<PAGE>
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 30, 1996
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, Calhoun, Georgia 30703
(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
May 1, 1996, the latest practicable date, is as follows: 34,350,572 shares of
Common Stock, $.01 par value.
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MOHAWK INDUSTRIES, INC.
INDEX
Page No.
-------
Part I. Financial Information:
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets -
March 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Earnings -
Three months ended March 30, 1996 and April 1, 1995 5
Condensed Consolidated Statements of Cash Flows -
Three months ended March 30, 1996 and April 1, 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information 10
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
(Unaudited)
March 30, 1996 December 31, 1995
-------------- -----------------
Current assets:
Receivables $194,891 177,778
Inventories 335,929 299,191
Prepaid expenses 21,284 17,607
Deferred income taxes 12,858 12,858
-------- --------
Total current assets 564,962 507,434
-------- --------
Property, plant and equipment, at cost 476,642 471,048
Less accumulated depreciation and
amortization 166,225 153,082
-------- --------
Net property, plant and equipment 310,417 317,966
-------- --------
Other assets 75,379 77,752
-------- --------
Total assets $950,758 903,152
======== ========
See accompanying notes to condensed consolidated financial statements.
3
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MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 30, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt and note payable $ 61,262 61,262
Accounts payable and accrued expenses 221,732 201,372
------------- -----------
Total current liabilities 282,994 262,634
Deferred income taxes 21,742 21,742
Long-term debt 356,841 341,775
Other long-term liabilities 1,979 2,098
------------- -----------
Total liabilities 663,556 628,249
------------- -----------
Stockholders' equity:
Preferred stock, $.01 par value; 60,000 shares
authorized; no shares issued - -
Common stock, $.01 par value; 75,000 shares
authorized; 34,406 and 34,394 shares issued
in 1996 and 1995, respectively 344 344
Additional paid-in capital 129,514 122,747
Retained earnings 157,582 152,244
------------- -----------
287,440 275,335
Less:
Treasury stock, at cost; 58 and 1,302 shares
in 1996 and 1995, respectively 3 115
Deferred compensation from stock option 235 317
------------- -----------
Total stockholders' equity 287,202 274,903
------------- -----------
Total liabilities and stockholder's equity $ 950,758 903,152
============= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
-------------------------------
March 30, 1996 April 1, 1995
-------------- -------------
Net sales $ 383,667 378,761
Cost of sales 296,483 296,843
------------ -----------
Gross profit 87,184 81,918
Selling, general and administrative expenses 69,139 65,263
------------ -----------
Operating income 18,045 16,655
------------ -----------
Other expense:
Interest expense 8,491 9,024
Other expense, net 731 603
------------ -----------
9,222 9,627
------------ -----------
Earnings before income taxes 8,823 7,028
Income taxes 3,485 2,721
------------ -----------
Net earnings $ 5,338 4,307
============ ===========
Earnings per common and common
equivalent share $ 0.16 0.13
============ ===========
Weighted average common and common
equivalent shares outstanding 34,099 33,687
============ ===========
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 30, 1996 April 1, 1995
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,338 4,307
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 13,829 14,874
Provision for doubtful accounts 2,497 1,799
Changes in operating assets and liabilities,
net of effect of acquisition:
Receivables (19,610) (12,716)
Inventories (36,738) (37,922)
Accounts payable and accrued expenses 39,345 47,340
Other assets and prepaid expenses (4,471) (3,014)
Other liabilities (119) (561)
------------ ------------
Net cash provided by operating activities 71 14,107
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment, net (5,824) (10,789)
Acquisition, net of cash acquired - (43,874)
------------ ------------
Net cash used in investing activities (5,824) (54,663)
------------ ------------
Cash flows from financing activities:
Net change in revolving line of credit 15,066 92,936
Redemption of Galaxy indebtedness - (44,487)
Change in outstanding checks in excess of cash (16,274) (8,502)
Common stock transactions 6,961 609
------------ ------------
Net cash provided by financing
activities 5,753 40,556
------------ ------------
Net change in cash - -
Cash, beginning of year - -
------------ ------------
Cash, end of period $ - -
============ ============
Net cash paid (received) during the period for:
Interest $ 9,400 10,550
============ ============
Income taxes $ 1,276 (7,579)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(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 1995 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, 1995.
The Company's earnings per share are computed by dividing net earnings by the
weighted average common and common equivalent shares outstanding. Dilutive
common stock options are included in the earnings per share calculation using
the treasury stock method.
During the three months ended March 30, 1996, the Company recorded a direct
increase in stockholders' equity of $6,735 as a result of the tax benefit from
the exercise of stock options that were granted primarily in 1988 and 1989 in
connection with the Company's 1988 leveraged buyout.
Certain prior year financial statement balances have been reclassified to
conform with the current year's presentation.
2. Receivables
Receivables are as follows:
March 30, 1996 December 31, 1995
-------------- -----------------
Customers, trade $213,106 206,015
Income tax receivable 5,823 1,298
Other 6,370 2,610
-------- -------
225,299 209,923
Less allowance for discounts, returns,
and doubtful accounts claims 30,408 32,145
-------- -------
Net receivables $194,891 177,778
======== =======
3. Inventories
The components of inventories are as follows:
March 30, 1996 December 31, 1995
-------------- -----------------
Finished goods $176,612 165,137
Work in process 55,374 47,125
Raw materials 103,943 86,929
-------- -------
Total inventories $335,929 299,191
======== =======
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(In thousands, except per share data)
(Unaudited)
4. Other assets
Other assets are as follows:
March 30, 1996 December 31, 1995
-------------- -----------------
Goodwill, net of accumulated amortization
of $4,478 and $4,108, respectively $ 54,790 55,160
Other assets 20,589 22,592
-------- -------
Total other assets $ 75,379 77,752
======== =======
5. Accounts payable and accrued expenses
Accounts payable and accrued expenses are as follows:
March 30, 1996 December 31, 1995
-------------- -----------------
Outstanding checks in excess of cash $ 14,607 30,881
Accounts payable, trade 129,966 98,122
Accrued expenses 59,434 53,574
Accrued compensation 17,725 18,795
-------- -------
Total accounts payable and accrue $221,732 201,372
======== =======
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended March 30, 1996 As Compared With Quarter Ended April 1, 1995
- -------------------------------------------------------------------------
Net sales for the quarter ended March 30, 1996 were $383.7 million, which
represented an increase of 1% from the $378.8 million reported for the first
quarter of 1995. This sales increase was achieved despite severe winter
conditions in major areas of the country which slowed carpet sales for the
industry overall.
Gross profit for the first quarter of the current year was $87.2 million
(22.7% of net sales). In the first quarter of 1995, gross profit was $81.9
million (21.6% of net sales). This increase is due to the manufacturing
consolidations and raw material cost reductions in latex and polypropylene-based
materials. The manufacturing consolidations include the closing of five
residential manufacturing facilities during 1995 as well as the realignment of
the remaining residential mills to better utilize the strengths of each mill.
The Company's integration of the manufacturing, distribution and information
systems areas is progressing as planned and has started contributing to the
margin improvement. However, the price of polypropylene chips has increased
slightly since the end of the current quarter.
Selling, general and administrative expenses for the current quarter were
$69.1 million (18.0% of net sales) compared to $65.3 million (17.2% of net
sales) for the prior year's first quarter. The percentage increase was
primarily due to higher sample costs which the Company believes are the result
of increased dealer sample orders in response to a competitor's recent move into
retail operations.
Interest expense for the current period was $8.5 million compared to $9.0
million in the first quarter of 1995. The primary factors for the decrease were
a reduction in debt levels and lower interest rates on the Company's revolving
credit agreement.
In the current period, income tax expense was $3.5 million, or 39.5% of
earnings before income taxes. In the first quarter of 1995, income tax expense
was $2.7 million, or 38.7% of earnings before income taxes. The primary reason
for the lower effective tax rate in 1995 was certain nonrecurring deductions
that were treated as permanent differences in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital, capital
expenditures and acquisitions. The Company's capital requirement 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 $177.8 million at the
beginning of 1996 to $194.9 million at March 30, 1996. The $17.1 million
increase resulted primarily from seasonally higher sales volume in March as
compared to December and an increase in the income tax receivable due to the
exercise of nonqualified stock options by certain executives. Inventories rose
from $299.2 million at the beginning of 1996 to $335.9 million at March 30,
1996, due to requirements to meet seasonal customer demand.
Capital expenditures totaled $5.8 million in the first quarter of 1996 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 1996 is expected to approximate $50 million, the majority of which
will be used to purchase equipment and expand existing plants.
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.
9
<PAGE>
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.
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 contemplated to which the Company is a party
or to which any of its property is subject.
In June 1994, the Company and several other carpet manufacturers received
subpoenas to produce documents from a grand jury of the United States District
Court in Atlanta. The subpoenas were requested by the Antitrust Division of the
U. S. Department of Justice in connection with an investigation of the industry.
The Company believes that the results of this investigation will not have a
material adverse impact on the financial condition of the Company.
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.
The Company believes the lawsuit is without merit and intends to vigorously
defend against it.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K, dated April 19, 1996,
containing consolidated statement of operations data for the year and for each
of the fiscal quarters in the year ended December 31, 1995 and balance sheet
data as of December 31, 1995 and as of the end of each of the first three fiscal
quarters in the year ended December 31, 1995, which reflects certain
reclassifications to conform the 1995 presentation to that of 1996.
10
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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: May 1, 1996 By: /s/ David L. Kolb
----------------------------------------
DAVID L. KOLB, Chairman of the Board and
Chief Executive Officer (principal
executive officer)
Dated: May 1, 1996 By: /s/ John D. Swift
----------------------------------------
JOHN D. SWIFT, Chief Financial Officer,
Vice President-Finance, Treasurer and
Secretary (principal financial and
accounting officer)
11
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EXHIBIT INDEX
NO. DESCRIPTION
- --- --------------------------------------------------------------------
11 Statement re: Computation of Per Share Earnings
12
<PAGE>
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 APB Opinion No. 15.
Three Months Ended
-------------------------------
March 30, 1996 April 1, 1995
-------------- -------------
Net earnings $ 5,338 4,307
=========== ==========
Weighted average common and common
equivalent shares outstanding:
Weighted average common shares
outstanding 33,470 32,514
Add weighted average common
equivalent shares - options to
purchase common shares, net 629 1,173
----------- ----------
Weighted average common and common
equivalent shares outstanding 34,099 33,687
=========== ==========
Earnings per common and common
equivalent share $ 0.16 0.13
=========== ==========
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOHAWK
INDUSTRIES, INC.'S QUARTERLY REPORT TO STOCKHOLDERS FOR THE QUARTER ENDED MARCH
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 225,299
<ALLOWANCES> 30,408
<INVENTORY> 335,929
<CURRENT-ASSETS> 564,962
<PP&E> 476,642
<DEPRECIATION> 166,225
<TOTAL-ASSETS> 950,758
<CURRENT-LIABILITIES> 282,994
<BONDS> 356,841
0
0
<COMMON> 341
<OTHER-SE> 286,861
<TOTAL-LIABILITY-AND-EQUITY> 950,758
<SALES> 383,667
<TOTAL-REVENUES> 383,667
<CGS> 296,483
<TOTAL-COSTS> 296,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,497
<INTEREST-EXPENSE> 8,577
<INCOME-PRETAX> 8,823
<INCOME-TAX> 3,485
<INCOME-CONTINUING> 5,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,338
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
