EX-99.1 2 press2q06.htm or Release:

 Exhibit 99.1

For Release:              Immediately
Contact:                      Frank H. Boykin, Chief Financial Officer

 

MOHAWK INDUSTRIES, INC. ANNOUNCES 

SECOND QUARTER EARNINGS

 

 

Calhoun, Georgia, July 27, 2006 - Mohawk Industries, Inc. (NYSE:MHK) today announced 2006 second quarter net earnings of $119,513,000 (22% above last year) and diluted earnings per share (EPS) of $1.76 (21% above last year), in accordance with U.S. Generally Accepted Accounting Principles (GAAP).  Adjusted net earnings for the second quarter of 2006 were $117,714,000 and adjusted EPS were $1.73 per share.  The adjusted net earnings exclude a stock option charge that was not required in 2005 increasing net earnings $2,104,000 and exclude income for a portion of a one-time refund received from U.S. Customs decreasing net earnings by $3,903,000.  Net sales for the quarter were $2,058,123,000, an increase of 27% from 2005.  The growth resulted from the Unilin acquisition, total hard surface sales growth, internal growth, price increases and new patent licenses.   Mohawk changed its method of accounting for soft surface inventories from LIFO to FIFO during the second quarter of 2006.  If Mohawk had continued on LIFO, then net earnings for the second quarter would have been slightly higher.  All prior period amounts have been revised to reflect this change.    

For the first half of 2006, net earnings were $198,634,000 (16% above last year) and EPS was $2.92 (15% above last year), in accordance with U.S. GAAP.  Adjusted net earnings for the first half of 2006 were $198,577,000 and adjusted EPS was $2.92 per share.  The adjusted net earnings exclude a stock option charge that was not required in 2005 increasing net earnings by $3,846,000 and exclude income for a portion of a one-time refund received from U.S. Customs decreasing net earnings by $3,903,000.  The change of accounting from LIFO to FIFO improved first quarter 2006 net earnings by $8,001,000.  Net sales for the first half of 2006 were $3,983,229,000, representing a 28% increase over 2005.   This increase is attributable to the Unilin acquisition, strong hard surface sales growth, internal growth, price increases and new patent licenses.  


In commenting on the quarter results, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "I am pleased with our second quarter performance, especially in light of the economic and industry factors we are facing.  Hard surface growth and higher selling prices positively affected our sales while replacement demand for carpet remains slow.  The change from LIFO to FIFO inventory accounting removes some uncertainty in predicting future results.  Our Unilin integration is progressing as planned.  We expect to benefit from the many capital projects recently completed and the introduction of Mohawk-branded laminate in the future.

The Mohawk segment grew sales by 5% with margins improving from the first quarter.  In the second quarter, carpet raw material costs remained relatively flat, and our suppliers announced increases in July.  In August, Mohawk is implementing selling price increases to recover these cost changes.  Industry sales improved from the first quarter but were still behind last year in units.  Sales trends continued with the commercial channel and residential construction channel performing better than the residential replacement channel.   While the economy continues to grow with employment at relatively high levels, the higher gasoline and energy costs appear to be impacting consumer behavior.  We incurred greater marketing expenses as a result of a higher level of product introductions due to carpet raw material changes and the new laminate introductions.  Our expansion of the South Carolina fiber and yarn manufacturing is complete and running as planned.  Overall, quality has improved in carpet manufacturing and our Six Sigma program continues to expand with many cost reduction projects across our business.

Our Dal-Tile segment second quarter sales were strong as revenues grew 15% over 2005 from both volume and price increases.  We had higher than normal product introductions, absorbed start-up costs in the Oklahoma ceramic facility, and had higher energy and transportation costs.  The Mexican ceramic expansion was completed in the first quarter of the year and is running as planned.  The Oklahoma expansion started production at the end of the second quarter.  These capacity expansions will support our expected future growth and allow us to produce a greater portion of our sales requirements.

The Unilin segment greatly improved margins from the previous quarter.  This improvement was attributable to seasonally higher sales in Europe, better product mix and new patent licenses.  Laminate sales in Europe were up and sales to our U.S. distributors were down as we had anticipated.  Our U.S. distributors were able to substantially reduce their inventories because we now supply them from our U.S. factory instead of Europe. Our U.S. distributors reported that sales of our product to their customers were up versus the prior year.  Our U.S. laminate sales should return to a more normalized level in the third quarter.  The initial launch of Unilin products through the Mohawk channel has received favorable retailer reception.  There will be additional laminate product introductions through the year. 

We are managing our balance sheet with the debt to capitalization ratio improving to 48% after paying down $161 million of debt during the second quarter.  The organization has many initiatives focused on improving inventory turns and working capital management.

We received a favorable ruling from the U.S. Supreme Court which vacated the lower court's prior ruling on the pending class action suit that alleged the Company suppressed wages by hiring illegal aliens.  The Supreme Court ruled on another case, which may have a positive bearing on ours.  We expect it to take six to twelve months for the lower court to reconsider the case.  We remain confident in our position and believe the allegations are unfounded."

We expect the Mohawk segment to realize benefit from earlier price increases and capital investments offset by continued weakness in the residential carpet business and rising material costs.  Dal-Tile investments in sales and marketing should support future growth in market share.  Unilin results will be more normalized in the third quarter as they move into the European vacation period when plant maintenance is performed.  After considering these factors, the third quarter earnings forecast is from $1.76 to $1.85 EPS.  This guidance does not include any future refunds from U.S. Customs.

There continues to be uncertainty in consumer demand, oil prices, interest rates and the flooring industry.  Most economists are predicting slower GDP growth.  We will manage our business through this environment as we have done in the past.  Due to this uncertainty, we are approaching the end of the year cautiously.

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 "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, July 28, 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 Tuesday, August 1, 2006  by dialing 1-800-642-1687

for US/local calls and (706) 645-9291 for international calls and entering Conference ID # 2073625.


MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

Consolidated Statement of Earnings Data

Three Months Ended

 

Six Months Ended

(Amounts in thousands, except per share data)

July 1, 2006

July 2, 2005

 

July 1, 2006

July 2, 2005

 

 

 

 

 

 

Net sales

 $

2,058,123 

1,624,692 

3,983,229 

3,117,914 

Cost of sales

1,465,745 

1,186,527 

2,874,507 

2,289,380 

    Gross profit

592,378 

438,165 

1,108,722 

828,534 

Selling, general and administrative expenses

369,333 

271,020 

721,776 

532,092 

    Operating income

223,045 

167,145 

386,946 

296,442 

Interest expense

46,123 

12,515 

86,458 

24,391 

Other (income) expense, net

3,598 

922 

6,325 

2,926 

U.S. Customs refund, net

(6,232)

- 

(6,232)

- 

    Earnings before income taxes

179,556 

153,708 

300,395 

269,125 

Income taxes

60,043 

55,628 

101,761 

97,383 

    Net earnings

 $

119,513 

98,080 

198,634 

171,742 

Basic earnings per share

 $

1.77 

1.47 

2.94 

2.57 

Weighted-average shares outstanding

67,693 

66,811 

67,629 

66,807 

Diluted earnings per share

 $

1.76 

1.45 

2.92 

2.54 

Weighted-average common and dilutive

potential common shares outstanding

68,067 

67,504 

68,073 

67,598 

Other Financial Information

 

(Amounts in thousands)

 

Net cash provided by operating activities

 $

238,181 

104,079 

342,707 

154,780 

Depreciation & amortization

 $

69,781 

31,497 

134,634 

63,762 

Capital expenditures

 $

37,027 

64,832 

82,659 

99,353 

Consolidated Balance Sheet Data

 

(Amounts in thousands)

 

July 1, 2006

July 2, 2005

ASSETS

 

 

 

 

 

 

 

Current assets:

    Cash

 $

73,398 

- 

    Receivables

987,626 

775,992 

    Inventories

1,283,931 

1,140,870 

    Prepaid expenses

134,087 

49,125 

    Deferred income taxes

41,427 

55,311 

        Total current assets

2,520,469 

2,021,298 

Property, plant and equipment, net

1,904,803 

973,627 

Goodwill

2,691,910 

1,377,349 

Intangibles

1,196,310 

320,645 

Other assets

34,319 

13,055 

 $

8,347,811 

4,705,974 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

Current portion of long-term debt

 $

530,626 

183,835 

Accounts payable and accrued expenses

1,146,904 

757,813 

        Total current liabilities

1,677,530 

941,648 

Long-term debt, less current portion

2,596,412 

700,000 

Deferred income taxes and other long-term liabilities

654,332 

226,883 

        Total liabilities

4,928,274 

1,868,531 

Total stockholders' equity

3,419,537 

2,837,443 

 $

8,347,811 

4,705,974 


Segment Information

As of or for the Three Months Ended

 

As of or for the Six Months Ended

(Amounts in thousands)

July 1, 2006

July 2, 2005

 

July 1, 2006

July 2, 2005

Net sales:

    Mohawk

 $

1,241,992 

1,184,914 

2,392,538 

2,276,260 

    Dal-Tile

506,914 

439,778 

980,824 

841,654 

    Unilin

313,765 

- 

616,395 

- 

    Intersegment eliminations

(4,548)

- 

(6,528)

- 

        Consolidated net sales

 $

2,058,123 

1,624,692 

3,983,229 

3,117,914 

Operating income:

    Mohawk

 $

98,993 

102,399 

164,606 

173,691 

    Dal-Tile

74,042 

69,291 

143,644 

127,761 

    Unilin

59,657 

- 

99,676 

- 

    Corporate and intersegment eliminations

(9,647)

(4,545)

(20,980)

(5,010)

        Consolidated operating income

 $

223,045 

167,145 

386,946 

296,442 

Assets:

    Mohawk

 $

2,622,196 

2,508,066 

    Dal-Tile

2,270,910 

2,147,812 

    Unilin

3,353,389 

- 

    Corporate and eliminations

101,316 

50,096 

        Consolidated assets

 $

8,347,811 

4,705,974 


Reconciliation of reported net earnings to adjusted net earnings

 

Three Months Ended

 

Six Months Ended

(Amounts in thousands, except per share data)

 

July 1, 2006

 

July 1, 2006

 

 

    Net earnings reported

 $

119,513 

198,634 

Adjustments:

Stock option expense, net of taxes of $1,255

  and $2,263, respectively

2,104 

3,846 

U.S. Customs refund, net of taxes of $2,329

(3,903)

(3,903)

 $

117,714 

198,577 

Adjusted net earnings per common share (basic)

 $

1.74 

2.94 

Adjusted net earnings per common share (diluted)

 $

1.73 

2.92 

   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.