1 SHAW FINANCIAL LITERACY Breakout Session Internal Financial Reporting March 24, 2015 Krissie Brown – Corporate Manufacturing Accounting Brandy Tunnell – Corporate Manufacturing Accounting Alan Hundley – Corporate Controller

Sub-title Goes Here 2 Internal Financial Reporting - Objectives Learning Objectives Learn about how financial transactions are recorded Learn about how Shaw organizes financial results for internal reporting Understand how various groups within Shaw are reported

Sub-title Goes Here 3 Internal Financial Reporting - Transactions Examples of Transactions include: –Sales Invoices - Customers –Purchases, Invoices and Checks – Suppliers –Payroll, Travel & Ent., Insurance – Associates –Production and Raw Material Usage – Mfg. –Inventory Movements and Transportation – Logistics –Depreciation of Assets – Facilities and Equip. –Journal Entries and Accounting Adjustments How is all that detail managed and tracked ?

Sub-title Goes Here 4 Internal Financial Reporting - Transactions Chart of Accounts Language of Accounting Numeric Codes to organize the “who, what, and where” of each transaction Account Dept. (GL) PlantProject – Direct Labor This is the “What” Tufting 0004 – Plant 4 Plant not always used –Control System Project tracking only Dept. and Plant segments together = COST CENTER This is the “Who and or Where”

Sub-title Goes Here 5 Internal Financial Reporting - Transactions General Ledger System –Maintains a running balance netting all of the transactions for each account combination –Every transactions balances within itself: Example Journal Entry to Record Direct labor: Debit $ Direct Labor –Tufting Plant 4 Credit ($500.00) Cash –Shaw uses PeopleSoft General Ledger Delivered integration with AP, Purchasing, Inventory, Asset Management Custom integration to Shaw Legacy systems Chart of Accounts Standard across all Shaw Mfg. Locations Spectra, China, and ClearPath on other systems

Sub-title Goes Here 6 Internal Financial Reporting - Reporting Balance Sheet and Cash Flows –Total Company only – very limited distribution Income Statements - Internal Management Tools –Primarily organized to align with Sales Organizations Residential, Commercial, Miscellaneous Operations –Further broken down by Selling Structure and Region Residential – Retail / Builder and Regions (Geographic) Commercial – Shaw Contract / Hospitality and Regions Miscellaneous Operations – Includes Fiber, Cushion, Adhesive Promotional Goods –Within Selling Structures, also broken down by Product Carpet (Broadloom/Tile), Hardwood, Resilient, Ceramic)

Sub-title Goes Here 7 Internal Financial Reporting - Reporting So, if Income Statements are organized to align with Sales Organizations, what does that not cover? –Manufacturing Plants and Support Functions –Distributions Centers and Regional Distribution Centers –Transportation Cost Centers –Research and Development Cost Centers –General and Administrative and Customer Service Cost Centers How are the results of those operations managed and how do they fit into Shaw’s Income Statement?

Sub-title Goes Here 8 Internal Financial Reporting - Reporting Cost Center Details: –General Ledger Departmental Reports produced monthly for each “Cost Center” Comparative listing for each Account –Actual vs Budget and Prior Year –Includes current period and year-to-date comparisons –Departmental Reports are also published at the detail level each month with supporting transactional details (Accounts Payable, T&E, Journal Entries, etc.) –Roll-up summaries produced to align with organizational structure (i.e. VP, Director, Manager)

Sub-title Goes Here 9 Internal Financial Reporting - Reporting Further Analysis on Internal Operations: General Ledger data is also combined with other operational data to produce numerous reporting packages that provide operational insight into the operations. A few examples include: POVA: Plant Operating Variance Analysis Analysis of Inventories Sample Cost Analysis Freight Out to Customers Analysis

Sub-title Goes Here 10 Internal Financial Reporting - Reporting Allocations: The results of internal operations are allocated to the Income Statement in order to allow the income statement to represent a complete profit picture. The following functions are allocated to specific sales units (specific income statement pages): Raw Material Purchases – Cost of Sales Manufacturing Operations – Cost of Sales Distribution Operations – Cost of Sales Research and Development – Cost of Sales Transportation – Cost of Sales and Selling Expense Regional Distribution Centers – Selling Expense The basis for allocating these functions varies but most common drivers are Sales, Cost of Sales and Yards Shipped.

Sub-title Goes Here 11 Internal Financial Reporting - Reporting Allocations (Continued) General Administrative cost (HR, IS, Accounting, Legal, Customer Service, etc.) is not allocated to sales. These are only reported on the Total Company Income Statement. These functions support the entire organization.

Sub-title Goes Here 12 Income Statement for Illustrations (Fictitious Data) Allocated to various Sales segments Reported on Total Company Income Statement Only

Sub-title Goes Here 13 Internal Financial Reporting - Objectives Questions / Discussions Thank You!