Financial Framework

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Approach Worked with client and his team to gather data and reports Conducted a financial decomposition to understand cost drivers Validate data with client and his team Develop findings Note - Reminder Data is as of end of May 1993, which represents 48 out of 53 fiscal weeks

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini XXXX has Maintained Over the Last Five Years Strong Financial Results Source: Annual Reports ( ) and Consolidated Financial Statements for the Four and Forty-Eight Weeks Ended May 29, * 1993 results annuallized ** As a percentage of Net Sales. However, Selling Expense has grown at a faster rate than Net Sales. 1993* ($ Million) Sales$958$1,176$1,475$1,608$1,751$2,257 Cost of Sales ,1831,3391,4251,810 Gross Margin %**19.5%19.8%16.7%18.6% 19.8% Selling Expense %**7.3%7.2%7.5%7.9% 8.5% G&A Expense %**3.8%3.6%3.7%3.8% 3.7% Operating Income %**8.4%9.0%5.5%6.8% 7.6% Interest Expense %**1.9%1.8%2.2%1.5% 1.2% Income Before Taxes %**6.0%7.0%4.0%5.0% 6.0% Provision IncomeTaxes %**37%39%39%43% 38% Net Income %**4.0%4.4%2.1%3.3% 4.0%

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Residential’s Net Sales Amount to 73% of XXXX Revenues Source: Consolidated Financial Statements for the Four and Forty-Eight Weeks Ended May 29, % of Net Divisional Contribution comes from the Residential group. 0%5%10%15%20%25%30%35%40% Other Networx Exports National Sears Promotional Goods Permacolor Fibers ShawMark Contract Sutton Salem Cabin Crafts Philadelphia % of Net Sales c Residential Other

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini XXXX ’ Net Income Represents 4.1% of Net Sales $172.6M 8.4% $1,564.7M 75.7% $19.3M 0.9% $74.1M 3.6% $38.4M 1.9% Information Services General & Administrative Sales & Marketing Manufacturing* Outbound Logistics $14.6M 0.7% $56.8M 2.7% Claims** Distribution Value Chain as of end of May 1993 Source: Consolidated Financial Statements for the Four and Forty-Eight Weeks Ended May 29, * Includes R&D of 10.3 M and $5.1M for Drop Style Write Down. ** Includes Credit Memos of $34.6M and Claims (G&A) of $3.8M. $41 million, for interest expense and taxes, are added to the cost of doing business.

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Selling and Sample Expenses Year-to-Date Amount to $154 Million, or 7.4% of Net Sales Note: Sample Expense: Discounted sample sales + freight for all samples; No Charge Sample Expense: Free samples (finished good cost); Merchandising Expense: Advertising expense paid by XXXXto large volume customers (% varies based on volume). Source: Consolidated Selling Expense, Report RE-344, May Total Selling Expense shows wide variances among Selling Styles. Net Sales (Million) % of Net Sales Salaries & Wages Commissions Travel & Enternainment Merchandising Expense Sample Expense No Charge Sample Exp. Other Total Salem Philadelphia $ Cabin/E&B Residential $ $ $ Shaw $ Contract $ Sutton $ For the Month of May

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Both Selling and Sample Expenses Vary Widely per Selling Style Sample Expense as a % of Net Sales Selling Expense as a % of Net Sales Selling and Sample Expenses per Selling Style for the year are estimates, due to the recent decision to look at those expenses per Selling Style. Selling and Sample Expenses per Selling Style for the year are estimates, due to the recent decision to look at those expenses per Selling Style. 0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0% Philadelphia Cabin/E&B Salem Sutton Residential Contract Shaw 4.7% 6.0% 7.9% 8.9% 5.7% 8.1% 5.5% 1.5% 2.5% 3.3% 2.0% 1.8% For the Month of May 1993 Source: Consolidated Financial Statements for the Four and Forty-Eight Weeks Ended May 29, 1993.

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Reducing Selling and Sample Expenses to the Best-In-Class in Residential and Contract would Reduce Costs by $29M Y-T-D Today Selling Expense Sample Expense Shaw’s Best-In-Class Selling Expense Sample Expense Delta Selling Expense Sample Expense SalemPhiladelphia 4.7% 1.5% 4.7% 1.5% Cabin/E&BContract TotalSutton ($ Million) Source: Consolidated Financial Statements for the Four and Forty-Eight Weeks Ended May 29, Economies of scale might explain why Philadelphia’s Selling and Sample Expenses are lower than the other Selling Styles. Economies of scale might explain why Philadelphia’s Selling and Sample Expenses are lower than the other Selling Styles.

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Total Manufacturing Costs Amount to $1,569 Million Source: Statement of Operations for the Month and Year to Date of May 1993, Report No. 134A. Material Use Variances, Report No. 710A. * Includes Warehouse cost of $19.3 Million ** Excludes Raw Materials, worth $65.1M. Manufacturing costs are allocated to Selling Styles, based on standard costs and volume sold, not on actual costs. Manufacturing costs are allocated to Selling Styles, based on standard costs and volume sold, not on actual costs. 1, , ,568.6 Raw Materials Labor Labor Related Controllable Variable Controllable Fixed Uncontrollable Fixed Y-T-D Total Processing Costs* Y-T-D Total Manufacturing Costs Y-T-D Total Inventories** Total Manufacturing Costs of Volume Sold 72% 11% 5% 7% 2% 3% 28% $ Million % of Y-T-D Mfg. Costs

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Research & Development Expenses Represent 0.5% of Total Net Sales Source: R&D Summary Total Company - Report RE-344, May % 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% Philadelphia Cabin/E&B Salem Sutton Residential Contract Shaw 0.50% 0.51% 0.53% 1.96% 0.58% 0.03% 0.52% Percentage of Net Sales per Selling Style For the Month of May 1993

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini XXXX ’ Inventory Turns Average 4.3 Source: Analysis of Increase (Decrease) in Inventories, Report No. 082A Consolidated Financial Statements for the Four and Forty Eight Weeks Ended May 29, Raw Materials Work-In-Process Finished Goods Finished Yarn Sub-Total Items for Resale Samples - WIP & Finished Samples - Uncut Rolls Sample Racks Sample - Other Sample Reserves Mfg. Supplies Reserve Variance Total (0.9) (3.6) Current Month $ Million XXXXInventory Turns (As of Cost of Sales)

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Increasing Inventory Turns to Shaw’s Goal would Reduce Carrying Costs by at Least $22 Million Annually Source: Summary of Inventories by Location; Analysis of Increase (Decrease) in Inventory, Report No. 702A, May * Carrying costs estimated to be 20% ** Higher goal set at 15% above Shaw’s goal. Actual Work-In-Process Finished Goods Finished Yarn Total Shaw’s Goal Work-In-Process Finished Goods Finished Yarn Total Higher Goal** Work-In-Process Finished Goods Finished Yarn Total Turns Inventories $ Million Carrying Costs* $ Million $29.6M $21.7M

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Warehouse Costs Are $41.3 Million, but $22 Million are Allocated Back to Local Freight Billings Source: SKO Total warehouse Expenses - Report RE-344, May Local Freight Billings are charges to customers Depreciation Telephone & Telegraph Trucks & Auto-Gas & Oil Rent Building Truck Auto Leasing Other Salaries & Related Expenses $ Million

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Distribution Costs Amount to $42 Million Source: Distribution/Cut Order Inc #577 & 578, Report RE-344, May An additional $12 million needs to be added for shrinkage, scrap and lost/found rolls. $ Million $0.0$2.0$4.0$6.0$8.0$10.0$12.0$14.0$16.0$18.0$20.0 Total Other Controllable Variable Total Raw Material Costs Total Controllable Fixed Total Controllable Variable Total Uncrotrollable Fix Total Labor Related Expense Total Labor45% 17% 16% 11% 6% 3% 2%

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Distribution Costs are Allocated to Centers, but not to Selling Styles Source: Comparison of Expenses for Distribution & Cut Order, May Distribution Transportation Director of Distribution Other Ringgold South D.C. I D.C. South Riverbend D.C. D.C. North D.C. East D.C. II D.C. West Ringgold North Terminal Building $ Million

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Cut Order Costs Are $21 Million Source: Comparison of Expenses for Distribution & Cut Order, May Cut Order costs are not allocated either to Selling Styles Ringgold South Riverbend D.C. D.C. II D.C. East D.C. I D.C. South Ringgold North D.C. West $ Million

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini General and Administrative Expenses Represent 3.6% Of Net Sales, or 75 Million Year-to-Date Source: Consolidated Total G&A, Report RE-344, May G&A expense is not allocated back to Selling Styles Airplane Expense Mailroom President Other General Counsel Industrial Relations Claims Accounting Credit Operations Sales Service Treasury Information Services $ Million

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Paid Quality Claims and Allowances Total $35 Million Year- to-Date, with Residential Representing 79% of Total Source: Analysis of Paid Claims and Allowances (May). Year-to-date claims as a percentage of gross sales average to 1.70% for Residential, 3% below Shaw’s 1.75% standard. Year-to-date claims as a percentage of gross sales average to 1.70% for Residential, 3% below Shaw’s 1.75% standard. $ Million Sutton E&B Salem Cabin Crafts Philadelphia

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Lowering Paid Quality Claims and Allowances to Shaw’s Best- In-Class Ratio would Reduce Residential Costs by $6.4 Million $11.1M $6.4M Today Shaw’s Best-in-Class* Higher Goal** Claims as a % of Gross Sales PhiladephiaCabin CraftSalemE&BSutton $ $ $ $ $ Million Source: Analysis of Paid Claims and Allowances (May). * % of Gross Sales is 1.3% ** % of Gross Sales is 1.0%. This cost reduction opportunity does not include the Claims group.

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini XXXX Is in the Paper Industry Reports What a tremendous amount of reports! Report Sorter Several thousand pages are generated each month to report standard and allocated costs.

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini Findings XXXX cannot calculate Selling Style profitability: –Cost of Sales is calculated on standard costs and allocated to Selling Styles based on volume –Information Services and rest of G&A expenses are not allocated to Selling Styles Applying XXXX best-in-class throughout the company represent significant dollar opportunities of at least $57 million annually: –Selling Expense: $22.8 million year-to-date (only includes Residential and Contract) –Sample Expense: $5.8 million year-to-date (only includes Residential and Contract) –Inventory Turns: $21.7 million –Quality Claims and Allowances: $6.4 million year-to-date Financial reporting requires a significant effort in reconciling and validating

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini XXXX ’ Net Income Represents 4.1% of Net Sales Source: Consolidated Financial Statements for the Four and Forty-Eight Weeks Ended May 29, Cost of Sales 80.1% Net Income 4.1% Interest Expense 1.2% G&A Expense 3.6% Selling Expense 8.5% Taxes 2.5%

Financial Framework © 1993 Gemini Consulting. Reproduction with Express Permission Only. XXXX, Inc./Gemini