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Thursday 23 April, 2009

Mohawk Industries, Inc.

Mohawk Industries, Inc. Announces First Quarter...





CALHOUN, Georgia, April 23 /PRNewswire/ --

    Mohawk Industries, Inc. (NYSE: MHK) today announced 2009 first quarter
sales of US$1,208 million, a decrease of 30% from 2008, which includes two
fewer days or 3% less than last year. We had an operating loss of US$146
million in the quarter. A charge of US$122 million was recorded for a
discontinued carpet tile backing which included a US$110 million sales
allowance and a US$12 million inventory reserve. Sales declined 20% excluding
the sales allowance on a constant exchange rate with comparable days.
Operating income was US$42 million excluding the carpet tile charge, a US$62
million FIFO inventory flow through and a US$4 million restructuring cost.
Our loss in the first quarter was US$1.55 per share or US$106 million. Based
on the current business environment, all segments anticipate positive
operating income in the second quarter.



    In commenting on the first quarter results, Jeffrey S. Lorberbaum,
chairman and CEO stated, "In the quarter, we generated US$38 million of
operating cash flow which is a US$118 million improvement over first quarter
2008. Working capital improved with inventories declining US$183 million
during the quarter. The balance sheet remains strong with a cash balance of
US$137 million and credit availability of more than US$800 million. The
economic conditions in both U.S. and Europe remain weak in all channels.
Commercial construction and remodeling projects are being postponed due to
the uncertainty in the economy. The government stimulus, low interest rates,
and easing credit should improve the residential business. All segments
continue to focus on cash generation by reducing infrastructure, operating
costs, capital expenditures and working capital. During the quarter we
reduced production units below sales levels to lower inventories, negatively
impacting overhead absorption. We cut employment levels by almost 2,000, shut
down four operations and reduced warehousing space about one million square
feet."



    The Mohawk segment sales declined by 34%. Sales declined 20%, excluding
the carpet tile sales allowance, using comparable days. We have discontinued
Encycle, a carpet tile backing technology, which accounted for less than 15%
of our commercial volume last year. The majority of our carpet tile products
will continue to use our proven vinyl technology which has exceeded market
expectations for over 15 years. At the end of the first quarter, we
recognized a higher trend of incidents occurring on the discontinued backing
and recorded an allowance to cover the estimated costs of remediating where
needed. We have developed a new thermoplastic technology that is performing
well with select customers across the country and we will increase production
over time. We are satisfying our customers and maintaining our strong
relationships.



    Raw material costs in the Mohawk segment have remained relatively stable
since the end of the year. Our margins have shown improvement through the
quarter excluding the impact of the charges. Industry pricing has remained
reasonably stable with downward pressure occurring in some specific areas.
Seasonal sales improvements will increase capacity utilization and second
quarter results should be positive. We reduced headcount by over 1,000 and
closed two plants during the period to adjust to the lower demand levels. We
have made reductions in selling, administrative, marketing and distribution
expenses to align the business structure with demand. New product
introductions are being delivered to our customers and should positively
impact our sales and margins. The FTC just approved the first new carpet
fiber since nylon was approved fifty years ago which we use in our
SmartStrand and Sorona products confirming the premium attributes of better
durability, stain resistance and softness.



    The Dal-Tile segment sales were down 20% during the quarter, or 16% on a
constant exchange rate with comparable days. Our commercial sales continue to
decline as business investment deteriorated in the period. We believe our
overall market position has improved as our product distribution provided
value to our customers. Higher unabsorbed overhead costs compressed margins
as we reduced production and inventory. In addition, our distribution and
selling costs were deleveraged due to the lower volume. We continue to reduce
our sales, marketing, administrative and distribution infrastructure. We are
consolidating several low volume service centers, reducing staffing and
renegotiating rents in many locations. We have improved our manufacturing
productivity, product yields and distribution costs. We are introducing an
engineered stone program for indoor and outdoor uses and a new wood program
that our architectural representatives will specify. We are expanding our
distribution and product line in the Mexican market which is performing
better than the U.S. market.



    Unilin sales declined 34% as reported or 24% on a constant exchange rate
with comparable days. The rate of decline was more challenging in the first
quarter than earlier periods with the economic slowdown becoming more
difficult and customers reducing their inventories. Our U.S. and European
laminate business reflected a slight improvement in the latter part of the
quarter due to the positive acceptance of our new introductions reaching the
market. The Russian flooring market continues to perform better than the rest
of Europe and we began to inventory our product locally to improve our
service and expand our customer base. We have signed additional license
agreements for our patents in the period but our volume based revenues have
contracted with the industry. We temporarily closed one of our wood flooring
plants in the U.S. to adjust capacity to the demand and recorded a US$4
million restructuring charge. This will reduce production costs of our wood
business until the capacity is required.



    Seasonal improvements in volume should increase utilization rates and
positively impact all of our business in the second quarter. All of the
segments are expected to have positive operating income in the second quarter
from cost reductions, lower infrastructure, and reduced material and energy
costs. Based on these factors, our EPS guidance for the second quarter 2009
is US$.43 to US$.52 per share. Excluded from this guidance is an estimated
second quarter restructuring charge of approximately US$15 million related to
closing facilities, which will benefit our future operation.



    We do not see a catalyst for a significant change in the overall flooring
category in the near term. We are maximizing sales opportunities while
managing the cost structure and working capital. We continue to reduce
infrastructure based on industry conditions and maximize our cash position.
When the recovery begins, we will benefit from the restructurings, efficiency
measures and cost reduction initiatives that have been implemented.



    Certain of the statements in the immediately preceding paragraphs,
particularly anticipating future performance, business prospects, growth and
operating strategies and similar matters and those that include the words
"could," "should," "believes," "anticipates," "expects," and "estimates," or
similar expressions constitute "forward-looking statements." For those
statements, Mohawk claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. There can be no assurance that the forward-looking
statements will be accurate because they are based on many assumptions, which
involve risks and uncertainties. Factors that could cause future results to
differ include changes in economic or industry conditions; competition; raw
material and energy costs and supply; timing and level of capital
expenditures; integration of acquisitions; impairment charges;
rationalization of operations; claims and litigation and other risks
identified in Mohawk's SEC reports and public announcements.



    Mohawk is a leading supplier of flooring for both residential and
commercial applications. Mohawk offers a complete selection of carpet,
ceramic tile, laminate, wood, stone, vinyl, and rugs. These products are
marketed under the premier brands in the industry, which include Mohawk,
Karastan, Ralph Lauren, Lees, Bigelow, Dal-Tile, American Olean, Unilin and
Quick Step. Mohawk's unique merchandising and marketing assist our customers
in creating the consumers' dream. Mohawk provides a premium level of service
with its own trucking fleet and over 250 local distribution locations.



    There will be a conference call Friday, April 24, 2009 at 11:00 AM
Eastern Time. The telephone number to call is +1-800-603-9255 for US/Canada
and +1-706-634-2294 for International/Local. Conference ID # 93601795. A
conference call replay will also be available until Friday, May 1, 2009 by
dialing +1-800-642-1687 for US/local calls and +1-706-645-9291 for
International/Local calls and entering Conference ID # 93601795.


    
    (All amounts in U.S. dollars unless otherwise noted)


    MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES                                   
                                                                               
    Consolidated Statement of Operations             Three Months Ended      
     (Amounts in thousands, except per share  March 28, 2009  March 29, 2008 
     data)                                    --------------  -------------- 
                                                
    Net sales                                     $1,208,339       1,738,097
    Cost of sales                                  1,054,650       1,278,258 
        Gross profit                                 153,689         459,839 
    Selling, general and administrative expenses     299,573         335,521 
        Operating (loss)  income                    (145,884)        124,318 
    Interest expense                                  30,184          33,767 
    Other (income) expense, net                        2,615           2,779 
        Earnings (loss) before income taxes         (178,683)         87,772 
    Income tax (benefit) expense                     (72,796)         22,382 
        Net (loss) earnings                        $(105,887)         65,390
    Basic (loss) earnings per share                   $(1.55)           0.96
    Weighted-average common shares               
     outstanding - basic                              68,433          68,375 
    Diluted (loss) earnings per share                 $(1.55)           0.95
    Weighted-average common                                          
     shares outstanding - diluted                     68,433          68,579 
    
    Other Financial Information                                        
     (Amounts in thousands) 
                                                    
    Net cash provided by (used in) operating                      
     activities                                      $37,919         (80,179)
    Depreciation & amortization                      $67,680          73,256 
    Capital expenditures                             $27,093          55,971 
                                                                     
    Consolidated Balance Sheet Data 
     (Amounts in thousands)                                        
                                              March 28, 2009  March 29, 2008 
                                              --------------  -------------- 
    ASSETS                                                        
    Current assets:                                               
        Cash & cash equivalents                     $136,552          73,289 
        Receivables                                  784,677         955,325 
        Inventories                                  985,463       1,296,424 
        Prepaid expenses                             128,413         135,429 
        Deferred income taxes and other assets       191,516         135,407 
            Total current assets                   2,226,621       2,595,874 
    Property, plant and equipment, net             1,867,072       2,026,058 
    Goodwill                                       1,368,552       2,877,671 
    Intangible assets                                799,927       1,211,512 
    Deferred income taxes and other assets            25,464         306,304 
                                                  $6,287,636       9,017,419 


    
    LIABILITIES AND  STOCKHOLDERS' EQUITY                          
    Current liabilities:                                                    
      Current portion of long-term debt             $137,501         367,785 
      Accounts payable and accrued expenses          828,397         932,856 
            Total current liabilities                965,898       1,300,641 
    Long-term debt, less current portion           1,843,612       2,003,013 
    Deferred income taxes and other long-term                      
     liabilities                                     486,704         731,960 
            Total liabilities                      3,296,214       4,035,614 
    Total stockholders' equity                     2,991,422       4,981,805 
                                                  $6,287,636       9,017,419 

                                                                   
                                                    As of or for the 
    Segment Information                            Three Months Ended   
     (Amounts in thousands)                    March 28, 2009  March 29, 2008 
                                             --------------  -------------- 
    Net sales:                                                              
        Mohawk                                      $594,331         905,044 
        Dal-Tile                                     358,478         449,051 
        Unilin                                       268,466         403,755 
        Corporate and eliminations                   (12,936)        (19,753)
            Consolidated net sales                $1,208,339       1,738,097 
                                                                         
    Operating (loss) income:                                              
        Mohawk                                     $(179,055)         22,241 
        Dal-Tile                                      21,129          56,941 
        Unilin                                        14,552          49,956 
        Corporate and eliminations                    (2,510)         (4,820)
            Consolidated operating (loss) income   $(145,884)        124,318 
                                                                          
    Assets:                                                               
        Mohawk                                    $1,773,447       2,410,031 
        Dal-Tile                                   1,662,595       2,257,190 
        Unilin                                     2,577,698       4,162,172 
        Corporate and eliminations                   273,896         188,026 
            Consolidated assets                   $6,287,636       9,017,419 



    Reconciliation of Net Sales to Adjusted Net Sales              
     (Amounts in thousands)                                         
                                     Three Months Ended March 28, 2009  
                                     ---------------------------------  
                                      Mohawk       Segment Information  
                                   Consolidated Mohawk  Dal-Tile  Unilin
                                   ------------ ------- --------  ------

    Net sales                        $1,208,339 594,331  358,478 268,466
      Add: Commercial carpet                                       
       sales allowance                  110,224 110,224        -       -
      Add: Exchange rate                 35,664       -    6,026  29,638
      Add: Change in days in                                       
       quarter                           44,401  23,100   11,951   9,774
      Adjusted net sales             $1,398,628 727,655  376,455 307,878





    The Company believes it is useful for itself and investors to review, as
applicable, both GAAP and the above non-GAAP measures in order to assess the
performance of the Company's business for planning and forecasting in
subsequent periods.




                                                                                                                           

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