<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 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.
<PAGE>
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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 28, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
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
========== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
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
================== =================
</TABLE>
8
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT INDEX
NO. DESCRIPTION
- --- ----------------------------------------------------------------------
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
13
<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 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
============= ============
<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
28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-28-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 307,347
<ALLOWANCES> 39,187
<INVENTORY> 316,688
<CURRENT-ASSETS> 621,716
<PP&E> 591,329
<DEPRECIATION> 276,484
<TOTAL-ASSETS> 1,003,959
<CURRENT-LIABILITIES> 302,009
<BONDS> 245,234
0
0
<COMMON> 523
<OTHER-SE> 421,953
<TOTAL-LIABILITY-AND-EQUITY> 1,003,959
<SALES> 459,755
<TOTAL-REVENUES> 459,755
<CGS> 354,850
<TOTAL-COSTS> 354,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,185
<INTEREST-EXPENSE> 5,632
<INCOME-PRETAX> 24,358
<INCOME-TAX> 9,621
<INCOME-CONTINUING> 14,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,737
<EPS-PRIMARY> 0.28 <F1>
<EPS-DILUTED> 0.28 <F1>
<FN>
<F1> 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.
</FN>
</TABLE>
<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 29, 1997.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0.17 <F1>
<EPS-DILUTED> 0.16 <F1>
<FN>
<F1> 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.
</FN>
</TABLE>
