CALHOUN, Georgia, October 26 /PRNewswire/ --
Mohawk Industries, Inc. (NYSE: MHK) today announced 2006 third quarter net
earnings of US$127,708,000 and diluted earnings per share (EPS) of US$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
US$123,948,000 and adjusted EPS were US$1.82 per share. The adjusted net
earnings exclude a stock option charge that was not required in 2005 increasing
net earnings by US$1,855,000 and exclude a partially-paid refund from U.S.
Customs decreasing net earnings by US$5,615,000. Net sales for the quarter were
US$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 US$326,342,000 (14%
above last year) and EPS were US$4.80 (13% above last year), in accordance with
U.S. GAAP. Adjusted net earnings for the first nine months of 2006 were
US$322,525,000 and adjusted EPS were US$4.74 per share. The adjusted net
earnings exclude a stock option charge that was not required in 2005 increasing
net earnings by US$5,701,000 and exclude a partially-paid refund from U.S.
Customs decreasing net earnings by US$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 US$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 US$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 US$1.51 to US$1.60
EPS. This guidance does not include the expected closing of higher cost ceramic
production at an estimated cost of US$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
(All figures in US dollars)
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.
