MHK Mohawk Industries Inc

CALHOUN, Ga., Oct. 26 /PRNewswire-FirstCall/ -- Mohawk Industries, Inc. (NYSE:MHK) today announced 2006 third quarter net earnings of $127,708,000 and diluted earnings per share (EPS) of $1.88 (both 10% above last year), in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Adjusted net earnings for the third quarter of 2006 were $123,948,000 and adjusted EPS were $1.82 per share. The adjusted net earnings exclude a stock option charge that was not required in 2005 increasing net earnings by $1,855,000 and exclude a partially-paid refund from U.S. Customs decreasing net earnings by $5,615,000. Net sales for the quarter were $2,024,019,000 an increase of 19% from 2005. The sales growth resulted from the Unilin acquisition, hard surface sales growth, and price increases. For the first nine months of 2006, net earnings were $326,342,000 (14% above last year) and EPS were $4.80 (13% above last year), in accordance with U.S. GAAP. Adjusted net earnings for the first nine months of 2006 were $322,525,000 and adjusted EPS were $4.74 per share. The adjusted net earnings exclude a stock option charge that was not required in 2005 increasing net earnings by $5,701,000 and exclude a partially-paid refund from U.S. Customs decreasing net earnings by $9,518,000. This increase is attributable to the Unilin acquisition, strong hard surface sales growth and price increases. In commenting on the quarter results, Jeffrey S. Lorberbaum, Chairman and CEO, stated: "I am pleased with our results for the quarter in light of the current business environment. With 19% sales growth, higher gross margins and a 10% improvement in EPS over last year, our third quarter was positive. Our business is better balanced to minimize the impact of changing economic and industry cycles than in the past. The diversification of our product offering with a full line of soft and hard products, participation in all sales channels of residential and commercial, and our broader geographic exposure in Europe improve our position. During the quarter the slowing U.S. economy impacted our business. Both residential replacement and new residential construction weakened through the quarter and the commercial business continued positive trends. Raw material costs increased in the third quarter and remained high even though oil costs declined. A stronger European economy and improved U.S. laminate sales have benefited our business. We see weaker industry demand levels with the postponement of new home purchases and redecorating projects in the near term. Recent changes in gasoline prices have positively affected consumers and some retail categories. This could improve large discretionary purchases and positively affect retail flooring sales. Interest rates should remain favorable, consumer confidence should recover, and the industry demand for flooring should improve in the long term. The Mohawk segment sales results were disappointing as industry sales slowed substantially. Sales declined 1% with margins impacted by higher costs and lower volumes. We began implementing a price increase to offset higher raw material costs during the quarter. Both new and replacement residential carpet declined significantly from the prior year with commercial carpet continuing to grow. As all levels of the industry try to stimulate consumer purchases, we see more promotional activity. With the lower sales levels, cost reduction plans are being implemented to reduce manufacturing labor, SG&A and other discretionary spending. Production schedules have been reduced to reflect lower demand and control inventory levels. We could see improvement in our raw material costs if the worldwide demand for commodity chemicals doesn't impact prices and lower oil prices continue. During the third quarter, we closed a staple yarn facility incurring $500,000 of costs related to the closing. We will continue to review the business and adjust to the changing environment. Our Dal-Tile segment sales had solid performance growing 11% during the quarter. Even with slowing industry growth, we anticipate increasing our share due to prior investments in sales, product, and distribution. Our margins were impacted by the start up expenses of our Oklahoma expansion and increased transportation costs. We anticipate transportation costs improving as gasoline costs decline. The start up phase of the Oklahoma facility is complete and the plant is expected to be operating near capacity by year-end. Our ceramic business is well positioned to grow faster than the industry. The Unilin segment results were strong for the third quarter with good sales growth in the European laminate business. We also saw the U.S. laminate sales improve through the quarter as our U.S. distributors completed their inventory adjustments and purchased product more in line with their current sales. Our launch of the Mohawk laminate products continues on track and the first phase is complete. The third quarter margins were higher due to better laminate product mix, improvement in the U.S. distributor business, improved board pricing and productivity, and control of discretionary spending. We have been pleased with Unilin's performance since the acquisition was completed. We are managing our balance sheet with the debt to capitalization ratio improving to 46% after paying down $168 million of debt during the third quarter. We have many initiatives focused on improving efficiency, inventory turns, and working capital management. During the quarter, the lawsuit filed against us in 2004 that alleges Mohawk hired undocumented workers to suppress wages was reviewed by the 11th Circuit Court. After reconsidering the case, the Court refused to dismiss the RICO claims against Mohawk. Mohawk will appeal the decision and will continue to vigorously defend itself against this claim." The Company is anticipating continued slow sales in the fourth quarter that will result in unabsorbed overhead costs and impact our margin dollars. We are reducing our manufacturing, administration, and marketing expenses. Our carpet margins will also be affected by the lag between cost and selling price changes. Unilin margins will decrease to a more sustainable rate. Based on these factors, our earnings guidance for the fourth quarter of 2006 is from $1.51 to $1.60 EPS. This guidance does not include the expected closing of higher cost ceramic production at an estimated cost of $6,000,000 or the anticipated additional refunds from U.S. customs. Certain of the statements in the immediately preceding paragraphs, particularly anticipating future performance, business prospects, growth and operating strategies, proposed acquisitions, and similar matters, and those that include the words "could," "should," "believes," "anticipates," "forecasts," "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 prices; timing and level of capital expenditures; integration of acquisitions; introduction of new products; 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, rugs and other home products. 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 27, 2006 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. A conference call replay will also be available until November 3, 2006 by dialing 1-800-642-1687 for US/local calls and 1-706-645-9291 for international calls and entering Conference ID # 8008744. MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statement of Earnings Data Three Months Ended Nine Months Ended (Amounts in thousands, Sept. 30, Oct. 1, Sept. 30, Oct. 1, except per share data) 2006 2005 2006 2005 Net sales $2,024,019 1,697,634 6,007,248 4,815,548 Cost of sales 1,455,508 1,234,680 4,330,015 3,524,060 Gross profit 568,511 462,954 1,677,233 1,291,488 Selling, general and administrative expenses 345,771 274,052 1,067,547 806,144 Operating income 222,740 188,902 609,686 485,344 Interest expense 44,655 10,775 131,113 35,166 Other (income) expense, net 55 (400) 6,380 2,526 U.S. Customs refund, net (8,834) - (15,066) - Earnings before income taxes 186,864 178,527 487,259 447,652 Income taxes 59,156 62,764 160,917 160,147 Net earnings $127,708 115,763 326,342 287,505 Basic earnings per share $1.89 1.73 4.82 4.30 Weighted-average shares outstanding 67,704 66,865 67,654 66,827 Diluted earnings per share $1.88 1.71 4.80 4.26 Weighted-average common and dilutive potential common shares outstanding 68,021 67,519 68,056 67,572 Other Financial Information (Amounts in thousands) Net cash provided by operating activities $203,534 173,253 546,241 328,033 Depreciation & amortization $68,040 31,138 202,674 94,900 Capital expenditures $41,389 51,448 124,048 150,801 Consolidated Balance Sheet Data (Amounts in thousands) Sept. 30, 2006 Oct. 1, 2005 ASSETS Current assets: Cash $69,730 - Receivables 958,416 811,628 Inventories 1,275,435 1,116,781 Prepaid expenses 126,895 44,160 Deferred income taxes 55,128 55,311 Total current assets 2,485,604 2,027,880 Property, plant and equipment, net 1,869,273 995,205 Goodwill 2,685,092 1,378,849 Intangibles 1,168,739 319,644 Other assets 25,933 13,007 $8,234,641 4,734,585 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $509,151 68,679 Accounts payable and accrued expenses 1,124,974 776,199 Total current liabilities 1,634,125 844,878 Long-term debt, less current portion 2,438,732 700,000 Deferred income taxes and other long- term liabilities 631,283 230,748 Total liabilities 4,704,140 1,775,626 Total stockholders' equity 3,530,501 2,958,959 $8,234,641 4,734,585 As of or for the As of or for the Segment Information Three Months Ended Nine Months Ended Sept 30, Oct. 1, Sept. 30, Oct. 1, (Amounts in thousands) 2006 2005 2006 2005 Net sales: Mohawk $1,233,833 1,248,216 3,626,371 3,524,477 Dal-Tile 501,241 449,418 1,482,065 1,291,071 Unilin 292,924 - 909,319 - Intersegment eliminations (3,979) - (10,507) - Consolidated net sales $2,024,019 1,697,634 6,007,248 4,815,548 Operating income: Mohawk $110,505 121,940 275,111 295,631 Dal-Tile 69,642 69,137 213,286 196,898 Unilin 49,748 - 149,424 - Corporate and intersegment eliminations (7,155) (2,175) (28,135) (7,185) Consolidated operating income $222,740 188,902 609,686 485,344 Assets: Mohawk $2,597,805 2,509,552 Dal-Tile 2,294,118 2,174,055 Unilin 3,239,804 - Corporate and eliminations 102,914 50,978 Consolidated assets $8,234,641 4,734,585 Reconciliation of reported net earnings to adjusted net earnings Three Months Nine Months (Amounts in thousands, except per Ended Ended share data) Sept. 30, 2006 Sept. 30, 2006 Net earnings reported $127,708 326,342 Adjustments: Stock option expense, net of taxes of $1,064 and $3,327, respectively 1,855 5,701 U.S. Customs refund, net of taxes of $3,219 and $5,548, respectively (5,615) (9,518) $123,948 322,525 Adjusted net earnings per common share (basic) $1.83 4.77 Adjusted net earnings per common share (diluted) $1.82 4.74 The Company believes it is useful for itself and investors to review, as applicable, both GAAP information that includes the stock compensation impact of SFAS 123R and the U.S. Customs refund, and the non-GAAP measure that excludes such information in order to assess the performance of the Company's business for planning and forecasting in subsequent periods. DATASOURCE: Mohawk Industries, Inc. CONTACT: Frank H. Boykin, Chief Financial Officer of Mohawk Industries, Inc., +1-706-624-2695 Web site: http://www.mohawkind.com/

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