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Features

Redefining Floor Covering

Mohawk Industries' ability to deal with change has allowed it to become a fully vertical floor covering supplier.

Jim Borneman, Editor In Chief

T he Mohawk Industries Inc. story reads like a classic business case: a success story based on leadership that supports growth both organic and through mergers and acquisitions as well as a redefinition of product and services to fit the demands of consumers, and migration from traditional manufacturing to becoming a fully vertical floor covering supply chain that includes aggressive marketing and retail support.

The Calhoun, Ga.-based Mohawk Industries known today has its origins in a strategic merger that, at the time, made the company the only US mill to produce the four available styles of woven carpet. In 1878, four Shuttleworth brothers came from England and established a mill with 14 secondhand looms in Amsterdam, N.Y. In 1886, a mill known as McCleary, Walin and Crouse was established in the same city. In 1920, the two companies merged to establish Mohawk Carpet Mills, taking the name from the Mohawk River running through Amsterdam.

Growth came quickly to Mohawk, which reported $18 million in sales and earnings in excess of $1 million in 1937. By 1941, sales exceeded $30 million; and by 1948, sales reached almost $62 million.

In 1954, Mohawk merged with Alexander Smith and Sons to establish Mohasco Industries. Combined sales reached $110.7 million.

Product and technology continued to be a significant part of Mohawk's success. One example is a 1953 investment in tufting that payed off just 10 years later. By 1963, more than half the carpet produced in the United States was made using tufting technology. That early investment positioned Mohasco for rapid growth.

mohawkfloor

Established in 1878 as a carpet manufacturer, Mohawk Industries has focused on a strategy of growth, which includes adding laminate flooring, ceramic tile, stone, hardwood flooring and resilient to its products portfolio.

From $270 Million To $7 Billion

In 1980, Mohasco hired David Kolb as CEO. In 1984, John Swift joined the company as CFO. In retrospect, Swift's pairing with Kolb was a tipping point for Mohawk as this team led rapid change, and rapid growth unfolded.

Jeffrey Lorberbaum, current chairman and CEO, summed it up best when Swift and Kolb retired in late 2004: John has been an integral part of the Mohawk organization as we grew from a $270 million carpet manufacturer to a leading floor covering manufacturer with 2003 sales in excess of $5 billion and an annual earnings per share growth rate of 26 percent since 1997. When John started with Mohawk in 1984, Mohawk was an unprofitable division of Mohasco. Under his financial leadership, Mohawk was spun off as an independent company in 1988 and became publicly traded in 1992. During his tenure, Mohawk completed 17 successful acquisitions, growing to number 349 on the Fortune 500 list with a total enterprise value in excess of $6 billion.

With similar respectful remarks for Kolb, Lorberbaum said: Dave has truly changed the company and the industry with his vision, strategy and hard work. Under Dave's leadership, Mohawk was spun off from its parent company in an LBO transaction and turned in a strong performance for three years as a private company. In 1992, he took the company public in an [initial public offering] and began to lead the consolidation of the floor covering industry with 12 acquisitions over the course of eight years. After Dave retired as CEO to continue serving as chairman in December 2000, the company continued its strong growth both through acquisitions and organically with strategic emphasis.

Today, Mohawk continues in Kolb's and Swift's strategic footsteps and has gained key leaders like Lorberbaum through mergers and acquisitions, blending talents and corporate cultures along the way. By late 2006, sales are projected to close in on $7 billion, continuing the company's growth history.

Established in 1878 as a carpet manufacturer, Mohawk Industries has focused on a strategy of growth, which includes adding laminate flooring, ceramic tile, stone, hardwood flooring and resilient to its products portfolio.

1992 To Present

Acquisitions at Mohawk have not only increased sales, but also opened markets and added talent to the company. From associates to executives, Mohawk has benefited from the knowledge and talent brought to the company through aggressive merger and acquisition activities. To get a sense of the companies that form the core of Mohawk's transformation, a year-by-year list of some of the key acquisition investments put in action by Kolb and Swift follows: 1992 Horizon Industries; 1993 American Rug Craftsmen and Karastan-Bigelow; 1994 Aladdin Mills; 1995 Galaxy Carpet Mills; 1997 Diamond Carpet Mills (certain assets); 1998 Newmark Rug Co., American Weavers and World Carpets/WundaWeve; 1999 Durkan Patterned Carpets and Image Industries; 2000 Alliance Pad; 2002 Dal-Tile and American Olean; 2003 Lees Carpets; and 2005 Unilin.

At first glance, the list above looks like the act of a consolidator amassing industry participants to maximize economies of scale and buy market share. A deeper look reveals that strategically, each company has brought additional advantages in product, distribution or ever-important supply chain control. In addition, Mohawk's migration from carpet manufacturer to floor covering resource is clear. In 2001, 5 percent of total company sales was in hard-surface products. With the addition of Dal-Tile and Unilin known for Quick-Step® laminates the company rebalanced its revenue mix to include a 35-percent share dedicated to hard surface. Dal-Tile, which focuses on ceramic and stone, is estimated to be growing at 15 percent per year. Consumers hunger for laminates continues to grow similarly.

In true Mohawk form, the migration from carpet manufacturer to full floor covering resource has multiple repercussions. In terms of distribution, a complete floor covering line is available from Mohawk. In terms of marketing and retail support, Mohawk can offer retailers full support and increase penetration with Mohawk brands. The retailer, from one source, can benefit from a variety of in-store marketing support across Mohawk design and product lines as well as direct consumer marketing in the form of brand-building consumer and trade advertising.

A Focus On Growth

The strategies of Kolb and Swift, which continue today under Lorberbaum's charge, appear as savvy financial investments in a growing industry. That may be true, but the ability to actively manage the strengths of Mohawk, adding to them when necessary to lead rather than accommodate industry changes from fiber through retail and commercial to consumer is as big if not a bigger part of Mohawk's success.

It would have been easy for Mohawk to get stuck in its identity as a world-class carpet and rug manufacturer. The risks were understood. But the active vision to change to deal with the change presented by the retail and distribution environment, whether it be the advent of Home Depot and Lowes supercenters, or the family-run floor covering store is the quantum leap. Mohawk didn't abandon its history to pursue its future. Rather, with significant vision and an understanding of the consumer, it redefined floor covering and, in doing so, charted a path for growth.


Jeff Lorberbaum: Transition To The Future

In 1994, Mohawk merged with highly profitable and privately held Aladdin Mills Inc. through a $430 million pooling of interests. Mohawk paid a premium price for Aladdin but felt justified by Aladdin's comparatively high profitability. Aladdin's compound sales growth had averaged 20 percent from 1988 to 1993, and after the merger Aladdin contributed 40 percent to Mohawk's sales and 50 percent to its net income. In 1995, Jeffrey Lorberbaum, son of Aladdin founder Alan Lorberbaum, was appointed Mohawk president and COO, while David Kolb continued on as chairman and CEO. Lorberbaum, no newcomer to the industry, joined Aladdin in 1976 as vice president of operations and later became its president and CEO.

Focusing on profitability, Lorberbaum structured the corporation's manufacturing capacity along product lines, adjusting capacity over the ensuing years and consolidating operations at the most efficient plants. He also expected to expand Aladdin's existing warehousing and distribution system to service all of Mohawk's operations. A more dynamic marketing program emphasized the strength of the company's core brands.

Under Lorberbaum's guidance, Mohawk continued acquisitions through the rest of the 90s and into the new century, including Image Carpet Mills, Galaxy Carpet Mills, Diamond Carpet and Rug, World Carpets and Durkan Patterned Carpets. One of the biggest acquisitions came in 2002 with the purchase of Dal-Tile, which made Mohawk Industries the largest supplier of ceramic tile in the United States. The acquisition of Unilin in 2005 catapulted Mohawk into the same strategic position in the fast-growing laminate market.

Kolb and CFO John Swift retired in 2004, but their legacy and strategic vision are still present in Lorberbaum's leadership. 


David Kolb And John Swift: Key Architects Of Mohawk's Financial Strategy

In 1980, Mohasco, then owners of Mohawk, hired David Kolb, an attorney who had served as comptroller and director of the nylon carpet fibers division at Allied Fibers. As Mohawk's CEO, Kolb was charged with turning the then-unprofitable company around. The new CEO undertook a five-year program that encompassed plant and system's modernization, cost reductions and development of new managers. He even moved the company's headquarters from Amsterdam, N.Y., to Atlanta.In 1984, John Swift joined the company as vice president of finance and CFO after 18 years with General Electric Co.

kolbswift

David Kolb (left) and John Swift

Under the guidance of Kolb and Swift, Mohawk switched to higher-margin products and increased direct distribution to retailers, streamlining the supply chain. Having achieved his profit goals, Kolb took the carpet division private with a $120 million leveraged buyout (LBO) in 1988. Kolb became chairman of the Board of Directors and CEO of the company, and Swift became secretary and treasurer.

Mergers and acquisitions reduced the number of carpet producers from more than 300 in 1980 to 100 by the mid-1990s, with vertically integrated and, in Mohawk's case, well-diversified mega-mills emerging at the top of the heap.

Using the $38 million proceeds of Mohawk's 1992 public stock offering to reduce the company's LBO debt, Kolb and Swift engineered a series of key acquisitions that catapulted Mohawk from 11th in the industry to second, increased its sales from less than $300 million to nearly $1.5 billion, and multiplied its market share from less than 4 percent to 17 percent. In addition, Mohawk's growth rate ranked it second among the Fortune 500s fastest-growing companies in 1993.

The first purchase, Horizon Industries, came in October 1992. Although larger than Mohawk, Horizon was vulnerable because of back-to-back losses in the early 1990s. Less than eight months later, Mohawk acquired American Rug Craftsmen (ARC), a 10-year-old manufacturer of area rugs. ARC made Mohawk the nation's leading producer of mass-market rugs and now is part of Mohawk Home.The August 1993 purchase of Karastan-Bigelow from Fieldcrest Cannon added two of the industry's best-known and most valuable brands. In fact, Bigelow was named for Erastus B. Bigelow, the 19th-century Father of the Modern Carpet Industry, so-named for his invention of the power loom. The addition of Karastan-Bigelow pushed Mohawk past competitor Beaulieu of America to become the United States' second-largest carpet company. The leadership and philosophies established by Kolb and Swift transformed an unprofitable Mohasco division into a performance-oriented publicly traded firm that has realized close to $7 billion in annual sales. Following the 2004 retirement of Kolb and Swift, Mohawk Industries continues to focus on growth and meeting consumers demands.

July/August 2006




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