Mohawk Industries, Inc. Announces Fourth Quarter Earnings

CALHOUN, Ga., Feb. 13 /PRNewswire-FirstCall/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2007 fourth quarter net earnings of $379.1 million and diluted earnings per share (EPS) of $5.53, including a one-time tax benefit. Net earnings and EPS for the quarter, excluding the tax benefit, were $107.5 million and $1.57, respectively. In the fourth quarter of 2006, net earnings and EPS were $129.5 million and $1.90 per share, respectively, and included a pre-tax benefit of $4.4 million ($.04 per share) related to a refund from U.S. Customs. As required under generally accepted accounting principles, a $271.6 million ($3.96 per share) tax benefit to earnings was recorded during the quarter which resulted from an international restructuring. Net sales for the quarter were $1,807.3 million, a decrease of 5% from 2006. Sales were impacted favorably by the Columbia wood flooring acquisition, exchange rates and growth in the Dal-Tile segment which partially offset other sales declines. Cash flow from operations continued strong at $273 million and an additional $189 million of debt was paid during the quarter.

For the year 2007, earnings were $706.8 million and EPS were $10.32, including the $271.6 million one-time tax benefit, a pre-tax benefit of $9.2 million ($.09 per share) related to a refund from U.S. customs and pre-tax charge of $14.2 million ($.13 per share) for plant closing costs. In 2006, net earnings and EPS were $455.8 million and $6.70 per share, respectively, and included a pre-tax benefit of $19.4 million ($.18 per share) related to a refund from U.S. Customs. Net sales for the year were $7,586.0 million, a decrease of 4% from 2006. Sales were favorably impacted by growth in the Unilin segment, exchange rate gains and the acquisition of the Columbia wood flooring business which partially offset other sales declines. For the year Unilin's results improved substantially with operating profit increasing 27%. For the year we had cash flow from operations of $875 million and reduced our debt by $534 million.

In commenting on the fourth quarter and year results, Jeffrey S. Lorberbaum, Chairman and CEO, stated: "During 2007 we endured a difficult U.S. housing market and rising costs, while continuing the growth of our Unilin segment. Our management team in the U.S. handled the many challenges as the flooring market continued its decline. Our three segments are managing this cycle with many initiatives to improve revenues, reduce costs, increase prices, improve productivity, manage working capital and update our product portfolio.

The Mohawk segment has been impacted greater than our other segments with sales down 13% in the quarter and a 7.2% operating margin. The commercial channel outperformed the residential channel and this is expected to continue for the foreseeable future. Raw material costs have escalated and we announced a carpet price increase in December with further adjustments in January based on the changing environment. The announced increase should take four to six months to fully implement. We continue to right size the business by reducing costs. We are implementing many initiatives to improve efficiency and yields which we expect will have a favorable long term impact. Sales focus has been increased in the commercial, multi-family and higher-end residential channels which are expected to outperform other channels. We have discontinued production in our flat woven plant which will reduce sales about $40 million this year.

Our Dal-Tile sales were up 2% in the quarter compared to 2006 with operating margins of 13.2%. Dal-Tile is performing well with growth in the commercial and higher-end residential channels. We are implementing price increases to pass through rising energy, logistics and other costs. Earlier investments in our sales infrastructure have enabled us to outperform the market but are impacting our margins. The Mexican market continues to expand and Dal-Tile is growing our business by focusing on premium ceramic products. During the year we closed a high cost ceramic facility in the U.S. and reduced outside purchases of ceramic to increase utilization of our plants and control inventory levels. We have completed the introduction of a new exterior collection of porcelain and stone tiles. These products extend the interior living areas to the outdoors in both residential and commercial applications.

In the quarter the Unilin segment sales grew by 20% over last year with an operating margin at 15.0%. Without Columbia, Unilin's sales growth was 7% and the operating margin was 18.3%. In the local currency Unilin had a sales decline of 3% without Columbia. The fourth quarter 2007 sales comparison was extremely difficult due to a 34% sales gain in the prior 2006 period. Our European laminate sales grew with the U.S. laminate and other sales declining on a constant exchange rate basis. Unilin is being impacted by the contracting U.S. residential industry along with slowing European building and remodeling sectors. Unilin has experienced cost increases and has implemented price increases in many product categories. Lower industry volumes are also reducing patent revenues. We are adding infrastructure to expand our penetration in Eastern Europe and Russia which are growing faster. The Columbia integration is progressing but volumes are being impacted by the slowing industry. The wood plants are improving productivity, quality and cost. New products are being introduced to replace outside purchased product, to fill in product voids and offer higher styled options. The U.S. management team is in place to execute our strategy and we are finalizing the European wood team to maximize the Malaysian sales.

In the first quarter, the company is expecting the U.S. flooring industry to continue its decline and the European building and remodeling sector to soften. Material costs are rising even though the industry volumes are falling. We have reduced production in the plants in the first quarter due to lower consumer demand and both our customers and Mohawk not building inventories as we have in prior years. With the current industry conditions, we are reducing our infrastructure costs further and increasing prices which will lag the rising costs. Based on these factors, earnings guidance for the first quarter of 2008 is from $.81 to $.90 EPS.

The second quarter earnings are expected to improve and be more in line with last year. We anticipate sales and earnings will benefit from higher seasonal sales rates, increases in selling prices, reduced infrastructure costs and favorable foreign exchange. Postponed flooring purchases by our customers during past cycles have resulted in an industry rebound when the economy improves. 2008 will also benefit from lower intangible asset amortization, interest expense and tax rate. We are focused on managing our business through this cycle.

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; 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 Thursday, February 14, 2008 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 February 21, 2008 by dialing 1-800-642-1687 for US/local calls and 1-706-645-9291 for International/Local calls and entering Conference ID # 30399711.

    MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES    Consolidated Statement     of Earnings Data          Three Months Ended      Twelve Months Ended    (Amounts in thousands, December 31, December 31, December 31, December 31,     except per share data)     2007        2006          2007        2006    Net sales                $1,807,268   1,898,594    7,586,018    7,905,842    Cost of sales             1,318,005   1,344,516    5,471,234    5,674,531      Gross profit              489,263     554,078    2,114,784    2,231,311    Selling, general and     administrative expenses    308,796     324,704    1,364,678    1,392,251      Operating income          180,467     229,374      750,106      839,060    Interest expense             36,234      42,584      154,469      173,697    Other (income) expense,     net                             (3)      2,108          674        8,488    U.S. Customs refund               -      (4,370)      (9,154)     (19,436)      Earnings before income       taxes                    144,236     189,052      604,117      676,311    Income taxes               (234,878)     59,561     (102,697)     220,478      Net earnings             $379,114     129,491      706,814      455,833    Basic earnings per share      $5.55        1.91        10.37         6.74    Weighted-average shares     outstanding                 68,333      67,733       68,172       67,674    Diluted earnings per share    $5.53        1.90        10.32         6.70    Weighted-average common     and dilutive potential     common shares outstanding   68,584      68,058       68,492       68,056    Other Financial Information     (Amounts in thousands)    Net cash provided by     operating activities      $273,240     235,804      875,077      782,045    Depreciation &     amortization               $81,573      72,278      306,437      274,952    Capital expenditures        $65,244      41,721      163,076      165,769    Consolidated Balance Sheet Data    (Amounts in thousands)                                          December 31, 2007 December 31, 2006    ASSETS    Current assets:        Cash & cash equivalents                     $89,604            63,492        Receivables                                 821,113           910,021        Inventories                               1,276,568         1,225,874        Prepaid expenses                            123,395           114,088        Deferred income taxes                       139,040            99,251            Total current assets                  2,449,720         2,412,726    Property, plant and equipment, net            1,975,721         1,888,088    Goodwill                                      2,797,339         2,699,639    Intangible assets                             1,171,869         1,180,094    Other assets                                    285,401            31,662                                                 $8,680,050         8,212,209    LIABILITIES AND STOCKHOLDERS' EQUITY    Current liabilities:        Current portion of long-term debt          $260,439           576,134        Accounts payable and accrued expenses       996,061         1,053,444            Total current liabilities             1,256,500         1,629,578    Long-term debt, less current portion          2,021,395         2,207,547    Deferred income taxes and other long-     term liabilities                               694,798           659,821            Total liabilities                     3,972,693         4,496,946    Total stockholders' equity                    4,707,357         3,715,263                                                 $8,680,050         8,212,209                                As of or for the         As of or for the                               Three Months Ended       Twelve Months Ended    Segment Information    December 31, December 31, December 31, December 31,    (Amounts in thousands)      2007        2006          2007        2006    Net sales:      Mohawk                  $967,922    1,115,689    4,205,740    4,742,060      Dal-Tile                 468,165      459,754    1,937,733    1,941,819      Unilin                   393,572      327,599    1,487,645    1,236,918      Corporate and       eliminations            (22,391)      (4,448)     (45,100)     (14,955)        Consolidated net         sales              $1,807,268    1,898,594    7,586,018    7,905,842    Operating income:      Mohawk                   $69,747      112,275      254,924      387,386      Dal-Tile                  61,849       57,615      258,706      270,901      Unilin                    58,990       64,669      272,260      214,093      Corporate and       eliminations            (10,119)      (5,185)     (35,784)     (33,320)        Consolidated         operating income     $180,467      229,374      750,106      839,060    Assets:      Mohawk                                          $2,302,527    2,488,856      Dal-Tile                                         2,259,811    2,257,107      Unilin                                           3,916,739    3,309,574      Corporate and eliminations                         200,973      156,672        Consolidated assets                           $8,680,050    8,212,209    Reconciliation of Net Earnings to     Adjusted Net Earnings    (Amounts in thousands, except     per share data)                  Three Months Ended  Twelve Months Ended                                       December 31, 2007    December 31, 2007    Earnings before income taxes                $144,236              604,117         Income tax benefit                     (271,608)            (271,608)         Income tax expense                       36,730              168,911    Net earnings                                $379,114              706,814    Less: Income tax benefit                    (271,608)            (271,608)    Adjusted net earnings                       $107,506              435,206    Basic earnings per share                       $5.55                10.37    Income tax benefit per share - basic           $3.97                 3.98    Adjusted earnings per share - basic            $1.58                 6.39    Weighted-average common shares outstanding    68,333               68,172    Diluted earnings per share                     $5.53                10.32    Income tax benefit per share - diluted         $3.96                 3.97    Adjusted earnings per share - diluted          $1.57                 6.35    Weighted-average common and dilutive     potential common shares outstanding          68,584               68,492    Reconciliation of U.S. Customs     refunds and Plant Closing to EPS  Three Months       Twelve Months    (Amounts in thousands, except         Ended               Ended     per share data)                   December 31,  December 31, December 31,                                          2006           2007         2006    U.S. Customs refund                 $(4,370)        (9,154)     (19,436)         Income tax expense              (1,602)        (3,355)      (7,123)    U.S. Customs refund, net of tax     $(2,768)        (5,799)     (12,313)    Plant closings charge                    $-         14,200            -         Income tax expense                   -          5,204            -    Plant closing charge, net of tax         $-          8,996            -    U.S. Customs refund per share -     basic                               $(0.04)         (0.09)       (0.18)    Plant closing charge per share -     basic                                   $-           0.13            -    Weighted-average common shares     outstanding                         67,733         68,172       67,674    U.S. Customs refund per share -     diluted                             $(0.04)         (0.09)       (0.18)    Plant closing charge per share -     diluted                                 $-           0.13            -    Weighted-average common and     dilutive potential common shares     outstanding                         68,058         68,492       68,056    Reconciliation of Unilin Segment Net Sales     and Operating Income to Adjusted Unilin            Three Months Ended     Segment Net Sales and Operating Income         December 31,  December 31,    (Amounts in thousands)                              2007          2006      Unilin segment net sales                         $393,572       327,599        Less: Columbia net sales                         44,270             -    Adjusted Unilin segment net sales                   349,302       327,599        Less: Exchange rate gain                         32,200             -    Adjusted Unilin segment net sales for Columbia     and exchange rate gain                            $317,102       327,599      Unilin segment operating income                   $58,990        64,669        Less: Columbia operating loss                   (5,044)             -    Adjusted Unilin segment operating income for     Columbia                                           $64,034        64,669                                                       Three Months Ended                                                    December 31,  December 31,                                                        2006          2005    Unilin proforma sales reconciliation:      Net sales reported                               $327,599       168,814      Unilin net sales prior to acquisition                   -        76,275    Unilin proforma net sales                          $327,599       245,089      Proforma net sales percentage change                   34%

The Company believes it is useful for itself and investors to review, as applicable, both GAAP and the above non-GAAP measures in order to assess the performance of the Company's business for planning and forecasting in subsequent periods.