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Thursday 14 February, 2008

Mohawk Industries, Inc.

Mohawk Industries, Inc. Announces Fourth Quarte...





CALHOUN, Georgia, February 14 /PRNewswire/ --

- 2007 Fourth Quarter EPS US$5.53 with one-time tax benefit

- 2007 Fourth Quarter EPS US$1.57 excluding one-time tax benefit

- US$189 million of debt paid down in quarter

- US$875 million cash flow from operations for year

- 27% improvement in Unilin annual operating profit

    Mohawk Industries, Inc. (NYSE: MHK) today announced 2007 fourth quarter
net earnings of US$379.1 million and diluted earnings per share (EPS) of
US$5.53, including a one-time tax benefit. Net earnings and EPS for the
quarter, excluding the tax benefit, were US$107.5 million and US$1.57,
respectively. In the fourth quarter of 2006, net earnings and EPS were
US$129.5 million and US$1.90 per share, respectively, and included a pre-tax
benefit of US$4.4 million (US$.04 per share) related to a refund from U.S.
Customs. As required under generally accepted accounting principles, a
US$271.6 million (US$3.96 per share) tax benefit to earnings was recorded
during the quarter which resulted from an international restructuring. Net
sales for the quarter were US$1,807.3 million, a decrease of 5% from 2006.
Sales were impacted favorably by the Columbia wood flooring acquisition,
exchange rates and growth in the Dal-Tile segment which partially offset
other sales declines. Cash flow from operations continued strong at US$273
million and an additional US$189 million of debt was paid during the quarter.



    For the year 2007, earnings were US$706.8 million and EPS were US$10.32,
including the US$271.6 million one-time tax benefit, a pre-tax benefit of
US$9.2 million (US$.09 per share) related to a refund from U.S. customs and
pre-tax charge of US$14.2 million (US$.13 per share) for plant closing costs.
In 2006, net earnings and EPS were US$455.8 million and US$6.70 per share,
respectively, and included a pre-tax benefit of US$19.4 million (US$.18 per
share) related to a refund from U.S. Customs. Net sales for the year were
US$7,586.0 million, a decrease of 4% from 2006. Sales were favorably impacted
by growth in the Unilin segment, exchange rate gains and the acquisition of
the Columbia wood flooring business which partially offset other sales
declines. For the year Unilin's results improved substantially with operating
profit increasing 27%. For the year we had cash flow from operations of
US$875 million and reduced our debt by US$534 million.



    In commenting on the fourth quarter and year results, Jeffrey S.
Lorberbaum, Chairman and CEO, stated: "During 2007 we endured a difficult
U.S. housing market and rising costs, while continuing the growth of our
Unilin segment. Our management team in the U.S. handled the many challenges
as the flooring market continued its decline. Our three segments are managing
this cycle with many initiatives to improve revenues, reduce costs, increase
prices, improve productivity, manage working capital and update our product
portfolio.



    The Mohawk segment has been impacted greater than our other segments with
sales down 13% in the quarter and a 7.2% operating margin. The commercial
channel outperformed the residential channel and this is expected to continue
for the foreseeable future. Raw material costs have escalated and we
announced a carpet price increase in December with further adjustments in
January based on the changing environment. The announced increase should take
four to six months to fully implement. We continue to right size the business
by reducing costs. We are implementing many initiatives to improve efficiency
and yields which we expect will have a favorable long term impact. Sales
focus has been increased in the commercial, multi-family and higher-end
residential channels which are expected to outperform other channels. We have
discontinued production in our flat woven plant which will reduce sales about
US$40 million this year.



    Our Dal-Tile sales were up 2% in the quarter compared to 2006 with
operating margins of 13.2%. Dal-Tile is performing well with growth in the
commercial and higher-end residential channels. We are implementing price
increases to pass through rising energy, logistics and other costs. Earlier
investments in our sales infrastructure have enabled us to outperform the
market but are impacting our margins. The Mexican market continues to expand
and Dal-Tile is growing our business by focusing on premium ceramic products.
During the year we closed a high cost ceramic facility in the U.S. and
reduced outside purchases of ceramic to increase utilization of our plants
and control inventory levels. We have completed the introduction of a new
exterior collection of porcelain and stone tiles. These products extend the
interior living areas to the outdoors in both residential and commercial
applications.



    In the quarter the Unilin segment sales grew by 20% over last year with
an operating margin at 15.0%. Without Columbia, Unilin's sales growth was 7%
and the operating margin was 18.3%. In the local currency Unilin had a sales
decline of 3% without Columbia. The fourth quarter 2007 sales comparison was
extremely difficult due to a 34% sales gain in the prior 2006 period. Our
European laminate sales grew with the U.S. laminate and other sales declining
on a constant exchange rate basis. Unilin is being impacted by the
contracting U.S. residential industry along with slowing European building
and remodeling sectors. Unilin has experienced cost increases and has
implemented price increases in many product categories. Lower industry
volumes are also reducing patent revenues. We are adding infrastructure to
expand our penetration in Eastern Europe and Russia which are growing faster.
The Columbia integration is progressing but volumes are being impacted by the
slowing industry. The wood plants are improving productivity, quality and
cost. New products are being introduced to replace outside purchased product,
to fill in product voids and offer higher styled options. The U.S. management
team is in place to execute our strategy and we are finalizing the European
wood team to maximize the Malaysian sales.



    In the first quarter, the company is expecting the U.S. flooring industry
to continue its decline and the European building and remodeling sector to
soften. Material costs are rising even though the industry volumes are
falling. We have reduced production in the plants in the first quarter due to
lower consumer demand and both our customers and Mohawk not building
inventories as we have in prior years. With the current industry conditions,
we are reducing our infrastructure costs further and increasing prices which
will lag the rising costs. Based on these factors, earnings guidance for the
first quarter of 2008 is from US$.81 to US$.90 EPS.



    The second quarter earnings are expected to improve and be more in line
with last year. We anticipate sales and earnings will benefit from higher
seasonal sales rates, increases in selling prices, reduced infrastructure
costs and favorable foreign exchange. Postponed flooring purchases by our
customers during past cycles have resulted in an industry rebound when the
economy improves. 2008 will also benefit from lower intangible asset
amortization, interest expense and tax rate. We are focused on managing our
business through this cycle.



    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. The following important factors could cause
future results to differ: changes in economic or industry conditions;
competition; raw material and energy costs; timing and level of capital
expenditures; integration of acquisitions; rationalization of operations;
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 Thursday, February 14, 2008 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.


    A conference call replay will also be available until February 21, 2008
by dialing +1-800-642-1687 for US/local calls and +1-706-645-9291 for
International/Local calls and entering Conference ID # 30399711.


    
    (All amounts in US Dollars unless otherwise specified)



    MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
    
    Consolidated Statement 
     of Earnings Data          Three Months Ended      Twelve Months Ended 
   (Amounts in thousands, December 31, December 31, December 31, December 31, 
     except per share data)    2007         2006         2007        2006 
     
    Net sales               $1,807,268   1,898,594    7,586,018    7,905,842 
    Cost of sales            1,318,005   1,344,516    5,471,234    5,674,531 
      Gross profit             489,263     554,078    2,114,784    2,231,311 
    Selling, general and               
     administrative expenses   308,796     324,704    1,364,678    1,392,251 
      Operating income         180,467     229,374      750,106      839,060 
    Interest expense            36,234      42,584      154,469      173,697 
    Other (income) expense,  
     net                            (3)      2,108          674        8,488 
    U.S. Customs refund              -      (4,370)      (9,154)     (19,436) 
      Earnings before income           
       taxes                   144,236     189,052      604,117      676,311 
    Income taxes              (234,878)     59,561     (102,697)     220,478 
      Net earnings            $379,114     129,491      706,814      455,833 
    Basic earnings per share     $5.55        1.91        10.37         6.74 
    Weighted-average shares            
     outstanding                68,333      67,733       68,172       67,674 
    Diluted earnings per share   $5.53        1.90        10.32         6.70 
    Weighted-average common  
     and dilutive potential  
     common shares outstanding  68,584      68,058       68,492       68,056 
     
     
     
    Other Financial Information 
     (Amounts in thousands) 
     
    Net cash provided by  
     operating activities     $273,240     235,804      875,077      782,045 
    Depreciation &  
     amortization              $81,573      72,278      306,437      274,952 
    Capital expenditures       $65,244      41,721      163,076      165,769 



    Consolidated Balance Sheet Data
    (Amounts in thousands)
                                          December 31, 2007 December 31, 2006
    ASSETS
    Current assets:
        Cash & cash equivalents                     $89,604            63,492
        Receivables                                 821,113           910,021
        Inventories                               1,276,568         1,225,874
        Prepaid expenses                            123,395           114,088
        Deferred income taxes                       139,040            99,251
            Total current assets                  2,449,720         2,412,726
    Property, plant and equipment, net            1,975,721         1,888,088
    Goodwill                                      2,797,339         2,699,639
    Intangible assets                             1,171,869         1,180,094
    Other assets                                    285,401            31,662
                                                 $8,680,050         8,212,209
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
        Current portion of long-term debt          $260,439           576,134
        Accounts payable and accrued expenses       996,061         1,053,444
            Total current liabilities             1,256,500         1,629,578
    Long-term debt, less current portion          2,021,395         2,207,547
    Deferred income taxes and other long-
     term liabilities                               694,798           659,821
            Total liabilities                     3,972,693         4,496,946
    Total stockholders' equity                    4,707,357         3,715,263
                                                 $8,680,050         8,212,209



                                As of or for the         As of or for the 
                               Three Months Ended       Twelve Months Ended 
    Segment Information   December 31, December 31, December 31, December 31, 
    (Amounts in thousands)     2007        2006          2007        2006 
     
    Net sales: 
      Mohawk                 $967,922    1,115,689    4,205,740    4,742,060 
      Dal-Tile                468,165      459,754    1,937,733    1,941,819 
      Unilin                  393,572      327,599    1,487,645    1,236,918 
      Corporate and  
       eliminations           (22,391)      (4,448)     (45,100)     (14,955) 
        Consolidated net  
         sales             $1,807,268    1,898,594    7,586,018    7,905,842 
     
    Operating income: 
      Mohawk                  $69,747      112,275      254,924      387,386 
      Dal-Tile                 61,849       57,615      258,706      270,901 
      Unilin                   58,990       64,669      272,260      214,093 
      Corporate and  
       eliminations           (10,119)      (5,185)     (35,784)     (33,320) 
        Consolidated
         operating income    $180,467      229,374      750,106      839,060 
     
    Assets: 
      Mohawk                                         $2,302,527    2,488,856 
      Dal-Tile                                        2,259,811    2,257,107 
      Unilin                                          3,916,739    3,309,574 
      Corporate and eliminations                        200,973      156,672 
        Consolidated assets                          $8,680,050    8,212,209 


    
    Reconciliation of Net Earnings to
     Adjusted Net Earnings              
    (Amounts in thousands, except 
     per share data)                  Three Months Ended  Twelve Months Ended
                                       December 31, 2007    December 31, 2007

    Earnings before income taxes               $144,236              604,117
         Income tax benefit                    (271,608)            (271,608)
         Income tax expense                      36,730              168,911
    Net earnings                               $379,114              706,814
    Less: Income tax benefit                   (271,608)            (271,608)
    Adjusted net earnings                      $107,506              435,206
    Basic earnings per share                      $5.55                10.37
    Income tax benefit per share - basic          $3.97                 3.98
    Adjusted earnings per share - basic           $1.58                 6.39
    Weighted-average common shares outstanding   68,333               68,172
    Diluted earnings per share                    $5.53                10.32
    Income tax benefit per share - diluted        $3.96                 3.97
    Adjusted earnings per share - diluted         $1.57                 6.35
    Weighted-average common and dilutive 
     potential common shares outstanding         68,584               68,492



    Reconciliation of U.S. Customs 
     refunds and Plant Closing to EPS  Three Months       Twelve Months   
    (Amounts in thousands, except         Ended               Ended
     per share data)                  December 31,  December 31, December 31,
                                         2006           2007         2006

    U.S. Customs refund                 $(4,370)      (9,154)       (19,436)
         Income tax expense              (1,602)      (3,355)        (7,123)
    U.S. Customs refund, net of tax     $(2,768)      (5,799)       (12,313)
    
    Plant closings charge                    $-       14,200              -
         Income tax expense                   -        5,204              -
    Plant closing charge, net of tax         $-        8,996              -
    
    U.S. Customs refund per share - 
     basic                               $(0.04)       (0.09)         (0.18)
    Plant closing charge per share - 
     basic                                   $-         0.13              -
    Weighted-average common shares
     outstanding                         67,733       68,172         67,674
    
    U.S. Customs refund per share -       
     diluted                             $(0.04)       (0.09)         (0.18)
    Plant closing charge per share -      
     diluted                                 $-         0.13              -
    Weighted-average common and 
     dilutive potential common shares 
     outstanding                         68,058       68,492         68,056



    Reconciliation of Unilin Segment Net Sales  
     and Operating Income to Adjusted Unilin           Three Months Ended 
     Segment Net Sales and Operating Income        December 31,  December 31, 
    (Amounts in thousands)                              2007          2006 
     
      Unilin segment net sales                         $393,572       327,599 
        Less: Columbia net sales                         44,270             - 
    Adjusted Unilin segment net sales                   349,302       327,599 
        Less: Exchange rate gain                         32,200             - 
    Adjusted Unilin segment net sales for Columbia  
     and exchange rate gain                            $317,102       327,599 
      Unilin segment operating income                   $58,990        64,669 
        Less: Columbia operating loss                   (5,044)             - 
    Adjusted Unilin segment operating income for  
     Columbia                                           $64,034        64,669 
     
     
                                                      Three Months Ended 
                                                   December 31,  December 31, 
                                                        2006          2005
 
    Unilin proforma sales reconciliation: 
      Net sales reported                               $327,599       168,814 
      Unilin net sales prior to acquisition                   -        76,275 
    Unilin proforma net sales                          $327,599       245,089 
     
      Proforma net sales percentage change                   34% 





    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.



Web site: http://www.mohawkind.com

                                                        

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