Mohawk Industries, Inc. Announces Second Quarter Earnings

CALHOUN, Georgia, July 21 /PRNewswire/ --

Mohawk Industries, Inc. (NYSE: MHK) today announced 2008 second quarter net earnings of US$89 million and diluted earnings per share (EPS) of US$1.29 (both 23% below last year). In the second quarter of 2007, net earnings and EPS were US$115 million and US$1.68 per share, respectively. Net sales for the quarter were US$1,840 million, a decrease of 7% from 2007. The company generated cash flow from operations of US$267 million. In addition, US$183 million of debt was paid down improving the company's debt to capital ratio to 30%.

For the first six months of 2008, net earnings were US$154 million and EPS was US$2.25 (both 25% below last year). Net earnings and EPS were US$206 million and US$3.01 per share, respectively, in the first six months of 2007. Net sales for the first six months of 2008 were US$3,578 million representing a 7% decrease from 2007. The sales decreases for both the quarter and the year to date are attributable to slowing U.S. residential housing and European demand.

In commenting on the second quarter results, Jeffery S. Lorberbaum, Chairman and CEO stated, "Our results for the second quarter were impacted by the slowing economies in the U.S. and Europe and rapidly increasing commodity costs. Declining new U.S. home construction and residential remodeling, slowing European demand and rising raw material and energy costs have contributed to the flooring industry cyclical decline. The rapidly increasing costs are impacting our margins even as we raise selling prices to offset these costs.

Our management team remains focused on improving our market position, increasing quality, introducing innovative products and providing excellent customer service. The team is relentlessly pursuing cost control, working capital management, and process improvement to manage the cycle. We believe these efforts will better position our company for growth when the market improves.

The Mohawk segment performance is under pressure with sales declining 13% below last year. The commercial and rug products are performing better while the hard surface and the cushion products are declining more than residential carpet. Higher energy, raw material and freight costs are causing dramatic cost inflation. We have announced three carpet price increases since December to offset rising costs. We are increasing our commercial carpet tile offering with new value, performance and stylized options in our brands. We have re-engineered processes and improved manufacturing productivity, quality and yields.

Dal-Tile sales are down 5% during the quarter and are doing well in a very difficult environment. Commercial and Mexican sales growth continue to buffer the impact of the declining U.S. residential industry. In July, we purchased a stone center in North Carolina to continue expanding our national presence. The major factors affecting margins are rapidly rising energy and freight costs along with customers trading down. In the second quarter we have increased product prices and energy surcharges to offset rising costs and more may be required in the future. Many cost initiatives are being executed to improve labor productivity, control expenses and reduce energy consumption. Freight costs are being reduced by utilizing lower cost transportation modes, increasing weight per load and making more direct shipments.

Unilin sales were up 13% over last year and down 7% on a constant exchange rate basis excluding the Columbia acquisition. Sales declines were experienced in the U.S. and much of Western Europe, with Russia and Eastern Europe growing. Sales in the U.K. and Spain were most impacted by the slowing European industry. Oil based material and energy inflation continues to increase the cost of most products. A 5% - 6% price increase has been announced for the U.S. laminate business during the third quarter. The new laminate production in the U.S. will be operating in the third quarter and will reduce our costs on higher end products presently imported from Europe. We have many cost initiatives to reduce energy consumption, modify processes and lower material cost.

The wood operations continue to operate at a loss. New products are being launched in the third quarter to reposition both the Columbia and Mohawk brands in the market. We have made significant improvements in manufacturing processes, reducing labor, improving quality and material yields, but negative overhead absorption is offsetting the progress. We expect our new product strategy will improve our wood sales and product mix."

The third quarter outlook is challenging given the environment. Slow demand with higher material and energy costs will continue to compress our margins. As a result, we are raising product prices and transportation fees on most products. We will adapt our strategy to the changing environment. Based on these factors our guidance for the third quarter of 2008 is US$1.06 to US$1.15. We have many focused initiatives under way to reduce cost, minimize working capital, improve service and bring new products to market. We remain convinced Mohawk will be a stronger company as 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; 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 Tuesday, July 22, 2008 at 11:00 AM Eastern Time.

The telephone number to call is [phone] for US/Canada and [phone] for International/Local. Conference ID # 54459485. A conference call replay will also be available until Monday, July 28, 2008 by dialing [phone] for US/local calls and [phone] for International/Local calls and entering Conference ID # 54459485.

(All amounts in US Dollars unless otherwise specified) MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statement of Earnings Data Three Months Ended Six Months Ended (Amounts in thousands, June 28, June 30, June 28, June 30, except per share data) 2008 2007 2008 2007 Net sales $1,840,045 1,977,210 3,578,142 3,841,073 Cost of sales 1,357,153 1,420,512 2,635,411 2,760,935 Gross profit 482,892 556,698 942,731 1,080,138 Selling, general and administrative expenses 336,829 358,450 672,350 711,313 Operating income 146,063 198,248 270,381 368,825 Interest expense 32,742 39,138 66,509 80,717 Other (income) expense, net 1,650 (2,783) 4,429 1,476 U.S. Customs refund - - - (9,154) Earnings before income taxes 111,671 161,893 199,443 295,786 Income taxes 22,893 46,625 45,275 90,140 Net earnings $88,778 115,268 154,168 205,646 Basic earnings per share $1.30 1.69 2.25 3.02 Weighted-average shares outstanding 68,403 68,167 68,389 68,037 Diluted earnings per share $1.29 1.68 2.25 3.01 Weighted-average common and dilutive potential common shares outstanding 68,617 68,533 68,598 68,394 Other Financial Information (Amounts in thousands) Net cash provided by operating activities $266,871 225,685 186,692 314,452 Depreciation & amortization $75,052 75,382 148,308 149,228 Capital expenditures $49,839 35,428 105,810 60,384 Consolidated Balance Sheet Data (Amounts in thousands) June 28, June 30, 2008 2007 ASSETS Current assets: Cash & cash equivalents $64,038 57,763 Receivables 982,378 998,023 Inventories 1,250,300 1,229,326 Prepaid expenses 131,218 121,625 Deferred income taxes 138,332 173,252 Total current assets 2,566,266 2,579,989 Property, plant and equipment, net 2,018,813 1,858,282 Goodwill 2,876,724 2,719,724 Intangible assets 1,190,157 1,153,761 Deferred income taxes and other assets 307,572 27,972 $8,959,532 8,339,728 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $290,392 364,114 Accounts payable and accrued expenses 965,743 1,061,157 Total current liabilities 1,256,135 1,425,271 Long-term debt, less current portion 1,896,642 2,137,349 Deferred income taxes and other long-term liabilities 763,858 768,278 Total liabilities 3,916,635 4,330,898 Total stockholders' equity 5,042,897 4,008,830 $8,959,532 8,339,728 Segment Information As of or for the Three As of or for the Six Months Ended Months Ended (Amounts in thousands) June 28, June 30, June 28, June 30, 2008 2007 2008 2007 Net sales: Mohawk $968,426 1,113,412 1,873,470 2,161,073 Dal-Tile 481,511 505,187 930,562 972,148 Unilin 411,525 363,531 815,280 715,627 Corporate and eliminations (21,417) (4,920) (41,170) (7,775) Consolidated net sales $1,840,045 1,977,210 3,578,142 3,841,073 Operating income: Mohawk $34,593 59,730 56,834 108,175 Dal-Tile 58,169 69,353 115,110 133,748 Unilin 60,121 81,737 110,077 142,236 Corporate and eliminations (6,820) (12,572) (11,640) (15,334) Consolidated operating income $146,063 198,248 270,381 368,825 Assets: Mohawk $2,400,869 2,474,276 Dal-Tile 2,259,255 2,297,745 Unilin 4,109,314 3,337,870 Corporate and eliminations 190,094 229,837 Consolidated assets $8,959,532 8,339,728

Reconciliation of Debt to Capital As of (Amounts in thousands) June 28, 2008 Outstanding Debt (a) $2,187,034 Total stockholders' equity 5,042,897 Total capital (b) $7,229,931 Debt to capital percentage (a)/(b) 30% Reconciliation of Operating Income to EBITDA Trailing Four Three Months Ended Quarters Ended (Amounts in September December March 29, June 28, June 28, thousands) 29, 2007 31, 2007 2008 2008 2008 EBITDA reconciliation: Operating income 200,814 180,467 124,318 146,063 651,662 Other (expense)/ income 799 3 (2,779) (1,650) (3,627) Depreciation and amortization 75,636 81,573 73,256 75,052 305,517 Reconciliation of debt to EBITDA 277,249 262,043 194,795 219,465 (c) 953,552 Reconciliation of Debt to EBITDA Debt to EBITDA (a)/(c) 2.3 Reconciliation of Unilin Segment Net Sales to Adjusted Unilin Segment Net Sales Three Months Ended (Amounts in thousands) June 28, 2008 Unilin segment net sales $411,525 Less: Exchange rate gain 41,000 Adjusted Unilin segment net sales 370,525 Less: Wood acquisition net sales 33,863 Adjusted Unilin segment net sales $336,662

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