Mohawk Industries, Inc.
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known for developing
the UNICLIC glueless system, beveled edges, and new designs/textures for laminate
and hardwood flooring. After having steadily increased distribution within Eastern Europe and Russia, the
Company added a manufacturing facility in Russia that will be operational in 3Q 2011. In addition, Mohawk
has expanded Unilin’s Western European business into the hardwood category with products manufactured
from Malaysia and through the acquisition of a large hard surface wholesaler in the U.K. and Ireland. Finally,
Unilin recently expanded its product lines to include roofing systems, insulation panels and other wood
products. Non-flooring products now account for one-third of overall segment sales.
2010 Sales ($MM)
2010 EBITDA ($MM)
Source: Company reports
History of the Company
The Company was founded in 1878 by four Shuttleworth brothers who shipped 14 second-hand Wilton
looms from Great Britain to Amsterdam, New York (which at the time was a major textile center) to launch their
carpet mill. The Company was incorporated in 1902 under the name Shuttleworth Brothers Company. Three
generations of Shuttleworths ran the Company’s first century, and in 1920, the company began the first of what
would become many mergers and acquisitions when it combined with carpet makers McCleary, William and
Crouse to become a market leader in the then fragmented industry. After the merger, the combined company
was renamed Mohawk Carpet Mills. In 1956, Mohawk merged with Alexander Smith Inc., which was the largest
carpet manufacturer in the world at that time, to form Mohasco Industries. Aspiring to build a home furnishing
empire, Mohasco acquired nine furniture manufacturers over the next 15 years. By 1972, Mohasco was the
number two player in the overall home furnishing market, behind Bassett Furniture, and its carpet business
only accounted about a quarter of total sales. Mohasco’s carpet business incurred operating losses throughout
the late 1970s and 1980s as the industry was burdened with overcapacity and fierce competition. David Kolb
was hired as President of Mohasco’s carpet division in 1980 and was charged with improving profitability. Over
the next five years, he upgraded manufacturing facilities, emphasized high margin carpet products and sold
directly to floor covering retailers. Kolb led a management buyout of the division in 1988, but MHK reemerged
as a public company in 1992.
In 1994, Mohawk merged with highly profitable and privately held Aladdin Mills. Because Aladdin was
more profitable than Mohawk, the privately held company's owners, the Lorberbaum family, ended up with a
controlling 39 percent stake in Mohawk. After the merger, Aladdin contributed 40 percent of MHK’s sales and
50 percent of net income. In 1995, Jeffrey Lorberbaum, son of Aladdin founder Alan Lorberbaum, was
appointed President and Chief Operating Officer. He continued the Company’s acquisition strategy to
consolidate the industry with the purchase of Galaxy Carpet Mills in 1995, Diamond Rug and Carpet Mills in
1997, and Newmark & James, America Weavers, and World Carpets in 1998. In 1999, Mohawk acquired
Image carpet and Durkan Patterned Carpets, Crown Crafts’ woven division. In 2001, MHK paid $1.7 billion for
Dal-Tile. The acquisition was the Company’s 14
th
since 1992 and added close to $1 billion to MHK’s already
Mohawk
53%
Dal-Tile
25%
Unilin
22%
Mohawk
35%
Dal-Tile
23%
Unilin
42%
$2,845
$1,367
$1,188
$260
$215
$143
Total: $5,319 before elimination of Intersegment Sales
Total: $611 before Corporate Eliminations
Mohawk Industries, Inc.
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substantial $3.3 billion in 2002 sales. In 2005, the Company acquired Unilin for almost $2.6 billion. Over the
last 15 or so years, MHK added $4.5 billion in sales through acquisitions.
Overview of the Flooring Industry
U.S. Flooring Sales 1994-2010 ($MM)
2010 U.S Flooring Industry - $17.1 Billion
Carpets &
Rugs
55%
Vinyl
12%
Ceram ic
12%
Hardw ood
9%
Stone
6%
Lam inate
5%
Rubber
1%
Source: Floor Covering Weekly, July 18/25, 2011
In 2010, U.S. floor covering sales approximated $17.1 billion consisting of carpet and area rugs (54.7%
of total sales), vinyl, linoleum and cork (12.1%), ceramic (11.6%), hardwood (9.4%), stone (6.2%), laminates
(5.1%) and rubber (0.9%). Over a ten year period from 1995 to 2005, the Industry grew at a compound annual
growth rate of 5.7%. Between 2006 and 2010, the U.S. flooring sales declined 33.2%. Sales in 2010 increased
3.3% due to inventory restocking, depleted inventories at distribution channels, and higher housing sales
driven by the homebuyer tax credit. The increase was encouraging given that new home construction was
under 500,000 units in 2010, for the second consecutive year, and the homes built were about six percent
smaller on average. Catalina Research forecasts flooring sales to increase 2.1% in 2011. Overall industry
sales are typically driven by residential replacement and remodeling, which accounts for about 56% of total
sales while residential new construction and commercial make up 8% and 36%, respectively.
Carpet and rug sales approximated $9.4 billion in 2010, up 1.1% from 2009’s level, while square
footage approximated 10.7 million square feet, up 0.8%. Residential replacement and new construction
accounted for 65% and 3%, respectively, of total carpet sales. For commercial construction, replacement sales
accounted for 21% of total category sales, while new construction makes up 4%. Carpet and area rugs have
been losing market share to ceramic tiles, hardwood floor and laminate flooring. Over the last five years, total
carpet and area rug sales have declined 36.5% from $14.7 billion in 2006, while overall square footage
declined 37.2% from 17.0 billion square feet. During this same period, carpet and area rugs share of the overall
flooring market declined from 63.8% to 59.9% (as measured in square footage).
In the hardwood flooring category, sales increased 8.5% from $1.5 billion in 2009 to $1.6 billion in 2010
due to higher pricing (from manufacturers passing through higher lumber prices) and pent up demand from
home remodelers. Square foot sales were up 3.2% in 2010 to 829.0 million from 803.4 million in 2009. About
77% of 2010’s $1.6 billion hardwood sales are consumed in residential housing (58.3% is replacement and
18.5% new construction). Hardwood flooring share (as measured in square feet) of the overall flooring market
increased from 4.1% in 2006 to 4.6% in 2010. Hardwood is now increasingly desired by consumers and should
benefit from a healthier consumer spending environment as they remodel their existing homes or purchase a
new house. In our view, hardwood flooring should correlate with home sales going forward.
14.2
14.6
15.2
15.8
17.4
18.8
19.9 20.2
20.5
21.9
24.1
25.4 25.7
23.2
21.2
17.1
16.6
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