UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[Mark One]
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ý☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172022
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
01-13697
MOHAWK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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| Delaware | | 01-13697 | | 52-1604305 |
(State or other jurisdiction of
incorporation or organization)
| | (Commission File Number) | | (I.R.S. Employer
Identification No.)
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160 S. Industrial Blvd., Calhoun, Georgia | | | | 30701 |
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Registrant’s telephone number, including area code: (706) 629-7721
Securities Registered Pursuant to Section 12(b) of the Act:
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| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| Common Stock, $.01 par value | MHK | New York Stock Exchange |
Floating Rate Notes due 2019 | | New York Stock Exchange |
2.000% Senior Notes due 2022 | | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ActAct. Yes ¨ No ý
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ý | | Accelerated filer | | ¨☐ |
| Non-accelerated filer | | ¨☐ | | Smaller reporting company | | ¨☐ |
| Emerging growth company | | ¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ý
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No ý
The aggregate market value of the Common Stock of the Registrant held by non-affiliates (excludes beneficial owners of more than 10% of the Common Stock) of the Registrant (61,780,545(52,478,403 shares) on June 30, 2017July 2, 2022 (the last business day of the Registrant’s most recently
completed fiscal second quarter) was $14,931,739,921.$6,768,139,635. The aggregate market value was computed by reference to the closing price of the Common Stock on such date.
Number of shares of Common Stock outstanding as of February 26, 2018: 74,425,46717, 2023: 63,540,310 shares of Common Stock, $.01 par value. Mohawk Industries, Inc. common stock trades on the New York Stock Exchange under symbol MHK.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 20182023 Annual Meeting of Stockholders-Part III.
Table of Contents
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PART I
Item 1.Business
Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Mohawk,” or “the Company” as used in this Form 10-K refer to Mohawk Industries, Inc.
General
Mohawk Industries, Inc. (“Mohawk” or the “Company”) is a leading global flooring manufacturer that creates products to enhance residential and commercial spaces around the world. The Company'sCompany’s vertically integrated manufacturing and distribution processes provide competitive advantages in carpet, rugs, ceramic tile, laminate, wood, stone, luxury vinyl tile (“LVT”) and sheet vinyl flooring. The Company'sCompany’s industry-leading innovation develops products and technologies that differentiate its brands in the marketplace and satisfy all flooring relatedflooring-related remodeling and new construction requirements. The Company'sCompany’s brands are among the most recognized in the industry and include American Olean®, Daltile®, Durkan®, Eliane®, Feltex®, Godfrey Hirst®, IVC Commercial®, IVC Home®, Karastan®, Kerama Marazzi®, Marazzi®, Moduleo®, Mohawk®, Pergo®, Quick-Step® and Unilin®. TheDuring the past two decades, the Company has transformed its business from an American carpet manufacturer into the world'sworld’s largest flooring company with operations in Australia, Brazil,Canada, Europe, India, Malaysia, Mexico, New Zealand, Russia, the United Kingdom and the United States. The Company had annual net sales in 20172022 of $9.5$11.7 billion. Approximately 63%60% of this amount was generated by sales in the United States and approximately 37%40% was generated by sales outside the United States. The Company has three reporting segments,segments: Global Ceramic, Flooring North America ("(“Flooring NA"NA”) and Flooring Rest of the World ("(“Flooring ROW"ROW”) with their 2022 net sales in 2017 representing 36%37%, 42%36% and 22%27%, respectively, of the total.Company’s total revenue. Selected financial information for the three segments, geographic net sales and the location of long-lived assets are set forth in Note 15-Segment Reporting.18, Segment Reporting.
The Global Ceramic segment designs, manufactures, sources, distributes and markets a broad line of ceramic, porcelain and natural stone tile products used for wallfloor and floorwall applications in residential and commercial channels for both remodeling and new construction. In addition, the Global Ceramic segment manufactures, sources and distributes other tile related products, including natural stone, porcelain slabs and quartz and porcelain slab countertops. Thecountertops, as well as installation materials. Global Ceramic segment markets and distributes its products under various brands, including the following brand names:following: American Olean, Daltile, Eliane, EmilGroup®, KAI®, Kerama Marazzi, Marazzi and Ragno® which itRagno®. The Segment sells its products through company-owned and franchised operations, independent distributors, home centers, floor covering retailers, ceramic specialists, commercial contractors and commercial end users. The Global Ceramic segment operations are vertically integrated from the production of raw material for body and glaze preparation to the manufacturing and distribution of ceramic and porcelain tile.tile and countertops.
The Flooring NA segment designs, manufactures, sources and distributes itsa broad range of floor covering product lines,products in a broad rangevariety of colors, textures and patterns in thefor both residential and commercial markets for both remodeling and new construction.construction channels. The segment'sSegment’s product lines include carpets,broadloom carpet, carpet tile, rugs and mats, carpet pad, hardwood, laminate, medium-density fiberboard (“MDF”), wood flooring, LVT and sheet vinyl. The Flooring NA segment markets and distributes its flooring products under various brands, including the following brand names:following: Aladdin Commercial®, Columbia Flooring®, Durkan, HorizonIVC®, IVC, Karastan, Mohawk, Mohawk Group®, Mohawk Home®, Pergo, Portico®, Quick-Step and SmartStrand® which itQuick-Step. The Segment sells its products through floor covering retailers, distributors, home centers, mass merchandisers,merchants, department stores, e-commerce retailers, shop at home, buying groups, builders, commercial contractors and commercial end users.
The Flooring ROW segment designs, manufactures, sources and distributes a wide variety of laminate, hardwoodLVT and sheet vinyl, wood flooring, broadloom carpet and vinyl flooring products, including LVT, as well as roofing elements, insulation boards, medium-density fiberboard ("MDF"), and chipboards,carpet tile collections used in the residential and commercial markets for both remodeling and new construction. In addition, the Flooring ROW segmentmanufactures roofing panels, insulation boards, mezzanine flooring, MDF and chipboards primarily for the European market. The Segment also licenses certain patents related to flooring manufacturersmanufacturing throughout the world. The Flooring ROW segmentSegment markets and distributes its flooring products under various brands, including the following brand names: Balteriofollowing: Feltex, GH Commercial®, Godfrey Hirst, Hycraft®, IVC Commercial, IVC Home, Leoline®, Moduleo,®, Pergo, Quick-Step Unilin and Xtratherm, which itUnilin. The Segment sells its products through floor covering retailers, wholesalers, Company-operated distributors, independent distributors and home centers.
Business Strategy
Mohawk’s Business Strategybusiness strategy provides a consistent vision for the organization and focuses employees around the globe on delivering exceptional returns for shareholders.key priorities. The strategy is cascaded down through the organization with an emphasis on five key points:
•Optimizing the Company’s position as the industry’s preferred provider by delivering exceptional value to customerscustomers;
•Treating employees fairly to retain the best organizationorganization;
•Driving innovation in all aspects of the businessbusiness;
•Taking reasonable, well considered risks to grow the businessbusiness; and
•Enhancing the communities in which the Company operatesoperates.
The Mohawk Business Strategybusiness strategy provides continuity for the Company’s operating principles and ensures a focus on generating shareholder value and profitability through exceeding customer expectations.
Strengths
Market Position
Mohawk’s fashionable and innovative products, successful participation in all sales channels, creative marketing tools and programs and extensive sales resources have enabled the Company to build market leadership positions in multiple geographies, primarily North America, Brazil, Europe, Russia and Russia,Australasia, as well as exportsto export products to more than 160approximately 170 countries. In North America, Mohawk’s largest marketplace, the Company has leveraged its brands, breadth ofbroad offering and award-winning merchandising to build strong positions across all of its product categories. In Europe and Russia, similar advantages have supported market leadership in ceramic tile, premium laminate and sheet vinyl. The Company also has assumedestablished a strong position in the fast-growing LVT market on both sides ofin the AtlanticU.S. and Europe following the 2015 acquisition of IVC and subsequent investments to expand production and capacity. The 2018 acquisition of Godfrey Hirst provided the Company with the largest market position in carpet in Australasia to complement the leading hard surface presence that the Company had grown through its earlier acquisitions of national distributors in both North AmericaAustralia and Europe.New Zealand. In 2018, the Company acquired Eliane, a leading ceramic tile manufacturer in Brazil, the world’s third largest ceramic market. The Eliane brand is highly regarded for innovative design and strength in high-end porcelain floor and wall tile. The Company believes Eliane is Brazil’s largest ceramic tile exporter.
Product Innovation
Mohawk drives performance through product innovation and process improvements across all product categories. In ceramic, this includes proprietary Reveal Imaging®Imaging® printing that replicates the appearance of other surfaces, such as long planks with the visuals and texture of natural wood as well as tiles that mimic natural stone, cement, textiles and other alternatives. The Company has pioneered an innovative ceramic tile technology called StepWise™ that is infused into our top-quality porcelain tile to significantly improve slip resistance. Given the frequent use of ceramic tile in kitchens and baths, the Company has also introduced numerous collections featuring antimicrobial treatment that becomes a permanent part of the product. In Italy and Russia, the Company manufactures large-scale porcelain slabs that replicate the look of stone but are harder and more durable. In addition to satisfying demand for their domestic markets, porcelain slabs produced in Europe are also exported to North America, where along with the Company’s quartz countertop and natural stone slab offerings they provide customers with a comprehensive array of surface options. In carpet, the Company introduced the unique Air.o™ unified soft surface collection that integrates a polyester pad into tufted carpet, offering consumers a hypoallergenic and moisture-resistant alternative to traditional carpet. The Company has also launched an innovative carpet backing called Recover™ that is hypoallergenic, latex and VOC free and is easier to install and seam. The Company’s exclusive fiber technologies include the uniqueproprietary bio-based SmartStrand®SmartStrand® and its brand extensions that represented the first super soft stain resistantsuper-soft stain-resistant products on the market andas well as the patented ContinuumTMContinuum™ process that adds bulk and softness to polyester fiber, differentiating the Company’s products in this fast growingfast-growing component of the carpet market. These fiber advantages have been extended into the Company’s rug production, as well, adding luxurious feel and performance enhancements to the Company’s design leadership. In laminate, the Company’s patented Uniclic® installation technology revolutionized the category and has been extended into the LVT and wood categories, as well. The Company continues to deliver new innovations withsuch as unique HydroSeal™ water-resistance that has extended the laminate category into kitchens and baths, more realistic visuals with GenuEdge® pressed bevel edges and surface embossing in register that precisely recreates the appearance of wood. In hardwoodAs consumer preference for water-proof flooring has increased, the Company is introducing longerhas introduced a propriety technology called WetProtect™ that makes the joints of installed laminate and wider planksLVT water tight and prevents liquid spills from reaching the subfloor. This technology has been uniquely applied to wood flooring with UltraWood™, which also features an advanced waterproof finish in increasingly popular engineered wood collections, as well as introducing more fashion-forward stains, finishesaddition to improved scratch, wear and surface protection.dent resistance. The Company’s vinyl offerings reflect significant investments in leading-edge technology that yield incredibly realistic reproductions of stone, wood and other materials with embossed finishes that accentuatecreate more realistic visuals. To complement the beauty of its LVT collections, the products.Company has also enhanced the performance of its premium rigid products with a solid stone-plastic composite core and an enhanced lacquer finish to provide a dent proof, scratch resistant surface that can withstand today’s active family homes.
Operational Excellence
Mohawk’s highly efficient manufacturing and distribution assets serve as the foundation for successful growth. By leveraging continuous process improvement and automation, the Company’s operations drive innovation, quality and value. Through its commitment to sustainability practices, the Company has also optimized natural resources and raw materials. Since 2013, theThe Company has invested approximately $3 billion to expand capacity, introduce differentiated new products and improve efficiencies. In particular, the Company’s capital investments have improved recently acquired businesses by upgrading their product offerings, expanding their distribution and improving their productivity. For more than a decade, Mohawk'sseventeen years, Mohawk’s training and development programs have been ranked among the best in the country by Training magazine, and Forbes has designated Mohawk as one of the Best Large U.S. Employers in 2016 and 2017.Employers.
Sustainability
Mohawk’s sustainability strategy is founded on three pillars: Better for People, Better for the Planet, and Better for Performance. Through the Better for the People pillar, the Company focuses on employee engagement, health and wellbeing, workforce development, a Zero-Harm Workplace and community engagement initiatives.Highlights of this pillar include Mohawk Group’s ArtLifting partnership working with artists with disabilities to include their designs in commercial flooring collections, and an extensive internal training initiative from the plant floor to the C-suite. In the U.S. and Mexico, the Company operates on-site, near-site or virtual Healthy Life Centers to assist employees and their eligible family members with management of chronic conditions as well as treatment of acute illness. Through the Better for the Planet pillar, Mohawk focuses on a climate-positive future through energy conservation, water restoration and product circularity, including waste reduction and responsible sourcing. The Company believes that it is the industry leader in sustainable products and processes. The Company’suses extensive use of recycled content in many of its products, includes the annual useincluding transforming billions of over 5.5 billiondiscarded plastic bottles annually to create polyester carpet fiber and more than 25 millionmillions of pounds of tires annually to produce decorative crumb rubber mats. In all, the Company diverts more than 7 billion pounds of waste from landfills each year, with 44 of the Company’s manufacturing sites internally certified as Zero Process Waste to Landfill facilities. The Company’s commitment to sustainability extends beyond its products to resource utilization, including a 277 million gallon reduction in water use since 2015, lower greenhouse gas emissions and increased energy efficiency. The Company also produces energy through solar panels, windmills and a waste to energywaste-to-energy program using scrap wood material. Through the Better for Performance pillar, the Company focuses on ESG governance, ethics and data security and privacy, including creating and maintaining ESG-related policies. The Company’s commitmentsustainability section of our corporate website sets forth our initiatives with respect to safetythese pillars and wellness helps to retain a talented workforce. The Company currently operates 17 on-site, near-site or virtual Healthy Life Centers to assist employees with management of chronic conditions as well as the treatment of acute illness. The Company’s annual sustainability report details these and other initiatives and maywill be accessed at mohawksustainability.com.
updated periodically but is not incorporated into this document.
Sales and Distribution
Global Ceramic Segment
The Global Ceramic segment designs, markets, manufactures, distributes and sources a broad line of ceramic tile, porcelain tile and natural stone products, including natural stone, quartzporcelain slabs and porcelain slabquartz countertops. Products are distributed through various distribution channels, including independent distributors, home centers, Company-operated service centers and stores, ceramic tile specialists, commercial contractors and directly to commercial end users. The business is organized with dedicated sales forces to address the specific customer needs of each distribution channel with dedicated sales forces that support the various channels.channel.
The Company provides customers with one of the ceramic tile industry’s broadest product lines—a complete selection of glazed floor tile, glazed wall tile, mosaic tile, porcelain tile, quarry tile, porcelain landscaping pavers, porcelain roofing, stone products, porcelain slabslabs, quartz countertops and installation products. In addition to products manufactured by the Company’s ceramic tile business, the Company also sources products from other manufacturers to enhance its product offering.
The Global Ceramic segment markets its products under the American Olean, Dal-Tile®,Daltile, Eliane, EmilGroup,®, KAI, Kerama Marazzi, Marazzi and Ragno brand names. These brands are supported by a fully integrated marketing program, displays, merchandising boards, literature, catalogs and internet websites. Innovative design, quality and response to changes in customer preference enhancesenhance recognition in the marketplace. The Company is focused on sales growth opportunities through innovative products and programs in both the residential and commercial channels for both remodeling and new construction.
The Global Ceramic segment utilizes various distribution methods including regional distribution centers, service centers, direct shipping and customer pick-up from manufacturing facilities. The segment’sSegment’s sales forces are organized by product type and sales channels in order to best serve each type of customer. The Company believes its distribution methods for the Global Ceramic segment provide high-quality customer service and enhance its ability to plan and manage inventory requirements.
Flooring NA Segment
Through its Flooring NA, segment, the Company designs, markets, manufactures, distributes and sources broadloom carpet, laminate,carpet tile, carpet pad, rugs, hardwood,laminate, LVT, and sheet vinyl and wood flooring in a broad range of colors, textures and patterns. The Flooring NA segment positions product lines in all price ranges and emphasizes quality, style, performance and service. The Flooring NA segment markets and distributes its product lines to independent distributors, floor covering retailers, home centers, mass merchandisers, department stores, e-commerce retailers, shop at home, buying groups, commercial contractors and commercial end users. Some products are also marketed through private labeling programs. Sales to customers focused on residential customersproducts represent a significant portion of the total industry and the majority of the segment'sSegment’s sales.
The Company has positioned its brand names across all price ranges. Horizon, IVC, Karastan, Mohawk, Mohawk Home, Pergo, Portico SmartStrand and QuickstepQuick-Step are positioned to sell in the residential flooring markets. Aladdin Commercial and Mohawk Group and Karastan Contract are positioned to sell in the commercial market, which is made up of corporate office space, education institutions, healthcareeducational facilities, institutional facilities, healthcare/assisted living facilities and retail space and government facilities.space. The Company also sells into the commercial hospitality space for hotels and(hotels, restaurants, usinggaming facilities, etc.) under its Durkan brand.
The segment’sSegment’s sales forces are generally organized by sales channels in order to best serve each type of customer. Product delivery to independent dealers is donefacilitated predominantly on Mohawk trucks operating from a strategically positioned national network of warehouses and cross-docks that receive inbound product directly from the Company'sCompany’s manufacturing operations.
Flooring ROW Segment
The Flooring ROW segment designs, manufactures, markets, licenses, distributes and sources laminate, hardwood, LVT, sheet vinyl, wood flooring, broadloom carpet and sheet vinyl.carpet tile. It also designs and manufactures roofing elements,panels, insulation boards, MDF and chipboards. Products are distributedsold through separate distribution channels, consisting of retailers, independent distributors, Company-operated distributors, wholesalers, home centers, commercial contractors and home centers.commercial end users. The business is organized to address the specific customer needs of each distribution channel.
The
Flooring ROW segment markets and sells laminate, hardwoodLVT, sheet vinyl, broadloom carpet, carpet tile and vinyl flooring productswood under the Balterio,Feltex, GH Commercial, Godfrey Hirst, Hycraft, IVC Magnum,Commercial, IVC Home, Leoline, Moduleo, Pergo and Quick-Step brands. The Flooring ROW segment also sells private label laminate, hardwoodwood and vinyl flooring products. The Company believes Quick-Step and Pergo are leading brand names in the European flooring industry.industry, and that Godfrey Hirst and Feltex are leading brand names in the Australasian flooring market. In addition, the Flooring ROW segment markets and sells insulation boards, roof panels, MDF and chipboards in Europe under the Unilin and Xtratherm brands.brand. The segmentSegment also licenses its intellectual property to flooring manufacturers throughout the world.
The Company uses regional distribution centers and direct shipping from manufacturing facilities to provide high-quality customer service and enhance the Company’s ability to plan and manage inventory requirements.
Advertising and Promotion
The Company’s brands are among the best known and most widely distributed in the industry. The Company vigorously supports the value and name recognition of its brands through both traditional advertising channels, -- including numerous trade publications and unique promotional events that highlight product design and performance, -- andas well as social media initiatives and Internet-based advertising. The Company has invested significantly in websites that educate consumers about the Company’s products, helping them to make informed decisions about purchases, and identifyingthat identify local retailers that offer the Company’s collections. In 2016,The Company offers its customers the Company introducedaward-winning Omnify™, a newan Internet platform that automatically syncs updated product and sales information between the Company and its U.S. aligned retailer websites, ensuring that consumers have access to the most accurate and timely information.information and creating a faster connection between the consumer and local retailers.
TheIn North America, the Company actively participates in cause marketing partnerships with suchsupports well known programs such as Susan G. Komen®Komen® (breast cancer research), Habitat for Humanity®Humanity® (housing for low income families), HomeAid® (housing for homeless families) and Operation Finally Home®Home® (housing for disabled veterans), which include both traditional mediamarketing partnerships as well as promotional events generating national press coverage.that showcase the Company’s products and highlight its corporate values. The Company also sponsors a European cycling team to promote its Quick-Step brand through logo placements and use of the team in its advertising and point-of-sale displays.
The Company introduces new products, merchandising and marketing campaigns through participation in regional, national and international trade shows as well as at exclusive dealer conventions. The Company supports sales with its retail customers through cooperative advertising programs that extend the reach of the Company’s promotion as well as with innovative merchandising displays that highlight the Company’s differentiated products and provide samples to consumers. The cost of providing merchandising displays, product samples and point of sale promotional marketing, is partially recovered by the purchase of these items by the Company'sCompany’s customers.
Manufacturing and Operations
Global Ceramic Segment
The Company’s ceramic tile manufacturing operations are vertically integrated from the production of raw material for body and glaze preparation to the manufacturing and distribution of ceramic and porcelain tile.tile and quartz countertops. The Company believes that its manufacturing organizationorganization’s leading-edge technology offers competitive advantages due to its ability to manufacturecreate a differentiated product line consisting of one of the industry’s broadest product offerings of sizes, shapes, colors, textures and finishes, and its ability to utilize the industry’s newest technology, as well as the industry’s largest offering of trim and decorative pieces. In addition, the Global Ceramic segment also sources a portion of its productcollections to enhance its product offerings. The Global Ceramic segment continues to invest in equipment that utilizes the latest technologies, which supports the Company'sCompany’s efforts to increase manufacturing capacity, improve efficiency, meet the growing demand for its innovative products and develop new capabilities.
Flooring NA Segment
The Company’s carpet and rug manufacturing operations are vertically integrated and include the extrusion of triexta, nylon, polyester and polypropylene resins, as well as recycled post-consumer plastics, into fiber. The Flooring NA segment is also vertically integrated in yarn processing, carpet backing manufacturing, tufting, weaving, dyeing, coating and finishing.
The CompanySegment is also vertically integrated with significant manufacturing assets that produce laminate flooring, high density fiber board, engineered and pre-finished solid hardwoodwood flooring, fiber-glassfiberglass sheet vinyl and luxury vinyl tile. The Flooring NA segment continues to invest in capital projects, such as the expansion of the Company'sCompany’s North American LVT and premium laminate manufacturing capacity. Other investments in state-of-the-art equipment support market growth, increase manufacturing efficiency and improve overall cost competitiveness.
Flooring ROW Segment
The Company’s laminate and vinyl flooring manufacturing operations in Europe are vertically integrated. The Company believes its Flooring ROW segment has advanced equipment that results in competitive manufacturing in terms of cost and flexibility. In addition, the Flooring ROW segment has significant manufacturing capability for engineered wood flooring, LVT and sheet vinyl. The 2018 acquisition of Godfrey Hirst established vertically integrated broadloom carpet and carpet tile operations in Australia and New Zealand, including the production of wool yarn. Flooring ROW segmentis also vertically integrated in carpet manufacturing, including tufting, weaving, dyeing, coating and finishing.
Flooring ROW continues to invest in capital expenditures such as the LVT expansion, including
and laminate expansions, as well as further investments in new plantsfuture-proof capacity in chipboards and MDF, respectively, utilizing the latest advances in technologies to increase manufacturing capacity, improve efficiency and develop new capabilities including state-of-the-art, fully integrated LVT production whichthat will leverage the Company'sCompany’s proven track record of bringing innovative and high-quality products to the market.its markets. The manufacturing facilities for roofing elements,panels, insulation boards, MDF and chipboards in the Flooring ROW segment are all configured for cost-efficient manufacturing and production flexibility and are competitive in the European market.
Inputs and Suppliers
Global Ceramic Segment
The principal raw materials used in the production of ceramic tile are clay, talc, feldspar, industrial minerals and glazes. The Company has long-term clay mining rights in North America, Russia, Bulgaria and BulgariaBrazil that satisfy a portion of its clay requirements for producing tile. The Company also purchases a number of different grades of clay for the manufacture of its tile. Glazes are used on a significant percentage of manufactured tiles. Glazes consist of frit (ground glass), zircon, stains and other materials, with frit being the largest ingredient.component. The Company manufactures a significant amount of its frit requirements. The Company believes that there is an adequate supply of all grades of clay, talc and industrial minerals that are readily available from a number of independent sources. If these suppliers were unable to satisfy the Company'sCompany’s requirements, the Company believes that alternative supply arrangements would be available.
Flooring NA Segment
The principal raw materials used in the production of carpet and rugs are polypropelene, polyester, triexta, nylon, caprolactam, recycled post-consumer plastics, synthetic backing materials, latex and various dyes and chemicals, the majority of which are petroleum based.petroleum-based. The Company uses wood chips, wood veneers, lumber, paper and resins in its production of laminate and hardwoodwood products. In its vinyl flooring operations, the Company uses glass fiber, plasticizers and pvcpolyvinyl chloride (PVC) resins. Major raw materials used in the Company’s manufacturing process are available from independent sources, and the Company obtains most of its raw materials from major suppliers providingthat provide inputs to each major product category. If these suppliers were unable to satisfy the requirements, the Company believes that alternative supply arrangements would be available. Although theThe market for raw materials is sensitive to temporary disruptions, the North American flooring industry has not experienced a significant shortage of raw materials in recent years.disruptions.
Flooring ROW Segment
The principal raw materials used in the production of boards, laminate and hardwoodwood flooring are wood, paper and resins. The wood suppliers provide a variety of wood species, givingproviding the Company with a cost-effective and secure supply of raw material. In its vinyl flooring operations, the Company uses glass fiber, plasticizers and pvcPVC resins. Major raw materials used in the Company’s manufacturing process are available from independent sources, and the Company has long-standing relationships with a number of suppliers. The principal raw materials used in the production of broadloom carpet and carpet tile are polypropelene, polyester, triexta, nylon, caprolactam, recycled post-consumer plastics, synthetic backing materials, latex and various dyes and chemicals, the majority of which are petroleum-based. If these suppliers were unable to satisfy the requirements, the Company believes that alternative supply arrangements would be available. The market for raw materials is sensitive to temporary disruptions.
Industry and Competition
The Company is the largest flooring manufacturer in a fragmented industry composed of a wide variety of companies ranging from small, privately heldprivately-held firms to large multinationals. In 2016,2021, the U.S. floor covering industry reported $24.5$33.7 billion in sales, up approximately 4.4%21.7% over 2015's2020’s sales of $23.4$27.7 billion. In 2016,2021, the primary categories of flooring in the U.S., based on sales, were carpet and rugs (47.1%(38.5%), resilient (includesconsisting of LVT, sheet vinyl and LVT) and rubber (15%various other resilient categories (27.0%), hardwood (14.9%wood (12.9%), ceramic tile (13.4%(12.4%), stone (5.7%(6.0%) and laminate (3.9%(3.2%). In 2016,2021, the primary categories of flooring in the U.S., based on square feet sold, were carpet and rugs (52.8%(45.3%), resilient (includesconsisting of LVT, sheet vinyl and LVT) and rubber (19.7%various other resilient categories (31.1%), ceramic tile (13.7%(12.5%), hardwood (7.8%wood (6.1%), laminate (4.6%(3.5%) and stone (1.5%). Each of these categories is influenced by the residential construction,and commercial construction and residential and commercial remodeling end-use markets. These markets are influenced by many factors including changing consumer preferences, consumer confidence, spending for durable goods, interest rates, inflation, availability of credit, turnover in housing and the overall strength of the economy.
The principal methods of competition within the floor covering industry generally are product innovation, style, quality, price, performance technology and service. In each of the markets, price and market coverage are particularly important when competing among product lines. The Company actively seeks to differentiate its products in the marketplace by introducing innovative products with premium features that provide a superior value proposition. The Company’s investments in manufacturing technology, computer systems and distribution network, as well as the Company’s marketing strategies and resources, contribute to its ability to compete on the basis of performance, quality, style and service, rather than price.
Global Ceramic Segment
Globally, the ceramic tile industry is significantly fragmented. Certain regions around the world have established sufficient capacity to allow them to meet domestic needs in addition to exporting product to other markets where their design and/or technical advantages may drive consumer preferences. Some mature markets have seen industry consolidation driven by mergers and acquisitions,acquisitions; however, most markets are comprised of many relatively small manufacturers all working with similar technologies, raw materials and designs. During 2016,2021, the estimated global capacity for ceramic tile was 135197 billion square feet – up slightly from the prior year primarily due to increased production capacity in China – with selling prices varying widely based on a variety ofmany factors, including supply within the market, materials used, size, shape and design. While the Company operates ceramic manufacturing facilities in seveneight countries, the Company has leveraged advantages in technology, design, brand recognition and marketing to extend exports of its products to approximately 160 countries. As a result of this global sales strategy, the Company faces competition in the ceramic tile market from a large number of foreign and domestic manufacturers, all of which compete for sales of ceramic tile to customers through multiple residential and commercial channels. The Company believes it is the largest manufacturer, distributor and marketer of ceramic tile in the world. The Company also believes it is the largest manufacturer, distributor and marketer of ceramic tile in specific markets, including the U.S., Europe and Russia.Russia, as well as maintaining leading positions in the Mexican and Brazilian markets. The Company has leveraged the advantages of its scale, product innovation and unique designs in these markets to solidify its leadership position, however the Company continues to face pressures in these markets from imported ceramic products as well as alternate flooring categories.
Flooring NA Segment
The North American flooring industry is highly competitive, with an increasing variety of product categories, shifting consumer preferences, supply chain disruptions and pressures from imported products, particularly in the rug and hard surface categories. Based on industry publications, in 2021, the U.S. flooring industry forhad carpet and rug in 2016 had market sales in excess of $11.5$13.0 billion out of the overall $24.5.$33.7 billion market. TheBased on its 2021 net sales, the Company believes it is the largest producer of rugs and the second largest producer of carpet in the world based on its 2016 net sales.world. The Company differentiates its carpet and rug products in the market placemarketplace through proprietary fiber systems, state-of-the-art manufacturing technologies and unique styling as well as leveraging the strength of some of the oldest and best knownbest-known brands in the industry. The Company also believes it is the largest manufacturer and distributor of laminate flooring in the U.S., as well as onethe producer of the largest manufacturers and distributors of solid and engineered hardwoodindustry’s first waterproof wood flooring. The Company’s leading position in laminate flooring is driven by the strength of its premium brands as well as technical innovations such as water resistance, realistic visuals, beveled edges, deeply embossed in register surfaces and patented installation technologies. The U.S. resilient industry is highly competitive, and according to industry publications, grew over 18%more than 30.3% in 2016.2021. Based on industry publications, the U.S. flooring industry forin 2021, LVT, and sheet vinyl in 2016 had marketand other various resilient categories generated sales of $3.4$9.1 billion out of the overall$33.7 billion total U.S. flooring market. The Company believes that it is one of the largest manufacturers and distributors of LVT and sheet vinyl in the U.S. The Company’s sheet vinyl operations produce fiberglass backed products, which have proven more popular with consumers in the past several years.years due to superior performance and durability.
Flooring ROW Segment
The Company faces competition in the non-U.S. laminate, hardwood,wood, LVT and sheet vinyl flooring business from a large number of domestic manufacturers as well as pressures from imports. The Company believes it is one of the largest manufacturers and distributors of laminate flooring in the world, with a focus on high-endpremium products, which the Company supplies under some of the best knownbest-known and most widely marketed brands in the region.its regions. In addition, the Company believes it has a competitive advantage in theits laminate flooring marketmarkets as a result of the Company’s industry-leading water resistance, realistic visuals and embossed in registerembossed-in-register surfaces as well as patented installation technologies, all of which allow the Company to distinguishdifferentiate its products in the areas of design, quality,performance, installation and assembly. In hardwoodwood flooring, the Company has extended the strength of its well-known laminate brands and its installation technologytechnologies to add value to its wood collections. The Company faces competition in the non-U.S. vinyl flooring channel from a large number of domestic and foreign manufacturers, but believes it has a competitive advantage in theits LVT and sheet vinyl marketmarkets due to industry-leading design, patented technologies, brand recognition and vertical integration. The Company has elevated the performance of its sheet vinyl collections and is now aggressively placing the product in commercial applications. After initially extending its geographic footprint by acquiring national hard surface distributors in Australia and New Zealand, the Company acquired Godfrey Hirst, making the Company the largest manufacturer of carpet in both countries. The Company has also extended the reach ofintegrated its distribution by acquiring national distributorssoft and hard surface businesses to provide a comprehensive offering to residential and commercial customers in the U.K.,region. In Australia and New Zealand.Zealand, the Company faces competition from a large number of domestic and foreign manufacturers, but believes it has a competitive advantage in its carpet and hard surface offering due to industry-leading design, patented technologies, brand recognition and vertical integration of manufacturing and distribution. Through a 2015 acquisition,the acquisitions of Xtratherm and of Ballytherm, the Company has extended its insulation panel business to the U.K.United Kingdom and Ireland while expanding sales in its core Benelux Region. The Company also expanded its European wood panels business by acquiring German-based Berghoef and Otto Schneider (mezzanine flooring) and French-based Panneaux De Corrèze (MDF). The Company also extended its sheet vinyl business with the acquisition of Polish-based Lentex.
Patents and Trademarks
Intellectual property is important to the Company’s business and the Company relies on a combination of patent, copyright, trademark and trade secret laws to protect its interests.
The Company uses several trademarks that it considers important in the marketing of its products, including American Olean, Daltile, Durkan, EmilGroup,®, Feltex, Godfrey Hirst, IVC Commercial, IVC Home, Karastan, Leoline, Marazzi, Moduleo, Mohawk, Mohawk Group, Mohawk Home, Pergo, Quick-StepandUnilin. These trademarks representreflect innovations that highlightin design, performance and installation, which represent competitive advantages and provide differentiation from competing brands in the market.
The Flooring ROW segment owns a number of patent families in Europe and the U.S., some of which the Company licenses to manufacturers throughout the world. The most important of these patent families is the UNICLIC family, which include the snap, pretension and clearance patents. Most of the UNICLIC family of patents expired in 2017. While the Company continues to explore additional opportunities to generate revenue from its patent portfolio, including in applications for LVT, only a portion of the licensing earnings will be retained following the expiration of the UNICLIC patents.portfolio.
Sales Terms and Major Customers
The Company’s sales terms are substantially the same as those generally available throughout the industry. The Company generally permits its customers to return products purchased from it within specified time periods from the date of sale, if the customer is not satisfied with the quality of the product.
During 2017,2022, no single customer accounted for more than 10% of the Company’s total net sales, and the top 10 customers accounted for less than 20% of the Company’s total net sales. The Company believes the loss of one major customer would not have a material adverse effect on its business.
EmployeesHuman Capital
The Company’s management team recognizes the importance of its employees to the Company’s overall long-term success. The Company continues to focus on the recruitment, development, safety, engagement, and retention of its employees. The Company continues to monitor the impact of the COVID-19 pandemic and will continue to implement safety procedures to prevent workplace transfer of the virus.
As of December 31, 2017,2022, the Company employed approximately 38,80040,900 persons, consisting of approximately 21,00017,700 in theNorth America - United States, approximately 8,90014,800 in Europe approximately 4,000 in Mexico, approximately 3,900 inand Russia and approximately 1,0008,400 in various other countries. The majority of the Company’s European Russian and MexicanRussian manufacturing employees are members of unions. Less than 1% of the Company’s U.S. employees are party to a collective bargaining agreement. Additionally, the Company has not experienced any major strikes or work stoppages in recent years. The Company believes that its relations with its employees are good.
Available Information
The Company’s Internet address is http:https://www.mohawkind.com. The Company makes available the following reports filed by it available,files on its website, free of charge, on its website under the heading “Investor Information”“Investors”:
•annual reports on Form 10-K;
•quarterly reports on Form 10-Q;
•current reports on Form 8-K; and
•amendments to the foregoing reports.
The foregoing reports are made available on the Company’s website as soon as practicable after they are filed with, or furnished to the Securities and Exchange Commission (“SEC”).
Item 1A.Risk Factors
In addition to the other information provided in this Form 10-K, the following risk factors should be considered when evaluating an investment in shares of the Company’s Common Stock. If any of the events described in these risks were to occur, it could have a material adverse effect on the Company’s business, financial condition and results of operations.
Industry and Economic Risks
The impact of recent tax reforms on the Company's results of operations is uncertain.
In December of 2017, the U.S. and Belgium enacted tax reforms for corporate taxpayers. The U.S. Tax Cuts and Jobs Act ("TCJA") is the most significant and complex change to the U.S. tax law in more than 30 years. The TCJA contains significant changes, including reduction of the corporate tax rate from 35% to 21%, a one-time mandatory taxation of offshore accumulated earnings regardless of whether they are repatriated, limitation of the deduction for interest expense, additional taxes on the future income of the Company’s foreign subsidiaries and modifying or repealing many business deductions and credits. For the year ended December 31, 2017, the Company recorded a net provisional tax expense of $45.2 million representing the best current estimate of the impact of the TCJA and related transactions. With respect to the Belgian legislation, the most significant provisions were the reduction of the corporate income tax rate from 33.99% to 29.58% for January 1, 2018 and January 1, 2019, respectively, with a further reduction to 25% effective January 1, 2020, an annual limitation on the utilization of net operating losses, and creation of a consolidated corporate income tax regime. As a result of the Belgian reform, the Company recorded a net tax benefit of $44.4 million for the year ended December 31, 2017. The Company will continue to evaluate the interpretations and future guidance related to the tax reforms to determine the impact on the Company’s tax determinations and results for future periods.
The floor covering industry is sensitive to changes in general economic conditions, such as consumer confidence, income and spending, corporate and government spending, interest rate levels, availability of credit and demand for housing. Significant or prolonged declines in the U.S. or global economies could have a material adverse effect on the Company’s business.
Downturns in the U.S. and global economies negatively impact the floor covering industry and the Company’s business. During times of economic uncertainty or decline, end consumers tend to spend less on remodeling their homes, which is how the Company derives a majority of its sales. Likewise, new home construction - and the corresponding need for new flooring materials - tends to slow down during recessionary periods. AlthoughIn the difficult economic conditions have improved in the U.S., European and other markets, there may be additionalforeseeable future, cyclical downturns that could cause the industry to deteriorate globally or in the foreseeable future.local markets in which the Company operates. A significant or prolonged decline in residential or commercial remodeling or new construction activity could have a material adverse effect on the Company’s business and results of operations.
The Company may be unable to predict customer preferences or demand accurately, or to respond to technological developments.
The Company operates in a market sector where demand is strongly influenced by rapidly changing customer preferences as to product design and technical features. Failure to quickly and effectively respond to changing customer demand or technological developments could have a material adverse effect on our business.
The Company faces intense competition in the flooring industry that could decrease demand for the Company’s products or force it to lower prices, which could have a material adverse effect on the Company’s business.
The floor covering industry is highly competitive. The Company faces competition from a number of manufacturers and independent distributors. Some of the Company’s competition is from companies located outside of the major markets in which the Company participates, and these competitors may benefit from lower input costs or state subsidies. Also, trade tariffs may impact both the Company and its competitors in different and unpredictable ways. Maintaining the Company’s competitive position may require substantial investments in the Company’s product development efforts, manufacturing facilities, distribution network and sales and marketing activities. Competitive pressures may also result in decreased demand for the Company’s products, or force the Company to lower prices.prices or prevent the Company from raising prices to keep up with inflation. Moreover, fluctuations in currency exchange rates and input costs may contribute to more attractive pricing for imports that compete with the Company’s products, which may put pressure on the Company’s pricing. Any of these factors could have a material adverse effect on the Company’s business.
ChangesThe COVID-19 pandemic has materially impacted the Company’s business, and may continue to impact the Company’s business in the future.
The COVID-19 pandemic has impacted areas where the Company operates and sells its products and services. Mohawk generates sales in approximately 170 countries and maintains manufacturing operations in 19 countries. Due to its large global economy could affectfootprint, Mohawk’s business is sensitive to macroeconomic events in the United States and abroad, including the COVID-19 pandemic. The Company may continue to see fluctuating demand across a number of its markets resulting from the COVID-19 pandemic.
During economic downturns, including downturns resulting from the COVID-19 pandemic, demand for the Company’s overall availabilityproducts may significantly decrease. This reduced demand may lead to lower sales and cost of credit.intensified competitive pressures.
A downturn inIn addition, the U.S. or global economiesCompany has experienced certain disruptions to its business related to the COVID-19 pandemic, and further disruptions may occur that could impactmaterially affect the Company’s ability to obtain financingsupplies, manufacture its products or deliver inventory in a timely manner. Although the Company believes that it can manage its exposure to these risks, there is no guarantee that the Company will be able to do so in the future. The extent to which the COVID-19 pandemic may continue to impact the Company’s operations, results of operations, liquidity and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence.
To the extent the COVID-19 pandemic adversely affects the Company’s business, financial conditions and results of operations it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
International Risks
The ongoing military conflict between Russia and Ukraine has impacted and may continue to affect the Company’s business and results of operations.
As a result of Russian military actions in Ukraine during fiscal 2022, the Company experienced supply chain disruption of raw materials sourced from Ukraine (primarily clay), as well as other materials and spare parts needed in the Company’s operations. The Company was also impacted by global increases in the cost of natural gas, oil and oil-based raw materials and chemicals. In addition, the United States, the European Union and other governments have imposed and extended sanctions on certain individuals and financial institutions and have proposed to use broader economic sanctions. Russia also imposed reciprocal sanctions against the United States and European Union. Since first quarter 2022, the Company has suspended new investments in Russia.
The broader consequences of this conflict, which may include further economic sanctions, embargoes, regional instability, and geopolitical shifts; potential retaliatory actions, including any financing necessarynationalization of foreign-owned businesses; increased tensions between the United States and countries in which the Company operates; and the extent of the conflict’s effect on the Company’s business and results of operations, as well as the global economy, cannot be predicted. Any future consequences of the conflict, including additional economic sanctions, may result in an adverse effect on the Company’s Russian operations, which represented approximately 5% of net sales for the year ended December 31, 2022. The Company continues to refinancemonitor the potential impacts on its business and the ancillary impacts that the conflict may have on its other global operations.
The Company manufactures, sources and sells many products internationally and is exposed to risks associated with doing business globally.
The Company’s international activities are significant to its manufacturing capacity, revenues and profits; and the Company continues to expand internationally through the construction of new manufacturing operations and investments in existing indebtedness. ones. Currently, Flooring ROW has significant operations in Europe, Russia, Brazil, Malaysia, Australia and New Zealand, and Global Ceramic has significant operations in Brazil, Europe, Russia and Mexico. In addition, the Company sources raw materials and finished goods from multiple international locations.
The costCompany’s international sales, supply chain, operations and investments are subject to risks and uncertainties, including:
•changes in foreign country regulatory requirements;
•differing business practices associated with foreign operations;
•various import/export restrictions and the availability of credit during uncertain economic times couldrequired import/export licenses;
•imposition of foreign or domestic tariffs and other trade barriers;
•foreign currency exchange rate fluctuations;
•differing inflationary or deflationary market pressures, including the recent increase in inflation globally;
•foreign country tax rules, regulations and other requirements, such as changes in tax rates and statutory and judicial interpretations in tax laws;
•differing labor laws and changes in those laws;
•work stoppages and labor shortages, including as a result of the COVID-19 pandemic;
•disruptions in the shipping of imported and exported products;
•government price controls;
•extended payment terms and the inability to collect accounts receivable;
•potential difficulties repatriating cash from non-U.S. subsidiaries; and
•compliance with laws governing international relations and trade, including those U.S. and European Union laws that relate to sanctions and corruption.
The Company cannot assure investors that it will succeed in developing and implementing policies and strategies to address the foregoing risks effectively in each location where the Company does business, and, therefore that the foregoing factors will not have a material adverse effect on the Company’s financial condition.business.
Further, negative economic conditions may factor into the Company’s periodic credit ratings assessment by Moody’s Investors Service, Inc. ("Moody's"), Standard & Poor’s Financial Services, LLC ("S&P") and Fitch, Inc. Any future changes in the credit rating agencies’ methodology in assessing our credit strength and any downgrades in the Company’s credit ratings could increase the cost of its existing credit and could adversely affect the cost of and ability to obtain additional credit in the future. The Company can provide no assurances that downgrades will not occur.
If the Company were unable to meet certain covenants contained in its existing credit facilities, it may be required to repay borrowings under the credit facilities prior to their maturity and may lose access to the credit facilities for additional borrowings that may be necessary to fund its operations and growth strategy.
On March 26, 2015, the Company entered into a $1,800 million, senior revolving credit facility (the "2015 Senior Credit Facility"). As of December 31, 2017, the amount utilized under the 2015 Senior Credit Facility, including the commercial paper issuance, was $1,259.0 million resulting in a total of $541.0 million available. The amount utilized included $1,140.6 million of commercial paper issued, $62.1 million of direct borrowings, and $56.3 million of standby letters of credit related to various insurance contracts and foreign vendor commitments.
If the Company’s cash flow is worse than expected, the Company may need to refinance all or a portion of its indebtedness through a public and/or private debt offering or a new bank facility and may not be able to do so on terms acceptable to it, or at all. If the Company is unable to access debt markets at competitive rates or in sufficient amounts due to credit rating downgrades, market volatility, market disruption, or weakness in the Company's businesses, the Company’s ability to finance its operations or repay existing debt obligations may be materially and adversely affected.
Additionally, the Company's credit facilities include certain affirmative and negative covenants that impose restrictions on the Company’s financial and business operations, including limitations on liens, indebtedness, fundamental changes, asset dispositions, dividends and other similar restricted payments, transactions with affiliates, payments and modifications of certain existing debt, future negative pledges, and changes in the nature of the Company’s business. In addition, the 2015 Senior Credit Facility requires the Company to maintain a Consolidated Interest Coverage Ratio of at least 3.0 to 1.0 and a Consolidated Net Leverage Ratio of no more than 3.75 to 1.0. A failure to comply with the obligations contained in our current or future credit facilities or indentures relating to our outstanding public debt could result in an event of default or an acceleration of debt under other instruments that may contain cross-acceleration or cross-default provisions. We cannot be certain that we would have, or be able to obtain, sufficient funds to make these accelerated payments.
Fluctuations in currency exchange rates may impact the Company’s financial condition and results of operations and may affect the comparability of results between the Company’s financial periods.
The results of the Company’s foreign subsidiaries are translated into U.S. dollars from the local currency for consolidated reporting. The exchange rates between some of these currencies and the U.S. dollar in recent years have fluctuated significantly and may continue to do so in the future. The Company may not be able to manage effectively the Company’s currency translation risks, and volatility in currency exchange rates may have a material adverse effect on the Company’s consolidated financial statements and affect comparability of the Company’s results between financial periods.
The Company has significant operationsoperates in emerging markets, including Brazil, eastern Europe, Malaysia, Mexico and Russia, and therefore has exposure to doing business in potentially unstable areas of the world.
Operations in emerging markets are subject to greater risk than more developed markets, including in some cases significant legal, economic and political risks. Market conditions and the political structures that support them are subject to rapid change in these economies, and the Company may not be able to react quickly enough to protect its assets and business operations. In particular, developing markets in which the Company operates may be characterized by one or more of the following:
•complex and conflicting laws and regulations, which may be inconsistently or arbitrarily enforced;
•high incidences of corruption in state regulatory agencies;
•volatile inflation;
•widespread poverty and resulting political instability;
•compliance with laws governing international relations and trade, including U.S. and European Union laws that relate to sanctions and corruption;
•immature legal and banking systems;
•uncertainty with respect to title to real and personal property;
•underdeveloped infrastructure;
•heavy state control of natural resources and energy supplies;
•state ownership of transportation and supply chain assets;
•high protective tariffs and inefficient customs processes; and
•high crime rates.rates; and
•war and/or armed conflict.
Changes in any one or a combination of these factors could have a material adverse effect on the Company’s business.
Fluctuations in currency exchange rates may impact the Company’s financial condition and results of operations and may affect the comparability of results between the Company’s financial periods.
The results of the Company’s foreign subsidiaries are translated into U.S. dollars from the local currency for consolidated reporting. The exchange rates between some of these currencies and the U.S. dollar in recent years have fluctuated significantly and may continue to do so in the future. The Company may not be able to manage effectively its currency translation risks, and volatility in currency exchange rates may have a material adverse effect on the Company’s consolidated financial statements and affect comparability of the Company’s results between financial periods.
Business and Operational Risks
The Company may be unable to predict customer preferences or demand accurately, or to respond to technological developments.
The Company operates in a market sector where demand is strongly influenced by rapidly changing customer preferences as to product design, product category and technical features. Failure to quickly and effectively respond to changing customer demand or technological developments could have a material adverse effect on the business.
In periods of rising costs, the Company may be unable to pass raw materials, labor, energy and fuel-related cost increases on to its customers, which could have a material adverse effect on the Company'sCompany’s business.
The supply and prices of raw materials, labor, energy and fuel-related costs, varyincluding those related to oil and natural gas, are subject to market conditions and are impacted by many factors beyond the Company’s control, including geopolitical conflict, pandemics (such as the COVID-19 pandemic), international conflicts, labor shortages, weather conditions, natural disasters, governmental programs, regulations and trade and tariff policies, inflation and increased demand, among other factors. For example, in fiscal 2021 and 2022, the price of the natural gas consumed in the Company’s manufacturing operations continued to increase significantly with market conditions.in some markets compared to historical averages. Although the Company generally attempts to pass on increases in raw material, labor, energy and fuel-related costs to its customers, the Company’s ability to do so is dependent upon the rate and magnitude of any increase, competitive pressures and market conditions for the Company’s products. ThereIn addition to those experienced in fiscal 2021 and 2022, there have been in the past, and may be in the future, periods of time during which increases in these costs cannot be recovered. During such periods of time, the Company’s business has been and may be materially adversely affected.
The Company may be unable to obtain raw materials or sourced product on a timely basis, which could have a material adverse effect on the Company'sCompany’s business.
The principal raw materials used in the Company’s manufacturing operations include triexta, nylon, polypropylene, and polyester resins and fibers, which are used in the Company’s carpet and rugsrug business; clay, talc, nepheline syenitefeldspar and glazes, including frit (ground glass), zircon and stains, which are used in the Company’s ceramic tile business; wood, paper and resins, which are used in the Company’s wood and laminate flooring businesses and panels business; and glass fiber, plasticizers, and pvc resins, which are used in the Company’s sheet vinyl and luxury vinyl tile business.businesses. In addition to raw materials, the Company sources finished goods. For certain raw materials and sourced products, the Company is dependent on one or a small number of suppliers. AnA material temporary or long-term adverse change in the Company’s relationship with such a supplier, the financial condition of such a supplier or such a supplier’s ability to manufacture or deliver such raw materials or sourced products to the Company could lead to an interruption of supply or require the Company to purchase more expensive alternatives. Also, the Company’s ability to obtain raw materials or source products at reasonable costs may be impacted by tariffs, global trade uncertainties and international crises, such as the COVID-19 pandemic. While the Company continues to monitor the COVID-19 pandemic and government restrictions enacted to address the pandemic, the long-term impact on its supply chain is unpredictable. In addition, the Russian invasion of Ukraine has resulted in supply chain disruption of raw materials sourced from Ukraine (primarily clay) in 2022. An extended interruption in the supply of thesesourced products or other raw materials or sourced products used in the Company’s business or in the supply of suitable substitute materials or products would disrupt the Company’s operations, which could have a material adverse effect on the Company’s business.
The Company relies on information systemsmakes significant capital investments in managing the Company’s operationsits business and any system failuresuch capital investments may not be successful ordeficiencies of such systems may have an adverse effect on the Company’s business. achieve their intended results.
The Company’s businesses rely on sophisticated software applicationsbusiness requires significant capital investment to obtain, process, analyzeexpand capacity to support its growth, introduce new products, enter new markets and manage data.improve operating efficiencies. The Company relieshas historically made significant capital investments each year and will continue to make capital investments in future periods, including approximately $560 million of capital investments in 2023. While the Company believes that many of its past capital investments have been successful, there is no guarantee that the return on investment from the Company’s recent or future capital projects will be sufficient to recover the expenses and opportunity costs associated with these systemsprojects. Furthermore, a meaningful portion of the Company’s capital investment is based on forecasted growth in its business, which is subject to among other things:uncertainty such as general economic trends, increased competition and consumer preferences. If the Company does not accurately forecast its future capital investment needs, the Company could have excess capacity or insufficient capacity, either of which would negatively affect its revenues and profitability.
facilitate the purchase, management, distribution, and payment for inventory items;
manage and monitor the daily operations of our distribution network;
receive, process and ship orders on a timely basis;
manage accurate billing to and collections from customers;
control logistics and quality control for our retail operations;
manage financial reporting; and
monitor point of sale activity.
We also rely on our computer hardware, software and network for the storage, delivery and transmission of data to our sales and distribution systems, and certain of our production processes are managed and conducted by computer.
Any event that causes interruptions to the input, retrieval and transmission of data or increase in the service time, whether caused by human error, natural disasters, power loss, computer viruses, system conversion, cyber attacks including and not limited to hacking, intrusions, malware or otherwise, could disrupt our normal operations. There can be no assurance that we can effectively carry out our disaster recovery plan to handle the failure of our information systems, or that we will be able to restore our operational capacity within sufficient time to avoid material disruption to our business. The occurrence of any of these events could cause unanticipated disruptions in service, decreased customer service and customer satisfaction, harm to our reputation and loss or misappropriation of sensitive information, which could result in loss of customers, increased operating expenses and financial losses. Any such events could in turn have a material adverse effect on our business, financial condition, results of operations, and prospects.
The Company’s inability to maintain its patent licensing revenues in its laminate flooring business could have a material adverse effect on the Company’s business.
The profit margins of certain of the Company’s businesses, particularly the Company’s laminate flooring business, depend in part upon the Company’s ability to obtain, maintain and license proprietary technology used in the Company’s principal product families. The Company has obtained a number of patents relating to the Company’s products and associated methods and has filed applications for additional patents, including the UNICLIC and Pergo family of patents, which protect its interlocking laminate flooring technology. The majority of the Uniclic patents expired in 2017. The Company continues to develop new sources of revenue that may partially offset the expiration of its revenue-producing patents. The failure to develop alternative revenues could have a material adverse effect on the Company's business.
The Company may experience certain risks associated with acquisitions, joint ventures and strategic investments.
The Company intends to grow its business through a combination of organic growth and acquisitions. Growth through acquisitions involves risks, many of which may continue to affect the Company after the acquisition. The Company cannot give assurance that an acquired company will achieve the levels of revenue, profitability and production that the Company expects. Acquisitions may require the issuance of additional securities or the incurrence of additional indebtedness, which may dilute the ownership interests of existing security holders or impose higher interest costs on the Company. Additional challenges related to the Company'sCompany’s acquisition strategy include:
•maintaining executive offices in different locations;
•manufacturing and selling different types of products through different distribution channels;
•conducting business from various locations;
•maintaining different operating systems and software on different computer hardware; and
•retaining key employees.
Failure to successfully manage and integrate an acquisition with the Company’s existing operations could lead to the potential loss of customers of the acquired business, the potential loss of employees who may be vital to the new operations, the potential loss of business opportunities or other adverse consequences that could have a material adverse effect on the Company’s business. Even if integration occurs successfully, failure of the acquisition to achieve levels of anticipated sales growth, profitability, or otherwise perform as expected, may result in goodwill or other asset impairments or otherwise have a material adverse effect on the Company’s business. Finally, acquisition targets may be subject to material liabilities that are not properly identified in due diligence and that are not covered by seller indemnification obligation or third partythird-party insurance. The unknown liabilities of the Company'sCompany’s acquisition targets may have a material adverse effect on the Company'sCompany’s business.
In addition, we havethe Company has made certain investments, including through joint ventures, in which we havethe Company has a minority equity interest and lacklacks management and operational control. The controlling joint venture partner may have business interests, strategies or goals that are inconsistent with ours.those of the Company. Business decisions or other actions or omissions of the controlling joint venture partner, or the joint venture company, may result in harm to ourthe Company’s reputation or adversely affect the value of ourthe Company’s investment in the joint venture.
A failure to identify suitable acquisition candidates or partners for strategic investments and to complete acquisitions could have a material adverse effect on the Company’s business.
As part of the Company’s business strategy, the Company intends to pursue a wide array of potential strategic transactions, including acquisitions of complementary businesses, as well as strategic investments and joint ventures. Although the Company regularly evaluates such opportunities, the Company may not be able to successfully identify suitable acquisition candidates, to secure certain required governmental approvals necessary to consummate such strategic transactions or to obtain sufficient financing on acceptable terms to fund such strategic transactions, which may slow the Company'sCompany’s growth and have a material adverse effect on the Company's business.
The Company manufactures, sources and sells many products internationally and is exposed to risks associated with doing business globally.
The Company's international activities are significant to its manufacturing capacity, revenues and profits, and the Company is further expanding internationally. The Company sells products, operates plants and invests in companies around the world. Currently, the Company's Flooring ROW segment has significant operations in Europe, Russia, Malaysia, Australia and New Zealand, and the Company's Global Ceramic segment has significant operations in Europe, Russia and Mexico. In addition, the Company has invested in joint ventures in Brazil and India related to laminate flooring.
The business, regulatory and political environments in these countries differ from those in the U.S. The Company’s international sales, operations and investments are subject to risks and uncertainties, including:
changes in foreign country regulatory requirements;
differing business practices associated with foreign operations;
various import/export restrictions and the availability of required import/export licenses;
imposition of foreign or domestic tariffs and other trade barriers;
foreign currency exchange rate fluctuations;
differing inflationary or deflationary market pressures;
foreign country tax rules, regulations and other requirements, such as changes in tax rates and statutory and judicial interpretations in tax laws;
differing labor laws and changes in those laws;
work stoppages and disruptions in the shipping of imported and exported products;
government price controls;
extended payment terms and the inability to collect accounts receivable;
potential difficulties repatriating cash from non-U.S. subsidiaries; and
compliance with laws governing international relations, including those U.S. laws that relate to sanctions and corruption.
The Company cannot assure investors that it will succeed in developing and implementing policies and strategies to address the foregoing risks effectively in each location where the Company does business, and, therefore that the foregoing factors will not have a material adverse effect on the Company’s business.
Negative tax consequences could materially and adversely affect the Company's business.
The Company is subject to the tax laws of the many jurisdictions in which we operate. These tax laws are complex, and the manner in which they apply to our facts is sometimes open to interpretation. In calculating the provision for income taxes, we must make judgments about the application of these inherently complex tax laws. Our domestic and international tax liabilities are largely dependent upon the distribution of profit before tax among these many jurisdictions. However, it also includes estimates of additional tax which may be incurred for tax exposures and reflects various estimates and assumptions, including assessments of future earnings of the Company that could impact the valuation of our deferred tax assets. Our future results of operations and tax liability could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the overall profitability of the Company, changes in tax legislation and rates, changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings permanently reinvested offshore, the results of audits and examinations of previously filed tax returns, and ongoing assessments of our tax exposures.
The Company has been, and in the future may be, subject to costs, liabilities and other obligations under existing or new laws and regulations, which could have a material adverse effect on the Company’s business.
The Company is subject to increasingly numerous and complex laws, regulations and licensing requirements in each of the jurisdictions in which the Company conducts business. The Company faces risks and uncertainties related to compliance with such laws and regulations. In addition, new laws and regulations may be enacted in the U.S. or abroad, thatthe compliance of which may require the Company to incur additional personnel-related, environmental, or other costs on an ongoing basis, such as recently enacted healthcare legislation in the United States.basis.
In particular, the Company’s operations are subject to various environmental, health and safety laws and regulations, including those governing air emissions, wastewater discharges, and the use, storage, treatment, recycling and disposal of materials and finished product. The applicable requirements under these laws are subject to amendment, to the imposition of new or additional requirements and to changing interpretations of agencies or courts. The Company couldmay incur material expenditurescosts in order to comply with new or existing regulations, including fines and penalties and increased costs of its operations. For example, ourExtended Producer Responsibility laws place a shared responsibility for post-consumer product management on various entities involved in the supply chain, including producers and manufacturers. Expansion of Extended Producer Responsibility legislation in the jurisdictions where the Company operates could impose additional responsibility on the Company in relation to the ultimate treatment or disposal of its products, which could lead to an increase in total costs related to the Company’s products. Also, the Company’s manufacturing facilities may become subject to further limitations on the emission of “greenhouse gases” due to public policy concerns regarding climate change issues or other environmental or health and safety concerns. While the form of any additional regulations cannot be predicted, a “cap-and-trade” system similar to the system that applies to ourthe Company’s businesses in the European Union could be adopted in the United States. The Company’s manufacturing processes use a significant amount of energy, especially natural gas. Any such “cap-and-trade” system or other limitations imposed on the emission of “greenhouse gases” could require usthe Company to increase ourits capital expenditures, use ourits cash to acquire emission credits or restructure ourits manufacturing operations, any of which could have a material adverse effect on ourits business.
The Company’s business operations could suffer significant losses from natural disasters, catastrophes, fire, pandemics or other unexpected events.
Many of the Company’s business activities involve substantial investments in manufacturing facilities and many products are produced at a limited number of locations. These facilities could be materially damaged by natural disasters, such as floods, tornados, hurricanes and earthquakes, or by fire, pandemics (including COVID-19) or other unexpected events. The Company could incur uninsured losses and liabilities arising from such events, including damage to its reputation, and/or suffer material losses in operational capacity, which could have a material adverse impact on its business.
The Company may be exposed to litigation, claims and other legal proceedings relating to its products, operations and compliance with various laws and regulations, which could have a material adverse effect on the Company’s business.
In the ordinary course of business, the Company is subject to a variety of product-related claims, lawsuits and legal proceedings, including those relating to product liability, product warranty, product recall, personal injury, and other matters. The Company is also subject to various claims related to its operations and its compliance with various corporate laws and regulations, including matters described in Note 16, Commitments and Contingencies. A very large claim or several similar claims asserted by a large class of plaintiffs could have a material adverse effect on the Company'sCompany’s business, if the Company is unable to successfully defend against or resolve these matters or if its insurance coverage is insufficient to satisfy any judgments against the Company or settlements relating to these matters. Although the Company has product liability insurance and other types of insurance, the policies may not provide coverage for certain claims against the Company or may not be sufficient to cover all possible liabilities. Further, the Company may not be able to maintain insurance at commercially acceptable premium levels. Moreover, adverse publicity arising from claims made against the Company, even if the claims are not successful, could adversely affect the Company’s reputation or the reputation and sales of its products.
The Company'slong-term performance of the Company’s business relies on its ability to attract, develop and retain talented personnel.
The Company’s ability to attract, develop and retain qualified and talented personnel in management, sales, marketing, product design and operations, including in new international markets into which the Company may enter, is key to the Company’s overall success. The Company competes with multinational firms for these employees and invests resources in recruiting, developing, motivating and retaining them. The failure to attract, develop, motivate and retain key employees could negatively affect the Company’s competitive position and its operating results.
The Company’s inability to maintain its patent licensing revenues could have a material adverse effect on the Company’s business.
The profit margins of certain of the Company’s businesses, particularly Flooring ROW, depend in part upon the Company’s ability to obtain, maintain and license proprietary technology used in the Company’s principal product families. The Company has filed and is continuing to file patents relating to many different aspects of the Company’s products and associated methods and is generating patent license revenues on these diverse patents; however, certain revenue-producing patents have expired or will expire. The failure to develop alternative revenues to replace expired or invalidated patents in the future could have a material adverse effect on the Company’s business.
The Company’s inability to protect its intellectual property rights could have a material adverse effect on the Company's businessCompany’s business.
The Company relies, in part, on the patent, trade secret and trademark laws of the U.S., countries in the European Union and elsewhere, as well as confidentiality agreements with some of the Company’s employees, to protect that technology. its intellectual property.The Company cannot assure investors that any patents owned by or issued to it will provide the Company with competitive advantages, that third parties will not challenge these patents, or that the Company’s pending patent applications will be approved. The Company may be unable to prevent competitors and/or third parties from using the Company's technology without the Company's authorization, independently developing technology that is similar to that of the Company or designing around the Company's patents.
Furthermore, despite the Company’s efforts, the Company may be unable to prevent competitors and/or third parties from using the Company’s technology without the Company’s authorization, independently developing technology that is similar to that of the Company or designing around the Company’s patents. The use of the Company’s technology or similar technology by others could reduce or eliminate any competitive advantage the Company has developed, cause the Company to lose sales or otherwise harm the Company’s business.
The Company has obtained and applied for numerous U.S. and foreign service marks and trademark registrations and will continue to evaluate the registration of additional service marks and trademarks, as appropriate. The Company cannot guarantee that any of the Company’s pending or future applications will be approved by the applicable governmental authorities. AThe failure to obtain trademark registrations in the U.S. and in other countries could limit the Company’s ability to protect the Company’sits trademarks and impede the Company’sits marketing efforts in those jurisdictions and could have a material effect on the Company’sits business.
The Company generally requires third parties with access to the Company’s trade secrets to agree to keep such information confidential. While such measures are intended to protect the Company’s trade secrets, there can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any breach or that the Company’s confidential and proprietary information and technology will not be independently developed by or become otherwise known to third parties. In any of these circumstances, the Company’s competitiveness could be significantly impaired, which would limit the Company’s growth and future revenue.
Third parties may claim that the Company infringed their intellectual property or proprietary rights, which could cause itthe Company to incur significant expenses or prevent itthe Company from selling the Company’sits products.
In the past, third parties have claimed that certain technologies incorporated in the Company’s products infringe their patent rights. The Company cannot be certain that the Company’s products do not and will not infringe issued patents or other intellectual property rights of others.
The Company might be required to pay substantial damages (including punitive damages and attorney’sattorneys’ fees), discontinue the use and sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses authorizing the use of infringing technology. There can be no assurance that licenses for disputed technology or intellectual property rights would be available on reasonable commercial terms, if at all. In the event of a successful claim against the Company along with failure to develop or license a substitute technology, the Company’s business would be materially and adversely affected.
Information Technology Risks
The Company relies on information systems in managing the Company’s operations and any system failure ordeficiency of such systems may have an adverse effect on the Company’s business.
The long-term performanceCompany’s businesses rely on sophisticated software applications to obtain, process, analyze and manage data. The Company relies on these systems to, among other things:
•facilitate the purchase, management, distribution, and payment for inventory items;
•manage and monitor the daily operations of the Company’s businessdistribution network;
•receive, process and ship orders on a timely basis;
•manage accurate billing to and collections from customers;
•control logistics and quality control for the Company’s retail operations;
•manage financial reporting; and
•monitor point of sale activity.
The Company also relies on its abilitycomputer hardware, software and network for the storage, delivery and transmission of data to attract, developthe Company’s sales and retain talented management.distribution systems, and certain of the Company’s production processes are managed and conducted by computer.
ToAny event that causes interruptions to the input, retrieval and transmission of data or increase in the service time could disrupt the Company’s normal operations. There can be successful,no assurance that the Company must attract, developcan effectively carry out its disaster recovery plan to handle the failure of its information systems, or that the Company will be able to restore its operational capacity within sufficient time to avoid material disruption to its business. The occurrence of any of these events could cause unanticipated disruptions in service, decreased customer service and retain qualifiedcustomer satisfaction, harm to the Company’s reputation and talented personnelloss or misappropriation of sensitive information, which could result in management, sales, marketing, product design,loss of customers, increased operating expenses and financial losses. Any such events could in turn have a material adverse effect on the Company’s business, financial condition, results of operations, and as it considers entering new international markets, skilled personnel familiar with those markets. The Company competes with multinational firms for these employees and invests resources in recruiting, developing, motivating and retaining them. The failure to attract, develop, motivate and retain key employees could negatively affect the Company’s competitive position and its operating results.prospects.
The Company is subject to changing regulationcybersecurity risks and expects to incur increasing costs in an effort to minimize those risks.
The Company’s business employs systems that allow for the secure storage and transmission of corporate governancecustomers’, consumers’, vendors’, employees’ and public disclosure that have increased bothits own sensitive and proprietary information. These systems may be subject to computer hacking, acts of vandalism or theft, malware, computer viruses or other malicious codes, phishing, employee error or malfeasance, catastrophes, unforeseen events or other cyber-attacks. Any significant compromise or breach of the Company’s data security, whether external or internal, or misuse of customer, consumer, employee, supplier or Company data, could result in significant costs, lost sales, fines, lawsuits and damage to the Company’s reputation. Furthermore, as cyber-attacks become more sophisticated, the Company expects to incur increasing costs to strengthen its systems from outside intrusions and to maintain insurance coverage related to the threat of such attacks. While the Company has implemented administrative and technical controls and has taken other preventive actions to reduce the risk of noncompliance.cyber incidents and protect its information technology, they may be insufficient to prevent, or respond to, physical and electronic break-ins, cyber-attacks or other security breaches to the Company’s systems.
In addition, as the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to the Company’s business, compliance with those requirements could also result in additional costs to the Company. Any failure to comply with federal, state or international privacy-related or data protection laws and regulations could result in proceedings against the Company by government entities or others. In addition to reputational impacts, penalties could include significant legal liability.
Furthermore, third party business partners provide a number of the key components necessary to the Company’s business functions and systems. Any problems caused by these business partners, including those resulting from disruptions in communication services provided by a business partner, cyber-attacks and security breaches, regulatory restrictions, fines, or orders or other regulatory action causing reputational harm, failure of a business partner to provide services for any reason or poor performance of services, could adversely affect the Company’s ability to conduct its business. In addition, the Company’s business partners could also be sources of operational and information security risk to the Company, including from breakdowns or failures of their own systems or capacity constraints. Replacing these third-party business partners could also create significant delay and expense.
Financial and Liquidity Risks
Changes in the global economy could affect the Company’s overall availability and cost of credit.
A downturn in the U.S. or global economies could impact the Company’s ability to obtain financing in the future, including any financing necessary to refinance existing indebtedness.
Further, negative economic conditions may factor into the Company’s periodic credit ratings assessment by Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Financial Services, LLC (“S&P”) and Fitch, Inc.Any future changes in the credit rating agencies’ methodology in assessing the Company’s credit strength and any downgrades in the Company’s credit ratings could increase the cost of its existing credit and could adversely affect the cost of and ability to obtain additional credit in the future. The Company can provide no assurances that downgrades will not occur. The cost and availability of credit during uncertain economic times could have a material adverse effect on the Company’s stockfinancial condition.
If the Company were unable to meet certain covenants contained in its existing credit facilities, it may be required to repay borrowings under the credit facilities prior to their maturity and may lose access to the credit facilities for additional borrowings that may be necessary to fund its operations and growth strategy.
On August 12, 2022, the Company entered into a fourth amendment (the “Amendment”) to its existing senior revolving credit facility (the “Senior Credit Facility”) that provides for revolving credit, including limited amounts of credit in the form of letters of credit and swingline loans. The Amendment, among other things, increased the amount available under the Senior Credit Facility from $1,800 million to $1,950 million until October 18, 2024, after which the amount available under the Senior Credit Facility will decrease to $1,485 million. Any outstanding borrowings under the Company’s U.S. and European commercial paper programs also reduce availability under the Senior Credit Facility. Including commercial paper borrowings, the Company has utilized approximately $848.4 million under the Senior Credit Facility resulting in a total of $1,101.6 million available as of December 31, 2022.
If the Company’s cash flow is publicly traded. Asworse than expected, the Company may need to refinance all or a result,portion of its indebtedness through a public and/or private debt offering or a new bank facility and may not be able to do so on terms acceptable to it, or at all. If the Company is subjectunable to access debt markets at competitive rates or in sufficient amounts due to credit rating downgrades, market volatility, market disruption, or weakness in the rulesCompany’s businesses, the Company’s ability to finance its operations or repay existing debt obligations may be materially and regulationsadversely affected.
Additionally, the Company’s credit facilities include certain affirmative and negative covenants that impose restrictions on the Company’s financial and business operations, including limitations on liens, indebtedness, fundamental changes, asset dispositions, dividends and other similar restricted payments, transactions with affiliates, payments and modifications of federalcertain existing debt, future negative pledges, and state agencies and financial market exchange entities charged withchanges in the protectionnature of investors and the oversightCompany’s business.In addition, the Senior Credit Facility, as amended, requires the Company to maintain a Consolidated Interest Coverage Ratio of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the Securities and Exchange Commission and the New York Stock Exchange, frequently issue new requirements and regulations. The Company’s effortsat least 3.5 to 1.0. A failure to comply with the regulations and interpretations have resultedobligations contained in and are likelythe Company’s current or future credit facilities or indentures relating to continue toits outstanding public debt could result in increased general and administrative costs and diversionan event of management’s time and attention from profit generating activitiesdefault or an acceleration of debt under other instruments that may contain cross-acceleration or cross-default provisions. The Company cannot be certain that it would have, or be able to compliance activities.obtain, sufficient funds to make these accelerated payments.
Declines in the Company’s business conditions may result in an impairment of the Company’s assets which could result in a material non-cash charge.
A significant or prolonged decrease in the Company’s market capitalization, including a decline in stock price, or a negative long-term performance outlook, could result in an impairment of its assets which results when the carrying value of the Company’s assets exceed their fair value.
Negative tax consequences could materially and adversely affect the Company’s business.
The Company is subject to the tax laws of the many jurisdictions in which it operates. These tax laws are complex, and the manner in which they apply to the Company’s facts is sometimes open to interpretation. In calculating the provision for income taxes, the Company must make judgments about the application of these inherently complex tax laws. The Company’s domestic and international tax liabilities are largely dependent upon the distribution of profit before tax among these many jurisdictions. However, the Company’s provision for income taxes also includes estimates of additional tax that may be incurred for tax exposures and reflects various estimates and assumptions, including assessments of future earnings of the Company that could impact the valuation of its deferred tax assets. The Company’s future results of operations and tax liability could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in the overall profitability of the Company, changes in tax legislation and rates, changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings permanently reinvested offshore, the results of audits and examinations of previously filed tax returns, and ongoing assessments of the Company’s tax exposures.
Forward-Looking Information
Certain of the statements in this Form 10-K, particularly those 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” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 freight, raw material prices and other input costs; inflation and deflation in consumer markets; currency fluctuations; 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; taxtaxes and tax reform,reform; product and other claims; litigation; the risks and uncertainty related to the COVID-19 pandemic; regulatory and political changes in the jurisdictions in which we dothe Company does business; and other risks identified in Mohawk’s SEC reports and public announcements.
| |
Item 1B. | Unresolved Staff Comments |
Item 1B.Unresolved Staff Comments
None.
Item 2.Properties
The Company owns and leases manufacturing and distribution facilities worldwide. The table below lists the primary owned and leased facilities atas of December 31, 2017.2022. The Company owns its Corporate Headquarterscorporate headquarters in Calhoun, GA.Georgia. The Company also owns and operates service centers and stores in the United States &and Russia, none of which are individually material. The Company believes its existing facilities are suitable for its present needs.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Segment and Property Use | | North America | | Europe and Russia | | Other | | Total |
| | | | | | | | |
| Global Ceramic | | | | | | | | |
| Manufacturing | | 8 | | | 11 | | | 3 | | | 22 | |
| Distribution / Warehouse | | 9 | | | 7 | | | 3 | | | 19 | |
| | | | | | | | |
| Flooring North America | | | | | | | | |
| Manufacturing | | 22 | | | — | | | — | | | 22 | |
| Distribution / Warehouse | | 12 | | | — | | | — | | | 12 | |
| | | | | | | | |
| Flooring Rest of the World | | | | | | | | |
| Manufacturing | | — | | | 21 | | | 5 | | | 26 | |
| Distribution / Warehouse | | — | | | 4 | | | — | | | 4 | |
| | | | | | | | |
| Total | | | | | | | | |
| Manufacturing | | 30 | | | 32 | | | 8 | | | 70 | |
| Distribution / Warehouse | | 21 | | | 11 | | | 3 | | | 35 | |
| | | | | | | | |
The following is a list of the principal manufacturing and distribution facilities owned or leased by the Company:
|
| | | | |
Location | | Function / Use | | Owned / Leased |
Global Ceramics Segment: | | | | |
Borriol, Spain | | Manufacturing & Distribution | | Owned |
Castellon, Spain | | Manufacturing | | Owned |
Dickson, Tennessee | | Manufacturing & Distribution | | Owned |
El Paso, Texas | | Manufacturing | | Owned |
Eldersburg, Maryland | | Distribution | | Leased |
Fayette, Alabama | | Manufacturing & Distribution | | Owned |
Finale Emilia, Italy | | Manufacturing | | Owned |
Fiorano, Italy | | Manufacturing | | Owned |
Florence, Alabama | | Manufacturing & Distribution | | Owned |
Isperih, Bulgaria | | Manufacturing & Distribution | | Owned |
Lewisport, Kentucky | | Manufacturing | | Owned |
Malino, Russia | | Manufacturing & Distribution | | Owned |
Mexicali, Mexico | | Manufacturing | | Owned |
Monterrey, Mexico | | Manufacturing | | Owned |
Monterrey, Mexico | | Distribution | | Leased |
Muskogee, Oklahoma | | Manufacturing & Distribution | | Owned |
Ontario, California | | Distribution | | Leased |
|
| | | | |
Location | | Function / Use | | Owned / Leased |
Orel, Russia | | Manufacturing & Distribution | | Owned |
Piechowice, Poland | | Manufacturing | | Owned |
Salamanca, Mexico | | Manufacturing | | Owned |
Sassuolo, Italy | | Manufacturing & Distribution | | Owned |
Shumen, Bulgaria | | Manufacturing & Distribution | | Owned |
Solignano, Italy | | Manufacturing | | Owned |
Sunnyvale, Texas | | Manufacturing | | Owned |
Sunnyvale, Texas | | Distribution | | Leased |
| | | | |
Flooring NA Segment: | | | | |
Bennettsville, South Carolina | | Manufacturing | | Owned |
Bridgeport, Alabama | | Manufacturing | | Owned |
Calhoun, Georgia | | Manufacturing & Distribution | | Owned |
Dalton, Georgia | | Manufacturing & Distribution | | Owned |
Danville, Virginia | | Manufacturing | | Owned |
Eden, North Carolina | | Manufacturing & Distribution | | Owned |
Flower Mound, Texas | | Distribution | | Leased |
Fontana, California | | Distribution | | Leased |
Garner, North Carolina | | Manufacturing | | Owned |
Garner, North Carolina | | Distribution | | Leased |
Glasgow, Virginia | | Manufacturing | | Owned |
Hillsville, Virginia | | Manufacturing | | Owned |
Lyerly, Georgia | | Manufacturing | | Owned |
Melbourne, Arkansas | | Manufacturing | | Owned |
Milledgeville, Georgia | | Manufacturing | | Owned |
Mt. Gilead, North Carolina | | Manufacturing | | Owned |
Pembroke Park, Florida | | Distribution | | Leased |
Roanoke, Alabama | | Manufacturing | | Owned |
Sugar Valley, Georgia | | Manufacturing | | Owned |
Summerville, Georgia | | Manufacturing | | Owned |
Thomasville, North Carolina | | Manufacturing | | Owned |
| | | | |
Flooring ROW Segment: | | | | |
Avelgem, Belgium | | Manufacturing | | Owned |
Avelgem, Belgium | | Manufacturing | | Leased |
Bazeilles, France | | Manufacturing | | Owned |
Chesterfield, United Kingdom | | Manufacturing | | Owned |
Desselgem, Belgium | | Manufacturing | | Owned |
Dzerzhinsk, Russia | | Manufacturing | | Owned |
Feluy, Belgium | | Manufacturing | | Owned |
Izegem, Belgium | | Manufacturing | | Owned |
Meath County, Ireland | | Manufacturing | | Owned |
Moeskroen, Belgium | | Manufacturing | | Owned |
Oisterwijk, Netherlands | | Manufacturing | | Owned |
Oostrozebeke, Belgium | | Manufacturing & Distribution | | Owned |
Sungai Pentani, Malaysia | | Manufacturing | | Owned |
Sury-le-Comtal, France | | Manufacturing | | Owned |
Vielsalm, Belgium | | Manufacturing | | Owned |
Vyskov, Czech Republic | | Manufacturing | | Owned |
Wielsbeke, Belgium | | Manufacturing & Distribution | | Owned |
Wiltz, Luxembourg | | Manufacturing | | Owned |
Item 3.Legal Proceedings
The Company is involved in litigation from
From time to time in the regular course of its business.business, the Company is involved in various lawsuits, claims, investigations and other legal matters. Except as noted below,elsewhere in this report, there are no material legal proceedings pending or known by the Company to be contemplated to which the Company is a party or to which any of its property is subject.
Alabama Municipal Litigation
In September 2016, the Water WorksSee Note 16, Commitments and Sewer Board Contingencies, and Note 15, Income Taxes, of the City of Gadsden, Alabama (the “Gadsden Water Board”) filed an individual complaint in the Circuit Court of Etowah County, Alabama against certain manufacturers, suppliers, and users of chemicals containing perfluorinated compounds, including the Company. On October 26, 2016, the defendants removed the casenotes to the United States District CourtConsolidated Financial Statements included in Part II, Item 8 of this Form 10-K for the Northern District of Alabama, Middle Division, alleging diversity of citizenship and fraudulent joinder. The Gadsden Water Board filed a motion to remand the case back to the state court, and the defendants opposed the Gadsden Water Board’s motion. The federal court granted Gadsden Water Board's motion for remand. On October 24, 2017, the Company appealed the federal court's determination that co-defendant Industrial Chemicals, Inc. ("ICI") was properly joined as a party to the case. On February 22, 2018, the Court of Appeals dismissed the appeal for lack of jurisdiction. ICI's presence in the case deprives the federal court of jurisdiction over the case.
In May, 2017, the Water Works and Sewer Board of the Town of Centre, Alabama (the “Centre Water Board”) filed a very similar complaint to the Gadsden Water Board complaint in the Circuit Court of Cherokee County. On June 19, 2017, the defendants removed this case to the United States District Court for the Northern District of Alabama, Middle Division, again alleging diversity of citizenship and fraudulent joinder. The Centre Water Board filed a motion to remand the case back to state court, and the defendants opposed the Centre Water Board’s motion. The federal court granted Centre Water Board's motion for remand. On December 6, 2017, the Company appealed the federal court's determination that co-defendant ICI was properly joined as a party to that case as well. On January 31, 2018, the Court of Appeals dismissed the appeal for lack of jurisdiction. ICI's presence in the case deprives the federal court of jurisdiction over the case.
The Company has never manufactured perfluorinated compounds but purchased them for use in the manufacture of its carpets prior to 2007. The Gadsden and Centre Water Boards are not alleging that chemical levels in the Company’s wastewater discharge exceeded legal limits. Instead, the Gadsden and Centre Water Boards are seeking lost profits based on allegations that their customers decreased water purchases, as well as reimbursement for the cost of a filter and punitive damages.
Polyurethane Foam Litigation
Beginning in August 2010, a series of civil lawsuits were initiated in several U.S. federal courts alleging that certain manufacturers of polyurethane foam products and competitorsdiscussion of the Company’s carpet underlay division had engaged in price fixing in violation of U.S. antitrust laws. The Company was named as a defendant in a number of the individual cases, as well as in two consolidated amended class action complaints on behalf of a class of all direct purchasers of polyurethane foam products and on behalf of a class of indirect purchasers. In these actions, the plaintiffs, on behalf of themselves and/or a class of purchasers, sought damages allegedly suffered as a result of alleged overcharges in the price of polyurethane foam products from at least 1999 to the present. Any damages actually awarded at trial would have been subject to being tripled under US antitrust laws.legal proceedings.
On March 23 and April 30, 2015, the Company entered into agreements to settle all claims brought by the class of direct and indirect purchasers, and the trial court entered orders granting approval of the settlements on November 19, 2015 and January 27, 2016. Certain individual members of the indirect purchaser class sought to overturn the approval through appeals to the Sixth Circuit Court of Appeals, all of which were dismissed. The Company has also entered into settlement agreements resolving all of the claims brought on behalf of all of the consolidated individual lawsuits.
In December 2011, the Company was named as a defendant in a Canadian Class action, which alleged similar claims against the Company as raised in the U.S. actions. On June 12, 2015, the Company entered into an agreement to settle all claims brought by the class of Canadian plaintiffs.
The Company denies all allegations of wrongdoing but settled to avoid the uncertainty, risk, expense and distraction of protracted litigation.
During the year ended December 31, 2015, the Company recorded a $122.5 million charge within selling, general and administrative expenses for the settlement and defense of the antitrust cases. All of the antitrust cases have now been finally settled and all consolidated cases have been dismissed.
Belgian Tax Matter
In January 2012, the Company received a €23.8 million assessment from the Belgian tax authority related to its year ended December 31, 2008, asserting that the Company had understated its Belgian taxable income for that year. The Company filed a formal protest in the first quarter of 2012 refuting the Belgian tax authority's position. The Belgian tax authority set aside the assessment in the third quarter of 2012 and refunded all related deposits, including interest income of €1.6 million earned on such deposits. However, on October 23, 2012, the Belgian tax authority notified the Company of its intent to increase the Company's taxable income for the year ended December 31, 2008 under a revised theory. On December 28, 2012, the Belgian tax authority issued assessments for the years ended December 31, 2005 and December 31, 2009, in the amounts of €46.1 million and €35.6 million, respectively, including penalties, but excluding interest. The Company filed a formal protest during the first quarter of 2013 relating to the new assessments. In September 2013, the Belgian tax authority denied the Company's protests, and the Company has brought these two years before the Court of First Appeal in Bruges. In December 2013, the Belgian tax authority issued additional assessments related to the years ended December 31, 2006, 2007, and 2010, in the amounts of €38.8 million, €39.6 million, and €43.1 million, respectively, including penalties, but excluding interest. The Company filed formal protests during the first quarter of 2014, refuting the Belgian tax authority's position for each of the years assessed. In the quarter ended June 28, 2014, the Company received a formal assessment for the year ended December 31, 2008, totaling €30.1 million, against which the Company also submitted its formal protest. All 4 additional years have been brought before the Court of First Appeal in November 2014. In January of 2015, the Company met with the Court of First Appeal in Bruges, Belgium and agreed with the Belgium tax authorities to consolidate and argue the issues regarding the years 2005 and 2009, and apply the ruling to all of the open years (to the extent there are no additional facts/procedural arguments in the other years). In May 2017, the statute of limitation was extended to include 2011.
On January 27, 2016, the Court of First Appeal in Bruges, Belgium ruled in favor of the Company with respect to the calendar years ending December 31, 2005 and December 31, 2009. On March 9, 2016, the Belgian tax authority lodged its Notification of Appeal with the Ghent Court of Appeal.
The Company disagrees with the views of the Belgian tax authority on this matter and will persist in its vigorous defense. Nevertheless, on May 24, 2016, the tax collector representing the Belgian tax authorities imposed a lien on the Company's properties in Wielsbeke (Ooigemstraat and Breestraat), Oostrozebeke (Ingelmunstersteenweg) and Desselgem (Waregemstraat) included in the Flooring ROW segment. The purpose of the lien is to provide security for payment should the Belgian tax authority prevail on its appeal. The lien does not interfere with the Company's operations at these properties.
General
The Company believes that adequate provisions for resolution of all contingencies, claims and pending litigation have been made for probable losses that are reasonably estimable. These contingencies are subject to significant uncertainties and the Company is unable to estimate the amount or range of loss, if any, in excess of amounts accrued. The Company does not believe that the ultimate outcome of these actions will have a material adverse effect on its financial condition but could have a material adverse effect on its results of operations, cash flows or liquidity in a given quarter or year.
| |
Item 4. | Mine Safety Disclosures |
Item 4.Mine Safety Disclosures
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this annual report on Form 10-K.
PART II
| |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for the Common Stock
The Company’s common stock, $0.01 par value per share (the “Common Stock”), is quoted on the New York Stock Exchange (“NYSE”) under the symbol “MHK.” The table below shows the high and low sales prices per share of the Common Stock as reported on the NYSE Composite Tape, for each fiscal period indicated.
|
| | | | | | |
| | Mohawk Common Stock |
| | High | | Low |
| 2016 | | | |
| First Quarter | $ | 192.43 |
| | 151.78 |
|
| Second Quarter | 201.03 |
| | 177.96 |
|
| Third Quarter | 216.22 |
| | 186.19 |
|
| Fourth Quarter | 204.87 |
| | 176.98 |
|
| 2017 | | | |
| First Quarter | 231.90 |
| | 201.74 |
|
| Second Quarter | 246.65 |
| | 227.15 |
|
| Third Quarter | 259.69 |
| | 238.34 |
|
| Fourth Quarter | 284.82 |
| | 249.04 |
|
As of February 26, 2018,17, 2023, there were 231211 holders of record of Common Stock. The Company has not paid or declared any cash dividends on shares of its Common Stock since completing its initial public offering. The Company’s policy is to retain all net earnings for the development of its business, and it does not anticipate paying cash dividends on the Common Stock in the foreseeable future. The payment of future cash dividends will be at the discretion of the Board of Directors and will depend upon the Company’s profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors.
The
Issuer Purchases of Equity Securities
On February 10, 2022, the Company’s Board of Directors has authorizedapproved a new share repurchase program, authorizing the Company to repurchase of up to 15$500 million of its common stock (the “2022 Share Repurchase Program”). As of December 31, 2022, there remains $229.2 million authorized under the 2022 Share Repurchase Program.
Under the Share Repurchase Programs, the Company may purchase common stock in open market transactions, block or privately negotiated transactions, and may from time to time purchase shares pursuant to trading plans in accordance with Rules 10b5-1 or 10b-18 under the Exchange Act or by any combination of such methods. The number of shares to be purchased and the timing of the purchases are based on a variety of factors, including, but not limited to, the level of cash balances, credit availability, debt covenant restrictions, general business conditions, regulatory requirements, the market price of the Company’s outstanding common stock. Sincestock and the inceptionavailability of alternative investment opportunities. No time limit was set for completion of repurchases under the program in 1999, a total of approximately 11.5 million shares have been repurchasedShare Repurchase Programs and the Share Repurchase Programs may be suspended or discontinued at an aggregate cost of approximately $335.5 million. All of these repurchases have been financed through the Company’s operations and banking arrangements. The Company did not repurchase shares during the year ended December 31, 2017.any time.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plan | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan |
| | | | | | | | |
| | (In millions, except per share data) |
| October 2 through November 5, 2022 | | — | | | $ | — | | | — | | | $ | 229.2 | |
| November 6 through December 3, 2022 | | — | | | $ | — | | | — | | | $ | 229.2 | |
| December 4 through December 31, 2022 | | — | | | $ | — | | | — | | | $ | 229.2 | |
| Total | | — | | | $ | — | | | — | | | |
Item 6.Reserved
| |
Item 6. | Selected Financial Data |
The following table sets forth the selected financial data of the Company for the periods indicated which information is derived from the consolidated financial statements of the Company. The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s consolidated financial statements and notes thereto included elsewhere herein.
|
| | | | | | | | | | | | | | | |
| | As of or for the Years Ended December 31, |
| | 2017(a) | | 2016 | | 2015(b) | | 2014 | | 2013(c) |
| | (In thousands, except per share data) |
| Statement of operations data: | | | | | | | | | |
| Net sales | $ | 9,491,290 |
| | 8,959,087 |
| | 8,071,563 |
| | 7,803,446 |
| | 7,348,754 |
|
| Cost of sales | 6,494,876 |
| | 6,146,262 |
| | 5,660,877 |
| | 5,649,254 |
| | 5,427,945 |
|
| Gross profit | 2,996,414 |
| | 2,812,825 |
| | 2,410,686 |
| | 2,154,192 |
| | 1,920,809 |
|
| Selling, general and administrative expenses | 1,642,241 |
| | 1,532,882 |
| | 1,573,120 |
| | 1,381,396 |
| | 1,373,878 |
|
| Operating income | 1,354,173 |
| | 1,279,943 |
| | 837,566 |
| | 772,796 |
| | 546,931 |
|
| Interest expense | 31,111 |
| | 40,547 |
| | 71,086 |
| | 98,207 |
| | 92,246 |
|
| Other expense (income), net | 5,205 |
| | (1,729 | ) | | 17,619 |
| | 10,698 |
| | 9,114 |
|
| Earnings from continuing operations before income taxes | 1,317,857 |
| | 1,241,125 |
| | 748,861 |
| | 663,891 |
| | 445,571 |
|
| Income tax expense | 343,165 |
| | 307,559 |
| | 131,875 |
| | 131,637 |
| | 78,385 |
|
| Earnings from continuing operations | 974,692 |
| | 933,566 |
| | 616,986 |
| | 532,254 |
| | 367,186 |
|
| Loss from discontinued operations, net of income tax benefit of $1,050 | — |
| | — |
| | — |
| | — |
| | (17,895 | ) |
| Net earnings including noncontrolling interest | 974,692 |
| | 933,566 |
| | 616,986 |
| | 532,254 |
| | 349,291 |
|
| Less: Net earnings attributable to the noncontrolling interest | 3,054 |
| | 3,204 |
| | 1,684 |
| | 289 |
| | 505 |
|
| Net earnings attributable to Mohawk Industries, Inc. | $ | 971,638 |
| | 930,362 |
| | 615,302 |
| | 531,965 |
| | 348,786 |
|
| | | | | | | | | | |
| Basic earnings from continuing operations per share | $ | 13.07 |
| | 12.55 |
| | 8.37 |
| | 7.30 |
| | 5.11 |
|
| Basic earnings per share attributable to Mohawk Industries, Inc. | $ | 13.07 |
| | 12.55 |
| | 8.37 |
| | 7.30 |
| | 4.86 |
|
| Diluted earnings from continuing operations per share | $ | 12.98 |
| | 12.48 |
| | 8.31 |
| | 7.25 |
| | 5.07 |
|
| Diluted earnings per share attributable to Mohawk Industries, Inc. | $ | 12.98 |
| | 12.48 |
| | 8.31 |
| | 7.25 |
| | 4.82 |
|
| | | | | | | | | | |
| Balance sheet data: | | | | | | | | | |
| Working capital | $ | 1,417,612 |
| | 753,192 |
| | (9,056 | ) | | 1,033,762 |
| | 1,764,907 |
|
| Total assets | 12,094,853 |
| | 10,230,596 |
| | 9,934,400 |
| | 8,285,544 |
| | 8,494,177 |
|
| Long-term debt (including current portion) | 2,763,578 |
| | 2,511,485 |
| | 3,191,967 |
| | 2,253,440 |
| | 2,260,008 |
|
| Total stockholders’ equity | 7,067,009 |
| | 5,783,487 |
| | 4,860,863 |
| | 4,422,813 |
| | 4,470,306 |
|
| |
(a) | During 2017, the Company acquired Emil as discussed in Note 2 of the Notes to Consolidated Financial Statements. |
| |
(b) | During 2015, the Company acquired the IVC Group, the KAI Group and Xtratherm as discussed in Note 2 of the Notes to Consolidated Financial Statements. |
| |
(c) | During 2013, the Company acquired Pergo, Marazzi and Spano. |
| |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The following discussion and analysis of the Company’s Results of Operations includes a comparison of fiscal 2022 to fiscal 2021. A similar discussion and analysis that compares fiscal 2021 to fiscal 2020 may be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Form 10-K for the fiscal year ended December 31, 2021.
During the past two decades, the Company has grown significantly. Its current geographic breadth and diverse product offering are reflected in three reporting segments,segments: Global Ceramic, Flooring North America ("Flooring NA")NA and Flooring Rest of the World ("Flooring ROW"). TheROW. Global Ceramic segment designs, manufactures, sources and markets a broad line of ceramic tile, porcelain tile, natural stone tile and other products including natural stone, quartzporcelain slabs and porcelain slabquartz countertops, which it distributes primarily in North America, Europe, Brazil and Russia through various selling channels, which include company-owned stores, independent distributors and home centers. The segment’s product lines are sold through Company-operated service centers, independent distributors, home center retailers, tile and flooring retailers and contractors. The Flooring NA segment designs, manufactures, sources and markets its floor covering product lines,products, including carpets,broadloom carpet, carpet tile, carpet cushion, rugs, carpet pad, hardwood, laminate, and vinyl products, including LVT,luxury vinyl tile (“LVT”) and sheet vinyl, and wood flooring, all of which it distributes through its network of regional distribution centers and satellite warehouses using Company-operated trucks, common carriercarriers or rail transportation. The segment’sSegment’s product lines are sold through various selling channels, including independent floor covering retailers, independent distributors, home centers, mass merchandisers, department stores, shop at home, online retailers, buying groups, commercial contractors and commercial end users. The Flooring ROW segment designs, manufactures, sources, licenses and markets laminate, hardwoodvinyl products, including LVT and sheet vinyl, wood flooring, roofing elements,panels, insulation boards, medium-density fiberboard ("MDF"(“MDF”), chipboards, other wood products and vinyl products, including LVT,chipboards, which it distributes primarily in Europe, Russia, Australia and RussiaNew Zealand through various selling channels, which includeincluding independent floor covering retailers, independent distributors, company-owned distributors, home centers, commercial contractors and home centers.commercial end users.
The CompanyMohawk is a significant participant insupplier of every major productflooring category acrosswith manufacturing operations in 19 nations and sales in approximately 170 countries. Based on its annual sales, the globalCompany believes it is the world’s largest flooring industry.manufacturer. A majority of the Company’s sales and long-lived assets are located in the United States and Europe.Europe, which are also the Company’s primary markets. Additionally, the Company maintains operations in Australia, Brazil, Malaysia, Mexico, New Zealand, Russia and other parts of the world. The Company expects continued strongis a leading provider of flooring for residential and commercial markets and has earned significant recognition for its innovation in design and performance as well as sustainability.
Due to its global footprint, Mohawk’s business is sensitive to macroeconomic events in the United States market if residential housing starts and remodelingabroad, including the impact of the COVID-19 pandemic. While the near-term economic and financial impact of the COVID-19 pandemic is unpredictable, the Company may continue to improve.see fluctuating demand across a number of its markets. In addition, as a result of Russian military actions in Ukraine, the Company experienced supply chain disruption of raw materials sourced from Ukraine (primarily clay), as well as other materials and spare parts needed in the Company’s operations. The Company was also impacted by global increases in the cost of natural gas, oil and oil-based raw materials and chemicals that were among the broader consequences of Russia’s actions. In addition, the United States, the European Union and other governments have imposed and extended sanctions on Russia as well as on certain individuals and financial institutions and have proposed the use of broader economic sanctions. Russia also imposed reciprocal sanctions against the United States and European Union. Since first quarter 2022, the Company has suspended new investments in Russia. The broader consequences of this conflict, which may include further economic sanctions, embargoes, regional instability, and geopolitical shifts; potential retaliatory actions, including nationalization of foreign-owned businesses; increased tensions between the United States and countries in which the Company operates; and the extent of the conflict’s effect on the Company’s business and results of operations, as well as the global economy, cannot be predicted.
During the past year, rapid cost escalations in Europe, Mexicomaterials, energy, transportation and Russia wherelabor have impacted the Company’s profitability across all segments. During 2022, inflation, rising interest rates and other macroeconomic factors impacted new single-family home construction and residential remodeling in most of the Company’s major markets. As consumers faced a higher cost of living, discretionary spending – including flooring purchases – declined; and, as a result, the Company’s flooring customers reduced inventories, with the greatest impact falling in the fourth quarter. Mohawk has, to some extent, offset the impact of inflationary pressures through multiple pricing actions across product categories and geographies; improved mix from sales of higher-value, differentiated products; productivity gains in manufacturing and logistics and cost containment measures. Given the volatility of energy prices in some geographies and material prices in some product categories, these external pressures may change significantly and unpredictably, which could have an adverse impact on the Company’s results. Similarly, inflationary pressures around the globe may impact consumer and commercial investments in flooring and other large, deferrable purchases. During 2022, the Company took actions to enhance future performance including facility and product rationalizations and workforce reductions. The Company anticipates these global actions will deliver annual savings of approximately $55 to $60 million, with an estimated cost of approximately $125 to $130 million.
The Company believes it is well positioned with a strong balance sheet and limited debt. Based on its current liquidity and available credit, the Company is growing market share, especially in a position to finance internal investments, acquisitions and/or additional stock purchases. For information on risk that could impact the Company’s results, please refer to Risk Factors in Part I, Item 1A of this Form 10-K.
Since becoming a publicly traded company in April 1992, Mohawk has grown both organically and through strategic and bolt-on acquisitions. Mohawk has completed a number of smaller acquisitions in recent years, many of which expanded the Company’s hard surface flooring distribution in Europe. In 2021, the Company purchased an Irish insulation manufacturer that complemented its existing insulation production and distribution in Ireland and the U.K. and a French MDF production plant that added additional capacity and product offerings. During 2022, the Company completed five small, bolt-on acquisitions: a wood veneer plant in Romania; a sheet vinyl producer in Poland; a mezzanine flooring manufacturer in Germany; a nonwoven carpet and rug producer in the U.S.; and a commercial flooring trim and accessories business in the U.S.
On June 3, 2022, the Company entered into an agreement to purchase the Vitromex ceramic tile product lines.business from Grupo Industrial Saltillo for approximately $293 million in cash. The Vitromex business includes four manufacturing facilities strategically located throughout Mexico. The transaction has received regulatory approval and is expected to close in the first quarter of 2023 subject to customary closing conditions.
On November 4, 2022, the Company entered into an agreement to purchase Elizabeth Revestimentos, a Brazilian ceramic tile business, for approximately $217 million in cash. The Elizabeth business includes four manufacturing facilities strategically located throughout Brazil. The transaction closed on February 2, 2023. The Company expectsbelieves that the combination of the Eliane and Elizabeth businesses should create the leading market position in Brazil and yield significant sales growth to continue on a local basis and operating income should improve despite inflation and declining patent revenues attributed to expiring patents.operational synergies.
The Company completed four acquisitions to broaden product offerings and improve cost structure in 2017. These include bolt-on ceramic businesses in Italy and Poland, a U.S. talc mine for the ceramic business and a nylon polymerization plant to further integrate our carpet manufacturing.
In 2017,2022, the Company invested over $900$580.7 million in capital projects for capacity expansions, cost reduction initiatives and upgrades for recent acquisitions as well as maintenance across the segments. The largest investments during this period were in the Company’s LVT portfolio to expand capacities, differentiate products,upgrade its product offering and improve productivity.profitability; premium water-proof laminate expansion in North America and Europe; quartz countertop expansion in North America; and porcelain slab expansion in Europe. In 2018,2023, the Company plans to invest an additional $750amount of approximately $560 million in its existing businesses to complete existing projects that were begun in 2017 and to commence new initiatives. The largest investments during this two-year periodprimary areas of investment are the expansion of LVTexpected to be similar to those in the U.S. and Europe; ceramic capacity increases in the U.S., Mexico, Italy, Poland, Bulgaria and Russia; luxury laminate in the U.S., Europe and Russia; carpet tile in Europe; sheet vinyl in Russia; countertops in the U.S. and Europe; and carpet and rugs in the U.S. 2022.
Net earnings attributable to the Company were $971.6$25.2 million or diluted EPS of $12.98 for 20172022 compared to $1,033.2 million for 2021. The change in net earnings attributable to the Company of $930.4 million, or diluted EPS of $12.48 for 2016. The increase in EPS was primarily attributable to savingshigher inflation costs; the goodwill and indefinite-lived intangibles impairment charge; lower sales volume; the unfavorable impact of temporary plant shutdowns; higher restructuring, acquisition and integration-related costs; charges related to legal settlements, reserves and fees, net of insurance proceeds; the unfavorable net impact from capitalof foreign exchange rates and higher costs associated with investments in new product development and cost reduction initiatives,marketing costs. The unfavorable impact of the aforementioned items was partially offset by the favorable net impact of price and product mix,mix; productivity gains and lower interest rates, partially offset by higher input costs, increased employee costs, and the unfavorable impact of higher restructuring, acquisition and integration-related, and other costs. Also impacting EPS was the increase in income tax expensetaxes due to decreased earnings in 2022 compared to the geographic dispersion of earnings.prior year. The Company expectsbelieves that a number of circumstances may impact trends in 2023, including impacts to benefit in future periods from a lower effective tax rate as a result of the recent reformsmaterial availability due to disruptions in the U.S.global supply chain and Belgium.inflation, but the extent and duration of such impact cannot be predicted.
For the year ended December 31, 2017,2022, the Company generated $1,193.6$669.2 million of cash from operating activities. As of December 31, 2017,2022, the Company had cash and cash equivalents of $84.9$509.6 million, of which $14.4$299.3 million was in the United States and $70.5$210.4 million was in foreign countries.countries, in addition to $158.0 million in short-term investments.
Recent Events
On November 20, 2017, the Company announced that it agreed to acquire Godfrey Hirst Group, the leading flooring company in Australia and New Zealand, further extending Mohawk's global position. The acquisition is expected to close during the second quarter of 2018 for approximately A$556.0 million ($434.2 million equivalent at December 31, 2017).
Results of Operations
Following are the results of operations for the last three years: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2022 | | 2021 | | |
| | | | | | | | | | | |
| | (In millions) |
| Statement of operations data: | | | | | | | | | | | |
| Net sales | $ | 11,737.1 | | | 100.0 | % | | 11,200.6 | | | 100.0 | % | | | | |
Cost of sales (1) | 8,793.6 | | | 74.9 | % | | 7,931.9 | | | 70.8 | % | | | | |
| Gross profit | 2,943.4 | | | 25.1 | % | | 3,268.7 | | | 29.2 | % | | | | |
Selling, general and administrative expenses (2) | 2,003.4 | | | 17.1 | % | | 1,933.7 | | | 17.3 | % | | | | |
| Impairment of goodwill and indefinite-lived intangibles | 695.8 | | | 5.9 | % | | — | | | — | % | | | | |
| Operating income | 244.2 | | | 2.1 | % | | 1,335.0 | | | 11.9 | % | | | | |
| Interest expense | 51.9 | | | 0.4 | % | | 57.3 | | | 0.5 | % | | | | |
Other expense (income) (3) | 8.4 | | | 0.1 | % | | (12.2) | | | (0.1) | % | | | | |
| Earnings before income taxes | 183.9 | | | 1.6 | % | | 1,290.0 | | | 11.5 | % | | | | |
Income tax expense (4) | 158.1 | | | 1.3 | % | | 256.4 | | | 2.3 | % | | | | |
| Net earnings including noncontrolling interests | 25.8 | | | 0.2 | % | | 1,033.5 | | | 9.2 | % | | | | |
| Less: Net earnings attributable to noncontrolling interests | 0.5 | | | 0.0 | % | | 0.4 | | | 0.0 | % | | | | |
| Net earnings attributable to Mohawk Industries, Inc. | $ | 25.2 | | | 0.2 | % | | 1,033.2 | | | 9.2 | % | | | | |
| | | | | | | | | | | |
(1) Cost of sales includes: | | | | | | | | | | | |
| Restructuring, acquisition and integration-related charges | $ | 68.0 | | | 0.6 | % | | 18.4 | | | 0.2 | % | | | | |
| Acquisition inventory step-up | 2.8 | | | 0.0 | % | | 1.7 | | | 0.0 | % | | | | |
| Other charges | 3.2 | | | 0.0 | % | | — | | | — | % | | | | |
(2) Selling, general and administrative expenses include: | | | | | | | | | | | |
| Restructuring, acquisition and integration-related charges | 13.7 | | | 0.1 | % | | 5.2 | | | 0.0 | % | | | | |
| Legal settlements, reserves and fees, net of insurance proceeds | 54.2 | | | 0.5 | % | | — | | | — | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other charges | 1.0 | | | 0.0 | % | | — | | | — | % | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(3) Other expense (income) includes: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Resolution of foreign non-income tax contingencies | — | | | — | % | | (6.2) | | | (0.1) | % | | | | |
| Release of indemnification asset | 7.3 | | | 0.1 | % | | — | | | — | % | | | | |
| Other charges | 1.8 | | | 0.0 | % | | (0.5) | | | 0.0 | % | | | | |
(4) Income tax expense includes: | | | | | | | | | | | |
| | | | | | | | | | | |
| One-time tax planning election | — | | | — | % | | (22.2) | | | (0.2) | % | | | | |
| Income taxes - reversal of uncertain position | (7.3) | | | (0.1) | % | | — | | | — | % | | | | |
| Income tax effect on resolution of foreign non-income tax contingencies | — | | | — | % | | 2.3 | | | 0.0 | % | | | | |
| Other charges | 0.5 | | | 0.0 | % | | 0.9 | | | 0.0 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| | (In millions) |
| Statement of operations data: | | | | | | | | | | | |
| Net sales | $ | 9,491.3 |
| | 100.0 | % | | $ | 8,959.1 |
| | 100.0 | % | | $ | 8,071.6 |
| | 100.0 | % |
| Cost of sales (1) | 6,494.9 |
| | 68.4 | % | | 6,146.3 |
| | 68.6 | % | | 5,660.9 |
| | 70.1 | % |
| Gross profit | 2,996.4 |
| | 31.6 | % | | 2,812.8 |
| | 31.4 | % | | 2,410.7 |
| | 29.9 | % |
| Selling, general and administrative expenses (2) | 1,642.2 |
| | 17.3 | % | | 1,532.9 |
| | 17.1 | % | | 1,573.1 |
| | 19.5 | % |
| Operating income | 1,354.2 |
| | 14.3 | % | | 1,279.9 |
| | 14.3 | % | | 837.6 |
| | 10.4 | % |
| Interest expense (3) | 31.1 |
| | 0.3 | % | | 40.5 |
| | 0.5 | % | | 71.1 |
| | 0.9 | % |
| Other expense (income) (4) | 5.2 |
| | 0.1 | % | | (1.7 | ) | | — | % | | 17.6 |
| | 0.2 | % |
| Earnings before income taxes | 1,317.9 |
| | 13.9 | % | | 1,241.1 |
| | 13.9 | % | | 748.9 |
| | 9.3 | % |
| Income tax expense (5) | 343.2 |
| | 3.6 | % | | 307.6 |
| | 3.4 | % | | 131.9 |
| | 1.6 | % |
| Earnings from continuing operations | 974.7 |
| | 10.3 | % | | 933.5 |
| | 10.4 | % | | 617.0 |
| | 7.6 | % |
| Net earnings including noncontrolling interest | 974.7 |
| | 10.3 | % | | 933.5 |
| | 10.4 | % | | 617.0 |
| | 7.6 | % |
| Less: Net earnings attributable to the noncontrolling interest | 3.1 |
| | — | % | | 3.2 |
| | — | % | | 1.7 |
| | — | % |
| Net earnings attributable to Mohawk Industries, Inc. | $ | 971.6 |
| | 10.2 | % | | $ | 930.3 |
| | 10.4 | % | | $ | 615.3 |
| | 7.6 | % |
| | | | | | | | | | | | |
| (1) Cost of sales includes: | | | | | | | | | | | |
| Restructuring, acquisition and integration-related charges | $ | 36.0 |
| | 0.4 | % | | $ | 38.3 |
| | 0.4 | % | | $ | 45.6 |
| | 0.6 | % |
| Acquisition inventory step-up | 13.3 |
| | — | % | | — |
| | — | % | | 13.3 |
| | 0.2 | % |
| (2) Selling, general and administrative expenses include: | | | | | | | | | | | |
| Restructuring, acquisition and integration-related charges | 12.9 |
| | 0.1 | % | | 12.3 |
| | 0.1 | % | | 29.1 |
| | 0.4 | % |
| Legal settlement and reserve | — |
| | — | % | | (90.0 | ) | | (1.0 | )% | | 124.5 |
| | 1.5 | % |
| Tradename impairment | — |
| | — | % | | 47.9 |
| | 0.5 | % | | — |
| | — | % |
| Other charges | — |
| | — | % | | 9.9 |
| | 0.1 | % | | — |
| | — | % |
| (3) Interest expense includes: | | | | | | | | | | | |
| Debt extinguishment costs | 0.2 |
| | — | % | | — |
| | — | % | | — |
| | — | % |
| Deferred loan cost write-off | — |
| | — | % | | — |
| | — | % | | 0.7 |
| | — | % |
| (4) Other expense (income) includes: | | | | | | | | | | | |
| Reversal of uncertain tax position indemnification asset | 4.5 |
| | — | % | | 5.4 |
| | 0.1 | % | | 11.2 |
| | 0.1 | % |
| (5) Income tax expense includes: | | | | | | | | | | | |
| Tax reform and related, net | 0.8 |
| | — | % | | — |
| | — | % | | — |
| | — | % |
| Reversal of uncertain tax position | (4.5 | ) | | — | % | | (5.4 | ) | | (0.1 | )% | | (11.2 | ) | | (0.1 | )% |
Year Ended December 31, 2017,2022, as Compared with Year Ended December 31, 20162021
Net salesSales
Net sales for 20172022 were $9,491.3$11,737.1 million, reflecting an increase of $532.2$536.5 million, or 5.9%4.8%, from the $8,959.1$11,200.6 million reported for 2016.2021. The increase was primarily attributable to higher sales volume of approximately $245 million, or 3%, which includes sales volumes attributable to acquisitions of approximately $137 million and legacy sales volumes of approximately $107 million, the favorable net impact of price and product mix of approximately $218 million, or 2%, and the favorable impact of foreign exchange rates of approximately $69 million, or 1%.
Global Ceramic Segment—Net sales increased $230.4 million, or 7.3%, to $3,405.1 million for 2017, compared to $3,174.7 million for 2016. The increase was primarily attributable to higher sales volume of approximately $162 million, or 5%, which includes sales volume attributable to acquisitions of approximately $137 million and legacy sales volume of approximately $24 million, the favorable net impact of foreign exchange rates of approximately $39 million, or 1%, and the favorable net impact of price and product mix of approximately $29 million, or 1%.
Flooring NA Segment—Net sales increased $145.1 million, or 3.8%, to $4,010.9 million for 2017, compared to $3,865.7 million for 2016. The increase was primarily attributable to higher sales volumes of approximately $39 million, or 1%, and the favorable net impact of price and product mix of $105 million, or 3%.
Flooring ROW Segment—Net sales increased $156.8 million, or 8.2%, to $2,075.5 million for 2017, compared to $1,918.6 million for 2016. The increase was primarily attributable to higher sales volume of approximately $44 million, or 2%, the favorable net impact of price and product mix of approximately $83 million, or 4%, and the favorable net impact of foreign exchange rates of approximately $30 million, or 2%.
Quarterly net sales and the percentage changes in net sales by quarter for 2017 versus 2016 were as follows (dollars in millions): |
| | | | | | | | | |
| | 2017 | | 2016 | | Change |
| First quarter | $ | 2,220.6 |
| | 2,172.0 |
| | 2.2 | % |
| Second quarter | 2,453.0 |
| | 2,310.3 |
| | 6.2 | % |
| Third quarter | 2,448.5 |
| | 2,294.1 |
| | 6.7 | % |
| Fourth quarter | 2,369.1 |
| | 2,182.6 |
| | 8.5 | % |
| Total year | $ | 9,491.3 |
| | 8,959.1 |
| | 5.9 | % |
Gross profit
Gross profit for 2017 was $2,996.4 million (31.6% of net sales), an increase of $183.6 million or 6.5%, compared to gross profit of $2,812.8 million (31.4% of net sales) for 2016. As a percentage of net sales, gross profit increased 20 basis points. The increase in gross profit dollars was primarily attributable to the favorable net impact of price and product mix of approximately $171$1,564 million, savings from capital investments and cost reduction initiatives of approximately $154 million, higherpartially offset by lower sales volume of approximately $58$580 million, and the favorable net impact of foreign exchange rates of approximately $17 million, partially offset by higher input costs of approximately $194 million, including increased material costs of approximately $137 million.
Selling, general and administrative expenses
Selling, general and administrative expenses for 2017 were $1,642.2 million (17.3% of net sales), an increase of $109.4 million or 7.1% compared to $1,532.9 million (17.1% of net sales) for 2016. As a percentage of net sales, selling, general and administrative expenses increased 20 basis points. The increase in selling, general and administrative expenses in dollars was primarily attributable to approximately $50 million of costs due to higher sales volume, the unfavorable impact of higher restructuring, acquisition and integration-related, and other costs of approximately $33 million, approximately $23 million of costs associated with investments in new product development, sales personnel, and marketing, increased employee costs of approximately $13 million and the unfavorable net impact of foreign exchange rates of approximately $12$412 million partially offset by savings from capital investments and cost reduction initiativesthe unfavorable impact of one less shipping day for 2022 of approximately $24$40 million. Restructuring, acquisition and integration-related, and other costs
Global Ceramic—Net sales for 2022 were higher in 2017 primarily due to the absence of approximately $90$4,307.7 million, received in
2016 related to a contract dispute, partially offset by the approximately $48 million charge related to the write-off of the Lees tradename that was recorded in 2016.
Operating income
Operating income for 2017 was $1,354.2 million (14.3% of net sales) reflecting an increase of $74.2$390.4 million, or 5.8%10.0%, compared to operating income of $1,279.9from the $3,917.3 million (14.3% of net sales)reported for 2016.2021. The increase in operating income was primarily attributable to savings from capital investments and cost reduction initiatives of approximately $178 million and the favorable net impact of price and product mix of approximately $169$610 million, partially offset by higher input costslower sales volume of approximately $195$114 million, including increased material coststhe unfavorable net impact of foreign exchange rates of approximately $137 million, approximately $23 million of costs associated with investments in new product development, sales personnel, and marketing, increased employee costs of approximately $13$83 million and the unfavorable impact of higher restructuring, acquisition and integration-related, and other costsone less shipping day for 2022 of approximately $45$23 million. Restructuring, acquisition and integration-related, and other costs
Flooring NA—Net sales for 2022 were higher in 2017 primarily due to the absence of approximately $90$4,207.0 million, received in 2016 related to a contract dispute, partially offset by the approximately $48 million charge related to the write-off of the Lees tradename that was recorded in 2016.
Global Ceramic Segment—Operating income was $525.4 million (15.4% of segment net sales) for 2017 reflecting an increase of $47.0$90.6 million, or 9.8%2.2%, compared to operating income of $478.4from the $4,116.4 million (15.1% of segment net sales)reported for 2016.2021. The increase in operating income was primarily attributable to savings from capital investments and cost reduction initiatives of approximately $70 million, increased sales volumes of approximately $29 million, the favorable net impact of price and product mix of approximately $15 million, and the favorable net impact of foreign exchange rates of approximately $10$428 million, partially offset by higher input costslower sales volume of approximately $40$321 million approximately $12 million of costs associated with investments in new product development, sales personnel, and marketing, and the unfavorable impact of higher restructuring, acquisition and integration-related, and other costsone less shipping day for 2022 of approximately $16$17 million.
Flooring NA SegmentROW—Operating income was $540.3 million (13.5% of segment net sales)Net sales for 20172022 were $3,222.3 million, reflecting an increase of $35.2$55.4 million, or 7.0%1.7%, compared to operating income of $505.1from the $3,166.9 million (13.1% of segment net sales)reported for 2016.2021. The increase in operating income was primarily attributable to savings from capital investments and cost reduction initiatives of approximately $71 million, and the favorable net impact of price and product mix of approximately $74 million, partially offset by higher input costs of approximately $72 million, including increased material costs of approximately $54 million, and the unfavorable impact of higher restructuring, acquisition and integration-related, and other costs of approximately $33 million. Restructuring, acquisition and integration-related, and other costs were higher primarily due to the absence of approximately $90 million received in 2016 related to a contract dispute, partially offset by the approximately $48 million charge related to the write-off of the Lees tradename that was recorded in 2016.
Flooring ROW Segment—Operating income was $329.1 million (15.9% of segment net sales) for 2017 reflecting a decrease of $4.0 million, or (1.2)%, compared to operating income of $333.1 million (17.4% of segment net sales) for 2016. The decrease in operating income was primarily attributable to higher input costs of approximately $80 million, including increased material costs of approximately $76 million, costs associated with investments in expansion of production capacity of approximately $7 million, approximately $6 million of costs associated with investments in new product development, sales personnel, and marketing, the unfavorable net impact of exchange rates of approximately $5 million, and approximately $22 million in decreased sales volumes, primarily attributable to lower patent revenue. These decreases in operating income were partially offset by savings from capital investments and cost reduction initiatives of approximately $37 million, and the favorable net impact of price and product mix of approximately $80 million.
Interest expense
Interest expense was $31.1 million for 2017, reflecting a decrease of $9.4 million compared to interest expense of $40.5 million for 2016. The decrease was primarily attributable to a shift in the Company's borrowings to lower interest rate instruments.
Other expense (income)
Other expense was $5.2 million for 2017, reflecting an unfavorable change of $6.9 million compared to other income of $1.7 million for 2016. The change was primarily due to the increased unfavorable impact of foreign exchange rates on transactions in the current year.
Income tax expense
For 2017, the Company recorded income tax expense of $343.2 million on earnings before income taxes of $1,317.9 million for an effective tax rate of 26.0%, as compared to an income tax expense of $307.6 million on earnings before income taxes of $1,241.1 million, resulting in an effective tax rate of 24.8% for 2016. The increase in the year-over-year effective tax rate was the direct result of the geographic dispersion of the Company’s earnings for 2017, decreased by $44.4 million caused by the revaluation of deferred tax liabilities triggered by the Belgium corporate income tax reform, and increased by a one-time provisional net tax expense of $45.2 million resulting from the U.S. corporate income tax reform.
In December of 2017, the U.S. and Belgium enacted tax reform legislation. The U.S. legislation, the Tax Cuts and Jobs Act (“TCJA”), is the most significant and complex change to the U.S. tax law in more than 30 years. The most significant provisions of the TCJA, were the reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018, implementation of a territorial income tax regime, and imposition of a transition tax on the deemed repatriation of the accumulated earnings of the Company’s foreign subsidiaries. The most significant provisions of the Belgium legislation were the reduction of the corporate income tax rate from 33.99% to 29.58% for January 1, 2018 and January 1, 2019, respectively, with a further reduction to 25% effective January 1, 2020, an annual limitation on the utilization of net operating losses, and creation of a consolidated corporate income tax regime.
Accordingly, for the year ended December 31, 2017, the Company recorded a net tax expense of $0.8 million related primarily to the non-cash tax benefit of the revaluation of its Belgian deferred tax liabilities, the non-cash tax benefit of the provisional revaluation of its U.S. deferred tax liabilities, and the tax expense of the provisional accrual associated with the Deemed Repatriation Transition Tax. This represents the best estimate of the impact of all tax law changes on the Company’s financial statements. The Company will continue to evaluate the interpretations of the TCJA, the assumptions made within the calculations, and future guidance that may be issued to determine the impact, if any, on these provisional calculations, which may materially change the Company’s tax determinations.
As for certain other corporate income tax aspects of the TCJA, specifically the Global Intangible Low-Taxed Income (“GILTI”) provision, the Company has been unable to quantify the impacts of these provisions due to the inherent complexities involved. Accordingly, the Company expects to continue to analyze these provisions and their potential impacts and record any such amounts as determined during the course of 2018. See Note 12-Income Taxes.
Year Ended December 31, 2016, as Compared with Year Ended December 31, 2015
Net sales
Net sales for 2016 were $8,959.1 million, reflecting an increase of $887.5 million, or 11.0%, from the $8,071.6 million reported for 2015. The increase was primarily attributable to higher sales volume of approximately $944 million, or 12%, which includes sales volumes attributable to acquisitions of approximately $509 million and legacy sales volumes of approximately $435 million, and the favorable net impact of price and product mix of approximately $11$525 million, partially offset by the unfavorable net impact of foreign exchange rates of approximately $69$329 million or 1%.
Global Ceramic Segment—Net sales increased $161.8 million, or 5.4%, to $3,174.7 million for 2016, compared to $3,012.9 million for 2015. The increase was primarily attributable to higherand lower sales volume of approximately $159 million, or 5%, which includes sales volume attributable to acquisitions of approximately $29 million and legacy sales volume of approximately $130 million, and the favorable net impact of price and product mix of approximately $45 million, or 2%, offset by the unfavorable net impact of foreign exchange rates of approximately $43 million, or 2%.$145 million.
Flooring NA Segment—Net sales increased $263.6 million, or 7.3%, to $3,865.7 million for 2016, compared to $3,602.1 million for 2015. The increase was primarily attributable to higher sales volumes of approximately $305 million, or 8%, which includes sales volume attributable to acquisitions of approximately $76 million and legacy sales volume of approximately $229 million, partially offset by the unfavorable net impact of price and product mix of $42 million, or 1%
Flooring ROW Segment—Net sales increased $461.7 million, or31.7%, to $1,918.6 million for 2016, compared to $1,456.9 million for 2015.The increase was primarily attributable to higher sales volume of approximately $481 million, or 33%, which includes sales volume attributable to acquisitions of approximately $405 million and legacy sales volume of approximately $76 million and the favorable net impact of price and product mix of approximately $7 million, partially offset by the net impact of unfavorable foreign exchange rates of approximately $26 million, or 2%.
Quarterly net sales and the percentage changes in net sales by quarter for 20162022 versus 20152021 were as follows (dollars in millions): | | | | 2016 | | 2015 | | Change | | 2022 | | 2021 | | Change |
| First quarter | $ | 2,172.0 |
| | 1,881.2 |
| | 15.5 | % | First quarter | $ | 3,015.7 | | | 2,669.0 | | | 13.0 | % |
| Second quarter | 2,310.3 |
| | 2,041.7 |
| | 13.2 | % | Second quarter | 3,153.2 | | | 2,953.8 | | | 6.8 | % |
| Third quarter | 2,294.1 |
| | 2,150.7 |
| | 6.7 | % | Third quarter | 2,917.5 | | | 2,817.0 | | | 3.6 | % |
| Fourth quarter | 2,182.6 |
| | 1,998.0 |
| | 9.2 | % | Fourth quarter | 2,650.7 | | | 2,760.7 | | | (4.0) | % |
| Total year | $ | 8,959.1 |
| | 8,071.6 |
| | 11.0 | % | |
| Full year | | Full year | $ | 11,737.1 | | | 11,200.6 | | | 4.8 | % |
Gross profitProfit
Gross profit for 20162022 was $2,812.8$2,943.4 million (31.4%(25.1% of net sales), an increasea decrease of $402.1$325.3 million or 16.7%10.0%, compared to gross profit of $2,410.7$3,268.7 million (29.9%(29.2% of net sales) for 2015.2021. As a percentage of net sales, gross profit increased 150decreased 410 basis points. The increasedecrease in gross profit dollars was primarily attributable to higher inflation of approximately $1,365 million, lower sales volume of approximately $254$204 million, savings from capital investments and cost reduction initiativesthe unfavorable impact of temporary plant shutdowns of approximately $113$138 million, lower material coststhe unfavorable net impact of foreign exchange rates of approximately $67 million and the favorable impact of lowerhigher restructuring, acquisition and integration-related and other costs of approximately $21$54 million, partially offset by the net impact of unfavorable foreign exchange rates of approximately $28 million, and the unfavorablefavorable net impact of price and product mix of approximately $11$1,420 million and productivity gains of approximately $78 million.
Selling, generalGeneral and administrative expensesAdministrative Expenses
Selling, general and administrative expenses for 20162022 were $1,532.9$2,003.4 million (17.1% of net sales), a decreasean increase of $40.2$69.7 million or 3.6% compared to $1,573.1$1,933.7 million (19.5%(17.3% of net sales) for 2015.2021. As a percentage of net sales, selling, general and administrative expenses decreased 24020 basis points. The decreaseincrease in selling, general and administrative expenses in dollars(in dollars) was primarily attributable to savings from capital investments and cost reduction initiatives of $27 million, the net impact of favorable foreign exchange rates of approximately $9 million, and the favorable impact of lower restructuring, acquisition and integration-related, and other costs of approximately $173 million, partially offset by approximately $94 million of costs due to higher sales volume, approximately $51 million of costs associated with investments in new product development, sales personnel, and marketing, and increased employee costs of approximately $18 million. Restructuring, acquisition and integration-related, and other costs were lower primarily due to the non-recurring 2015 chargelegal settlements, reserves and fees, net of insurance proceeds, of approximately $122 million related to the settlement and defense of the polyurethane foam litigation and the $90 million received in the third quarter of 2016 related to a contract dispute, partially offset by a charge for approximately $48 million related to the write-off of the Lees tradename.
Operating income
Operating income for 2016 was $1,279.9 million (14.3% of net sales) reflecting an increase of $442.4 million, or 52.8%, compared to operating income of $837.6 million (10.4% of net sales) for 2015. The increase in operating income was primarily attributable to increased sales volumes of approximately $160 million, savings from capital investments and cost reduction initiatives of approximately $140 million, lower material costs of approximately $67 million and the favorable impact of lower restructuring, acquisition and integration-related, and other costs of approximately $194 million, partially offset by approximately $51 million of costs associated with investments in new product development, sales personnel, and marketing, the net impact of unfavorable foreign exchange rates of approximately $19 million, increased employee costs of approximately $18 million, and$54 million; the unfavorable net impact of price and product mix of approximately $13 million. Restructuring,$52 million; higher inflation costs of approximately $32 million; higher restructuring, acquisition and integration-related and other costs were lower primarily due to the non-recurring 2015 charge of approximately $122 million related to the settlement and defense of the polyurethane foam litigation and the $90 million received in the third quarter of 2016 related to a contract dispute, partially offset by a charge for approximately $48 million related to the write-off of the Lees tradename.
Global Ceramic Segment—Operating income was $478.5 million (15.1% of segment net sales) for 2016 reflecting an increase of $64.3 million, or 15.5%, compared to operating income of $414.2 million (13.7% of segment net sales) for 2015. The increase in operating income was primarily attributable to savings from capital investments and cost reduction initiatives of approximately $49 million, increased sales volumes of approximately $36 million, and the favorable impact of price and product mix of approximately $20 million, partially offset by$10 million; higher costs associated with investments in new product development sales personnel, and marketing of approximately $18 million, increased employee costs of approximately $9 million, increased material costs$8 million; and lower sales volume of approximately $6 million, and$4 million. The unfavorable impact of the aforementioned items was partially offset by the favorable net impact of unfavorable foreign exchange rates of approximately $3$56 million and productivity gains of approximately $33 million.
Impairment of Goodwill and Indefinite-lived Intangibles
Flooring NA Segment—
During the third quarter of 2022, the Company performed interim impairment tests of its goodwill and indefinite-lived intangible assets, which resulted in impairment charges of $695.8 million ($685.6 million net of tax). The Company performed these interim tests after determining a triggering event had occurred, taking into consideration the impact of a higher weighted average cost of capital (“WACC”), deteriorating macroeconomic conditions, and the reduction in the Company’s market capitalization. If, in the future, the Company’s market capitalization and/or the estimated fair value of the Company’s reporting units declines further, it may be necessary to record additional impairment charges.
Operating Income (Loss)
Operating income for 2022 was $505.1$244.2 million (13.1%(2.1% of segment net sales) for 2016 reflecting an increasea decrease of $240.8$1,090.8 million, or 91.1%81.7%, compared to operating income of $264.3$1,335.0 million (7.3%(11.9% of segment net sales) for 2015.2021. The increasedecrease in operating income was primarily attributable to savings from capital investments and cost reduction initiatives of approximately $64 million, lower materialhigher inflation costs of approximately $49 million, increased sales volumes$1,397 million; the goodwill and indefinite-lived intangibles impairment charge of approximately $46 million, and$696 million; lower sales volume of approximately $208 million; the favorableunfavorable impact of lowertemporary plant shutdowns of approximately $138 million; higher restructuring, acquisition and integration-related and other costs of approximately $157$63 million; approximately $54 million partially offset byrelated to legal settlements, reserves and fees, net of insurance proceeds; the unfavorable net impact of foreign exchange rates of approximately $27$10 million ofand higher costs associated with investments in new product development sales personnel, and marketing the unfavorable impact of price and product mix of approximately $27 million, costs associated with investments in expansion of production capacity of approximately $6 million and increased employee costs of $5 million. Restructuring, acquisition and integration-related, and other costs were lower primarily due to the non-recurring 2015 charge of approximately $122 million related to the settlement and defense of the polyurethane foam litigation and the $90 million received in the third quarter of 2016 related to a contract dispute, partially offset by a charge for approximately $48 million related to the write-off of the Lees tradename.
Flooring ROW Segment—Operating income was $333.1 million (17.4% of segment net sales) for 2016 reflecting an increase of $129.7 million, or 63.8%, compared to operating income of $203.4 million (14.0% of segment net sales) for 2015. The increase in operating income was primarily attributable to higher sales volumes of approximately $77 million, savings from capital investments and cost reduction initiatives of approximately $27 million, lower material costs of approximately $23 million, lower restructuring, acquisition and integration-related, and other costs of approximately $23 million, and the favorable impact of reduced costs from investments in expansion of production capacity of approximately $6$8 million, partially offset by the net impact of unfavorable foreign exchange rates of approximately $16 million, the unfavorablefavorable net impact of price and product mix of approximately $6$1,368 million and productivity gains of approximately $5$111 million.
Global Ceramic—Operating loss was $236.1 million ((5.5)% of segment net sales) for 2022 reflecting a decrease of $639.2 million, or 158.6%, compared to operating income of $403.1 million (10.3% of segment net sales) for 2021. The decrease in operating income was primarily attributable to the goodwill and indefinite-lived intangibles impairment charge of approximately $689 million; higher inflation costs of approximately $454 million; lower sales volume of approximately $39 million; the unfavorable impact of temporary plant shutdowns of approximately $19 million and higher costs associated with investments in new product development and marketing costs of approximately $8 million, partially offset by the favorable net impact of price and product mix of approximately $497 million; productivity gains of approximately $63 million and the favorable net impact of foreign exchange rates of approximately $4 million.
Flooring NA—Operating income was $231.1 million (5.5% of segment net sales) for 2022 reflecting a decrease of $176.5 million, or 43.3%, compared to operating income of $407.6 million (9.9% of segment net sales) for 2021. The decrease in operating income was primarily attributable to higher inflation costs of approximately $449 million; lower sales personnel,volume of approximately $110 million; the unfavorable impact of temporary plant shutdowns of approximately $57 million; higher restructuring, acquisition and marketing.integration-related costs of approximately $33 million and the indefinite-lived intangibles impairment charge of approximately $1 million, partially offset by the favorable net impact of price and product mix of approximately $398 million and productivity gains of approximately $81 million.
Flooring ROW—Operating income was $340.2 million (10.6% of segment net sales) for 2022 reflecting a decrease of $230.9 million, or 40.4%, compared to operating income of $571.1 million (18.0% of segment net sales) for 2021. The decrease in operating income was primarily attributable to higher inflation costs of approximately $504 million; the unfavorable impact of temporary plant shutdowns of approximately $61 million; lower sales volume of approximately $60 million; decreased productivity of approximately $33 million; higher restructuring, acquisition and integration-related costs of approximately $30 million; the unfavorable net impact of foreign exchange rates of approximately $14 million and the indefinite-lived intangibles impairment charge of approximately $6 million, partially offset by the favorable net impact of price and product mix of approximately $473 million.
Interest expenseExpense
Interest expense was $40.5$51.9 million for 2016,2022, reflecting a decrease of $30.5$5.4 million compared to interest expense of $71.1$57.3 million for 2015.The2021. The decrease was primarily attributable to the Company paying the remaining balance of its 6.125% senior notes in January 2016 utilizing cash on hand and lower interest rate commercial paper borrowings.
Other (income) expense
Other income was $1.7 million for 2016, reflecting a favorable change of $19.3 million compared to other expense of $17.6 million for 2015. The change was primarily due to the prior yearredemption of the $600 million 3.85% Senior Notes on November 1, 2022, the redemption of the €500.0 million 2.00% Senior Notes in October 2021 and miscellaneous interest income, partially offset by the increase in commercial paper borrowings and the utilization of the Term Loan Facility in the fourth quarter of 2022.
Other Expense (Income)
Other expense was $8.4 million for 2022, reflecting an unfavorable change of $20.6 million compared to other income of $12.2 million for 2021. The change was primarily driven by the resolution of foreign non-income tax contingencies of approximately $6 million during the twelve months ended December 31, 2021, the unfavorable net impact of foreign exchange rates of approximately $9 million and the release of an indemnification receivable related to the reversal of uncertain tax positions recorded with the IVC GroupEmil acquisition of approximately $11$7 million, partially offset by other miscellaneous items of approximately $2 million.
Income tax expenseTax Expense
For 2016,2022, the Company recorded income tax expense of $307.6$158.1 million on earnings before income taxes of $1,241.1$183.9 million for an effective tax rate of 24.8%86.0%, as compared to an income tax expense of $131.9$256.4 million on earnings before income taxes of $748.9$1,290.0 million, resulting in an effective tax rate of 17.6%19.9% for 2015. The increase in effective2021. In 2022, the lower income before taxes and the non-deductible goodwill impairment charge contributed to the higher tax rates was partially due to benefits recorded in 2015, that did not recur in 2016:rate. In 2021, the expirationCompany also recognized a one-time Italian step-up benefit allowing for the realignment of the statute of limitations on European-related tax exposures of approximately $18 millionasset values and a favorable multi-yearbenefit from a tax study yieldingrate differential on a benefit of approximately $8.5 million. The balance of the year-over-year increase is the direct result of the geographic dispersion of the Company's earnings for 2016, which are up approximately 94% in the U.S. (partially due to the absence of the 2015 $122.5 million charge related to the settlement and defense of the polyurethane foam litigation) and almost 45% outside the U.S. See Note 12-Income Taxes.loss carryback.
Liquidity and Capital Resources
The Company’s primary capital requirements are for working capital, capital expenditures and acquisitions. The Company’s capital needs are met primarily through a combination of internally generated funds, commercial paper, bank credit lines, term and senior notes and credit terms from suppliers. As of December 31, 2017,2022, the Company had a total of $541.0$1,101.6 million available under its 2015 Senior Credit Facility. The Company also maintains local currency revolving lines of credit and other credit facilities to provide liquidity to its businesses around the world. None of such local facilities are material in amount.
Net cash provided by operating activities for the year ended 20172022 was $1,193.6$669.2 million, compared to net cash provided by operating activities of $1,345.3$1,309.1 million for the year ended 2016. The2021. This decrease of $151.7$640.0 million in 2017 was primarily attributable to changesdecreases in working capital. These changes in working capital reflect normal fluctuations relative to the timingaccounts payable and nature of these transactions. The increase in cash provided by operating activities for 2016 as compared to 2015 was primarily attributable to highernet earnings, driven by increased sales volumes during 2016 when compared to the prior year, the non-recurring
2015 $122.5 million charge related to the settlement and defense of the polyurethane foam litigation, and the $90 million related to the settlement of a contract dispute with a third party. The increase in earnings was partially offset by changes in working capital.higher accounts receivable.
Net cash used in investing activities for the year ended 20172022 was $1,240.7$625.3 million compared to net cash used in investing activities of $672.1$556.8 million for the year ended 2016.2021. The increase was primarily due to the increase in acquisitions of $250.8$85.6 million and a decrease in the $83.9 million purchaseredemptions of short-term investments in 2017. Also,of $78.3 million (net of purchases of short-term investments), partially offset by the decrease of capital expenditures increased by $233.9 million to $906.0 million in 2017. The decrease in cash used in investing activities in 2016 of $672.1 million as compared to 2015 was primarily due to the decrease in acquisitions. The Company spent $1,371 million in 2015 on the IVC Group, the KAI Group, Xtratherm and other acquisitions and there were no acquisitions in 2016.The Company will continue to invest to optimize sales and profit growth with product expansion and cost reduction projects in the business.$95.4 million.
Net cash used inprovided by financing activities for the year ended 20172022 was $7.0$194.3 million compared to net cash used in financing activities of $641.6$1,232.2 million for the year ended 2016.2021. The change in cash used in financing is primarily attributable to proceeds from the issuanceTerm Loan Facility of $908.0 million, lower share repurchases of $592.8 million and salelower payments on the Senior Notes of $357.6$332.3 million, in Floating Rate Notes in 2017 and the repayment of senior notes of $645.6 million in 2016, partially offset by decreasedthe decrease in net borrowings in 2017. The change in cash used in financing activities foron commercial paper of $394.4 million.
On February 10, 2022, the year ended 2016 as compared to 2015 was primarily attributable to decreased borrowings in 2016.
Senior Credit Facility
On March 26, 2015,Company’s Board of Directors approved a new share repurchase program, authorizing the Company amended and restatedto repurchase up to $500 million of its 2013 senior credit facility increasing its size from $1,000.0 million to $1,800.0 million and extendingcommon stock. For the maturity from September 25, 2018 to March 26, 2020 (as amended and restated, the "2015 Senior Credit Facility"). The 2015 Senior Credit Facility eliminated certain provisions in the 2013 Senior Credit Facility, including those that: (a) accelerated the maturity date to 90 days prior to the maturity of senior notes due in January 2016 if certain specified liquidity levels were not met; and (b) required that certain subsidiaries guarantee the Company's obligations if the Company’s credit ratings fell below investment grade. The 2015 Senior Credit Facility also modified certain negative covenants to providetwelve months ended December 31, 2022, the Company with additional flexibility, including flexibility to make acquisitions and incur additional indebtedness.On March 1, 2016,purchased $307.6 million of its common stock, exhausting the Company amended the 2015 Senior Credit Facility to, among other things, carve out from the general limitation on subsidiary indebtedness the issuance of Euro-denominated commercial paper notes by subsidiaries. Additionally, at several points in 2016, the Company extended the maturity date of the 2015 Senior Credit Facility from March 26, 2020 to March 26, 2021. In the first half of 2017, the Company amended the 2015 Senior Credit Facility to extend the maturity date from March 26, 2021 to March 26, 2022.
At the Company's election, revolving loans$36.8 million remaining under the 2015 Senior Credit Facility bear interest at annual rates equal to either (a) LIBOR for 1, 2, 3 or 6 month periods, as selected byprior share repurchase program authorized on September 16, 2021 (the “2021 Share Repurchase Program”), and utilizing $270.8 million under the Company, plus an applicable margin ranging between 1.00% and 1.75% (1.125% as2022 Share Repurchase Program. As of December 31, 2017), or (b) the higher of the Wells Fargo Bank, National Association prime rate, the Federal Funds rate plus 0.5%, or the Eurocurrency Rate (as defined in the 2015 Senior Credit Facility) rate plus 1.0%, plus an applicable margin ranging between 0.00% and 0.75% (0.125% as of December 31, 2017). The Company also pays a commitment fee to the lenders2022, there remained $229.2 million authorized under the 2015 Senior Credit Facility on the average amount by which the aggregate commitments of the lenders' exceed utilization of the 2015 Senior Credit Facility ranging from 0.10% to 0.225% per annum (0.125% as of December 31, 2017). The applicable margins and the commitment fee are determined based on whichever of the Company's Consolidated Net Leverage Ratio or its senior unsecured debt rating (or if not available, corporate family rating) results in the lower applicable margins and commitment fee (with applicable margins and the commitment fee increasing as that ratio increases or those ratings decline, as applicable).2022 Share Repurchase Program.
The obligations of the Company and its subsidiaries in respect of the 2015 Senior Credit Facility are unsecured.
The 2015 Senior Credit Facility includes certain affirmative and negative covenants that impose restrictions on the Company's financial and business operations, including limitations on liens, subsidiary indebtedness, fundamental changes, asset dispositions, dividends and other similar restricted payments, transactions with affiliates, future negative pledges, and changes in the nature of the Company's business. The Company is also required to maintain a Consolidated Interest Coverage Ratio of at least 3.0 to 1.0 and a Consolidated Net Leverage Ratio of no more than 3.75 to 1.0, each as of the last day of any fiscal quarter. The limitations contain customary exceptions or, in certain cases, do not apply as long as the Company is in compliance with the financial ratio requirements and is not otherwise in default.
The 2015 Senior Credit Facility also contains customary representations and warranties and events of default, subject to customary grace periods.
The Company paid financing costs of $0.6 million in connection with the extension of its 2015 Senior Credit Facility from March 26, 2021 to March 26, 2022. These costs were deferred and, along with unamortized costs of $6.9 million are being amortized over the term of the 2015 Senior Credit Facility.
As of December 31, 2017, amounts utilized under2022, the 2015 Senior Credit Facility included $62.1Company had cash of $509.6 million, of borrowings and $56.3which $210.4 million was held outside the United States. In addition to its cash on hand, the Company also had short-term investments of standby letters of credit related to various insurance contracts and foreign vendor commitments. The outstanding borrowings of $1,140.6$158.0 million under the Company's U.S. and European commercial paper programs as of December 31, 2017 reduce2022. The Company plans to permanently reinvest the cash held outside the United States. The Company believes that its cash and cash equivalents, short-term investments on hand, cash generated from operations and availability of the 2015 Senior Credit Facility. Including commercial paper borrowings, the Company has utilized $1,259.0 million under the 2015its Senior Credit Facility resulting in a total of $541.0 million available as of December 31, 2017.
Commercial Paper
On February 28, 2014 and July 31, 2015, the Company established programs for the issuance of unsecured commercial paper in the United States and Eurozone capital markets, respectively. Commercial paper issued under the U.S. and European programs will have maturities ranging up to 397 and 183 days, respectively. None of the commercial paper notes may be voluntarily prepaid or redeemed by the Company and all rank pari passu with all of the Company's other unsecured and unsubordinated indebtedness. To the extent that the Company issues European commercial paper notes through a subsidiary of the Company, the notes will be fullysufficient to meet its planned capital expenditures, working capital investments and unconditionally guaranteed by the Company.
The Company uses its 2015 Senior Credit Facility as a liquidity backstop for its commercial paper programs. Accordingly, the total amount outstanding under all of the Company's commercial paper programs may not exceed $1,800.0 million (less any amounts drawn on the 2015 Credit Facility) at any time.
The proceeds from the issuance of commercial paper notes will be available for general corporate purposes. As of December 31, 2017 there was $228.5 million outstanding under the U.S. commercial paper program, and the euro equivalent of $912.1 million under the European program. The weighted-average interest rate and maturity period for the U.S. program were 1.97% and 12.60 days, respectively. The weighted-average interest rate and maturity period for the European program were (0.20)% and 35.19 days, respectively.
Senior Notes
On September 11, 2017, Mohawk Capital Finance S.A. (“Mohawk Finance”), an indirect wholly-owned finance subsidiary of the Company, completed the issuance and sale of €300.0 million aggregate principal amount of its Floating Rate Notes due September 11, 2019 ("Floating Rate Notes"). The Floating Rate Notes are senior unsecured obligations of Mohawk Finance and rank pari passu with all of Mohawk Finance’s other existing and future senior unsecured indebtedness. The Floating Rate Notes are fully, unconditionally and irrevocably guaranteed by the Company on a senior unsecured basis. These notes bear interest at a rate per annum, reset quarterly, equal to three-month EURIBOR plus 0.3% (but in no event shall the interest rate be less than zero). Interest on the Floating Rate Notes is payable quarterly on September 11, December 11, March 11, and June 11 of each year. Mohawk Finance paid financing costs of $0.9 million in connection with the Floating Rate Notes. These costs were deferred and are being amortizeddebt servicing requirements over the term of the Floating Rate Notes.next twelve months.
On June 9, 2015, the Company issued €500.0 million aggregate principal amount of 2.00% Senior Notes due January 14, 2022. The 2.00% Senior Notes are senior unsecured obligations of the Company and rank pari passu with all of the Company’s existing and future unsecured indebtedness. Interest on the 2.00% Senior Notes is payable annually in cash on January 14 of each year, commencing on January 14, 2016. The Company paid financing costs of $4.2 million in connection with the 2.00% Senior Notes. These costs were deferred and are being amortized over the term of the 2.00% Senior Notes.
On January 31, 2013, the Company issued $600.0 million aggregate principal amount of 3.85% Senior Notes due February 1, 2023. The 3.85% Senior Notes are senior unsecured obligations of the Company and rank pari passu with all of the Company's existing and future unsecured indebtedness. Interest on the 3.85% Senior Notes is payable semi-annually in cash on February 1 and August 1 of each year. The Company paid financing costs of $6,000 in connection with the 3.85% Senior Notes. These costs were deferred and are being amortized over the term of the 3.85% Senior Notes.
As defined in the related agreements, the Company's senior notes contain covenants, representations and warranties and events of default, subject to exceptions, and restrictions on the Company’s financial and business operations, including limitations on liens, restrictions on entering into sale and leaseback transactions, fundamental changes, and a provision allowing the holderSee Note 10, Long-Term Debt, of the notes to require repayment upon a changethe Consolidated Financial Statements included in Part II, Item 8 of control triggering event.
Accounts Receivable Securitization
On December 19, 2012, the Company entered into a three-year on-balance sheet trade accounts receivable securitization agreement (the "Securitization Facility"). On September 11, 2014, the Company made certain modifications to its Securitization Facility, which modifications, among other things, increased the aggregate borrowings available under the facility from $300.0 million to $500.0 million and decreased the interest margins on certain borrowings. Amounts borrowed under the Securitization Facility bore interest at LIBOR plus an applicable margin of 0.70% per annum and the borrower paid a commitment fee at a per annum rate of 0.30% on the unused amount of each lender’s commitment. On December 10, 2015, the Company extended the termination date to December 19, 2016, and on December 13, 2016, the Company extended the termination date to December 19, 2017. The Company paid financing costs of $250 in connection with the second extension. These costs were deferred and amortized over the termthis Form 10-K for further discussion of the Securitization Facility. The Securitization Facility expired in accordance with its terms on December 19, 2017.
Company’s long-term debt. The Company may continue, from time to time, to retire its outstanding debt through cash purchases in the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amount involved may be material.
As of December 31, 2017, the Company had cash of $84.9 million, of which $70.5 million was held outside the United States. The Company plans to permanently reinvest the cash held outside the United States. The Company believes that its cash and cash equivalents on hand, cash generated from operations and availability under its 2015 Senior Credit Facility will be sufficient to meet its capital expenditure, working capital and debt servicing requirements over the next twelve months.
The Company’s Board of Directors has authorized the repurchase of up to 15 million shares of the Company’s outstanding common stock. Since the inception of the program in 1999, a total of approximately 11.5 million shares have been repurchased at an aggregate cost of approximately $335.5 million. All of these repurchases have been financed through the Company’s operations and banking arrangements. The Company did not repurchase shares during the year ended December 31, 2017.
Contractual obligationsObligations and commitmentsCommitments
The following is a summary of the Company’s future minimum payments under contractual obligations and commitments as of December 31, 20172022 (in millions):
| | | | Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter |
| Contractual obligations and commitments: | | | | | | | | | | | | | | Contractual obligations and commitments: | | | | | | | | | | | | | |
| Long-term debt, including current maturities and capital leases | $ | 2,763.6 |
| | 1,203.7 |
| | 360.5 |
| | 0.6 |
| | 0.4 |
| | 598.0 |
| | 600.3 |
| |
| Interest payments on long-term debt and capital leases (1) | 171.8 |
| | 39.1 |
| | 35.3 |
| | 35.3 |
| | 35.3 |
| | 24.2 |
| | 2.6 |
| |
| Long-term debt, including current maturities | | Long-term debt, including current maturities | $ | 2,826.4 | | | 840.6 | | | 920.7 | | | 9.0 | | | 7.0 | | | 539.3 | | | 509.8 | |
Interest payments on long-term debt and finance leases (1) | | Interest payments on long-term debt and finance leases (1) | 317.9 | | | 108.9 | | | 52.4 | | | 28.0 | | | 27.8 | | | 22.3 | | | 78.5 | |
| | Operating leases | 391.0 |
| | 115.7 |
| | 91.2 |
| | 70.1 |
| | 47.4 |
| | 26.9 |
| | 39.6 |
| Operating leases | 435.2 | | | 125.1 | | | 103.2 | | | 82.8 | | | 61.8 | | | 34.8 | | | 27.4 | |
| Purchase commitments (2) | 567.2 |
| | 172.9 |
| | 76.9 |
| | 31.2 |
| | 31.2 |
| | 25.5 |
| | 229.5 |
| Purchase commitments (2) | 428.3 | | | 192.3 | | | 66.4 | | | 28.2 | | | 27.9 | | | 26.3 | | | 87.2 | |
| Expected pension contributions (3) | 3.3 |
| | 3.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| Expected pension contributions (3) | 4.5 | | | 4.5 | | | — | | | — | | | — | | | — | | | — | |
| Uncertain tax positions (4) | 1.2 |
| | 1.2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| Uncertain tax positions (4) | 8.1 | | | 8.1 | | | — | | | — | | | — | | | — | | | — | |
| Guarantees (5) | 23.8 |
| | 23.8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| Guarantees (5) | 15.9 | | | 15.9 | | | — | | | — | | | — | | | — | | | — | |
| Total | $ | 3,921.9 |
| | 1,559.7 |
| | 563.9 |
| | 137.2 |
| | 114.3 |
| | 674.6 |
| | 872.0 |
| Total | $ | 4,036.3 | | | 1,295.4 | | | 1,142.7 | | | 148.0 | | | 124.5 | | | 622.7 | | | 702.9 | |
| |
(1) | For fixed rate debt, the Company calculated interest based on the applicable rates and payment dates. For variable rate debt, the Company estimated average outstanding balances for the respective periods and applied interest rates in effect as of December 31, 2017 to these balances.
|
| |
(2) | Includes volume commitments for natural gas, electricity and raw material purchases. |
| |
(3) | Includes the estimated pension contributions for 2018 only, as the Company is unable to estimate the pension contributions beyond 2018. The Company’s projected benefit obligation and plan assets as of December 31, 2017 were $65.4 million and $53.4 million, respectively. The projected benefit obligation liability has not been presented in the table above due to uncertainty as to amounts and timing regarding future payments.
|
| |
(4) | Excludes $59.3 million of non-current accrued income tax liabilities and related interest and penalties for uncertain tax positions. These liabilities have not been presented in the table above due to uncertainty as to amounts and timing regarding future payments. |
| |
(5) | Includes bank guarantees and letters of credit. |
(1) For fixed-rate debt, the Company calculated interest based on the applicable rates and payment dates. For variable-rate debt, the Company estimated average outstanding balances for the respective periods and applied interest rates in effect as of December 31, 2022 to these balances.
(2) Includes volume commitments, primarily for raw material purchases.
(3) Includes the estimated pension contributions for 2023 only, as the Company is unable to estimate the pension contributions beyond 2023. The Company’s projected benefit obligation and plan assets as of December 31, 2022 were $55.2 million and $50.7 million, respectively. The projected benefit obligation liability has not been presented in the table above due to uncertainty as to amounts and timing regarding future payments.
(4) Excludes $54.6 million of non-current accrued income tax liabilities and related interest and penalties for uncertain tax positions. These liabilities have not been presented in the table above due to uncertainty as to amounts and timing regarding future payments.
(5) Includes bank guarantees and letters of credit.
Critical Accounting Policies
In preparing the consolidated financial statementsConsolidated Financial Statements in conformity with U.S. generally accepted accounting principles, the Company must make decisions which impact the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. Such decisions include the selection of appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, the Company applies judgment based on its understanding and analysis of the relevant circumstances and historical experience. Actual amounts could differ from those estimated at the time the consolidated financial statementsConsolidated Financial Statements are prepared.
The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements included elsewhere in Part II, Item 8 of this report.Form 10-K. Some of those significant accounting policies require the Company to make subjective or complex judgments or estimates. Critical accounting policiesestimates are defined as those that are both most important to the portrayal of a company’s financial condition and results and require management’s most difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
The Company believes the following accounting policies require it to use judgments and estimates in preparing its consolidated financial statements and represent critical accounting policies.
Accounts receivable and revenue recognition. Revenues are recognized when there is persuasive evidence of an arrangement, delivery has occurred, the price has been fixed or is determinable, and collectability can be reasonably
assured. The Company provides allowances for expected cash discounts, sales allowances, returns, claims and doubtful accounts based upon historical bad debt and claims experience and periodic evaluation of specific customer accounts and the aging of accounts receivable. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. A 10% change in the Company’s allowance for discounts, returns, claims and doubtful accounts would have affected net earnings by approximately $5 million for the year ended December 31, 2017.
Inventories are stated at the lower of cost or market (net realizable value). Cost has been determined using the first-in first-out method (“FIFO”). Costs included in inventory include raw materials, direct and indirect labor and employee benefits, depreciation, general manufacturing overhead and various other costs of manufacturing. Market, with respect to all inventories, is replacement cost or net realizable value. Inventories on hand are compared against anticipated future usage, which is a function of historical usage, anticipated future selling price, expected sales below cost, excessive quantities and an evaluation for obsolescence. Actual results could differ from assumptions used to value obsolete inventory, excessive inventory or inventory expected to be sold below cost and additional reserves may be required. A 10% change in the Company’s reserve for excess or obsolete inventory would have affected net earnings by approximately $9 million for the year ended December 31, 2017.
•Acquisition Accounting. accounting. The fair value of the consideration we paythe Company pays for each new acquisition is allocated to tangible assets and identifiable intangible assets, liabilities assumed, any non-controllingnoncontrolling interest in the acquired entity and goodwill. The accounting for acquisitions involves a considerable amount of judgment and estimate, including the fair value of certain forms of consideration; fair value of acquired intangible assets involving projections of future revenues and cash flows that are then either discounted at an estimated discount rate or measured at an estimated royalty rate; fair value of other acquired assets and assumed liabilities, including potential contingencies; and the useful lives of the acquired assets. The assumptions used are determined at the time of the acquisition in accordance with accepted valuation models. Projections are developed using internal forecasts, available industry and market data and estimates of long-term rates of growth for ourthe business. The impact of prior or future acquisitions on ourthe Company’s financial position or results of operations may be materially impacted by the change in or initial selection of assumptions and estimates. See Note 2-Acquisitions2, Acquisitions included in Part II, Item 8 of this Form 10-K for further discussion of business combination accounting valuation methodology and assumptions.
•Goodwill and otherindefinite-lived intangibles. Goodwill isand indefinite-lived intangibles, which for the Company are its tradenames, are tested annually for impairment on the first day ofin the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. The Company’s annual impairment tests of goodwill and tradenames may be completed through qualitative assessments. The Company may elect to bypass the qualitative assessment and proceed directly to a quantitative impairment test, for any reporting unit or tradename, in any period. The Company can resume the qualitative assessment for any reporting unit or tradename in any subsequent period.
The Company has identified Global Ceramic, Flooring NA and Flooring ROW as its reporting units for the purposes of allocating goodwill as well as assessing impairments. The Company considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment.
Under a qualitative approach, the Company’s impairment review for goodwill consists of an assessment of whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying amount. If the Company elects to bypass the qualitative assessment for any reporting units, or if a qualitative assessment indicates it is more-likely-than-not that the estimated carrying value of a reporting unit exceeds its fair value, the Company performs a quantitative goodwill impairment test that requires it to estimate the fair value of the reporting unit.
The quantitative goodwill impairment tests are based on determining the fair value of the specified reporting units based on management judgments and assumptions using the discounted cash flows under the income approach classified in Level 3 of the fair value hierarchy and comparable company market valuation classified in Level 2 of the fair value hierarchy approaches. TheIf the carrying value of a reporting unit exceeds its fair value, the Company has identified Global Ceramic, Flooring NA and Flooring ROWwill measure any goodwill impairment loss as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting units for the purposes of allocating goodwill and intangibles as well as assessing impairments.unit. The valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about appropriate sales growth rates, operating margins, weighted average cost of capital (“WACC”),WACC, and comparable company market multiples. When developing these key judgments and assumptions, the Company considers economic, operational and market conditions that could impact the fair value of the reporting unit. However, estimates are inherently uncertain and represent only management’s reasonable expectations regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Should a significant or prolonged deterioration in economic conditions occur, such as declines in spending for new construction, remodeling and replacement activities; the inability to pass increases in the costs of raw materials and fuel on to customers; or a decline in comparable company market multiples, then key judgments and assumptions could be impacted. Generally,
Under a decline inqualitative approach, the Company’s impairment review for tradenames consists of an assessment of whether it is more-likely-than-not that a tradename’s fair value is less than its carrying value. If the Company elects to bypass the qualitative assessment for any tradename, or if a qualitative assessment indicates it is more-likely-than-not that the estimated after tax cash flowscarrying value of more than 35% or a more than 24% increase in WACC ortradename exceeds its fair value, the Company performs a significant or prolonged decline in market capitalization could result in an additional indicationquantitative tradename impairment test of impairment.the tradename.
The quantitative impairment test for intangible assets not subject to amortizationtradenames involves a comparison of the estimated fair value of the intangible asset withtradename to its carrying value. If the carrying value of the intangible assettradename exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Significant judgments inherent in this analysis include assumptions about appropriate sales growth rates, royalty rates, WACC and the amount of expected future cash flows. These judgments and assumptions are subject to the variability discussed above.
The impairment evaluation for indefinite lived intangible assets, which for the Company are its trademarks, is conducted on the first day of the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The determination of fair value used in the impairment evaluation is based on discounted estimates of future sales projections attributable to ownership of the trademarks.tradenames. Significant judgments inherent in this analysis include assumptions about appropriate sales growth rates, royalty rates, WACCdiscount rates and the amount of expected future cash flows. The judgments and assumptions used in the estimate of fair value are generally consistent with past
performance and are also consistent with the projections and assumptions that are used in operating plans. Such assumptions are subject to change as a result of changing economic and competitive conditions. The determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of the trademarks.tradenames. Estimated cash flows are sensitive to changes in the economy among other things.
As a result of a decrease in the Company’s market capitalization, comparable company market multiples, projected future cash flows and an increase in the WACC due to increases in the risk free rate and applicable risk premiums, the Company determined that a triggering event occurred requiring goodwill impairment testing for each of its reporting units as of October 1, 2022. The impairment test indicated a pre-tax, non-cash goodwill impairment charge related to the Global Ceramic reporting unit of $688,514 ($679,664 net of tax) which the Company recorded during the third quarter of 2022. The Company concluded goodwill of its other reporting units was not impaired on October 1, 2022. In addition, the Company compared the estimated fair values of its indefinite-lived intangibles to their carrying values and determined that there were impairments of $7,257 ($5,939 net of tax) in the Flooring ROW and Flooring NA reporting units during the third quarter of 2022.
The excess of fair value over carrying value for the Flooring ROW reporting unit was approximately 20% and the excess of fair value over carrying value for the Flooring NA reporting unit was less than 5% as of October 1, 2022. The Company’s annual testing date for goodwill and tradenames is the first day of its fourth quarter and due to the fact that there were no significant changes in facts or circumstances in the one calendar day, the Company determined there was no additional impairment of goodwill or tradenames. The Company conducted a qualitative analysis as of December 31, 2022 and determined there was no indication of an impairment.
A significant or prolonged deterioration in economic conditions, continued increases in the costs of raw materials and energy combined with an inability to pass these costs on to customers, a further decline in the Company’s market capitalization or comparable company market multiples, a reduction in projected future cash flows, or increases in the WACC, could impact the Company’s assumptions and require a reassessment of goodwill or indefinite-lived intangible assets for impairment in future periods.
•Long-lived assets. The Company reviews its long-lived asset groups, which include intangible assets subject to amortization, which for the Company are its patents and customer relationships, for impairment whenever events or changes in circumstances indicate that the carrying amount of such asset groups may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of long-lived assets to future undiscounted net cash flows expected to be generated by these asset groups. If such asset groups are considered to be impaired, the impairment recognized is the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets held for sale are reported at the lower of the carrying amount or fair value less estimated costs of disposal and are no longer depreciated.
The Company conducted its annual assessment of goodwill and indefinite lived intangibles on the first day of the fourth quarter and no impairment was indicated for 2017.
•Income taxes. The Company’s effective tax rate is based on its income, statutory tax rates and tax planning opportunities available in the jurisdictions in which it operates. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining the Company’s tax expense and in evaluating the Company’s tax positions. Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in a future period. The Company evaluates the recoverability of these future tax benefits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely on estimates, including business forecasts and other projections of financial results over an extended period of time. In the event that the Company is not able to realize all or a portion of its deferred tax assets in the future, a valuation allowance is provided. The Company would recognize such amounts through a charge to income in the period in which that determination is made or when tax law changes are enacted. For further information regarding the Company’s valuation allowances, see Note 12-Income Taxes.15, Income Taxes, included in Part II, Item 8 of this Form 10-K.
In the ordinary course of business there is inherent uncertainty in quantifying the Company’s income tax positions. The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon the Company’s evaluation of the facts, circumstances and information available as of the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information, as required by the provisions of the Financial Accounting Standards Board (“FASB”) FASB Accounting Standards Codification (“ASC”) Topic ("ASC") 740-10. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the consolidated financial statements.Consolidated Financial Statements. For further information regarding the Company’s uncertain tax positions, see Note 12-Income Taxes.15, Income Taxes, included in Part II, Item 8 of this Form 10-K.
Environmental and legal accruals. Environmental and legal accruals are estimates based on judgments made by the Company relating to ongoing environmental and legal proceedings, as disclosed in the Company’s consolidated financial statements. In determining whether a liability is probable and reasonably estimable, the Company consults with its internal experts. The Company believes that the amounts recorded in the accompanying financial statements are based on the best estimates and judgments available to it.
Recent Accounting Pronouncements
See Note 1(u), “Summary1, Summary of Significant Accounting Policies"Policies, of ourthe Company’s accompanying audited consolidated financial statementsConsolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements includingand the dates, or expected dates of adoption, and effects, or expected effects,potential impact on our disclosures, results of operations,financial statements and financial condition.disclosures.
Impact of Inflation
Inflation affects the Company’s manufacturing costs, distribution costs and operating expenses. The Company expects raw material prices, many of which are petroleum based,petroleum-based, to fluctuate based upon worldwide supply and demand of commodities utilized in the Company’s production processes. Although the Company attempts to pass on increases in raw material, labor, energy and fuel-related costs to its customers, the Company’s ability to do so is dependent upon the rate and magnitude of any increase, competitive pressures and market conditions for the Company’s products. There have been in the past, and may be in the future, periods of time during which increases in these costs cannot be fully recovered. In the past, the Company has often been able to enhance productivity and develop new product innovations to help offset increases in costs resulting from inflation in its operations.
Seasonality
The Company is a calendar year-end company. With respect to itsGlobal Ceramic and the Flooring NA and Global Ceramic segments, its results of operations fortypically have higher net sales in the first quarter tend to be the weakest followed by the fourth quarter. The second and third quartersquarters. Flooring ROW typically producehas higher net sales and operating income in these segments. These results are primarily due to consumer residential spending patterns which have historically decreased during the holiday season and the first two months following. The Flooring ROW segment’s second quarter typically produces the highest net sales and earnings followed by a moderate first and fourth quarters. Because periods of economic downturn can affect the seasonality of each segment, sales for any one quarter and a weaker third quarter.are not necessarily indicative of the sales that may be achieved for any other quarter or for the full year.
| |
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Item 7A.Quantitative and Qualitative Disclosures about Market Risk
The Company’s market risk is impacted by changes in foreign currency exchange rates, interest rates and certain commodity prices. Financial exposures to these risks are monitored as an integral part of the Company’s risk management program, which seeks to reduce the potentially adverse effect that the volatility of these markets may have on its operating results. The Company does not regularly engage in speculative transactions, nor does it regularly hold or issue financial instruments for trading purposes. Excluding the hedge of net investment discussed in Note 1(n) "Hedges of Net Investments in Non-U.S. Operations", of our accompanying consolidated financial statements in Item 8 of this Annual Report on Form 10-K, theThe Company did not have any derivative contracts outstanding as of December 31, 20172022 and 2016.2021.
Interest Rate Risk
As of December 31, 2017,2022, approximately 43%38% of the Company’s debt portfolio was comprised of fixed-rate debt and 57%62% was floating-ratevariable-rate debt. The Company believes that probable near-term changes in interest rates would not materially affect its financial condition, results of operations or cash flows. The annual impact on interest expense of a one-percentage point interest rate change on the outstanding balance of our variable ratethe Company’s variable-rate debt as of December 31, 20172022 would be approximately $16$3 million, or $0.14$0.04 to diluted EPS.
Foreign Exchange Risk
As a result of being a global enterprise, there is exposure to market risks from changes in foreign currency exchange rates, which may adversely affect the operating results and financial condition of the Company. Principal foreign currency exposures relate primarily to the euro and to a lesser extent the Russian ruble, the Mexican peso, the Canadian dollar, the Australian dollar, the British poundBrazilian real, the New Zealand dollar and the Malaysian ringgit.Canadian dollar.
The Company’s objective is to balance, where possible, non-functional currency denominated assets to non-functional currency denominated liabilities to have a natural hedge and minimize foreign exchange impacts. The Company enters into cross border transactions through importing and exporting goods to and from different countries and locations. These transactions generate foreign exchange risk as they create assets, liabilities and cash flows in currencies other than their functional currency. This also applies to services provided and other cross border agreements among subsidiaries.
The Company takes steps to minimize risks from foreign currency exchange rate fluctuations through normal operating and financing activities. The Company does not enter into any speculative positions with regard to derivative instruments.
Based on financial results for the year ended December 31, 2017,2022, a hypothetical overall 10 percent change in the U.S. dollar against the euro would have resulted in a translational adjustment of approximately $43$28 million.
| |
Item 8. | Consolidated Financial Statements and Supplementary Data |
Item 8.Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Mohawk Industries, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Mohawk Industries, Inc. and subsidiaries (the Company) as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three‑yearthree-year period ended December 31, 2017,2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the years in the three‑yearthree-year period ended December 31, 2017,2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 201822, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the carrying value of goodwill in the Global Ceramic and Flooring North America Reporting Units
As discussed in Note 8 to the consolidated financial statements, during 2022 the Company recognized $688.5 million of goodwill impairment for the Global Ceramic reporting unit. The goodwill impairment resulted from a sustained decline in the Company’s market capitalization, comparable company market multiples, projected future cash flows and an increase in the discount rate. The goodwill balance as of December 31, 2022 was $1,927.8 million, of which $339.8 million and $592.0 million related to the Global Ceramic and Flooring North America reporting units, respectively. The Company performs goodwill impairment testing on an annual basis and whenever events or changes in circumstances indicate that the carrying value of goodwill might exceed the fair value of a reporting unit.
We identified the assessment of the carrying value of goodwill in the Global Ceramic and Flooring North America reporting units as a critical audit matter. Specifically, the assessment of the Company’s forecasted sales growth rates, forecasted operating margins, discount rates, and selection of comparable company market multiples used in the Company’s fair value estimation of the reporting units required a higher degree of subjective auditor judgment and required the involvement of valuation professionals. Changes in these assumptions could have a significant impact on the fair value of the reporting units.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s goodwill impairment assessment process including controls over the reasonableness of the assumptions listed above. We evaluated the Company’s forecasted sales growth rates and operating margins and compared the growth assumptions to the Company’s historical performance and to relevant market data. To assess the Company’s ability to estimate cash flows, including forecasted sales growth rates and operating margins, we compared the Company’s historical cash flow forecasts to actual results. We also performed sensitivity analyses over certain assumptions listed above to assess their impact on the Company’s determination that the fair value of the Flooring North America reporting unit exceeded its carrying value and the determination of the goodwill impairment for the Global Ceramic reporting unit. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the reporting units’ discount rates by comparing it to a range of discount rates for comparable companies that were independently developed using publicly available data and the Company’s selection of comparable company market multiples.
We have served as the Company'sCompany’s auditor since 1990.
Atlanta, Georgia
February 28, 201822, 2023
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Mohawk Industries, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Mohawk Industries, Inc. and subsidiaries’subsidiaries' (the Company) internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 201822, 2023 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Emilceramica S.r.l (Emil) during 2017, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, Emil’s internal control over financial reporting associated with total assets of $258.9 million and total net sales of $130.5 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2017. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Emil.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement's Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.deteriorate.
Atlanta, Georgia
February 28, 2018
22, 2023
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 20172022 and 20162021
|
| | | | | | |
| | 2017 | | 2016 |
| | (In thousands, except per share data) |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 84,884 |
| | 121,665 |
|
| Receivables, net | 1,558,159 |
| | 1,376,151 |
|
| Inventories | 1,948,663 |
| | 1,675,751 |
|
| Prepaid expenses | 376,836 |
| | 267,724 |
|
| Other current assets | 104,425 |
| | 30,221 |
|
| Total current assets | 4,072,967 |
| | 3,471,512 |
|
| Property, plant and equipment, net | 4,270,790 |
| | 3,370,348 |
|
| Goodwill | 2,471,459 |
| | 2,274,426 |
|
| Tradenames | 644,208 |
| | 580,147 |
|
| Other intangible assets, net | 247,559 |
| | 254,459 |
|
| Deferred income taxes and other non-current assets | 387,870 |
| | 279,704 |
|
| | $ | 12,094,853 |
| | 10,230,596 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Current portion of long-term debt | $ | 1,203,683 |
| | 1,382,738 |
|
| Accounts payable and accrued expenses | 1,451,672 |
| | 1,335,582 |
|
| Total current liabilities | 2,655,355 |
| | 2,718,320 |
|
| Deferred income taxes | 328,103 |
| | 361,416 |
|
| Long-term debt, less current portion | 1,559,895 |
| | 1,128,747 |
|
| Other long-term liabilities | 455,028 |
| | 214,930 |
|
| Total liabilities | 4,998,381 |
| | 4,423,413 |
|
| Commitments and contingencies (Note 13) |
| |
|
| Redeemable noncontrolling interest | 29,463 |
| | 23,696 |
|
| Stockholders’ equity: | | | |
| Preferred stock, $.01 par value; 60 shares authorized; no shares issued | — |
| | — |
|
| Common stock, $.01 par value; 150,000 shares authorized; 81,771 and 81,519 shares issued in 2017 and 2016, respectively | 818 |
| | 815 |
|
| Additional paid-in capital | 1,828,131 |
| | 1,791,540 |
|
| Retained earnings | 6,004,506 |
| | 5,032,914 |
|
| Accumulated other comprehensive loss | (558,527 | ) | | (833,027 | ) |
| | 7,274,928 |
| | 5,992,242 |
|
| Less treasury stock at cost; 7,350 and 7,351 shares in 2017 and 2016, respectively | 215,766 |
| | 215,791 |
|
| Total Mohawk Industries, Inc. stockholders’ equity | 7,059,162 |
| | 5,776,451 |
|
| Noncontrolling interest | 7,847 |
| | 7,036 |
|
| Total stockholders' equity | 7,067,009 |
| | 5,783,487 |
|
| | $ | 12,094,853 |
| | 10,230,596 |
|
| | | | | | | | | | | |
| 2022 | | 2021 |
| | | |
| | (In thousands, except per share data) |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 509,623 | | | 268,895 | |
| Short-term investments | 158,000 | | | 323,000 | |
| Receivables, net | 1,904,786 | | | 1,839,985 | |
| Inventories | 2,793,765 | | | 2,391,672 | |
| Prepaid expenses | 498,222 | | | 394,649 | |
| | | |
| Other current assets | 30,703 | | | 20,156 | |
| Total current assets | 5,895,099 | | | 5,238,357 | |
| Property, plant and equipment, net | 4,661,178 | | | 4,636,865 | |
| Right of use operating lease assets | 387,816 | | | 389,967 | |
| Goodwill | 1,927,759 | | | 2,607,909 | |
| Tradenames | 668,328 | | | 694,905 | |
| Other intangible assets subject to amortization, net | 189,620 | | | 205,075 | |
| Deferred income taxes and other non-current assets | 390,632 | | | 451,439 | |
| Total assets | $ | 14,120,432 | | | 14,224,517 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Short-term debt and current portion of long-term debt | $ | 840,571 | | | 624,503 | |
| Accounts payable and accrued expenses | 2,124,448 | | | 2,217,418 | |
| Current operating lease liabilities | 105,266 | | | 104,434 | |
| Total current liabilities | 3,070,285 | | | 2,946,355 | |
| Deferred income taxes | 444,660 | | | 495,521 | |
| Long-term debt, less current portion | 1,978,563 | | | 1,700,282 | |
| Non-current operating lease liabilities | 296,136 | | | 297,390 | |
| Other long-term liabilities | 312,874 | | | 356,753 | |
| Total liabilities | 6,102,518 | | | 5,796,301 | |
| Commitments and contingencies (Note 16) | | | |
| | | |
| Stockholders’ equity: | | | |
| Preferred stock, $.01 par value; 60 shares authorized; no shares issued | — | | | — | |
| Common stock, $.01 par value; 150,000 shares authorized; 70,875 and 72,952 shares issued and outstanding in 2022 and 2021, respectively | 709 | | | 729 | |
| Additional paid-in capital | 1,930,789 | | | 1,911,131 | |
| Retained earnings | 7,409,760 | | | 7,692,064 | |
| Accumulated other comprehensive loss | (1,114,258) | | | (966,952) | |
| 8,227,000 | | | 8,636,972 | |
| Less: treasury stock at cost; 7,341 and 7,343 shares in 2022 and 2021, respectively | 215,491 | | | 215,547 | |
| Total Mohawk Industries, Inc. stockholders’ equity | 8,011,509 | | | 8,421,425 | |
| Nonredeemable noncontrolling interests | 6,405 | | | 6,791 | |
| Total stockholders’ equity | 8,017,914 | | | 8,428,216 | |
| Total liabilities and stockholders' equity | $ | 14,120,432 | | | 14,224,517 | |
See accompanying notes to consolidated financial statements.
the Consolidated Financial Statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2017, 20162022, 2021 and 20152020
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| | | | | |
| | (In thousands, except per share data) |
| Net sales | $ | 11,737,065 | | | 11,200,613 | | | 9,552,197 | |
| Cost of sales | 8,793,639 | | | 7,931,879 | | | 7,121,507 | |
| Gross profit | 2,943,426 | | | 3,268,734 | | | 2,430,690 | |
| Selling, general and administrative expenses | 2,003,438 | | | 1,933,723 | | | 1,794,688 | |
| Impairment of goodwill and indefinite-lived intangibles | 695,771 | | | — | | | — | |
| Operating income | 244,217 | | | 1,335,011 | | | 636,002 | |
| Interest expense | 51,938 | | | 57,252 | | | 52,379 | |
| Other expense (income), net | 8,386 | | | (12,234) | | | (751) | |
| Earnings before income taxes | 183,893 | | | 1,289,993 | | | 584,374 | |
| Income tax expense | 158,110 | | | 256,445 | | | 68,647 | |
| | | | | |
| | | | | |
| Net earnings including noncontrolling interests | 25,783 | | | 1,033,548 | | | 515,727 | |
| Net earnings attributable to noncontrolling interests | 536 | | | 389 | | | 132 | |
| Net earnings attributable to Mohawk Industries, Inc. | $ | 25,247 | | | 1,033,159 | | | 515,595 | |
| | | | | |
| Basic earnings per share attributable to Mohawk Industries, Inc. | | | | | |
| | | | | |
| | | | | |
| Basic earnings per share attributable to Mohawk Industries, Inc. | $ | 0.40 | | | 15.01 | | | 7.24 | |
| Weighted-average common shares outstanding—basic | 63,826 | | | 68,852 | | | 71,214 | |
| | | | | |
| Diluted earnings per share attributable to Mohawk Industries, Inc. | | | | | |
| | | | | |
| | | | | |
| Diluted earnings per share attributable to Mohawk Industries, Inc. | $ | 0.39 | | | 14.94 | | | 7.22 | |
| Weighted-average common shares outstanding—diluted | 64,062 | | | 69,145 | | | 71,401 | |
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In thousands, except per share data) |
| Net sales | $ | 9,491,290 |
| | 8,959,087 |
| | 8,071,563 |
|
| Cost of sales | 6,494,876 |
| | 6,146,262 |
| | 5,660,877 |
|
| Gross profit | 2,996,414 |
| | 2,812,825 |
| | 2,410,686 |
|
| Selling, general and administrative expenses | 1,642,241 |
| | 1,532,882 |
| | 1,573,120 |
|
| Operating income | 1,354,173 |
| | 1,279,943 |
| | 837,566 |
|
| Interest expense | 31,111 |
| | 40,547 |
| | 71,086 |
|
| Other expense (income) | 5,205 |
| | (1,729 | ) | | 17,619 |
|
| Earnings before income taxes | 1,317,857 |
| | 1,241,125 |
| | 748,861 |
|
| Income tax expense | 343,165 |
| | 307,559 |
| | 131,875 |
|
| Net earnings including noncontrolling interest | 974,692 |
| | 933,566 |
| | 616,986 |
|
| Net earnings attributable to noncontrolling interest | 3,054 |
| | 3,204 |
| | 1,684 |
|
| Net earnings attributable to Mohawk Industries, Inc. | $ | 971,638 |
| | 930,362 |
| | 615,302 |
|
| | | | | | |
| Basic earnings per share attributable to Mohawk Industries, Inc. | | | | | |
| Basic earnings per share attributable to Mohawk Industries, Inc. | $ | 13.07 |
| | 12.55 |
| | 8.37 |
|
| Weighted-average common shares outstanding—basic | 74,357 |
| | 74,104 |
| | 73,516 |
|
| | | | | | |
| Diluted earnings per share attributable to Mohawk Industries, Inc. | | | | |
|
|
| Diluted earnings per share attributable to Mohawk Industries, Inc. | $ | 12.98 |
| | 12.48 |
| | 8.31 |
|
| Weighted-average common shares outstanding—diluted | 74,839 |
| | 74,568 |
| | 74,043 |
|
See accompanying notes to consolidated financial statements.
the Consolidated Financial Statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31, 2017, 20162022, 2021 and 20152020
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| | | | | | |
| | (In thousands) |
| Net earnings including noncontrolling interests | | $ | 25,783 | | | 1,033,548 | | | 515,727 | |
| Other comprehensive (loss) income: | | | | | | |
| Foreign currency translation adjustments | | (155,424) | | | (279,384) | | | 72,956 | |
| Prior pension and post-retirement benefit service cost and actuarial gain, net of tax | | 8,124 | | | 7,137 | | | (2,174) | |
| Other comprehensive (loss) income | | (147,300) | | | (272,247) | | | 70,782 | |
| Comprehensive (loss) income | | (121,517) | | | 761,301 | | | 586,509 | |
| Comprehensive income (loss) attributable to noncontrolling interests | | 541 | | | (51) | | | 235 | |
| Comprehensive (loss) income attributable to Mohawk Industries, Inc. | | $ | (122,058) | | | 761,352 | | | 586,274 | |
| | | | | | |
|
| | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| | | (in thousands) |
| Net earnings including noncontrolling interest | | $ | 974,692 |
| | 933,566 |
| | 616,986 |
|
| Other comprehensive (loss) income: | | | | | | |
| Foreign currency translation adjustments | | 281,655 |
| | (36,702 | ) | | (360,147 | ) |
| Prior pension and post-retirement benefit service cost and actuarial loss | | (2,927 | ) | | (2,757 | ) | | (4,100 | ) |
| Other comprehensive income (loss) | | 278,728 |
| | (39,459 | ) | | (364,247 | ) |
| Comprehensive income | | 1,253,420 |
| | 894,107 |
| | 252,739 |
|
| Comprehensive income attributable to the non-controlling interest | | 7,282 |
| | 3,204 |
| | 1,684 |
|
| Comprehensive income attributable to Mohawk Industries, Inc. | | $ | 1,246,138 |
| | 890,903 |
| | 251,055 |
|
| | | | | | | |
See accompanying notes to consolidated financial statements.the Consolidated Financial Statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2017, 20162022, 2021 and 20152020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total Stockholders’ Equity |
| | | | Common Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Treasury Stock | | Nonredeemable Noncontrolling Interests | | Total
Stockholders’
Equity |
| | | Shares | | Amount | | | | | Shares | | Amount | | |
| | | | | | | | | | | | | | | | | | | |
| | | | (In thousands) |
| Balances at December 31, 2019 | | | 78,980 | | | $ | 790 | | | $ | 1,868,250 | | | $ | 7,232,337 | | | $ | (765,824) | | | (7,348) | | | $ | (215,712) | | | $ | 6,607 | | | $ | 8,126,448 | |
| | | | | | | | | | | | | | | | | | | |
| Shares issued under employee and director stock plans, net of shares withheld to pay taxes on employees’ equity awards | | | 152 | | | 1 | | | (2,805) | | | — | | | — | | | 2 | | | 64 | | | — | | | (2,740) | |
| Stock-based compensation expense | | | — | | | — | | | 19,697 | | | — | | | — | | | — | | | — | | | — | | | 19,697 | |
| | | | | | | | | | | | | | | | | | | |
| Repurchases of common stock | | | (1,508) | | | (15) | | | — | | | (188,610) | | | — | | | — | | | — | | | — | | | (188,625) | |
| | | | | | | | | | | | | | | | | | | |
| Net earnings attributable to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 132 | | | 132 | |
| | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment on noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 103 | | | 103 | |
| Currency translation adjustment | | | — | | | — | | | — | | | — | | | 72,853 | | | — | | | — | | | — | | | 72,853 | |
| Prior pension and post-retirement benefit service cost and actuarial loss | | | — | | | — | | | — | | | — | | | (2,174) | | | — | | | — | | | — | | | (2,174) | |
| CECL adoption | | | — | | | — | | | — | | | (131) | | | — | | | — | | | — | | | — | | | (131) | |
| Net earnings | | | — | | | — | | | — | | | 515,595 | | | — | | | — | | | — | | | — | | | 515,595 | |
| Balances at December 31, 2020 | | | 77,624 | | | 776 | | | 1,885,142 | | | 7,559,191 | | | (695,145) | | | (7,346) | | | (215,648) | | | 6,842 | | | 8,541,158 | |
| | | | | | | | | | | | | | | | | | | |
| Shares issued under employee and director stock plans, net of shares withheld to pay taxes on employees’ equity awards | | | 144 | | | 1 | | | 338 | | | — | | | — | | | 3 | | | 101 | | | — | | | 440 | |
| Stock-based compensation expense | | | — | | | — | | | 25,651 | | | — | | | — | | | — | | | — | | | — | | | 25,651 | |
| Repurchases of common stock | | | (4,816) | | | (48) | | | — | | | (900,286) | | | — | | | — | | | — | | | — | | | (900,334) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Net earnings attributable to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 389 | | | 389 | |
| Currency translation adjustment on noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (440) | | | (440) | |
| | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment | | | — | | | — | | | — | | | — | | | (278,944) | | | — | | | — | | | — | | | (278,944) | |
| Prior pension and post-retirement benefit service cost and actuarial gain | | | — | | | — | | | — | | | — | | | 7,137 | | | — | | | — | | | — | | | 7,137 | |
| Net earnings | | | — | | | — | | | — | | | 1,033,159 | | | — | | | — | | | — | | | — | | | 1,033,159 | |
| Balances at December 31, 2021 | | | 72,952 | | | 729 | | | 1,911,131 | | | 7,692,064 | | | (966,952) | | | (7,343) | | | (215,547) | | | 6,791 | | | 8,428,216 | |
| | | | | | | | | | | | | | | | | | | |
| Shares issued under employee and director stock plans, net of shares withheld to pay taxes on employees’ equity awards | | | 107 | | | 1 | | | (3,323) | | | — | | | — | | | 2 | | | 56 | | | — | | | (3,266) | |
| Stock-based compensation expense | | | — | | | — | | | 22,409 | | | — | | | — | | | — | | | — | | | — | | | 22,409 | |
| | | | | | | | | | | | | | | | | | | |
| Repurchases of common stock | | | (2,184) | | | (21) | | | — | | | (307,551) | | | — | | | — | | | — | | | — | | | (307,572) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Net earnings attributable to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 536 | | | 536 | |
| Currency translation adjustment on noncontrolling interests | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 | |
| Purchase of redeemable noncontrolling interest and noncontrolling interest, net of taxes | | | — | | | — | | | 572 | | | — | | | — | | | — | | | — | | | (927) | | | (355) | |
| Currency translation adjustment | | | — | | | — | | | — | | | — | | | (155,430) | | | — | | | — | | | — | | | (155,430) | |
| Prior pension and post-retirement benefit service cost and actuarial gain | | | — | | | — | | | — | | | — | | | 8,124 | | | — | | | — | | | — | | | 8,124 | |
| Net earnings | | | — | | | — | | | — | | | 25,247 | | | — | | | — | | | — | | | — | | | 25,247 | |
| Balances at December 31, 2022 | | | 70,875 | | | $ | 709 | | | $ | 1,930,789 | | | $ | 7,409,760 | | | $ | (1,114,258) | | | (7,341) | | | $ | (215,491) | | | $ | 6,405 | | | $ | 8,017,914 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total Stockholders’ Equity |
| | Redeemable Noncontrolling Interest | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Noncontrolling Interest | | Total Stockholders’ Equity |
| | | Shares | | Amount | | | | | Shares | | Amount | | |
| | (In thousands) |
| Balances at December 31, 2014 | $ | — |
| | 81,070 |
| | $ | 811 |
| | $ | 1,598,887 |
| | $ | 3,487,079 |
| | $ | (429,321 | ) | | (8,157 | ) | | $ | (239,450 | ) | | $ | 4,807 |
| | $ | 4,422,813 |
|
| IVC Group acquisition | — |
| | — |
| | — |
| | 129,445 |
| | — |
| | — |
| | 806 |
| | 23,651 |
| | — |
| | 153,096 |
|
| Shares issued under employee and director stock plans | — |
| | 210 |
| | 2 |
| | (6,536 | ) | | — |
| | — |
| | — |
| | 4 |
| | — |
| | (6,530 | ) |
| Stock-based compensation expense | — |
| | — |
| | — |
| | 32,552 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 32,552 |
|
| Tax benefit from stock-based compensation | — |
| | — |
| | — |
| | 5,668 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,668 |
|
| Accretion of redeemable noncontrolling interest | 194 |
| | — |
| | — |
| | — |
| | (194 | ) | | — |
| | — |
| | — |
| | — |
| | (194 | ) |
| Noncontrolling earnings | 1,428 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 256 |
| | 256 |
|
| Currency translation adjustment on noncontrolling interests | (713 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (970 | ) | | (970 | ) |
| Acquisition of noncontrolling interest, net of taxes | 21,043 |
| | — |
| | — |
| | — |
| | 520 |
| | — |
| | — |
| | — |
| | 2,597 |
| | 3,117 |
|
| Currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | (360,147 | ) | | — |
| | — |
| | — |
| | (360,147 | ) |
| Pension prior service cost and actuarial gain | — |
| | — |
| | — |
| | — |
| | — |
| | (4,100 | ) | | — |
| | — |
| | — |
| | (4,100 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | 615,302 |
| | — |
| | — |
| | — |
| | — |
| | 615,302 |
|
| Balances at December 31, 2015 | 21,952 |
| | 81,280 |
| | 813 |
| | 1,760,016 |
| | 4,102,707 |
| | (793,568 | ) | | (7,351 | ) | | (215,795 | ) | | 6,690 |
| | 4,860,863 |
|
| Shares issued under employee and director stock plans | — |
| | 239 |
| | 2 |
| | (8,232 | ) | | — |
| | — |
| | — |
| | 4 |
| | — |
| | (8,226 | ) |
| Stock-based compensation expense | — |
| | — |
| | — |
| | 35,059 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 35,059 |
|
| Tax benefit from stock-based compensation | — |
| | — |
| | — |
| | 4,697 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,697 |
|
| Accretion of redeemable noncontrolling interest | 123 |
| | — |
| | — |
| | — |
| | (123 | ) | | — |
| | — |
| | — |
| | — |
| | (123 | ) |
| Noncontrolling earnings | 2,864 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 340 |
| | 340 |
|
| Currency translation adjustment on non-controlling interests | (1,243 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (26 | ) | | (26 | ) |
| Acquisition of noncontrolling interest, net of taxes | — |
| | — |
| | — |
| | — |
| | (32 | ) | | — |
| | — |
| | — |
| | 32 |
| | — |
|
| Currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | (36,702 | ) | | — |
| | — |
| | — |
| | (36,702 | ) |
| Pension prior service cost and actuarial loss | — |
| | — |
| | — |
| | — |
| | — |
| | (2,757 | ) | | — |
| | — |
| | — |
| | (2,757 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | 930,362 |
| | — |
| | — |
| | — |
| | — |
| | 930,362 |
|
| Balances at December 31, 2016 | 23,696 |
| | 81,519 |
| | 815 |
| | 1,791,540 |
| | 5,032,914 |
| | (833,027 | ) | | (7,351 | ) | | (215,791 | ) | | 7,036 |
| | 5,783,487 |
|
| Shares issued under employee and director stock plans | — |
| | 252 |
| | 3 |
| | 269 |
| | — |
| | — |
| | 1 |
| | 25 |
| | — |
| | 297 |
|
| Stock-based compensation expense | — |
| | — |
| | — |
| | 36,322 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 36,322 |
|
| Distribution to noncontrolling interest, net of adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (750 | ) | | (750 | ) |
| Accretion of redeemable noncontrolling interest | 46 |
| | — |
| | — |
| | — |
| | (46 | ) | | — |
| | — |
| | — |
| | — |
| | (46 | ) |
| Noncontrolling earnings | 2,544 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 510 |
| | 510 |
|
| Currency translation adjustment on non-controlling interests | 3,177 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,051 |
| | 1,051 |
|
| Currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | 277,427 |
| | — |
| | — |
| | — |
| | 277,427 |
|
| Prior pension and post-retirement benefit service cost and actuarial loss | — |
| | — |
| | — |
| | — |
| | — |
| | (2,927 | ) | | — |
| | — |
| | — |
| | (2,927 | ) |
| Net income | — |
| | — |
| | — |
| | — |
| | 971,638 |
| | — |
| | — |
| | — |
| | — |
| | 971,638 |
|
| Balances as of December 31, 2017 | $ | 29,463 |
| | 81,771 |
| | $ | 818 |
| | $ | 1,828,131 |
| | $ | 6,004,506 |
| | $ | (558,527 | ) | | (7,350 | ) | | $ | (215,766 | ) | | $ | 7,847 |
| | $ | 7,067,009 |
|
See accompanying notes to consolidated financial statements.
the Consolidated Financial Statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2017, 20162022, 2021 and 20152020
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| | | | | |
| | (In thousands) |
| Cash flows from operating activities: | | | | | |
| Net earnings including noncontrolling interests | $ | 25,783 | | | 1,033,548 | | | 515,727 | |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | |
| Restructuring | 47,716 | | | 10,783 | | | 103,695 | |
| Impairment of goodwill and indefinite-lived intangibles | 695,771 | | | — | | | — | |
| | | | | |
| | | | | |
| Depreciation and amortization | 595,464 | | | 591,711 | | | 607,507 | |
| Deferred income taxes | (51,098) | | | (4,929) | | | 22,324 | |
| | | | | |
| Loss on disposal of property, plant and equipment | 697 | | | 5,462 | | | 6,296 | |
| | | | | |
| Stock-based compensation expense | 22,409 | | | 25,651 | | | 19,697 | |
| | | | | |
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | |
| Receivables, net | (84,381) | | | (207,047) | | | (54,977) | |
| | | | | |
| Inventories | (409,601) | | | (519,229) | | | 357,516 | |
| Accounts payable and accrued expenses | (94,137) | | | 360,791 | | | 255,466 | |
| Other assets and prepaid expenses | (49,552) | | | (66,844) | | | (55,084) | |
| Other liabilities | (29,918) | | | 79,222 | | | (8,328) | |
| Net cash provided by operating activities | 669,153 | | | 1,309,119 | | | 1,769,839 | |
| Cash flows from investing activities: | | | | | |
| Additions to property, plant and equipment | (580,742) | | | (676,120) | | | (425,557) | |
| | | | | |
| Acquisitions, net of cash acquired | (209,602) | | | (123,969) | | | — | |
| Purchases of short-term investments | (2,481,000) | | | (1,211,239) | | | (1,187,891) | |
| Redemption of short-term investments | 2,646,000 | | | 1,454,574 | | | 658,650 | |
| | | | | |
| | | | | |
| Net cash used in investing activities | (625,344) | | | (556,754) | | | (954,798) | |
| Cash flows from financing activities: | | | | | |
| Payments on Senior Credit Facilities | (5,000) | | | — | | | (633,134) | |
| Proceeds from Senior Credit Facilities | 5,000 | | | — | | | 617,883 | |
| Payments on commercial paper | (19,412,925) | | | (570,362) | | | (4,890,991) | |
| Proceeds from commercial paper | 19,633,142 | | | 1,185,020 | | | 4,195,353 | |
| | | | | |
| | | | | |
| Proceeds from Senior Notes issuance | — | | | — | | | 1,062,240 | |
| | | | | |
| | | | | |
| Repayments on Senior Notes | (600,000) | | | (932,252) | | | (326,904) | |
| | | | | |
| Proceeds from Term Loan Facility | 907,952 | | | — | | | 500,000 | |
| Payments on Term Loan Facility | — | | | — | | | (500,000) | |
| Net payments of other financing activities | (23,455) | | | (11,656) | | | (8,338) | |
| Debt issuance costs | (2,543) | | | — | | | (11,413) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Purchase of Mohawk common stock | (307,572) | | | (900,334) | | | (188,625) | |
| Change in outstanding checks in excess of cash | (251) | | | (2,641) | | | (4,256) | |
| | | | | |
| | | | | |
| Net cash provided by (used in) financing activities | 194,348 | | | (1,232,225) | | | (188,185) | |
| Effect of exchange rate changes on cash and cash equivalents | 2,571 | | | (19,870) | | | 6,984 | |
| Net change in cash and cash equivalents | 240,728 | | | (499,730) | | | 633,840 | |
| Cash and cash equivalents, beginning of year | 268,895 | | | 768,625 | | | 134,785 | |
| Cash and cash equivalents, end of year | $ | 509,623 | | | 268,895 | | | 768,625 | |
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Cash flows from operating activities: | | | | | |
| Net earnings | $ | 974,692 |
| | 933,566 |
| | 616,986 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | |
| Restructuring | 37,085 |
| | 38,463 |
| | 33,085 |
|
| Intangible asset impairment | — |
| | 47,905 |
| | — |
|
| Depreciation and amortization | 446,672 |
| | 409,467 |
| | 362,647 |
|
| Deferred income taxes | (75,591 | ) | | (34,009 | ) | | (28,883 | ) |
| Loss on disposal of property, plant and equipment | 4,303 |
| | 3,932 |
| | 3,007 |
|
| Stock-based compensation expense | 36,322 |
| | 35,059 |
| | 32,552 |
|
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | |
| Receivables, net | (60,566 | ) | | (158,888 | ) | | (14,383 | ) |
| Inventories | (153,245 | ) | | (81,923 | ) | | 6,400 |
|
| Accounts payable and accrued expenses | 25,365 |
| | 85,572 |
| | 6,473 |
|
| Other assets and prepaid expenses | (52,115 | ) | | 54,267 |
| | (75,813 | ) |
| Other liabilities | 10,673 |
| | 11,878 |
| | (12,919 | ) |
| Net cash provided by operating activities | 1,193,595 |
| | 1,345,289 |
| | 929,152 |
|
| Cash flows from investing activities: | | | | | |
| Additions to property, plant and equipment | (905,998 | ) | | (672,125 | ) | | (503,657 | ) |
| Acquisitions, net of cash acquired | (250,799 | ) | | — |
| | (1,370,567 | ) |
| Purchases of short-term investments | (83,904 | ) | | — |
| | — |
|
| Net cash used in investing activities | (1,240,701 | ) | | (672,125 | ) | | (1,874,224 | ) |
| Cash flows from financing activities: | | | | | |
| Payments on Senior Credit Facilities | (454,637 | ) | | (707,129 | ) | | (1,376,082 | ) |
| Proceeds from Senior Credit Facilities | 447,884 |
| | 631,807 |
| | 1,315,930 |
|
| Payments on Commercial Paper | (15,584,017 | ) | | (20,210,585 | ) | | (15,934,767 | ) |
| Proceeds from Commercial Paper | 15,761,954 |
| | 20,301,372 |
| | 16,402,507 |
|
| Proceeds from Floating Rate Notes | 357,569 |
| | — |
| | — |
|
| Repayment of senior notes | — |
| | (645,555 | ) | | — |
|
| Payments on asset securitization borrowings | (500,000 | ) | | — |
| | — |
|
| Proceeds from senior note issuance | — |
| | — |
| | 564,653 |
|
| Payments on other debt | — |
| | — |
| | (9,530 | ) |
| Payments on acquired debt and other financings | (18,811 | ) | | — |
| | (7,109 | ) |
| Debt issuance costs | (1,478 | ) | | (1,336 | ) | | — |
|
| Change in outstanding checks in excess of cash | (3,402 | ) | | (1,754 | ) | | (2,052 | ) |
| Shares redeemed for taxes | (13,902 | ) | | (13,039 | ) | | (11,589 | ) |
| Proceeds and net tax benefit from stock transactions | 1,845 |
| | 4,583 |
| | 4,843 |
|
| Net cash (used in) provided by financing activities | (6,995 | ) | | (641,636 | ) | | 946,804 |
|
| Effect of exchange rate changes on cash and cash equivalents | 17,320 |
| | 8,445 |
| | (17,917 | ) |
| Net change in cash and cash equivalents | (36,781 | ) | | 39,973 |
| | (16,185 | ) |
| Cash and cash equivalents, beginning of year | 121,665 |
| | 81,692 |
| | 97,877 |
|
| Cash and cash equivalents, end of year | $ | 84,884 |
| | 121,665 |
| | 81,692 |
|
See accompanying notes to consolidated financial statements.
the Consolidated Financial Statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Years Ended December 31, 2017, 20162022, 2021 and 20152020
(In thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a)
Basis of Presentation
Mohawk Industries, Inc. (“Mohawk” or the “Company”), a term which includes the Company and its subsidiaries, is a leading global flooring manufacturer that creates products to enhance residential and commercial spaces around the world. The Company'sCompany’s vertically integrated manufacturing and distribution processes provide competitive advantages in the production of carpet, rugs, ceramic tile, laminate, wood, stone, luxury vinyl tile ("LVT"(“LVT”) and sheet vinyl flooring.
The consolidated financial statementsConsolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(b) Cash and Cash Equivalents
The Company considers investments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2017,2022, the Company had cash and cash equivalents of $84,884$509,623, of which $70,520$210,368 was held outside the United States. As of December 31, 2016,2021, the Company had cash and cash equivalents of $121,665$268,895, of which $92,419$200,501 was held outside the United States.
(c)
Short-term Investments
The Company invests in high quality credit instruments. At December 31, 2022 and December 31, 2021, short-term investments consisted solely of investments in the Company’s commercial paper by its wholly-owned captive insurance company.
Fair Value
Accounting principles generally accepted in the U.S. define fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Accounts Receivable and Revenue Recognition
The Company sellsrecognizes revenue when it satisfies performance obligations as evidenced by the transfer of control of the promised goods to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. The nature of the promised goods are ceramic, stone, carpet, rugs, ceramic tile, natural stone, hardwood,resilient (includes sheet vinyl LVT and LVT), laminate, wood and other flooring products inproducts. Payment is typically received 90 days or less from the U.S. and to a lesser extent, Mexico, Europe and Russia principally for residential and commercial use.invoice date. The Company grants credit to customers, mostadjusts the amounts of whom are retail-flooring dealers, home centers and commercial end users, under credit terms that the Company believes are customary in the industry.
Revenues, which are recorded net of taxes collected from customers, are recognized when there is persuasive evidence of an arrangement, delivery has occurred, the price has been fixed or is determinable, and collectability can be reasonably assured. The Company provides allowancesrevenue for expected cash discounts, returns, claims, sales allowances, returns and claims based upon historical experience. The Company adjusts accounts receivable for doubtful accountsaccount allowances based upon historical bad debt, and claims experience, and periodic evaluationsevaluation of specific customer accounts and the aging of accounts receivable. Licensing revenues received from third partiesIf the financial condition of the Company’s customers were to deteriorate, resulting in a change in their ability to make payments, additional allowances may be required.
The Company accounts for patents are recognized based on contractual agreements.incremental costs of obtaining a contract as an expense when incurred in selling, general and administrative expenses if the amortization period is less than one year.
(d)
The Company accounts for shipping and handling activities performed after control has been transferred as a fulfillment cost in cost of sales.
Inventories
The Company accounts for all inventories on the first-in, first-out (“FIFO”) method. Inventories are stated at the lower of cost or net realizable value. Cost has been determined using the FIFO method. Costs included in inventory include raw materials, direct and indirect labor, and employee benefits, depreciation, general manufacturing overhead and various other costs of manufacturing. Inventories on hand are compared against anticipated future usage, which is a function of historical usage, anticipated future selling price, expected sales below cost, excessive quantities and an evaluation for obsolescence. Actual results could differ from assumptions used to value obsolete inventory, excessive inventory or inventory expected to be sold below cost and additional reserves may be required.
(e)
Property, Plant and Equipment
Property, plant and equipment are stated at cost, including capitalized interest. Depreciation is calculated on a straight-line basis over the estimated remaining useful lives, which are 25-4015-40 years for buildings and improvements, 5-153-25 years for machinery and equipment, 3-7 years for furniture and fixtures and the shorter of the estimated useful life or lease term for leasehold improvements and 3-7 years for furniture and fixtures.improvements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(f) Accounting for Business Combinations
The Company accounts for business combinations under the acquisition method of accounting which requires it to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company'sCompany’s consolidated statements of operations.
(g)
Goodwill and Other Intangible Assets
In accordance with the provisions of the Financial Accounting Standards Board ("FASB") Accounting Standards CodificationFASB ASC Topic ("ASC") 350, “Intangibles-Goodwill and Other,” the Company tests goodwill and other intangible assets with indefinite lives, which for the Company are tradenames, for impairment on an annual basis on the first day of the fourth quarter (or on an interim basis if an event occurs that might reduce the fair value of the reporting unit below its carrying value). The Company’s annual impairment tests of goodwill and tradenames may be completed through qualitative assessments. The Company may elect to bypass the qualitative assessment and proceed directly to a quantitative impairment test, for any reporting unit or tradename, in any period. The Company can resume the qualitative assessment for any reporting unit or tradename in any subsequent period.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
The Company has identified Global Ceramic, Flooring North America (“Flooring NA”) and Flooring Rest of the World (“Flooring ROW”) as its reporting units for the purposes of allocating goodwill as well as assessing impairments. The Company considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment.
Under a qualitative approach, the Company’s impairment review for goodwill consists of an assessment of whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying amount. If the Company elects to bypass the qualitative assessment for any reporting units, or if a qualitative assessment indicates it is more-likely-than-not that the estimated carrying value of a reporting unit exceeds its fair value, the Company performs a quantitative goodwill impairment test that requires it to estimate the fair value of the reporting unit.
The quantitative goodwill impairment tests are based on determining the fair value of the specified reporting units based on management’smanagement judgments and assumptions using the discounted cash flows under the income approach classified in Level 3 of the fair value hierarchy and comparable company market valuation classified in Level 2 of the fair value hierarchy approaches. TheIf the carrying value of a reporting unit exceeds its fair value, the Company has identified Global Ceramic, Flooring NA, and Flooring ROWwill measure any goodwill impairment loss as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting units for the purposes of allocating goodwill and intangibles as well as assessing impairments.unit. The valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about appropriate sales growth rates, operating margins, weighted average cost of capital (“WACC”), and comparable company market multiples.
When developing these key judgments and assumptions, the Company considers economic, operational and market conditions that could impact the fair value of the reporting unit. However, estimates are inherently uncertain and represent only management’s reasonable expectations regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Should a significant or prolonged deterioration in economic conditions occur, such as continued declines in spending for new construction, remodeling and replacement activities; the inability to pass increases in the costs of raw materials and fuel on to customers; or a decline in comparable company market multiples, then key judgments and assumptions could be impacted.
Under a qualitative approach, the Company’s impairment review for tradenames consists of an assessment of whether it is more-likely-than-not that a tradename’s fair value is less than its carrying value. If the Company elects to bypass the qualitative assessment for any tradename, or if a qualitative assessment indicates it is more-likely-than-not that the estimated carrying value of a tradename exceeds its fair value, the Company performs a quantitative tradename impairment test of the tradename.
The quantitative impairment evaluation for indefinite lived intangible assets, which for the Company are its trademarks, is conducted on the first daytradenames involves a comparison of the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The first step of the impairment tests for our indefinite lived intangible assets is a thorough assessment of qualitative factors to determine the existence of events or circumstances that would indicate that it is not more likely than not that the fair value of these assets is less than their carrying amounts. If the qualitative test indicates it is not more likely than not that the fair value of these assets is less than their carrying amounts, a quantitative assessment is not required. If a quantitative test is necessary, the second step of our impairment test involves comparing the estimated fair value of a reporting unitthe tradename to its carrying amount. If the carrying value of the tradename exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The determination of fair value used in the impairment evaluation is based on discounted estimates of future sales projections attributable to ownership of the trademarks.tradenames. Significant judgments inherent in this analysis include assumptions about appropriate sales growth rates, royalty rates, WACCapplicable discount rate and the amount of expected future cash flows. The judgments and assumptions used in the estimate of fair value are generally consistent with past performance and are also consistent with the projections and assumptions that are used in current operating plans. Such assumptions are subject to change as a result of changing economic and competitive conditions. The determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of the trademarks.tradenames. Estimated cash flows are sensitive to changes in the economy among other things. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
Intangible assets that do not have indefinitewith finite lives are amortized based on average lives, which range from 7-165-20 years.
(h) Leases
The Company measures right of use (“ROU”) assets and lease liabilities based on the present value of the future minimum lease payments over the lease term at the commencement date. Minimum lease payments include the fixed lease and non-lease components of the agreement, as well as any variable rent payments that depend on an index, initially measured using the index at the lease commencement date. The ROU assets are adjusted for any initial direct costs incurred less any lease incentives received, in addition to payments made on or before the commencement date of the lease. The Company recognizes lease expense for leases on a straight-line basis over the lease term. Variable rent expenses consist primarily of maintenance, property taxes and charges based on usage.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company’s credit spread adjusted for current market factors and foreign currency rates. The Company also made a policy election to determine its incremental borrowing rate, at the initial application date, using the total lease term and the total minimum rental payments, as the Company believes this rate is more indicative of the implied financing cost.
The Company determines if a contract is or contains a lease at inception. The Company has operating and finance leases for service centers, warehouses, showrooms, and machinery and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet and expensed as incurred. The Company enters into lease contracts ranging from 1 to 60 years with a majority of the Company’s lease terms ranging from 1 to 10 years.
Some leases include one or more options to renew, with renewal terms that can extend the lease term from 3 to 10 years or more. The exercise of these lease renewal options is at the Company’s sole discretion. An insignificant number of the Company’s leases include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense.
(i)
Financial Instruments
The Company’s financial instruments consist primarily of short-term investments, receivables, accounts payable, accrued expenses and long-term debt. The carrying amounts of receivables, accounts payable and accrued expenses approximate their fair value because of the short-term maturity of such instruments. The Company formedhas a wholly-owned captive insurance company during 2017 that investsmay periodically invest in the Company'sCompany’s commercial paper. These short-term commercial paper investments are classified as trading securities and carried at fair value based upon level two fair value hierarchy. The carrying amount of the Company’s floating ratevariable-rate debt approximates its fair value based upon level two fair value hierarchy. Interest rates that are currently available to the Company for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of the Company’s long-term debt.
(j) Advertising Costs and Vendor Consideration
Advertising and promotion expenses are charged to earnings during the period in which they are incurred. Advertising and promotion expenses included in selling, general, and administrative expenses were $119,560$126,898 in 2017, $122,1482022, $139,538 in 20162021 and $100,012$105,974 in 2015.2020.
Vendor consideration, generally cash, is classified as a reduction of net sales, unless specific criteria are met regarding goods or services that the Company may receive in return for this consideration. The Company makes various payments to customers, including rebates, slotting fees, advertising allowances, buy-downs and co-op advertising. All of these payments reduce gross sales with the exception of co-op advertising. Co-op advertising isexpenses, classified as a selling, general and administrative expense, were $15,231 in accordance with ASC 605-50. Co-op advertising expenses, a component2022, $22,092 in 2021 and $16,087 in 2020.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Product Warranties
The Company warrants certain qualitative attributes of its flooring products. The Company has recorded a provision for estimated warranty and related costs, based on historical experience and periodically adjusts these provisions to reflect actual experience.
(l)
Impairment of Long-Lived Assets
The Company reviews its long-lived asset groups, which include intangible assets subject to amortization, which for the Company are itssuch as patents and customer relationships subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of such asset groups may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of long-lived assets to future undiscounted net cash flows expected to be generated by these asset groups. If such asset groups are considered to be impaired, the impairment recognized is the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets held for sale are reported at the lower of the carrying amount or fair value less estimated costs of disposal and are no longer depreciated.
(m)
Foreign Currency Translation
The Company’s subsidiaries that operate outside the United States generally use their local currency as the functional currency. The functional currency is translated into U.S. Dollars for balance sheet accounts using the month end rates in effect as of the balance sheet date and average exchange rate for revenue and expense accounts for each respective period. The translation adjustments are deferred as a separate component of stockholders’ equity, within accumulated other comprehensive income (loss). Gains or losses resulting from transactions denominated in foreign currencies are included in other income or expense, within the consolidated statements of operations.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(n) Hedges of Net Investments in Non-U.S. Operations
The Company has numerous investments outside the United States. The net assets of these subsidiaries are exposed to changes and volatility in currency exchange rates. The Company useshas in the past and might in the future use foreign currency denominated debt to hedge its non-U.S. net investments against adverse movements in exchange rates. The gains and losses on the Company'sCompany’s net investments in its non-U.S. operations are economically offset by losses and gains on its foreign currency borrowings. TheIn June 2015, the Company designated its €500,000 2.00% Senior Notes borrowing as a net investment hedge of a portion of its European operations. On October 19, 2021, the Company redeemed at par the 2.00% Senior Notes, originally due on January 14, 2022, and paid the remaining €500,000 outstanding principal of the 2.00% Senior Notes, plus any unpaid interest, utilizing cash on hand. In connection with this repayment, the Company dedesignated its €500,000 2.00% Senior Notes borrowing as a net investment hedge of a portion of its European operations. For the years ended December 31, 2017, December 31, 20162021 and December 31, 20152020, the change in the U.S. dollar value of the Company'sCompany’s euro denominated debt was an increase of $74,112 ($46,320 net of taxes), a decrease of $20,644$35,363 ($12,90226,928 net of taxes) and an increase of $18,025$54,907 ($11,26641,708 net of taxes), respectively, which isrespectively. Changes in the U.S. dollar value of the Company’s euro denominated debt are recorded in the foreign currency translation adjustment component of accumulated other comprehensive income (loss). The increase in
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the U.S. dollar value of the Company's debt partially offsets the euro-to-dollar translation of the Company's net investment in its European operations.Consolidated Financial Statements—(Continued)
(o)
Earnings per Share (“EPS”)
Basic net earnings per share (“EPS”) is calculated using net earnings available to common stockholders divided by the weighted-average number of shares of common stock outstanding during the year. Diluted EPS is similar to basic EPS except that the weighted-average number of shares is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.
Dilutive common stock options and unvested restricted shares (units) are included in the diluted EPS calculation using the treasury stock method. There were no common stock options and unvested restricted shares (units) that were excluded from the diluted EPS computation because the price was greater than the average market price of the common shares for the periods presented for 2017, 20162022, 2021 and 2015.2020.
Computations of basic and diluted earnings per share are presented for the years ended December 31, 2022, 2021 and 2020, respectively, in the following table:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| | | | | |
| | | | | |
| Net earnings available to common stockholders | $ | 25,247 | | | 1,033,159 | | | 515,595 | |
| | | | | |
| Weighted-average common shares outstanding—basic and diluted: | | | | | |
| Weighted-average common shares outstanding—basic | 63,826 | | | 68,852 | | | 71,214 | |
| Add weighted-average dilutive potential common shares—options to purchase common shares and RSUs, net | 236 | | | 293 | | | 187 | |
| Weighted-average common shares outstanding-diluted | 64,062 | | | 69,145 | | | 71,401 | |
| | | | | |
| Earnings per share attributable to Mohawk Industries, Inc. | | | | | |
| Basic | $ | 0.40 | | | 15.01 | | | 7.24 | |
| Diluted | $ | 0.39 | | | 14.94 | | | 7.22 | |
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Earnings attributable to Mohawk Industries, Inc. | $ | 971,638 |
| | 930,362 |
| | 615,302 |
|
Accretion of redeemable noncontrolling interest (a) | (46 | ) | | (123 | ) | | (194 | ) |
| Net earnings available to common stockholders | $ | 971,592 |
| | 930,239 |
| | 615,108 |
|
| | | | | | |
| Weighted-average common shares outstanding-basic and diluted: | | | | | |
| Weighted-average common shares outstanding - basic | 74,357 |
| | 74,104 |
| | 73,516 |
|
| Add weighted-average dilutive potential common shares - options and RSUs to purchase common shares, net | 482 |
| | 464 |
| | 527 |
|
| Weighted-average common shares outstanding-diluted | 74,839 |
| | 74,568 |
| | 74,043 |
|
| Earnings per share attributable to Mohawk Industries, Inc. | | | | | |
| Basic | $ | 13.07 |
| | 12.55 |
| | 8.37 |
|
| Diluted | $ | 12.98 |
| | 12.48 |
| | 8.31 |
|
(a) Represents the accretion of the Company's redeemable noncontrolling interest to redemption value. The Company will have the option to call and the holder the option to put this noncontrolling interest on May 12, 2018.
(p) Stock-Based Compensation
The Company recognizes compensation expense for all share-based payments granted based on the grant-date fair value estimated in accordance with ASC 718-10, “Stock Compensation”. Compensation expense is generally recognized on a straight-line basis over the awards'awards’ estimated lives for fixed awards with ratable vesting provisions.
(q)
Employee Benefit Plans
The Company has a 401(k) retirement savings planplans (the “Mohawk Plan”) open to substantially all U.S. and Puerto Rico based employees who have completed 9060 days of eligible service. The Company contributes $.50 for every $1.00 of employee contributions up to a maximum of 6% of the employee’s salary based upon each individual participants election. Employee and
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
employer contributions to the Mohawk Plan were $53,544$63,648 and $22,039$24,483 in 2017, $50,5422022, $61,082 and $21,002$23,884 in 20162021 and $45,279$56,241 and $18,882$13,509 in 2015,2020, respectively.
The Company also has various pension plans covering employees in Belgium, France, and the Netherlands (the “Non-U.S. Plans”) within the Flooring ROW segment.ROW. Benefits under the Non-U.S. Plans depend on compensation and years of service. The Non-U.S. Plans are funded in accordance with local regulations. The Company uses December 31 as the measurement date for its Non-U.S. Plans. The Company’s projected benefit obligation and plan assets as of December 31, 20172022 were $65,439$55,236 and $53,404,$50,702, respectively. The Company'sCompany’s projected benefit obligation and plan assets as of December 31, 20162021 were $48,117$80,324 and $40,600,$65,118, respectively. As of December 31, 2017,2022, the funded status of the Non-U.S. Plans was a liability of $12,035$4,534 of which $6,187$82 was recorded in accumulated other comprehensive income (loss), for a net liability of $5,848$4,452 recorded in other long-term liabilities within the consolidated balance sheets. As of December 31, 2016,2021, the funded status of the Non-U.S. Plans was a liability of $7,517$15,206 of which $3,803$8,866 was recorded in accumulated other comprehensive income (loss), for a net liability of $3,714$6,340 recorded in other long-term liabilities within the consolidated balance sheets.
(r)
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Comprehensive Income (Loss)
Comprehensive income (loss) includes foreign currency translation of assets and liabilities of foreign subsidiaries, effects of exchange rate changes on intercompany balances of a long-term nature and pensions.pension and post-retirement benefit service cost. The Company does not provide income taxes on currency translation adjustments, as earnings from foreign subsidiaries are considered to be indefinitely reinvested. The Company presents currency translation adjustments on non-controllingnoncontrolling interests separately from currency translation adjustments on controlling interests in accumulated other comprehensive income (loss) within stockholders'stockholders’ equity.
The changes in accumulated other comprehensive income (loss) by component, net of tax, for the years ended December 31, 2017, 20162022, 2021 and 20152020 are as follows:
| | | | | | | | | | | | | | | | | |
| | Foreign currency translation adjustments | | Prior pension and post-retirement benefit service cost and actuarial gain (loss) | | Total |
| Balance as of December 31, 2019 | $ | (753,108) | | | (12,716) | | | (765,824) | |
| Current period other comprehensive income (loss) | 72,853 | | | (2,174) | | | 70,679 | |
| | | | | |
| Balance as of December 31, 2020 | (680,255) | | | (14,890) | | | (695,145) | |
| Current period other comprehensive (loss) income | (278,944) | | | 7,137 | | | (271,807) | |
| | | | | |
| Balance as of December 31, 2021 | (959,199) | | | (7,753) | | | (966,952) | |
| Current period other comprehensive (loss) income | (155,430) | | | 8,124 | | | (147,306) | |
| | | | | |
| Balance as of December 31, 2022 | $ | (1,114,629) | | | 371 | | | (1,114,258) | |
|
| | | | | | | | | |
| | Foreign currency translation adjustments | | Pensions and post-retirement benefits | | Total |
| Balance as of December 31, 2014 | $ | (428,505 | ) | | (816 | ) | | (429,321 | ) |
| Current period other comprehensive income (loss) before reclassifications | (360,147 | ) | | (4,100 | ) | | (364,247 | ) |
| Amounts reclassified from accumulated other comprehensive loss | — |
| | — |
| | — |
|
| Balance as of December 31, 2015 | (788,652 | ) | | (4,916 | ) | | (793,568 | ) |
| Current period other comprehensive income (loss) before reclassifications | (36,702 | ) | | (2,757 | ) | | (39,459 | ) |
| Amounts reclassified from accumulated other comprehensive income | — |
| | — |
| | — |
|
| Balance as of December 31, 2016 | (825,354 | ) | | (7,673 | ) | | (833,027 | ) |
| Current period other comprehensive income (loss) before reclassifications | 277,427 |
| | (2,927 | ) | | 274,500 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | — |
| | — |
|
| Balance as of December 31, 2017 | $ | (547,927 | ) | | (10,600 | ) | | (558,527 | ) |
(s) Self-Insurance Reserves
The Company is self-insured in the U.S. for various levels of general liability, autoautomobile liability, workers’ compensation and employee medical coverage. Insurance reserves are calculated on an undiscounted basis based on actual claim data and estimates of incurred but not reported claims developed utilizing historical claim trends. Projected settlements and incurred but not reported claims are estimated based on pending claims and historical trends and data. Though the Company does not expect them to do so, actual settlements and claims could differ materially from those estimated. Material differences in actual settlements and claims could have an adverse effect on the Company'sCompany’s results of operations and financial condition.
In the fourth quarter of 2017, the
The Company formedhas a wholly-owned captive insurance company, Mohawk Assurance Services, Inc. ("MAS"(“MAS”). MAS insures the retained portion of the Company'sCompany’s U.S. workers' compensation,general liability, automobile liability, workers’ compensation exposures, pandemic, terrorism and general liability exposures. The Company funded MAS with an initial cash contribution of $16,876 as a contribution to equity and $67,391 as the net present value of premiums owed by the Company for the insurance provided by MAS. MAS began providingmedical coverage to the Company as of December 22, 2017. MAS has investments of $83,904 in the Company's commercial paper as of December 31, 2017.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
MAS.
(t) Fiscal Year
The Company ends its fiscal year on December 31. Each of the first three quarters in the fiscal year ends on the Saturday nearest the calendar quarter end with a thirteen week fiscal quarter.
(u) Recent Accounting Pronouncements
- Effective in Future Years
In May 2014, the FASB issued Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. This topic converges the guidance within U.S. GAAP and International Financial Reporting Standards ("IFRS") and supersedes ASC 605, Revenue Recognition. The new standard requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. The new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period and early application is not permitted. On July 9, 2015, the FASB decided to defer the effective date of ASC 606 for one year. The deferral results in the new revenue standard being effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. The Company will adopt the provisions of this new accounting standard on January 1, 2018, using the cumulative effect method. The Company reviewed all of its revenue categories and the only policy change identified was that certain intellectual property contracts will result in an acceleration in the timing of the recognition of revenue, implemented new controls and processes designed to meet the requirements of the standard, and assessed the required new disclosures upon adoption. The adoption of ASC 606 will not have a material impact on the amounts reported in the Company's consolidated financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases. The amendments in this Update create Topic 842, Leases, and supersede the requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The guidance in this update is effective for annual reporting periods beginning after December 15, 2018 including interim periods within that reporting period and early adoption is permitted. The Company plans to adopt the provisions of this update at the beginning of fiscal year 2019. Based on a preliminary assessment, the Company expects the adoption of this guidance to have a material impact on its assets and liabilities due to the recognition of right-of-use assets and lease liabilities on its consolidated balance sheets at the beginning of the earliest period presented. The Company is continuing its assessment, which may identify additional impacts this guidance will have on its consolidated financial statements and disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This update clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. ASU 2016-15 also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. Additionally, the FASB issued ASU 2016-18 in November 2016 to address the classification and presentation of changes in restricted cash on the statement of cash flows. The guidance in these updates should be applied retrospectively and are effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company plans to adopt the provisions of these updates at the beginning of fiscal year 2018. The adoption of ASU 2016-15 is not expected to have a material impact on the Company's consolidated financial statements
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the definition of a business. The amendments clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The guidance in this update is effective for fiscal years beginning after December 15, 2017, and interim periods within those years.
In January 2017, the FASB also issued ASU 2017-04, Intangibles - Goodwill and other (Topic 350): Simplifying the test for goodwill impairment. The amendments remove the second step of the current goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
optional qualitative assessment of goodwill impairment. This guidance is effective for impairment tests in fiscal years beginning after December 15, 2019.
- Recent Accounting Pronouncements—Recently Adopted
In July 2015,December 2019, the FASB issued ASU 2015-11, Accounting Standards Update (“ASU”) 2019-12, Simplifying the Measurement of Inventory. This update changes the measurement principleAccounting for inventory for entities using FIFO or average cost from the lower of cost or market to lower of cost and net realizable value. Entities that measure inventory using LIFO or the retail inventory method are not affected. This update will more closely alignIncome Taxes which simplified the accounting for inventory under U.S. GAAP with IFRS. The Company currently accountsincome taxes in several areas by removing certain exceptions and by clarifying and amending existing guidance applicable to accounting for inventory using the FIFO method.income taxes. The Company adopted the provisionsnew standard on January 1, 2021. The effect of this update atadopting the beginning of fiscal year 2017. This update didnew standard was not have a material impact on the Company's consolidated financial statements.material.
In MarchJune 2016, the FASB issued ASU 2016-09, Improvements2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was further amended by additional accounting standards updates issued by the FASB. The new standard replaced the incurred loss impairment methodology for recognizing credit losses with a new methodology that requires recognition of lifetime expected credit losses when a financial asset is originated or purchased, even if the risk of loss is remote. The new methodology (referred to Employee Share-Based Payment Accounting. This update simplifies several aspectsas the current expected credit losses model, or “CECL”) applies to most financial assets measured at amortized cost, including trade receivables, and requires consideration of the accounting for employee share-based payment transactions for both publica broader range of reasonable and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.supportable information to estimate expected credit losses. The Company adopted the provisions of this update at the beginning of fiscal year 2017,new standard on January 1, 2020 using a modified retrospective transition approach, with the statement of cash flows classifications applied retrospectively. Accordingly, cash paid for shares redeemed for taxes of $13,039 and $11,589 was reclassedcumulative impact being immaterial to financing activities from operating activities for the year ended December 31, 2016 and 2015, respectively. Additionally, excess tax benefits are now classified with other tax flows as an operating activity with $4,697 and $5,690 reclassified from financing activities for the year ended December 31, 2016 and 2015, respectively. The Company has also elected to continue to estimate the number of awards that are expected to vest when accounting for forfeitures.financial statements.
(2) Acquisitions
20172022 Acquisitions
Emil
On April 4, 2017,During 2022, the Company completed its purchase of Emilceramica S.r.l (“Emil”), a ceramic companyacquisitions in Italy.Flooring NA for $164,579. The total value of the acquisition was $186,099. The Emil acquisition will enhance the Company's cost position and strengthen its combined brand and distribution in Europe. The acquisition's results and purchase price allocation have been included in the consolidated financial statements since the date of the acquisition. The Company's acquisition of EmilCompany’s acquisitions resulted in a preliminary goodwill allocation of $59,491, indefinite-lived tradename$60,842, pending working capital adjustments, and intangible asset of $16,196 and an intangible assetassets subject to amortization of $2,348. The$19,900. Approximately half of the goodwill is not expected to be deductible for tax purposes. The factors contributing to the recognition of the amount of goodwill include product, sales and manufacturing synergies. The Emil results are reflectedCompany also completed acquisitions in the Global Ceramic segment and the results of Emil's operations are not material to the Company's consolidated results of operations.
Other Acquisitions
On November 20, 2017, the Company announced that it agreed to acquire Godfrey Hirst Group, the leading flooring company in Australia and New Zealand, further extending Mohawk's global position. The acquisition is expected to close during the second quarter of 2018Flooring ROW for approximately A$556,000 ($434,171 equivalent at December 31, 2017).
During the second quarter of 2017, the Company completed the acquisition of two businesses in the Global Ceramic segment for $37,250, resulting$47,964, which resulted in a preliminary goodwill allocation of $1,002. The Company also completed the acquisition of a business in the Flooring NA segment for $26,623.
During the first quarter of 2017, the Company acquired certain assets of a distribution business in the Flooring ROW segment for $1,407, resulting in$11,542, pending working capital adjustments, and intangible assets subject to amortization of $827.$3,376. Some of the goodwill is expected to be deductible for tax purposes.
20152021 Acquisitions
IVC Group and KAI Group
On January 13, 2015,During 2021, the Company entered intocompleted acquisitions in Flooring ROW totaling $121,027, including the acquisition of an insulation manufacturer, on September 7, 2021 for $66,334and the acquisition of a share purchase agreement (the “Share Purchase Agreement”)MDF production plant on November 2, 2021 for $44,357. The Company’s acquisitions resulted in a goodwill allocation of $52,536 and intangible assets subject to amortization of $19,910. The goodwill was not deductible for tax purposes. The remaining acquisitions resulted in goodwill of $1,672 and intangible assets subject to amortization of $5,596.
(3) Revenue from Contracts with Enterhold S.A.,Customers
Contract Liabilities
The Company records contract liabilities when it receives payment prior to fulfilling a Luxembourg societe anonyme (the “Seller”),performance obligation. Contract liabilities related to acquirerevenues are recorded in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheets. The Company had contract liabilities of $72,572 and $65,744 as of December 31, 2022 and December 31, 2021, respectively.
Performance Obligations
Substantially all of the outstanding sharesCompany’s revenue is recognized at a point in time when the product is either shipped or received from the Company’s facilities and control of International Flooringthe product is transferred to the customer. Accordingly, in any period, the Company does not recognize a significant amount of revenue from performance obligations satisfied or partially satisfied in prior periods and the amount of such revenue recognized during the years ended December 31, 2022, 2021, and 2020 was immaterial.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Costs to Obtain a Contract
Systems S.A., a Luxembourg societe anonyme , and its subsidiaries (collectively, the “IVC Group”). The IVC Group is a global manufacturer, distributor and marketer of luxury vinyl tile ("LVT") and sheet vinyl. On June 12, 2015, pursuant to the terms of the Share Purchase Agreement, the Company completed the acquisition of IVC Group for $1,146,437. The results of the IVC Group's operations have been included in the consolidated financial statements since that date in the Flooring NA and the Flooring ROW segments. The IVC Group acquisition will position the Company as a major participant in both the fast growing LVT category and the expanding fiberglass sheet vinyl business.
On May 12, 2015, the Company purchased approximately 90% of all outstanding shares of Advent KAI Luxembourg Holdings S.a r.l., a Luxembourg societe a respsonsabilite limitee , and its subsidiaries (collectively, the "KAI Group"), an eastern European ceramic tile floor manufacturer. The Company completed the acquisition of the KAI Group for $194,613. The results of the KAI Group's operations have been included in the consolidated financial statements since the date of acquisition in the Global Ceramic segment. The KAI Group has a low cost position in the Bulgarian and Romanian markets. The combination with the Company will present opportunities to enhance the group's product offering, upgrade its technology and expand its exports to other countries. The remaining 10% ownership interest in the KAI Group is controlled by a third party. The 10% interest is subject to redemption provisions that are not solely within the Company’s control and therefore is recorded as a redeemable noncontrolling interest in the mezzanine section of the consolidated balance sheet. Pursuant to the share purchase agreement, the Company (i) acquired approximately 90% of the issued share capital of the KAI Group and (ii) acquired $24 of indebtedness of the KAI Group, in exchange for a net cash payment of $169,540 and debt paid of $25,073.
The Company accounted forincurs certain incremental costs to obtain revenue contracts. These costs relate to marketing display structures and are capitalized when the acquisitions of the IVC Group and the KAI Group (the “Acquisitions”) using the acquisition method of accounting,amortization period is greater than one year, with the Companyamount recorded in other assets on the accompanying condensed consolidated balance sheets. Capitalized costs to obtain contracts were $59,015 and $49,644 as of December 31, 2022 and December 31, 2021, respectively. Straight-line amortization expense recognized during 2022, 2021 and 2020 related to these capitalized costs were $55,520, $61,681 and $68,201, respectively.
Revenue Disaggregation
The following table presents the acquirerCompany’s segment revenues disaggregated by the geographical market location of customer sales and product categories during the IVC Groupyears ended December 31, 2022, 2021 and the KAI Group. The combined consideration transferred of $1,341,050 for the Acquisitions, including debt paid and shares issued, was determined in accordance with the respective share purchase agreements. The consideration transferred is allocated to tangible and intangible assets and liabilities based upon their respective fair values.2020, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | Global Ceramic | | Flooring NA | | Flooring ROW | | | | Total |
| Geographical Markets | | | | | | | | | |
| United States | $ | 2,403,292 | | | 4,072,952 | | | 13,835 | | | | | 6,490,079 | |
| Europe | 875,414 | | | 6,322 | | | 2,270,315 | | | | | 3,152,051 | |
| Russia | 374,539 | | | 23 | | | 175,035 | | | | | 549,597 | |
| Other | 654,436 | | | 127,744 | | | 763,158 | | | | | 1,545,338 | |
| Total | $ | 4,307,681 | | | 4,207,041 | | | 3,222,343 | | | | | 11,737,065 | |
| | | | | | | | | |
| Product Categories | | | | | | | | | |
| Ceramic & Stone | $ | 4,282,887 | | | 37,536 | | | — | | | | | 4,320,423 | |
| Carpet & Resilient | 24,794 | | | 3,296,152 | | | 914,869 | | | | | 4,235,815 | |
| Laminate & Wood | — | | | 873,353 | | | 1,091,133 | | | | | 1,964,486 | |
Other (1) | — | | | — | | | 1,216,341 | | | | | 1,216,341 | |
| Total | $ | 4,307,681 | | | 4,207,041 | | | 3,222,343 | | | | | 11,737,065 | |
Xtratherm | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | Global Ceramic | | Flooring NA | | Flooring ROW | | | | | | Total |
| Geographical Markets | | | | | | | | | | | |
| United States | $ | 2,193,234 | | | 3,978,146 | | | 10,248 | | | | | | | 6,181,628 | |
| Europe | 849,247 | | | 2,731 | | | 2,265,914 | | | | | | | 3,117,892 | |
| Russia | 299,621 | | | 94 | | | 150,295 | | | | | | | 450,010 | |
| Other | 575,217 | | | 135,434 | | | 740,432 | | | | | | | 1,451,083 | |
| Total | $ | 3,917,319 | | | 4,116,405 | | | 3,166,889 | | | | | | | 11,200,613 | |
| | | | | | | | | | | |
| Product Categories | | | | | | | | | | | |
| Ceramic & Stone | $ | 3,903,597 | | | 35,057 | | | — | | | | | | | 3,938,654 | |
| Carpet & Resilient | 13,722 | | | 3,287,533 | | | 992,787 | | | | | | | 4,294,042 | |
| Laminate & Wood | — | | | 793,815 | | | 1,058,951 | | | | | | | 1,852,766 | |
Other (1) | — | | | — | | | 1,115,151 | | | | | | | 1,115,151 | |
| Total | $ | 3,917,319 | | | 4,116,405 | | | 3,166,889 | | | | | | | 11,200,613 | |
On December 7, 2015, the Company completed its purchase of Xtratherm Limited, an Irish company, and certain of its affiliates (collectively, "Xtratherm"), a manufacturer of insulation boards in Ireland, the UK and Belgium. The total value of the acquisition was $158,851 and the consideration transferred is allocated to tangible and intangible assets and liabilities based upon their respective fair values. The Xtratherm acquisition will expand the Company's existing insulation board footprint to include Ireland, the UK and Belgium while capitalizing on expanded product offerings in Belgium. The acquisition's results and purchase price allocation have been included in the consolidated financial statements since the date of the acquisition. The Xtratherm results are reflected in the Flooring ROW segment.
Other Acquisitions
During the first quarter of 2015, the Company acquired certain assets of a distribution business in the Flooring ROW segment for $2,822.
During the third quarter of 2015, the Company acquired certain assets of a ceramic business in the Global Ceramic segment for $20,423.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | Global Ceramic | | Flooring NA | | Flooring ROW | | | | Total |
| Geographical Markets | | | | | | | | | |
| United States | $ | 2,050,470 | | | 3,477,556 | | | 2,381 | | | | | 5,530,407 | |
| Europe | 699,715 | | | 1,506 | | | 1,785,549 | | | | | 2,486,770 | |
| Russia | 262,846 | | | 50 | | | 122,934 | | | | | 385,830 | |
| Other | 419,725 | | | 114,963 | | | 614,502 | | | | | 1,149,190 | |
| Total | $ | 3,432,756 | | | 3,594,075 | | | 2,525,366 | | | | | 9,552,197 | |
| | | | | | | | | |
| Product Categories | | | | | | | | | |
| Ceramic & Stone | $ | 3,425,672 | | | 31,531 | | | — | | | | | 3,457,203 | |
| Carpet & Resilient | 7,084 | | | 2,871,050 | | | 857,754 | | | | | 3,735,888 | |
| Laminate & Wood | — | | | 691,494 | | | 847,473 | | | | | 1,538,967 | |
Other (1) | — | | | — | | | 820,139 | | | | | 820,139 | |
| Total | $ | 3,432,756 | | | 3,594,075 | | | 2,525,366 | | | | | 9,552,197 | |
(1) Other includes roofing elements, insulation boards, chipboards and IP contracts.
(3)
(4) Restructuring, Acquisition and Integration-Related Costs
The Company incurs costs in connection with acquiring, integrating and restructuring acquisitions and in connection with its global cost-reduction/productivity initiatives. For example:
•In connection with acquisition activity, the Company typically incurs costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and
•In connection with the Company'sCompany’s cost-reduction/productivity initiatives, it typically incurs costs and charges associated with site closings and other facility rationalization actions, including accelerated depreciation ("asset write-downs") and workforce reductions.
Restructuring, acquisition transaction and integration-related costs consisted of the following during the year ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Cost of sales | | | | | | |
| Restructuring costs | | $ | 67,621 | | | 17,899 | | | 101,230 | |
| | | | | | |
| Acquisition integration-related costs | | 396 | | | 497 | | | 1,153 | |
| Restructuring and acquisition integration-related costs | | $ | 68,017 | | | 18,396 | | | 102,383 | |
| | | | | | |
| Selling, general and administrative expenses | | | | | | |
| Restructuring costs | | $ | 9,094 | | | 1,301 | | | 24,127 | |
| Acquisition transaction-related costs | | 1,654 | | | 2,372 | | | 213 | |
| Acquisition integration-related costs | | 2,992 | | | 1,568 | | | 2,127 | |
| Restructuring, acquisition transaction and integration-related costs | | $ | 13,740 | | | 5,241 | | | 26,467 | |
|
| | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 |
| Cost of sales | | | | | | |
| Restructuring costs | | $ | 33,109 |
| | 33,582 |
| | 35,956 |
|
| Acquisition integration-related costs | | 2,916 |
| | 4,722 |
| | 9,597 |
|
| Restructuring and integration-related costs | | $ | 36,025 |
| | 38,304 |
| | 45,553 |
|
| | | | | | | |
| Selling, general and administrative expenses | | | | | | |
| Restructuring costs | | $ | 3,976 |
| | 4,881 |
| | 5,779 |
|
| Acquisition transaction-related costs | | 2,751 |
| | — |
| | 9,502 |
|
| Acquisition integration-related costs | | 6,188 |
| | 7,438 |
| | 13,770 |
|
| Restructuring, acquisition and integration-related costs | | $ | 12,915 |
| | 12,319 |
| | 29,051 |
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
The restructuring activity for the years ended December 31, 20172022 and 2016,2021, respectively is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lease impairments | | Asset write-downs
(gains on disposals) | | Severance | | Other restructuring costs | | Total | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance as of December 31, 2020 | $ | — | | | — | | | 11,576 | | | 729 | | | 12,305 | | | |
| Restructuring costs | | | | | | | | | | | |
| Global Ceramic | 226 | | | 1,458 | | | 134 | | | 808 | | | 2,626 | | | |
| Flooring NA | (37) | | | 7,595 | | | (284) | | | 9,614 | | | 16,888 | | | |
| Flooring ROW | — | | | (1,968) | | | (1,096) | | | 1,538 | | | (1,526) | | | |
| Corporate | — | | | 1,017 | | | 195 | | | — | | | 1,212 | | | |
| Total restructuring costs for 2021 | 189 | | | 8,102 | | | (1,051) | | | 11,960 | | | 19,200 | | | |
| Cash payments | — | | | — | | | (8,507) | | | (10,822) | | | (19,329) | | | |
| Non-cash items | (189) | | | (8,102) | | | (384) | | | (872) | | | (9,547) | | | |
| Balance as of December 31, 2021 | — | | | — | | | 1,634 | | | 995 | | | 2,629 | | | |
| Restructuring costs | | | | | | | | | | | |
| Global Ceramic | — | | | — | | | 3,365 | | | — | | | 3,365 | | | |
| Flooring NA | — | | | 29,327 | | | 741 | | | 14,406 | | | 44,474 | | | |
| Flooring ROW | — | | | 9,371 | | | 12,677 | | | 6,828 | | | 28,876 | | | |
| Corporate | — | | | — | | | — | | | — | | | — | | | |
| Total restructuring costs for 2022 | — | | | 38,698 | | | 16,783 | | | 21,234 | | | 76,715 | | | |
| Cash payments | — | | | — | | | (8,557) | | | (21,241) | | | (29,798) | | | |
| Non-cash items | — | | | (38,698) | | | 177 | | | (988) | | | (39,509) | | | |
| Balance as of December 31, 2022 | $ | — | | | — | | | 10,037 | | | — | | | 10,037 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| 2021 restructuring costs recorded in: | | | | | | | | | | | |
| Cost of sales | $ | — | | | 6,721 | | | (370) | | | 11,548 | | | 17,899 | | | |
| Selling, general and administrative expenses | 189 | | | 1,381 | | | (681) | | | 412 | | | 1,301 | | | |
| Total restructuring costs for 2021 | $ | 189 | | | 8,102 | | | (1,051) | | | 11,960 | | | 19,200 | | | |
| | | | | | | | | | | |
| 2022 restructuring costs recorded in: | | | | | | | | | | | |
| Cost of sales | $ | — | | | 38,698 | | | 7,915 | | | 21,008 | | | 67,621 | | | |
| Selling, general and administrative expenses | — | | | — | | | 8,868 | | | 226 | | | 9,094 | | | |
| Total restructuring costs for 2022 | $ | — | | | 38,698 | | | 16,783 | | | 21,234 | | | 76,715 | | | |
| | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Lease impairments | | Asset write-downs | | Severance | | Other restructuring costs | | Total |
| Balance as of December 31, 2015 | $ | — |
| | — |
| | 8,965 |
| | 1,065 |
| | 10,030 |
|
| Provision - Global Ceramic segment | — |
| | 795 |
| | 1,396 |
| | 79 |
| | 2,270 |
|
| Provision - Flooring NA segment | — |
| | 10,048 |
| | 3,850 |
| | 18,170 |
| | 32,068 |
|
| Provision - Flooring ROW segment | — |
| | 184 |
| | 1,932 |
| | 2,009 |
| | 4,125 |
|
| Cash payments | — |
| | — |
| | (10,958 | ) | | (9,982 | ) | | (20,940 | ) |
| Non-cash items | — |
| | (11,027 | ) | | (2 | ) | | (5,098 | ) | | (16,127 | ) |
| Balance as of December 31, 2016 | — |
| | — |
| | 5,183 |
| | 6,243 |
| | 11,426 |
|
| Provision - Global Ceramic segment | 492 |
| | — |
| | 1,082 |
| | (32 | ) | | 1,542 |
|
| Provision - Flooring NA segment | 316 |
| | 6,849 |
| | 2,500 |
| | 22,131 |
| | 31,796 |
|
| Provision - Flooring ROW segment | — |
| | 650 |
| | 1,518 |
| | 1,465 |
| | 3,633 |
|
| Provision - Corporate | — |
| | — |
| | — |
| | 114 |
| | 114 |
|
| Cash payments | (449 | ) | | (190 | ) | | (9,469 | ) | | (29,725 | ) | | (39,833 | ) |
| Non-cash items | — |
| | (7,309 | ) | | (230 | ) | | (44 | ) | | (7,583 | ) |
| Balance as of December 31, 2017 | $ | 359 |
| | — |
| | 584 |
| | 152 |
| | 1,095 |
|
The Company generally expects the remaining severance and other restructuring costs to be paid over the next year.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
(5) Fair Value
(4)
The Company’s wholly-owned captive insurance company may invest in the Company’s commercial paper. These short-term commercial paper investments are classified as trading securities and carried at fair value based upon the Level 2 fair value hierarchy.
Items Measured at Fair Value
The following table presents the items measured at fair value as of December 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 | |
| | | | | |
| | | | | |
| Short-term investments: | | | | | |
| | | | | |
| Commercial paper (Level 2) | | $ | 158,000 | | | 323,000 | | |
The fair values and carrying values of the Company’s debt are disclosed in Note 10, Long-Term Debt.
(6) Receivables, net
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Customers, trade | $ | 1,699,130 | | | 1,721,584 | |
| Income tax receivable | 60,080 | | | 73,727 | |
| Other | 219,355 | | | 117,823 | |
| 1,978,565 | | | 1,913,134 | |
| Less: allowance for discounts, returns, claims and doubtful accounts | 73,779 | | | 73,149 | |
| Receivables, net | $ | 1,904,786 | | | 1,839,985 | |
|
| | | | | | |
| | December 31,
2017 | | December 31,
2016 |
| Customers, trade | $ | 1,538,348 |
| | 1,386,306 |
|
| Income tax receivable | 9,835 |
| | 8,616 |
|
| Other | 96,079 |
| | 59,564 |
|
| | 1,644,262 |
| | 1,454,486 |
|
| Less allowance for discounts, returns, claims and doubtful accounts | 86,103 |
| | 78,335 |
|
| Receivables, net | $ | 1,558,159 |
| | 1,376,151 |
|
The following table reflects the activity of allowances for discounts, returns, claims and doubtful accounts for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of year | | Acquisitions | | Additions charged to net sales or
costs and expenses | | Deductions (1) | | Balance at end of year |
| 2020 | $ | 61,921 | | | — | | | 384,403 | | | 362,642 | | | 83,682 | |
| 2021 | 83,682 | | | 644 | | | 357,635 | | | 368,812 | | | 73,149 | |
| 2022 | 73,149 | | | 584 | | | 382,027 | | | 381,981 | | | 73,779 | |
(1) Represents charge-offs, net of recoveries.
|
| | | | | | | | | | | | | | | |
| | Balance at beginning of year | | Acquisitions | | Additions charged to net sales or costs and expenses | | Deductions(1) | | Balance at end of year |
| 2015 | $ | 72,603 |
| | 7,750 |
| | 272,329 |
| | 273,735 |
| | 78,947 |
|
| 2016 | 78,947 |
| | — |
| | 296,419 |
| | 297,031 |
| | 78,335 |
|
| 2017 | 78,335 |
| | 6,510 |
| | 308,507 |
| | 307,249 |
| | 86,103 |
|
| |
(1) | Represents charge-offs, net of recoveries. |
(5)(7) Inventories
The components of inventories are as follows:
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Finished goods | $ | 1,986,005 | | | 1,677,707 | |
| Work in process | 160,757 | | | 144,004 | |
| Raw materials | 647,003 | | | 569,961 | |
| Total inventories | $ | 2,793,765 | | | 2,391,672 | |
|
| | | | | | |
| | December 31,
2017 | | December 31,
2016 |
| Finished goods | $ | 1,326,038 |
| | 1,127,573 |
|
| Work in process | 159,921 |
| | 137,310 |
|
| Raw materials | 462,704 |
| | 410,868 |
|
| Total inventories | $ | 1,948,663 |
| | 1,675,751 |
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
(6)(8) Goodwill and Other Intangible Assets
The Company conductedperforms its annual testing of goodwill and indefinite-lived intangibles in the fourth quarter of each year. Between annual testing dates, the Company monitors factors such as its market capitalization, comparable company market multiples and macroeconomic conditions to identify conditions that could impact the Company’s assumptions utilized in the determination of the estimated fair values of the Company’s reporting units and indefinite-lived intangible assets significantly enough to trigger an impairment.
The goodwill impairment assessmenttests are based on determining the fair value of the specified reporting units based on management judgements and assumptions using the discounted cash flows under the income approach classified in Level 3 of the fair value hierarchy and comparable company market valuation classified in Level 2 of the fair value hierarchy approaches. The Company has identified Global Ceramic, Flooring NA and Flooring ROW as its reporting units for the purposes of allocating goodwill and intangibles as well as assessing impairments. The valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgements and assumptions about appropriate sales growth rates, operating margins, WACC and comparable company market multiples.
As a result of a decrease in the Company’s market capitalization, comparable company market multiples, projected future cash flows and an increase in the WACC due to increases in the risk free rate and applicable risk premiums, the Company determined that a triggering event occurred requiring goodwill impairment testing for each of its reporting units as of October 1, 2022. The impairment test indicated a pre-tax, non-cash goodwill impairment charge related to the Global Ceramic reporting unit of $688,514 ($679,664 net of tax), which the Company recorded during the third quarter of 2022. The Company concluded the goodwill of its other reporting units was not impaired on October 1, 2022. In addition, the Company compared the estimated fair values of its indefinite-lived intangibles to their carrying values and determined that there were impairments of $7,257 ($5,939 net of tax) in the Flooring ROW and Flooring NA reporting units during the third quarter of 2022.
The excess of fair value over carrying value for the Flooring ROW reporting unit was approximately 20% and the excess of fair value over carrying value for the Flooring NA reporting unit was less than 5%, as of October 1, 2022. The Company’s annual testing date for goodwill and tradenames is the first day of theits fourth quarter of 2017 and determineddue to the fair values of its reporting units and trademarks exceeded their carrying values. As a result,fact that there were no impairment was indicated.
The following table summarizessignificant changes in facts or circumstances in the components of intangible assets:
|
| | | | | | | | | | | | |
| | Global Ceramic | | Flooring NA | | Flooring ROW | | Total |
| Balances as of December 31, 2015 | | | | | | | |
| Goodwill | $ | 1,472,757 |
| | 867,916 |
| | 1,280,117 |
| | 3,620,790 |
|
| Accumulated impairments losses | (531,930 | ) | | (343,054 | ) | | (452,441 | ) | | (1,327,425 | ) |
| | 940,827 |
| | 524,862 |
| | 827,676 |
| | 2,293,365 |
|
| Goodwill recognized during the year | — |
| | 1,848 |
| | 1,158 |
| | 3,006 |
|
| Currency translation during the year | 9,469 |
| | — |
| | (31,414 | ) | | (21,945 | ) |
| Balances as of December 31, 2016 | | | | | | | |
| Goodwill | 1,482,226 |
| | 869,764 |
| | 1,249,861 |
| | 3,601,851 |
|
| Accumulated impairments losses | (531,930 | ) | | (343,054 | ) | | (452,441 | ) | | (1,327,425 | ) |
| | 950,296 |
| | 526,710 |
| | 797,420 |
| | 2,274,426 |
|
| Goodwill recognized during the year | $ | 60,493 |
| | — |
| | — |
| | 60,493 |
|
| Currency translation during the year | 25,153 |
| | — |
| | 111,387 |
| | 136,540 |
|
| Balances as of December 31, 2017 | | | | | | | |
| Goodwill | 1,567,872 |
| | 869,764 |
| | 1,361,248 |
| | 3,798,884 |
|
| Accumulated impairments losses | (531,930 | ) | | (343,054 | ) | | (452,441 | ) | | (1,327,425 | ) |
| | $ | 1,035,942 |
| | 526,710 |
| | 908,807 |
| | 2,471,459 |
|
Intangible assets:
During the third quarter of 2016,one calendar day, the Company determined that it needed to simplify the branding strategythere was no additional impairment of goodwill or tradenames. The Company conducted a qualitative analysis as of December 31, 2022 and determined there was no indication of an impairment.
A significant or prolonged deterioration in economic conditions, continued increases in the Flooring NA segment by consolidating products under the Mohawk Group brandscosts of raw materials and discontinuing the Lees brand. This resultedenergy combined with an inability to pass these costs on to customers, a further decline in the Company writing off the full value of the Lees tradename and recording an impairment charge of $47,905Company’s market capitalization or comparable company market multiples, a reduction in selling, general and administrative expensesprojected future cash flows, or increases in the consolidated statementsWACC, could impact the Company’s assumptions and require a reassessment of operations.goodwill or indefinite-lived intangible assets for impairment in future periods.
|
| | | |
| | Tradenames |
| Indefinite life assets not subject to amortization: | |
| Balance as of December 31, 2015 | $ | 632,349 |
|
| Intangible assets impaired during the year | (47,905 | ) |
| Currency translation during the year | (4,297 | ) |
| Balance as of December 31, 2016 | 580,147 |
|
| Intangible assets acquired during the year | 16,196 |
|
| Intangible assets impaired during the year | — |
|
| Currency translation during the year | 47,865 |
|
| Balance as of December 31, 2017 | $ | 644,208 |
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
The following tables summarize the components of goodwill and intangible assets:
Goodwill:
| | | | | | | | | | | | | | | | | | | | | | | |
| Global Ceramic | | Flooring NA | | Flooring ROW | | Total |
Balances as of December 31, 2020 (1) | $ | 1,047,561 | | | 531,144 | | | 1,072,126 | | | 2,650,831 | |
| Goodwill recognized during the period | — | | | — | | | 56,930 | | | 56,930 | |
| Currency translation during the period | (16,224) | | | — | | | (83,628) | | | (99,852) | |
Balances as of December 31, 2021 (1) | 1,031,337 | | | 531,144 | | | 1,045,428 | | | 2,607,909 | |
| Goodwill adjustments related to acquisitions | — | | | — | | | (2,722) | | | (2,722) | |
| Goodwill recognized during the period | — | | | 60,841 | | | 11,542 | | | 72,383 | |
| Impairment charge during the period | (688,514) | | | — | | | — | | | (688,514) | |
| Currency translation during the period | (2,989) | | | — | | | (58,308) | | | (61,297) | |
| Balances as of December 31, 2022 | $ | 339,834 | | | 591,985 | | | 995,940 | | | 1,927,759 | |
(1)Net of accumulated impairment losses of $1,327,425 ($531,930 in Global Ceramic, $343,054 in Flooring NA and $452,441 in Flooring ROW).
Intangible assets:
| | | | | |
| Tradenames |
| Indefinite life assets not subject to amortization: | |
| Balance as of December 31, 2020 | $ | 727,268 | |
| Intangible assets acquired during the year | 2,725 | |
| |
| Currency translation during the year | (35,088) | |
| Balance as of December 31, 2021 | 694,905 | |
| Intangible assets acquired during the year | 335 | |
| Intangible assets impaired during the year | (7,257) | |
| Currency translation during the year | (19,655) | |
| Balance as of December 31, 2022 | $ | 668,328 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Customer
relationships | | Patents | | Other | | Total |
| Intangible assets subject to amortization: | | | | | | | |
| Balances as of December 31, 2020 | | | | | | | |
| Gross carrying amount | $ | 699,795 | | | 273,570 | | | 6,945 | | | 980,310 | |
| Accumulated amortization | (481,256) | | | (273,426) | | | (1,289) | | | (755,971) | |
| Net intangible assets subject to amortization | 218,539 | | | 144 | | | 5,656 | | | 224,339 | |
| Balances as of December 31, 2021 | | | | | | | |
| Gross carrying amount | 680,177 | | | 256,336 | | | 6,786 | | | 943,299 | |
| Accumulated amortization | (483,748) | | | (252,414) | | | (2,062) | | | (738,224) | |
| Net intangible assets subject to amortization | 196,429 | | | 3,922 | | | 4,724 | | | 205,075 | |
| Balances as of December 31, 2022 | | | | | | | |
| Gross carrying amount | 673,586 | | | 242,089 | | | 8,511 | | | 924,186 | |
| Accumulated amortization | (493,361) | | | (239,010) | | | (2,195) | | | (734,566) | |
| Net intangible assets subject to amortization | $ | 180,225 | | | 3,079 | | | 6,316 | | | 189,620 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
|
| | | | | | | | | | | | |
| | Customer relationships | | Patents | | Other | | Total |
| Intangible assets subject to amortization: | | | | | | | |
| Balances as of December 31, 2015 | $ | 271,123 |
| | 26,985 |
| | 6,084 |
| | 304,192 |
|
| Intangible assets acquired during the year | — |
| | — |
| | — |
| | — |
|
| Amortization during the year | (25,778 | ) | | (13,141 | ) | | (626 | ) | | (39,545 | ) |
| Currency translation during the year | (9,641 | ) | | (420 | ) | | (127 | ) | | (10,188 | ) |
| Balances as of December 31, 2016 | 235,704 |
| | 13,424 |
| | 5,331 |
| | 254,459 |
|
| Intangible assets acquired during the year | 3,175 |
| | — |
| | — |
| | 3,175 |
|
| Amortization during the year | (26,602 | ) | | (7,543 | ) | | (134 | ) | | (34,279 | ) |
| Currency translation during the year | 22,558 |
| | 1,180 |
| | 466 |
| | 24,204 |
|
| Balances as of December 31, 2017 | $ | 234,835 |
| | 7,061 |
| | 5,663 |
| | 247,559 |
|
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Amortization expense | $ | 28,086 | | | 29,280 | | | 28,891 | |
|
| | | | | | | | | | | |
| | December 31, 2017 |
| | Cost | Acquisitions | Currency translation | Accumulated amortization | Net Value |
| Customer Relationships | $ | 569,980 |
| 3,175 |
| 52,108 |
| 390,428 |
| 234,835 |
|
| Patents | 234,022 |
| — |
| 32,947 |
| 259,908 |
| 7,061 |
|
| Other | 6,330 |
| — |
| 495 |
| 1,162 |
| 5,663 |
|
| Total | $ | 810,332 |
| 3,175 |
| 85,550 |
| 651,498 |
| 247,559 |
|
| | | | | | |
|
| | | | | | | | | | | |
| | December 31, 2016 |
| | Cost | Acquisitions | Currency translation | Accumulated amortization | Net Value |
| Customer Relationships | $ | 588,716 |
| — |
| (18,736 | ) | 334,276 |
| 235,704 |
|
| Patents | 243,258 |
| — |
| (9,236 | ) | 220,598 |
| 13,424 |
|
| Other | 6,790 |
| — |
| (460 | ) | 999 |
| 5,331 |
|
| Total | $ | 838,764 |
| — |
| (28,432 | ) | 555,873 |
| 254,459 |
|
|
| | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Amortization expense | $ | 34,279 |
| | 39,545 |
| | 29,909 |
|
Estimated amortization expense for the years ending December 31 are as follows:
| | | | | |
| 2023 | $ | 28,049 | |
| 2024 | 27,334 | |
| 2025 | 27,117 | |
| 2026 | 26,896 | |
| 2027 | 19,972 | |
|
| | | |
| 2018 | $ | 28,731 |
|
| 2019 | 25,685 |
|
| 2020 | 25,685 |
|
| 2021 | 25,394 |
|
| 2022 | 23,564 |
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(7)(9) Property, Plant and Equipment
Following is a summary of property, plant and equipment:
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Land | $ | 466,820 | | | 465,240 | |
| Buildings and improvements | 1,851,390 | | | 1,862,463 | |
| Machinery and equipment | 6,310,442 | | | 6,023,087 | |
| Furniture and fixtures | 162,864 | | | 158,315 | |
| Leasehold improvements | 107,079 | | | 102,766 | |
| Construction in progress | 749,184 | | | 638,716 | |
| 9,647,779 | | | 9,250,587 | |
| Less: accumulated depreciation | 4,986,601 | | | 4,613,722 | |
| Net property, plant and equipment | $ | 4,661,178 | | | 4,636,865 | |
|
| | | | | | |
| | December 31,
2017 | | December 31,
2016 |
| Land | $ | 385,027 |
| | 288,633 |
|
| Buildings and improvements | 1,413,877 |
| | 1,189,408 |
|
| Machinery and equipment | 4,603,911 |
| | 3,979,349 |
|
| Furniture and fixtures | 211,730 |
| | 236,183 |
|
| Leasehold improvements | 78,803 |
| | 77,976 |
|
| Construction in progress | 792,936 |
| | 472,226 |
|
| | 7,486,284 |
| | 6,243,775 |
|
| Less accumulated depreciation and amortization | 3,215,494 |
| | 2,873,427 |
|
| Net property, plant and equipment | $ | 4,270,790 |
| | 3,370,348 |
|
Additions to property, plant and equipment included capitalized interest of $8,543, $5,608$16,895, $9,082 and $7,091$6,362 in 2017, 20162022, 2021 and 2015,2020, respectively. Depreciation expense was $408,646, $366,233$564,255, $558,818 and $328,486$574,095 for 2017, 20162022, 2021 and 2015,2020, respectively. Included in the property, plant and equipment are capitalfinance leases with a cost of $5,984$82,653 and $7,986$67,984 and accumulated depreciation of $2,071$30,218 and $4,436$19,902 as of December 31, 20172022 and 2016,2021, respectively.
(8)(10) Long-Term Debt
Senior Credit Facility
On March 26, 2015,August 12, 2022, the Company amended and restatedentered into a fourth amendment (the “Amendment”) to its 2013existing senior revolving credit facility increasing its size from $1,000,000 to $1,800,000 and extending(the “Senior Credit Facility”). The Amendment, among other things, (i) extended the maturity from September 25, 2018 to March 26, 2020 (as amended and restated,of the "2015 Senior Credit Facility"). The 2015 Senior Credit Facility eliminated certain provisions infrom October 18, 2024 to August 12, 2027, (ii) renewed the 2013Company’s option to extend the maturity of the Senior Credit Facility including those that: (a) acceleratedup to two times for an additional one-year period each, (iii) increased the maturity dateConsolidated Interest Coverage Ratio financial maintenance covenant from 3.00:1.00 to 90 days prior3.50:1.00, (iv) eliminated certain covenants applicable to the maturity of senior notes due in January 2016 if certain specified liquidity levels wereCompany and its subsidiaries, including, but not met;limited to, restrictions on dispositions, restricted payments, and (b) required that certain subsidiaries guaranteetransactions with affiliates, and the Company's obligations ifConsolidated Net Leverage Ratio financial covenant, and (v) increased the Company’s credit ratings fell below investment grade. The 2015 Senior Credit Facility also modified certain negative covenants to provideamount available under the Company with additional flexibility, including flexibility to make acquisitions and incur additional indebtedness.On March 1, 2016, the Company amended the 2015 Senior Credit Facility to among other things, carve out from$1,950,000 until October 18, 2024, after which the general limitation on subsidiary indebtednessamount available under the issuance of Euro-denominated commercial paper notes by subsidiaries. Additionally, at several points in 2016, the Company extended the maturity date of the 2015 Senior Credit Facility from March 26, 2020will decrease to March 26, 2021. In the first half of 2017,$1,485,000. The Amendment also permits the Company amendedto increase the 2015commitments under the Senior Credit Facility by an aggregate amount not to extendexceed $600,000.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the maturity date from March 26, 2021 to March 26, 2022.Consolidated Financial Statements—(Continued)
At the Company'sCompany’s election, U.S.-dollar denominated revolving loans under the 2015 Senior Credit Facility bear interest at annual rates equal to either (a) LIBORSOFR (plus a 0.10% SOFR adjustment) for 1, 2, 3 or 6 month periods, as selected by the Company, plus an applicable margin ranging between 1.00% and 1.75% (1.125%(1.00% as of December 31, 2017)2022), or (b) the Base Rate (defined as the higher of the Wells Fargo Bank, National Association prime rate, the Federal Funds rateEffective Rate plus 0.5%, or the Eurocurrency Rate (as defined inthe 2015 Senior Credit Facility)SOFR (plus a 0.10% SOFR adjustment) for a 1 month period rate plus 1.0%), plus an applicable margin ranging between 0.00% and 0.75% (0.125%(0.00% as of December 31, 2017)2022). At the Company’s election, revolving loans under the Senior Credit Facility denominated in Canadian dollars, Australian dollars, Hong Kong dollars or euros bear interest at annual rates equal to either (a) the applicable benchmark for such currency plus an applicable margin ranging between 1.00% and 1.75% (1.00% as of December 31, 2022), or (b) the Base Rate plus an applicable margin ranging between 0.00% and 0.75% (0.00% as of December 31, 2022). The Company also pays a commitment fee to the lenders under the 2015 Senior Credit Facility on the average amount by which the aggregate commitments of the lenders'lenders exceed utilization of the 2015 Senior Credit Facility ranging from 0.10%0.09% to 0.225%0.20% per annum (0.125%(0.09% as of December 31, 2017)2022). The applicable margins and the commitment fee are determined based on whichever of the Company'sCompany’s Consolidated Net Leverage Ratio or its senior unsecured debt rating (or if not available, corporate family rating) results in the lower applicable margins and commitment fee (with applicable margins and the commitment fee increasing as that ratio increases or those ratings decline, as applicable). On October 28, 2021, the Company amended the Senior Credit Facility to replace LIBOR for euros with the EURIBOR benchmark rate.
The obligations of the Company and its subsidiaries in respect of the 2015 Senior Credit Facility are unsecured.
The 2015 Senior Credit Facility includes certain affirmative and negative covenants that impose restrictions on the Company'sCompany’s financial and business operations, including limitations on liens, subsidiary indebtedness, fundamental changes, asset
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
dispositions, dividends and other similar restricted payments, transactions with affiliates, future negative pledges, and changes in the nature of the Company'sCompany’s business. The Company is also required to maintain a Consolidated Interest Coverage Ratio of at least 3.0 to 1.0 and a Consolidated Net Leverage Ratio of no more than 3.75 to 1.0, each as of the last day of any fiscal quarter. The limitations contain customary exceptions or, in certain cases, do not apply as long as the Company is in compliance with the financial ratio requirementsrequirement and is not otherwise in default. The Senior Credit Facility originally required the Company to maintain a Consolidated Interest Coverage Ratio of at least 3.00 to 1.00 and a Consolidated Net Leverage Ratio of no more than 3.75 to 1.00, each as of the last day of any fiscal quarter. However, on May 7, 2020 the Company amended the Senior Credit Facility to temporarily increase the minimum Consolidated Net Leverage Ratio to 4.75 to 1.00 and to increase the amount of certain adjustments to Net Income that are permitted to calculate the ratio. The relief provided by the amendment was in effect for the fiscal quarters ending on September 26, 2020 through (and including) the fiscal quarter ending December 31, 2021. As described above, the Consolidated Net Leverage Ratio financial covenant was eliminated on August 12, 2022.
The 2015 Senior Credit Facility also contains customary representations and warranties and events of default, subject to customary grace periods.
TheIn 2022, the Company paid financing costs of $567$1,879 in connection with the extensionAmendment of its 2015 Senior Credit Facility from March 26, 2021 to March 26, 2022.Facility. These costs were deferred and, along with previously unamortized costs of $6,873$2,663, are being amortized over the term of the 2015 Senior Credit Facility.
As of December 31, 2017,2022, amounts utilized under the 2015 Senior Credit Facility included $62,104 ofzero borrowings and $56,267$19,614 of standby letters of credit related to various insurance contracts and foreign vendor commitments. TheAny outstanding borrowings of $1,140,646 under the Company'sCompany’s U.S. and European commercial paper programs as of December 31, 2017 reduce the availability of the 2015 Senior Credit Facility. Including commercial paper borrowings, the Company has utilized $1,259,017$848,420 under the 2015 Senior Credit Facility, resulting in a total of $540,983$1,101,580 available as of December 31, 2017.2022.
Commercial Paper
On February 28, 2014 and July 31, 2015, the Company established programs for the issuance of unsecured commercial paper in the United States and Eurozone capital markets, respectively. Commercial paper issued under the U.S. and European programs will have maturities ranging up to 397 and 183 days, respectively. None of the commercial paper notes may be voluntarily prepaid or redeemed by the Company and all rank pari passu with all of the Company'sCompany’s other unsecured and unsubordinated indebtedness. To the extent that the Company issues European commercial paper notes through a subsidiary of the Company, the notes will be fully and unconditionally guaranteed by the Company.
The Company uses its 2015 Senior Credit Facility as a liquidity backstop for its commercial paper programs. Accordingly, the total amount outstanding under all of the Company'sCompany’s commercial paper programs may not exceed $1,800,000$1,950,000 (less any amounts drawn on the 2015Senior Credit Facility) at any time.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
The proceeds from the issuance of commercial paper notes will be available for general corporate purposes. As of December 31, 20172022, there was $228,500$785,998 outstanding under the U.S. commercial paper program, and the euro equivalent of $912,146$42,808 under the European program. The weighted-average interest rate and maturity period for the U.S. program were 1.97%4.85% and 12.6027.0 days, respectively. The weighted-average interest rate and maturity period for the European program were (0.20)%1.98% and 35.1911.8 days, respectively.
Senior Notes
On September 11, 2017,June 12, 2020, Mohawk Capital Finance S.A. (“Mohawk Finance”), an indirect wholly-owned finance subsidiary of the Company, completed the issuance and sale of €300,000€500,000 aggregate principal amount of its Floating Rate1.750% Senior Notes (“1.750% Senior Notes”) due September 11, 2019 ("Floating Rate Notes").June 12, 2027. The Floating Rate1.750% Senior Notes are senior unsecured obligations of Mohawk Finance and rank pari passu with all of Mohawk Finance’s other existing and future senior unsecured indebtedness. The Floating Rate1.750% Senior Notes are fully, unconditionally and irrevocably guaranteed by the Company on a senior unsecured basis. These notes bear interest at a rate per annum, reset quarterly, equal to three-month EURIBOR plus 0.3% (but in no event shall the interest rate be less than zero). Interest on the Floating Rate Notes is payable quarterly on September 11, December 11, March 11, and June 11 of each year. Mohawk Finance paid financing costs of $911 in connection with the Floating Rate Notes. These costs were deferred and are being amortized over the term of the Floating Rate Notes.
On June 9, 2015, the Company issued €500,000 aggregate principal amount of 2.00% Senior Notes due January 14, 2022. The 2.00% Senior Notes are senior unsecured obligations of the Company and rank pari passu with all of the Company’s existing and future unsecured indebtedness. Interest on the 2.00%1.750% Senior Notes is payable annually in cash on January 14June 12 of each year, commencing on January 14, 2016.June 12, 2021. The Company paid financing costs of $4,218$4,400 in connection with the 2.00%1.750% Senior Notes. These costs were deferred and are being amortized over the term of the 2.00%1.750% Senior Notes.
On May 14, 2020, the Company completed the issuance and sale of $500,000 aggregate principal amount of 3.625% Senior Notes (“3.625% Senior Notes”) due May 15, 2030. The 3.625% Senior Notes are senior unsecured obligations of the Company and rank pari passu with the Company’s existing and future unsecured indebtedness. Interest on the 3.625% Senior Notes is payable semi-annually in cash on May 15 and November 15 of each year, commencing on November 15, 2020. The Company paid financing costs of $5,476 in connection with the 3.625% Senior Notes. These costs were deferred and are being amortized over the term of the 3.625% Senior Notes.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
On January 31, 2013, the Company issued $600,000 aggregate principal amount of 3.85% Senior Notes (“3.85% Senior Notes”) due February 1, 2023. The 3.85% Senior Notes arewere senior unsecured obligations of the Company and rankranked pari passu with all of the Company'sCompany’s existing and future unsecured indebtedness. Interest on the 3.85% Senior Notes iswas payable semi-annually in cash on February 1 and August 1 of each year. The Company paid financing costs of $6,000 in connection with the 3.85% Senior Notes. These costs were deferred and are beingwere amortized over the term of the 3.85% Senior Notes.
On January 17, 2006,November 1, 2022, the Company issued $900,000 aggregate principal amountredeemed at par all of 6.125%the 3.85% Senior Notes due January 15, 2016. During 2014, the Company purchased for cash approximately $254,445 aggregate principal amount of its outstanding 6.125% senior notes due January 15, 2016. On January 15, 2016, the Company paid the remaining $645,555 outstanding principal of its 6.125% Senior Notes (plus accrued but unpaid interest) utilizing cash on hand and borrowings under its U.S. commercial paper program.Notes.
As defined in the related agreements, the Company'sCompany’s senior notes contain covenants, representations and warranties and events of default, subject to exceptions, and restrictions on the Company’s financial and business operations, including limitations on liens, restrictions on entering into sale and leaseback transactions, fundamental changes, and a provision allowing the holder of the notes to require repayment upon a change of control triggering event.
Accounts Receivable SecuritizationTerm Loan
On December 19, 2012,August 12, 2022, the Company and its indirect wholly-owned subsidiary, Mohawk International Holdings S.à r.l. (“Mohawk International”), entered into an agreement that provides for a three-year on-balance sheet trade accounts receivable securitization agreementdelayed draw term loan facility (the "Securitization Facility"“Term Loan Facility”)., consisting of borrowings of up to $575,000 and €220,000. On September 11, 2014,October 3,2022, an additional $100,000 of borrowing capacity was added to the Term Loan Facility. The Term Loan Facility could be drawn upon in up to two advances on any business day on or before December 31, 2022, with the proceeds being used for funding working capital and general corporate purposes. On October 31, 2022 and December 6, 2022, the Company made certain modificationsdraws of $675,000 and €220,000, respectively. The Company must pay the outstanding principal amount of the Term Loan Facility, plus accrued and unpaid interest, not later than the maturity date of August 12, 2024. The Company may prepay all or a portion of the Term Loan Facility, plus accrued and unpaid interest, from time to its Securitization Facility, which modifications, among other things, increasedtime, without premium or penalty.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the aggregate borrowings availableConsolidated Financial Statements—(Continued)
At the Company’s election, U.S. dollar-denominated loans under the facility from $300,000 to $500,000 and decreased the interest margins on certain borrowings. Amounts borrowed under the SecuritizationTerm Loan Facility borebear interest at LIBORan annual rate equal to either (a) SOFR (plus a 0.10% SOFR adjustment) for 1, 3 or 6 month periods, as selected by the Company, plus an applicable margin ranging between 0.825% and 1.50% (0.825% as of 0.70% per annumDecember 31, 2022), determined based upon the Company’s consolidated net leverage ratio, or (b) the base rate (defined as the higher of the Wells Fargo Bank, National Association prime rate, the Federal Funds Effective Rate plus 0.5%, and SOFR (plus a 0.10% SOFR adjustment) for a 1 month period plus 1.0%) plus an applicable margin ranging between 0.00% and 0.50% (0.00% as of December 31, 2022), determined based upon the borrower paid a commitment feeCompany’s consolidated net leverage ratio. Euro-denominated loans under the Term Loan Facility bear interest at a per annuman annual rate of 0.30% on the unused amount of each lender’s commitment. On December 10, 2015,equal to EURIBOR for 1, 3 or 6 month periods, as selected by the Company, extendedplus an applicable margin ranging between 0.825% and 1.50% (0.825% as of December 31, 2022), determined based upon the termination date to December 19, 2016, and on December 13, 2016,Company’s consolidated net leverage ratio.
In 2022, the Company extended the termination date to December 19, 2017. The Company paid financing costs of $250$664 in connection with the second extension.Term Loan Facility. These costs were deferred and are being amortized over the term of the SecuritizationTerm Loan Facility.
The obligations of the Company and its subsidiaries in respect of the Term Loan Facility are unsecured.
The Term Loan Facility includes certain affirmative and negative covenants that impose restrictions on the Company’s financial and business operations, including limitations on liens, indebtedness, fundamental changes, and changes in the nature of the Company’s business. Many of these limitations are subject to numerous exceptions. The Company is also required to maintain a Consolidated Interest Coverage Ratio of at least 3.5 to 1.0 as of the last day of any fiscal quarter.
The Term Loan Facility also contains customary representations and warranties.
The Term Loan Facility contains events of default customary for this type of financing, including a cross default and cross acceleration provision to certain other material indebtedness of the Company. Upon the occurrence of an event of default, the outstanding obligations under the Term Loan Facility may be accelerated and become due and payable immediately. In addition, if certain change of control events occur with respect to the Company, the Company is required to repay the loans outstanding under the Term Loan Facility.
On April 7, 2020, the Company entered into a credit agreement that provided for a $500,000 delayed draw term loan facility (the “Term Loan Facility”). On April 15, 2020, the Company borrowed the full amount on the Term Loan Facility, the proceeds of which could be used for funding working capital and general corporate purposes of the Company. The principal amount of the Term Loan Facility was to be repaid in a single installment on April 6, 2021. The Company could prepay all or a portion of the Term Loan Facility from time to time, plus accrued and unpaid interest. The obligations of the Company and its subsidiaries in respect of the Term Loan Facility were unsecured. The Term Loan Facility was subject to the same affirmative and negative covenants that are applicable to the Senior Credit Facility. The SecuritizationCompany recorded financing costs of $1,088 in connection with the Term Loan Facility. On May 15, 2020, the Company prepaid the entire outstanding balance on the Term Loan Facility expiredutilizing cash on hand and proceeds from the 3.625% Senior Notes and associated financing costs were written off in accordance with its terms on December 19, 2017.the quarter ending June 27, 2020.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
The fair values and carrying values of ourthe Company’s debt instruments are detailed as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| | Fair Value | | Carrying
Value | | Fair Value | | Carrying
Value |
| 1.750% Senior Notes, payable June 12, 2027; interest payable annually | $ | 482,139 | | | 535,103 | | | 601,037 | | | 566,380 | |
| 3.625% Senior Notes, payable May 15, 2030; interest payable semi-annually | 431,605 | | | 500,000 | | | 538,545 | | | 500,000 | |
| 3.85% Senior Notes, payable February 1, 2023; interest payable semi-annually | — | | | — | | | 615,630 | | | 600,000 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| U.S. commercial paper | 785,998 | | | 785,998 | | | 598,000 | | | 598,000 | |
| European commercial paper | 42,808 | | | 42,808 | | | 15,859 | | | 15,859 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| U.S. Term Loan Facility | 675,000 | | | 675,000 | | | — | | | — | |
| European Term Loan Facility | 235,445 | | | 235,445 | | | — | | | — | |
| Finance leases and other | 52,050 | | | 52,050 | | | 53,163 | | | 53,163 | |
| Unamortized debt issuance costs | (7,270) | | | (7,270) | | | (8,617) | | | (8,617) | |
| Total debt | 2,697,775 | | | 2,819,134 | | | 2,413,617 | | | 2,324,785 | |
| Less current portion of long term-debt and commercial paper | 840,571 | | | 840,571 | | | 624,503 | | | 624,503 | |
| Long-term debt, less current portion | $ | 1,857,204 | | | 1,978,563 | | | 1,789,114 | | | 1,700,282 | |
|
| | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
| 3.85% senior notes, payable February 1, 2023; interest payable semiannually | $ | 622,752 |
| | 600,000 |
| | 615,006 |
| | 600,000 |
|
| 2.00% senior notes, payable January 14, 2022; interest payable annually | 634,193 |
| | 600,096 |
| | 556,460 |
| | 525,984 |
|
| Floating Rate Notes, payable September 11, 2019, interest payable quarterly | 360,807 |
| | 360,058 |
| | — |
| | — |
|
| U.S. commercial paper | 228,500 |
| | 228,500 |
| | 283,800 |
| | 283,800 |
|
| European commercial paper | 912,146 |
| | 912,146 |
| | 536,503 |
| | 536,503 |
|
| Five-year senior secured credit facility, due March 26, 2022 | 62,104 |
| | 62,104 |
| | 60,672 |
| | 60,672 |
|
| Securitization facility | — |
| | — |
| | 500,000 |
| | 500,000 |
|
| Capital leases and other | 6,934 |
| | 6,934 |
| | 11,643 |
| | 11,643 |
|
| Unamortized debt issuance costs | (6,260 | ) | | (6,260 | ) | | (7,117 | ) | | (7,117 | ) |
| Total debt | 2,821,176 |
| | 2,763,578 |
| | 2,556,967 |
| | 2,511,485 |
|
| Less current portion of long term debt and commercial paper | 1,203,683 |
| | 1,203,683 |
| | 1,382,738 |
| | 1,382,738 |
|
| Long-term debt, less current portion | $ | 1,617,493 |
| | 1,559,895 |
| | 1,174,229 |
| | 1,128,747 |
|
The fair values of the Company’s debt instruments were estimated using market observable inputs, including quoted prices in active markets, market indices and interest rate measurements. Within the hierarchy of fair value measurements, these are Level 2 fair values.
The aggregate maturities of total debt as of December 31, 2022 are as follows (1):
| | | | | |
| 2023 | $ | 840,571 | |
| 2024 | 920,725 | |
| 2025 | 9,012 | |
| 2026 | 6,990 | |
| 2027 | 539,284 | |
| Thereafter | 509,822 | |
| $ | 2,826,404 | |
| |
(1)Debt maturity table excludes deferred loan costs.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
(11) Accounts Payable and Accrued Expenses
The aggregate maturities of long-term debt as of December 31, 2017
Accounts payable and accrued expenses are as follows:
| | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Outstanding checks in excess of cash | $ | 2,791 | | | 3,005 | |
| Accounts payable, trade | 1,094,038 | | | 1,228,621 | |
| Accrued expenses | 742,099 | | | 666,209 | |
| Product warranties | 38,425 | | | 45,215 | |
| Accrued interest | 8,748 | | | 17,940 | |
| | | |
| | | |
| Accrued compensation and benefits | 238,347 | | | 256,428 | |
| Total accounts payable and accrued expenses | $ | 2,124,448 | | | 2,217,418 | |
| | | |
(12) Leases
|
| | | |
| 2018 | $ | 1,203,683 |
|
| 2019 | 360,514 |
|
| 2020 | 599 |
|
| 2021 | 441 |
|
| 2022 | 597,995 |
|
| Thereafter | 600,346 |
|
| | $ | 2,763,578 |
|
| | |
The Company has operating and finance leases for service centers, warehouses, showrooms, and machinery and equipment. Certain of the Company’s leases include rental payments that will adjust periodically for inflation or certain adjustments based on step increases. An insignificant number of the Company’s leases contain residual value guarantees and none of the Company’s agreements contain material restrictive covenants.
The Company rents or subleases certain real estate to third parties. The Company’s sublease portfolio consists mainly of operating leases.
The components of lease costs for the twelve months ended December 31, 2022, 2021 and 2020, respectively, are as follows:
| | | | | | | | | | | | | | | | | |
| December 31, 2022 | Cost of Goods Sold | | Selling, General and Administrative Expenses | | Total |
| Operating lease costs | | | | | |
| Fixed | $ | 21,321 | | | 110,716 | | | 132,037 | |
| Short-term | 17,005 | | | 19,154 | | | 36,159 | |
| Variable | 7,689 | | | 35,985 | | | 43,674 | |
| Sub-leases | (691) | | | (1,652) | | | (2,343) | |
| $ | 45,324 | | | 164,203 | | | 209,527 | |
| | | | | |
| Depreciation and Amortization | | Interest | | Total |
| Finance lease costs | | | | | |
| Amortization of leased assets | $ | 11,108 | | | — | | | 11,108 | |
| Interest on lease liabilities | — | | | 816 | | | 816 | |
| $ | 11,108 | | | 816 | | | 11,924 | |
| Net lease costs | | | | | $ | 221,451 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | Cost of Goods Sold | | Selling, General and Administrative Expenses | | Total |
| Operating lease costs | | | | | |
| Fixed | $ | 20,130 | | | 104,651 | | | 124,781 | |
| Short-term | 13,415 | | | 18,434 | | | 31,849 | |
| Variable | 7,949 | | | 30,127 | | | 38,076 | |
| Sub-leases | (529) | | | (1,113) | | | (1,642) | |
| $ | 40,965 | | | 152,099 | | | 193,064 | |
| | | | | |
| Depreciation and Amortization | | Interest | | Total |
| Finance lease costs | | | | | |
| Amortization of leased assets | $ | 9,193 | | | — | | | 9,193 | |
| Interest on lease liabilities | — | | | 772 | | | 772 | |
| $ | 9,193 | | | 772 | | | 9,965 | |
| Net lease costs | | | | | $ | 203,029 | |
(9) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses | | | | | | | | | | | | | | | | | |
| December 31, 2020 | Cost of Goods Sold | | Selling, General and Administrative Expenses | | Total |
| Operating lease costs | | | | | |
| Fixed | $ | 25,067 | | | 102,504 | | | 127,571 | |
| Short-term | 11,633 | | | 16,021 | | | 27,654 | |
| Variable | 8,285 | | | 30,036 | | | 38,321 | |
| Sub-leases | (411) | | | (741) | | | (1,152) | |
| $ | 44,574 | | | 147,820 | | | 192,394 | |
| | | | | |
| Depreciation and Amortization | | Interest | | Total |
| Finance lease costs | | | | | |
| Amortization of leased assets | $ | 6,423 | | | — | | | 6,423 | |
| Interest on lease liabilities | — | | | 690 | | | 690 | |
| $ | 6,423 | | | 690 | | | 7,113 | |
| Net lease costs | | | | | $ | 199,507 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Supplemental balance sheet information related to leases is as follows:
| | | | | | | | | | | | | | | | | | | |
| Classification | | December 31, 2022 | | December 31, 2021 | | |
| Assets | | | | | | | |
| Operating Leases | | | | | | | |
| ROU operating lease assets | ROU operating lease assets | | $ | 387,816 | | | 389,967 | | | |
| Finance Leases | | | | | | | |
| Property, plant and equipment, gross | Property, plant and equipment | | 82,653 | | | 67,984 | | | |
| Accumulated depreciation | Accumulated depreciation | | (30,218) | | | (19,902) | | | |
| Property, plant and equipment, net | Property, plant and equipment, net | | 52,435 | | | 48,082 | | | |
| Total lease assets | | | $ | 440,251 | | | 438,049 | | | |
| | | | | | | |
| Liabilities | | | | | | | |
| Operating Leases | | | | | | | |
| Other current | Current operating lease liabilities | | $ | 105,266 | | | 104,434 | | | |
| Non-current | Non-current operating lease liabilities | | 296,136 | | | 297,390 | | | |
| Total operating liabilities | | | 401,402 | | | 401,824 | | | |
| Finance Leases | | | | | | | |
| Short-term debt | Short-term debt and current portion of long-term debt | | 11,765 | | | 9,560 | | | |
| Long-term debt | Long-term debt, less current portion | | 40,285 | | | 38,390 | | | |
| Total finance liabilities | | | 52,050 | | | 47,950 | | | |
| Total lease liabilities | | | $ | 453,452 | | | 449,774 | | | |
| | | | | | | |
Maturities of lease liabilities as of December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | |
| Year ending December 31, | Finance Leases | | Operating Leases | | Total |
| 2023 | $ | 12,574 | | | 125,068 | | | 137,642 | |
| 2024 | 10,939 | | | 103,229 | | | 114,168 | |
| 2025 | 9,498 | | | 82,839 | | | 92,337 | |
| 2026 | 7,344 | | | 61,815 | | | 69,159 | |
| 2027 | 4,433 | | | 34,829 | | | 39,262 | |
| Thereafter | 10,509 | | | 27,414 | | | 37,923 | |
| Total lease payments | 55,297 | | | 435,194 | | | 490,491 | |
| Less imputed interest | 3,247 | | | 33,792 | | | |
| Present value, Total | $ | 52,050 | | | 401,402 | | | |
The Company had approximately $6,516 of leases that commenced after December 31, 2022 that created rights and obligations to the Company. These leases are not included in the above maturity schedule.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
|
| | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| Outstanding checks in excess of cash | $ | 8,879 |
| | 12,269 |
|
| Accounts payable, trade | 810,034 |
| | 729,415 |
|
| Accrued expenses | 363,919 |
| | 333,942 |
|
| Product warranties | 39,035 |
| | 46,347 |
|
| Accrued interest | 22,363 |
| | 20,396 |
|
| Accrued compensation and benefits | 207,442 |
| | 193,213 |
|
| Total accounts payable and accrued expenses | $ | 1,451,672 |
| | 1,335,582 |
|
| | | | |
| | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | | |
| Weighted Average Remaining Lease Term | | | | | |
| Operating Leases | 4.5 years | | 4.7 years | | |
| Finance Leases | 6.2 years | | 7.2 years | | |
| | | | | |
| Weighted Average Discount Rate | | | | | |
| Operating Leases | 3.8 | % | | 2.4 | % | | |
| Finance Leases | 1.5 | % | | 1.3 | % | | |
(10)
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended | | |
| December 31, 2022 | | December 31, 2021 | | December 31, 2020 | | | | |
| Cash paid for amounts included in measurement of lease liabilities: | | | | | | | | | |
| Operating cash flows from operating leases | $ | 129,895 | | | 122,886 | | | 124,708 | | | | | |
| Operating cash flows from finance leases | 816 | | | 772 | | | 690 | | | | |
| Financing cash flows from finance leases | 10,770 | | | 9,289 | | | 6,386 | | | | | |
| ROU assets obtained in exchange for lease obligations: | | | | | | | | | |
| Operating leases | 119,115 | | | 186,605 | | | 110,036 | | | | | |
| Finance leases | 16,160 | | | 13,395 | | | 18,248 | | | | | |
| Amortization: | | | | | | | | | |
Amortization of ROU operating lease assets (1) | 120,666 | | | 115,650 | | | 113,898 | | | | | |
(1) Amortization of ROU operating lease assets during the period is reflected in Other assets and prepaid expenses on the Consolidated Statements of Cash Flows.
(13) Stock-Based Compensation
The Company recognizesrecognized compensation expense for all share-based payments granted for the years ended December 31, 2017, 20162022, 2021 and 20152020 based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10. Compensation expense is recognized on a straight-line basis over the options’ or other awards’ estimated lives for fixed awards with ratable vesting provisions.
Under the Company’s 2012 Incentive Plan (“2012 Plan”), the Company's principal stock compensation plan as of May 9, 2012, the Company reserved up to a maximum of 3,200 shares of common stock for issuance upon the grant or exercise of stock options, restricted stock, restricted stock units (“RSUs”) and other types of awards, to directors and key employees through December 31, 2022. Option awards are granted with an exercise price equal to the market price of the Company’s common stock on the date of the grant and generally vest between three and five years with a 10-year contractual term. The grant date fair value of restricted stock and RSUs is equal to the market price of the Company’s common stock on the date of the grant and generally vest between three and five years.
On May 19, 2017, the Company'sCompany’s stockholders approved the 2017 Long-Term Incentive Plan (“2017 Plan”), which allows the Company to reserve up to a maximum of 3,000 shares of common stock for issuance upon the grant or exercise of awards under the 2017 Plan. No additional awards may be granted under the 2012 Plan after May 19, 2017. As
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Restricted Stock Plans
A summary of the Company’s RSUs under the Company’s long-term incentive plans as of December 31, 2017, there have2022, and changes during the year then ended is presented as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted average
grant date fair value | | Weighted average remaining
contractual term (years) | | Aggregate
intrinsic value |
| RSUs outstanding, December 31, 2021 | 439 | | | $ | 128.62 | | | | | |
| Granted | 192 | | | 137.30 | | | | | |
| Released | (134) | | | 143.41 | | | | | |
| Forfeited | (43) | | | 140.66 | | | | | |
| RSUs outstanding, December 31, 2022 | 454 | | | $ | 126.79 | | | 1.0 | | $ | 46,378 | |
| Expected to vest as of December 31, 2022 | 437 | | | | | 1.0 | | $ | 44,668 | |
The Company recognized stock-based compensation costs related to the issuance of RSUs of $22,409 ($16,582, net of taxes), $25,651 ($18,982, net of taxes) and $19,697 ($14,576, net of taxes) for the years ended December 31, 2022, 2021 and 2020, respectively, which has been no awardsallocated to selling, general and administrative expenses and cost of goods sold. Pre-tax unrecognized compensation expense for unvested RSUs granted under the 2017 Plan.to employees, net of estimated forfeitures, was $19,321 as of December 31, 2022, and will be recognized as expense over a weighted-average period of approximately 1.45 years.
Stock Option Plans
Additional information relating to the Company’s stock optionRSUs under the Company’s long-term incentive plans are as follows: |
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Options outstanding at beginning of year | 91 |
| | 169 |
| | 298 |
|
| Options exercised | (28 | ) | | (78 | ) | | (66 | ) |
| Options forfeited and expired | — |
| | — |
| | (63 | ) |
| Options outstanding at end of year | 63 |
| | 91 |
| | 169 |
|
| Options exercisable at end of year | 63 |
| | 90 |
| | 164 |
|
| Option prices per share: | | | | | |
| Options exercised during the year | $ 57.34-66.14 |
| | 28.37-93.65 |
| | 28.37-93.65 |
|
| Options forfeited and expired during the year | $ | — |
| | — |
| | 28.37-88.33 |
|
| Options outstanding at end of year | $ 57.34-66.14 |
| | 57.34-66.14 |
| | 28.37-93.65 |
|
| Options exercisable at end of year | $ 57.34-66.14 |
| | 57.34-66.14 |
| | 28.37-93.65 |
|
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| RSUs outstanding, January 1 | 439 | | | 375 | | | 362 | |
| Granted | 192 | | | 194 | | | 192 | |
| Released | (134) | | | (105) | | | (146) | |
| Forfeited | (43) | | | (25) | | | (33) | |
| RSUs outstanding, December 31 | 454 | | | 439 | | | 375 | |
| Expected to vest as of December 31 | 437 | | | 418 | | | 361 | |
During 2017, 20162022, 2021 and 2015, a total of 12020, shares were awarded each year to certain non-employee directors in lieu of cash for their annual retainers. The total number of shares were 2, 3, and 2, respectively.
The Company’s Board
(14) Other Expense (Income)
Following is a summary of Directors has authorized the repurchase of up to 15,000 shares of the Company’s outstanding common stock. For the years ended December 31, 2017, 2016 and 2015, the Company did not repurchase any shares. Since theother expense (income):
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Foreign currency losses (gains), net | $ | 15,429 | | | 6,298 | | | 7,815 | |
| Release of indemnification asset | 7,324 | | | — | | | — | |
| Impairment of joint venture in Brazil | — | | | — | | | 3,599 | |
| | | | | |
| | | | | |
| Resolution of foreign non-income tax contingencies | — | | | (6,211) | | | — | |
| All other, net | (14,367) | | | (12,321) | | | (12,165) | |
| Total other expense (income), net | $ | 8,386 | | | (12,234) | | | (751) | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
(15) Income Taxes
inception of the program, a total of approximately 11,521 shares have been repurchased at an aggregate cost of approximately $335,455. All of these repurchases have been financed through the Company’s operations and banking arrangements.
A summary of the Company’s options under the 2002, 2007 and 2012 Plans as of December 31, 2017, and changes during the year then ended is presented as follows:
|
| | | | | | | | | | | | |
| | Shares | | Weighted average exercise price | | Weighted average remaining contractual term (years) | | Aggregate intrinsic value |
| Options outstanding, December 31, 2016 | 91 |
| | $ | 63.84 |
| | | | |
| Granted | — |
| | — |
| | | | |
| Exercised | (28 | ) | | 66.08 |
| | | | |
| Forfeited and expired | — |
| | — |
| | | | |
| Options outstanding, December 31, 2017 | 63 |
| | $ | 62.86 |
| | 3.8 | | $ | 13,446 |
|
| Vested and expected to vest as of December 31, 2017 | 63 |
| | $ | 62.86 |
| | 3.8 | | $ | 13,446 |
|
| Exercisable as of December 31, 2017 | 63 |
| | $ | 62.86 |
| | 3.8 | | $ | 13,446 |
|
The Company has not granted options since the year ended December 31, 2012. The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 was $5,005, $10,571 and 7,252, respectively. Total compensation expense recognized for the years ended December 31, 2017, 2016 and 2015 was $6 ($4, net of tax), $40 ($24, net of tax) and $209 ($131, net of tax), respectively, which was allocated to selling, general and administrative expenses. The remaining unamortized expense for non-vested compensation expense as of December 31, 2017 was $0.
The following table summarizes information about the Company’s stock options outstanding as of December 31, 2017:
|
| | | | | | | | | | | | | | | |
| | Outstanding | | Exercisable |
| Exercise price range | Number of shares | | Average life | | Average price | | Number of shares | | Average price |
| $57.34-$57.34 | 23 |
| | 3.15 | | 57.34 |
| | 23 |
| | 57.34 |
|
| $66.14-$66.14 | 40 |
| | 4.14 | | 66.14 |
| | 40 |
| | 66.14 |
|
| Total | 63 |
| | 3.77 | | $ | 63.84 |
| | 63 |
| | $ | 63.82 |
|
Restricted Stock Plans
A summary of the Company’s RSUs under the 2007 and 2012 Plans as of December 31, 2017, and changes during the year then ended is presented as follows: |
| | | | | | | | | | | | |
| | Shares | | Weighted average grant date fair value | | Weighted average remaining contractual term (years) | | Aggregate intrinsic value |
| Restricted Stock Units outstanding, December 31, 2016 | 695 |
| | $ | 113.51 |
| |
| |
|
| Granted | 154 |
| | 226.91 |
| |
| |
|
| Released | (284 | ) | | 106.30 |
| |
| |
|
| Forfeited | (10 | ) | | 190.53 |
| |
| |
|
| Restricted Stock Units outstanding, December 31, 2017 | 555 |
| | $ | 147.28 |
| | 1.1 | | $ | 152,017 |
|
| Expected to vest as of December 31, 2017 | 546 |
| |
|
| | 1.1 | | $ | 146,650 |
|
The Company recognized stock-based compensation costs related to the issuance of RSUs of $36,316 ($22,037, net of taxes), $35,019 ($21,250, net of taxes) and $32,343 (20,832, net of taxes) for the years ended December 31, 2017, 2016 and 2015,
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
respectively, which has been allocated to selling, general and administrative expenses. Pre-tax unrecognized compensation expense for unvested RSUs granted to employees, net of estimated forfeitures, was $25,286 as of December 31, 2017, and will be recognized as expense over a weighted-average period of approximately 1.28 years.
Additional information relating to the Company’s RSUs under the 2007 and 2012 Plans is as follows: |
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Restricted Stock Units outstanding, January 1 | 695 |
| | 750 |
| | 725 |
|
| Granted | 154 |
| | 187 |
| | 248 |
|
| Released | (284 | ) | | (226 | ) | | (212 | ) |
| Forfeited | (10 | ) | | (16 | ) | | (11 | ) |
| Restricted Stock Units outstanding, December 31 | 555 |
| | 695 |
| | 750 |
|
| Expected to vest as of December 31 | 546 |
| | 682 |
| | 731 |
|
(11) Other Expense (Income)
Following is a summary of other expense (income): |
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Foreign currency losses | $ | 8,395 |
| | 1,099 |
| | 9,295 |
|
| Release of indemnification asset | 4,459 |
| | 5,371 |
| | 11,180 |
|
| All other, net | (7,649 | ) | | (8,199 | ) | | (2,856 | ) |
| Total other expense (income) | $ | 5,205 |
| | (1,729 | ) | | 17,619 |
|
(12) Income Taxes
Following is a summary of(loss) earnings before income taxes for United States and foreign operations: | | | | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | | 2020 |
| United States | $ | 754,562 |
| | 627,567 |
| | 324,210 |
| United States | $ | (233,208) | | | 380,632 | | | 94,829 | |
| Foreign | 563,295 |
| | 613,558 |
| | 424,651 |
| Foreign | 417,101 | | | 909,361 | | | 489,545 | |
| Earnings before income taxes | $ | 1,317,857 |
| | 1,241,125 |
| | 748,861 |
| Earnings before income taxes | $ | 183,893 | | | 1,289,993 | | | 584,374 | |
Income tax expense (benefit) for the years ended December 31,
2017, 20162022, 2021 and
20152020 consists of the following:
| | | | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | | 2020 |
| Current income taxes: | | | | | | Current income taxes: | | | | | |
| U.S. federal | $ | 327,697 |
| | 247,917 |
| | 117,602 |
| U.S. federal | $ | 91,948 | | | 93,085 | | | (33,821) | |
| State and local | 17,811 |
| | 31,939 |
| | 11,175 |
| State and local | 11,230 | | | 24,904 | | | 7,794 | |
| Foreign | 73,248 |
| | 61,712 |
| | 31,981 |
| Foreign | 106,032 | | | 143,385 | | | 72,350 | |
| Total current | 418,756 |
| | 341,568 |
| | 160,758 |
| Total current | 209,210 | | | 261,374 | | | 46,323 | |
| Deferred income taxes: | | | | | | Deferred income taxes: | | | | | |
| U.S. federal | (17,419 | ) | | (16,167 | ) | | 4,165 |
| U.S. federal | (27,756) | | | (2,655) | | | 14,533 | |
| State and local | (3,046 | ) | | (22,115 | ) | | (3,983 | ) | State and local | 9,586 | | | 13,306 | | | 112 | |
| Foreign | (55,126 | ) | | 4,273 |
| | (29,065 | ) | Foreign | (32,930) | | | (15,580) | | | 7,679 | |
| Total deferred | (75,591 | ) | | (34,009 | ) | | (28,883 | ) | Total deferred | (51,100) | | | (4,929) | | | 22,324 | |
| Total | $ | 343,165 |
| | 307,559 |
| | 131,875 |
| |
| Total income tax expense | | Total income tax expense | $ | 158,110 | | | 256,445 | | | 68,647 | |
The geographic dispersion of earnings and losses contributes to the annual changes in the Company’s effective tax rates. Approximately 57%A substantial portion of the Company’s current year earnings before income taxes was generatedbusiness activities are conducted in the United States, atwhich gave rise to a combined federal and state effective tax rate that is higher thanloss in the Company’s overall effective tax rate.current year. The Company is also subject to
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
taxation in other jurisdictions where it has operations, including Australia, Belgium, Brazil, Bulgaria, France, Ireland, Italy, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Poland, Russia, Spain and Spain.the United Kingdom. The effective tax rates that the Company accrues in these jurisdictions vary widely, but they are generally lower than the Company’s overall effective tax rate. The Company’s domestic effective tax rates for the years ended December 31, 2017, 20162022, 2021 and 20152020 were 43.1%(36.5)%, 38.5%33.8%, and 39.8%(12.0)%, respectively, and its non-U.S. effective tax rates for the years ended December 31, 2017, 20162022, 2021 and 20152020 were 3.2%17.5%, 10.8%14.1%, and 0.7%16.3%, respectively. The difference in rates applicable in foreign jurisdictions results from a number ofmany factors, including lower statutory rates, historical loss carry-forwards, financing arrangements, and other factors. The Company’s effective tax rate has been and will continue to be impacted by the geographical dispersion of the Company’s earnings and losses. To the extent that domestic earnings increase while the foreign earnings remain flat or decrease, or increase at a lower rate, the Company’s effective tax rate will increase.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Income tax expense (benefit) attributable to earnings before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to earnings before income taxes as follows:
| | | | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | | 2020 |
| Income taxes at statutory rate | $ | 461,250 |
| | 434,394 |
| | 262,102 |
| Income taxes at statutory rate | $ | 38,618 | | | 270,898 | | | 122,719 | |
| State and local income taxes, net of federal income tax benefit | 10,133 |
| | 6,298 |
| | 4,951 |
| State and local income taxes, net of federal income tax benefit | 4,858 | | | 25,658 | | | 8,081 | |
Foreign income taxes(a) | (113,520 | ) | | (111,217 | ) | | (95,198 | ) | |
Foreign income taxes (1) | | Foreign income taxes (1) | (50,483) | | | (34,981) | | | (57,898) | |
| Change in valuation allowance | 10,008 |
| | (21,106 | ) | | (14,237 | ) | Change in valuation allowance | 44,814 | | | 5,947 | | | 35,381 | |
2017 revaluation of deferred tax assets and liabilities (b) | (150,546 | ) | | — |
| | — |
| |
| Deemed Repatriation Transition Tax | 105,165 |
| | — |
| | — |
| |
| Impairment of non-deductible goodwill | | Impairment of non-deductible goodwill | 132,497 | | | — | | | — | |
| | Loss on previously taxed earnings | | Loss on previously taxed earnings | — | | | — | | | (10,346) | |
Carryback rate differential (2) | | Carryback rate differential (2) | — | | | (15,743) | | | (33,739) | |
| | Fixed asset adjustments | | Fixed asset adjustments | (7,289) | | | (7,113) | | | (8,630) | |
| Non-deductible expenses | | Non-deductible expenses | 11,250 | | | 8,128 | | | 8,424 | |
| General business credits and incentives | | General business credits and incentives | (21,833) | | | (3,958) | | | (4,004) | |
| | Global intangible low-taxed income | | Global intangible low-taxed income | 7,200 | | | 34,400 | | | 2,500 | |
Italy step-up adjustment (3) | | Italy step-up adjustment (3) | — | | | (22,163) | | | — | |
| Tax contingencies and audit settlements, net | 23,097 |
| | 2,496 |
| | (23,032 | ) | Tax contingencies and audit settlements, net | (96) | | | 12,505 | | | 6,779 | |
| | Other, net | (2,422 | ) | | (3,306 | ) | | (2,711 | ) | Other, net | (1,426) | | | (17,133) | | | (620) | |
| | $ | 343,165 |
| | 307,559 |
| | 131,875 |
| | $ | 158,110 | | | 256,445 | | | 68,647 | |
(a)(1) Foreign income taxes includesinclude statutory rate differences, financing arrangements, withholding taxes, local income taxes, notional deductions, and other miscellaneous items.
(b) 2017 revaluation(2) The CARES Act permits the Company to carry back its 2020 U.S. taxable loss to a tax year before the corporate income tax rate was lowered by the Tax Cuts and Jobs Act.
(3) The company realized a one-time Italian step-up benefit allowing for the realignment of deferred tax assets and liabilities includes $106,107 related to TCJA and $44,439 related to Belgium tax reform.asset values.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 20172022 and 20162021 are presented below: | | | | 2017 | | 2016 | | 2022 | | 2021 |
| Deferred tax assets: | | | | Deferred tax assets: | | | |
| Accounts receivable | $ | 18,481 |
| | 23,521 |
| Accounts receivable | $ | 15,783 | | | 16,550 | |
| Inventories | 41,169 |
| | 48,673 |
| Inventories | 53,088 | | | 38,388 | |
| Employee benefits | 42,191 |
| | 76,143 |
| Employee benefits | 47,089 | | | 54,865 | |
| Accrued expenses and other | 52,635 |
| | 72,258 |
| Accrued expenses and other | 95,682 | | | 73,983 | |
| Deductible state tax and interest benefit | 2,087 |
| | 5,186 |
| Deductible state tax and interest benefit | 7,584 | | | 7,206 | |
| Intangibles | 22,119 |
| | 12,874 |
| Intangibles | 122,710 | | | 135,777 | |
| Lease liabilities | | Lease liabilities | 108,596 | | | 106,753 | |
| Interest expense | | Interest expense | 10,749 | | | — | |
| Federal, foreign and state net operating losses and credits | 530,978 |
| | 456,130 |
| Federal, foreign and state net operating losses and credits | 448,759 | | | 408,434 | |
| Gross deferred tax assets | 709,660 |
| | 694,785 |
| Gross deferred tax assets | 910,040 | | | 841,956 | |
| Valuation allowance | (362,963 | ) | | (289,078 | ) | Valuation allowance | (284,347) | | | (236,357) | |
| Net deferred tax assets | 346,697 |
| | 405,707 |
| Net deferred tax assets | 625,693 | | | 605,599 | |
| Deferred tax liabilities: | | | | Deferred tax liabilities: | | | |
| Inventories | (14,423 | ) | | (13,099 | ) | Inventories | (17,415) | | | (23,484) | |
| Plant and equipment | (397,668 | ) | | (426,087 | ) | Plant and equipment | (463,810) | | | (467,451) | |
| Intangibles | (170,817 | ) | | (243,339 | ) | Intangibles | (175,788) | | | (188,417) | |
| Right of use operating lease assets | | Right of use operating lease assets | (102,959) | | | (101,935) | |
| Prepaids | | Prepaids | (47,079) | | | (45,077) | |
| Other liabilities | (31,702 | ) | | (50,041 | ) | Other liabilities | (58,799) | | | (67,914) | |
| Gross deferred tax liabilities | (614,610 | ) | | (732,566 | ) | Gross deferred tax liabilities | (865,850) | | | (894,278) | |
| Net deferred tax liability | $ | (267,913 | ) | | (326,859 | ) | Net deferred tax liability | $ | (240,157) | | | (288,679) | |
The Company evaluates its ability to realize the tax benefits associated with deferred tax assets by analyzing its forecasted taxable income using both historic and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry-back years (if permitted) and the availability of tax planning strategies. The valuation allowance as of December 31, 2017,2022, and 20162021 is $362,963$284,347 and $289,078,$236,357, respectively. The valuation allowance as of December 31, 20172022 relates to the net deferred tax assets of certain of the Company’s foreign subsidiaries as well as certain state net operating losses and tax credits. The total change in the 20172022 valuation allowance was an increase of $73,885 which includes $36,792$47,990 related to increased losses, foreign currency translation.translation, and other activities. The total change in the 20162021 valuation allowance was an increasea decrease of $1,498, which includes $(9,364)$31,481 related to tax rate changes, foreign currency translation.translation, and other activities.
Management believes it is more likely than not that the Company will realize the benefits of its deferred tax assets, net of valuation allowances, based upon the expected reversal of deferred tax liabilities and the level of historic and forecasted taxable income over periods in which the deferred tax assets are deductible.
As of December 31, 2017,2022, the Company has state net operating loss carry forwards and state tax credits with potential tax benefits of $74,985,$46,388, net of federal income tax benefit; these carry forwards expire over various periods based on taxing jurisdiction. A valuation allowance totaling $33,503$31,760 has been recorded against these state deferred tax assets as of December 31, 2017.2022. In addition, as of December 31, 2017,2022, the Company has credits and net operating loss carry forwards in the U.S. with potential tax benefits of $6,753 and in various foreign jurisdictions with potential tax benefits of $455,161.$1,565,514. A valuation allowance totaling $329,301of $6,242 and $246,345, respectively, has been recorded against these deferred tax assets as of December 31, 2017.2022.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
As a result of the redemption of hybrid instruments in response to changes in global tax regimes, the Company has not providedan ASC 740-10 liability of $1,169,896 for U.S. federal and state income taxesthe full tax effected loss on the undistributed accumulatedhybrid instrument in the Tax Uncertainties section below. This ASC 740-10-45 liability is recorded as a reduction to the related deferred tax asset in the financial statements as a result of management’s determination that it is not more likely than not that the benefit will be realized.
The Company has no intentions or plans to repatriate foreign earnings and continues to assert that historical earnings of its foreign subsidiaries because such earnings and profits ("E&P") were deemed to be permanently reinvested. Due to the passage of the Tax Cuts and Jobs Act (“TCJA”) on December 22, 2017, the Company was required to recognize U.S. federal and state taxes on the higher of its accumulated earnings as of November 2, 2017, or December 31, 2017. Accordingly, as of December 31, 2017,2022 are permanently reinvested. Should the Company recognized $105,165 of income tax expense on its November 2, 2017 E&P from its foreign subsidiaries, as discussed further below. As of December 31, 2017, the Company has approximately $860,000 of E&P previously subject to U.S. federal and state taxes and should this E&Premaining earnings be distributed in the form of dividends in the future, the Company might be subject to withholding taxes (possibly offset by U.S. foreign tax credits) in various foreign jurisdictions, but the Company
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
would not expect incremental U.S. federal or state taxes to be accrued on the nowthese previously taxed E&P. Despite the new territorial tax regime created by the TCJA, the Company continues to assert that earnings of its foreign subsidiaries are permanently reinvested.earnings.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the income tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date of the TCJA for companies to complete the accounting under ASC 740, Income Taxes ("ASC 740"). In accordance with SAB 118, a company must (1) reflect the income tax effects of those aspects of TCJA for which the accounting under ASC 740 is complete, (2) record a provisional estimate for those aspects of TCJA for which the accounting is incomplete but a reasonable estimate can be made, and/or (3) continue to apply ASC 740 on the basis of the provisions of tax laws in effect immediately before the enactment of the TCJA if no reasonable estimate can be made.
The Company has recorded a net provisional tax expense of $45,249 based on the initial impact of the TCJA and related transactions for the year ended December 31, 2017. This net tax expense primarily consists of a tax expense of $105,165 for the Deemed Repatriation Transition Tax and $46,191 for related transactions, offset by a tax benefit of $106,107 for the corporate tax rate reduction, and the associated revaluation of the Company’s net deferred tax liability. For various reasons that are discussed more fully below, the Company has not completed its accounting for the income tax effects of certain elements of the TCJA. The Company was able to make reasonable estimates of the effects of certain elements for which the analysis is not yet complete, and as such, it recorded provisional estimates. The Company was not able to make reasonable estimates of the impact of certain other elements, and therefore has not recorded any estimates related to those elements and have continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the TCJA.
The TCJA reduced the US corporate tax rate from 35% to 21% effective January 1, 2018. For certain of the Company's deferred tax assets and liabilities, it recorded a provisional decrease of $106,107, with a corresponding net estimated deferred tax benefit. While the Company is able to make a reasonable estimate of the impact of the rate reduction, it may be affected by other analysis to the TCJA, including, but not limited to, our calculations of deemed repatriation of deferred foreign income and the state tax effect, 2017 expenditures that qualify for immediate expensing, and amounts limited for payments to covered employees.
The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed E&P of certain foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant foreign subsidiaries, as well as the amount of non-U.S. income tax paid on such earnings. The Company was able to make a provisional estimate of the Transition Tax obligation; however, the Company is continuing to gather additional information to compute a more precise amount. The Company will elect to pay the transition tax liability over the 8-year deferral period, with 8% due in each of the first five years, 15% in the sixth year, 20% in the seventh year, and 25% in the eighth year. This total liability of $105,165 is recorded in other long-term liabilities within the December 31, 2017 consolidated balance sheet.
Because of the complexity of the new Global Intangible Low-Taxed Income (“GILTI”) rules, the Company is continuing to evaluate this provision of the TCJA and the application of ASC 740. Accordingly, the accounting is incomplete, and the Company is not yet able to make reasonable estimates of the effects; therefore, no provisional estimates were recorded. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company’s selection of an accounting policy with respect to the new GILTI tax rules will depend on complex calculations that the Company is unable to reasonably determine at this time.
The Company will continue to evaluate the interpretations of the TCJA, the assumptions made within the calculations, and future guidance that may be issued to determine the impact, if any, on these provisional calculations, which may materially change the Company’s tax determinations.
The Company has also recorded a net tax benefit of $44,439 related to the December 25, 2017 Belgium enacted tax reform legislation. This tax benefit relates to the reduction of the Belgium corporate income tax rate from 33.99% to 29.58% for January 1, 2018 and January 1, 2019, respectively, with a further reduction to 25% effective January 1, 2020, and the associated revaluation of the Company's net deferred tax liability. The Belgium tax reform legislation also sets an annual limitation on the utilization of net operating losses and provides for the creation of a consolidated corporate income tax regime.
Tax Uncertainties
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing jurisdictions. Accordingly, the Company accrues liabilities when it believes that it is not more likely than not that it will realize the benefits of tax positions that it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with ASC 740-10. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense (benefit). Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s consolidated financial position but could possibly be material to the Company’s consolidated results of operations or cash flow in any given quarter or annual period.
As of December 31, 2017,2022, the Company’s gross amount of unrecognized tax benefits is $65,631,$1,230,632, excluding interest and penalties. If the Company were to prevail on all uncertain tax positions, $52,433$47,881 of the unrecognized tax benefits would affect the Company’s effective tax rate, exclusive of any benefits related to interest and penalties.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | | | | |
| 2022 | | 2021 |
| Balance as of January 1 | $ | 1,296,523 | | | 1,388,391 | |
| Additions based on tax positions related to the current year | 1,439 | | | 458 | |
| | | |
| Additions for tax positions of prior years | 4,678 | | | 18,001 | |
| | | |
| Reductions resulting from the lapse of the statute of limitations | (3,419) | | | (3,336) | |
| | | |
| | | |
| Effects of foreign currency translation | (68,589) | | | (106,991) | |
| Balance as of December 31 | $ | 1,230,632 | | | 1,296,523 | |
|
| | | | | | |
| | 2017 | | 2016 |
| Balance as of January 1 | $ | 46,434 |
| | 51,037 |
|
| Additions based on tax positions related to the current year | 28,663 |
| | 2,221 |
|
| Additions for tax positions of acquired companies | 1,776 |
| | — |
|
| Additions for tax positions of prior years | 876 |
| | 6,412 |
|
| Reductions resulting from the lapse of the statute of limitations | (14,502 | ) | | (6,294 | ) |
| Settlements with taxing authorities | (655 | ) | | (6,555 | ) |
| Effects of foreign currency translation | 3,039 |
| | (387 | ) |
| Balance as of December 31 | $ | 65,631 |
| | 46,434 |
|
TheAs a result of the redemption of hybrid instruments in response to changes in global tax regimes, the Company will continue to recognize interest and penalties related to unrecognizedhas an ASC 740-10 liability for the full tax benefitseffected loss on hybrid instruments. This ASC 740-10-45 liability is recorded as a componentreduction to the related deferred tax asset in the financial statements as a result of its incomemanagement’s determination that it is not more likely than not that the benefit will be realized. The tax provision. effected loss was adjusted for foreign currency translation changes in 2022, resulting in an updated balance of $1,169,896 as of December 31, 2022.
As of December 31, 20172022 and 2016,2021, the Company has $8,252$14,801 and $8,020,$14,494, respectively, accrued for the payment of interest and penalties, excluding the federal tax benefit of interest deductions where applicable. During the years ended December 31, 2017, 20162022, 2021 and 2015,2020, the Company accrued interest and penalties through the consolidated statementsincome tax expense of operations of $165, $2,170$437, $3,236 and $(5,635)$(695), respectively.
The Company believes that its unrecognized tax benefits could decrease by $13,248$9,152 within the next twelve months. The Company has effectively settled allCompany’s 2018, 2019 and 2020 federal tax returns are currently under audit by the Internal Revenue Service. As permitted by the CARES Act, the company carried back its 2020 taxable losses to tax years before the corporate income tax rate was lowered by the Tax Cut and Jobs Act. Federal income tax matters related to years prior to 2010.2014 have been effectively settled. Various other state and foreign income tax returns are open to examination for various years.
Belgian Tax Matter
In January 2012, the Company received a €23,789 assessment from the Belgian tax authority related to its year ended December 31, 2008, asserting that the Company had understated its Belgian taxable income for that year. The Company filed a formal protest in the first quarter of 2012 refuting the Belgian tax authority's position. The Belgian tax authority set aside the assessment in the third quarter of 2012 and refunded all related deposits, including interest income of €1,583 earned on such deposits. However, on October 23, 2012, the Belgian tax authority notified the Company of its intent to increase the Company's taxable income for the year ended December 31, 2008 under a revised theory. On December 28, 2012, the Belgian tax authority issued assessments for the years ended December 31, 2005 and December 31, 2009, in the amounts of €46,135 and €35,567, respectively, including penalties, but excluding interest. The Company filed a formal protest during the first quarter of 2013 relating to the new assessments. In September 2013, the Belgian tax authority denied the Company's protests, and the Company has brought these two years before the Court of First Appeal in Bruges. In December 2013, the Belgian tax authority issued additional assessments related to the years ended December 31, 2006, 2007, and 2010, in the amounts of €38,817, €39,635, and €43,117, respectively, including penalties, but excluding interest. The Company filed formal protests during the first quarter of 2014, refuting the Belgian tax authority's position for each of the years assessed. In the quarter ended June 28, 2014, the Company received a formal assessment for the year ended December 31, 2008, totaling €30,131, against which the Company also submitted its formal protest. All 4 additional years have been brought before the Court of First Appeal in November 2014. In January of 2015, the Company met with the Court of First Appeal in Bruges, Belgium and agreed with the Belgium tax authorities to consolidate and argue the issues
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Belgian Tax Matter
The Company has been in a dispute with the Belgian Tax Authority (the “BTA”) regarding the proper tax treatment of the royalty income arising from intellectual property (“IP”) owned by a Luxembourg subsidiary, Flooring Industries Limited S.à r.l. (“FIL”). The BTA had assessed Unilin BV for the calendar years ending December 2005 through 2010 in an amount totaling €223,321 (including penalties but excluding interest), alleging that Unilin BV inappropriately transferred valuable IP to FIL and 2009, and apply the ruling toincome associated with that IP should be taxed in Belgium. Unilin BV challenged all of the open years (to the extent there are no additional facts/procedural argumentsthese assessments and prevailed both in the other years). In May 2017, the statute of limitation was extended to include the calendar year 2011.
On January 27, 2016, the Court of First Appeal in Bruges Belgium ruledand in favorthe Ghent Court of Appeal. In 2021, the BTA indicated it will not appeal these cases to the Supreme Court and has withdrawn all of the assessments for 2005 through 2010. Consequently, all of those tax years are now closed.
Having lost under its original theory, the BTA initiated new assessments for later years against FIL rather than Unilin BV. In that connection, the BTA alleged that FIL had a taxable presence in Belgium and should have been taxed on royalties received in respect of its IP. The BTA issued initial assessments in December 2020 and June 2021 that totaled €371,696 (including penalties but excluding interest) for calendar years ending December 2013 through 2018. However, in November and December of 2021, the BTA cancelled these assessments and in April 2022 issued new assessments that total €186,734 (including penalties but excluding interest) for those years using different calculations. The Company was expecting an additional assessment for 2019. Under the statute of limitations, the BTA may not assess FIL for any years prior to 2013, and the Company believes that FIL’s statute of limitations is closed for 2013 through 2016. These assessments would involve the same underlying facts at issue in the above referenced cases where Unilin BV prevailed at two different levels. Although Mohawk believes its tax position in Belgium was correct, FIL entered into an agreement with respectthe BTA on November 23, 2022, to settle the dispute for a one-time payment of €3,000. No fines were upheld due to the good faith of the company. This settlement covers calendar years ending December 31, 2005 and2013, through 2020. Consequently, FIL will not be liable for additional taxes, penalties, or interest related to all calendar years through the year ending December 31, 2009. On March 9, 2016, the Belgian tax authority lodged its Notification of Appeal with the Ghent Court of Appeal.2020.
The Company disagrees with the views of the Belgian tax authority on this matter and will persist in its vigorous defense. Nevertheless, on May 24, 2016, the tax collector representing the Belgian tax authorities imposed a lien on the Company's properties in Wielsbeke (Ooigemstraat and Breestraat), Oostrozebeke (Ingelmunstersteenweg) and Desselgem (Waregemstraat) included in the Flooring ROW segment. The purpose of the lien is to provide security for payment should the Belgian tax authority prevail on its appeal. The lien does not interfere with the Company's operations at these properties.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
(13)(16) Commitments and Contingencies
The Company is obligated under various operating leases for office and manufacturing space, machinery, and equipment. Future minimum lease payments under non-cancelable capital and operating leases (with initial or remaining lease terms in excess of one year) as of December 31 are as follows:
|
| | | | | | | | | |
| | Capital | | Operating | | Total Future Payments |
| 2018 | $ | 1,433 |
| | 115,736 |
| | 117,169 |
|
| 2019 | 1,094 |
| | 91,226 |
| | 92,320 |
|
| 2020 | 769 |
| | 70,146 |
| | 70,915 |
|
| 2021 | 597 |
| | 47,356 |
| | 47,953 |
|
| 2022 | 590 |
| | 26,927 |
| | 27,517 |
|
| Thereafter | 3,954 |
| | 39,615 |
| | 43,569 |
|
| Total payments | 8,437 |
| | 391,006 |
| | 399,443 |
|
| Less amount representing interest | 1,510 |
| | | | |
| Present value of capitalized lease payments | $ | 6,927 |
| | | | |
Rental expense under operating leases was $145,176, $125,103 and $116,633 in 2017, 2016 and 2015, respectively.
The Company had approximately $56,267$19,614 and $941$1,432 in standby letters of credit for various insurance contracts and commitments to foreign vendors as of December 31, 20172022 and 2016,2021, respectively that expire within two years.
The Company is involved in litigation fromFrom time to time in the regular course of its business.business, the Company is involved in various lawsuits, claims, investigations and other legal matters. Except as noted below, and in Note 12-Income Taxes Belgian Tax Matter, there are no material legal proceedings pending or known by the Company to be contemplated to which the Company is a party or to which any of its property is subject.
Alabama MunicipalPerfluorinated Compounds (“PFCs”) Litigation
In September 2016, the Water Works and Sewer Board of the City of Gadsden, Alabama (the “Gadsden Water Board”) filed an individual complaint in the Circuit Court of Etowah County, Alabama against certain manufacturers, suppliers, and users of chemicals containing perfluorinated compounds,specific PFCs, including the Company. On October 26, 2016, the defendants removed the case to the United States District Court for the Northern District of Alabama, Middle Division, alleging diversity of citizenship and fraudulent joinder. The Gadsden Water Board filed a motion to remand the case back to the state court, and the defendants opposed the Gadsden Water Board’s motion. The federal court granted Gadsden Water Board's motion for remand. On October 24, 2017, the Company appealed the federal court's determination that co-defendant Industrial Chemicals, Inc. ("ICI") was properly joined as a party to the case. On February 22, 2018, the Court of Appeals dismissed the appeal for lack of jurisdiction. ICI's presence in the case deprives the federal court of jurisdiction over the case.
In May 2017, the Water Works and Sewer Board of the Town of Centre, Alabama (the “Centre Water Board”) filed a very similar complaint to the Gadsden Water Board complaint in the Circuit Court of Cherokee County.County, Alabama. The Gadsden Water Board and the Centre Water Board both sought monetary damages and injunctive relief claiming that their water supplies contain excessive amounts of PFCs. Certain defendants, including the Company, filed dispositive motions in each case arguing that the Alabama state courts lack personal jurisdiction over them. These motions were denied. In June and September 2018, certain defendants, including the Company, petitioned the Alabama Supreme Court for Writs of Mandamus directing each lower court to enter an order granting the defendants’ dispositive motions on personal jurisdiction grounds. The Alabama Supreme Court denied the petitions on December 20, 2019. Certain defendants, including the Company, filed an Application for Rehearing with the Alabama Supreme Court asking the court to reconsider its December 2019 decision. The Alabama Supreme Court denied the application for rehearing. On JuneAugust 21, 2020, certain defendants, including the Company, petitioned the Supreme Court of the United States for review of the matter. On January 19, 2017,2021, the Supreme Court denied the defendants’ petition for review. On October 14, 2022, the Gadsden Water Board settled its claims against Mohawk Industries, Inc. and Mohawk Carpet, LLC. The case filed by the Centre Water Board remains pending.
In December 2019, the City of Rome, Georgia (“Rome”) filed a complaint in the Superior Court of Floyd County, Georgia that is similar to the Gadsden Water Board and Centre Water Board complaints, again seeking monetary damages and injunctive relief related to PFCs. Also in December 2019, Jarrod Johnson filed a putative class action in the Superior Court of Floyd County, Georgia purporting to represent all water subscribers with the Rome (Georgia) Water and Sewer Division and/or the Floyd County (Georgia) Water Department and seeking to recover, among other things, damages in the form of alleged increased rates and surcharges incurred by ratepayers for the costs associated with eliminating certain PFCs from their drinking water. In January 2020, defendant 3M Company removed the class action to federal court. The Company filed motions to dismiss in both of these cases. On December 17, 2020, the Superior Court of Floyd County denied the Company’s motion to dismiss in the Rome case. On September 20, 2021, the Northern District of Georgia denied the Company’s motion to dismiss in the class action.
The Company denies all liability in these matters and intends to defend all pending matters vigorously.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Putative Securities Class Action
On January 3, 2020, the Company and certain of its executive officers were named as defendants removed this case toin a putative shareholder class action lawsuit filed in the United States District Court for the Northern District of Alabama, Middle Division, again alleging diversityGeorgia (the “Securities Class Action”). The complaint alleged that defendants violated the Securities Exchange Act of citizenship1934 and fraudulent joinder.Rule 10b-5 promulgated thereunder by making materially false and misleading statements and that the officers are control persons under Section 20(a) of the Securities Exchange Act of 1934. The Centre Water Boardcomplaint was filed on behalf of shareholders who purchased shares of the Company’s common stock between April 28, 2017 and July 25, 2019 (“Class Period”). On June 29, 2020, an amended complaint was filed in the Securities Class Action against Mohawk and its CEO Jeff Lorberbaum, based on the same claims and the same Class Period. The amended complaint alleges that the Company (1) engaged in fabricating revenues by attempting delivery to customers that were closed and recognizing these attempts as sales; (2) overproduced product to report higher operating margins and maintained significant inventory that was not salable; and (3) valued certain inventory improperly or improperly delivered inventory with knowledge that it was defective and customers would return it. On October 27, 2020, defendants filed a motion to remanddismiss the case backamended complaint. On September 29, 2021, the court issued an order granting in part and denying the defendants’ motion to statedismiss the amended complaint. Defendants filed an answer to the amended complaint on November 12, 2021, and fact discovery commenced. On January 26, 2022, Lead Plaintiff moved for class certification, to appoint itself as class representative, and for appointment of class counsel. The court granted plaintiff’s motion for class certification on November 28, 2022. On December 13, 2022, the parties reached an agreement in principle to settle the Securities Class Action for $60,000, of which a significant portion is covered by insurance, in exchange for the dismissal and a release of all claims against the defendants (the “Agreement”). The Agreement, which is subject to court approval, is without admission of fault or wrongdoing by defendants. On February 6, 2023, the court issued an order granting Lead Plaintiff’s motion to preliminarily approve the settlement and setting May 31, 2023 as the date of the final settlement hearing. The Company believes the allegations in the Securities Class Action are without merit.
Government Subpoenas
As previously disclosed, on June 25, 2020, the Company received subpoenas issued by the U.S. Attorney’s Office for the Northern District of Georgia (the “USAO”) and the defendants opposedU.S. Securities and Exchange Commission (the “SEC”) relating to matters similar to the Centre Water Board’s motion.allegations of wrongdoing raised by the Securities Class Action. The federal court granted Centre Water Board's motion for remand. On December 6, 2017,Company’s Audit Committee, with the assistance of outside legal counsel, conducted a thorough internal investigation into these allegations. The Audit Committee has completed the investigation and concluded that the allegations of wrongdoing are without merit. The USAO and SEC investigations are ongoing, and the Company appealedis cooperating fully with those authorities. The Company will continue to vigorously defend against the federal court's determination that co-defendant ICI was properly joined as a party to that case as well. On January 31, 2018, theallegations of wrongdoing and does not believe they have merit.
Delaware State Court of Appeals dismissed the appeal for lack of jurisdiction. ICI's presence in the case deprives the federal court of jurisdiction over the case.Action
The Company has never manufactured perfluorinated compounds but purchased them for useand certain of its present and former executive officers were named as defendants in a putative state securities class action lawsuit filed in the manufactureSuperior Court of its carpets priorthe State of Delaware on January 30, 2020. The complaint alleged that defendants violated Sections 11 and 12 of the Securities Act of 1933. The complaint was filed on behalf of shareholders who purchased shares of the Company’s common stock in Mohawk Industries Retirement Plan 1 and Mohawk Industries Retirement Plan 2 between April 27, 2017 and July 25, 2019. On March 27, 2020, the court granted a temporary stay of the litigation. The stay may be lifted according to 2007. The Gadsden and Centre Water Boards are not alleging that chemical levelsthe terms set forth in the Company’s wastewater discharge exceeded legal limits. Instead,court’s order to stay litigation. The parties reached an agreement in principle to settle the Gadsden and Centre Water Boards are seeking lost profits based on allegations that their customers decreased water purchases, as well as reimbursementlawsuit, which will be funded in full by Mohawk’s insurers, in exchange for the costdismissal and a release of a filter and punitive damages.all claims against the defendants (the “Settlement Agreement”). The Settlement Agreement, which is subject to court approval, is without admission of fault or wrongdoing by defendants. The Company believes the allegations in the lawsuit are without merit.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Georgia State Court Investor Actions
Polyurethane Foam Litigation
BeginningThe Company and certain of its present and former executive officers were named as defendants in August 2010, a seriescertain investor actions, filed in the State Court of civil lawsuits were initiated in several U.S. federal courts alleging that certain manufacturers of polyurethane foam products and competitorsFulton County of the Company’s carpet underlay division had engaged in price fixing in violationState of U.S. antitrust laws. The Company was named as a defendant in a number of the individual cases, as well as in two consolidated amended class actionGeorgia on April 22, 2021, April 23, 2021, and May 11, 2022. Five complaints on behalf of a class of all direct purchasers of polyurethane foam products and on behalf of a class of indirect purchasers. In these actions, the plaintiffs, on behalf of themselves and/or a class of purchasers, sought damages allegedly suffered as a result of alleged overcharges in the price of polyurethane foam products from at least 1999 to the present. Any damages actually awarded at trial would have been subject to being tripled under US antitrust laws.
On March 23 and April 30, 2015, the Company entered into agreements to settle all claims brought by the class of direct and indirect purchasers, and the trial court entered orders granting approval of the settlements on November 19, 2015 and January 27, 2016. Certain individual members of the indirect purchaser class sought to overturn the approval through appeals to the Sixth Circuit Court of Appeals, all of which were dismissed. The Company has also entered into settlement agreements resolving all of the claims brought on behalf of allpurported former Mohawk stockholders each allege that defendants defrauded the respective plaintiffs through false or misleading statements and thereby induced plaintiffs to purchase Company stock at artificially inflated prices. The allegations are similar to those of the consolidated individual lawsuits.Securities Class Action. The claims alleged include fraud, negligent misrepresentation, violations of the Georgia Securities Act, and violations of the Georgia Racketeering and Corrupt Organizations statute. Plaintiffs in the investor actions seek compensatory and punitive damages. On June 28, 2021, defendants filed motions to dismiss each of the four complaints filed in April 2021 and answers to the same. On October 5, 2021, all four investor actions filed in April 2021 were transferred by the State Court of Fulton County to the Metro Atlanta Business Case Division, where fact discovery is ongoing. On January 28, 2022, the Court granted in part and denied in part the motions to dismiss the four actions filed in April 2021, dismissing the Georgia Securities Act claims as to all defendants, and the negligent misrepresentation claim as to the Company.
In December 2011,On May 19, 2022, the parties in the last-filed action filed a joint motion to transfer the investor action initiated on May 11, 2022 to the Metro Atlanta Business Case Division where the other four actions were and are pending. On August 2, 2022, this motion was granted and the last-filed investor action initiated on May 11, 2022 was transferred to the Metro Atlanta Business Case Division. On September 1, 2022, defendants in the last-filed investor action filed motions to dismiss the complaint filed on May 2022 and answers to the same. On November 16, 2022, plaintiffs in the last-filed investor action voluntarily dismissed the suit. The Company was named as a defendant in a Canadian Class action, which alleged similar claimsintends to vigorously defend against the Company as raisedclaims in the U.S.these actions. On June 12, 2015, the Company entered into an agreement to settle all claims brought by the class of Canadian plaintiffs.
Federal Investor Actions
The Company deniesand certain of its present and former executive officers were named as defendants in three additional non-class action lawsuits filed in the United States District Court for the Northern District of Georgia on June 22, 2021, March 25, 2022, and April 26, 2022 (collectively, “Federal Investor Actions”), respectively. Each complaint is brought on behalf of one or more purported former Mohawk stockholders and alleges that defendants defrauded the plaintiffs through false or misleading statements and thereby induced plaintiffs to purchase Company stock at artificially inflated prices. The allegations are similar to those of the Securities Class Action. The federal law claims alleged include violations of Sections 10(b) and 18 of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making materially false and misleading statements and that the officers are control persons under Section 20(a) of the Securities Exchange Act of 1934. The state law claims alleged include fraud, negligent misrepresentation, violations of the Georgia Securities Act, and violations of the Georgia Racketeering and Corrupt Organizations statute. Plaintiffs in the lawsuits seek compensatory and punitive damages and attorneys’ fees.
On December 13, 2021, defendants filed motions to dismiss the June 22, 2021 complaint, which motions are fully briefed and remain pending. On July 6, 2022, defendants filed motions to dismiss the March 25, 2022 complaint, which motions are fully briefed and remain pending. On July 27, 2022, defendants filed motions to dismiss the April 26, 2022 complaint, which motions are fully briefed as of November 4, 2022 and remain pending. On August 9, 2022, defendants filed a motion to consolidate all allegationsthree Federal Investor Actions for pre-trial purposes, which motion is fully briefed and remains pending. The Company intends to vigorously defend against the claims asserted in the Federal Investor Actions.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the uncertainty, risk, expenseConsolidated Financial Statements—(Continued)
Derivative Actions
The Company and distractioncertain of protracted litigation.
Duringits executive officers and directors were named as defendants in certain derivative actions filed in the year ended December 31, 2015,United States District Court for the Northern District of Georgia on May 18, 2020 and August 6, 2020, respectively (the “NDGA Derivative Actions”), in the Superior Court of Gordon County of the State of Georgia on March 3, 2021 and July 12, 2021 (the “Georgia Derivative Actions”), and in the Delaware Court of Chancery on March 10, 2022 (the “Delaware Derivative Action”). The complaints allege that defendants breached their fiduciary duties to the Company recorded a $122,480 charge within selling, generalby causing the Company to issue materially false and administrative expenses for the settlement and defensemisleading statements. The complaints are filed on behalf of the antitrust cases. AllCompany and seek to remedy fiduciary duty breaches occurring from April 28, 2017 to July 25, 2019. On July 20, 2020, the court in the NDGA Derivative Actions granted a temporary stay of the antitrust cases have now been finally settledlitigation. On October 21, 2020, the court entered an order consolidating the NDGA Derivative Actions and all consolidated cases have been dismissed.appointing Lead Counsel. Other shareholders of record jointly moved to intervene in the derivative actions to stay the proceedings. On September 28, 2021, the court in the NDGA Derivative Actions issued an order granting the request to intervene. On April 8, 2021, the court in the first-filed of the Georgia Derivative Actions granted a temporary stay of the litigation. On January 18, 2022, the Court in the NDGA Derivative Actions lifted the temporary stay of the litigation. On January 20, 2022, the court in the second-filed of the Georgia Derivative Actions entered an order on scheduling requiring defendants to file and serve their response to the complaint on February 21, 2022. On February 28, 2022, the court granted a stay of the Georgia Derivative Actions until the entry of a final judgment in the NDGA Derivative Actions and stipulating that the prevailing party in the NDGA Derivative Actions would be the prevailing party in the Georgia Derivative Actions. On April 6, 2022, the court granted a stay of the Delaware Derivative Action until the entry of a final judgment in the NDGA Derivative Actions and stipulating that the prevailing party in the NDGA Derivative Actions would be the prevailing party in the Delaware Derivative Action. The Company intends to vigorously defend against the claims.
General
The Company believes that adequate provisions for resolution of all contingencies, claims and pending litigation have been made for probable losses that are reasonably estimable. These contingencies are subject to significant uncertainties and we arethe Company is unable to estimate the amount or range of loss, if any, in excess of amounts accrued. The Company does not believe that the ultimate outcome of these actions will have a material adverse effect on its financial condition but could have a material adverse effect on its results of operations, cash flows or liquidity in a given quarter or year.
The Company is subject to various federal, state, local and foreign environmental health and safety laws and regulations, including those governing air emissions, wastewater discharges, the use, storage, treatment, recycling and disposal of solid and hazardous materials and finished product, and the cleanup of contamination associated therewith. Because of the nature of the Company’s business, the Company has incurred, and will continue to incur, costs relating to compliance with such laws and regulations. The Company is involved in various proceedings relating to environmental matters and is currently engaged in environmental investigation, remediation and post-closure care programs at certain sites. The Company has provided accruals for such activities that it has determined to be both probable and reasonably estimable. The Company does not expect that the ultimate liability with respect to such activities will have a material adverse effect on its financial condition but acknowledges that it could have a material adverse effect on its results of operations, cash flows or liquidity in a given quarter or year.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
(14)(17) Consolidated Statements of Cash Flows Information
Supplemental disclosures of cash flow information are as follows:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Net cash paid during the years for: | | | | | |
| Interest | $ | 75,199 | | | 75,514 | | | 44,584 | |
| Income taxes | $ | 248,693 | | | 323,718 | | | 106,891 | |
| | | | | |
| Supplemental schedule of non-cash investing and financing activities: | | | | | |
| Unpaid property plant and equipment in accounts payable and accrued expenses | $ | 118,701 | | | 117,084 | | | 90,767 | |
| | | | | |
| Fair value of net assets acquired in acquisition | $ | 243,934 | | | 176,924 | | | — | |
| | | | | |
| Liabilities assumed in acquisition | (34,332) | | | (52,955) | | | — | |
| | | | | |
| $ | 209,602 | | | 123,969 | | | — | |
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Net cash paid (received) during the years for: | | | | | |
| Interest | $ | 33,952 |
| | 57,269 |
| | 67,974 |
|
| Income taxes | $ | 373,900 |
| | 276,789 |
| | 133,283 |
|
| | | | | | |
| Supplemental schedule of non-cash investing and financing activities: | | | | | |
| Additions to property, plant and equipment | $ | 30,643 |
| | — |
| | — |
|
| | | | | | |
| Fair value of net assets acquired in acquisition | $ | 369,956 |
| | — |
| | 1,564,970 |
|
| Noncontrolling interest of assets acquired | — |
| | — |
| | (24,160 | ) |
| Liabilities assumed in acquisition | (119,157 | ) | | — |
| | (17,147 | ) |
| Shares issued for acquisitions | — |
| | — |
| | (153,096 | ) |
| | $ | 250,799 |
| | — |
| | 1,370,567 |
|
(15)(18) Segment Reporting
The Company has three reporting segments: the Global Ceramic, segment, the Flooring NA segment and the Flooring ROW segment. TheROW. Global Ceramic segment designs, manufactures, sources and markets a broad line of ceramic tile, porcelain tile, natural stone, quartz, porcelain slabslabs, quartz countertops and other products, which it distributes primarily in North America, Europe, South America and Russia through its network of regional distribution centers and Company-operated service centers using company-operatedCompany-operated trucks, common carriers or rail transportation. The segment’s product lines are sold through Company-operated service centers, independent distributors, home center retailers, tile and flooring retailers and contractors. The Flooring NA segment designs, manufactures, sources and markets its floor covering product lines, including carpets, rugs, carpet pad, hardwood, laminate, resilient (includes sheet vinyl and vinyl products, including luxury vinyl tile ("LVT"),LVT) and wood flooring, which it distributes through its network of regional distribution centers and satellite warehouses using company-operatedCompany-operated trucks, common carriercarriers or rail transportation. The segment’s product lines are sold through various selling channels, including independent floor covering retailers, distributors, home centers, mass merchandisers, department stores, shop at home, buying groups, commercial contractors and commercial end users. The Flooring ROW segment designs, manufactures, sources, licenses and markets laminate, hardwoodsheet vinyl, LVT, wood flooring, roofing elements, insulation boards, medium-density fiberboard ("MDF"(“MDF”), chipboards and other wood products, sheet vinyl and LVT, which it distributes primarily in Europe, Australia, New Zealand and Russia through various selling channels, which include retailers, Company-operated distributors, independent distributors and home centers.
The accounting policies for each operating segment are consistent with the Company’s policies for the consolidated financial statements.Consolidated Financial Statements. Amounts disclosed for each segment are prior to any elimination or consolidation entries. Corporate general and administrative expenses attributable to each segment are estimated and allocated accordingly. Segment performance is evaluated based on operating income. No single customer accounted for more than 10% of net sales for the years ended December 31, 2017, 20162022, 2021 or 2015.
2020.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
Segment information is as follows: | | | | 2017 | | 2016 | | 2015 | |
| Net sales: | | | | | | |
| Global Ceramic | $ | 3,405,100 |
| | 3,174,706 |
| | 3,012,859 |
| |
| Flooring NA | 4,010,858 |
| | 3,865,746 |
| | 3,602,112 |
| |
| Flooring ROW | 2,075,452 |
| | 1,918,635 |
| | 1,456,898 |
| |
| Intersegment sales | (120 | ) | | — |
| | (306 | ) | |
| | $ | 9,491,290 |
| | 8,959,087 |
| | 8,071,563 |
| |
| Operating income (loss): | | | | | | |
| Global Ceramic | $ | 525,401 |
| | 478,448 |
| | 414,154 |
| |
| Flooring NA | 540,337 |
| | 505,115 |
| | 264,271 |
| |
| Flooring ROW | 329,054 |
| | 333,091 |
| | 203,370 |
| |
| Corporate and intersegment eliminations | (40,619 | ) | | (36,711 | ) | | (44,229 | ) | |
| | $ | 1,354,173 |
| | 1,279,943 |
| | 837,566 |
| |
| Depreciation and amortization: | | | | | | |
| Global Ceramic | $ | 161,913 |
| | 135,370 |
| | 118,801 |
| |
| Flooring NA | 159,980 |
| | 148,067 |
| | 137,064 |
| |
| Flooring ROW | 114,794 |
| | 116,048 |
| | 97,239 |
| |
| Corporate | 9,985 |
| | 9,982 |
| | 9,543 |
| |
| | $ | 446,672 |
| | 409,467 |
| | 362,647 |
| |
| Capital expenditures (excluding acquisitions): | | | | | | |
| Global Ceramic | $ | 310,650 |
| | 263,401 |
| | 247,829 |
| |
| Flooring NA | 355,941 |
| | 248,843 |
| | 148,598 |
| |
| Flooring ROW | 221,763 |
| | 144,207 |
| | 95,447 |
| |
| Corporate | 17,644 |
| | 15,674 |
| | 11,783 |
| |
| | $ | 905,998 |
| | 672,125 |
| | 503,657 |
| | 2022 | | 2021 | | 2020 |
| Assets: | | | | | | Assets: | | | | | |
| Global Ceramic | $ | 4,838,310 |
| | 4,024,859 |
| | 3,846,133 |
| Global Ceramic | $ | 4,841,310 | | | 5,160,776 | | | 5,250,069 | |
| Flooring NA | 3,702,137 |
| | 3,410,856 |
| | 3,164,525 |
| Flooring NA | 4,299,360 | | | 4,125,960 | | | 3,594,976 | |
| Flooring ROW | 3,245,424 |
| | 2,689,592 |
| | 2,805,246 |
| Flooring ROW | 4,275,519 | | | 4,361,741 | | | 4,194,447 | |
| Corporate and intersegment eliminations | 308,982 |
| | 105,289 |
| | 118,496 |
| Corporate and intersegment eliminations | 704,243 | | | 576,040 | | | 1,288,259 | |
| Total | | Total | $ | 14,120,432 | | | 14,224,517 | | | 14,327,751 | |
| | $ | 12,094,853 |
| | 10,230,596 |
| | 9,934,400 |
| | | | | | |
| Geographic net sales: | | | | | | Geographic net sales: | |
| United States | $ | 6,009,165 |
| | 5,842,683 |
| | 5,399,561 |
| United States | $ | 6,490,079 | | | 6,181,628 | | | 5,530,407 | |
| All other countries | 3,482,125 |
| | 3,116,404 |
| | 2,672,002 |
| |
| Europe | | Europe | 3,152,051 | | | 3,117,892 | | | 2,486,770 | |
| Russia | | Russia | 549,597 | | | 450,010 | | | 385,830 | |
| Other | | Other | 1,545,338 | | | 1,451,083 | | | 1,149,190 | |
| Total | | Total | $ | 11,737,065 | | | 11,200,613 | | | 9,552,197 | |
| | $ | 9,491,290 |
| | 8,959,087 |
| | 8,071,563 |
| | | | | | |
| Long-lived assets (1): | | | | | | |
Long-lived assets: (1) | | Long-lived assets: (1) | |
| United States | $ | 3,339,363 |
| | 3,092,902 |
| | 2,945,783 |
| United States | $ | 2,317,409 | | | 2,309,575 | | | 2,230,971 | |
| Belgium | 1,705,947 |
| | 1,371,397 |
| | 1,377,533 |
| Belgium | 961,086 | | | 976,311 | | | 983,627 | |
| All other countries | 1,696,939 |
| | 1,180,475 |
| | 1,117,167 |
| |
| Other | | Other | 1,770,499 | | | 1,740,946 | | | 1,699,768 | |
| Total | | Total | $ | 5,048,994 | | | 5,026,832 | | | 4,914,366 | |
| | $ | 6,742,249 |
| | 5,644,774 |
| | 5,440,483 |
| | | | | | |
| Net sales by product categories (2): | | | | | | |
| Soft surface | $ | 3,655,525 |
| | 3,414,956 |
| | 3,056,946 |
| |
| Tile | 3,485,245 |
| | 3,258,136 |
| | 3,094,389 |
| |
| Laminate and wood | 2,350,520 |
| | 2,285,995 |
| | 1,920,228 |
| |
| Net sales by product categories: | | Net sales by product categories: | |
| Ceramic & Stone | | Ceramic & Stone | $ | 4,320,423 | | | 3,938,654 | | | 3,457,203 | |
| Carpet & Resilient | | Carpet & Resilient | 4,235,815 | | | 4,294,042 | | | 3,735,888 | |
| Laminate & Wood | | Laminate & Wood | 1,964,486 | | | 1,852,766 | | | 1,538,967 | |
Other (2) | | Other (2) | 1,216,341 | | | 1,115,151 | | | 820,139 | |
| Total | | Total | $ | 11,737,065 | | | 11,200,613 | | | 9,552,197 | |
| | $ | 9,491,290 |
| | 8,959,087 |
| | 8,071,563 |
| | | | | | |
| Net sales: | | Net sales: | |
| Global Ceramic | | Global Ceramic | $ | 4,307,681 | | | 3,917,319 | | | 3,432,756 | |
| Flooring NA | | Flooring NA | 4,207,041 | | | 4,116,405 | | | 3,594,075 | |
| Flooring ROW | | Flooring ROW | 3,222,343 | | | 3,166,889 | | | 2,525,366 | |
| | Total | | Total | $ | 11,737,065 | | | 11,200,613 | | | 9,552,197 | |
(1) Long-lived assets are composed of property, plant and equipment - net, and ROU operating lease assets.
(2) Other includes roofing elements, insulation boards, chipboards and IP contracts.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements—(Continued)
| |
(1) | Long-lived assets are composed of property, plant and equipment, net, and goodwill. |
| |
(2) | The soft surface product category includes carpets, rugs, carpet pad, LVT and sheet vinyl. The tile product category includes ceramic tile, porcelain tile and natural stone. The laminate and wood product category includes laminate, hardwood, roofing elements, insulation boards, MDF, chipboards, and licensing. |
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Operating (loss) income: | | | | | |
| Global Ceramic | $ | (236,066) | | | 403,135 | | | 167,731 | |
| Flooring NA | 231,076 | | | 407,577 | | | 147,442 | |
| Flooring ROW | 340,167 | | | 571,126 | | | 366,934 | |
| Corporate and intersegment eliminations | (90,960) | | | (46,827) | | | (46,105) | |
| Total | $ | 244,217 | | | 1,335,011 | | | 636,002 | |
| | | | | |
| Depreciation and amortization: | | | | | |
| Global Ceramic | $ | 198,866 | | | 210,634 | | | 215,488 | |
| Flooring NA | 231,279 | | | 211,872 | | | 214,599 | |
| Flooring ROW | 156,041 | | | 156,700 | | | 164,701 | |
| Corporate | 9,278 | | | 12,505 | | | 12,719 | |
| Total | $ | 595,464 | | | 591,711 | | | 607,507 | |
| | | | | |
| Capital expenditures (excluding acquisitions): | | | | | |
| Global Ceramic | $ | 154,266 | | | 167,224 | | | 121,418 | |
| Flooring NA | 231,068 | | | 327,691 | | | 186,179 | |
| Flooring ROW | 178,313 | | | 164,318 | | | 113,378 | |
| Corporate | 17,095 | | | 16,887 | | | 4,582 | |
| Total | $ | 580,742 | | | 676,120 | | | 425,557 | |
(16) Quarterly Financial Data (Unaudited)
The supplemental quarterly financial data are as follows:78
|
| | | | | | | | | | | | |
| | Quarters Ended |
| | April 1,
2017 | | July 1,
2017 | | September 30,
2017 | | December 31,
2017 |
| Net sales | $ | 2,220,645 |
| | 2,453,038 |
| | 2,448,510 |
| | 2,369,097 |
|
| Gross profit | 680,353 |
| | 779,136 |
| | 783,301 |
| | 753,624 |
|
| Net earnings | 200,554 |
| | 260,681 |
| | 270,025 |
| | 240,378 |
|
| Basic earnings per share | 2.70 |
| | 3.51 |
| | 3.63 |
| | 3.23 |
|
| Diluted earnings per share | 2.68 |
| | 3.48 |
| | 3.61 |
| | 3.21 |
|
|
| | | | | | | | | | | | |
| | Quarters Ended |
| | April 2,
2016 | | July 2,
2016 | | October 1,
2016 | | December 31,
2016 |
| Net sales | $ | 2,172,046 |
| | 2,310,336 |
| | 2,294,139 |
| | 2,182,566 |
|
| Gross profit | 639,679 |
| | 755,588 |
| | 726,559 |
| | 690,999 |
|
| Net earnings | 171,548 |
| | 255,188 |
| | 269,878 |
| | 233,748 |
|
| Basic earnings per share | 2.32 |
| | 3.44 |
| | 3.64 |
| | 3.15 |
|
| Diluted earnings per share | 2.30 |
| | 3.42 |
| | 3.62 |
| | 3.13 |
|
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
| |
Item 9A. | Controls and Procedures |
Item 9A.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), which have been designed to provide reasonable assurance that such controls and procedures will meet their objectives, as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures were effective at a reasonable assurance level for the period covered by this report.
Management’s Report on Internal Control over Financial Reporting
The Company'sCompany’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Company maintains internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, internal control over financial reporting determined to be effective provides only reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company acquired Emilceramica S.r.l (“Emil”) during 2017, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, Emil’s internal control over financial reporting associated with total assets of $258.9 million and total net sales of $130.5 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2017.
Under the supervision and with the participation of management, including the Company'sCompany’s Principal Executive Officer and Principal Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of the Company'sCompany’s internal control over financial reporting as of December 31, 2017.2022. In conducting this evaluation, the Company used the framework set forth in the report titled “Internal Control - Integrated Framework (2013)” publishedissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, management has concluded that the Company'sCompany’s internal control over financial reporting was effective as of December 31, 2017.2022.
The effectiveness of the Company'sCompany’s internal control over financial reporting as of December 31, 20172022 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their audit report which is included herein.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarteryear ended December 31, 20172022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Limitations on the Effectiveness of Controls
The Company’s management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
| |
Item 9B. | Other Information |
Item 9B.Other Information
None.
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
| |
Item 10. | Directors, Executive Officers and Corporate Governance |
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to information contained in the Company’s Proxy Statement for the 20182023 Annual Meeting of Stockholders under the following headings: “Election of Directors—Director, Director Nominee and Executive Officer Information,” “—Nominees for Director,” “—Continuing Directors,” “—Contractual Obligations with respect to the Election of Directors”, “—Executive Officers,” “—Meetings and Committees of the Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Audit Committee” and “Corporate Governance.” The Company has adopted the Mohawk Industries, Inc. Standards of Conduct and Ethics, which applies to all of its directors, officers and employees. The standards of conduct and ethics are publicly available on the Company’s website at http://www.mohawkind.com and will be made available in print without charge to any stockholder who requests them without charge.them. If the Company makes any substantive amendments to the standards of conduct and ethics, or grants any waiver, including any implicit waiver, from a provision of the standards required by regulations of the Commission to apply to the Company’s chief executive officer, chief financial officer or chief accounting officer, the Company will disclose the nature of the amendment or waiver on its website. The Company may elect to also disclose the amendment or waiver in a report on Form 8-K filed with the SEC. The Company has adopted the Mohawk Industries, Inc. Board of Directors Corporate Governance Guidelines, which are publicly available on the Company’s website and will be made available in print without charge to any stockholder who requests it.
| |
Item 11. | Executive Compensation |
Item 11. Executive Compensation
The information required by this item is incorporated by reference to information contained in the Company’s Proxy Statement for the 20182023 Annual Meeting of Stockholders under the following headings: “Compensation Discussion and Analysis,” “Executive Compensation and Other Information—Compensation—Summary Compensation Table,” “—Grants of Plan Based Awards,” “—Outstanding Equity Awards at Fiscal Year End,” “—Option Exercises and Stock Vested,” “—Nonqualified Deferred Compensation,” “—Certain Relationships and Related Transactions,” “—Compensation Committee Interlocks and Insider Participation,” “—Compensation Committee Report” and “Director Compensation.”
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference to information contained in the Company’s Proxy Statement for the 20182023 Annual Meeting of Stockholders under the following headings: “Executive Compensation and Other Information—Compensation—Equity Compensation Plan Information,” and “—Principal Stockholders of the Company.”
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to information contained in the Company’s Proxy Statement for the 20182023 Annual Meeting of Stockholders under the following heading: “Election of Directors—Meetings and Committees of the Board of Directors,” and “Executive Compensation and Other Information—Compensation—Certain Relationships and Related Transactions.”
| |
Item 14. | Principal Accounting Fees and Services |
Item 14.Principal Accounting Fees and Services
Our independent registered public accounting firm is KPMG LLP, Atlanta, GA, Auditor ID: 185.
The information required by this item is incorporated by reference to information contained in the Company’s Proxy Statement for the 20182023 Annual Meeting of Stockholders under the following heading: “Audit Committee—Principal Accountant Fees and Services” and “Election of Directors—Meetings and Committees of the Board of Directors.”
PART IV
| |
Item 15. | Exhibits, Financial Statement Schedules |
Item 15.Exhibits, Financial Statement Schedules
(a) 1. Consolidated Financial Statements
The Consolidated Financial Statements of Mohawk Industries, Inc. and subsidiaries listed in Part II, Item 8 of Part IIthis Form 10-K are incorporated by reference into this item.
2. Consolidated Financial Statement Schedules
Schedules not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statementsConsolidated Financial Statements or notes thereto.
3. Exhibits
The exhibit number for the exhibit as originally filed is included in parentheses at the end of the description.
|
| | | | | | | |
| Mohawk Exhibit Number | | Description |
| |
| *2.1 | | Agreement and Plan of Merger dated as of December 3, 1993 and amended as of January 17, 1994 among Mohawk, AMI Acquisition Corp., Aladdin and certain Shareholders of Aladdin. (Incorporated herein by reference to Exhibit 2.1(a) in the Company'sCompany’s Registration Statement on Form S-4, Registration No. 333-74220.) |
| | |
| *3.1 | | Restated Certificate of Incorporation of Mohawk, as amended. (Incorporated herein by reference to Exhibit 3.1 in the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) |
| |
| *3.2 | | |
| |
*4.44.1 | | |
| | |
| *4.2 | | |
| | |
| *4.3 | | Form of Note for the 3.850% Senior Notes due 2023 (Incorporated herein by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K dated January 31, 2013.) |
| | |
| *4.4 | | SecondThird Supplemental Indenture, dated as of June 9, 2015,May 14, 2020, by and amongbetween Mohawk Industries, Inc., as Issuer, and U.S. Bank National Association, as Trustee, Elavon Financial Services Limited, UK Branch, as initial Paying Agent and Elavon Financial Services Limited, as initial Registrartrustee. (Incorporated herein by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K dated June 9, 2015.filed on May 18, 2020.) |
| | |
*4.44.5 | | |
| | |
| *4.6 | | |
| | |
*4.54.7 | | FirstFourth Supplemental Indenture, dated as of September 11, 2017, bayJune 12, 2020, by and among Mohawk Capital Finance S.A., as issuer, Mohawk Industries, Inc., as parent guarantor, U.S. Bank National Association, as trustee, initial registrar and transfer agent and Elavon Financial Services DAC, UK Branch, as initial paying agent and calculation agent. (incorporated(Incorporated herein by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on June 12, 2020.) |
| | |
| *4.8 | | |
| | |
| *4.9 | | |
| | |
| | | | | | | | |
| *10.1 | | Registration Rights Agreement by and among Mohawk and the former shareholders of Aladdin. (Incorporated herein by reference to Exhibit 10.32 of the Company'sCompany’s Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1993.) |
| |
| *10.2 | | Waiver Agreement between Alan S. Lorberbaum and Mohawk dated as of March 23, 1994 to the Registration Rights Agreement dated as of February 25, 1994 between Mohawk and those other persons who are signatories thereto. (Incorporated herein by reference to Exhibit 10.3 of the Company'sCompany’s Quarterly Report on Form 10-Q (File No. 001-13697) for the quarter ended July 2, 1994.) |
| | |
|
| | |
| *10.3 | | Credit and Security Agreement, dated as of December 19, 2012, by and among Mohawk Factoring, LLC, as borrower, Mohawk Servicing, LLC, as servicer, the lenders from time to time party thereto, the liquidity banks from time to time party thereto, the co-agents from time to time party thereto and SunTrust Bank, as administrative agent. (Incorporated herein by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K dated December 21, 2012.) |
| | |
*10.4 | | First Amendment to Credit and Security Agreement, dated as of January 22, 2013, by and among Mohawk Factoring, LLC, as borrower, Mohawk Servicing, LLC, as servicer, the lenders from time to time party thereto, the liquidity banks from time to time party thereto, the co-agents from time to time party thereto and SunTrust Bank, as administrative agent. (Incorporated herein by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 2012.) |
| | |
*10.5 | | Amendment No. 2 to Credit and Security Agreement and Waiver, dated as of April 11, 2014, by and among Mohawk Factoring, LLC, Mohawk Servicing, LLC, the lenders party hereto, the liquidity banks party hereto, the co-agents party hereto and SunTrust Bank, as administrative agent. (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2014.) |
| | |
*10.6 | | Amendment No. 3 to Credit and Security Agreement and Omnibus Amendment, dated as of September 11, 2014, by and among Mohawk Factoring, LLC, Mohawk Servicing, LLC, the lenders party hereto, the liquidity banks party hereto, the co-agents party hereto and SunTrust Bank, as administrative agent. (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 27, 2014.) |
| | |
*10.7 | | Amendment No. 4 to Credit and Security Agreement, dated as of January 5, 2015, by and among Mohawk Factoring, LLC, Mohawk Servicing, LLC, the lenders party hereto, the liquidity banks party hereto, the co-agents party hereto and SunTrust Bank, as administrative agent. (Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended April 4, 2015.) |
| | |
*10.8 | | Amendment No. 5 to Credit and Security Agreement, dated as of December 10, 2015, by and among Mohawk Factoring, LLC, Mohawk Servicing, LLC, the lenders party hereto, the liquidity banks party hereto, the co-agents party hereto and SunTrust Bank, as administrative agent. (Incorporated by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.) |
| | |
*10.9 | | Amendment No. 6 to Credit and Security Agreement, dated as of December 13, 2016, by and among Mohawk Factoring, LLC, Mohawk Servicing, LLC, the lenders party hereto, the liquidity banks party hereto, the co-agents party hereto and SunTrust Bank, as administrative agent. (Incorporated by reference to Exhibit 10.9 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.) |
| | |
*10.10 | | Amendment No. 7 to Credit and Security Agreement, dated as of January 26, 2017, by and among Mohawk Factoring, LLC, Mohawk Servicing, LLC, the lenders party hereto, the liquidity banks party hereto, the co-agents party hereto and SunTrust Bank, as administrative agent. (Incorporated by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.) |
| | |
*10.11 | | Amendment No. 8 to Credit and Security Agreement, dated as of May 4, 2017, by and among Mohawk Factoring, LLC, Mohawk Servicing, LLC, the lenders party hereto, the liquidity banks party hereto, the co-agents party hereto and SunTrust Bank, as administrative agent. (Incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended April 1, 2017.) |
| | |
*10.12 | | Receivables Purchase and Sale Agreement, dated December 19, 2012, by and among Mohawk Carpet Distribution, Inc., and Dal-Tile Distribution, Inc., as originators, and Mohawk Factoring, LLC, as buyer (Incorporated herein by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K dated December 21, 2012.) |
| | |
*10.13 | | Amendment No. 1 to Receivables Purchase and Sale Agreement, dated as of May 4, 2017, among Mohawk Carpet Distribution, Inc., Dal‑Tile Distribution, Inc., Unilin North America, LLC, Aladdin Manufacturing of Alabama, LLC (as originators) and Mohawk Factoring (as buyer). (Incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for the quarter ended April 1, 2017.) |
| | |
*10.14 | | Second Amended and Restated Credit Facility, dated March 26, 2015,October 18, 2019, by and among the Company and certain of its subsidiaries, as borrowers, Wells Fargo Bank, National Association, as administrative agent, swing line lender, and an L/C issuer, and the other lenders party thereto. (Incorporated herein by reference to Exhibit 10.1 of the Company'sCompany’s Current Report on Form 8-K dated March 27, 2015.October 18, 2019.) |
| | |
|
| | |
*10.1510.4 | | First Amendment No. 1 to Second Amended and Restated Credit Facility,Agreement, dated as of March 1, 2016,April 7, 2020, by and among the Company and certain of its subsidiaries, as borrowers, Wells Fargo Bank, National Association, as administrative agent, swing line lender, and an L/C issuer, and the other lenders party thereto. (Incorporated herein by reference to Exhibit 10.2 of the Company'sCompany’s Current Report on Form 8-K dated March 4, 2016.filed on April 13, 2020.) |
| | |
*10.1610.5 | | Extension AgreementSecond Amendment to Second Amended and Restated Credit Facility,Agreement, dated March 10, 2017,as of May 7, 2020, by and among the Company and certain of its subsidiaries, as borrowers, Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto. (Incorporated herein by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on May 7, 2020.) |
| | |
| *10.6 | | |
| | |
| *10.7 | | Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of August 12, 2022, by and among the Company and certain of its subsidiaries, as borrowers, Wells Fargo Bank, National Association, as administrative agent, swing line lender, and an L/C issuer, and the other lenders party thereto. (Incorporated herein by reference to Exhibit 10.1 of the Company'sCompany’s Current Report on Form 8-K dated March 10, 2017.filed on August 12, 2022.) |
| | |
| *10.8 | | Credit Agreement, dated as of August 12, 2022, by and among the Company and Mohawk International Holdings S.à r.l., as borrowers, certain of its subsidiaries, as guarantors, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto. (Incorporated herein by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on August 12, 2022.) |
| | |
| *10.9 | | First Amendment to Credit Agreement and Increase Agreement, dated as of October 3, 2022, by and among the Company and Mohawk International Holdings S.à r.l., as borrowers, certain of its subsidiaries, as guarantors, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto. (Incorporated herein by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on October 28, 2022.) |
| | |
| Exhibits Related to Executive Compensation Plans, Contracts and other Arrangements: |
| | |
*10.1710.10 | | |
| |
*10.18 | | |
| |
*10.1910.11 | | |
| | |
*10.20 | | |
| | |
*10.2110.12 | | |
| |
10.22*10.13 | | |
| | |
*10.2310.14 | | |
| | |
| | | | | | | | |
*10.2410.15 | | |
| | |
21*10.16 | | |
| | |
| 10.17 | | |
| | |
| 21 | | |
| |
23.122 | | |
| | |
| 23.1 | | |
| |
| 31.1 | | |
| |
| 31.2 | | |
| |
| 32.1 | | |
| |
| 32.2 | | |
| |
| 95.1 | | |
| | |
101.INS | | XBRL Instance Document |
| |
101.SCH | | XBRL Taxonomy Extension Schema Document |
| |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| |
|
| | |
101.PRE101.INS | | XBRL Instance Document |
| |
| 101.SCH | | XBRL Taxonomy Extension Schema Document |
| |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| | |
*104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) |
| | | | | |
| * | Indicates exhibit incorporated by reference. |
Item 16.Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | |
| Mohawk Industries, Inc. | | |
| By: | /s/ JEFFREYJEFFREY S. LORBERBAUM LORBERBAUM |
February 28, 201822, 2023 | | Jeffrey S. Lorberbaum, |
| | Chairman and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | | |
February 28, 201822, 2023 | /s/ JEFFREYJEFFREY S. LORBERBAUM LORBERBAUM |
| Jeffrey S. Lorberbaum, |
| Chairman and Chief Executive Officer
(principal executive officer)
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February 28, 201822, 2023 | /s/ FRANK H. BOYKIN JAMES F. BRUNK |
| Frank H. Boykin,James F. Brunk, |
| Chief Financial Officer and Vice President-Finance
(principal financial officer)
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February 28, 201822, 2023 | /s/ JAMES F. BRUNK WILLIAM W. HARKINS II |
| James F. Brunk,William W. Harkins II, |
| Vice PresidentChief Accounting Officer and Corporate Controller
(principal accounting officer)
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February 28, 201822, 2023 | /s/ FILIP BALCAEN BRUCE C. BRUCKMANN |
| Filip Balcaen,
Director
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February 28, 2018 | /s/ BRUCE C. BRUCKMANN
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| Bruce C. Bruckmann, Director |
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February 28, 201822, 2023 | /s/ FRANS DE COCK JERRY W. BURRIS |
| Frans De Cock,Jerry W. Burris,
Director |
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February 28, 201822, 2023 | /s/ RICHARD C. ILL
/s/ JOHN M. ENGQUIST |
| Richard C. Ill,John M. Engquist,
Director |
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February 28, 201822, 2023 | /s/ JOSEPHJOSEPH A. ONORATO ONORATO |
| Joseph A. Onorato, Director |
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February 28, 201822, 2023 | /s/ WILLIAMWILLIAM H. RUNGERUNGE III |
| William HenryH. Runge III, Director |
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February 28, 201822, 2023 | /s/ KARENKAREN A. SMITH BOGART SMITH BOGART |
| Karen A. Smith Bogart, Director |
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February 28, 201822, 2023 | /s/ W. CHRISTOPHER WELLBORN CHRISTOPHER WELLBORN |
| W. Christopher Wellborn, Director |