-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DQB2UEea4AVY8QnYFi3dRaoQqYIaB0VIgjKvo8Y83+S/L6pfBbsebsfbPrmSFSHu DIu65fNBqMml9Osq/QXOwg== 0000931763-98-001160.txt : 19980504 0000931763-98-001160.hdr.sgml : 19980504 ACCESSION NUMBER: 0000931763-98-001160 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980501 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOHAWK INDUSTRIES INC CENTRAL INDEX KEY: 0000851968 STANDARD INDUSTRIAL CLASSIFICATION: CARPETS AND RUGS [2273] IRS NUMBER: 521604305 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13697 FILM NUMBER: 98607681 BUSINESS ADDRESS: STREET 1: 160 S INDUSTRIAL BLVD STREET 2: PO BOX 12069 CITY: CALHOUN STATE: GA ZIP: 30701 BUSINESS PHONE: 7066297721 MAIL ADDRESS: STREET 1: P O BOX 12069 CITY: CALHOUN STATE: GA ZIP: 30703 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [Mark One] [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 28, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 01-19826 MOHAWK INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 52-1604305 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) Post Office Box 12069, 160 South Industrial Boulevard, 30703 Calhoun, Georgia (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (706) 629-7721 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ------ ------ The number of shares outstanding of the issuer's classes of capital stock as of April 27, 1998, the latest practicable date, is as follows: 52,321,459 shares of Common Stock, $.01 par value. MOHAWK INDUSTRIES, INC. INDEX Page No. -------- Part I. Financial Information: Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 28, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Earnings - Three months ended March 28, 1998 and March 29, 1997 5 Condensed Consolidated Statements of Cash Flows - Three months ended March 28, 1998 and March 29, 1997 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 Part II. Other Information 10 2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (In thousands) (Unaudited)
March 28, 1998 December 31, 1997 -------------- ----------------- Current assets: Receivables $ 268,160 238,579 Inventories 316,688 291,306 Prepaid expenses 9,198 15,192 Deferred income taxes 27,670 28,192 ---------- ------- Total current assets 621,716 573,269 ---------- ------- Property, plant and equipment, at cost 591,329 580,764 Less accumulated depreciation and amortization 276,484 260,946 ---------- ------- Net property, plant and equipment 314,845 319,818 ---------- ------- Other assets 67,398 67,868 ---------- ------- Total assets $1,003,959 960,955 ========== =======
See accompanying notes to condensed consolidated financial statements. 3 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED LIABILITIES AND STOCKHOLDERS' EQUITY (In thousands, except per share data) (Unaudited) March 28, 1998 December 31, 1997 ------------------ ----------------- Current liabilities: Current portion of long-term debt $ 35,959 35,959 Accounts payable and accrued expenses 266,050 227,161 ------------------ --------------- Total current liabilities 302,009 263,120 Deferred income taxes 28,391 28,391 Long-term debt 245,234 257,238 Other long-term liabilities 5,849 6,291 ------------------ --------------- Total liabilities 581,483 555,040 ------------------ --------------- Stockholders' equity: Preferred stock, $.01 par value; 60 shares authorized; no shares issued Common stock, $.01 par value; 75,000 shares authorized; 52,293 and 52,167 shares issued in 1998 and 1997, respectively 523 522 Additional paid-in capital 137,892 136,069 Retained earnings 284,061 269,324 ------------------ --------------- Total stockholders' equity 422,476 405,915 ------------------ --------------- Total liabilities and stockholders' equity $ 1,003,959 960,955 ================== =============== See accompanying notes to condensed consolidated financial statements. 4 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) (Unaudited) Three Months Ended ----------------------------------- March 28, 1998 March 29, 1997 ---------------- ---------------- Net sales $ 459,755 409,289 Cost of sales 354,850 319,542 ---------------- --------------- Gross profit 104,905 89,747 Selling, general and administrative expenses 74,819 67,839 ---------------- ---------------- Operating income 30,086 21,908 ---------------- ---------------- Other expense: Interest expense 5,632 7,396 Other expense, net 96 387 ---------------- --------------- 5,728 7,783 ---------------- --------------- Earnings before income taxes 24,358 14,125 Income taxes 9,621 5,578 ---------------- --------------- Net earnings $ 14,737 8,547 ================ =============== Basic earnings per share $ 0.28 0.17 ================ =============== Weighted-average common shares outstanding 52,216 51,779 ================ =============== Diluted earnings per share $ 0.28 0.16 ================ =============== Weighted-average common and dilutive potential common shares outstanding 52,927 52,314 ================ =============== See accompanying notes to condensed consolidated financial statements. 5 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended ---------------------------------------- March 28, 1998 March 29, 1997 --------------- -------------- Cash flows from operating activities: Net earnings $ 14,737 8,547 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 15,998 15,074 Provision for doubtful accounts 2,185 1,613 Changes in operating assets and liabilities: Receivables (31,766) (7,785) Inventories (25,382) (36,233) Accounts payable and accrued expenses 38,775 32,531 Other assets and prepaid expenses 6,535 2,927 Other liabilities (442) (175) ---------------- ------------- Net cash provided by operating activities 20,640 16,499 ---------------- ------------- Cash flows used in investing activities: Additions to property, plant and equipment, net (10,574) (6,846) ---------------- ------------- Cash flows from financing activities: Net change in revolving line of credit (12,245) 25,133 Payment of note payable - (21,200) Proceeds from IRBs and other 241 - Change in outstanding checks in excess of cash 114 (14,087) Common stock transactions 1,824 501 Net cash used in financing --------------- ------------ activities (10,066) (9,653) --------------- ------------ Net change in cash - - Cash, beginning of year - - --------------- ------------ Cash, end of period $ - - =============== ------------ Net cash paid during the period for: Interest $ 7,411 8,704 =============== ============ Income taxes $ 4,825 5,770 =============== ============ See accompanying notes to condensed consolidated financial statements. 6 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands) (Unaudited) 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1997 Annual Report filed on Form 10-K, as filed with the Securities and Exchange Commission, which includes consolidated financial statements for the fiscal year ended December 31, 1997. The Company's basic earnings per share are computed by dividing net earnings by the weighted-average common shares outstanding, and diluted earnings per share are computed by dividing net earnings by the weighted-average common and dilutive potential common shares outstanding. Dilutive common stock options are included in the diluted earnings per share calculation using the treasury stock method. The weighted-average common and dilutive potential common shares outstanding have been adjusted for the 3-for-2 stock split approved by the Board of Directors on October 23, 1997 and paid on December 4, 1997 to holders of record on November 4, 1997. Certain prior year financial statement balances have been reclassified to conform with the current year's presentation. 2. Receivables Receivables are as follows: March 28, 1998 December 31, 1997 ------------------ ------------------- Customers, trade $ 303,943 273,636 Other 3,404 956 ----------------- ------------------ 307,347 274,592 Less allowance for discounts, returns, claims and doubtful accounts 39,187 36,013 ----------------- ------------------ Net receivables $ 268,160 238,579 ================= ================== 3. Inventories The components of inventories are as follows: March 28, 1998 December 31, 1997 ----------------- ------------------ Finished goods $ 167,071 154,059 Work in process 50,777 44,579 Raw materials 98,840 92,668 ----------------- ------------------ Total inventories $ 316,688 291,306 ================= ================== 7 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (In thousands) (Unaudited)
4. Other assets Other assets are as follows: March 28, 1998 December 31, 1997 ------------------ -------------------- Goodwill, net of accumulated amortization of $7,449 and $7,077, respectively $ 51,819 52,191 Other assets 15,579 15,677 ------------------ ------------------- Total other assets $ 67,398 67,868 ================= =================== 5. Accounts payable and accrued expenses Accounts payable and accrued expenses are as follows: March 28, 1998 December 31, 1997 ------------------ ------------------- Outstanding checks in excess of cash $ 27,057 26,943 Accounts payable, trade 125,627 102,621 Accrued expenses 73,868 60,667 Accrued compensation 39,498 36,930 ------------------ ------------------ Total accounts payable and accrued expenses $ 266,050 227,161 ================== =================
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Quarter Ended March 28, 1998 As Compared With Quarter Ended March 29, 1997 - -------------------------------------------------------------------------- Net sales for the quarter ended March 28, 1998 were $459.8 million, which represented an increase of 12.3% from the $409.3 million reported for the first quarter of 1997. The first quarter 1998 net sales comparison to the first quarter of 1997 was favorably affected by incremental sales from the acquisition of certain assets of Diamond Rug & Carpet Mills, Inc. Additionally, the sales increase was partially attributable to a gain in market share which the Company believes resulted from continued strong support of its independent dealer base and strong overall acceptance of Mohawk products. Gross profit for the first quarter of the current year was $104.9 million (22.8% of net sales). In the first quarter of 1997, gross profit was $89.7 million (21.9% of net sales). The stronger gross profit percentage in 1998 is the result of manufacturing improvements from restructuring and improved product mix. Selling, general and administrative expenses for the current quarter were $74.8 million (16.3% of net sales) compared to $67.8 million (16.6% of net sales) for the prior year's first period. Interest expense for the current period was $5.6 million compared to $7.4 million in the first quarter of 1997. The primary factor for the decrease was a reduction in debt levels in the first quarter of 1998 as compared to the first quarter of 1997. In the current period, income tax expense was $9.6 million, compared to $5.6 million in the first quarter of 1997, or 39.5% of earnings before income taxes for both periods. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements are for working capital, capital expenditures and acquisitions. The Company's capital needs are met through a combination of internally-generated funds, bank credit lines and credit terms from suppliers. The level of accounts receivable increased from $238.6 million at the beginning of 1998 to $268.2 million at March 28, 1998. The $29.6 million increase resulted primarily from seasonally higher sales volume in the first quarter as compared to December. Inventories rose from $291.3 million at the beginning of 1998 to $316.7 million at March 28, 1998, due to requirements to meet seasonal customer demand. Capital expenditures totaled $10.6 million in the first quarter of 1998 and were incurred primarily to modernize and expand manufacturing facilities and equipment. The Company's capital projects are primarily focused on increasing capacity, improving productivity and reducing costs. Capital spending for the remainder of 1998 is expected to range from $54.0 million to $59.0 million, the majority of which will be used to increase capacity and productivity. IMPACT OF INFLATION Inflation affects the Company's manufacturing costs and operating expenses. The carpet industry has experienced moderate inflation in the prices of certain raw materials and outside processing for the last three years. The Company has generally passed along nylon fiber cost increases to its customers. SEASONALITY The carpet business is seasonal, with the Company's second, third and fourth quarters typically producing higher net sales and operating income. By comparison, results for the first quarter tend to be the weakest. This seasonality is primarily attributable to consumer residential spending patterns and higher installation levels during the spring and summer months. 9 FORWARD-LOOKING INFORMATION Certain of the matters discussed in the preceding pages, particularly regarding anticipating future financial performance, business prospects, growth and operating strategies, proposed acquisitions, new products and similar matters, and those preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "estimates," or similar expressions constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended. 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. Forward- looking statements involve a number of risks and uncertainties. The following important factors, in addition to those discussed elsewhere in this document, affect the future results of Mohawk and could cause those results to differ materially from those expressed in the forward-looking statements: materially adverse changes in economic conditions generally in the carpet, rug and floorcovering markets served by Mohawk; competition from other carpet, rug and floorcovering manufacturers, raw material prices, timing and level of capital expenditures, the successful integration of acquisitions including the challenges inherent in diverting Mohawk's management attention and resources from other strategic matters and from operational matters for an extended period of time, the successful introduction of new products, the successful rationalization of existing operations, and other risks identified from time to time in the Company's SEC reports and public announcements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in routine litigation from time to time in the regular course of its business. Except as noted below, there are no material legal proceedings pending or known to be threatened against the Company or any of its property. In December 1995, the Company and four other carpet manufacturers were added as defendants in a purported class action lawsuit, In re Carpet Antitrust Litigation, pending in the United States District Court for the Northern District of Georgia, Rome Division. The amended complaint alleges price fixing regarding polypropylene products in violation of Section One of the Sherman Act. In September 1997, the Court determined that the plaintiffs met their burden of establishing the requirements for class certification and granted the plaintiffs' motion to certify class action. The Company is a party to two consolidated lawsuits captioned Gaehwiler v. Sunrise Carpet Industries, Inc. et. al. and Patco Enterprises, Inc. v. Sunrise Carpet Industries, Inc. et. al.; both of which were filed in the Superior Court of the State of California, City and County of San Francisco in early 1996. Both complaints were brought on behalf of a purported class of indirect purchasers of carpet in the State of California and seek damages for alleged violations of California antitrust and unfair competition laws. The Company believes both of these lawsuits are without merit and intends to vigorously defend against them. The complaints filed do not specify any amount of damages, but do request for any unlawful conduct to be enjoined and treble damages plus reimbursement for fees and costs. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 10 Item 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS No. DESCRIPTION --- ------------------------------------------------------------------------ 11 Statement re: Computation of Per Share Earnings 27 Financial Data Schedule (B) REPORTS ON FORM 8-K None. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOHAWK INDUSTRIES, INC. Dated: April 29, 1998 By: /s/ David L. Kolb ________________________________________________ DAVID L. KOLB, Chairman of the Board and Chief Executive Officer (principal executive officer) Dated: April 29, 1998 By: /s/ John D. Swift ________________________________________________ JOHN D. SWIFT, Chief Financial Officer, Vice President-Finance and Assistant Secretary (principal financial and accounting officer) 12 EXHIBIT INDEX NO. DESCRIPTION - --- ---------------------------------------------------------------------- 11 Statement re: Computation of Per Share Earnings 27 Financial Data Schedule 13 EX-11 2 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share data) (Unaudited) NOTE: Earnings per share are presented in accordance with Regulation S-K, Item 601(b)(11) and FAS No. 128. All share and per share amounts reflect a 3- for-2 stock split. Three Months Ended ------------------------------- March 28, March 29, 1998 1997 ------------- ------------ Net earnings $ 14,737 8,547 ============= ============ Weighted-average common and dilutive potential common shares outstanding: Weighted-average common 52,216 51,779 shares outstanding Add weighted-average dilutive potential common shares - options to purchase common shares, net 711 535 ------------- ------------ Weighted-average common and dilutive potential common shares outstanding 52,927 52,314 ============= ============ Basic earnings per share $ 0.28 0.17 ============= ============ Diluted earnings per share $ 0.28 0.16 ============= ============ EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOHAWK INDUSTRIES, INC.'S QUARTERLY REPORT TO STOCKHOLDERS FOR THE QUARTER ENDED MARCH 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-28-1998 0 0 307,347 39,187 316,688 621,716 591,329 276,484 1,003,959 302,009 245,234 0 0 523 421,953 1,003,959 459,755 459,755 354,850 354,850 0 2,185 5,632 24,358 9,621 14,737 0 0 0 14,737 0.28 0.28 BASIC EPS AND DILUTED EPS ARE PURSUANT TO FAS NO. 128. ALSO, PER SHARE AMOUNTS REFLECT A 3-FOR-2 STOCK SPLIT EFFECTED DURING THE FOURTH QUARTER OF 1997.
EX-27.2 4 RESTATED FINANCIAL SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOHAWK INDUSTRIES, INC.'S QUARTERLY REPORT TO STOCKHOLDERS FOR THE QUARTER ENDED MARCH 29, 1997. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-29-1997 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.17 0.16 BASIC EPS AND DILUTED EPS ARE PURSUANT TO FAS NO. 128. ALSO, PER SHARE AMOUNTS REFLECT A 3-FOR-2 STOCK SPLIT EFFECTED DURING THE FOURTH QUARTER OF 1997.
-----END PRIVACY-ENHANCED MESSAGE-----