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Mohawk Provides Litigation and Earnings Guidance Update

The global flooring manufacturer announced that it has entered into an agreement with plaintiffs to resolve the previously disclosed securities class action lawsuit.

CALHOUN, Ga. -- Mohawk Industries, Inc. (NYSE: MHK), the world’s largest floor covering manufacturer, announced that it has entered into an agreement with plaintiffs to resolve the previously disclosed securities class action lawsuit. Mohawk and certain of its executive officers were named as defendants in this lawsuit initially filed on January 3, 2020, in the United States District Court for the Northern District of Georgia (the “Securities Class Action”). Mohawk believes that this Securities Class Action is without merit and that it has substantive defenses to the claims of liability and damages; however, Mohawk has concluded that further litigation would be protracted, burdensome and expensive. In exchange for dismissal and a full release of claims against the defendants, the parties reached an agreement to settle the Securities Class Action for $60 million, of which a significant portion is covered by insurance. The settlement of the Securities Class Action is expected to be submitted for preliminary approval by the court. The settlement of this case is subject to the usual and customary final documentation, public notice, and court approval.

Mohawk has also successfully settled a previously disclosed dispute with the Belgian Tax Authority (“BTA”) regarding the tax treatment of royalty income arising from intellectual property. In April 2022, the BTA issued a tax assessment of approximately €187 million (including penalties but excluding interest) for the calendar years ending December 2013 through 2018. Although Mohawk believes its tax position in Belgium is correct, Mohawk entered into an agreement with the BTA on November 23, 2022, to settle the dispute for a one-time payment of €3 million.

Since Mohawk issued its third quarter earnings release on October 27, 2022, the U.S. Federal Reserve has announced two additional interest rate increases. These increases, combined with continuing high inflation and lagging consumer confidence in the U.S. and Europe, resulted in the global residential flooring business softening more than the Company expected in the fourth quarter. In response, the Company increased temporary plant shutdowns, which further compressed margins and lowered quarterly results. In addition, demand in Flooring North America weakened more than the other segments, which led to actions to reduce its inventory levels. The combination of the lower volume, plant shutdowns and the consumption of higher cost carpet inventory decreased the segment’s financial performance for the quarter. Due to these factors, the Company’s fourth quarter adjusted EPS is expected to be between $1.27 and $1.31, excluding any restructuring or other one-time charges. The Company’s complete fourth quarter and full-year results, as well as guidance for the first quarter of 2023, will be included in the fourth quarter earnings release on February 9, 2023, with more extensive commentary to follow during the quarterly investor call on February 10, 2023.

The Company is in the process of completing its accounting processes and preparing its fourth quarter and full year 2022 financial statements. As a result, the preliminary financial results presented in this release are based on current expectations and may be adjusted as a result of, among other things, completion of the Company’s financial closing procedures and annual audit and other developments that may arise between now and the time these financial results are finalized. Furthermore, the adjusted EPS financial measure presented in this release is calculated consistent with how the Company has historically calculated adjusted EPS and excludes certain items that may not be indicative of, or are unrelated to, the Company’s core operating performance.

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