Mohawk Industries, Inc. Announces Second Quarter Earnings

CALHOUN, Georgia, July 30 /PRNewswire/ --

Mohawk Industries, Inc. (NYSE: MHK) today announced 2009 second quarter net earnings of US$46 million and diluted earnings per share (EPS) of US$0.67. Operating income for the second quarter was US$75 million. A restructuring charge of US$12 million was recorded in the quarter primarily due to the closure of a European laminate facility. Excluding the restructuring charge, operating income was US$87 million and EPS was US$0.79. In the second quarter of 2008, net earnings and EPS were US$89 million and US$1.29 per share, respectively. Net sales for the quarter were US$1,406 million, a decrease of 24% (22% on a constant exchange rate) from 2008. The company generated cash flow from operations of US$228 million. We strengthened our balance sheet, by generating over US$200 million in free cash flow, paying US$122 million of debt and investing US$26 million in capital expenditures. We ended the period with a balance of over US$225 million in cash. The results benefited from aggressively driving costs down, improving working capital, tighter control over capital expenditures and an intense focus on customers.

For the first six months of 2009, our net loss was US$60 million or a net loss per share of US$0.87. Our operating loss for the first six months was US$71 million. Excluding the year to date charges for carpet tile, FIFO inventory flow through and restructuring, our operating income was US$129 million. In the first six months of 2008, net earnings and EPS were US$154 million and US$2.25 per share, respectively. Net sales for the first six months of 2009 were US$2,614 million representing a 27% decrease from 2008. Sales declined 22% based on a constant exchange rate excluding the first quarter carpet tile charges. The sales decreases for both the quarter and the year to date in the U.S. and Europe are attributable to continuing low home sales, soft business investment and weak consumer discretionary spending.

In commenting on the second quarter results, Jeffery S. Lorberbaum, Chairman and CEO stated, "Our second quarter earnings surpassed our expectations. Our results improved from the first quarter as we benefited from increased sales, lower costs and higher utilization rates. We are transitioning to a leaner, lower cost structure to emerge in a stronger position when the economy recovers."

The Mohawk segment sales were down 21% with the residential decline beginning to stabilize but commercial is expected to continue its contraction. There remains pressure in the commodity categories and product mix has been declining as customers trade down to reduce project costs. After peaking, raw material costs improved and benefited our second quarter results. During the quarter, improved seasonal sales, higher plant utilization and lower costs helped offset the deleveraging of our fixed overhead costs. We continue to cut administrative, manufacturing and logistics costs focusing on productivity, service and quality enhancements.

Dal-Tile sales were down 22% or 21% using a constant exchange rate. Dal-Tile has been impacted greater by the present contraction of the commercial business. Our Mexican business is growing by broadening our product offering and expanding our distribution. Dal-Tile sales and logistics infrastructures differentiate our products and services, however, lower business levels have deleveraged the fixed costs. The Dal-Tile cost structure has been reduced with many initiatives on productivity, quality and product engineering. Our yields have improved, raw material costs decreased, direct labor reduced and controllable unit costs are down.

Unilin sales declined 32% as reported or 24% on a constant exchange rate basis. Even with revenues down substantially, the operating margin was over 15% excluding restructuring costs. Our laminate sales have declined with residential remodeling and home sales. Royalties were impacted by declining industry sales and new licenses. In the second quarter we expensed the closing costs for a European flooring plant to reduce capacity and costs. We are expanding our customer base with our warehouse in Russia in preparation for local manufacturing. Board demand is down in Europe creating excess capacity and compressing prices in the market. The roofing structure sales are softening and selling prices have remained stable. We are reducing our costs by cutting infrastructure, SG&A and headcount while improving productivity. In addition, working capital, maintenance costs and capital expenditures have been reduced. New investments are being made in technology, products and systems to reduce costs and maximize our future.

In the second period, industry conditions were weak and we anticipate the present trends continuing in the third quarter. U.S. residential appears to be stabilizing at a low level with signs of improving home sales which are supported by low mortgage rates. The commercial decline continues and we are adjusting our business to the demand levels. Our carpet raw material costs are expected to increase slightly in the second half. The Unilin results are expected to be lower due to holiday shutdowns, higher period costs and lower royalties. Our third quarter guidance for earnings is US$0.54 to US$0.63 per share. Excluded from this guidance is an estimated restructuring charge of approximately US$25 million, most non-cash, related to infrastructure reductions in manufacturing and distribution. Each of our businesses is managing the balance sheet to maximize our cash position, reducing expenditures and remaining focused on our customers. The investments in our products, systems and organization will make our business stronger and more competitively positioned as the economy improves.

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; claims; 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, July 31, 2009 at 11:00 AM Eastern Time. The telephone number to call is [phone] for US/Canada and [phone] for International/Local. Conference ID # 19457479. A conference call replay will also be available until August 14, 2009 by dialing [phone] for US/local calls and [phone] for International/Local calls and entering Conference ID # 19457479.

(All amounts in US Dollars unless otherwise specified.)

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statement of Operations (Amounts in thousands, except per share data) Three Months Ended Six Months Ended ------------------- ------------------ June 27, June 28, June 27, June 28, 2009 2008 2009 2008 -------- -------- -------- -------- Net sales $1,406,012 1,840,045 2,614,351 3,578,142 Cost of sales 1,038,624 1,357,153 2,093,274 2,635,411 ------------- --------- --------- --------- --------- Gross profit 367,388 482,892 521,077 942,731 Selling, general and administrative expenses 292,710 336,829 592,283 672,350 ------------------------ ------- ------- ------- ------- Operating income (loss) 74,678 146,063 (71,206) 270,381 Interest expense 30,002 32,742 60,186 66,509 Other (income) expense, net (4,622) 1,650 (2,007) 4,429 --------------------------- ------ ----- ------ ----- Earnings (loss) before income taxes 49,298 111,671 (129,385) 199,443 Income tax expense (benefit) 3,037 22,893 (69,759) 45,275 ---------------------------- ----- ------ ------- ------ Net earnings (loss) $46,261 88,778 (59,626) 154,168 ----------------------- ------- ------ ------- ------- Basic earnings (loss) per share $0.68 1.30 (0.87) 2.25 --------------------- ----- ---- ----- ---- Weighted-average common shares outstanding - basic 68,449 68,403 68,441 68,389 --------------------------- ------ ------ ------ ------ Diluted earnings (loss) per share $0.67 1.29 (0.87) 2.25 ----------------------- ----- ---- ----- ---- Weighted-average common shares outstanding - diluted 68,613 68,617 68,441 68,598 ----------------------- ------ ------ ------ ------ Other Financial Information (Amounts in thousands) Net cash provided by operating activities $228,126 266,871 266,045 186,692 --------------------- -------- ------- ------- ------- Depreciation and amortization $77,062 75,052 144,742 148,308 ---------------- ------- ------ ------- ------- Capital expenditures $25,830 49,839 52,923 105,810 -------------------- ------- ------ ------ ------- Consolidated Balance Sheet Data (Amounts in thousands) June 27, June 28, 2009 2008 -------- -------- ASSETS Current assets: Cash and cash equivalents $226,543 64,038 Receivables, net 778,456 982,378 Inventories 936,336 1,250,300 Prepaid expenses 127,866 131,218 Deferred income taxes and other assets 186,572 138,332 ---------------------------- ------- ------- Total current assets 2,255,773 2,566,266 Property, plant and equipment, net 1,864,301 2,018,813 Goodwill 1,399,277 2,876,724 Intangible assets, net 812,190 1,190,157 Deferred income taxes and other assets 24,148 307,572 ----------------------------- ------ ------- $6,355,689 8,959,532 ---------------------- ---------- --------- LIABILITIES AND EQUITY Current liabilities: Current portion of long-term debt $55,335 290,392 Accounts payable and accrued expenses 875,590 965,743 --------------------- ------- ------- Total current liabilities 930,925 1,256,135 Long-term debt, less current portion 1,804,086 1,896,642 Deferred income taxes and other long-term liabilities 490,355 734,150 ---------------------------- ------- ------- Total liabilities 3,225,366 3,886,927 ------------------------- --------- --------- Total equity 3,130,323 5,072,605 ------------ --------- --------- $6,355,689 8,959,532 ---------- ---------

Segment Information (Amounts in thousands) As of or for the As of or for the Three Months Ended Six Months Ended ------------------- ------------------ June 27, June 28, June 27, June 28, 2009 2008 2009 2008 -------- -------- -------- -------- Net sales: Mohawk $767,790 968,426 1,362,121 1,873,470 Dal-Tile 376,704 481,511 735,182 930,562 Unilin 279,715 411,525 548,181 815,280 Corporate and eliminations (18,197) (21,417) (31,133) (41,170) ---------------- ------- ------- ------- ------- Consolidated net sales $1,406,012 1,840,045 2,614,351 3,578,142 ------------------ ---------- --------- --------- --------- Operating income (loss): Mohawk $20,560 34,593 (158,495) 56,834 Dal-Tile 30,331 58,169 51,460 115,110 Unilin 31,141 60,121 45,693 110,077 Corporate and eliminations (7,354) (6,820) (9,864) (11,640) ------------------------ ------ ------ ------ ------- Consolidated operating income (loss) $74,678 146,063 (71,206) 270,381 ---------------------- ------- ------- ------- ------- Assets: Mohawk $1,723,006 2,400,869 Dal-Tile 1,621,409 2,259,255 Unilin 2,646,999 4,109,314 Corporate and eliminations 364,275 190,094 ---------------- ------- ------- Consolidated assets $6,355,689 8,959,532 ------------------------- ---------- ---------

Reconciliation of Operating Income (Loss) to Adjusted Operating Income (Amounts in thousands) Three Months Ended June 27, 2009 -------------------------------------------------- Segment Information Mohawk ------------------------------------- Mohawk Dal-Tile Unilin Corporate Consolidated -------------------------------------------------- Operating income $20,560 30,331 31,141 (7,354) 74,678 Add: Restructuring 605 - 11,455 - 12,060 --- --- ------ --- ------ Adjusted operating income $21,165 30,331 42,596 (7,354) 86,738 ======= ====== ====== ====== ====== Six Months Ended June 27, 2009 ---------------- Operating loss $(71,206) Add: Restructuring 15,960 Add: Commercial Carpet Tile Reserve 122,492 Add: FIFO Inventory 61,794 ------ Adjusted operating income $129,040 ======== Reconciliation of Net Earnings to Adjusted Net Earnings (Amounts in thousands) Three Months Ended June 27, 2009 ------------------ Net earnings $46,261 Add: Restructuring 12,060 Less: Taxes (4,402) ------ Adjusted net earning $53,919 ======= Reconciliation of Net Sales to Adjusted Net Sales (Amounts in thousands) Three Months Ended June 27, 2009 -------------------------------------------------- Segment Information Mohawk ------------------------------------- Mohawk Dal-Tile Unilin Corporate Consolidated -------------------------------------------------- Net sales $767,790 376,704 279,715 (18,197) 1,406,012 Add: Exchange rate - 6,122 31,268 - 37,390 --- ----- ------ --- ------ Adjusted net sales $767,790 382,826 310,983 (18,197) 1,443,402 ======== ======= ======= ======= =========

Six Months Ended June 27, 2009 -------------------------------------------------- Segment Information Mohawk ------------------------------------- Mohawk Dal-Tile Unilin Corporate Consolidated -------------------------------------------------- Net sales $1,362,121 735,182 548,181 (31,133) 2,614,351 Add: Exchange rate - 12,143 60,924 - 73,067 Add: Commercial Carpet Tile Reserve 110,224 - - - 110,224 ------- -- -- -- ------- Adjusted net sales $1,472,345 747,325 609,105 (31,133) 2,797,642 ========== ======= ======= ======= ========= Reconciliation of Gross Profit to Adjusted Gross Profit (Amounts in thousands) Three Months Ended June 27, 2009 ------------ Gross profit $367,388 Add: Restructuring 12,060 ------ Adjusted gross profit $379,448 ======== Reconciliation of Unilin Segment Operating Income to Unilin Segment EBITDA (Amounts in thousands) Three Months Ended ------------- June 27, 2009 ------------- EBITDA reconciliation Operating income $31,141 Add: Restructuring 11,455 Other (expense)/Income 910 Depreciation and amortization 39,441 ------ EBITDA $82,947 ======= Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (Amounts in thousands) Trailing Four Three Months Ended Quarters Ended ----------------------------------------------------- Sept. 27, Dec. 31, March 29, June 27, June 27, 2008 2008 2009 2009 2009 --------- -------- --------- -------- -------- Net cash provided by operating activities $184,837 198,505 37,919 228,126 649,387 Less: Capital expenditures (49,512) (62,502) (27,093) (25,830) (164,937) ------- ------- ------- ------- -------- Free Cash Flow $135,325 136,003 10,826 202,296 484,450 ======== ======= ====== ======= =======

Mohawk Industries, Inc.

Frank H. Boykin, Chief Financial Officer, Mohawk Industries, Inc., [phone]