UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 3, 2011
MOHAWK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 01-13697 | 52-1604305 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| 160 South Industrial Blvd., Calhoun, Georgia | 30701 | |||
| (Address of Principal Executive Offices) | (Zip Code) | |||
Registrant’s telephone number, including area code (706) 629-7721
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communication pursuant to Rule 425 under Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act CFR 240.17R 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
The following information, including the Exhibit attached hereto, is being furnished pursuant to this Item 2.02 and shall not be deemed “filed” for purpose of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
On November 3, 2011, Mohawk Industries, Inc., issued a press release announcing its third quarter financial results. A copy of the press release is attached hereto and hereby incorporated by reference as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits.
| (d) | Exhibits |
99.1 Press release dated November 3, 2011.
2
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 hereunto duly authorized.
| Mohawk Industries, Inc. | ||||
| Date: November 3, 2011 | By: | /s/ James F. Brunk | ||
| James F. Brunk | ||||
| V.P. & Corporate Controller | ||||
3
INDEX TO EXHIBITS
Exhibit
| 99.1. | Press release dated November 3, 2011. |
4
Exhibit 99.1
MOHAWK INDUSTRIES, INC. ANNOUNCES
THIRD QUARTER EARNINGS
Calhoun, Georgia, November 3, 2011—Mohawk Industries, Inc. (NYSE:MHK) today announced 2011 third quarter net earnings of $47 million and diluted earnings per share (EPS) of $0.68. Adjusted net earnings were $57 million and EPS was $0.83 excluding the unusual items. For the third quarter of 2010, the net earnings were $51 million and EPS was $0.74 both as reported and excluding unusual items. Net sales for the third quarter of 2011 were $1.4 billion increasing 10% as reported and 8% with a constant exchange rate. Our cash position at the end of the quarter remains strong with $276 million and our net debt to adjusted EBITDA ratio was 2.1.
For the nine months ended October 1, 2011, net sales were $4.3 billion, an increase of approximately 5% as reported and 4% with a constant exchange rate. For the nine-month period, net earnings and EPS were $131 million and $1.90, respectively. Excluding unusual items, net earnings were $152 million and EPS was $2.21. For the nine months ended October 2, 2010, net earnings were $140 million and EPS was $1.99. Excluding unusual items in 2010, net earnings were $128 million and EPS was $1.86.
Commenting on the third quarter results, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “The Company’s third quarter results reflect an improvement in sales and earnings over last year even with increased raw material costs and consumer reluctance to invest in renovation projects. Sales in both the residential and commercial categories expanded with commercial renovation leading the growth and new residential continuing to lag. Each segment continues to lower costs with new processes, reduced infrastructure and investment in more efficient assets.”
Our Mohawk segment net sales improved 6% as we improved our position and grew in both residential and commercial categories. Operating margins were lower due to price increases lagging material inflation as well as continued pressure on our product mix as consumers remain cautious about larger discretionary investments. During the quarter, residential sales grew across most channels and product categories. Commercial sales momentum continued from the previous quarter, with both broadloom and carpet tile achieving gains. During 2011, we implemented two price increases that were fully realized by the end of the third quarter. During the period, raw material costs were greater than anticipated and the higher expense will impact our fourth quarter costs and margins. We have implemented hundreds of manufacturing initiatives yielding significant cost savings in 2011.
Our Dal-Tile segment net sales grew almost 11% during the period with both residential and commercial categories showing gains with product mix continuing to decline. In the comparable 2010 period, business was lower than expected due to the flooding in our Mexican facility from Hurricane Alex. During the quarter, we increased sales in all channels with particular strength in home centers due to additional commitments for our innovative mosaics, wall tile and porcelain tile. Our Mexican ceramic sales grew significantly on a local basis as we enhanced our penetration with new products and broader distribution. We have implemented new manufacturing processes to lower raw material costs, improve efficiency, reduce production runs and improve distribution costs.
Our Unilin net sales increased approximately 19% as reported and 11% with a constant exchange rate. Sales in Europe increased across most channels and regions, and our price increases are beginning to catch up with the raw material inflation. We are implementing additional price increases for roof panels and insulation boards to offset further inflation in those products. Innovation in board manufacturing processes is enhancing our efficiency and material yields. Despite challenging market conditions, our European flooring products grew by capitalizing on the strength of our Quick-Step brand, growing our participation in the DIY channel, and expanding our wood flooring category. In the U.S., sales of our laminate flooring grew through expanded programs in all channels. We completed our Russian laminate flooring plant on schedule and are initiating production. We acquired the largest laminate and wood flooring distributor in Australia, which expands our strategy of getting closer to our customers and becoming more responsive to local markets.
Mohawk’s strategy to maximize our long term results is reflected in our international expansion in Mexico, Russia, China and Australia, new technologies to increase value, innovative product categories like Didit click furniture and process enhancements to lower our cost position across the enterprise. We remain confident in the future of our business and will continue to adjust our tactics as economic conditions change. In the fourth quarter, we will be impacted by higher third quarter raw material costs; however we are currently seeing some moderation which will benefit next year. We will consider further price increases as appropriate and implement additional cost reductions to improve the business. With these factors, our fourth quarter guidance for earnings is $0.67 to $0.76 per share, excluding any restructuring costs.
Our strategy in this environment focuses on lowering our cost infrastructure, creating innovative products, maintaining a strong balance sheet and targeting new investments for future growth. Although the macro outlook is somewhat uncertain, we believe our results for next year will reflect continued improvement.
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, Lees, Bigelow, Durkan, Daltile, 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 local distribution in the U.S. Mohawk’s operational international presence includes China, Europe, Malaysia, Mexico and Russia.
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; inflation in raw material prices and other input costs; energy costs and supply; timing and level of capital expenditures; timing and implementation of price increases for the Company’s products; impairment charges; integration of acquisitions; international operations; introduction of new products; rationalization of operations; tax, product and other claims; litigation; and other risks identified in Mohawk’s SEC reports and public announcements.
There will be a conference call Friday, November 4, 2011 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.
Conference ID # 17731505. A conference call replay will also be available until November 18, 2011 by
dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and
entering Conference ID # 17731505
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(Amounts in thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, 2011 | October 2, 2010 | October 1, 2011 | October 2, 2010 | |||||||||||||
| Net sales |
$ | 1,442,512 | 1,309,552 | 4,263,961 | 4,056,874 | |||||||||||
| Cost of sales |
1,084,889 | 964,620 | 3,182,499 | 2,995,940 | ||||||||||||
| Gross profit |
357,623 | 344,932 | 1,081,462 | 1,060,934 | ||||||||||||
| Selling, general and administrative expenses |
266,159 | 259,750 | 832,214 | 832,405 | ||||||||||||
| Operating income |
91,464 | 85,182 | 249,248 | 228,529 | ||||||||||||
| Interest expense |
25,132 | 30,046 | 77,487 | 102,985 | ||||||||||||
| Other (income) expense, net |
13,413 | (4,641 | ) | 13,794 | (8,628 | ) | ||||||||||
| Earnings before income taxes |
52,919 | 59,777 | 157,967 | 134,172 | ||||||||||||
| Income tax expense (benefit) |
5,223 | 7,513 | 23,639 | (8,327 | ) | |||||||||||
| Net earnings |
47,696 | 52,264 | 134,328 | 142,499 | ||||||||||||
| Net earnings attributable to noncontrolling interest |
(1,050 | ) | (1,170 | ) | (3,337 | ) | (2,786 | ) | ||||||||
| Net earnings attributable to Mohawk Industries, Inc. |
$ | 46,646 | 51,094 | 130,991 | 139,713 | |||||||||||
| Basic earnings per share attributable to Mohawk Industries, Inc. (1) |
$ | 0.68 | 0.74 | 1.91 | 1.99 | |||||||||||
| Weighted-average common shares outstanding - basic |
68,759 | 68,593 | 68,725 | 68,567 | ||||||||||||
| Diluted earnings per share attributable to Mohawk Industries, Inc. (1) |
$ | 0.68 | 0.74 | 1.90 | 1.99 | |||||||||||
| Weighted-average common shares outstanding - diluted |
68,954 | 68,773 | 68,946 | 68,764 | ||||||||||||
| (1) | Basic earnings per share attributable to Mohawk Industries, Inc. for the nine months ended October 2, 2010, includes a decrease of approximately $0.05, and diluted earnings per share attributable to Mohawk Industries, Inc. for the nine months ended October 2, 2010, includes a decrease of approximately $0.04, related to the change in fair value for a redeemable noncontrolling interest in a consolidated subsidiary of the Company. |
Other Financial Information
(Amounts in thousands)
| Net cash provided by operating activities |
$ | 109,598 | 121,417 | 138,188 | 210,394 | |||||||||||
| Depreciation and amortization |
$ | 74,207 | 72,956 | 222,804 | 222,251 | |||||||||||
| Capital expenditures |
$ | 69,741 | 39,101 | 182,260 | 86,240 |
Consolidated Balance Sheet Data
(Amounts in thousands)
| October 1, 2011 | October 2, 2010 | |||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 276,156 | 365,835 | |||||
| Receivables, net |
775,421 | 697,491 | ||||||
| Inventories |
1,132,073 | 996,271 | ||||||
| Prepaid expenses and other current assets |
125,007 | 114,876 | ||||||
| Deferred income taxes |
131,931 | 119,729 | ||||||
| Total current assets |
2,440,588 | 2,294,202 | ||||||
| Property, plant and equipment, net |
1,696,182 | 1,680,541 | ||||||
| Goodwill |
1,389,430 | 1,389,057 | ||||||
| Intangible assets, net |
634,164 | 710,934 | ||||||
| Deferred income taxes and other non-current assets |
117,204 | 117,176 | ||||||
| $ | 6,277,568 | 6,191,910 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ | 438,300 | 351,486 | |||||
| Accounts payable and accrued expenses |
774,939 | 779,825 | ||||||
| Total current liabilities |
1,213,239 | 1,131,311 | ||||||
| Long-term debt, less current portion |
1,173,038 | 1,303,151 | ||||||
| Deferred income taxes and other long-term liabilities |
439,798 | 441,948 | ||||||
| Total liabilities |
2,826,075 | 2,876,410 | ||||||
| Noncontrolling interest |
32,758 | 34,121 | ||||||
| Total stockholders’ equity |
3,418,735 | 3,281,379 | ||||||
| $ | 6,277,568 | 6,191,910 | ||||||
Segment Information
(Amounts in thousands)
| Three Months Ended | As of or for the Nine Months Ended | |||||||||||||||
| October 1, 2011 | October 2, 2010 | October 1, 2011 | October 2, 2010 | |||||||||||||
| Net sales: |
||||||||||||||||
| Mohawk |
$ | 754,470 | 713,481 | 2,203,699 | 2,177,646 | |||||||||||
| Dal-Tile |
381,891 | 345,074 | 1,105,775 | 1,050,088 | ||||||||||||
| Unilin |
329,514 | 276,594 | 1,018,443 | 890,859 | ||||||||||||
| Intersegment sales |
(23,363 | ) | (25,597 | ) | (63,956 | ) | (61,719 | ) | ||||||||
| Consolidated net sales |
$ | 1,442,512 | 1,309,552 | 4,263,961 | 4,056,874 | |||||||||||
| Operating income (loss): |
||||||||||||||||
| Mohawk |
$ | 30,946 | 31,127 | 79,187 | 74,100 | |||||||||||
| Dal-Tile |
33,073 | 33,913 | 82,911 | 77,432 | ||||||||||||
| Unilin |
33,048 | 24,640 | 105,507 | 93,434 | ||||||||||||
| Corporate and eliminations |
(5,603 | ) | (4,498 | ) | (18,357 | ) | (16,437 | ) | ||||||||
| Consolidated operating income |
$ | 91,464 | 85,182 | 249,248 | 228,529 | |||||||||||
| Assets: |
||||||||||||||||
| Mohawk |
$ | 1,810,191 | 1,652,737 | |||||||||||||
| Dal-Tile |
1,735,718 | 1,677,957 | ||||||||||||||
| Unilin |
2,569,103 | 2,542,233 | ||||||||||||||
| Corporate and eliminations |
162,556 | 318,983 | ||||||||||||||
| Consolidated assets |
$ | 6,277,568 | 6,191,910 | |||||||||||||
Reconciliation of Net Earnings Attributable to Mohawk Industries, Inc. to Adjusted Net Earnings Attributable to Mohawk Industries, Inc. and Adjusted Diluted Earnings Per Share Attributable to Mohawk Industries, Inc.
(Amounts in thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, 2011 | October 2, 2010 | October 1, 2011 | October 2, 2010 | |||||||||||||
| Net earnings attributable to Mohawk Industries, Inc. |
$ | 46,646 | 51,094 | 130,991 | 139,713 | |||||||||||
| Unusual items: |
||||||||||||||||
| Unrealized foreign currency losses (1) |
9,085 | — | 9,085 | — | ||||||||||||
| Business restructurings |
2,186 | 3,330 | 15,513 | 12,263 | ||||||||||||
| Debt extinguishment costs |
1,116 | — | 1,116 | 7,514 | ||||||||||||
| Acquisitions purchase accounting |
— | 1,713 | — | 1,713 | ||||||||||||
| U.S. customs refund |
— | (5,765 | ) | — | (5,765 | ) | ||||||||||
| Discrete tax items, net |
— | — | — | (24,407 | ) | |||||||||||
| Income taxes |
(1,761 | ) | 760 | (4,597 | ) | (2,999 | ) | |||||||||
| Adjusted net earnings attributable to Mohawk Industries, Inc. |
$ | 57,272 | 51,132 | 152,108 | 128,032 | |||||||||||
| Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. (2) |
0.83 | 0.74 | 2.21 | 1.86 | ||||||||||||
| Weighted-average common shares outstanding - diluted |
68,954 | 68,773 | 68,946 | 68,764 | ||||||||||||
| (1) | Unrealized foreign currency losses for certain of the Company’s consolidated foreign subsidiaries that measure financial conditions and results using the U.S. dollar rather than the local currency. |
| (2) | Diluted earnings per share attributable to Mohawk Industries, Inc. for the nine months ended October 2, 2010, excludes approximately $0.04 related to the change in fair value for a redeemable noncontrolling interest in a consolidated subsidiary of the Company. |
Reconciliation of Total Debt to Net Debt
(Amounts in thousands)
| October 1, 2011 | ||||
| Current portion of long-term debt |
$ | 438,300 | ||
| Long-term debt, less current portion |
1,173,038 | |||
| Less: Cash and cash equivalents |
276,156 | |||
| Net Debt |
$ | 1,335,182 | ||
Reconciliation of Operating Income to Adjusted EBITDA
(Amounts in thousands)
| Three Months Ended | Trailing Twelve Months Ended October 1, 2011 |
|||||||||||||||||||
| December 31, 2010 | April 2, 2011 | July 2, 2011 | October 1, 2011 | |||||||||||||||||
| Operating income |
$ | 85,640 | 56,084 | 101,700 | 91,464 | 334,888 | ||||||||||||||
| Other (expense) income |
1,037 | (15 | ) | 396 | (13,413 | ) | (11,995 | ) | ||||||||||||
| Unrealized foreign currency losses (1) |
— | — | — | 9,085 | 9,085 | |||||||||||||||
| U.S. customs refund |
1,965 | — | — | — | 1,965 | |||||||||||||||
| Net earnings attributable to noncontrolling interest |
(1,678 | ) | (1,096 | ) | (1,191 | ) | (1,050 | ) | (5,015 | ) | ||||||||||
| Depreciation and amortization |
74,522 | 74,253 | 74,344 | 74,207 | 297,326 | |||||||||||||||
| EBITDA |
161,486 | 129,226 | 175,249 | 160,293 | 626,254 | |||||||||||||||
| Business restructurings |
— | 6,813 | 6,514 | 2,186 | 15,513 | |||||||||||||||
| Adjusted EBITDA |
$ | 161,486 | 136,039 | 181,763 | 162,479 | 641,767 | ||||||||||||||
| Net Debt to Adjusted EBITDA |
2.1 | |||||||||||||||||||
| (1) | Unrealized foreign currency losses for certain of the Company’s consolidated foreign subsidiaries that measure financial conditions and results using the U.S. dollar rather than the local currency. |
Reconciliation of Net Sales to Adjusted Net Sales
(Amounts in thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 1, 2011 | October 2, 2010 | October 1, 2011 | October 2, 2010 | |||||||||||||
| Net sales |
$ | 1,442,512 | 1,309,552 | 4,263,961 | 4,056,874 | |||||||||||
| Adjustments to net sales: |
||||||||||||||||
| Exchange rate |
(22,724 | ) | — | (57,554 | ) | — | ||||||||||
| Adjusted net sales |
$ | 1,419,788 | 1,309,552 | 4,206,407 | 4,056,874 | |||||||||||
Reconciliation of Segment Net Sales to Adjusted Segment Net Sales
(Amounts in thousands)
| Three Months Ended | ||||||||
| Unilin | October 1, 2011 | October 2, 2010 | ||||||
| Net sales |
$ | 329,514 | 276,594 | |||||
| Adjustment to net sales: |
||||||||
| Exchange rate |
(21,205 | ) | — | |||||
| Adjusted net sales |
$ | 308,309 | 276,594 | |||||
Reconciliation of Operating Income to Adjusted Operating Income
(Amounts in thousands)
| Three Months Ended | ||||||||
| October 1, 2011 | October 2, 2010 | |||||||
| Operating income |
$ | 91,464 | 85,182 | |||||
| Adjustments to operating income: |
||||||||
| Business restructurings |
2,186 | 3,330 | ||||||
| Adjusted operating income |
$ | 93,650 | 88,512 | |||||
| Adjusted operating margin as a percent of net sales |
6.5 | % | 6.8 | % | ||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
| Three Months Ended | ||||||||
| Mohawk | October 1, 2011 | October 2, 2010 | ||||||
| Operating income |
$ | 30,946 | 31,127 | |||||
| Adjustments to operating income: |
||||||||
| Business restructurings |
2,186 | 1,292 | ||||||
| Adjusted operating income |
$ | 33,132 | 32,419 | |||||
| Adjusted operating margin as a percent of net sales |
4.4 | % | 4.5 | % | ||||
| Dal-Tile | ||||||||
| Operating income |
$ | 33,073 | 33,913 | |||||
| Adjustments to operating income: |
||||||||
| Business restructurings |
— | 1,223 | ||||||
| Adjusted operating income |
$ | 33,073 | 35,136 | |||||
| Adjusted operating margin as a percent of net sales |
8.7 | % | 10.2 | % | ||||
| Unilin | ||||||||
| Operating income |
$ | 33,048 | 24,640 | |||||
| Adjustments to operating income: |
||||||||
| Business restructurings |
— | 815 | ||||||
| Adjusted operating income |
$ | 33,048 | 25,455 | |||||
| Adjusted operating margin as a percent of net sales |
10.0 | % | 9.2 | % | ||||
Reconciliation of Earnings Before Income Taxes to Adjusted Earnings Before Income Taxes
(Amounts in thousands)
| Three Months Ended | ||||||||
| October 1, 2011 | October 2, 2010 | |||||||
| Earnings before income taxes |
$ | 52,919 | 59,777 | |||||
| Unusual items: |
||||||||
| Unrealized foreign currency losses (1) |
9,085 | — | ||||||
| Business restructurings |
2,186 | 3,330 | ||||||
| Debt extinguishment costs |
1,116 | — | ||||||
| Acquisitions purchase accounting |
— | 1,713 | ||||||
| U.S. customs refund |
— | (5,765 | ) | |||||
| Adjusted earnings before income taxes |
$ | 65,306 | 59,055 | |||||
| (1) | Unrealized foreign currency losses for certain of the Company’s consolidated foreign subsidiaries that measure financial conditions and results using the U.S. dollar rather than the local currency. |
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense
(Amounts in thousands)
| Three Months Ended | ||||||||
| October 1, 2011 | October 2, 2010 | |||||||
| Income tax expense |
$ | 5,223 | 7,513 | |||||
| Unusual items: |
||||||||
| Income taxes |
1,761 | (760 | ) | |||||
| Adjusted income tax expense |
$ | 6,984 | 6,753 | |||||
| Adjusted income tax rate |
11 | % | 11 | % | ||||
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses
(Amounts in thousands)
| Three Months Ended | ||||||||
| October 1, 2011 | October 2, 2010 | |||||||
| Selling, general and administrative expenses |
$ | 266,159 | 259,750 | |||||
| Adjustments to selling, general and administrative expenses: |
||||||||
| Exchange rate |
(3,920 | ) | — | |||||
| Adjusted selling, general and administrative expenses |
$ | 262,239 | 259,750 | |||||
| Adjusted selling, general and administrative expenses as a percent of net sales |
18.2 | % | 19.8 | % | ||||
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.