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MHK-ar1999_highlights
MHK-ar1999_highlights
MHK-ar1999_highlights
MHK-ar1999_highlights
MHK-ar1999_highlights
MHK-ar1999_highlights
MHK-ar1999_highlights
MHK-ar1999_highlights
MHK-ar1999_highlights
MHK-ar1999_highlights
MHK-ar1999_highlights
MHK-ar1999_highlights
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MHK-ar1999_highlights

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  1. what will tomorrow bring? Mohawk Industr ies, Inc. 1999 Annual Report
  2. Mohawk Industries is the second-largest carpet mill in the United States, and the leading producer of area rugs and mats. Headquartered in Calhoun, Georgia, Mohawk designs, manufactures and markets woven and tufted broadloom carpet, carpet tile, home textiles, bath mats, and area and accent rugs.The Company also markets hard surface flooring including laminate, wood and ceramic tile. Mohawk supplies products for all significant markets, distribution channels and price points through a family of popular and prestigious brands that include Aladdin, Alexander Smith, American Rug Craftsmen, American Weavers, Bigelow, CustomWeave, Durkan, Galaxy, Harbinger, Helios, Horizon, Image, Karastan, Mohawk, Newmark Rug, World and WundaWeve. Mohawk Industries’ shares are traded on the New York Stock Exchange under the symbol MHK. 1999 1997 1998 (In thousands, except per share amounts) Net sales $2,429,085 2,744,620 3,083,264 Gross profit $ 559,864 681,287 776,859 Operating income before financial highlights No one knows for sure what tomor row will br ing. At the threshold of our nonrecurring items $ 176,341 249,096 294,797 Net earnings before third centur y in business, we do know it will be full of nonrecurring items $ 84,464 130,494 157,239 opportunity Earnings per share before nonrecurring items $ 1.40 2.13 2.61 $3,083 $2,745 $2,429 Net Sales $2,000 (In millions) 1997 1998 1999 $157 $130 $84 Net Earnings $80 Before nonrecurring items (In millions) 1997 1998 1999 $2.61 $2.13 $1.40 Earnings Per Share $1.35 Before nonrecurring items 1997 1998 1999
  3. dear stockholders During 1999,Mohawk continued to outpace the industry in top-line and bottom-line growth.We achieved these excellent results by offering the widest array of products and price points in our industry. We serve our customers in innovative ways,continuously improve our infrastruc- ture and adhere to time-tested strategies for delivering stockholder value.If Mohawk’s past is any indication,our future will be full of new opportunities. Strength in Numbers A 12% increase in net sales to $3.1 billion in 1999 contributed to the highest diluted earnings per share in Mohawk’s history — $2.61 per share, or $157.2 million in net earnings.This repre- sents a 23% increase over 1998’s diluted earnings per share of $2.13 before nonrecurring items, or $130.5 million in net earnings. Gross profit as a percentage of net sales improved from 1998’s 24.8% to 25.2% in 1999. Operating income before nonrecurring items as a percentage of net sales improved from 9.1% in 1998 to 9.6% in 1999. Our return on equity before nonrecurring items increased from 23.6% in 1998 to 24.1% in 1999. We accomplished our continued strong revenue growth through a combination of internal growth and acquisitions, and far exceeded the industry’s 3% increase. As a result, Mohawk again gained market share. This impressive performance failed to boost the Company’s share price, as the stock market appears to favor some industry sectors over others. Given our share price attractiveness, the Board of Directors authorized the repurchase of up to 10 million shares of Mohawk com- mon stock.This share repurchase program demonstrates our belief in the Company’s future and our expectations for continued growth and earnings. We anticipate an increase in share price when investors return to the value sector of the market. Although many investors failed to recognize our financial accom- plishments in 1999, the financial press did. In February 2000, Fortune named Mohawk as one of “America’s Most Admired Companies.” In January 2000, Forbes placed us on its “Platinum 400” list of exceptional big corporations. In 1999, The Atlanta Journal ranked Mohawk the fifth- best Georgia corporation. Strategies that Work Our basic strategies for growth remain unchanged: (1) to grow internally through strong marketing, merchandising and edu- cational support coupled with product line expansion and (2) to grow externally through acquisitions that leverage our powerful infrastructure. In 1999, we complemented our internal growth with two outstanding acquisitions — the assets of Image Industries, Inc. and Durkan Patterned “We have uniquely positioned Mohawk Industries to recognize Carpets, Inc. Image is a leading postconsumer bottle recycler and manu- and seize opportunities as they arise. Mohawk has the financial facturer of polyester residential carpet. Image’s state-of-the-art recycling strength, the infrastructure, the knowledge and the leadership to turn potential into profit.” David L. Kolb, Chairman and Chief Executive Officer, with one of our new Martha Stewart throws.
  4. and production technologies enhance Mohawk’s low-cost producer position in staple yarn products and give us a market leadership position in the polyester product category. Durkan is a leading supplier of custom commercial carpet to the hospitality market. Acquiring Durkan strengthens our commercial prod- uct offerings and adds the latest design and printing technology to Mohawk’s manufacturing strengths. These acquisitions exemplify our market strategy — to enter seg- ments or niches with growth and synergy potential that complements or expands our product line.Two recently added hard surface products, Mohawk Laminate flooring and Mohawk Ceramic tile, fit this strategy. Their significant growth has led us to offer new styles and SKUs. We are also excited about our newly introduced Mohawk Hardwood flooring products. Both carpet padding and Mohawk Commercial carpet tiles capacity, and we bought new dyeing equipment to further consolidate posted substantial gains. our residential manufacturing operations and improve costs. Last year, we focused on getting the maximum value from our An expanded warehouse system accommodates the higher volume brands. We strengthened Karastan’s position at the high end of the market, produced by our acquisitions and our growth in the hard surfaces busi- and then heavily promoted the Mohawk brand to the mass market. Our ness. As we added space, trucks and people, we improved the automation goal is to make Mohawk the overall brand of choice among our dealers of our distribution system to give us more accurate information faster. and consumers. In 1999, we began to tap the power of the Internet to assist our cus- We also realigned the Company into five product categories tomers, and we will expand this effort in 2000. Mohawk tested programs dedicated to marketing and retail channels: rug and textile, residential, on our proprietary business-to-business (B2B) website to provide cus- specified commercial, hospitality and Karastan.This enables us to focus tomers with key information about shipping, delivery, claims and credit. Jeffrey S. Lorberbaum, more effectively on the needs of each of our customers. This resource also provides immediate information and feedback to our President and Chief sales and marketing staffs. Structural Integrity At Mohawk, continually improving our infrastructure enhances our low-cost position and strengthens relationships with our Operating Officer, Tomorrow’s Forecast In our business, there are many variables we cannot customers.The design and implementation of our leading-edge, real-time with one of our Karastan control. Industry dynamics, however, appear to favor continued growth. information system unified our operations. Our processes for integrating Consolidation has increased the professionalism of our industry’s top tea-washed rugs. acquisitions have allowed us to take immediate advantage of synergies companies, leading to improved stockholder value and a positive outlook. and cost savings. Demographics remain favorable as baby boomers mature and During 1999, we significantly expanded our fiber extrusion capa- prosper.The strong U.S. economy creates a large amount of discretion- bilities to support new and existing product categories. New facilities and ary income, offering tremendous potential for our industry. Retailers equipment increase the Company’s filament and staple yarn processing are moving from a focus on price to selling features and benefits.This translates into increased demand for higher-quality products and better margins at all levels. Mohawk has established the foundation for a successful future. We provide a high level of service to a large, strong customer base. We own well-integrated, state-of-the-art manufacturing facilities and a distribution system second to none. Our acquisitions have contributed to the strength and depth of our management team and employees. Our new marketing initiatives support a continually broadening product line. With all these advantages in place, we remain confident that we possess the people, the manufacturing capabilities, the marketing strategies, the distribu- tion network and the brand awareness to take advantage of the many opportunities that lie ahead. David L. Kolb, Jeffrey S. Lorberbaum, Chairman and Chief Executive Officer President and Chief Operating Officer
  5. Mohawk’s commitment to cable television commercials build As we begin the 21st century, its retailers includes not only mar- on that name recognition with Mohawk Industries is positioned keting and sales programs, but also consumers. Our advertising cam- to make a grand entrance into what education and training. Last year, paign emphasizes style, beauty we believe will be an era of creative thousands of dealer representatives and fashion. marketing for the floor covering from across the country partici- Working in concert with our and home textiles industry. pated in Mohawk University, the advertising is a three-tiered mer- Mohawk’s marketing plan cen- industry’s most in-depth program chandising program: Mohawk ters on the value associated with designed to improve sales tech- Floorscapes, a total store concept; our brands. To provide increased niques and consumer satisfaction. Mohawk Color Center, which value to our dealers and help Our technological investments provides a boutique for a store- them attract more customers, we now extend to e-commerce. We within-a-store presentation; and have significantly expanded the have tested and introduced a B2B Mohawk Family of Brands, which advertising, marketing and mer- proprietary Internet site.The site offers product packages tailored to chandising of the Mohawk and will provide our dealers with easy the particular needs of each retailer. Karastan brands. We will promote access to customer service, shipping In 1999, we launched the the popular Mohawk brand and delivery status, and claims and Mohawk Floorscapes concept in name to all market segments and credit data as well as marketing and limited test markets. Today, inde- all product categories, including sales information. Internally, the site pendent retailers have installed residential and commercial carpet, will give our sales force immediate the concept in approximately 100 rugs, home textiles and hard sur- feedback and will improve the stores, and we plan to continue face flooring. The time-honored level of service. this rollout on a national basis. Karastan name will be promoted With this comprehensive Mohawk Color Center, the indus- in conjunction with high-end approach to marketing, we’re try’s longest-running and most residential and commercial carpet poised to make a truly grand successful merchandising program, and rugs. entrance in the new millennium. features nearly 2,000 participating Surveys show that Mohawk and dealers. More than 20,000 dealers Karastan are the most recognized buy products under the Mohawk brands in floor covering. Our Family of Brands. increased print advertising and In 1999, we strengthened the Karastan brand at the high end of the market, and promoted the Mohawk brand to the mass market.These are now the most recognized brands in floor covering. a grand entrance
  6. Neocon ’99, the nation’s most us to introduce a variety of prod- Mohawk is uniquely positioned distinguished commercial flooring ucts in all residential brands. And to take advantage of market exposition. A new woven prod- we have introduced American possibilities. Our recent acquisi- uct, Whipstitch, and a new carpet Weavers’ home textile designs into tions create exciting new synergies tile product,Tangents, received our printed rug and mat business. in manufacturing and design. Silver Best of Neocon awards. In fact, our recently realigned Mohawk has always recognized Mohawk’s commercial designs Rug & Textiles division has shared the value in sharing technology won Solutia’s 1999 Doc Award manufacturing technologies and and ideas among its divisions. for best-of-show, and our Lago strategies in sales and marketing This results in product innova- Collection of patterned loop to further enhance an already tions that have increased sales carpets received the 1999 Design successful business. and improved efficiencies. Journal Award for Design Excel- With an eye toward both envi- The Durkan, Image and lence.The Heirloom Collection ronmental responsibility and cost American Weavers acquisitions, from Mohawk Residential earned reduction, we reclaim waste in for instance, have produced ripple the Company its second consec- innovative and productive ways. We effects throughout many areas utive Dealer’s Choice Award recycle material from our residen- of our business. Durkan diversi- at Surfaces ’99. tial carpet business into nonwoven fied our position in commercial Winning awards is gratifying, padding, creating a value-added carpeting through its hospitality but winning consumer loyalty is product from manufacturing line, but Durkan’s state-of-the-art more rewarding. Mohawk’s com- waste by-product. Spectronics printing equipment mitment to bolstering our business Mohawk’s ability to transform and cutting-edge design also have through shared technology, shared possibilities into reality continues been used to create bath mats, design, shared manufacturing and to earn awards from a number printed rugs and residential shared information has solidified of influential organizations. Our broadloom products. our reputation for innovation commercial carpet brands cap- Similarly, Image’s polyester and efficiency. tured two prestigious awards at extrusion capabilities have allowed Our acquisitions historically produce immediate synergies and are quickly accretive to earnings.Then we leverage the strengths of these purchases throughout our organization to create additional stockholder value. endless possibilities
  7. importantly, by providing us with Karastan brand and introduces Mohawk’s manufacturing and business opportunities that result the classic look of woven Oriental marketing strengths offer a distinct in greater product placements and rugs to the bath market. In 1999, advantage to retailers and con- increased sales. we added an accent pillow collec- sumers alike. We offer superior Wal-Mart selected Mohawk tion to complement our profitable service, product innovations and to be a worldwide vendor because mass-market home textile line.To the ability to respond quickly and it recognized our customer com- leverage our commercial product flexibly to retailer challenges. We mitment and the strength of our lines and enhance our presence in combine the strength of an indus- manufacturing and distribution the corporate office market, we’ve try titan with the attention to capabilities. We will now serve added a new manufacturing line detail of a specialty manufacturer. Wal-Mart stores in the U.S., and launched a carpet tile product In addition to our own prod- Canada, Germany, the United under the Mohawk name. uct advances, we have extended Kingdom, Singapore and China. We seek to offer our customers Mohawk’s market presence by Mohawk was the only floor cover- every possible advantage through entering into licensing agreements ing manufacturer to receive Home product innovations. Last year, with major brands in American Depot’s Partner of the Year award we launched the SmartBack fashion. Our home textiles busi- in 1999. We were also honored Protective Backing System, a ness, for example, proudly supplies with a Partner in Progress award technologically advanced carpet Martha Stewart products to from Sears, Roebuck & Co.— backing engineered to reduce K-Mart. Most recently, Karastan overall weight and improve carpet and Ralph Lauren signed an exclu- the first time in a decade a floor performance.This exclusive back- sive licensing agreement to create covering manufacturer has been ing resists water damage, makes a new series of area rug and broad- so honored. the carpet more flexible and is loom designs for the Ralph Lauren Target recently presented easier to install. Home Collection label. In addition, our Rug & Textiles division with How do our customers respond Karastan and the Rug & Textiles its 1999 Vendor of Excellence to the advantages we offer? They division have collaborated on an Award, citing our innovative lead- clear advantages confirm our successful program exciting new venture to create a ership, superior execution and of continuous innovation by hon- unique line of washable bath rugs. commitment to enhancing the oring us with awards and, more This collection features the retailer’s performance. Starting with the two most recognized brands in floor covering, we expand our consumer presence by aligning with other household names. Agreements with Ralph Lauren and Martha Stewart take advantage of our superior infrastructure.
  8. As well as adding new products and manufacturing capabilities, our external growth strengthens our management team, our knowledge base and our ability to adapt to changing customer needs. made it easier to work with company trucks. At each step in Mohawk has acquired 12 compa- Mohawk, and our customers the process, the combination of nies in the past eight years. Along have responded enthusiastically. In employee expertise and cutting- with adding substantial products today’s technology-driven world, edge technology yields increased and sales, these acquisitions have needs change constantly. We strive productivity and reduced waste. introduced significant new ideas to anticipate those needs and con- Knowledge is not just power; and technologies to our Company. stantly challenge ourselves to stay knowledge is profit. Mohawk has retained key managers on the cutting edge. At Mohawk, we continuously from each acquisition, adding their At Mohawk, information leads refine our information systems to expertise to our knowledge base to innovation. By shifting manu- provide superlative customer ser- to help propel our Company for- facturing tasks to more efficient vice. Now we are able to quickly ward. Currently, Mohawk’s Top 25 locations and revamping sales realign our manufacturing and management team includes repre- assignments, we ensure that our distribution systems to bring our sentatives from most of these products are manufactured in products to customers faster. Real- organizations.This diversity pro- the most effective place and sold time tracking of production, orders duces multiple perspectives and in the most appropriate manner. and shipping allows our customers dynamic insights, and has allowed We provide faster, more coordi- to stay better informed and enables us to create a multifaceted organi- nated responses to customer us to better control inventory at zation whose synergies extend requirements and empower cus- our network of regional and satel- from manufacturing to marketing. tomers to follow the flow of lite warehouses. In many cases, our Today, we are an almost com- their orders, from placement to Residential division can deliver pletely vertically integrated organi- delivery. Mohawk’s integrated a broadloom order within 24 zation. Advanced technologies information systems and our hours. Our Commercial division’s allow us to produce more than half employees’ experience are addi- advanced technology allows us to of our own fiber, convert it into knowledge is power tional reasons we feel confi- track orders and project demand. yarn, dye it, tuft or weave it, store dent as we move into our third Shared knowledge improves it, and ship it anywhere in the century of doing business. business relationships. We have country using our large fleet of
  9. Opportunity and risk go hand In 1999, the fruits of this strat- rugs. Our new accent pillow line in hand. We feel an absolute egy were clearly evident. Growth is designed to complement these obligation to our stockholders to in home textiles, carpet tiles, carpet products.To further expand our rug and textile offerings, we import minimize risk while maximizing padding and hard surface flooring rugs from around the world. opportunity. Historically, we have added value for our customers and Hard surface flooring represents explored new markets with a delib- made Mohawk a more desirable the fastest-growing segment of the erate, measured approach before business partner. Our customers floor covering industry. We recog- committing to large investments. appreciate the diversity of products nized that we had an opportunity This strategy has proven successful we offer and have enthusiastically to add value to our Company by time after time. supported this expansion of our further diversifying our product Residential and commercial product line. line in this market. We also discov- carpet remain the core business of As one example, our entry into ered that our retailers wanted to Mohawk Industries. Broadloom the home textile market began associate the respected Mohawk is the primary source of our sales with limited exposure.The Ameri- brand with hard surface flooring. and our profits. Our goal is to can Weavers product line offered a Our initial success with ceramic increase market share within new market segment to Mohawk, tile in the Florida region proved that core business, while aug- and we have capitalized on it by that hard surfaces could add to menting this effort with strate- manufacturing these items in our profitability. Expansion of the gic opportunities. concert with our mass-market think big start small ceramic tile program into other regions, coupled with an initial dis- Customers appreciate our penetration into niche markets. tribution of laminate flooring, is Expanding our product offerings gives them more opportunities establishing Mohawk as a supplier of choice for hard surface flooring. to single-source their needs.The industry’s most diverse product We have previously stated that line offers smaller customers the choices to differentiate themselves. hardwood flooring is an area of interest to Mohawk. We believe this sector offers significant sales and profit opportunities. We have recently introduced a line of wood products. The “think big, start small” strategy has already placed us among the market leaders in area rugs, bath mats, throws, padding and ceramic tile.
  10. golden opportunity Mohawk’s long history of growth and success is built upon our ability to seize opportunities.Today, we are the world’s second-largest carpet manufacturer and the largest pro- ducer of rugs. With $3.1 billion in sales last year, we hold an approxi- mately 26% market share in an over $11 billion carpet and rug industry. The industry continues to grow, and Mohawk continues to outpace industry growth. We are financially and organizationally prepared to Our strategies position Mohawk to capture tomorrow’s seize opportunities as they arise. opportunities: opportunities for strategic acquisitions at Our brands represent a huge reasonable valuations. And for internal growth through strength because of their established marketing, product line extension and maintenance name recognition.Through our of our low-cost position. print and television advertising, we will bolster the Company’s estab- lished reputation for excellence information. We also offer the shared among our five divisions and further associate our brands industry’s most in-depth training supports the entire Company. with fashion, style and design. system, Mohawk University, which Meeting business opportunities in Similarly, the breadth and depth helps retailers produce greater sales one group often pays dividends in of our product line offers many and profits. We grow as our cus- others. We have assembled a diverse opportunities. We have the ability tomers grow, so their success is vital group of people and technologies, to expand product placements with to our future. We are developing and the synergies the two assets existing customers and to attract new tools like Floorscapes and afford us are truly exciting. new customers as they appear on expanding time-tested tools like The proven success of our busi- the retail horizon. Color Center. ness strategies shows that we can Our industry leadership in The basic structure of our Com- create many golden opportunities. information technology creates pany provides additional opportu- As we expand and excel in design, opportunities to do business at a nities. Our whole truly is stronger marketing, merchandising, manu- lower cost and with greater ease. than the sum of its parts.The tech- facturing and distribution, we We constantly seek new avenues nology, expertise, information, believe that the opportunities to provide our customers with manufacturing and marketing are almost limitless.
  11. Our broad management expertise and continual infrastructure improvements enable us to quickly see and adapt to changes in the marketplace. We welcome change, as it provides us with more opportunities to demonstrate our superior capabilities. regional and satellite warehouses, along with our extensive trucking fleet, promote high levels of cus- tomer service. Our organization is a blend of talented people, enhanced by our acquisitions, with hundreds of years of combined knowledge and skill. And our financial position looking ahead is powerful, supporting our growth and acquisitions. The challenge for Mohawk is to leverage these tremendous strengths and talents to grow our Company At Mohawk Industries, we have successfully and profitably. We built an organization that handles believe that no one in our industry change quickly and efficiently. is in a better strategic position than Our Company seizes opportuni- Mohawk Industries, and we look ties that offer growth, synergies and forward with great anticipation stockholder value. We approach to the opportunities ahead. these opportunities in a measured manner to minimize risk while maximizing reward. We have a very strong customer base; top consumer brands; and exciting merchandising, marketing and training. We offer a wide array of products. We have creative, innovative product development departments to keep new products flowing. We feature state-of-the-art facilities and leading-edge informa- tion systems. Our network of
  12. Board of Directors David Kolb Jeffrey Lorberbaum Leo Benatar Bruce Bruckmann Larry McCurdy Robert Pokelwaldt Jack Sharpe B RU C E C . B RU C K M A N N * RO B E RT N . P O K E LWA L D T * † DAV I D L . K O L B Managing Director Former Chairman and Chairman and Bruckmann, Rosser, Chief Executive Officer Chief Executive Officer Sherrill & Co., Inc. York International Corporation Mohawk Industries, Inc. (a venture capital firm) (a manufacturer of air conditioning and cooling systems) J E F F R E Y S . L O R B E R B AU M President and L A R RY W. M C C U R DY * Chief Operating Officer President S. H . “ JAC K ” S H A R P E Mohawk Industries, Inc. Dana Corporation’s Executive Vice President Automotive Aftermarket Group Mohawk Residential Business L E O B E N ATA R† (a worldwide manufacturer Associated Consultant, of motor vehicle parts) A.T. Kearney, and former Chairman, Engraph, Inc., a subsidiary of Sonoco Products Company (an international manufacturer of industrial and * Audit Committee consumer packaging products) Compensation Committee †

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