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Monday 23 February, 2009

Mohawk Industries, Inc.

Mohawk Industries, Inc. Announces Fourth Quarte...

CALHOUN, Georgia, February 23 /PRNewswire/ --

    Mohawk Industries, Inc. (NYSE: MHK) today announced 2008 fourth quarter
sales of US$1,485 million, a decrease of 18% from 2007. Excluding charges,
our operating income was US$61 million for the quarter as we had anticipated.
Operating income including charges was a loss of US$93 million. As we
discussed the possibility in the third quarter call, the continuing decline
in Mohawk's stock price and deterioration of industry conditions during the
fourth quarter resulted in a pre-tax non-cash impairment charge of US$124
million for goodwill and other intangible assets. During the quarter, we
recorded a US$30 million pre-tax charge related to business restructuring as
previously announced. The company generated cash flow from operations of
US$199 million and paid down debt of US$100 million. A net loss of US$128
million or US$1.87 per share was reported including these charges.

    Net sales for the year were US$6,826 million representing a 10% decrease
from 2007. Excluding charges, our operating income was US$449 million for the
year. Operating income including charges was a loss of US$1,124 million. The
net loss was US$1,458 million or US$21.32 per share including pre-tax
non-cash charges for goodwill and intangibles of US$1,543 million, and a
deferred tax impairment of US$253 million and a business restructuring charge
of US$30 million pre-tax. We generated US$570 million of cash flow from
operations and paid debt of US$333 million during the year.

    In commenting on the fourth quarter results, Jeffrey S. Lorberbaum,
Chairman and CEO stated, "We are in an unprecedented time with the U.S. and
World economies under great stress. Our category is suffering from the same
issues as the entire economy including increasing unemployment, falling
consumer confidence, limited credit availability and declining business
investment. In addition, the housing contraction has had a significant impact
on the purchase of flooring for our residential channels.

    In this environment we are focused on cash flow and the balance sheet.
Our balance sheet remains strong with over US$850 million credit
availability. All of our business units have a priority to maximize cash by
reducing costs, improving working capital, limiting capital expenditures, and
focusing on actions which positively impact sales and margins. All of our
segments have taken aggressive steps and our capital structure and future
cash flow will allow us to manage through the downturn.

    The Mohawk segment sales declined 17% this quarter with both the
residential and commercial businesses down. In the fourth quarter customer
traffic in flooring retail stores dropped significantly and the commercial
business declined as businesses reduced investments. Price increases
announced in the third quarter were implemented but material costs escalated
higher and remained longer than we had anticipated. Through the first
quarter, we will see the affects of high cost material purchases with our
FIFO inventory. We permanently closed a number of manufacturing and
distribution assets in the fourth quarter to align with present conditions.
Many cost initiatives to reduce infrastructure and improve productivity were
implemented during the quarter. Our team was successful in reducing
manufacturing and logistics costs as well as inventory levels. Our polyester
carpet products are improving their position in the market as consumers favor
more value oriented options. We completed the redesign and launch of our new
wood product line and are broadening our customer base.

    Dal-Tile sales were down 12% in the quarter compared to last year
reflecting a slower commercial environment along with a continued decline in
residential. Margins were impacted by a declining product mix and lower
production levels creating unabsorbed overhead in the fourth quarter. We shut
down several high cost production lines and moved the products to more
efficient operations. We have executed many cost reductions including reduced
sales, manufacturing and distribution staffing, lower alternative materials
and improved transportation. Inventory levels were balanced with declining
sales and should decrease as we go forward. Warehousing at the plants has
been increased to ship more directly and reduce overall distribution
expenses. We are increasing our penetration of the Mexican market with
broader product offerings and increased distribution.

    The Unilin sales during the quarter were down 26%, as reported, or 20% on
a constant exchange rate basis. All products in both Europe and the U.S.
declined from the prior year as the contraction in the global economy became
more severe and our customers reduced inventory levels to align with demand.
The Spanish and the U.K. markets were impacted most as home sales slowed
while Eastern Europe and Russia continued to be less affected. Laminate
flooring sales fell in both the U.S. and Europe resulting from a significant
pullback in residential spending. Production schedules have been reduced and
older equipment in the U.S. has been shut down. Cost reductions have been
implemented including staff reductions, temporary shut downs, product and
process reengineering, and freight optimization. Our roofing systems sales
began to reflect the decline in the economy. Continuing the prior trends, our
European board sales remain under both volume and pricing pressure which is
forcing high cost industry capacity to be closed."

    The current environment is expected to remain challenging for the near
term. We believe sales volume will continue to decline in the first quarter.
The affect of lower carpet materials will not be realized until the second
quarter. Carpet price increases did not cover the peak material increases
which remained high into the fourth quarter. During the fourth quarter as
sales declined, we significantly reduced inventory by curtailing production
and material purchases leaving a larger proportion of higher cost inventory
at year end. In the first quarter, the Mohawk segment is forecasted to have
an operating loss resulting from the US$60 million flow through of peak FIFO
costs. Both our Dal-Tile and Unilin segments will continue to be impacted by
the recession and lower consumer spending resulting in lower production
volumes and a declining product mix. Based on these factors, our EPS guidance
for the first quarter is a loss of US$.80 to US$.89 per share.

    We will remain focused on managing our balance sheet and maximizing our
cash generation across our businesses. We will continue to reduce
infrastructure, capital expenditures, working capital and controllable costs.
In the second quarter, margins will be positively impacted after the peak
inventory costs flow through the first quarter and we have seasonal
improvement in volume. Our industry has excellent long-term potential with
demographics which will ultimately lead to continued growth when the economic
recovery begins. As the largest floorcovering manufacturing company in the
world, we have an industry leading position in each of our major
floorcovering product categories. We remain positive about the long-term
prospects for our company.

    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 and supply; timing and level of
capital expenditures; integration of acquisitions; impairment charges;
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 Tuesday, February 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 # 83324277. A
conference call replay will also be available until Tuesday, March 3, 2009 by
dialing +1-800-642-1687 for US/local calls and +1-706-645-9291 for
International/Local calls and entering Conference ID # 83324277.

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

    Consolidated Statement of 
     Operations Data              Three Months Ended     Twelve Months Ended
    (Amounts in thousands,        Dec. 31,   Dec. 31,    Dec. 31,   Dec. 31,  
      except per share data)        2008       2007        2008       2007
    Net sales                   $1,485,172  1,807,268   6,826,348  7,586,018
    Cost of sales                1,129,210  1,318,005   5,088,584  5,471,234
        Gross profit               355,962    489,263   1,737,764  2,114,784
    Selling, general and        
     administrative expenses       324,892    308,796   1,318,501  1,364,678
    Impairment of goodwill and  
     other intangibles             124,485          -   1,543,397          -
        Operating (loss) income    (93,415)   180,467  (1,124,134)   750,106
    Interest expense                30,001     36,234     127,050    154,469
    Other (income) expense, net     18,352         (3)     26,982        674
    U.S. Customs refund                  -          -           -     (9,154)
        Earnings (loss) before  
         income taxes             (141,768)   144,236  (1,278,166)   604,117
    Income taxes                   (14,153)  (234,878)    180,062   (102,697)
        Net (loss) earnings      $(127,615)   379,114  (1,458,228)   706,814
    Basic (loss) earnings per share $(1.87)      5.55      (21.32)     10.37
    Weighted-average shares
     outstanding                    68,416     68,333      68,401     68,172
    Diluted (loss) earnings per 
     share                          $(1.87)      5.53      (21.32)     10.32
    Weighted-average common and 
    potential common shares     
     outstanding                    68,416     68,584      68,401     68,492
    Other Financial Information
    (Amounts in thousands)
    Net cash provided by        
     operating activities         $198,505    273,240     570,034    875,077
    Depreciation & amortization    $69,034     81,573     295,054    306,437
    Capital expenditures           $62,502     65,244     217,824    163,076

    Consolidated Balance Sheet  
    (Amounts in thousands)
                                                          Dec. 31,   Dec. 31,  
                                                            2008       2007 
    Current assets:
        Cash & cash equivalents                            $93,519     89,604
        Receivables                                        696,284    821,113
        Inventories                                      1,168,272  1,276,568
        Prepaid expenses                                   125,603    123,395
        Deferred income taxes and other assets             162,571    139,040
            Total current assets                         2,246,249  2,449,720
    Property, plant and equipment, net                   1,925,742  1,975,721
    Goodwill                                             1,399,434  2,797,339
    Intangible assets                                      847,850  1,171,869
    Deferred income taxes and other assets                  26,900    285,401
                                                        $6,446,175  8,680,050
    Current liabilities:
    Current portion of long-term debt                      $94,785    260,439
    Accounts payable and accrued expenses                  782,131    951,061
            Total current liabilities                      876,916  1,211,500
    Long-term debt, less current portion                 1,860,001  2,021,395
    Deferred income taxes and other long-term liabilities  555,455    739,798
            Total liabilities                            3,292,372  3,972,693
    Total stockholders' equity                           3,153,803  4,707,357
                                                        $6,446,175  8,680,050

    Segment Information       As of or for the Three  As of or for the Twelve
                                     Months Ended            Months Ended
    (Amounts in thousands)        Dec. 31,   Dec. 31,     Dec. 31,   Dec. 31,  
                                    2008       2007         2008       2007
    Net sales:
        Mohawk                     $800,886   967,922   3,628,183  4,205,740
        Dal-Tile                    412,780   468,165   1,815,373  1,937,733
        Unilin                      292,143   393,572   1,465,208  1,487,645
        Corporate and eliminations  (20,637)  (22,391)    (82,416)   (45,100)
            Consolidated net 
             sales               $1,485,172 1,807,268   6,826,348  7,586,018
    Operating (loss) income:
        Mohawk                    $(48,610)    69,747    (216,152)   254,924
        Dal-Tile                    41,438     61,849    (323,370)   258,706
        Unilin                     (82,439)    58,990    (564,911)   272,260
        Corporate and eliminations  (3,804)   (10,119)    (19,701)   (35,784)
            Consolidated operating 
             (loss) income        $(93,415)   180,467  (1,124,134)   750,106
        Mohawk                                          $1,876,696  2,302,527
        Dal-Tile                                         1,693,765  2,259,811
        Unilin                                           2,663,599  3,916,739
        Corporate and eliminations                         212,115    200,973
            Consolidated assets                         $6,446,175  8,680,050

    Reconciliation of Net Loss to Adjusted Net Earnings
    (Amounts in thousands)
                                                Three Months    Twelve Months
                                                   Ended            Ended  
    (Amounts in thousands, except per          Dec. 31, 2008    Dec. 31, 2008
    share data)                                      
    Operating loss                                $(93,415)       (1,124,134)
    Add: Impairment of goodwill and other
     intangibles                                   124,485         1,543,397
    Add: Business restructurings                    29,670            29,670
    Adjusted operating income                      $60,740           448,933
    Reconciliation of Unilin Segment Net 
     Sales to Adjusted Unilin Segment Net
    (Amounts in thousands)
                                             Three Months Ended
                                               Dec. 31, 2008

        Unilin segment net sales                  $292,143
        Add: Exchange rate loss                     22,888
    Adjusted Unilin segment net sales             $315,031
    Reconciliation of Segment Operating  
     Loss to Adjusted Segment Operating  
    (Amounts in thousands)                                          Twelve   
                                                                 Months Ended
                                                                 December 31,
    Mohawk                                                        $(216,152)
        Add: Impairment of goodwill and  
         other intangibles                                          276,807
        Add: Business restructurings                                 22,239
    Adjusted operating income                                        82,894
    Dal-Tile                                                       (323,370)
        Add: Impairment of goodwill and  
         other intangibles                                          531,930
        Add: Business restructurings                                  5,343
    Adjusted operating income                                       213,903
    Unilin                                                         (564,911)
        Add: Impairment of goodwill and  
         other intangibles                                          734,660
        Add: Business restructurings                                  2,088
    Adjusted operating income                                      $171,837
    Reconciliation of Free Cash Flow
    (Amounts in thousands)
                                                                    As of
                                                                Dec. 31, 2008
    Net cash provided by operations                                $570,034
    Net cash used in investing                                     (226,100)
        less: Acquisitions, net of cash                               8,276
    Free cash flow                                                 $352,210

    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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