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Monday 03 November, 2008

Mohawk Industries, Inc.

Mohawk Industries, Inc. Announces Third Quarter...

CALHOUN, Georgia, November 3 /PRNewswire/ --

    Mohawk Industries, Inc. (NYSE: MHK) today announced 2008 third quarter
sales of US$1,763 million, a decrease of 9% from 2007. The company generated
cash flow from operations of US$185 million, paid down debt of US$128 million
and has over US$800 million available under current credit facilities. As a
result of Mohawk's declining stock price and deteriorating industry
conditions, accounting rules required non-cash charges for a preliminary
goodwill and other intangibles impairment of US$1,216 million net of tax and
for a deferred tax asset impairment of US$253 million. While our goodwill and
other intangibles impairment analysis is not yet complete, we believe the
preliminary amount is a reasonable estimate and we will adjust the charge if
required. These impairment charges do not require any cash payments or impact
our operations, liquidity or debt covenants. Including the non-cash write
offs during the quarter, the company reported a net loss of US$1,394 million
or US$20.37 per share. Excluding the non-cash write off, non-GAAP net
earnings were US$76 million or US$1.10 per share. In the third quarter of
2007, net earnings were US$122 million or US$1.78 per share.

    Net sales for the first nine months of 2008 were US$5,341 million
representing an 8% decrease from 2007. For the first nine months of 2008, the
loss was US$1,239 million or US$18.12 per share including a non-cash write
off for a preliminary goodwill and other intangibles impairment of US$1,216
million net of tax and for a deferred tax asset impairment of US$253 million.
Excluding the non-cash write off's, non-GAAP net earnings were US$230 million
or US$3.35 per share in the first nine months of 2008.

    In commenting on the third quarter results, Jeffrey S. Lorberbaum,
Chairman and CEO stated, "We generated strong cash flow from operations of
US$185 million during the period while our earnings were under pressure from
falling demand and higher costs. All of our businesses are focused on
reducing overhead costs, managing working capital and enhancing sales and
margins. The U.S. economy is declining with consumers reducing discretionary
expenditures. Residential home sales and remodeling are at low levels and
commercial projects are being impacted by tightening credit and softening
business conditions. The European economy has become significantly weaker and
affected both our flooring and non-flooring products. Government intervention
should help stabilize the banking system and improve availability of credit.
We are hopeful that the declining energy and commodity prices will help
strengthen consumer confidence and lead to an improvement in the flooring
market next year.

    The Mohawk segment was impacted most by the down turn. Sales declined by
11% with both costs and revenues under pressure. Almost every channel and
product category has slowed during the quarter. The price increases we
announced in the summer should be fully implemented by year end. During the
quarter raw materials escalated more than we anticipated. Additional price
increases were initiated in our ceramic, laminate, and vinyl products during
the period. Our SG&A has been reduced from the prior year and will decline
further in the future from additional actions. To right size the business, we
announced closing two staple yarn plants and several regional distribution
centers in the fourth quarter. This restructuring will benefit us with lower
overhead and more efficient operations going forward. We are carefully
rationalizing all our facilities to match the needs for both our near-term
and long-term environment.

    Dal-Tile sales declined in the quarter 5% below the prior year with
business deteriorating through the quarter. We believe Dal-Tile is performing
much better than the overall ceramic market. We are increasing our product
offerings to the hospitality, multifamily and other commercial segments. New
commercial introductions in the American Olean brand will add to our
commercial sales through independent distributors. We have begun our factory
direct program for large customers and expanded our product line for the
Mexican market. We are reducing our ceramic production in the fourth quarter
with both shorter work schedules and shift reductions. Our sales,
distribution and administrative infrastructures are being reduced further to
adapt to the poor environment. Savings in trucking costs are being achieved
through increased fleet utilization and synergies with other Mohawk

    The Unilin sales declined 5% as reported or 11% on a constant exchange
rate basis. The Western European market has softened substantially as the
global economy declines. Our laminate sales were down in both U.S. and Europe
with Eastern Europe and Russia out performing other areas. Our laminate
royalties have also declined as the industry units contracted. Roofing system
sales were slightly up for the period. Our European board volume has declined
along with the industry and pricing is at cyclical low levels. In the
Columbia wood operations, we have taken out costs and launched new products.
Customer demand for wood is very challenging and Columbia continues to
operate at a loss. During the period, Unilin costs were higher due to rising
chemical, energy, transportation and increased unabsorbed overhead. Many cost
initiatives are under way including reengineering products, implementing new
systems and reducing infrastructure."

    The fourth quarter outlook is challenging due to the slowing economy,
tightening credit and falling consumption of consumers and businesses. We do
not expect to benefit significantly from declining oil and energy until the
first half of 2009. In the quarter, our businesses will reduce inventory with
increased shut downs and be impacted by a decline in product mix. The
stronger dollar is expected to negatively impact our results in the period.
Based on these factors our EPS guidance for the fourth quarter of 2008 is
US$0.20 to US$0.30. Excluded from this guidance is a fourth quarter
restructuring charge of US$25 to US$30 million related to closing facilities
which will benefit our future operations.

    We anticipate 2009 results will improve from our second half in 2008.
During 2009 higher selling prices and lower costs should help our margins.
Actions taken in 2008 to reduce overhead, improve productivity, shut down
high cost capacity and manage inventories will positively impact our
operations. Consumer discretionary spending for flooring will improve from
substantial government stimulus, additional liquidity, lower gas and falling
commodity prices. We remain convinced Mohawk will be a stronger company when
we come out of 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 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, November 4, 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. Conference ID # 67235451. A
conference call replay will also be available until Tuesday, November 11,
2008 by dialing +1-800-642-1687 for US/local calls and +1-706-645-9291 for
International/Local calls and entering Conference ID # 67235451.

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

    Consolidated Statement of  
    Earnings Data                 Three Months Ended      Nine Months Ended
    (Amounts in thousands,       Sept. 27,  Sept. 29,   Sept. 27,  Sept. 29,
    except per share data)         2008       2007        2008        2007
    Net sales                   $1,763,034  1,937,677   5,341,176  5,778,750
    Cost of sales                1,323,963  1,392,294   3,959,374  4,153,229
        Gross profit               439,071    545,383   1,381,802  1,625,521
    Selling, general and       
     administrative expenses       321,259    344,569     993,609  1,055,882
    Impairment of goodwill and 
     other intangibles           1,327,118          -   1,327,118          -
        Operating (loss) income (1,209,306)   200,814    (938,925)   569,639
    Interest expense                30,540     37,518      97,049    118,235
    Other (income) expense, net      4,201       (799)      8,630        677
    U.S. Customs refund                  -          -           -     (9,154)
        Earnings (loss) before 
         income taxes           (1,244,047)   164,095  (1,044,604)   459,881
    Income taxes                    149,596     42,041     194,871    132,181
        Net (loss) earnings    $(1,393,643)   122,054  (1,239,475)   327,700
    Basic (loss) earnings per  
     share                         $(20.37)      1.79      (18.12)      4.81
    Weighted-average shares    
     outstanding                    68,411     68,281      68,396     68,118
    Diluted (loss) earnings per
     share                         $(20.37)      1.78      (18.12)      4.79
    Weighted-average common and
    potential common shares    
     outstanding                    68,411     68,597      68,396     68,461
    Other Financial Information
    (Amounts in thousands)
    Net cash provided by       
     operating activities         $184,837    287,385     371,529    601,837
    Depreciation & amortization    $73,883     75,636     222,191    224,864
    Capital expenditures           $49,512     37,448     155,322     97,832
    Consolidated Balance Sheet Data
    (Amounts in thousands)
                                                         Sept. 27,  Sept. 29,
                                                           2008       2007
    Current assets:
        Cash & cash equivalents                           $62,025     81,664
        Receivables                                       933,741    992,230
        Inventories                                     1,234,696  1,297,605
        Prepaid expenses                                  122,464    111,494
        Deferred income taxes                             167,728    157,665
            Total current      
             assets                                     2,520,654  2,640,658
    Property, plant and        
     equipment, net                                     1,963,939  1,936,598
    Goodwill                                            1,621,115  2,784,760
    Intangible assets                                     954,826  1,171,465
    Deferred income taxes and  
     other assets                                          20,260     26,972
                                                       $7,080,794  8,560,453
    LIABILITIES AND            
    Current liabilities:
    Current portion of long-   
     term debt                                           $131,663    337,351
    Accounts payable and       
     accrued expenses                                     980,918  1,055,397
            Total current      
             liabilities                                1,112,581  1,392,748
    Long-term debt, less       
     current portion                                    1,924,698  2,126,936
    Deferred income taxes and  
     other long-term           
     liabilities                                          605,688    793,037
            Total liabilities                           3,642,967  4,312,721
    Total stockholders' equity                          3,437,827  4,247,732
                                                       $7,080,794  8,560,453

                                  As of or for the       As of or for the 
    Segment Information          Three Months Ended      Nine Months Ended
                                 Sept. 27,  Sept. 29,   Sept. 27,  Sept. 29,
    (Amounts in thousands)         2008       2007        2008       2007
    Net sales:
        Mohawk                    $953,827  1,076,745   2,827,297  3,237,818
        Dal-Tile                   472,031    497,420   1,402,593  1,469,568
        Unilin                     357,785    378,446   1,173,065  1,094,073
        Corporate and          
         eliminations              (20,609)   (14,934)    (61,779)   (22,709)
            Consolidated net   
             sales              $1,763,034  1,937,677   5,341,176  5,778,750
    Operating (loss) income:
        Mohawk                   $(224,376)    77,002    (167,542)   185,177
        Dal-Tile                  (430,528)    63,109    (315,418)   196,857
        Unilin                    (550,145)    71,034    (440,068)   213,270
        Corporate and          
         eliminations               (4,257)   (10,331)    (15,897)   (25,665)
             operating income  $(1,209,306)   200,814    (938,925)   569,639
        Mohawk                                         $2,122,463  2,417,845
        Dal-Tile                                        1,785,602  2,298,695
        Unilin                                          2,950,856  3,620,687
        Corporate and          
         eliminations                                     221,873    223,226
            Consolidated assets                        $7,080,794  8,560,453

    Reconciliation of Net Loss to Adjusted Net Earnings
                                               Three Months     Nine Months 
    (Amounts in thousands, except per             Ended             Ended
    share data)                                September 27,    September 27, 
                                                   2008             2008
    Net (loss) earnings                        $(1,393,643)       (1,239,475)
    Add: Impairment of goodwill and other
     intangibles                                 1,327,118         1,327,118
    Less: Tax benefit on Impairment of   
     goodwill and other intangibles               (110,684)         (110,684)
    Add: Deferred tax asset impairment             252,751           252,751
    Adjusted net earnings                          $75,542           229,710
    Adjusted Basic earnings per share                $1.10              3.36
    Weighted-average shares outstanding             68,411            68,396
    Adjusted Diluted (loss) earnings per 
     share                                           $1.10              3.35
    Weighted-average common and dilutive
    potential common shares outstanding             68,601            68,599
    Reconciliation of Unilin Segment Net 
     Sales to Adjusted Unilin Segment Net
                                              Three Months Ended
    (Amounts in thousands)                    September 27, 2008
        Unilin segment net sales                   $357,785
        Less: Exchange rate gain                     22,835
    Adjusted Unilin segment net sales              $334,950

    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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