Mohawk Industries Reports Q2 Results
CALHOUN, Ga., July 25, 2018 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2018 second quarter net earnings of $197 million and diluted earnings per share (EPS) of $2.62. Adjusted net earnings were $263 million and EPS was $3.51, excluding restructuring, acquisition and other charges, a 6% decrease from last year. Net sales for the second quarter of 2018 were $2.6 billion, up 5% in the quarter and 3% on a constant currency basis. For the second quarter of 2017, net sales were $2.5 billion, net earnings were $261 million and EPS was $3.48; adjusted net earnings were $278 million and EPS was $3.72, excluding restructuring, acquisition and other charges.
For the six months ending June 30, 2018, net earnings and EPS were $405 million and $5.41, respectively. Net earnings excluding restructuring, acquisition and other charges were $488 million and EPS was $6.52, an increase over the 2017 six-month period adjusted EPS. For the 2018 six-month period, net sales were $5.0 billion, an increase of 7% versus prior year as reported or 3% on a constant currency and legacy basis. For the six-month period ending July 1, 2017, net sales were $4.7 billion, net earnings were $461 million and EPS was $6.17; excluding restructuring, acquisition and other charges, net earnings and EPS were $482 million and $6.44.
Commenting on Mohawk Industries' second quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "Our results fell short of our expectations, and we are taking actions to improve the performance of our U.S. businesses. With the overall economy, our results were negatively impacted by input inflation, higher transportation costs, a stronger dollar and a tight labor market. We were also affected by changing product mix, timing of price increases, lower production units, start-up of new projects and the delayed Godfrey Hirst closing. To address these, we are raising prices, expanding in growing channels and participating in new products and geographies. In the U.S. market, we are increasing our LVT production and sourcing, as LVT continues gaining market share.
"Our businesses outside North America showed significant improvement and our results improved more without start-up costs and expired patents. Although the economy in Europe slowed somewhat, the results in most of our non-U.S. businesses improved substantially with LVT, Russian ceramic, wood panels and insulation leading the growth. As the dollar strengthened during the period, the Euro fell from $1.24 to $1.16, reducing our translated results in U.S. dollars.
"Our company and industry are absorbing significant inflation. This year, we have had two carpet price increases and recently followed those with a third increase to offset additional material and freight inflation. We are taking pricing actions in most product categories impacted by inflation, including our higher value ceramic products.
"During the quarter, our new expansion projects had start-up expenses of $15 million as we continued investing to broaden our product offering and geographic penetration. These investments will enhance our sales and profitability, with most of the impact occurring in 2019 and beyond.
"For the quarter, our Global Ceramic Segment sales increased 3% as reported and 2% on a constant currency basis. Operating margin was approximately 15% both as reported and on an adjusted basis, declining year over year due to inflation, product mix and start-up costs. During the period, our North American ceramic volume improved with our average price weakening from growth in lower value products and channels. To increase our share of the ceramic market, we are delivering innovative products, enhancing our service and increasing our participation in the home center, builder and commercial channels. Our U.S. countertop growth is accelerating, and construction on our quartz countertop plant in Tennessee is on schedule, with production slated to begin by the end of this year. In Mexico, our sales increased as the quarter progressed, outpacing the market. We have doubled production at our Salamanca plant and introduced larger sizes to the market. European ceramic sales slowed slightly with the economy, while margins increased from improved price and mix and higher productivity. As we expand our Polish factory, we are preparing to realign manufacturing among our European plants to optimize our assets and improve our offering. Our Russian ceramic sales and margins remain strong, and we are expanding our porcelain floor and wall tile capacity.
"During the quarter, our Flooring North America Segment's sales increased 2%. The segment's operating margin was 9.5% as reported and 10% on an adjusted basis, absorbing inflation, lower than expected production and start-up costs. The realization of our price increases was later and our product mix declined more than we anticipated. As our raw materials and freight costs continue to escalate, we announced another price increase to recover. Our LVT sales in the period grew less than we forecast due to a delay in shipments of our sourced products. We anticipate a significant increase in LVT sales as our new U.S. production ramps up and the supply of sourced products increases in the third period. Our residential carpet improved led by the builder, multi-family and Main Street channels. Our new introductions in SmartStrand Silk Reserve, Air.O unified soft flooring and our luxury Karastan collections gained momentum in the market. Our new RevWood collections with water proof technology are growing rapidly in the retail and builder channels as an alternative to hardwood. Our commercial hard surface collections showed stronger growth, and our commercial carpet bookings strengthened as we progressed through the period.
"For the quarter, our Flooring Rest of the World Segment's sales increased 16% as reported and 8% on a constant currency basis. The segment's operating income increased 16% as reported, with an adjusted operating margin of 17%, as a result of improved price, product mix and productivity, offsetting inflation, start-up costs and expired patents. Our LVT sales were up dramatically and will increase more with our manufacturing expansion. Until now, we have been producing flexible LVT, and we have completed the initial production on rigid LVT, which will be launching in the third quarter. Our new premium laminate products utilizing unique technologies and water resistance are taking share and improving our mix. In Russia, we are introducing our latest European technology with our new laminate plant expansion. We are using our European sheet vinyl to build demand for our new Russian plant, which should start up by the end of this year. Our new carpet tile plant in Belgium is ramping up to penetrate the European commercial flooring market. Our wood panels and insulation products grew significantly from our manufacturing investments, better material supply and stronger market conditions. We completed the Godfrey Hirst acquisition on July 2, a month later than we had anticipated, and we are implementing strategies to become a total flooring provider in Australia and New Zealand as we have in the U.S.
"We are taking a comprehensive approach to improve our performance and profitability in the U.S. Our initiatives to improve pricing, increase sales in growing channels and reduce cost will benefit the remainder of the year. Given the impact of inflation, timing of price increases and other challenges, we do not anticipate that our actions in the U.S. will offset the pressures we are facing before next year. We expect continued strength in Europe and Russia, where inflation and shifting product preferences are less intense than in the U.S. Around the globe, we are entering new products and geographies as well as expanding constrained categories. Having closed Godfrey Hirst, we are already enhancing the largest flooring provider in Australia and New Zealand. In the U.S., we are investing in growing categories such as LVT and quartz countertops. If the recently announced Chinese tariffs are implemented, they will enhance our U.S. market position and results. Taking all of this into account, our EPS guidance for the third quarter is $3.54 to $3.64, excluding any one-time charges.
"We are passing through inflation, optimizing our new expansions and maximizing our LVT position to increase our profitability. Our talented organization, innovative products and strong balance sheet provide long-term advantages, and we continue to pursue acquisitions that bolt on or add new dimensions to expand the value of our company."
ABOUT MOHAWK INDUSTRIES
Mohawk Industries is the leading global flooring manufacturer that creates products to enhance residential and commercial spaces around the world. Mohawk's vertically integrated manufacturing and distribution processes provide competitive advantages in the production of carpet, rugs, ceramic tile, laminate, wood, stone and vinyl flooring. Our industry-leading innovation has yielded products and technologies that differentiate our brands in the marketplace and satisfy all remodeling and new construction requirements. Our brands are among the most recognized in the industry and include American Olean, Daltile, Durkan, Feltex, Godfrey Hirst, IVC, Karastan, Marazzi, Mohawk, Mohawk Group, Pergo, Quick-Step and Unilin. During the past decade, Mohawk has transformed its business from an American carpet manufacturer into the world's largest flooring company with operations in Australia, Brazil, Canada, Europe, India, Malaysia, Mexico, New Zealand, Russia and the United States.
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 and deflation in raw material prices and other input costs; inflation and deflation in consumer markets; 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; taxes and tax reform, product and other claims; litigation; and other risks identified in Mohawk's SEC reports and public announcements.
Conference call Thursday, July 26, 2018, at 11:00 AM Eastern Time
The telephone number is 1-800-603-9255 for US/Canada and 1-706-634-2294 for International/Local. Conference ID # 1166308. A replay will be available until August 25, 2018, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 1166308.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
Consolidated Statement of Operations Data Quarter Ended Six Months Ended
------------- ----------------
(Amounts in thousands, except per share data) June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
------------- ------------ ------------- ------------
Net sales $2,577,014 2,453,038 $4,989,216 4,673,683
Cost of sales 1,810,459 1,673,902 3,517,969 3,214,194
------------- --------- --------- ---------
Gross profit 766,555 779,136 1,471,247 1,459,489
Selling, general and administrative expenses 440,248 423,311 876,541 828,880
-------------------------------------------- ------- ------- -------
Operating income 326,307 355,825 594,706 630,609
Interest expense 7,863 8,393 15,391 16,595
Other expense (income), net 2,090 3,002 6,088 170
--------------------------- -----
Earnings before income taxes 316,354 344,430 573,227 613,844
Income tax expense 118,809 82,682 166,441 151,040
------------------ ------- ------ -------
Net earnings including noncontrolling interest 197,545 261,748 406,786 462,804
Net income attributable to noncontrolling interest 959 1,067 1,434 1,569
-------------------------------------------------- --- ----- -----
Net earnings attributable to Mohawk Industries, Inc. $196,586 260,681 $405,352 461,235
---------------------------------------------------- -------- ------- -------- -------
Basic earnings per share attributable to Mohawk Industries, Inc.
Basic earnings per share attributable to Mohawk Industries, Inc. $2.64 3.51 $5.44 6.21
---------------------------------------------------------------- ----- ---- ----- ----
Weighted-average common shares outstanding - basic 74,597 74,327 74,525 74,269
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Diluted earnings per share attributable to Mohawk Industries, Inc.
Diluted earnings per share attributable to Mohawk Industries, Inc. $2.62 3.48 $5.41 6.17
------------------------------------------------------------------ ----- ---- ----- ----
Weighted-average common shares outstanding - diluted 74,937 74,801 74,928 74,773
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Other Financial Information
(Amounts in thousands)
Depreciation and amortization $127,048 109,762 $249,702 214,785
----------------------------- -------- ------- -------- -------
Capital expenditures $247,418 224,153 $498,354 425,423
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Consolidated Balance Sheet Data
(Amounts in thousands)
June 30, 2018 July 1, 2017
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $518,226 130,238
Receivables, net 1,737,935 1,639,614
Inventories 2,061,204 1,865,941
Prepaid expenses and other current assets 456,315 374,930
-----------------------------------------
Total current assets 4,773,680 4,010,723
Property, plant and equipment, net 4,421,073 3,892,251
Goodwill 2,447,046 2,417,058
Intangible assets, net 858,532 878,301
Deferred income taxes and other non-current assets 393,708 391,158
--------------------------------------------------
Total assets $12,894,039 11,589,491
------------ ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and commercial paper $1,146,511 1,754,077
Accounts payable and accrued expenses 1,589,561 1,466,658
------------------------------------- --------- ---------
Total current liabilities 2,736,072 3,220,735
Long-term debt, less current portion 1,884,023 1,174,440
Deferred income taxes and other long-term liabilities 870,467 713,110
----------------------------------------------------- ------- -------
Total liabilities 5,490,562 5,108,285
----------------- --------- ---------
Redeemable noncontrolling interest 30,043 26,713
---------------------------------- ------ ------
Total stockholders' equity 7,373,434 6,454,493
-------------------------- --------- ---------
Total liabilities and stockholders' equity $12,894,039 11,589,491
------------------------------------------ ----------- ----------
Segment Information Quarter Ended As of or for the Six Months
Ended
------------- ---------------------------
(Amounts in thousands) June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
------------- ------------ ------------- ------------
Net sales:
Global Ceramic $929,297 902,670 $1,805,845 1,687,639
Flooring NA 1,057,570 1,040,299 2,007,928 1,979,795
Flooring ROW 590,147 510,069 1,175,443 1,006,249
Intersegment sales - - - -
------------------ --- --- --- ---
Consolidated net sales $2,577,014 2,453,038 $4,989,216 4,673,683
---------------------- ---------- --------- ---------- ---------
Operating income (loss):
Global Ceramic $134,760 152,557 $248,177 268,593
Flooring NA 100,662 127,482 175,410 219,624
Flooring ROW 100,166 86,052 189,226 162,147
Corporate and intersegment eliminations (9,281) (10,266) (18,107) (19,755)
--------------------------------------- ------ ------- ------- -------
Consolidated operating income $326,307 355,825 $594,706 630,609
----------------------------- -------- ------- -------- -------
Assets:
Global Ceramic $4,974,791 4,736,068
Flooring NA 3,927,190 3,625,350
Flooring ROW 3,701,419 2,984,716
Corporate and intersegment eliminations 290,639 243,357
--------------------------------------- ------- -------
Consolidated assets $12,894,039 11,589,491
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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)
Quarter Ended Six Months Ended
------------- ----------------
June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
------------- ------------ ------------- ------------
Net earnings attributable to Mohawk Industries, Inc. $196,586 260,681 405,352 461,235
Adjusting items:
Restructuring, acquisition and integration-related and other costs 16,042 15,878 38,146 19,856
Acquisitions purchase accounting , including inventory step-up 194 9,571 1,548 9,763
Release of indemnification asset - - 1,749 -
Income taxes - reversal of uncertain tax position - - (1,749) -
Income taxes 50,106 (7,677) 43,166 (9,091)
------------ ------ ------ ------ ------
Adjusted net earnings attributable to Mohawk Industries, Inc. $262,928 278,453 488,212 481,763
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Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. $3.51 3.72 6.52 6.44
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Weighted-average common shares outstanding - diluted 74,937 74,801 74,928 74,773
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Reconciliation of Total Debt to Net Debt
(Amounts in thousands)
June 30, 2018
-------------
Current portion of long-term debt and commercial paper $1,146,511
Long-term debt, less current portion 1,884,023
Less: Cash and cash equivalents 518,226
Net Debt $2,512,308
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Reconciliation of Operating Income to Adjusted EBITDA
(Amounts in thousands) Trailing Twelve
Quarters Ended Months Ended
-------------- ------------
September 30, 2017 December 31, 2017 March 31, 2018 June 30, 2018 June 30, 2018
------------------ ----------------- -------------- ------------- -------------
Operating income 380,098 343,466 268,399 326,307 1,318,270
Other (expense) income (1,285) (3,750) (3,998) (2,090) (11,123)
Net (income) loss attributable to noncontrolling interest (997) (488) (475) (959) (2,919)
Depreciation and amortization 113,515 118,372 122,654 127,048 481,589
----------------------------- ------- ------- ------- ------- -------
EBITDA 491,331 457,600 386,580 450,306 1,785,817
Restructuring, acquisition and integration-related and other costs 13,853 15,231 22,104 16,042 67,230
Acquisitions purchase accounting, including inventory step-up 3,551 - 1,354 194 5,099
Release of indemnification asset - 4,459 1,749 - 6,208
Adjusted EBITDA 508,735 477,290 411,787 466,542 1,864,354
--------------- ------- ------- ------- ------- ---------
Net Debt to Adjusted EBITDA 1.3
--------------------------- ---
Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate Excluding Acquisition Volume
(Amounts in thousands)
Quarter Ended Six Months Ended
------------- ----------------
June 30, 2018 July 1, 2017 June 30, 2018 July 1, 2017
------------- ------------ ------------- ------------
Net sales $2,577,014 2,453,038 4,989,216 4,673,683
Adjustment to net sales on a constant exchange rate (48,326) - (147,158) -
--------------------------------------------------- ------- --- -------- ---
Net sales on a constant exchange rate 2,528,688 2,453,038 4,842,058 4,673,683
Less: impact of acquisition volume (1,239) - (46,515) -
------ --- ------- ---
Net sales on a constant exchange rate excluding acquisition volume $2,527,449 2,453,038 4,795,543 4,673,683
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Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate Excluding Acquisition Volume
(Amounts in thousands)
Quarter Ended
-------------
Global Ceramic June 30, 2018 July 1, 2017
------------- ------------
Net sales $929,297 902,670
Adjustment to segment net sales on a constant exchange rate (10,986) -
----------------------------------------------------------- ------- ---
Segment net sales on a constant exchange rate 918,311 902,670
Less: impact of acquisition volume (1,239) -
------ ---
Segment net sales on a constant exchange rate excluding acquisition volume $917,072 902,670
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Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate
(Amounts in thousands)
Quarter Ended
-------------
Flooring ROW June 30, 2018 July 1, 2017
------------- ------------
Net sales $590,147 510,069
Adjustment to segment net sales on a constant exchange rate (37,340) -
----------------------------------------------------------- ------- ---
Segment net sales on a constant exchange rate $552,807 510,069
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Reconciliation of Gross Profit to Adjusted Gross Profit
(Amounts in thousands)
Quarter Ended
-------------
June 30, 2018 July 1, 2017
------------- ------------
Gross Profit $766,555 779,136
Adjustments to gross profit:
Restructuring, acquisition and integration-related and other costs 12,018 13,028
Acquisitions purchase accounting, including inventory step-up 194 9,571
------------------------------------------------------------- --- -----
Adjusted gross profit $778,767 801,735
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Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses
(Amounts in thousands)
Quarter Ended
-------------
June 30, 2018 July 1, 2017
------------- ------------
Selling, general and administrative expenses $440,248 423,311
Adjustments to selling, general and administrative expenses:
Restructuring, acquisition and integration-related and other costs (4,024) (2,850)
Adjusted selling, general and administrative expenses $436,224 420,461
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Reconciliation of Operating Income to Adjusted Operating Income
(Amounts in thousands)
Quarter Ended
-------------
June 30, 2018 July 1, 2017
------------- ------------
Operating income $326,307 355,825
Adjustments to operating income:
Restructuring, acquisition and integration-related and other costs 16,042 15,878
Acquisitions purchase accounting, including inventory step-up 194 9,571
------------------------------------------------------------- --- -----
Adjusted operating income $342,543 381,274
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Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
Quarter Ended
-------------
Global Ceramic June 30, 2018 July 1, 2017
-------------- ------------- ------------
Operating income $134,760 152,557
Adjustments to segment operating income:
Restructuring, acquisition and integration-related and other costs 5,408 1,305
Acquisitions purchase accounting, including inventory step-up - 9,571
------------------------------------------------------------- --- -----
Adjusted segment operating income $140,168 163,433
--------------------------------- -------- -------
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
Quarter Ended
-------------
Flooring NA June 30, 2018 July 1, 2017
----------- ------------- ------------
Operating income $100,662 127,482
Adjustments to segment operating income:
Restructuring, acquisition and integration-related and other costs 8,881 12,196
Adjusted segment operating income $109,543 139,678
--------------------------------- -------- -------
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
Quarter Ended
-------------
Flooring ROW June 30, 2018 July 1, 2017
------------ ------------- ------------
Operating income $100,166 86,052
Adjustments to segment operating income:
Restructuring, acquisition and integration-related and other costs 1,338 2,170
Acquisitions purchase accounting, including inventory step-up 194 -
------------------------------------------------------------- --- ---
Adjusted segment operating income $101,698 88,222
--------------------------------- -------- ------
Reconciliation of Earnings including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes
(Amounts in thousands)
Quarter Ended
-------------
June 30, 2018 July 1, 2017
------------- ------------
Earnings before income taxes $316,354 344,430
Noncontrolling interests (959) (1,067)
Adjustments to earnings including noncontrolling interests before income taxes:
Restructuring, acquisition and integration-related & other costs 16,042 15,878
Acquisitions purchase accounting, including inventory step-up 194 9,571
Adjusted earnings including noncontrolling interests before income taxes $331,631 368,812
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Reconciliation of Income Tax Expense to Adjusted Income Tax Expense
(Amounts in thousands)
Quarter Ended
-------------
June 30, 2018 July 1, 2017
------------- ------------
Income tax expense $118,809 82,682
Income tax effect of adjusting items (50,106) 7,677
------- -----
Adjusted income tax expense $68,703 90,359
--------------------------- ------- ------
Adjusted income tax rate 20.7% 24.5%
------------------------ ---- ----
The Company supplements its consolidated financial statements, which are prepared and presented in accordance with US GAAP, with certain non-GAAP financial measures. As required by the Securities and Exchange Commission rules, the tables above present a reconciliation of the Company's non-GAAP financial measures to the most directly comparable US GAAP
measure. Each of the non-GAAP measures set forth above should be considered in addition to the comparable US GAAP measure, and may not be comparable to similarly titled measures reported by other companies. The Company believes these non-GAAP measures, when reconciled to the corresponding US GAAP measure, help its investors as follows: Non-GAAP revenue
measures that assist in identifying growth trends and in comparisons of revenue with prior and future periods and non-GAAP profitability measures that assist in understanding the long-term profitability trends of the Company's business and in comparisons of its profits with prior and future periods.
The Company excludes certain items from its non-GAAP revenue measures because these items can vary dramatically between periods and can obscure underlying business trends.
Items excluded from the Company's non-GAAP revenue measures include: foreign currency transactions and translation and the impact of acquisitions.
The Company excludes certain items from its non-GAAP profitability measures because these items may not be indicative of, or are unrelated to, the Company's core operating performance. Items excluded from the Company's non-GAAP profitability measures include: restructuring, acquisition and integration-related and other costs, acquisition purchase
accounting, including inventory step-up, release of indemnification assets and the reversal of uncertain tax positions.
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SOURCE Mohawk Industries, Inc.
