retail operations totaled $1.2 million for the second quarter of 1997 compared to $1.7 million for the second quarter of 1996. Interest expense, net increased to $15.3 million for the second quarter of 1997 from $10.1 million for the second quarter of 1996 as a result of higher borrowings. The effective income tax rate for the second quarter of 1997 was 41.4 percent compared to 41.7 percent for the second quarter of 1996. Six Months Ended June 28, 1997 Compared to Six Months Ended June 29, 1996 Net sales increased $280.1 million, or 19.4 percent, to $1,723.9 million in the first six months of 1997. The increase was primarily attributable to incremental net sales of $350.8 million related to the residential retail and commercial contract business, offset by declines in the net sales volumes of $70.7 million for the Company's wholesale manufacturing operations in both the domestic and international markets. Gross margin as a percentage of net sales increased 4.5 percent to 25.4 percent in the first six months of 1997 compared to the first six months for 1996, primarily due to higher margins for retail sales, improved sales product mix and increases in the efficiency relationships of volume and fixed costs for the both the domestic and international wholesale manufacturing business. Selling, general and administrative expenses for the first six months of 1997 were $351.5 million, or 20.4 percent of net sales, compared to $217.6 million, or 15.1 percent of net sales, in the comparable period of 1996. The increase of $133.9 million, or 5.3 percent of net sales, was primarily due to increased advertising and other selling and administrative expenses associated with the Company's residential retail and commercial contract business. Pre-opening expenses related to the retail operations totaled $2.9 million for the first six months of 1997 compared to $1.8 million for the first six months of 1996. Interest expense, net increased to $29.1 million for the first six months of 1997 from $19.7 million for the first six months of 1996 as a result of higher borrowings. Results for the first six months of 1996 included nonrecurring charges of $29.1 million ($26.5 million net of tax benefit, or $.20 per share) as discussed in note 5 of notes to condensed consolidated financial statements. Net income before nonrecurring charges was $39.0 million, or $0.29 per share. Net income after nonrecurring charges was $12.5 million, or $0.09 per share for the first six months of 1996. The effective income tax rate for the first six months of 1997 was 41.9 percent compared to 41.5 percent for the first six months of 1996, before nonrecurring charges of $29.1 million. FOREIGN OPERATIONS The Company's primary foreign operations are conducted through its United Kingdom and Australian subsidiaries, where the functional currencies are British 11 pounds and Australian dollars, respectively. Fluctuations in the value of foreign currencies create exposures which can impact the Company's operating results. The Company may employ foreign currency forward exchange contracts when, in the normal course of business, they are determined to effectively manage and reduce such exposure. The Company does not enter into foreign currency forward exchange contracts for speculative trading purposes. PART II - OTHER INFORMATION ITEM ONE - LEGAL PROCEEDINGS The Company is a party to several lawsuits incidental to its various activities and incurred in the ordinary course of business. The Company believes that it has meritorious claims and defenses in each case. After consultation with counsel, it is the opinion of management that, although there can be no assurance given, none of the associated claims, when resolved, will have a material adverse effect upon the Company. From time to time, the Company is subject to claims and suits arising in the course of its business. The Company is a defendant in certain litigation alleging personal injury resulting from personal exposure to volatile organic compounds found in carpet produced by the Company. The complaints seek injunctive relief and unspecified money damages on all claims. The Company has denied any liability. The Company believes that it has meritorious defenses and that the litigation will not have a material adverse effect on the Company's financial condition or results of operations. In June 1994, the Company and several other carpet manufacturers received a grand jury subpoena from the Antitrust Division of the United States Department of Justice relating to an investigation of the industry. In December 1995, the Company learned that it was one of six carpet companies named as additional defendants in a pending antitrust suit filed in the United States District Court in Rome, Georgia. The amended complaint alleges price-fixing regarding certain types of carpet products in violation of Section 1 of the Sherman Act. The Company believes that the suit is spurious and without merit, and that once completed, it will not have a material adverse effect on the Company's financial condition or results of operations. The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous materials used in its manufacturing processes. Failure by the Company to comply with present and future regulations could subject it to future liabilities. In addition, such regulations could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The Company is not involved in any material environmental proceedings. ITEM TWO - CHANGES IN SECURITIES None ITEM THREE - DEFAULTS UPON SENIOR SECURITIES None ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Stock option plan approved on April 24, 1997, as set forth in definitive proxy materials. ITEM FIVE - OTHER INFORMATION None ITEM SIX - EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits 11 - Statement re: Computation of Per Share Earnings 27 - Financial Data Schedule Shareholders may obtain copies of Exhibits without charge upon written request to the Corporate Secretary, Shaw Industries, Inc., Mail drop 061-22, P.O. Drawer 2128, Dalton, Georgia 30722-2128. (B) No reports on Form 8-K have been filed during the fiscal quarter ended June 28, 1997. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SHAW INDUSTRIES, INC. (The Registrant) DATE: August 11 , 1997 s/ Robert E. Shaw - - ----------------------------- ----------------- Robert E. Shaw Chairman of the Board, Chief Executive Officer and President DATE: August 11, 1997 /s/ Kenneth G. Jackson - - ------------------------------ ---------------------- Kenneth G. Jackson Vice President and Chief Financial Officer (Principal Financial Officer) 13 EX-11 2 2ND QUARTER, 1997 EPS CALCULATION
EXHIBIT 11.0 SHAW INDUSTRIES, INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1) (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended Six Months Ended ================== ================== June 28, June 29, June 28, June 29, 1997 1996 1997 1996 -------- -------- -------- -------- PRIMARY: Weighted average common shares outstanding ............................ 133,766 135,793 133,404 135,971 Additional shares assuming exercise of stock options .................. 15 0 211 87 -------- -------- -------- -------- Weighted average common and common equivalent shares outstanding ...... 133,781 135,793 133,615 136,058 ======== ======== ======== ======== Income ................................................................ $ 25,231 $ 28,099 $ 35,979 $ 12,515 ======== ======== ======== ======== Earnings per common share ...................................... $ 0.19 $ 0.21 $ 0.27 $ 0.09 ======== ======== ======== ======== FULLY DILUTED: Weighted average common shares outstanding ..................... 133,766 135,793 133,404 135,971 Additional shares assuming exercise of stock options (2) ...... 15 174 211 174 -------- -------- -------- -------- Weighted average common and common equivalent shares outstanding 133,781 135,967 133,615 136,145 ======== ======== ======== ======== Income ......................................................... $ 25,231 $ 28,099 $ 35,979 $ 12,515 ======== ======== ======== ======== Earnings per common share ...................................... $ 0.19 $ 0.21 $ 0.27 $ 0.09 ======== ======== ======== ========
(1) All numbers of shares in this exhibit are weighted on the basis of the number of days the shares were outstanding or assumed to be outstanding during each period. (2) Based on the treasury stock method using the higher of the average or period-end market price. 14 EX-27 3 EX-27, FDS FOR 2ND QTR 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS OF SHAW INDUSTRIES, INC. AND SUBSIDIARIES AS OF JUNE 28, 1997 AND THE RELATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS JAN-03-1998 JUN-28-1997 14,549,000 0 446,088,000 (20,619,000) 621,059,000 1,160,455,000 1,380,468,000 717,805,000 2,117,168,000 418,163,000 0 0 0 148,784,000 553,823,000 2,117,168,000 1,723,885,000 1,723,885,000 1,286,803,000 1,286,803,000 348,330,000 4,435,000 29,070,000 59,682,000 25,022,000 34,660,000 0 0 0 35,979,000 .27 .27
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