Mohawk Industries, Inc. Announces Third Quarter Earnings

CALHOUN, Georgia, October 18 /PRNewswire/ --

Mohawk Industries, Inc. (NYSE: MHK) today announced 2007 third quarter net earnings of US$122 million and diluted earnings per share (EPS) of US$1.78 (both 5% below last year). Net earnings and EPS include a charge of US$14.2 million before tax (US$0.13 per share) related to plant closings in our Mohawk and Dal-Tile segments. In the third quarter of 2006, net earnings and EPS were US$128 million and US$1.88 per share, respectively, and included a benefit of US$8.8 million before tax (US$0.08 per share) related to a refund from U.S. Customs. New tax strategies were implemented in Europe, which have decreased our ongoing tax rates. Net sales for the quarter were US$1,938 million, a decrease of 4% from 2006. The company generated cash flow from operations of US$287 million. In addition, debt of US$53 million was paid down improving the Company's debt to capital ratio to 37%.

For the first nine months of 2007, net earnings were US$328 million and EPS was US$4.79 (both flat to last year). Net earnings and EPS include a charge of US$14.2 million before tax (US$0.13 per share) related to the plant closings. Net earnings and EPS were US$326 million and US$4.80 per share, respectively, in the first nine months of 2006 and included a benefit of US$15.1 million before tax (US$0.14 per share) related to a refund from U.S. Customs. Net sales for the first nine months of 2007 were US$5,779 million representing a 4% decrease from 2006. The sales decreases for both the quarter and the year to date are attributable to slowing U.S. residential demand.

In commenting on the third quarter results, Jeffrey S. Lorberbaum, Chairman and CEO, stated: "We again exceeded our expectations in the third quarter in a difficult environment. Our total results have been positively impacted by the broadening of our product portfolio and our expanded geographic participation which has partially offset the cyclical downturn in the U.S. flooring industry. The U.S. residential flooring industry was negatively affected by the slowing economy, tightening credit market, falling housing prices and low consumer confidence. The combination of these factors further reduced the sales of flooring in the residential channel. The European business performed well overall with faster growth in the eastern European and Russian markets. The U.S. commercial channel is operating at a higher level than the residential channel with business investments still at positive levels.

The Mohawk segment sales were down in the third quarter. After pre-tax plant closing costs of US$8.5 million, the operating margins were 7.2% (7.9% excluding closing costs). The segment margins are good given the challenging environment. We are completing the implementation of the carpet price increase in a soft market. There remains pressure on our commodity products and a higher level of promotions than normal in the market. We continue to make adjustments in our sales and marketing organizations to control costs and maximize focus on individual channels. We are closely controlling our SG & A costs, manufacturing costs and working capital. In the segment we are closing staple yarn, tufting, and flat weaving assets because of shifts in demand and cost reductions which should benefit future periods.

Dal-Tile sales during the quarter were about flat with last year. After pre-tax plant closing costs of US$5.7 million, the operating margins were 12.7% (13.8% excluding closing costs). We believe we are out performing the industry and have benefited from our significant position in the commercial channel. We are repositioning some of our sales efforts to the commercial and multifamily channels from the residential channels. Dal-Tile introduced higher value products from our new production lines, new exterior stone products and new merchandising and warranties for our ceramic accessories. We are managing our SG & A, manufacturing and distribution costs. We have closed a high cost ceramic plant and moved the production to more efficient facilities.

Unilin had excellent results with sales increasing dramatically and operating margins at 18.8%. The Euro continued to strengthen favorably affecting sales by 7% and operating income by US$4.5 million when compared to last year. Sales were up in all product categories for Unilin. Our sales were strong in the western European market and accelerated in eastern Europe and Russia. Improved demand in our board and roofing products has positively affected revenues and selling prices. We are seeing increases in raw materials and moderating growth in some markets. The U.S. laminate business was also strong as we focus on the value added mid to high end markets using Quick Step, Mohawk, and private label brands. We are growing our business in both the retail and the home center channels. We have signed additional agreements in the period with other companies to license our patented technology.

We completed the purchase of the four wood plants during the period and have started to implement our plans to improve the productivity, costs, and quality through both process changes and new investments. We are moving products Mohawk previously purchased from outside suppliers into these facilities. The plants are operating at a loss, which we estimate will be US$7 - 15 million in the first year. In the third and fourth quarters of 2007, we will have non-cash purchase accounting charges aggregating approximately US$2 million. We anticipate the operational results will be accretive in the second year.

The company continues to do well and generate significant cash flow. Since our purchase of Unilin in November 2005, we have paid US$1 billion of debt and our debt to capital ratio improved from 55% to 37%. Mohawk is well positioned to take advantage of any opportunities which may arise as we move through this cycle."

In the fourth quarter the slowing housing and tightening credit markets are forecast to continue to negatively impact the residential sector. We expect lower production levels and increased promotional activity in the U.S. with more difficult comparisons to last year in our Unilin business. We are managing the controllable elements of our business while adapting to the industry dynamics. Based on these factors our estimate for the fourth quarter of 2007 is US$1.47 to US$1.56 EPS. At this point we anticipate next year's results in the U.S. will be the inverse of this year with a soft environment at the beginning and improvement in the second half. The European market is expected to do well with some moderation of growth in 2008. We expect our business to perform well in this challenging environment.

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 Friday, October 19, 2007 at 11:00 AM Eastern Time.

The telephone number to call is [phone] for US/Canada and [phone] for International/Local.

A conference call replay will also be available until November 16, 2007 by dialing [phone] for US/local calls and [phone] for International/Local calls and entering Conference ID # 17863604.

(All amounts in US dollars unless otherwise noted.) MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statement of Earnings Data Three Months Ended Nine Months Ended (Amounts in thousands, September September September September except per share data) 29, 2007 30, 2006 29, 2007 30, 2006 Net sales $1,937,677 2,024,019 5,778,750 6,007,248 Cost of sales 1,392,294 1,455,508 4,153,229 4,330,015 Gross profit 545,383 568,511 1,625,521 1,677,233 Selling, general and administrative expenses 344,569 345,771 1,055,882 1,067,547 Operating income 200,814 222,740 569,639 609,686 Interest expense 37,518 44,655 118,235 131,113 Other (income) expense, net (799) 55 677 6,380 U.S. Customs refund - (8,834) (9,154) (15,066) Earnings before income taxes 164,095 186,864 459,881 487,259 Income taxes 42,041 59,156 132,181 160,917 Net earnings $122,054 127,708 327,700 326,342 Basic earnings per share $1.79 1.89 4.81 4.82 Weighted-average shares outstanding 68,281 67,704 68,118 67,654 Diluted earnings per share $1.78 1.88 4.79 4.80 Weighted-average common and dilutive potential common shares outstanding 68,597 68,021 68,461 68,056 Other Financial Information (Amounts in thousands) Net cash provided by operating activities $287,385 203,534 601,837 546,241 Depreciation & amortization $75,636 68,040 224,864 202,674 Capital expenditures $37,448 41,389 97,832 124,048 Consolidated Balance Sheet Data (Amounts in thousands) September September 29, 2007 30, 2006 ASSETS Current assets: Cash & cash equivalents $81,664 69,730 Receivables 958,947 958,416 Inventories 1,297,605 1,275,435 Prepaid expenses 111,494 126,895 Deferred income taxes 157,665 55,128 Total current assets 2,607,375 2,485,604 Property, plant and equipment, net 1,936,598 1,869,273 Goodwill 2,784,760 2,685,092 Intangible assets 1,171,465 1,168,739 Other assets 26,972 25,933 $8,527,170 8,234,641 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $337,351 509,151 Accounts payable and accrued expenses 1,022,114 1,124,974 Total current liabilities 1,359,465 1,634,125 Long-term debt, less current portion 2,126,936 2,438,732 Deferred income taxes and other long-term liabilities 793,037 631,283 Total liabilities 4,279,438 4,704,140 Total stockholders' equity 4,247,732 3,530,501 $8,527,170 8,234,641 Segment Information As of or for the Three As of or for the Nine Months Ended Months Ended (Amounts in thousands) September September September September 29, 2007 30, 2006 29, 2007 30, 2006 Net sales: Mohawk $1,076,745 1,233,833 3,237,818 3,626,371 Dal-Tile 497,420 501,241 1,469,568 1,482,065 Unilin 378,446 292,924 1,094,073 909,319 Corporate and eliminations (14,934) (3,979) (22,709) (10,507) Consolidated net sales $1,937,677 2,024,019 5,778,750 6,007,248 Operating income: Mohawk $77,002 110,505 185,177 275,111 Dal-Tile 63,109 69,642 196,857 213,286 Unilin 71,034 49,748 213,270 149,424 Corporate and eliminations (10,331) (7,155) (25,665) (28,135) Consolidated operating income $200,814 222,740 569,639 609,686 Assets: Mohawk $2,391,392 2,597,805 Dal-Tile 2,298,695 2,294,118 Unilin 3,613,857 3,239,804 Corporate and eliminations 223,226 102,914 Consolidated assets $8,527,170 8,234,641 Reconciliation of Free cash flow per share and Debt to capital percentage. For the trailing Twelve Months Ended (Amounts in thousands, except per September 29, 2007 share amounts) Free cash flow reconciliation: Cash flow from operations $837,641 Less: Additions of property, plant and equipment (139,553) Free cash flow $698,088 Weighted average shares - dilutive - trailing four quarters 68,361 Diluted free cash flow per share $10.21 As of September 29, 2007 Outstanding Debt (a) $2,464,287 Total stockholders' equity 4,247,732 Total capital (b) $6,712,019 Debt to capital percentage (a)/(b) 37% 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