UNITED STATESSECURITIES AND EXCHANGE COMMISSION
| | |
x(Mark One) | | |
þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
OR
¨ | | For the fiscal year ended December 31, 2009 |
OR |
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |
EXCHANGE ACT OF 1934For the transition period from to
Commission File Number01-13697
01-19826
(Exact name of registrant as specified in its charter)
| | |
Delaware | | 52-1604305 |
Delaware | | 52-1604305 |
(State or other jurisdictionof incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
P. O. Box 12069, 160 S. Industrial Blvd., Calhoun, Georgia | | 30701 |
(Address of principal executive offices) | | 30701
(Zip Code) |
Registrant'sRegistrant’s telephone number, including area code:
Securities Registered Pursuant to Section 12(b) of the Act: | | |
Title of Each Class
| | Name of Each Exchange on Which Registered
|
|
| Common Stock, $.01 par value | | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
xþ No
o¨Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act Yes
o¨ No xþIndicate 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 xþ No o
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 o No o
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'sRegistrant’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. ¨oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer or a
non-accelerated filer.smaller reporting company. See definition of
“large accelerated filer,” “accelerated
filerfiler” and
large accelerated filer”“smaller reporting company” in
Rule 12b-2 of the Exchange Act.
| | | | | | |
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨þ | | Accelerated filer o | | Non-accelerated filer o | | Smaller reporting company o |
| | (Do not check if a smaller reporting company) |
Indicate by check
mark whether the Registrant is a shell company (as defined by
Rule 12b-2 of the Act). Yes
o¨ No xþThe 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
(41,437,255(37,727,179 shares) on
July 1, 2006June 26, 2009 (the last business day of the
Registrant'sRegistrant’s most recently completed fiscal second quarter) was
$2,915,110,889.$1,337,051,224. 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
21, 2007: 67,976,79222, 2010: 68,493,861 shares of Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the 20072010 Annual Meeting of Stockholders-Part III.
PART I
Mohawk Industries, Inc., (“Mohawk” or the “Company”), a term which includes the Company and its subsidiaries, including its primary operating subsidiaries, Mohawk Carpet,
Corporation, Aladdin Manufacturing Corporation,LLC, Dal-Tile
International Inc.Corporation and Unilin
Flooring BVBA,
Unilin Holding Inc., and their subsidiaries (the Unilin Group), is a leading producer of floor covering products for residential and commercial applications in the United States
(“U.S.”) and
residential applications in Europe. The Company is the second largest carpet and rug manufacturer and one of the largest manufacturers, marketers and distributors of ceramic tile,
and natural stone
and hardwood flooring in the
United StatesU.S., as well as a leading producer of laminate flooring in the
United StatesU.S. and Europe. The Company had annual net sales in
2006 in excess2009 of
$7.9$5.3 billion. Approximately
88%85% of this amount was generated by sales in North America and approximately
12%15% was generated by sales outside North America.
The Company has three reporting segments, the Mohawk segment, the Dal-Tile segment and the Unilin segment. Selected financial information for the Mohawk, Dal-Tile and Unilin segments,
geographic net sales and the location of long-lived assets is set forth in
Notenote 16 to the
Consolidated Financial Statements.consolidated financial statements.
The Mohawk segment designs, manufactures, sources, distributes and markets its floor covering product lines, which include carpets, ceramic tile, laminate, rugs, carpet pad, hardwood and resilient, in a broad range of colors, textures and patterns for residential and commercial applications in both new construction and remodeling. The Mohawk segment markets and distributes its carpets and rugs under its soft surface floor covering brands and ceramic tile, laminate, hardwood and resilient under its hard surface floor covering brands. The Mohawk segment positions its products in all price ranges and emphasizes quality, style, performance and service. The Mohawk segment is widely recognized through its premier brand names, which include
“Mohawk®“Mohawk®,”
“Aladdin®“Aladdin®,” “Mohawk
Home®ColorCenters®,”
“Bigelow®“Mohawk Floorscapes®,”
“Durkan®“Portico®,”
“Helios®“Mohawk Home®,”
“Horizon®“Bigelow®,”
“Karastan®“Durkan®,”
“Lees®“Horizon®,” “Karastan®,” “Lees®,” “Merit
TM®,” and “Ralph Lauren®“Lauren Ralph Lauren®”. The Mohawk segment markets and distributes soft and hard surface products through over 39,00028,000 customers, which include independent floor covering retailers, home centers, mass merchandisers, department stores, commercial dealers and commercial end users. Some products are also marketed through private labeling programs. The Mohawk segment'ssegment’s soft surface operations are vertically integrated from the extrusion of resin to the manufacturemanufacturing and shipmentdistribution of finished carpets and rugs.The Dal-Tile segment designs, manufactures, sources, distributes and markets a broad line of ceramic tile, porcelain tile, natural stone and other products used in the residential and commercial markets for both new construction and remodeling. Most of the Dal-Tile
segment'ssegment’s ceramic tile products are marketed under the
“Dal-Tile®“Dal-Tile®” and “American
Olean®Olean®” brand names and sold through
company-owned service centers, independent distributors, home center retailers, tile and flooring retailers and contractors. The Dal-Tile 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.
On October 31, 2005, the Company acquired all the outstanding shares of Unilin Holding NV (the “Unilin Acquisition”). The total purchase price for acquiring Unilin, net of cash, was approximately Euro 2.1 billion (approximately $2.5 billion). The results of operations for the Unilin business have been included with the Unilin segment results and in the Company's consolidated financial statements since that date. The primary reason for the acquisition was to expand the Company's presence in the U.S. laminate flooring market.
The Unilin segment
which is headquartered in Belgium, is a leading
designer, manufacturer,
licensor, distributor and marketer of laminate
and hardwood flooring in Europe and the
United States.U.S. Unilin is one of the leaders in laminate flooring technology, having commercialized direct pressure laminate, or DPL, a technology used in a majority of laminates today, and has developed the patented
UNICLIC®UNICLIC® glueless installation system and a variety of other new technologies, such as beveled edges, multiple length planks and new surface technologies. Unilin is
one of the largest vertically-integrated laminate flooring
manufacturermanufacturers in the
United StatesU.S. producing both laminate flooring and related high density fiberboard. Unilin sells its
laminate flooring products
brandunder the Quick-Step®, Columbia Flooring®, Century Flooring®, and Universal Flooring® brands through retailers, independent distributors
private label and home centers. Unilin also produces
insulated roofing
systems, insulation panels and other
wood-based panels.wood products.
The United StatesU.S. floor covering industry has grown from $12.4 billion in sales in 1992 to $24.1$20.2 billion in 2005.2008. In 2005,2008, the primary categories of the United StatesU.S. floor covering industry were carpet and rug (62%(58%), ceramic tile (13%), hardwood (11%), resilient and rubber (8%(11%), hardwood (10%), stone (5%) and laminate (6%(5%). Each of these categories
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has been
impacted by:changes ininfluenced by the average selling price per square foot;
increases infoot, the residential builder and homeowner remodeling markets;
markets, housing starts and housing resales;
increases inresales, average house size;size and
increases in home ownership.
Compound average growth rates for all categories, except In addition, the resilient and rubber category, for the period from 2002 through 2005 have met or exceeded the growth rates (measured in sales dollars) for the gross domestic product of the United States over the same period. Ceramic tile, laminate and hardwood continued to exceed the growth rate for housing starts over the same period. During this period, the compound average growth rate was 3.8% for carpets and rugs, 7.3% for ceramic tile, 6.6% for resilient and rubber, 21.1% for laminate and 8.0% for hardwood.
According to the most recent figures available from the Floor Covering Weekly, worldwide carpet and rug sales volume of American manufacturers and their domestic divisions was approximately 2.3 billion square yards in 2005. This volume represents a market in excess of $14.9 billion.
The level of sales in the overall floor covering industry, both in the U.S. and Europe, is influenced by a number of factors, including consumer confidence, spending for durable goods, interest rates and availability of credit, turnover in housing, the condition of the residential and commercial construction industries and the overall strength of the economy.
Broadloom The U.S. floor covering industry has experienced declining demand beginning in the fourth quarter of 2006 which worsened considerably during the later parts of 2008 and continued to decline throughout 2009. The global economy continues in the most significant downturn in recent history. Overall economic conditions and consumer sentiment have continued to be challenging, which has intensified the pressure on the demand for housing and flooring products.
The worldwide carpet
is defined asand rug sales volume of U.S. manufacturers was approximately 1.4 billion square yards, or $11.7 billion, in 2008. The carpet
over six feet by nine feet in size and
rugs category has two primary markets, residential and commercial. In
2005,2008, the residential market made up approximately
75%68% of industry amounts shipped and the commercial market comprised approximately
25%32%.
An estimated 49%Of the total residential market, 69% of
industrythe dollar values of shipments are made in response to
residential replacement
demand, which usually involves exact yardage, or “cut order,” shipments that typically provide higher profit margins than sales of carpet sold in full rolls. Because the replacement business generally involves higher quality carpet cut to order by the manufacturer, rather than the dealer, this business tends to have higher margins for manufacturers than the new construction business.demand.
The
United StatesU.S. ceramic tile industry shipped
3.32.1 billion square feet, or
$3.1$2.3 billion, in
2005. Sales in the ceramic tile industry are influenced by the same factors that influence the overall floor covering industry, including consumer confidence, spending for durable goods, interest rates, turnover in housing, the condition of the residential and commercial construction industries and the overall strength of the economy.2008. The ceramic tile industry’s two primary markets, residential applications and commercial applications, represent 70.5%58% and 28.2%42% of the 2008 industry total, respectively. Of the total residential market, 60%51% of the dollar values of shipments are for new construction.
made in response to residential replacement demand.
In 2005,2008, the United States laminateU.S. stone flooring industry shipped 1.30.2 billion square feet, representing a market of approximately $1.5$1.0 billion. Sales of U.S. stone flooring are primarily distributed to the residential market for both new construction and residential replacement.
In 2008, the U.S. hardwood industry shipped 0.9 billion square feet, representing a market of approximately $2.0 billion. Sales of U.S. hardwood are primarily distributed to the residential market for both new construction and residential replacement.
In 2008, the U.S. resilient and rubber industry shipped 3.6 billion square feet, representing a market of approximately $2.2 billion. Sales of U.S. resilient are primarily distributed to the residential market for both new construction and residential replacement.
In 2008, the U.S. laminate industry shipped 1.0 billion square feet, or $1.1 billion. In 2008, the European laminate industry
shipped 5.2produced approximately 5.0 billion square
feet. In 2004, the laminate industryfeet which accounted for approximately
10%15% of the European floor covering market.
Sales in the laminate industry are influenced by similar factors that influence the overall floor covering industry, including consumer confidence, spending for durable goods, interest rates, turnover in housing, and the overall strength of the economy. Sales of U.S. laminate flooring are primarily distributed through the residential replacement market. Sales to other end user markets are not significant.
Through its Mohawk segment, the Company designs, manufactures,
distributes and markets
hundredsthousands of styles of carpet and rugs in a broad range of colors, textures and patterns. In addition, the Mohawk segment markets and distributes ceramic tile, laminate,
hardwood, resilient floor covering, carpet pad
hardwood and
resilient floor covering.flooring accessories. The Mohawk segment positions product lines in all price ranges and emphasizes quality, style, performance and service. The Mohawk segment markets and distributes its soft and hard surface product lines to over
39,00028,000 customers, which include independent floor covering retailers, home centers, mass merchandisers, department stores, commercial dealers and commercial end users. Some products are also marketed through private labeling programs. Sales to residential customers represent a significant portion of the total industry and the majority of the Company’s carpet and rug sales.
The Company has positioned its premier residential carpet and rug brand names across all price ranges. “Mohawk®Mohawk, Horizon, “WundaWeve®,” “Horizon®,” “Helios®”Lauren Ralph Lauren and “Karastan®”Karastan are positioned to sell primarily in the medium-to-high retail price channels in the residential broadloom market. These lines have substantial brand name recognition among carpet dealers and retailers, with the “Karastan®”Karastan and “Mohawk®”Mohawk brands having among the
4
highest consumer recognition in the industry.
“Karastan®”Karastan is
thea leader in the
exclusive high-end market. The
“Aladdin®”Aladdin and
“Mohawk Home®”Mohawk Home brand names compete primarily in the value retail price channel. The
Portico and “Properties®” brand names compete primarily in the builder and multi-family markets, respectively. The Company markets its hard surface product lines, which include
“Mohawk Ceramic®”, “Mohawk Hardwood®”, “Congoleum®”Mohawk Ceramic, Mohawk Hardwood, Mohawk Laminate and
“Mohawk Laminate®”Congoleum across all price ranges.
In addition, the Company markets its decorative throws and pillows, woven bedspreads, textile wall hangings and blankets primarily through the retail channel.The Company offers marketing and advertising support through dealer programs like Mohawk Floorscapes, Mohawk ColorCenter,
Mohawk Floorz and
Karastan Gallery.Karastan. These programs offer varying degrees of support to dealers in the form of sales and management training,
in-store merchandising systems, exclusive promotions and assistance in certain administrative functions such as consumer credit, advertising and
insurance.website technology.
The commercial customer base is divided into several channels: corporate office space, educational institutions, hospitality facilities, retail space,
public space, government and health care facilities. Different purchase decision makers and decision-making processes exist for each channel. In addition, the Company produces and sells broadloom carpet and carpet tile under the brand names “Bigelow
Commercial®Commercial®,”
Lees, Durkan, “Karastan Contract®,
Lees®”
, “Durkan®”, Karastan Contract®”, and
“Merit®”.Merit.
The Company’s sales forces are generally organized based on product type and sales channels in order to best serve each type of customer.
A hub-and-spoke distribution network accomplishesProduct delivery to dealers is done predominantly on Mohawk trucks operating from strategically positioned warehouses/cross-docks that receive inbound product directly from the
product distribution on a regional level. In this system, trucks generally deliver product from manufacturing and central distribution centers to regional and satellite warehouses. From there, it is shipped to retailers or to local distribution warehouses, then to retailers.source of manufacture.
The Dal-Tile segment designs, manufactures,
distributes and markets a broad line of ceramic tile, porcelain tile and natural stone products. Products are distributed through separate distribution channels consisting of retailers, contractors, commercial users, independent distributors and home centers. The business is organized to address the specific customer needs of each distribution channel, and dedicated sales forces support the various channels.
The Company serves as a “one-stop” source that provides customers with one of the ceramic tile industry’s broadest product
lines—lines — a complete selection of glazed floor tile, glazed wall tile, glazed and unglazed ceramic mosaic tile, porcelain tile, quarry tile and stone products, as well as allied products. In addition to products manufactured by the Company’s ceramic tile business, the Company also
purchasessources products from other manufacturers to enhance its product offering.
The independent distributor channel offers a distinct product line under the “American Olean®” brand. Currently, the “American Olean®” brand is distributed through approximately 226 independent distributor locations that service a variety of residential and commercial customers. The Company is focused on increasing its presence in the independent distributor channel, particularly in tile products that are most commonly used in flooring applications.
The Company has two of the leading brand names in the U.S. ceramic tile industry—
“Dal-Tile®”Dal-Tile and
“American Olean®”.American Olean. The
“Dal-Tile®”Dal-Tile and
“American Olean®”American Olean brand names date back over
fifty50 years and are well recognized in the industry.
Both of these brands are supported by a fully integrated marketing program, displays, merchandising (sample boards and chip chests), literature/catalogs and an internet website.
A network of sales service centers distributes primarily the Dal-Tile brand product with a fully integrated marketing program, emphasizing a focus on quality and fashion serving customers in the U.S., Canada and Puerto Rico. The service centers provide distribution points for customerpick-up, local delivery and showrooms to assist customers. The broad product offering satisfies the needs of its residential and commercial customers.
The independent distributor channel offers a distinct product line under the American Olean brand. Currently, the American Olean brand is distributed through independent distributors and sales service centers that service a variety of residential and commercial customers. The Company is focused on sales growth opportunities through innovative products and programs in both the residential and commercial channels.
The Company has sixfour regional distribution centers in the Dal-Tile operations.operations and shares two distributions centers with other segments. These centers help deliver high-quality customer service by focusing on shorter lead times, increased order fill rates and improved on-time deliveries to customers.
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A network of approximately 262 sales service centers distributes primarily the “Dal-Tile®” brand product, serving customers in the United States, Canada and Puerto Rico. The service centers provide distribution points for customer pick-up, local delivery and showrooms to assist customers with product selection.
The Company’s sales service centers primarily distribute the “Dal-Tile®” brand, with a fully integrated marketing program, emphasizing a focus on quality and fashion. The broad product offering satisfies the needs of its residential, commercial and builder customers. The “American Olean®” brand consists of a full product offering and is distributed primarily through independent distributors. Both of these brands are supported by a fully integrated marketing program, displays, merchandising (sample boards, chip chests), literature/catalogs and an Internet website.
The Unilin segment
designs, manufactures,
licences,licenses, distributes and markets laminate
and hardwood flooring in Europe and the
United States.U.S. It also
produces insulateddesigns and manufactures roofing
systems, insulation panels and other wood
based panels.products in Europe. Products are distributed through separate distribution channels consisting of retailers, independent distributors and home centers. Unilin U.S. operations also manufacture Mohawk branded laminate
and hardwood flooring which sells through the Mohawk channel. The majority of Unilin’s
laminate sales, both in the U.S.
salesand Europe, are for residential replacement. The business is organized to address the specific customer needs of each distribution channel.
In the
United States,U.S., the Unilin operations have three regional distribution
centers.centers for laminate and wood products. These distribution centers help deliver high-quality customer service and also enhance the Company’s ability to plan and schedule production and manage inventory requirements.
In Europe, the Unilin operations distribute products directly from manufacturing facilities. This integration with manufacturing sites allows for quick responses to customer needs and high inventory turns.
The Unilin segment markets and sells laminate
and hardwood flooring products under the
“Quick-Step®”Quick-Step, Columbia Flooring, Century Flooring, and
“Mohawk®”Universal Flooring brands
which thethrough retailers, independent distributors and home centers. In addition, Unilin also sells laminate and hardwood flooring products under private label. The Company believes
are someQuick-Step is one of the leading brand names in the U.S. and European
laminateflooring industry.
Advertising and Promotion The Company promotes its brands through
national advertising in
both television,
print, social and
printinternet media as well as in the form of cooperative advertising, point-of-sale displays, advertising and sponsorship of a cycling team, and marketing literature provided to assist in marketing various flooring styles. The Company also continues to rely on the substantial brand name recognition of its product lines. The cost of producing display samples, a significant promotional expense, is partially offset by sales of
samples and support from suppliers in the carpet and rug business.samples.
Manufacturing and Operations The
Company'sCompany’s manufacturing operations are vertically integrated and include the extrusion of resin and post-consumer plastics into polypropylene, polyester,
nylon and
nylontriexta fiber, yarn processing,
backing manufacturing, tufting, weaving, dyeing, coating and finishing.
Capital expenditures are primarily focused on increasing capacity, improving productivity and reducing costs. Over the past three years, the
CompanyMohawk Segment has incurred capital expenditures that have helped increase manufacturing efficiency and
capacity and improve overall cost competitiveness.
Dal-Tile SegmentOver the past three years, the Dal-Tile segment has invested in capital expenditures, principally in new plant and state-of-the-art equipment to increase manufacturing capacity, improve efficiency and develop new capabilities.
The Company believes that its manufacturing organization offers competitive advantages due to its ability to manufacture a differentiated product line consisting of one of the
industry'sindustry’s broadest product offerings of colors, textures and finishes, as well as the
industry'sindustry’s largest offering of trim and angle pieces and its ability to utilize the
industry'sindustry’s newest technology. In addition, Dal-Tile also imports or sources a portion of its product to supplement its product offerings.
Over the past three years, the Dal-Tile segment has invested in capital expenditures, principally in state-of-the-art equipment, to increase manufacturing capacity, improve efficiency and develop new capabilities.
The Company’s laminate flooring manufacturing operations are vertically integrated, both in the United StatesU.S. and in Europe, and include high-density fiberboard (“HDF”) production, paper impregnation, short-cycle pressing, cutting and milling. The European operations also include resin production. Unilin has state-of-the-art equipment that results in competitive manufacturing in terms of cost and flexibility. Most of the equipment for
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the production of laminate flooring in Belgium and North Carolina is relatively new.
The Company’s laminate flooring plant in North Carolina is one of the largest in the United States. In addition, Unilin
ishas significant manufacturing capability for both engineered and prefinished solid wood flooring for the
only fully integrated laminate manufacturerU.S. and European markets. Over the past three years, the Unilin segment has invested in
the United States with its own HDF production facility.capital expenditures, principally in new plants and state-of-the-art equipment to increase manufacturing capacity, improve efficiency and develop new capabilities.
The manufacturing facilities for other activities in the Unilin business
(insulated roofing(roofing systems, insulation panels and other
wood-based panels)wood products) are all configured for cost-efficient manufacturing and production flexibility and are competitive in the European market.
Raw Materials and Suppliers The principal raw materials the carpet and rug business uses are nylon, polypropylene,
triexta, polyester,
and wool,
resins and fibers; synthetic backing
materials;materials, latex and various dyes and chemicals. Major raw materials used in the
Company'sCompany’s manufacturing process are available from independent sources and the Company obtains most of its externally purchased
nylon fibers
and resins principally from
twofour major
suppliers: Invista Inc., and Solutia, Inc.suppliers. Although temporary disruptions of supply of carpet raw materials were experienced in 2005,
as a result of hurricanes, the carpet and rug business has not experienced significant shortages of raw materials in recent years. The Company believes that there is an adequate supply of all grades of resin and fiber, which are readily available.
In the ceramic tile business, the Company manufactures tile primarily from clay, talc, nepheline syenite and glazes. The Company has entered into a long-term supply agreement for most of its talc requirements.
The Company ownshas long-term clay mining rights in Alabama, Kentucky and Mississippi that satisfy nearly all of its clay requirements for producing unglazed quarry tile. The Company purchases a number of different grades of clay for the manufacture of its non-quarry tile. The Company believes that there is an adequate supply of all grades of clay and that all are readily available from a number of independent sources.
The Company has two suppliers for its nepheline syenite requirements. If these suppliers were unable to satisfy the requirements, the Company believes that alternative supply arrangements would be available.
Glazes are used on a significant percentage of manufactured tile.tiles. Glazes consist of frit (ground glass), zircon, stains and other materials, with frit being the largest ingredient. The Company manufactures approximately 43%66% of its frit requirements.
The principal raw materials used in producing boards,
laminate and
laminatehardwood flooring are wood, paper,
resins, coatings and
resin.stains. Wood supply is a very fragmented market in Europe. The Company has long-standing relationships with approximately 25numerous suppliers. These suppliers provide a wide variety of wood species, varying from fresh round wood to several kinds of by-products of sawmills and used wood recycled specifically for chipboard production, giving the Company a cost-effective and secure supply of raw material. In the United States,U.S., the Company has a long-term contract with a contiguously located lumber company that supplies most of its total needs for wood.
HDF board production. The supply of various species of hardwoods and hardwood veneers used in the production of solid wood and engineered flooring is both localized and global.
Major manufacturers supply the papers required in the laminate flooring business in both Europe and the
United States.U.S. The Company
manufacturesprocesses most of the paper impregnation internally in its laminate flooring facilities in Europe and the
United States.U.S. In Europe, the resins for paper impregnation are manufactured by the Company, which permits greater control over the laminate flooring manufacturing process, enabling the Company to produce higher-quality products.
The Company buys the balance of its resin requirements from a number of companies. The Company believes there are ample sources of supply located within a reasonable distance of Unilin’s facilities.
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The principal methods of competition within the floor covering industry generally are service, style, quality, price, and, to a certain extent, product innovation and technology. In each of the markets, price competition and market coverage are particularly important because there is limited differentiation among competing product lines. In the laminate flooring market, the Company believes it has a competitive advantage as a result of Unilin’s industry leading design and patented technologies, which allows the Company to distinguish its laminate flooring products in the areas of finish, quality, installation and assembly. In the Mohawk and Dal-Tile segments, theThe Company’s investments in advanced manufacturing data processing, the extensive diversity of equipment, computer systems and distribution systems, as well as the Company’s marketing strategy, and distribution system contribute to its ability to compete primarily on the basis of performance, quality, style and service, rather than just price.
Mohawk Segment
The carpet and rug industry has experienced substantial consolidation in recent years, andis highly competitive. Based on industry publications, the Company is one of the largesttop 5 North American carpet and rug manufacturers (including their North American and foreign divisions) in 2008 had worldwide carpet and rug sales in excess of $8 billion of the over $11 billion market. The Company believes it is the second largest producer of carpets and rugs (in terms of sales dollars) in the world. world based on its 2008 sales.
Dal-Tile Segment
While the ceramic tile industry is more fragmented, the Company believes it is substantially larger than the next largest competitor and that it is the only significant manufacturer with its own North American distribution system. The Company
faces competition in the laminate flooring market from a large number of domestic and foreign manufacturers.Mohawk Segment
The carpet and rug industry is highly competitive. Based on industry publications, the top 20 North American carpet and rug manufacturers (including their American and foreign divisions) in 2005 had worldwide sales in excess of $12.5 billion, and in 1998 the top 20 manufacturers had sales in excess of $9.6 billion. In 2005,
the top five manufacturers had worldwide sales in excess of $10.0 billion. The Company believes it is the second largest producer of carpets and rugs (in terms of sales volume) in the world based on its 2005 sales.
Dal-Tile Segment
The Company estimates that over 100 tile manufacturers, more than half of which are based outside the United States,U.S., compete for sales of ceramic tile to customers located in the United States.U.S. Although the U.S. ceramic tile industry is highly fragmented at both the manufacturing and distribution levels, the Company believes it is one of the largest manufacturers, distributors and marketers of ceramic tile in the United StatesU.S. and the world.
Unilin SegmentLaminate flooring is the fastest growing product
The Company believes it has a competitive advantage in the
U.S. floor coveringlaminate flooring channel as a result of Unilin’s industry
leading design and
is produced by more than 130 industrial manufacturerspatented technologies, which allows the Company to distinguish its laminate and hardwood flooring products in
25 countries.the areas of finish, quality, installation and assembly. The Company faces competition in the laminate and hardwood flooring channel from a large number of domestic and foreign manufacturers. The Company believes it is one of the largest manufacturers, distributors and marketers of laminate flooring in the world, with a focus on high-end products.
TheIn the U.S., the Company
is also the largesthas vertically-integrated
laminate flooring manufacturer in the United States producingoperations that produce both high density fiberboard and laminate flooring.
The Company estimates that there are over 100 wood flooring manufacturers located in various countries. The Company believes it is one of the largest manufacturers and distributors of hardwood flooring in the U.S.
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
“Aladdin®Aladdin, American Olean, Bigelow, Columbia Flooring, Century Flooring, Dal-Tile, “Duracolor®,”
“American Olean®Durkan, “Elka®,”
“Bigelow®“Everset fibers®,”
“Dal-Tile®Horizon, Karastan, Lees, Lauren Ralph Lauren, Mohawk, “Mohawk Greenworks®,”
“Durkan®Mohawk Home, Portico, “PureBond®,“Quick-Step, “Smartstrand®,”
“Helios®,” “Horizon®,” “Karastan®,” “Lees®,” “Mohawk®,” “Mohawk Home™,” “Portico®,” “Quick-Step®“Ultra Performance System®,” “UNILIN
®,”
UNICLIC, Universal Flooring and
“UNICLIC“Wear-Dated®”.
” These trademarks represent unique innovations that highlight competitive advantages and provide differentiation from competing brands in the market.
Unilin owns a number of important patent families totaling approximately 150 patents and applications in Europe and the United States.U.S. The most important of these patent families is the UNICLIC®UNICLIC family, as well as the snap, pretension, clearance and beveled edge patent families, which protects Unilin’s interlocking laminate flooring panel technology. The patents in the UNICLIC®UNICLIC family are not expected to expire until 2017.
8
Sales Terms and Major Customers The Company’s sales terms are the same as those generally available throughout the industry. The Company generally permits its customers to return carpet, rug, ceramic tile, wood, vinyl and laminate flooring 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
2006,2009, no single customer accounted for more than
10%5% of total net sales, and the top ten customers accounted for less than
15%20% of the Company’s sales. The Company believes the loss of one
or a few major
customerscustomer would not have a material adverse effect on its business.
As of
February 15, 2007,December 31, 2009, the Company employed approximately
37,10027,400 persons consisting of approximately
30,60021,500 in the
United States,U.S., approximately
3,9003,100 in Mexico,
approximately 2,100 in Europe, approximately 600 in Malaysia and approximately
2,600100 in
Europe.Canada. The majority of the Company’s European and Mexican manufacturing employees are members of unions. Most of the Company’s U.S. employees are not a party to any collective bargaining
agreements.agreement. Additionally, the Company has not experienced any strikes or work stoppages in the
United StatesU.S., Mexico or
MexicoMalaysia for over 20 years. The Company believes that its relations with its employees are good.
The
Company'sCompany’s Internet address is
http://mohawkind.com. The Company makes the following reports filed by it available, free of charge, on its website under the heading “Investor Information:”
annual reports on Form 10-K;
| | |
| • | annual reports onForm 10-K; |
|
| • | quarterly reports onForm 10-Q; |
|
| • | current reports onForm 8-K; and |
|
| • | amendments to the foregoing reports. |
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'sCompany’s website as soon as practicable after they are filed with, or furnished to, the Securities and Exchange Commission (“SEC”).
| |
| Item 1A. | Item 1A. Risk FactorsRisk Factors |
Certain Factors affecting the Company'sCompany’s Performance In addition to the other information provided in this
Annual Report on Form 10-K, the following risk factors should be considered when evaluating an investment in shares of Common Stock.
If any of the events described in these risks were to occur, it could have a material adverse effect on the
Company'sCompany’s business, financial condition and results of operations.
The floor covering industry is sensitive to changes in general economic conditions, such as consumer confidence and income, corporate and government spending, interest rate levels, availability of credit and demand for housing. AThe current downturn in the U.S. and global economies, along with the residential and commercial markets in such economies, has negatively impacted the floor covering industry and the Company’s business. These difficult economic conditions may continue or deteriorate in the foreseeable future. Further, significant or prolonged declinedeclines in such economies or in spending for replacement floor covering products or new construction activity could have a material adverse effect on the Company’s business. The floor covering industry in which the Company participates is highly dependent on general economic conditions, such as consumer confidence and income, corporate and government spending, and interest rate levels.levels, availability of credit and demand for housing. The Company derives a majority of the Company’s sales from
9
the replacement segment of the market. Therefore, economic changes that result in a
significant or prolonged decline in spending for remodeling and replacement activities could have a material adverse effect on the Company’s business and results of operations.
The floor covering industry is highly dependent on
residential and commercial construction activity, including new construction, which is cyclical in
nature.nature and currently in a downturn. The current downturn in the U.S. and global economies, along with the housing markets in such economies, has negatively impacted the floor covering industry and the Company’s business. Although the impact of a decline in new construction activity is typically accompanied by an increase in remodeling and replacement activity,
athese activities have also lagged during the current downturn. The difficult economic conditions may continue or deteriorate in the foreseeable future. A significant or prolonged decline in residential or commercial construction activity could have a material adverse effect on the Company’s business and results of operations.
The construction industry has experienced significant
Uncertainty in the credit market or downturns in the past, which have adversely affected suppliersglobal economy and the Company’s business could affect the Company’s overall availability and cost of credit.
Uncertainty in the credit markets could affect the overall availability and cost of credit. The impact of the current situation on our ability to
the industry. The industry could experience similar downturnsobtain financing, including any financing necessary to refinance our existing senior unsecured notes, in the future,
which could have a negative impact onand the
Company’s business.The Company may be unable to pass increases in the costscost and terms of raw materialsit, is uncertain. These and fuel-related costs on to its customers, whichother economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results. Further, these generally negative economic and business conditions may factor into our periodic credit ratings assessment by either or both Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services. The rating agency’s evaluation is based on a number of factors, which include scale and diversification, brand strength, profitability, leverage, liquidity and interest coverage. During 2009, our senior unsecured notes were downgraded by the rating agencies, which will increase the Company’s profitability.
The pricesinterest expense by approximately $10.5 million per year and could adversely affect the cost of raw materials and fuel-related costs vary with market conditions. Theability to obtain additional credit in the future. Additional downgrades in the Company’s costs for carpet raw materialscredit ratings could further increase the cost of its existing credit and fuel-related materials are currently higher than historical averagesadversely affect the cost of and may remain so indefinitely. Althoughability to obtain additional credit in the future, and the Company generally attemptscan provide no assurances that additional downgrades will not occur. Additionally, our credit facilities require us to passmeet certain affirmative and negative covenants that impose restrictions on increasesour financial and business operations, including limitations relating to debt, investments, asset dispositions and changes in raw materialthe nature of our business. We are also required to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that the unutilized amount available under the ABL Facility is less than 15% of the amount available under the ABL Facility. Failure to comply with these covenants could materially and fuel-related costs to its customers, the Company’sadversely affect our ability to do so is dependent upon the ratefinance our operations or capital needs and magnitude of any increase, competitive pressures and market conditions for the Company’s products. There have beento engage in the past, andother activities that 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 profitability may be materially adversely affected.
our best interest.
The Company faces intense competition in the flooring industry, which 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 profitability. The floor covering industry is highly competitive. The Company faces competition from a number of manufacturers and independent distributors. Some of the Company’s competitors are larger and have greater resources and access to capital than the Company does. 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. Any of these factors or others may impact demand which could have a material adverse effect on the Company’s business.
The Company may be unable to obtain raw materials on a timely basis, which could have a material adverse effect on the Company’s business.
The principal raw materials used in the Company’s manufacturing operations include nylon and polyester and polypropylene and triexta resins and fibers, which are used primarily in the Company’s carpet and rugs business; talc, clay, nepheline syenite and various glazes, including frit (ground glass), zircon and stains, which
10
are used exclusively in the Company’s ceramic tile business; wood, paper, and resins which are used primarily in the Company’s laminate flooring business; and other materials. For certain of such raw materials, the Company is dependent on one or a small number of suppliers. An adverse change in the Company’s relationship with such a supplier, the financial condition of such a supplier or such supplier’s ability to manufacture or deliver such raw materials to the Company could lead to an interruption of supply. An extended interruption in the supply of these or other raw materials used in the Company’s business or in the supply of suitable substitute materials would disrupt the Company’s operations, which could have a material adverse effect on the Company’s business.
In periods of rising costs, the Company may be unable to pass raw materials and fuel-related cost increases on to its customers, which could have a material adverse effect on the Company’s profitability.
The prices of raw materials and fuel-related costs vary with market conditions. Although the Company generally attempts to pass on increases in raw material 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 recovered. During such periods of time, the Company’s profitability may be materially adversely affected.
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 reported in the local currency are translated into U.S. dollars for balance sheet accounts using exchange rates in effect as of the balance sheet date and for the statement of operations accounts using, principally, the Company’s average rates during the period. 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 may experience certain risks associated with acquisitions. The Company has typically grown its business through acquisitions. Growth through acquisitions involves risks, many of which may continue to affect the Company after the acquisition. The Company
can notcannot give assurance that an acquired company will achieve the levels of revenue, profitability and production that the Company expects. The combination of an acquired company’s business with the Company’s existing businesses involves risks. The Company
can notcannot be assured that reported earnings will meet expectations because of goodwill and intangible asset impairment, increased interest costs and issuance of additional securities or incurrence of debt. The Company may also face challenges in consolidating functions, integrating the Company’s organizations, procedures, operations and product lines in a timely and efficient manner and retaining key personnel. These challenges may result in:
maintaining executive offices in different locations;
| | |
| • | 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 |
|
| • | providing different employment and compensation arrangements for employees. |
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
providing different employment and compensation arrangements for employees.
The diversion of management attention and any difficulties encountered in the transition and integration process could have a material adverse effect on the Company’s revenues, level of expenses and operating results.
11
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 affect the Company’s financial condition and results of operations. Even if integration occurs successfully, failure of the acquisition to achieve levels of anticipated sales growth, profitability or productivity or otherwise
not perform as expected, may adversely impact the Company’s financial condition and results of operations.
A failure to identify suitable acquisition candidates 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 continue to pursue acquisitions of complementary businesses. Although the Company regularly evaluates acquisition opportunities, the Company may not be able successfully to identify suitable acquisition candidates; to obtain sufficient financing on acceptable terms to fund acquisitions; to complete acquisitions and integrate acquired businesses with the Company’s existing businesses; or to manage profitably acquired businesses.
The Company may be unable to obtain raw materials on a timely basis, which could have a material adverse effect on the Company’s business.The principal raw materials used in the Company’s manufacturing operations include nylon and polyester and polypropylene resins and fibers, which are used primarily in the Company’s carpet and rugs business; talc,
clay, nepheline syenite and various glazes, including frit (ground glass), zircon and stains, which are used exclusively in the Company’s ceramic tile business; wood, paper, and resins which are used primarily in the Company’s laminate flooring business; and other materials. An extended interruption in the supply of these or other raw materials used in the Company’s business or in the supply of suitable substitute materials would disrupt the Company’s operations, which could have a material adverse effect on the Company’s business.
The Company has been, and in the future may be, subject to claims and liabilities under environmental, health and safety laws and regulations, which could be significant.
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 and disposal of
hazardous materials.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 could incur material expenditures to comply with new or existing regulations, including fines and penalties.
The nature of the Company’s operations, including the potential discovery of presently unknown environmental conditions, exposes it to the risk of claims under environmental, health and safety laws and regulations. The Company could incur material costs or liabilities in connection with such claims.
We may be exposed to litigation, claims and other legal proceedings in the ordinary course of business relating to our products, which could affect our results of operations and financial condition.
In the ordinary course of our business, we are 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 that are inherently subject to many uncertainties regarding the possibility of a loss to us. Such matters could have a material adverse effect on our business, results of operations and financial condition if we are unable to successfully defend against or resolve these matters or if our insurance coverage is insufficient to satisfy any judgments against us or settlements relating to these matters. Although we have product liability insurance, our policies may not provide coverage for certain claims against us or may not be sufficient to cover all possible liabilities. Moreover, adverse publicity arising from claims made against us, even if the claims were not successful, could adversely affect our reputation or the reputation and sales of our products.
Regulatory decisions could cause the prices of fuel and energy to fluctuate, and any price increases that result may reduce results of operations.
The Company’s manufacturing operations and shipping needs require high inputs of energy, including the use of substantial amounts of electricity, natural gas, and petroleum based products, which are subject to price fluctuations due to changes in supply and demand and are also affected by local, national and international regulatory decisions. Significant increases in the cost of these commodities, either as a result of changes in market prices due to regulatory decisions or as a result of additional costs in order to comply with regulatory decisions, may have adverse effects on the Company’s results of operations and cash flows if the Company is unable to pass such increases to its customers in a timely manner.
12
Changes in international trade laws andor in the business, political and regulatory environmentenvironments in Mexico and Europewhich the Company operates could have a material adverse effect on the Company’s business. The Company’s manufacturing facilities in Mexico and Europe represent a significant portion of the Company’s capacity for ceramic tile and laminate flooring,
respectively. In addition, asrespectively, and the Company’s European operations represent a
resultsignificant source of the
Unilin Acquisition, the Company now has more significant general operations abroad, particularly in Europe.Company’s revenues and profits. Accordingly, an event that has a material adverse impact on either
operationof these operations or that changes the current tax treatment of the results thereof could have a material adverse effect on the Company. The business, regulatory and political environments in Mexico and
in Europe differ from those in the
United States,U.S., and the Company’s Mexican and European operations are exposed to legal, currency, tax, political, and economic risks specific to the countries in which they occur, particularly with respect to labor regulations, which tend to be more stringent in Europe and, to a lesser extent, Mexico. The Company cannot assure investors that the Company will succeed in developing and implementing policies and strategies to counter the foregoing factors 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 operations or upon the Company’s financial condition and results of operations.
The Company could face increased competition as a result of the agreements under World Trade Organization (“WTO”) and the North American Free Trade Agreement (“NAFTA”).The Company is uncertain what effect reduced import duties pursuant to agreements under the WTO may have on the Company’s operations, although these reduced rates may stimulate additional competition from manufacturers that export ceramic tile to the United States.
Although NAFTA lowers the tariffs imposed on the Company’s ceramic tile manufactured in Mexico and sold in the United States and will eliminate such tariffs entirely on January 1, 2008, it may also stimulate competition in the United States and Canada from manufacturers located in Mexico.
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 reported in the local currency are translated into U.S. dollars for balance sheet accounts using exchange rates in effect at the balance sheet date and for the statement of earnings accounts using the Company’s weighted average rates during the period. 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. Although the Company has not yet experienced material losses due to foreign currency fluctuation, 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 carrying value of the Company’s debt and results of operations and affect comparability of the Company’s results between financial periods.
If the Company is unable to protect the Company’s intellectual property rights, particularly with respect to the Company’s patented laminate flooring technology and the Company’s registered trademarks, the Company’s business and prospects could be harmed.
The future success and competitive position of certain of the Company’s businesses, particularly the Company’s laminate flooring business, depend in part upon the Company’s ability to obtain and maintain proprietary technology used in the Company’s principal product families. The Company relies, in part, on the patent, trade secret and trademark laws of the
United StatesU.S. and countries in Europe, as well as confidentiality agreements with some of the Company’s employees, to protect that technology.
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
® family of patents, which protects Unilin’s interlocking laminate flooring panel technology. 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. In addition, patent filings by third parties, whether made before or after the date of the Company’s filings, could render the Company’s intellectual property less valuable.
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. In addition, if the Company does not obtain sufficient protection for the Company’s intellectual property, the Company’s competitiveness in the markets it serves could be significantly impaired, which would limit the Company’s growth and future revenue.
The Company has obtained and applied for numerous U.S. and
foreign serviceForeign 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. Moreover, even if such applications are approved, third parties may seek to oppose or otherwise challenge the registrations. A failure to obtain trademark registrations in the
United StatesU.S. and in other countries could limit the Company’s ability to protect the Company’s trademarks and impede the Company’s marketing efforts in those jurisdictions.
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,
13
the Company’s competitiveness could be significantly impaired, which would limit the Company’s growth and future revenue.
Companies may claim that the Company infringed their intellectual property or proprietary rights, which could cause it to incur significant expenses or prevent it from selling the Company’s products. In the past,
the Company has had companies
claimhave claimed that certain technologies incorporated in the Company’s products infringe their patent rights. There can be no assurance that the Company will not receive notices in the
future from parties asserting that the Company’s products infringe, or may infringe, those parties’ intellectual property 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. Historically, patent applications in the United StatesU.S. and some foreign countries have not been publicly disclosed until the patent is issued (or, in some recent cases, until 18 months following submission), and the Company may not be aware of currently filed patent applications that relate to the Company’s products or processes. If patents are later issued on these applications, the Company may be liable for infringement.
Furthermore, the Company may initiate claims or litigation against parties for infringement of the Company’s proprietary rights or to establish the invalidity, noninfringement, or unenforceability of the proprietary rights of others. Likewise, the Company may have similar claims brought against it by competitors. Litigation, either as plaintiff or defendant, could result in significant expense to the Company and divert the efforts of the Company’s technical and management personnel from operations, whether or not such litigation is resolved in the Company’s favor. In the event of an adverse ruling in any such litigation, the Company might be required to pay substantial damages (including punitive damages and
attorneysattorney’s fees), discontinue the use and sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses to infringing technology. There can be no assurance that licenses to 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, financial condition and results of operations would be materially and adversely affected.
The Company is subject to changing regulation of corporate governance and public disclosure that have increased both costs and the risk of noncompliance. The Company’s stock is publicly traded. As a result, the Company is subject to the rules and regulations of federal and state agencies and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and NYSE,
have in recent years issuedfrequently issue new requirements and regulations,
most notablysuch as the Sarbanes-Oxley Act of 2002.
From time to time since the adoption of the Sarbanes-Oxley Act of 2002, these authorities have continued to develop additional regulations or interpretations of existing regulations. The Company’s efforts to comply with the regulations and interpretations have resulted in, and are likely to continue to result in, increased general and administrative costs and diversion of management’s time and attention from revenue generating activities to compliance activities.
Declines in the Company’s business conditions may result in an impairment of the Company’s tangible and intangible assets which could result in a material non-cash charge.
A decrease in the Company’s market capitalization, including a short-term decline in stock price, or a negative long-term performance outlook, could result in an impairment of its tangible and intangible assets which results when the carrying value of the Company’s assets exceed their fair value. In 2008, the Company’s goodwill and other intangible assets suffered an impairment and additional impairment charges could occur in future periods.
Forward-Looking Information Certain of the statements in this Annual Report onForm 10-K, particularly those anticipating future performance, business prospects, growth and operating strategies, proposed acquisitions, and similar matters, and those that include the words “believes,” “anticipates,” “forecast,” “estimates” or similar expressions
14
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 industry conditions; competition; raw material prices; energy costs; timing and level of capital expenditures; integration of acquisitions;
legislative enactments and regulatory decisions; introduction of new products; rationalization of operations; litigation; and other risks identified in
Mohawk'sMohawk’s SEC reports and public announcements.
| |
| Item 1B. | Unresolved Staff Comments |
None
None.
The Company owns a 47,5000.1 million square foot headquarters office in Calhoun, Georgia on aneight-acre site. The Company also owns a 2,089,0002.1 million square foot manufacturing facility located in Dalton, Georgia, used by the Mohawk segment, a 1,744,0721.7 million and 974,9001.0 million square foot manufacturing facilityfacilities located in Monterey, Mexico and Muskogee, Oklahoma,respectively, used by the Dal-Tile segment, and a 1,128,5351.1 million square foot manufacturing facility located in Wielsbeke, Belgium and a 0.5 million square foot manufacturing facility located in Thomasville, NC used by the Unilin segment.
The following table summarizes the
Company'sCompany’s facilities both owned and leased for each segment in square
feet: | | | | | | | | | | | | |
| | | Mohawk Segment | | Dal-Tile Segment | | Unilin Segment |
Primary Purpose | | Owned | | Leased | | Owned | | Leased | | Owned | | Leased |
Manufacturing | | 20,531,930 | | 1,213,292 | | 5,283,368 | | 22,000 | | 6,422,813 | | 1,292,389 |
Selling and Distribution | | 4,294,843 | | 6,155,506 | | 152,811 | | 7,236,901 | | 120,000 | | 68,000 |
Other | | 982,825 | | 5,897 | | 321,312 | | 36,000 | | 133,704 | | — |
| | | | | | | | | | | | |
Total | | 25,809,598 | | 7,374,695 | | 5,757,491 | | 7,294,901 | | 6,676,517 | | 1,360,389 |
| | | | | | | | | | | | |
feet (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Mohawk Segment | | Dal-Tile Segment | | Unilin Segment |
Primary Purpose | | Owned | | Leased | | Owned | | Leased | | Owned | | Leased |
| |
| Manufacturing | | | 16.4 | | | | 0.1 | | | | 4.4 | | | | — | | | | 7.7 | | | | 0.9 | |
| Selling and Distribution | | | 3.4 | | | | 4.9 | | | | 0.3 | | | | 7.9 | | | | 0.1 | | | | 0.1 | |
| Other | | | 1.1 | | | | 0.1 | | | | 0.3 | | | | — | | | | 0.1 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | | 20.9 | | | | 5.1 | | | | 5.0 | | | | 7.9 | | | | 7.9 | | | | 1.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
The
Company'sCompany’s properties are in good condition and adequate for its requirements. The Company believes its principal plants are generally adequate to meet its production plans pursuant to the
Company'sCompany’s long-term sales goals. In the ordinary course of business, the Company monitors the condition of its facilities to ensure that they remain adequate to meet long-term sales goals and production plans.
The Company is involved in litigation from time to time in the regular course of its business. Except as noted below 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.
In Shirley Williams et al. v. Mohawk Industries, Inc., four plaintiffs filed a putative class action lawsuit in January 2004 in the United States District Court for the Northern District of Georgia (Rome Division), alleging that they are former and current employees of the Company and that the actions and conduct of the Company, including the employment of persons who are not authorized to work in the United States, have damaged them and the other members of the putative class by suppressing the wages of the Company’s hourly employees in Georgia. The plaintiffs seek a variety of relief, including (a) treble damages; (b) return of any allegedly unlawful profits; and (c) attorney’s fees and costs of litigation. In February 2004, the Company filed a Motion to Dismiss the Complaint, which was denied by the District Court in April 2004. The Company then sought and obtained permissionFollowing appellate review of this decision, the case was returned to file an immediate appeal of the District Court’sCourt for further proceedings. On December 18, 2007, the plaintiffs filed a motion for class certification. On March 3, 2008, the District Court denied the plaintiffs motion for class certification. The plaintiffs then appealed the decision to the United States Court of Appeals
15
for the
Eleventh Circuit.11th Circuit on March 17, 2008. On May 28, 2009, the Court of Appeals issued an order reversing the District Court’s decision and remanding the case back to the District Court for further proceedings on the class certification issue. Discovery has been stayed at the District Court since the appeal. In
June 2005, the Eleventh Circuit reversed in part and affirmed in part the lower court’s decision (Williams v. Mohawk Industries, Inc., 411 F.3d 1252 (11th Cir. 2005)). In June 2005, the Company filed a petition requesting review by the full Eleventh Circuit, which was denied in August
2005. In October 2005,2009, the Company filed a petition for certiorari with the United States Supreme Court, which was
granted in December of 2005. The case was argued before the Supreme Court on April 26, 2006. On June 5, 2006, the Supreme Court vacated the Eleventh Circuit’s ruling and ordered the Eleventh Circuit to reconsider the case in light of the Supreme Court’s decision in Anza v. Ideal Steel Supply Co., 126 S. Ct. 1991 (2006). On September 27, 2006, the Eleventh Circuit issued a second decision reversing in part and affirming in part the lower court’s decision. On October 18, 2006, the Company filed a petition requesting review of this decision by the full Eleventh Circuit, which was denied in November
2006. In December 2006, the Company filed a second petition for certiorari with the United States Supreme Court.2009. The Company will continue to vigorously defend itself against this action.
In Collins & Aikman Floorcoverings, Inc., et. al. v. Interface, Inc., United States District Court for the Northern District of Georgia (Rome Division), Mohawk Industries, Inc. joined Collins & Aikman Floorcoverings, Inc. (“CAF”) and Shaw Industries Group, Inc. (“Shaw”) in suing Interface, Inc. (“Interface”) for declaratory judgments that United States Patent 6,908,656 (the “Patent”), assigned to Interface and relating to certain styles of carpet tiles, is not infringed and is invalid. Also in June 2005, in Interface, Inc., et al. v. Mohawk Industries, Inc., et. al. United States District Court for the Northern District of Georgia (Atlanta Division), Interface sued Mohawk Industries, Inc., Mohawk Carpet Corporation, and Mohawk Commercial, Inc. for allegedly infringing the Patent. Interface brought similar suits against entities affiliated with CAF and Shaw. Interface sought monetary damages as well as injunctive relief. The cases were consolidated in the United States District Court for the Northern District of Georgia (Rome Division). During the second quarter of 2009, the Company and Interface reached a settlement and the pending cases were dismissed by the District Court on June 26, 2009.
The Company believes that adequate provisions for
the resolution of all
contingencies, claims and pending litigation have been made for probable losses and that the ultimate outcome of these actions will not have a material adverse
effect on its financial condition but could have a material adverse effect on its results of operations in a given quarter or annual period.
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 and disposal of solid and hazardous materials, 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 operations, but may have an effect on the results of operations for a given quarter or annual period.
| |
| Item 4. | Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders of the Company during the fourth quarter ended December 31, 2006.2009.
16
| |
| Item 5. | Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market for the Common Stock The
Company'sCompany’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 |
2005 | | | | | |
First quarter | | $ | 94.72 | | 82.15 |
Second quarter | | | 89.00 | | 76.54 |
Third quarter | | | 92.45 | | 76.19 |
Fourth quarter | | | 89.71 | | 74.55 |
| | |
2006 | | | | | |
First quarter | | $ | 90.88 | | 80.05 |
Second quarter | | | 81.50 | | 69.47 |
Third quarter | | | 77.18 | | 62.80 |
Fourth quarter | | | 79.64 | | 70.00 |
| | |
2007 | | | | | |
First quarter (through February 21, 2007) | | $ | 94.35 | | 75.15 |
| | | | | | | | | |
| | | Mohawk
|
| | | Common Stock |
| | | High | | Low |
| |
2008 | | | | | | | | |
| First quarter | | $ | 83.09 | | | | 63.00 | |
| Second quarter | | | 80.29 | | | | 64.01 | |
| Third quarter | | | 75.26 | | | | 56.55 | |
| Fourth quarter | | | 69.47 | | | | 23.91 | |
2009 | | | | | | | | |
| First quarter | | $ | 46.05 | | | | 16.97 | |
| Second quarter | | | 51.88 | | | | 28.74 | |
| Third quarter | | | 53.71 | | | | 31.40 | |
| Fourth quarter | | | 50.49 | | | | 39.84 | |
As of February
21, 2007,22, 2010, there were approximately
370344 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'sCompany’s policy is to retain all net earnings for the development of its business, and presently, 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 sole discretion of the Board of Directors and will depend upon the
Company'sCompany’s profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors.
The Company did not repurchase any of its common stock during the fourth quarter of
2006.2009.
| |
| 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. On March 20, 2002, the Company acquired all the outstanding capital stock of Dal-Tile International Inc. (“Dal-Tile”) in exchange for approximately $1,469 million, consisting of approximately 12.9 million shares of the Company's common stock, options to purchase approximately 2.1 million shares of the Company's common stock and $718 million in cash. The acquisition was accounted for using the purchase method of accounting. On November 10, 2003, the Company acquired certain assets and assumed certain liabilities of the Lees Carpet division of Burlington Industries, Inc. (“Lees Carpet”) for approximately $350 million in cash. The acquisition was recorded using the purchase method of accounting. On October 31, 2005, the Company acquired all the outstanding shares of Unilin Holding NV.NV (“Unilin Acquisition”). The total purchase price of the Unilin Acquisition, net of cash, was approximately Euro 2.1 billion (approximately $2.5 billion). On August 13, 2007, the Company completed the acquisition of certain wood flooring assets for $147.1 million in cash. The consolidated financial statements include the results of all acquisitions from the date of acquisition. The selected financial data should be read in conjunction with “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company'sCompany’s consolidated financial statements and notes thereto included elsewhere herein.
17
| | | | | | | | | | | | | |
| | | At or for the Years Ended December 31, |
| | | 2006 | | | 2005 | | 2004 | | 2003 | | | 2002(c) |
| | | (In thousands, except per share data) |
Statement of earnings data: | | | | | | | | | | | | | |
Net sales | | $ | 7,905,842 | | | 6,620,099 | | 5,880,372 | | 4,999,381 | | | 4,516,957 |
Cost of sales(a) | | | 5,674,531 | | | 4,851,853 | | 4,256,129 | | 3,605,579 | | | 3,247,865 |
| | | | | | | | | | | | | |
Gross profit | | | 2,231,311 | | | 1,768,246 | | 1,624,243 | | 1,393,802 | | | 1,269,092 |
Selling, general and administrative expenses | | | 1,392,251 | | | 1,095,862 | | 985,251 | | 851,773 | | | 747,027 |
| | | | | | | | | | | | | |
Operating income | | | 839,060 | | | 672,384 | | 638,992 | | 542,029 | | | 522,065 |
| | | | | | | | | | | | | |
Interest expense(b) | | | 173,697 | | | 66,791 | | 53,392 | | 55,575 | | | 68,972 |
Other expense (income), net | | | 8,488 | | | 3,460 | | 4,809 | | (1,980 | ) | | 9,464 |
U.S. customs refund(d) | | | (19,436 | ) | | — | | — | | — | | | — |
| | | | | | | | | | | | | |
| | | 162,749 | | | 70,251 | | 58,201 | | 53,595 | | | 78,436 |
| | | | | | | | | | | | | |
Earnings before income taxes | | | 676,311 | | | 602,133 | | 580,791 | | 488,434 | | | 443,629 |
Income taxes | | | 220,478 | | | 214,995 | | 209,994 | | 178,285 | | | 159,140 |
| | | | | | | | | | | | | |
Net earnings | | $ | 455,833 | | | 387,138 | | 370,797 | | 310,149 | | | 284,489 |
| | | | | | | | | | | | | |
Basic earnings per share | | $ | 6.74 | | | 5.78 | | 5.56 | | 4.68 | | | 4.46 |
| | | | | | | | | | | | | |
Weighted-average common shares outstanding | | | 67,674 | | | 66,932 | | 66,682 | | 66,251 | | | 63,723 |
| | | | | | | | | | | | | |
Diluted earnings per share | | $ | 6.70 | | | 5.72 | | 5.49 | | 4.62 | | | 4.39 |
| | | | | | | | | | | | | |
Weighted-average common and dilutive potential common shares outstanding | | | 68,056 | | | 67,644 | | 67,557 | | 67,121 | | | 64,861 |
| | | | | | | | | | | | | |
Balance sheet data: | | | | | | | | | | | | | |
Working capital | | $ | 783,148 | | | 1,277,087 | | 972,325 | | 592,310 | | | 640,846 |
Total assets | | | 8,178,394 | | | 8,040,037 | | 4,406,520 | | 4,163,575 | | | 3,596,743 |
Long-term debt (including current portion) | | | 2,783,681 | | | 3,308,370 | | 891,341 | | 1,012,413 | | | 820,427 |
Stockholders' equity | | | 3,715,263 | | | 3,058,238 | | 2,668,512 | | 2,297,801 | | | 1,982,879 |
| | | | | | | | | | | | | | | | | | | | | |
| | | As of or for the Years Ended December 31, | |
| | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 | |
| | | (In thousands, except per share data) | |
| |
Statement of operations data: | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 5,344,024 | | | | 6,826,348 | | | | 7,586,018 | | | | 7,905,842 | | | | 6,620,099 | |
| Cost of sales(a) | | | 4,111,794 | | | | 5,088,584 | | | | 5,471,234 | | | | 5,674,531 | | | | 4,851,853 | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | 1,232,230 | | | | 1,737,764 | | | | 2,114,784 | | | | 2,231,311 | | | | 1,768,246 | |
| Selling, general and administrative expenses | | | 1,188,500 | | | | 1,318,501 | | | | 1,364,678 | | | | 1,392,251 | | | | 1,095,862 | |
| Impairment of goodwill and other intangibles(b) | | | — | | | | 1,543,397 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Operating income (loss) | | | 43,730 | | | | (1,124,134 | ) | | | 750,106 | | | | 839,060 | | | | 672,384 | |
| | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | 127,031 | | | | 127,050 | | | | 154,469 | | | | 173,697 | | | | 66,791 | |
| Other expense, net | | | (5,588 | ) | | | 21,288 | | | | (6,925 | ) | | | (252 | ) | | | (3,679 | ) |
| U.S. customs refund(c) | | | — | | | | — | | | | (9,154 | ) | | | (19,436 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | 121,443 | | | | 148,338 | | | | 138,390 | | | | 154,009 | | | | 63,112 | |
| | | | | | | | | | | | | | | | | | | | | |
| Earnings (loss) before income taxes | | | (77,713 | ) | | | (1,272,472 | ) | | | 611,716 | | | | 685,051 | | | | 609,272 | |
| Income taxes (benefit) expense(d) | | | (76,694 | ) | | | 180,062 | | | | (102,697 | ) | | | 220,478 | | | | 214,995 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net (loss) earnings | | | (1,019 | ) | | | (1,452,534 | ) | | | 714,413 | | | | 464,573 | | | | 394,277 | |
| Less: Net earnings attributable to the noncontrolling interest | | | 4,480 | | | | 5,694 | | | | 7,599 | | | | 8,740 | | | | 7,139 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net earnings (loss) attributable to Mohawk Industries, Inc | | $ | (5,499 | ) | | | (1,458,228 | ) | | | 706,814 | | | | 455,833 | | | | 387,138 | |
| | | | | | | | | | | | | | | | | | | | | |
| Basic (loss) earnings per share | | $ | (0.08 | ) | | | (21.32 | ) | | | 10.37 | | | | 6.74 | | | | 5.78 | |
| | | | | | | | | | | | | | | | | | | | | |
| Weighted-average common shares outstanding | | | 68,452 | | | | 68,401 | | | | 68,172 | | | | 67,674 | | | | 66,932 | |
| | | | | | | | | | | | | | | | | | | | | |
| Diluted (loss) earnings per share | | $ | (0.08 | ) | | | (21.32 | ) | | | 10.32 | | | | 6.70 | | | | 5.72 | |
| | | | | | | | | | | | | | | | | | | | | |
| Weighted-average common and dilutive potential common shares outstanding | | | 68,452 | | | | 68,401 | | | | 68,492 | | | | 68,056 | | | | 67,644 | |
| | | | | | | | | | | | | | | | | | | | | |
Balance sheet data: | | | | | | | | | | | | | | | | | | | | |
| Working capital (includes short-term debt) | | $ | 1,474,978 | | | | 1,369,333 | | | | 1,238,220 | | | | 783,148 | | | | 1,277,087 | |
| Total assets (b and d) | | | 6,391,446 | | | | 6,446,175 | | | | 8,680,050 | | | | 8,212,209 | | | | 8,066,025 | |
| Long-term debt (including current portion) | | | 1,854,479 | | | | 1,954,786 | | | | 2,281,834 | | | | 2,783,681 | | | | 3,308,370 | |
| Total equity | | | 3,234,282 | | | | 3,184,933 | | | | 4,738,843 | | | | 3,744,468 | | | | 3,078,522 | |
| | |
| (a) | | In 2005, gross margin was impacted by a non-recurring $34,300 ($22,300 net of tax) fair value adjustment to Unilin’s acquired inventory. |
|
| (b) | | In December 2002,2008, the Company discontinued hedge accountingrecorded an impairment of goodwill and other intangibles which included $276,807 for its interest rate swap. The impact of discontinuing the hedge was to increase interest expense by approximately $10.7 million.Mohawk segment, $531,930 for the Dal-Tile segment and $734,660 for the Unilin segment. |
|
| (c) | In 2002, the Company adopted the provisions of Financial Accounting Standards Board SFAS No. 142 “Goodwill and Other Intangible Assets” which required the Company to cease amortizing goodwill and evaluate such goodwill and indefinite intangibles for impairment. |
(d) | In 2007 and 2006, the Company received partial refunds from the United StatesU.S. government in reference to settlement of custom disputes dating back to 1982. |
|
| (d) | | In 2007, the Company implemented a change in residency of one of its foreign subsidiaries. This tax restructuring resulted in a step up in the subsidiary’s taxable basis, which resulted in the recognition of a |
18
| | |
| | deferred tax asset of approximately $245,000 and a related income tax benefit of approximately $272,000. In 2008, the Company recorded a valuation allowance of approximately $253,000 against the deferred tax asset described above. |
| |
| Item 7. | Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations |
The Company is a leading producer of floor covering products for residential and commercial applications in the
United StatesU.S. and Europe with net sales in
2006 in excess2009 of
$7.9$5.3 billion. The Company is the second largest carpet and rug manufacturer
in the U.S., a leading manufacturer, marketer and distributor of ceramic tile,
and natural stone
and hardwood flooring in the
United StatesU.S. and a leading producer of laminate flooring in the
United StatesU.S. and Europe.
In 2008, the primary categories of the U.S. floor covering industry, based on sales dollars, were carpet and rug (58%), ceramic tile (11%), resilient and rubber (11%), hardwood (10%), stone (5%) and laminate (5%).
The Company believes that the U.S. floor covering industry has experienced declining demand beginning in the fourth quarter of 2006 which worsened considerably during the later parts of 2008 and continued to decline throughout 2009. The global economy continues in the most significant downturn in recent history. Overall economic conditions and consumer sentiment have remained challenging, which has intensified the pressure on the demand for housing and flooring products. Although the Company cannot determine with certainty as to when market conditions will stabilize and begin to improve, the Company believes it is well-positioned in the long-term as the industry improves. The Company continues to monitor expenses based on current industry conditions and will continue to adjust as required.
The Company has three reporting segments, the Mohawk segment, the Dal-Tile segment and the Unilin segment. The Mohawk segment
manufactures, markets and distributes its product lines
primarily in North America, which include
carpets,carpet, rugs, pad, ceramic tile,
laminate, hardwood,
rugs, carpet pad,resilient and
resilient flooring,laminate, through its network of
approximately 50 regional distribution centers and satellite warehouses using
its fleet of company-operated trucks, common carrier or rail transportation. The segment product lines are
purchased by independentsold through various selling channels, which include floor covering retailers, home centers, mass merchandisers, department stores, independent distributors, commercial dealers and commercial end users. The Dal-Tile segment
manufactures, markets and distributes its product lines
primarily in North America, which include ceramic tile, porcelain tile and stone products,
distributed through
approximately 262its network of regional distribution centers and company-operated sales service centers
and regional distribution centers using
primarilycompany-operated trucks, common carriers
andor rail transportation. The segment product lines are purchased by
floor covering retailers, home centers, independent distributors, tile specialty dealers, tile contractors,
floor covering retailers,and commercial end
users, independent distributors and home centers.users. The Unilin segment manufactures,
markets and
marketsdistributes its product lines primarily in North America and Europe, which include laminate flooring,
wood flooring, roofing systems and other wood products
through various selling channels, which
are distributed through separate distribution channels consisting ofinclude retailers,
home centers and independent
distributors and home centers. The business is organized to address the specific customer needs of each distribution channel.The primary categories of the United States floor covering industry include carpet and rug (62%), ceramic tile (13%), hardwood (11%), resilient and rubber (8%) and laminate (6%). Compound average growth rates for all categories, except the resilient and rubber category, for the period from 2002 through 2005 have met or exceeded the growth rates (measured in sales dollars) for the gross domestic product of the United States over the same period. Ceramic tile, laminate and hardwood continued to exceed the growth rate for housing starts over the same period. During this period, the compound average growth rate was 3.8% for carpets and rugs, 7.3% for ceramic tile, 6.6% for resilient and rubber, 21.1% for laminate and 8.0% for hardwood.
distributors.
The Company reported net
earningsloss of
$455.8$5.5 million or
diluted earningsloss per share
(“EPS”) of
$6.70,$0.08 for 2009, compared to net
earningsloss of
$387.1$1,458.2 million
or loss per share of $21.32 for 2008. The net loss for 2008 included a $1,543.4 million impairment charge to reduce the carrying amount of the Company’s goodwill and
$5.72 EPS for 2005. The increaseintangible assets and a charge of $253 million to record a tax valuation allowance against the carrying amount of a deferred tax asset recognized in the fourth quarter of 2007. In addition, the change in EPS
resulted from the impact of lower sales volumes, which the Company believes is attributable to
continued weakness in the
Unilin Acquisition, strong hard surface growth,U.S. residential remodeling and
new construction markets, commercial real estate market and European demand, the net effect of price
increases.and product mix and higher warranty requirements, partially offset by lower raw material, energy and selling general and administrative costs. During 2009, the Company recognized a higher trend of incidents related to the use of new technology in certain commercial carpet tiles and recorded a $121.2 million carpet sales allowance and a $12.4 million inventory write-off. The Company believes that industry demand fordiscontinued sales of these commercial carpet tiles and replaced it with an established technology. The amounts recorded reflect the products manufactured byCompany’s best reasonable estimate but the actual amount of claims and related costs could vary from such estimates.
For the year ended December 31, 2009, the Company has recently softened. The U.S. flooring industry continued slowing in the 4th quartergenerated $672.2 million of 2006, with both the residential new constructionoperating cash flow which it used to reduce debt by $103.6 million and the retail remodeling channels continuing their decline. The commercial channel continues to out perform the residential channel. Bothbuild cash. As of our Mohawk and Dal-Tile segments reflect these industry trends, althoughDecember 31, 2009, the Company believes both are well-positioned for industry improvement inhad
19
cash and cash equivalents of $531.5 million. In addition, the
long-term.Material costs for the industry have remained high but could improve if commodity prices soften.
The Company anticipates continued slow U.S. industry sales in the first quarter of 2007 that will impact marginsadjusted capital expenditures to align its manufacturing, distribution and earnings. The Company has reduced manufacturing, administration, and marketing expenses based on current industry conditions and will continueselling infrastructure to adjust as required.
market conditions.
Following are the results of operations for the last three years:
| | | | | | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2006 | | | 2005 | | | 2004 | |
| | | (In thousands) | |
Statement of earnings data: | | | | | | | | | | | | | | | | | |
Net sales | | $ | 7,905,842 | | | 100.0 | % | | 6,620,099 | | 100.0 | % | | 5,880,372 | | 100.0 | % |
Cost of sales | | | 5,674,531 | | | 71.8 | % | | 4,851,853 | | 73.3 | % | | 4,256,129 | | 72.4 | % |
| | | | | | | | | | | | | | | | | |
Gross profit | | | 2,231,311 | | | 28.2 | % | | 1,768,246 | | 26.7 | % | | 1,624,243 | | 27.6 | % |
Selling, general and administrative expenses | | | 1,392,251 | | | 17.6 | % | | 1,095,862 | | 16.6 | % | | 985,251 | | 16.8 | % |
| | | | | | | | | | | | | | | | | |
Operating income | | | 839,060 | | | 10.6 | % | | 672,384 | | 10.2 | % | | 638,992 | | 10.9 | % |
| | | | | | | | | | | | | | | | | |
Interest expense | | | 173,697 | | | 2.2 | % | | 66,791 | | 1.0 | % | | 53,392 | | 0.9 | % |
Other (income) expense, net | | | 8,488 | | | 0.1 | % | | 3,460 | | 0.1 | % | | 4,809 | | 0.1 | % |
U.S. customs refund | | | (19,436 | ) | | -0.2 | % | | — | | 0.0 | % | | — | | 0.0 | % |
| | | | | | | | | | | | | | | | | |
| | | 162,749 | | | 2.1 | % | | 70,251 | | 1.1 | % | | 58,201 | | 1.0 | % |
| | | | | | | | | | | | | | | | | |
Earnings before income taxes | | | 676,311 | | | 8.6 | % | | 602,133 | | 9.1 | % | | 580,791 | | 9.9 | % |
Income taxes | | | 220,478 | | | 2.8 | % | | 214,995 | | 3.2 | % | | 209,994 | | 3.6 | % |
| | | | | | | | | | | | | | | | | |
Net earnings | | $ | 455,833 | | | 5.8 | % | | 387,138 | | 5.8 | % | | 370,797 | | 6.3 | % |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2009 | | | 2008 | | | 2007 | |
| | | | | | | | | (In millions) | | | | | | | |
| |
Statement of operations data: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 5,344.0 | | | | 100.0 | % | | $ | 6,826.3 | | | | 100.0 | % | | $ | 7,586.0 | | | | 100.0 | % |
| Cost of sales | | | 4,111.8 | | | | 76.9 | % | | | 5,088.5 | | | | 74.5 | % | | | 5,471.2 | | | | 72.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross profit | | | 1,232.2 | | | | 23.1 | % | | | 1,737.8 | | | | 25.5 | % | | | 2,114.8 | | | | 27.9 | % |
| Selling, general and administrative expenses | | | 1,188.5 | | | | 22.2 | % | | | 1,318.5 | | | | 19.3 | % | | | 1,364.7 | | | | 18.0 | % |
| Impairment of goodwill and other intangibles | | | — | | | | — | | | | 1,543.4 | | | | 22.6 | % | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating income (loss) | | | 43.7 | | | | 0.8 | % | | | (1,124.1 | ) | | | (16.5 | )% | | | 750.1 | | | | 9.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | 127.0 | | | | 2.4 | % | | | 127.1 | | | | 1.9 | % | | | 154.5 | | | | 2.0 | % |
| Other expense, net | | | (5.6 | ) | | | (0.1 | )% | | | 21.3 | | | | 0.3 | % | | | (6.9 | ) | | | (0.1 | )% |
| U.S. customs refund | | | — | | | | — | | | | — | | | | — | | | | (9.2 | ) | | | (0.1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 121.4 | | | | 2.3 | % | | | 148.4 | | | | 2.2 | % | | | 138.4 | | | | 1.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (loss) before income taxes | | | (77.7 | ) | | | (1.5 | )% | | | (1,272.5 | ) | | | (18.6 | )% | | | 611.7 | | | | 8.1 | % |
| Income tax (benefit) expense | | | (76.7 | ) | | | (1.4 | )% | | | 180.0 | | | | 2.6 | % | | | (102.7 | ) | | | (1.4 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net (loss) earnings | | | (1.0 | ) | | | — | | | | (1,452.5 | ) | | | (21.3 | )% | | | 714.4 | | | | 9.4 | % |
| Less: Net earnings attributable to the noncontrolling interest | | | 4.5 | | | | 0.1 | % | | | 5.7 | | | | 0.1 | % | | | 7.6 | | | | 0.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net earnings (loss) attributable to Mohawk Industries, Inc. | | $ | (5.5 | ) | | | (0.1 | )% | | $ | (1,458.2 | ) | | | (21.4 | )% | | $ | 706.8 | | | | 9.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2006,2009, as Compared with Year Ended December 31, 20052008
Net sales for the year ended December 31, 2006,2009 were $7,905.8$5,344.0 million, reflecting an increasea decrease of $1,285.7$1,482.3 million, or approximately 19.4%21.7%, overfrom the $6,620.1$6,826.3 million reported for the year ended December 31, 2005.2008. The increased netdecrease was primarily driven by a decline in sales are primarily attributablevolumes of approximately $1,047 million due to the acquisitioncontinued weakness in the U.S. residential remodeling and new construction markets, commercial real estate market and European demand, a decline of approximately $298 million due to unfavorable price and product mix as customers trade down to lower priced products, a decrease of approximately $81 million due to a net increase in warranty requirements described in the overview and a decline of approximately $56 million due to unfavorable foreign exchange rates and other.
Mohawk Segment— Net sales decreased $771.4 million, or 21.3%, to $2,856.7 million in 2009 compared to $3,628.2 million in 2008. The decrease was primarily driven by a decline in sales volumes of approximately $531 million due to the continued weakness in the U.S. residential remodeling and new construction markets and the declining commercial real estate market, a decline of approximately $151 million due to unfavorable price and product mix as customers trade down to lower priced products and a decrease of approximately $81 million due to a net increase in warranty requirements described above in the overview.
Dal-Tile Segment— Net sales decreased $388.6 million, or 21.4%, to $1,426.8 million in 2009 compared to $1,815.4 million in 2008. The decrease was primarily driven by a decline in sales volumes of approximately $301 million due to the continued weakness in the U.S. residential remodeling and new construction markets and the declining commercial real estate market, a decline of approximately $73 million due to unfavorable
20
price and product mix as customers trade down to lower priced products and a decline of approximately $15 million due to unfavorable foreign exchange rates.
Unilin Segment— Net sales decreased $336.9 million, or 23.0%, to $1,128.3 million in
October 2005 (which represented2009 compared to $1,465.2 million in 2008. The decrease was driven by a decline in sales volumes of approximately
81%$215 million due to the continued weakness in the U.S. residential remodeling and new construction markets and slowing European demand, a decline of
approximately $74 million due to the net
sales growth), internal sales growth within hard surfaceseffect of price and
selling price increases. The Mohawk segment recorded net salesproduct mix as customers trade down to lower priced products and a decline of
$4,742.1approximately $48 million
in 2006 compareddue to
$4,716.7 million in 2005, representing an increase of $25.4 million or approximately 0.5%. The increase was attributable to selling price increases and internal growth within the commercial soft surface category and hard surface product categories offset by declines in the new construction and residential replacement soft surface categories. The Dal-Tile segment recorded net sales of $1,941.8 million in 2006, reflecting an increase of $207.0 million or 11.9%, over the $1,734.8 million reported in 2005. The increase was attributable to internal growth in all product categories, acquisitions and selling price increases. The Unilin segment recorded net sales of $1,236.9 million for twelve months of 2006 compared to $168.8 million for two months of 2005.unfavorable foreign exchange rates.
Quarterly net sales and the percentage changes in net sales by quarter for
20062009 versus
20052008 were as follows (dollars in
thousands) | | | | | | | | |
| | | 2006 | | 2005 | | Change | |
First quarter | | $ | 1,925,106 | | 1,493,222 | | 28.9 | % |
Second quarter | | | 2,058,123 | | 1,624,692 | | 26.7 | |
Third quarter | | | 2,024,019 | | 1,697,634 | | 19.2 | |
Fourth quarter(1) | | | 1,898,594 | | 1,804,551 | | 5.2 | |
| | | | | | | | |
Total year | | $ | 7,905,842 | | 6,620,099 | | 19.4 | % |
| | | | | | | | |
(1) | The fourth quarter of 2005 includes two months of Unilin sales. |
millions):
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | Change | |
| |
| First quarter | | $ | 1,208.3 | | | | 1,738.1 | | | | (30.5 | )% |
| Second quarter | | | 1,406.0 | | | | 1,840.0 | | | | (23.6 | ) |
| Third quarter | | | 1,382.6 | | | | 1,763.0 | | | | (21.6 | ) |
| Fourth quarter | | | 1,347.1 | | | | 1,485.2 | | | | (9.3 | ) |
| | | | | | | | | | | | | |
| Total year | | $ | 5,344.0 | | | | 6,826.3 | | | | (21.7 | )% |
| | | | | | | | | | | | | |
Gross profit
Gross profit
for 2009 was
$2,231.3$1,232.2 million
(28.2%(23.1% of net sales) and represented a decrease of $505.5 million compared to gross profit of $1,737.8 million (25.5% of net sales) for
2006 and $1,768.2 million (26.7% of net sales) for 2005.2008. Gross profit
as a percentage of net salesin 2009 was
favorablyunfavorably impacted by
approximately $315 million resulting from lower sales volume, a decline of approximately $185 million due to the
Unilin Acquisition, sellingnet effect of price
increases, internal growth and
acquisitions withinproduct mix, a decline of approximately $89 million due to a net increase in warranty requirements described above in the
Dal-Tile segment. The increase wasoverview, restructuring charges of approximately $28 million and the impact of unfavorable foreign exchange rates of approximately $9 million, partially offset by
lower manufacturing costs of approximately $120 million. The decrease in gross profit percentage is primarily attributable to unfavorable price and product mix, increased
warranty requirements and restructuring costs, partially offset by lower raw material
distribution and
start upmanufacturing costs
when compared to 2005. In addition, the 2005 gross margin was impactedby a non-recurring $34.3 million ($22.3 million net of taxes) fair value adjustment applied to Unilin’s acquired inventory.
Selling, general and administrative expenses
Selling, general and administrative expenses for
20062009 were
$1,392.3$1,188.5 million
(17.6%(22.3% of net sales)
, reflecting a decrease of $130.0 million, or 9.9%, compared to
$1,095.9$1,318.5 million
(16.6%(19.3% of net sales) for
2005.the prior year. The decrease in selling, general and administrative expenses is primarily driven by lower sales and various cost savings initiatives implemented by the Company, partially offset by approximately $8 million of unfavorable foreign exchange rates and approximately $4 million for restructuring charges. The increase in selling general and administrative expenses as a percentage of net sales
wasis primarily
attributable to amortizationa result of
intangiblesa higher mix of fixed costs on lower net sales, and
the expensing of stock options, which was not required in 2005, during the current year when compared to 2005.restructuring costs.
Operating income (loss)
Operating income for 20062009 was $839.1$43.7 million (10.6%(0.8% of net sales) reflecting an increase of $1,167.9 million compared to $672.4an operating loss of $1,124.1 million (10.2%in 2008. The change was primarily driven by the recognition of an impairment of goodwill and other intangibles of approximately $1,543.4 million in 2008. In addition, operating income in the current period was impacted by a decline of approximately $315 million due to lower sales volumes, a decline of approximately $185 million due to unfavorable price and product mix, a decrease of approximately $89 million due to a net sales)increase in 2005.warranty requirements described above in the overview and restructuring charges of approximately $32 million, partially offset by lower manufacturing and selling, general and administrative costs of approximately $244 million.
Mohawk Segment— Operating loss was $126.0 million in 2009 reflecting a decrease of $90.2 million compared to operating loss of $216.2 million in 2008. The increase was primarily driven by the recognition of
21
an impairment of goodwill and other intangibles of approximately $276.8 million in 2008. In addition, operating income for 2006in the current period was favorably impacted by the Unilin Acquisition when compareda decline of approximately $133 million due to 2005.lower sales volumes, a decrease of approximately $89 million due to a net increase in warranty requirements and a decline of approximately $74 million due to unfavorable price and product mix and restructuring charges of approximately $7 million, partially offset by lower manufacturing and selling, general and administrative costs of approximately $116 million.
Dal-Tile Segment — Operating income attributable to the Mohawk segment was $387.4$84.2 million (8.2%(5.9% of segment net sales) in 20062009 reflecting an increase of $407.5 million compared to $426.8operating loss of $323.4 million (9.0%for 2008. The change was primarily driven by the recognition of an impairment of goodwill and other intangibles of approximately $531.9 million in 2008. In addition, operating income in the current period was impacted by a decline of approximately $108 million due to lower sales volumes, a decline of approximately $35 million due to unfavorable price and product mix and restructuring charges of approximately $12 million, partially offset by lower manufacturing and selling, general and administrative costs of approximately $23 million.
Unilin Segment — Operating income was $106.0 million (9.4% of segment net sales) in 2005.2009 reflecting an increase of $670.9 million compared to operating loss of $564.9 million for 2008. The percentage decreaseincrease was primarily driven by the recognition of an impairment of goodwill and other intangibles of $734.7 million in 2008. In addition, operating income resulted primarily from slower new constructionin the current period was impacted by a decline of approximately $76 million due to the net effect of price and residential replacement demand within its soft surface product categories, an increasemix, a decline in sales volumes of approximately $74 million, restructuring charges of approximately $13 million and the impact of unfavorable foreign exchange rates of approximately $8 million, partially offset by lower raw material, manufacturing and energyselling, general and administrative costs of approximately $107 million.
Interest expense
Interest expense for 2009 was $127.0 million compared to $127.1 million in 2008. Interest expense in 2009 was directly impacted by higher interest rates on the Company’s notes and increased selling and distribution costs,revolving credit facilities due to three credit rating downgrades in 2009, partially offset by selling price increases and internal growth within its commercial and hard surface product categories. Operatinglower average debt levels in the current year compared to 2008.
Income tax (benefit) expense
For 2009, the Company recorded an income attributabletax benefit of $76.7 million on loss before taxes of $77.7 million as compared to income tax expense of $180.1 million on loss before taxes of $1,272.5 million for 2008. The change is principally due to the Dal-Tile segment was $270.9non-deductible 2008 goodwill impairment charge, the recognition of a $253 million (14.0%valuation allowance against a deferred asset, and the geographic distribution of segment net sales) in 2006, compared to $260.2 million (15.0% of segment net sales) in 2005. The decrease in operating income as a percentage of net sales resulted primarily from higher distribution costs and start up costs at its Muskogee location offset by acquisitions and plant closing costs in(loss).
In the fourth quarter of 2006. Operating2007, the Company moved the intellectual property and treasury operations of an indirectly owned European entity to a new office in another jurisdiction in Europe. The Company also indirectly owned a holding company in the new jurisdiction that provided certain treasury functions to Unilin, and the move allowed for the consolidation of the historical intellectual property and treasury operations to be combined with those of the holding company’s treasury operations in a single jurisdiction in order to integrate and streamline the operations, to facilitate international acquisitions and to improve tax and cost efficiencies. This restructuring resulted in a step up in the subsidiary’s taxable basis of its intellectual property. The step up relates primarily to intangible assets which will be amortized over 10 years for tax purposes. During the fourth quarter of 2007, the Company evaluated the evidence for recognition of the deferred tax asset created through the restructuring and determined that, based on the available evidence at the time, the deferred tax asset would more likely than not be realized. The deferred tax asset recognized as of December 31, 2007 was approximately $245 million and the related income attributabletax benefit recognized in the consolidated financial statements was approximately $272 million.
During the third quarter of 2008, the Company reassessed the need for a valuation allowance against its deferred tax assets. Cash flows had decreased from that projected as of December 31, 2007, primarily due to the
Unilin segment was $214.1 million (17.3% of segment net sales) for 2006 compared to a loss of $5.2 million for 2005.slowing worldwide economy and declining sales volume. The Company has received partial refunds fromdetermined that, given the United States governmentcurrent
22
and expected economic conditions and the corresponding reductions in
referencecash flows, its ability to
settling custom disputes dating backrealize the benefit of the deferred tax asset related to
1982.the transaction described above as well as tax losses generated in the same jurisdiction was not more likely than not. Accordingly the Company recorded a
gain of $19.4 million ($12.3 million net of taxes) in other income (expense) forvaluation allowance against the
twelve months ended December 31, 2006. Additional future recoveries will be recorded as realized.Interest expense for 2006 was $173.7 million compared to $66.8 million in 2005. The increase in interest expense for 2006 as compared to 2005 was attributable to higher average debt levels as a result of the Unilin Acquisition. In addition, interest rates in 2006 were higher when compared to 2005.
Incomedeferred tax expense was $220.5 million, or 32.6% of earnings before income taxes for 2006 compared to $215.0 million, or 35.7% of earnings before income taxes for 2005. The decreaseasset in the tax rate is due toamount of $253 million during the combination of domestic and international tax rates resulting from the Unilin Acquisition when compared to 2005.
quarter ended September 27, 2008.
Year Ended December 31, 2005,2008, as Compared with Year Ended December 31, 20042007
Net sales for the year ended December 31, 2005,2008, were $6,620.1$6,826.3 million, reflecting an increasea decrease of $739.7$759.7 million, or approximately 12.6%10.0%, overfrom the $5,880.4$7,586.0 million reported for the year ended December 31, 2004.2007. The increaseddecrease was primarily driven by a decline in sales volumes of approximately $971 million due to the continued decline in the U.S. residential markets, softening commercial demand and slowing European demand, partially offset by a benefit of approximately $132 million due to the net sales are primarily attributable to price increases, internal sales growth and the Unilin Acquisition. The Mohawk segment recorded net saleseffect of $4,716.7 million in 2005 compared to $4,368.8 million in 2004, representing an increase of $347.9 million or approximately 8.0%. The increase was attributable to price increases and internal growth withinproduct mix, and a benefit of approximately $79 million due to favorable foreign exchange rates.
Mohawk Segment— Net sales decreased $577.6 million, or 13.7%, to $3,628.2 million in 2008, compared to $4,205.7 million in 2007. The decrease was primarily driven by a decline in sales volumes of approximately $639 million due to the nylon filamentcontinued decline in the U.S. residential market and polyester carpets,softening commercial carpet tile, and hard surface flooringdemand, partially offset by declines in nylon staplea benefit of approximately $83 million due to the net effect of price increases and polypropylene carpets and home products. The product mix.
Dal-Tile segment recorded netSegment— Net sales of $1,734.8decreased $122.4 million, or 6.3%, to $1,815.4 million in 2005, reflecting an increase of $223.3 million or 14.8%, over the $1,511.52008, compared to $1,937.7 million reported in 2004.2007. This decrease was primarily driven by a decline in sales volumes of approximately $146 million due to the continued decline in the U.S. residential market, partially offset by a benefit of approximately $24 million due to the net effect of price increases and product mix.
Unilin Segment— Net sales decreased $22.4 million, or 1.5%, to $1,465.2 million in 2008, compared to $1,487.6 million in 2007. The
increasedecrease in net sales was
mostly attributabledriven by a decline in sales volume of approximately $188 million due to
strong internal growththe continued decline in
allthe U.S. residential market and slowing European demand, partially offset by a benefit of approximately $63 million due to the Wood Acquisition, a benefit of approximately $79 million due to favorable foreign exchange rates and a benefit of approximately $23 million due to the net effect of price increases and product
categories with stone and floor tile reflecting the strongest growth.mix.
Quarterly net sales and the percentage changes in net sales by quarter for
20052008 versus
20042007 were as follows (dollars in
thousands)millions):
| | | | | | | | |
| | | 2005 | | 2004 | | Change | |
First quarter | | $ | 1,493,222 | | 1,389,725 | | 7.4 | % |
Second quarter | | | 1,624,692 | | 1,485,897 | | 9.3 | |
Third quarter | | | 1,697,634 | | 1,529,651 | | 11.0 | |
Fourth quarter(1) | | | 1,804,551 | | 1,475,099 | | 22.3 | |
| | | | | | | | |
Total year | | $ | 6,620,099 | | 5,880,372 | | 12.6 | % |
| | | | | | | | |
(1) | The fourth quarter of 2005 includes two months of Unilin sales. |
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | Change | |
| |
| First quarter | | $ | 1,738.1 | | | | 1,863.9 | | | | (6.7 | )% |
| Second quarter | | | 1,840.0 | | | | 1,977.2 | | | | (6.9 | ) |
| Third quarter | | | 1,763.0 | | | | 1,937.7 | | | | (9.0 | ) |
| Fourth quarter | | | 1,485.2 | | | | 1,807.2 | | | | (17.8 | ) |
| | | | | | | | | | | | | |
| Total year | | $ | 6,826.3 | | | | 7,586.0 | | | | (10.0 | )% |
| | | | | | | | | | | | | |
Gross profit
Gross profit was $1,768.2$1,737.8 million (26.7%(25.5% of net sales) for 20052008 and $1,624.2represented a decrease of $377.0 million, (27.6%or 17.8%, compared to gross profit of $2,114.8 million (27.9% of net sales) for 2004. The reduction in percentage2007. Gross profit was primarily attributable to increasedunfavorably impacted by increasing costs for raw material costs,materials and energy costs, transportation costs, a non-recurring $34.3 million ($22.3of approximately $172 million, net of taxes) fair value adjustment appliedcost savings initiatives, and a decline in volumes of approximately $279 million, partially offset by the net effect of price increases and product mix of approximately $97 million.
Selling, general and administrative expenses
Selling, general and administrative expenses for 2008 were $1,318.5 million (19.3% of net sales), reflecting a decrease of $46.2 million, or 3.4%, compared to
Unilin’s acquired inventory, and higher import costs.Operating income for 2005 was $672.4$1,364.7 million (10.2%(18.0% of net sales) for 2007.
23
The decrease in selling, general and administrative expenses is attributable to various cost savings initiatives implemented by the Company, offset by approximately $25 million of unfavorable foreign exchange rates.
Impairment of goodwill and intangibles
During 2008, the Company recorded a $1,543.4 million impairment charge to reduce the carrying amount of the Company’s goodwill and intangible assets to their estimated fair value based upon the results of two interim impairment tests. The Company performed interim impairment tests because of a prolonged decline in the Company’s market capitalization which the Company believes is primarily a result of the weakness in the U.S. residential housing market and the slowing European economy. In both the third and fourth quarters of 2008, the Company concluded that the weakness in the U.S. residential housing market is likely to persist based on its review of, among other things, sequential quarterly housing starts, recent turmoil surrounding the nation’s largest mortgage lenders, the potential negative impact on the availability of mortgage financing and housing start forecasts published by national home builder associations pushing recovery in the U.S. residential housing market beyond 2009. The total impairment included $276.8 million in the Mohawk segment, $531.9 million in the Dal-Tile segment and $734.7 million in the Unilin segment. If, in the future, the Company’s market capitalizationand/or the estimated fair value of the Company’s reporting units were to decline further, it may be necessary to record further impairment charges.
Operating (loss) income
Operating loss for 2008 was $1,124.1 million reflecting a decrease of $1,874.2 million compared to $639.0operating income of $750.1 million (10.9%(9.9% of net sales) in 2004. Operating income attributable2007. The decrease was primarily driven by the recognition of impairment of goodwill and other intangibles of $1,543.4 million, a decline in sales volumes of approximately $285 million and rising costs for raw materials and energy of approximately $116 million, net of cost savings initiatives, partially offset by a benefit of approximately $130 million due to the net effect of price increases and product mix.
Mohawk segmentSegment — Operating loss was $426.8$216.2 million (9.0%in 2008 reflecting a decrease of $471.1 million compared to operating income of $254.9 million (6.1% of segment net sales) in 20052007. The decrease was primarily due to the impairment of goodwill and other intangibles of $276.8 million, a decline in sales volumes of approximately $142 million and rising costs for raw materials and energy of approximately $82 million, net of cost savings initiatives, partially offset by a benefit of approximately $82 million due to the net effect of price increases and product mix.
Dal-Tile Segment — Operating loss was $323.4 million in 2008 reflecting a decrease of $582.1 million, compared to $427.7operating income of $258.7 million (9.8%(13.4% of segment net sales) in 2004.2007. The percentage decrease was primarily due to the impairment of goodwill of $531.9 million, rising costs for raw materials and energy of approximately $31 million, net of cost savings initiatives, and a decline in sales volumes of approximately $56 million, partially offset by a benefit of approximately $41 million due to the net effect of price increases and product mix.
Unilin Segment — Operating loss was $564.9 million in 2008, reflecting a decrease of $837.2 million compared to operating income
was attributable to the higher raw material costs, energy costs and transportation costs. Operating income attributable to the Dal-Tile segment was $260.2of $272.3 million
(15.0%(18.3% of segment net sales) in
2005, compared2007. The decrease was primarily due to
$219.8the impairment of goodwill and other intangibles of $734.7 million,
(14.5%a decline in sales volumes of
segmentapproximately $88 million and rising costs for raw materials and energy of approximately $19 million, net
sales) in 2004. The increase in operating income asof cost savings initiatives, partially offset by a
percentagebenefit of
approximately $7 million due to the net
sales is primarily attributable toeffect of price increases and product
mix shift and implementing increased pricing to help offset increased raw material, energy, transportation, and higher import costs.mix.
Interest expense
Interest expense for 20052008 was $66.8$127.1 million compared to $53.4$154.5 million in 2004.2007. The increasedecrease in interest expense for 2008 as compared to 2007 was attributable to thelower average debt raised to fund the Unilin Acquisition.and lower average interest rates on outstanding revolving debt.
24
Income tax (benefit) expense
The 2008 provision for income tax was
$215.0$180.1 million,
or 35.7% of earnings before income taxes for 2005as compared to
$210.0an income tax benefit of $102.7 million
or 36.2%for 2007. The effective tax rate for 2008 was (14.2)% as compared to an effective tax rate benefit of
earnings before income taxes16.8% for
2004.2007. The
improvedchange in the tax rate was primarily
attributabledue to the
utilizationimpact on pre-tax earnings of
tax creditsthe impairment charge on non-deductible goodwill, the 2008 asset restructurings, and the
one-time effectrecognition of
statea valuation allowance of $253 million, which is described above, against certain deferred tax
law changes.assets that the Company believes is no longer more likely than not to be realized. Without the impact of these three items, the Company would have reflected a 2008 provision for income tax of $70.5 million, as compared to a provision of $168.9 million for 2007.
Liquidity and Capital Resources The
Company'sCompany’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, bank credit lines, term and senior notes
the sale of trade receivables and credit terms from suppliers.
Cash flows
generatedprovided by operations for
20062009 were
$782.0$672.2 million compared to
$561.5cash flows provided by operations of $576.1 million
in 2008. The increase in operating cash flows for
2005. Contributing2009 as compared to
the improved cash flow was higher net earnings after adjusting for the incremental depreciation and amortization expense resulting from the Unilin Acquisition and improved2008 is primarily attributable to lower working capital
comparedrequirements due to
the prior year.lower sales demand.
Net cash used in investing activities
in 2006for 2009 was
$236.7$114.8 million compared to
$2,860.8$226.1 million
for 2005.in 2008. The
change was primarily attributabledecrease is due to
the Unilin Acquisition in 2005 and lower capital
spending as a result of lower sales and tighter management of expenditures
in 2006during 2009 as compared to
2005.2008. Capital expenditures, including
$2.7 billion$161.3 million for acquisitions have totaled
$3.2 billion$651.1 million over the past three years. Capital spending during
2007 for the Mohawk, Dal-Tile and Unilin segments combined,2010, excluding acquisitions, is expected to range from
$250$150 million to
$300$160 million,
which includes approximately $100 million for strategic capacity expansions and
the remaining capital expenditures willis intended to be used primarily to purchase equipment and to
addstreamline manufacturing
and distribution capacity.
The Company will assess the need to make the capacity expansion additions during the year based on economic and industry conditions.Net cash used in financing activities for
20062009 was
$620.8$125.8 million compared to
net cash
providedused by financing activities of $348.9 million in
2005 of $2,440.7 million.2008. The
primary reason for the change
was an increase in
debt payments during 2006cash used in financing activities as compared to
2008 is primarily attributable to lower debt levels as the
same period in 2005.Company manages its working capital requirements to align with its current sales.
On October 28, 2005,September 2, 2009, the Company entered into a $1.5 billion five-year,$600 million four-year, senior, secured revolving credit facility (the “ABL Facility”) in connection with the replacement of the Company’s then-existing senior, unsecured, revolving credit and term loan facility (the “senior unsecured credit facilities”“Senior Unsecured Facility”). The senior unsecured credit facilities replacedAt the time of its termination, the Senior Unsecured Facility consisted of a then-existing credit facility and various uncommitted credit lines. The Company entered into the senior unsecured credit facility to finance the Unilin Acquisition and to provide for working capital requirements. The senior unsecured credit facilities consist of (i) a multi-currency $750.0$650 million revolving credit facility, (ii) a $389.2 million term loan facility and (iii) a Euro 300.0 million term loan facility, all of which was to mature on October 28, 2010. The ABL Facility provides for a maximum of $600 million of revolving credit, subject to borrowing base availability, including limited amounts of credit in the form of letters of credit and swingline loans. The borrowing base is equal to specified percentages of eligible accounts receivable and inventories of the Company and other borrowers under the ABL Facility, which are subject to seasonal variations, less reserves established in good faith by the Administrative Agent under the ABL Facility. All obligations under the ABL Facility, and the guarantees of those obligations, are secured by a security interest in certain accounts receivable, inventories, certain deposit and securities accounts, tax refunds and other personal property (excluding intellectual property) directly relating to, or arising from, and proceeds of, any of the foregoing. In connection with the entry into the ABL Facility, the Company incurred approximately $23.7 million in debt issuance costs which will be amortized on a straight-line basis over the four-year term of the facility and recognized as interest expense in the condensed consolidated statement of operations.
At the Company’s election, revolving loans under the ABL Facility bear interest at annual rates equal to either (a) LIBOR for 1, 2, 3 or 6 month periods, as selected by the Company, plus an applicable margin ranging between 3.75% and 4.25%, or (b) the higher of the prime rate, the Federal Funds rate plus 0.5%, or a daily LIBOR rate, plus an applicable margin ranging between 2.25% and 2.75%. The Company also pays a commitment fee to the Lenders under the ABL Facility on the average amount by which the aggregate commitments of the Lenders’ exceed utilization of the ABL Facility equal to 1.00% per annum during any
25
quarter that this excess is 50% or more, and 0.75% per annum during any quarter that this excess is less than 50%.
The ABL Facility includes certain affirmative and negative covenants that impose restrictions on Mohawk’s financial and business operations, including limitations on debt, liens, investments, 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. Many of these limitations are subject to numerous exceptions. The Company is also required to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that the unutilized amount available under the ABL Facility is less than 15% of the amount available under the ABL Facility.
The ABL Facility is scheduled to mature on September 2, 2013 but the maturity date will be accelerated to: (i) October 15, 2010 if the Company’s outstanding 5.75% senior notes due January 15, 2011 have not been repaid, refinanced, defeased or adequately reserved for by the Company, as reasonably determined by the Administrative Agent, prior to October 15, 2010, and (ii) January 15, 2012, if the Company’s outstanding 7.20% senior notes due April 15, 2012 have not been repaid, refinanced, defeased or adequately reserved for by the Company, as reasonably determined by the Administrative Agent, prior to January 15, 2012. The Company can make adequate reserves for such senior notes with unrestricted cash on hand and unutilized borrowing availability under the ABL Facility. The Company believes cash and cash equivalents and availability under the ABL Facility will be sufficient to satisfy the October 15, 2010 requirements of the ABL Facility, although there can be no assurances the Company will have adequate reserves as defined in the ABL Facility.
As of December 31,
2006, $395.3 million of borrowings was outstanding under these facilities. The borrowings outstanding are comprised of $197.3 million2009, the amount considered used under the
revolving credit facility and Euro 150.0ABL Facility was $113.4 million
or approximately $198.0 million, borrowings outstanding under the Euro term facility. The balance of the $389.2 million facility was repaid in 2006.At December 31, 2006,leaving a total of approximately $455.6$462 million was available under the revolving credit facility.ABL Facility. The amount used under the revolving credit facility at December 31, 2006, was $294.4 million. The amount used under the revolving credit facilityABL Facility is composed of $197.3 million borrowings, $55.6$53.5 million standby letters of credit guaranteeing the Company'sCompany’s industrial revenue bonds and $41.5$59.9 million of standby letters of credit related to various insurance contracts and foreign vendor commitments.
The senior unsecured credit facilities bear interest at (i) the greater of (x) prime rate or (y) the overnight federal funds rate plus 0.50%, or (ii) LIBOR plus an indexed amount based on the Company's senior, unsecured, long-term debt rating.
The Company has an on-balance sheet trade accounts receivable securitization agreement (the “Securitization Facility”). The Securitization Facility allows
During 2009, the Company
to borrow up to $350.0 million based on available accounts receivable. At December 31, 2006, the Company had $190.0 million outstanding compared to $40.0 million at December 31, 2005. The Securitization Facility is secured by trade receivables. During the third quarter of 2006, the Company extended the term ofterminated its
Securitization Facility until July 2007.On November 8, 2005, one of the Company's subsidiaries entered into a Euro 130.0 million, five-year unsecured, revolving credit facility maturing on November 8, 2010 (the “Euro revolving credit facility”). Thisand its on-balance sheet trade accounts receivable securitization agreement, bears interest at EURIBOR plus an indexed amountwhich allowed for borrowings up to $250.0 million based on the Company’s senior, unsecured, long-term debt rating. The Company guaranteed the obligations of that subsidiary under the Euro revolving credit facility and of any of the Company’s other subsidiaries that become borrowers under the Euro revolving credit facility. As of December 31, 2006, the Company had borrowings outstanding of Euro 18.8 million, or approximately $24.8 million, under this facility. No borrowings were outstanding at December 31, 2005 under this facility.
The Company’s senior unsecured credit facilities and the Euro revolving credit facility both contain debt to capital ratio requirements and other customary covenants. The Company was in compliance with these covenants at December 31, 2006. Under both of these credit facilities, the Company must pay an annual facility fee ranging from 0.06% to 0.25% depending upon the Company's senior, unsecured long-term debt rating.
available accounts receivable.
On January 17, 2006, the Company issued $500.0 million aggregate principal amount of 5.750% notes due 2011 and $900.0 million aggregate principal amount of 6.125% notes due 2016.
The net proceeds from the issuance of these notes were used to pay off a $1.4 billion bridge credit facility entered into in connection with the Unilin Acquisition. Interest payable on each series of the notes is subject to adjustment if either
Moody's InvestorMoody’s Investors Service, Inc.
(“Moody’s”) or Standard &
Poor'sPoor’s Ratings Services
(“Standard & Poor’s”), or both, downgrades the rating
they have assigned to the notes. Each rating agency downgrade results in a 0.25% increase in the interest rate, subject to a maximum increase of 1% per rating agency. If later the rating of these notes improves, then the interest rates would be
reduced accordingly. The provision for increasing the interest rate will no longer apply if the rating of these notes from both rating agencies improves above the rating of these notesEach 0.25% increase in effect at the time of the issuance of the notes. There have been no adjustments to the interest rate of these notes.
notes would increase the Company’s interest expense by approximately $3.5 million per year. Currently, the interest rates have been increased by an aggregate amount of 0.75% as a result of downgrades by Moody’s and Standard & Poor’s during 2009. These downgrades increase the Company’s interest expense by approximately $10.5 million per year and could adversely affect the cost of and ability to obtain additional credit in the future. Additional downgrades in the Company’s credit ratings could further increase the cost of its existing credit and adversely affect the cost of and ability to obtain additional credit in the future.
In 2002, the Company issued $300.0 million aggregate principal amount of its senior 6.5% notes due 2007 and $400.0 million aggregate principal amount of its senior 7.2% notes due 2012.
The Company may from time to time seek 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, 2009, the Company had invested cash of $464.9 million in money market AAA rated cash investments of which $367.3 million was in North America and $97.6 million was in Europe. The
26
The
Company believes that
its cash and cash equivalents on hand, cash generated from operations
in 2007 and availability under its
existing revolving credit facilityABL Facility will be sufficient to
repay, defease or refinance its 5.75% senior notes due January 2011 and meet its
scheduled debt repayments in 2007.capital expenditures and working capital 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 $334.7 million. All of these repurchases have been financed through the Company’s operations and banking arrangements.
No shares were repurchased during 2009, 2008 and 2007.
On October 31, 2005, the Company entered into a Discounted Stock Purchase Agreement (the “DSPA”) with certain members of the Unilin management team (the “Unilin Management”).
The Company terminated the DSPA during the year ended December 31, 2009. Under the terms of the DSPA, the Company
will bewas obligated to make cash payments to the Unilin Management in the event that certain performance goals
arewere satisfied. In each of the years in the five-year period ended December 31, 2010, the remaining members of Unilin Management
cancould earn amounts, in the aggregate, equal to the average value of 30,671 shares of the
Company'sCompany’s common stock over the 20 trading day period ending on December 31 of the prior year. Any failure in a given year to reach the performance goals
may becould have been rectified, and consequently the amounts payable with respect to achieving such criteria
may becould have been made, in any of the other years. The amount of the liability is measured each period and recognized as compensation expense in the
consolidated statement of operations.
As of December 31, 2006,No expense related to the DSPA was recognized by the Company
expensed approximately $2.3 million under the DSPA.in 2009.
The outstanding checks in excess of cash represent trade payables checks that have not yet cleared the bank. When the checks clear the bank, they are funded by the
revolving credit facility.ABL Facility. This policy does not impact any liquid assets on the consolidated balance sheets.
Contractual obligations
The following is a summary of the
Company'sCompany’s future minimum payments under contractual obligations as of December 31,
20062009 (in
thousands)millions):
| | | | | | | | | | | | | | | |
| | | Payments due by period |
| | | 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | Thereafter | | Total |
Long-term debt | | $ | 576,134 | | 7,637 | | 3,417 | | 395,574 | | 500,249 | | 1,300,670 | | 2,783,681 |
Estimated interest payments(1) | | | 150,001 | | 130,381 | | 130,200 | | 130,064 | | 99,368 | | 231,079 | | 871,093 |
Operating leases | | | 103,333 | | 90,126 | | 78,361 | | 58,441 | | 44,846 | | 98,643 | | 473,750 |
Purchase commitments(2) | | | 263,406 | | 193,423 | | 66,215 | | 1,775 | | — | | — | | 524,819 |
Expected pension payments | | | 29,454 | | 121 | | 160 | | 194 | | 349 | | 3,041 | | 33,319 |
| | | | | | | | | | | | | | | |
| | $ | 1,122,328 | | 421,688 | | 278,353 | | 586,048 | | 644,812 | | 1,633,433 | | 4,686,662 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total | | | 2010 | | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | Thereafter | |
| |
| Recorded Contractual Obligations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt, including current maturities and capital leases | | $ | 1,854.5 | | | | 52.9 | | | | 499.8 | | | | 400.4 | | | | 0.4 | | | | 0.4 | | | | 900.6 | |
| Unrecorded Contractual Obligations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest payments on long-term debt and capital leases(1) | | | 473.4 | | | | 123.3 | | | | 92.1 | | | | 70.2 | | | | 61.9 | | | | 61.9 | | | | 64.0 | |
| Operating leases | | | 379.4 | | | | 94.3 | | | | 77.1 | | | | 58.5 | | | | 45.2 | | | | 37.3 | | | | 67.0 | |
| Purchase commitments(2) | | | 684.1 | | | | 186.5 | | | | 180.4 | | | | 105.8 | | | | 105.7 | | | | 105.7 | | | | — | |
| Expected pension contributions(3) | | | 0.9 | | | | 0.9 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Uncertain tax positions(4) | | | 69.3 | | | | 69.3 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Guarantees | | | 0.7 | | | | 0.7 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 1,607.8 | | | | 475.0 | | | | 349.6 | | | | 234.5 | | | | 212.8 | | | | 204.9 | | | | 131.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 3,462.3 | | | | 527.9 | | | | 849.4 | | | | 634.9 | | | | 213.2 | | | | 205.3 | | | | 1,031.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| (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 atas of December 31, 20062009 to these balances. |
|
| (2) | | Includes commitments for natural gas, electricity and raw material purchases. |
|
| (3) | | Includes the estimated pension contributions for 2010 only, as the Company is unable to estimate the pension contributions beyond 2010. The Company’s projected benefit obligation as of December 31, 2009 was |
27
| | |
| | $25.5 million. These liabilities have not been presented in the table above due to uncertainty as to amounts and timing regarding future payments. |
|
| (4) | | Excludes $48.5 million of non-current accrued income tax liabilities 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. |
Critical Accounting Policies In preparing the consolidated financial statements in conformity with
accounting principlesU.S. generally accepted
in the United States of America,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 statements are prepared.
The
Company'sCompany’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements included elsewhere in this report. Some of those significant accounting policies require the Company to make subjective or complex judgments or estimates. Critical accounting policies are defined as those that are both most important to the portrayal of a
company'scompany’s financial condition and results and require
management'smanagement’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 collectibility can be reasonably assured. The Company provides allowances for expected cash discounts, 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.
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.
Goodwill and indefinite life intangible assets are subject to annual impairment testing.
| | |
| • | 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, 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. |
|
| • | Inventories are stated at the lower of cost or market (net realizable value). Cost has been determined using thefirst-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. |
|
| • | Goodwill and other intangibles. Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. The Company considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment. The 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 and comparable company market valuation approaches. The Company has identified Mohawk, Dal-Tile, Unilin Flooring, Unilin Chipboard and Melamine, and Unilin Roofing 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 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 |
28
| | |
| | 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. Generally, a moderate decline in estimated operating income or a small increase in WACC or a decline in market capitalization could result in an additional indication of impairment. |
The impairment test for intangible assets not subject to amortization involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset 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 during 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. Significant judgments inherent in this analysis include assumptions about appropriate sales growth rates, royalty rates, WACC 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 specified reporting units and indefinite lifetrademarks. Estimated cash flows are sensitive to changes in the economy among other things.
The Company reviews its long-lived asset groups, which include intangible assets based on management judgmentssubject to amortization, which for the Company are its patents and assumptions usingcustomer relationships, for impairment whenever events or changes in circumstances indicate that the discountedcarrying 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 and market value approaches forexpected 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 determinationof 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 life intangibles. These judgmentslived intangibles in the fourth quarter and assumptions could materially changeno impairment was indicated. The Company did record impairment of goodwill and other intangibles of $1,543.4 million in 2008.
| | |
| • | 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 |
29
| | |
| | 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. The Company recorded valuation allowances of $365.9 million in 2009, $343.6 million in 2008 and $75.0 million in 2007. |
In the valueordinary 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 specifiedfacts, circumstances and information available as of the reporting units and indefinite life intangible assets and, therefore, could materially impactdate. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company'sCompany 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 Topic 740 (“ASC740-10”), a replacement of FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109”. 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. Intangible assets with definite lives are amortized over their useful lives. The useful lifeAs of a definite-lived intangible asset is based on assumptions and judgments made by management at the time of acquisition. Changes in these judgments and assumptions that could include a loss of customers, a change in the assessment of future operations or a prolonged economic downturn could materially change the value of the definite-lived intangible assets and, therefore, could materially impact the Company's financial statements.
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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in earnings in the period that includes the enactment date. Additionally, taxing jurisdictions could retroactively disagree with the Company's tax treatment of certain items, and some historical transactions have income tax effects going forward. Accounting rules require these future effects to be evaluated using current laws, rules and regulations, each of which can change at any time and in an unpredictable manner.
Environmental and legal accruals are estimates based on judgments made byDecember 31, 2009, 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
has $105.6 million accrued for uncertain tax positions. | | |
| | • | 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 In
November 2004,September 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 151, “Inventory Costs-An Amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and re-handling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. Effective January 1, 2006, the Company adopted SFAS 151 which did not have a material impact on the Company's consolidated financial statements.ASCIn July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes.FIN 48 prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective as of the beginning of the Company's 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. Based on its current evaluation, the Company does not believe the adoption of FIN 48 will have a material impact on the consolidated financial statements.820-10,
In September 2006, FASB issued formerly Statement of Financial Accounting Standards (“SFAS”) No. 157, (“SFAS No. 157”), “Fair“Fair Value Measurements.” SFAS No. 157Measurements”. ASC820-10 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157ASC820-10 requires companies to disclose the fair value of its financial instruments according to a fair value hierarchy. Additionally, companies are required to provide certain disclosures regarding instruments within the hierarchy, including a reconciliation of the beginning and ending balances for each major category of assets and liabilities. SFAS 157ASC820-10 is effective for the Company’s fiscal year beginning January 1, 2008. The Company is currently evaluating the impact of SFAS No. 157 on its consolidated2008 for financial statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans- an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires an employer that sponsors one or more single-employer defined benefit plans to recognize the over-funded or under-funded status of a benefit plan in its statement of financial position, recognize as a component of other comprehensive income, net of tax, gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit costs pursuant to SFAS No. 87, “Employers Accounting for Pensions,” or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” measure defined benefit plan assets and obligations asliabilities and January 1, 2009 for non-financial assets and liabilities. The Company’s adoption of the date of the employer’s fiscal year-end,ASC820-10 for financial assets and disclose in the notes to financial statements additional information about certain effectsliabilities on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits,January 1, 2008 and transitionnon-financial assets or obligations. The recognition and disclosure provisions required by SFAS No. 158 are effective for the Company’s fiscal year ending December 31, 2006. The measurement date provisions are effective for fiscal years ending after December 15, 2008. The Company adopted SFAS No. 158 for its fiscal year ended December 31, 2006 which resulted in the Company recording $818 in accumulated other comprehensive income for amounts that had not been previously recorded in net periodic benefit cost.
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidanceliabilities on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both the balance sheet and income statement approach when quantifying a misstatement. SAB 108 is effective for the Company’s fiscal year ending December 31, 2006. Effective December 31, 2006, the Company adopted SAB 108 whichJanuary 1, 2009 did not have a material impact on the Company’s consolidated financial statements.
In December 2007, the FASB issued ASC805-10, formerly SFAS No. 141 (revised 2007),“Business Combinations”. ASC805-10 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. ASC805-10 also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. ASC805-10 is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The adoption of ASC805-10 on January 1, 2009 did not have a material impact on the Company’s consolidated financial statements, although the adoption of ASC805-10 will impact the recognition and measurement of future business combinations and certain income tax benefits recognized from prior business combinations.
In December 2007, the FASB issued ASC810-10, formerly SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51”. ASC810-10 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when
30
a subsidiary is deconsolidated. ASC810-10 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. ASC810-10 is effective for fiscal years beginning after December 15, 2008. The adoption of ASC810-10 on January 1, 2009 did not have a material impact on the Company’s consolidated financial statements. Upon adoption, the Company reclassified $31.1 million on the condensed consolidated balance sheets from other long-term liabilities to noncontrolling interest within equity and reclassified the related net earnings to net earnings attributable to the noncontrolling interest on the consolidated statements of operations.
In March 2008, the FASB issued ASC815-10, formerly SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities”. ASC815-10 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The provisions of ASC815-10 are effective for the first quarter of 2009. The adoption of ASC815-10 on January 1, 2009 did not have a material impact on the Company’s consolidated financial statements.
In April 2009, the FASB issued ASC825-10, formerly the FASB Staff Position onFAS 107-1 and APB28-1, “Interim Disclosures About Fair Value of Financial Instruments”. ASC825-10 requires disclosures about fair value of financial instruments in interim reporting periods of publicly-traded companies that were previously only required to be disclosed in annual financial statements. The provisions of ASC825-10 are effective for the second quarter of 2009. The adoption of this standard on June 27, 2009 did not have a material impact on the Company’s consolidated financial statements.
In May 2009, the FASB issued ASC855-10-05, formerly SFAS No. 165,“Subsequent Events”. ASC855-10-05 establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are available to be issued (“subsequent events”). More specifically, ASC855-10-05 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that should be made about events or transactions that occur after the balance sheet date. ASC855-10-05 provides largely the same guidance on subsequent events which previously existed only in the auditing literature. ASC855-10-05 is effective for interim or annual financial periods ending after June 15, 2009, and is to be applied prospectively. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In June 2009, the FASB issued ASC 860, formerly SFAS No. 166,“Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140”. ASC 860 seeks to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Specifically, ASC 860 eliminates the concept of a qualifying special-purpose entity, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets. ASC 860 is effective for annual and quarterly reporting periods that begin after November 15, 2009. The adoption of this standard on January 1, 2010 is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2009, the FASB issued ASC 810, formerly SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”. ASC 810 amends FASB Interpretation No. 46(R),“Variable Interest Entities”for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under ASC 810, an enterprise has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. ASC 810 also requires an enterprise to assess whether it has an implicit financial responsibility to
31
ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. ASC 810 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. ASC 810 is effective for annual and quarterly reporting periods that begin after November 15, 2009. The adoption of this standard on January 1, 2010 is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2009, the FASB issued ASC105-10, formerly SFAS No. 168,“The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162”. ASC105-10 establishes the FASB Standards Accounting Codification (“Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied to nongovernmental entities and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification superseded all the existing non-SEC accounting and reporting standards upon its effective date. ASC105-10 also replaced FASB Statement No. 162,“The Hierarchy of Generally Accepted Accounting Principles”given that once in effect, the Codification carries the same level of authority. ASC105-10 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
Inflation affects the
Company'sCompany’s manufacturing costs, distribution costs and operating expenses. The carpet, tile and laminate industry
have experienced significant inflation in the prices of raw materials and fuel-related costs beginning in the first quarter of
2004. For2004, and the
period from 1999 throughprices increased dramatically during the
beginninglatter part of
2004 the carpet and tile industry experienced moderate inflation2008, peaking in the
second half of 2008. The Company expects raw material prices
to continue to fluctuate based upon worldwide demand of
raw materials and fuel-related costs.commodities utilized in the Company’s production processes. In the past, the Company has generally been able to pass along these price increases to its customers and has been able to enhance productivity to help offset increases in costs resulting from inflation in its operations.
The Company is a calendar year-end company. With respect to its Mohawk and Dal-Tile segments, its results of operations for the first quarter tend to be the weakest. The second, third and fourth quarters typically produce higher net sales and operating income in these segments. These results are primarily due to consumer residential spending patterns for floor covering, which historically have decreased during the first two months of each year following the holiday season. The Unilin segment second and fourth quarters typically produce higher net sales and earnings followed by a moderate first quarter and a weaker third quarter. The third quarter is traditionally the weakest due to the European holiday in late summer.
| |
| Item 7A. | Quantitative and Qualitative Disclosures Aboutabout Market Risk |
Financial exposures are managed as an integral part of the
Company'sCompany’s risk management program, which seeks to reduce the potentially adverse effect that the volatility of exchange rates and natural gas 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.
Natural Gas Risk Management The Company uses a combination of natural gas futures contracts and long-term supply agreements to manage unanticipated changes in natural gas prices. The contracts are based on forecasted usage of natural gas measured in Million British Thermal Units (“MMBTU”).
The Company has designated the natural gas futures contracts as cash flow hedges. The outstanding contracts are valued at market with the offset applied to other comprehensive income, net of applicable income taxes and any hedge ineffectiveness.
32
Any gain or loss is reclassified from other comprehensive income and recognized in cost of
goods soldsales in the same period or periods during which the hedged transaction affects earnings.
AtAs of December 31,
2006,2009, the Company had no outstanding natural gas contracts. As of December 31, 2008, the Company had natural gas contracts that mature from January
20072009 to
October 2007December 2009 with an aggregate notional amount of approximately
1,400 MMBTU's.2,650 thousand MMBTU’s. The fair value of these contracts was a liability of
$2.4$5.9 million as of December 31,
2006. At December 31, 2005, the Company had natural gas contracts that matured from January 2006 to October 2006 with an aggregate notional amount of approximately 660 thousand MMBTU's. The fair value of these contracts was an asset of $1.9 million as of December 31, 2005.2008. The offset to these
assetsliabilities is recorded in other comprehensive income, net of applicable income taxes. The ineffective portion of the
derivative is recognized directly in the cost of goods soldsales within the consolidated statements of earningsoperations and was not significant for the periods reported.
The
amount that the Company anticipates will be reclassified out of accumulated other comprehensive income in the next twelve months is a loss of approximately $2.4 million, net of taxes.The Company'sCompany’s natural gas long-term supply agreements are accounted for under the normal purchasespurchase provision within ASC 815, formerly SFAS No. 133 and its amendments. AtAs of December 31, 2006,2009, the Company had no outstanding normal purchase commitments for natural gas. As of December 31, 2008, the Company had normal purchase commitments of approximately 1,748 MMBTU's2,026 thousand MMBTU’s for periods maturing from January 20072009 through March 2008. The contracted value of these commitments was approximately $15.4 million and the fair value of these commitments was approximately $12.1 million, at December 31, 2006. At December 31, 2005, the Company had normal purchase commitments of approximately 1,867 MMBTU's for periods maturing from January 2006 through October 2006.2009. The contracted value of these commitments was approximately $17.2 million and the fair valueas of these commitments was approximately $20.5 million, at December 31, 2005.
2008.
Foreign Currency Rate Management The Company enters into foreign exchange forward contracts to hedge foreign denominated costs associated with its operations in Mexico. The objective of these transactions is to reduce volatility of exchange rates where these operations are located by fixing a portion of their costs in U.S. currency. Accordingly, these contracts have been designated as cash flow hedges. Gains and losses are reclassified from other comprehensive income and recognized in cost of goods soldsales in the same period or periods during which the hedged transaction affects earnings. The companyCompany had no outstanding forward contracts outstanding atto purchase Mexican pesos as of December 31, 2006.2009. The Company had forward contracts to purchase approximately 8269.1 million Mexican pesos atas of December 31, 2005.2008. The aggregate U.S. dollar value of these contracts atas of December 31, 20052008 was approximately $0.7$23.9 million and the fair value of these contracts was a liability of approximately $5.2 million.
33
| |
| Item 8. | Consolidated Financial Statements and Supplementary Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS | | | | |
| | 30 | 35 | |
| | 33 | 37 | |
| | 34 | 38 | |
| | 35 | 39 | |
| | 36 | 40 | |
| | 37 | 41 | |
34
Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders
We have audited the accompanying consolidated balance sheets of Mohawk Industries, Inc. and subsidiaries as of December 31,
20062009 and
2005,2008, and the related consolidated statements of
earnings, stockholders’operations, equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31,
2006.2009. 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 did not audit the combined consolidated financial statements of Unilin Flooring BVBA and Unilin Holding Inc. and their respective subsidiaries (Unilin Group), which financial statements reflect total assets constituting approximately 40 and 41 percent and total revenues constituting approximately 16 and 3 percent in 2006 and 2005, respectively, of the related consolidated totals. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Unilin Group, is based solely on the report of the other auditors.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion,
based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mohawk Industries, Inc. and subsidiaries as of December 31,
20062009 and
2005,2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2006,2009, in conformity with U.S. generally accepted accounting principles.
As discussed in
note 11Note 13 to the consolidated financial statements, the Company adopted
Statement of Financial Accounting Standards
Board Interpretation No.
123 (revised 2004)48,Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109,
Share-Based Payment, included in ASC subtopic740-10, Income Taxes-Overall, effective January 1,
2006. As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for all inventories not previously accounted for on the first-in first-out (“FIFO”) method from the last-in first-out (“LIFO”) method to the FIFO method during 2006.2007.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Mohawk Industries, Inc.’s internal control over financial reporting as of December 31, 2006,2009, based on criteria established in Internal Control—Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 23, 200726, 2010 expressed an unqualified opinion on management’s assessmentthe effectiveness of and the effective operation of,Company’s internal control over financial reporting.
Atlanta, Georgia
February 26, 2010
35
|
|
/s/ KPMG LLP |
KPMG LLP |
Atlanta, Georgia |
February 23, 2007 |
Report of Independent Registered Public Accounting FirmThe Shareholders and the Board of Directors
Unilin Flooring BVBA and Unilin Holding Inc.
Ooigem, Belgium
We have audited the combined consolidated financial statements of Unilin Flooring BVBA and Unilin Holding Inc. and their subsidiaries (the Unilin Group) as of December 31, 2006 and 2005 and the related combined consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for the twelve and two month periods then ended (not presented herein). These financial statements are the responsibility of the combined Companies’ management. Our responsibility is to express an opinion on these combined consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The combined Companies are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the combined Companies’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Unilin Group at December 31, 2006 and 2005 and the results of their operations and their cash flows for the twelve and two month periods then ended in conformity with accounting principles generally accepted in the United States of America.
February 23, 2007
BDO Atrio Bedrijfsrevisoren Burg. CVBA
Represented by
/s/ Veerle Catry
Veerle Catry
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
We have audited
management's assessment, included in the “Management’s Report on Internal Control over Financial Reporting” set forth in Item 9A of Mohawk Industries, Inc.’s
Annual Report on Form 10-K for the year ended December 31, 2006,that Mohawk Industries, Inc. maintained effective internal control over financial reporting as of December 31,
2006,2009, based on criteria established in Internal
Control—Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Mohawk Industries, Inc.’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.reporting, as set forth in Item 9A of Mohawk Industries, Inc.’s Annual Report onForm 10-K for the year ended December 31, 2009. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 included obtaining an understanding of internal control over financial reporting,
evaluating management's assessment,assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
andbased 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.
A
company'scompany’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'scompany’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.
In
our opinion, management's assessment that Mohawk Industries, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Mohawk Industries, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31,
2006,2009, based on criteria established in Internal
Control—Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Mohawk Industries,
Inc. and subsidiaries as of December 31,
20062009 and
2005,2008, and the related consolidated statements of
earnings, stockholders’operations, equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31,
2006,2009, and our report dated February
23, 200726, 2010 expressed an unqualified opinion on those consolidated financial statements.
KPMG LLP
Atlanta, Georgia
February 26, 2010
36
February 23, 2007
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 20062009 and 20052008
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | (In thousands, except per share data) | |
| |
ASSETS |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 531,458 | | | | 93,519 | |
| Receivables, net | | | 673,931 | | | | 696,284 | |
| Inventories | | | 892,981 | | | | 1,168,272 | |
| Prepaid expenses | | | 108,947 | | | | 125,603 | |
| Deferred income taxes | | | 130,990 | | | | 149,203 | |
| Other current assets | | | 20,693 | | | | 13,368 | |
| | | | | | | | | |
| Total current assets | | | 2,359,000 | | | | 2,246,249 | |
| Property, plant and equipment, net | | | 1,791,412 | | | | 1,925,742 | |
| Goodwill | | | 1,411,128 | | | | 1,399,434 | |
| Tradenames | | | 477,607 | | | | 472,399 | |
| Other intangible assets, net | | | 307,735 | | | | 375,451 | |
| Deferred income taxes and other non-current assets | | | 44,564 | | | | 26,900 | |
| | | | | | | | | |
| | | $ | 6,391,446 | | | | 6,446,175 | |
| | | | | | | | | |
| |
| LIABILITIES AND EQUITY |
| Current liabilities: | | | | | | | | |
| Current portion of long-term debt | | $ | 52,907 | | | | 94,785 | |
| Accounts payable and accrued expenses | | | 831,115 | | | | 782,131 | |
| | | | | | | | | |
| Total current liabilities | | | 884,022 | | | | 876,916 | |
| Deferred income taxes | | | 370,903 | | | | 419,985 | |
| Long-term debt, less current portion | | | 1,801,572 | | | | 1,860,001 | |
| Other long-term liabilities | | | 100,667 | | | | 104,340 | |
| | | | | | | | | |
| Total liabilities | | | 3,157,164 | | | | 3,261,242 | |
| | | | | | | | | |
| Commitments and contingencies (Note 14) | | | | | | | | |
| Equity: | | | | | | | | |
| Preferred stock, $.01 par value; 60 shares authorized; no shares issued | | | — | | | | — | |
| Common stock, $.01 par value; 150,000 shares authorized; 79,518 and 79,461 shares issued in 2009 and 2008, respectively | | | 795 | | | | 795 | |
| Additional paid-in capital | | | 1,227,856 | | | | 1,217,903 | |
| Retained earnings | | | 1,998,616 | | | | 2,004,115 | |
| Accumulated other comprehensive income, net | | | 296,917 | | | | 254,535 | |
| | | | | | | | | |
| | | | 3,524,184 | | | | 3,477,348 | |
| Less treasury stock at cost; 11,034 and 11,040 shares in 2009 and 2008, respectively | | | 323,361 | | | | 323,545 | |
| | | | | | | | | |
| Total Mohawk Industries, Inc. stockholders’ equity | | | 3,200,823 | | | | 3,153,803 | |
| Noncontrolling interest | | | 33,459 | | | | 31,130 | |
| | | | | | | | | |
| Total equity | | | 3,234,282 | | | | 3,184,933 | |
| | | | | | | | | |
| | | $ | 6,391,446 | | | | 6,446,175 | |
| | | | | | | | | |
See accompanying notes to consolidated financial statements.
37
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2009, 2008 and 2007
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| | | (In thousands, except per share data) | |
| |
| Net sales | | $ | 5,344,024 | | | | 6,826,348 | | | | 7,586,018 | |
| Cost of sales | | | 4,111,794 | | | | 5,088,584 | | | | 5,471,234 | |
| | | | | | | | | | | | | |
| Gross profit | | | 1,232,230 | | | | 1,737,764 | | | | 2,114,784 | |
| Selling, general and administrative expenses | | | 1,188,500 | | | | 1,318,501 | | | | 1,364,678 | |
| Impairment of goodwill and other intangibles | | | — | | | | 1,543,397 | | | | — | |
| | | | | | | | | | | | | |
| Operating income (loss) | | | 43,730 | | | | (1,124,134 | ) | | | 750,106 | |
| | | | | | | | | | | | | |
| Other expense (income): | | | | | | | | | | | | |
| Interest expense | | | 127,031 | | | | 127,050 | | | | 154,469 | |
| Other expense | | | 16,935 | | | | 31,139 | | | | 15,398 | |
| Other income | | | (22,523 | ) | | | (9,851 | ) | | | (22,323 | ) |
| U.S. customs refund | | | — | | | | — | | | | (9,154 | ) |
| | | | | | | | | | | | | |
| | | | 121,443 | | | | 148,338 | | | | 138,390 | |
| | | | | | | | | | | | | |
| Earnings (loss) before income taxes | | | (77,713 | ) | | | (1,272,472 | ) | | | 611,716 | |
| Income taxes (benefit) expense | | | (76,694 | ) | | | 180,062 | | | | (102,697 | ) |
| | | | | | | | | | | | | |
| Net (loss) earnings | | | (1,019 | ) | | | (1,452,534 | ) | | | 714,413 | |
| Less: Net earnings attributable to the noncontrolling interest | | | 4,480 | | | | 5,694 | | | | 7,599 | |
| | | | | | | | | | | | | |
| Net (loss) earnings attributable to Mohawk Industries, Inc | | $ | (5,499 | ) | | | (1,458,228 | ) | | | 706,814 | |
| | | | | | | | | | | | | |
| Basic (loss) earnings per share attributable to Mohawk Industries, Inc. | | $ | (0.08 | ) | | | (21.32 | ) | | | 10.37 | |
| | | | | | | | | | | | | |
| Weighted-average common shares outstanding — basic | | | 68,452 | | | | 68,401 | | | | 68,172 | |
| | | | | | | | | | | | | |
| Diluted (loss) earnings per share attributable to Mohawk Industries, Inc. | | $ | (0.08 | ) | | | (21.32 | ) | | | 10.32 | |
| | | | | | | | | | | | | |
| Weighted-average common shares outstanding — diluted | | | 68,452 | | | | 68,401 | | | | 68,492 | |
| | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
38
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Equity and Comprehensive Income
Years Ended December 31, 2009, 2008 and 2007
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Accumulated
| | | | | | | | | | | | | |
| | | | | | | | | Additional
| | | | | | Other
| | | | | | | | | | | | | |
| | | Common Stock | | | Paid-in
| | | Retained
| | | Comprehensive
| | | Treasury Stock | | | Noncontrolling
| | | Total
| |
| | | Shares | | | Amount | | | Capital | | | Earnings | | | Income (Loss) | | | Shares | | | Amount | | | Interest | | | Equity | |
| | | (In thousands) | |
| |
| Balances at December 31, 2006 | | | 78,816 | | | $ | 788 | | | $ | 1,152,420 | | | $ | 2,755,529 | | | $ | 130,372 | | | | (11,051 | ) | | $ | (323,846 | ) | | $ | 29,207 | | | $ | 3,744,470 | |
| Shares issued under employee and director stock plans | | | 588 | | | | 6 | | | | 31,115 | | | | — | | | | — | | | | 5 | | | | 128 | | | | — | | | | 31,249 | |
| Stock-based compensation expense | | | — | | | | — | | | | 13,594 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 13,594 | |
| Tax benefit from stock-based compensation | | | — | | | | — | | | | 6,828 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,828 | |
| Distribution to noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (5,318 | ) | | | (5,318 | ) |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 230,941 | | | | — | | | | — | | | | — | | | | 230,941 | |
| Unrealized gain on hedge instruments net of taxes | | | — | | | | — | | | | — | | | | — | | | | 1,453 | | | | — | | | | — | | | | — | | | | 1,453 | |
| Pension prior service cost and actuarial gain or loss | | | — | | | | — | | | | — | | | | — | | | | 1,215 | | | | — | | | | — | | | | — | | | | 1,215 | |
| Net earnings | | | — | | | | — | | | | — | | | | 706,814 | | | | — | | | | — | | | | — | | | | 7,599 | | | | 714,413 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 948,022 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2007 | | | 79,404 | | | | 794 | | | | 1,203,957 | | | | 3,462,343 | | | | 363,981 | | | | (11,046 | ) | | | (323,718 | ) | | | 31,488 | | | | 4,738,845 | |
| Shares issued under employee and director stock plans | | | 57 | | | | 1 | | | | 1,621 | | | | — | | | | — | | | | 6 | | | | 173 | | | | — | | | | 1,795 | |
| Stock-based compensation expense | | | — | | | | — | | | | 11,991 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,991 | |
| Tax benefit from stock-based compensation | | | — | | | | — | | | | 334 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 334 | |
| Distribution to noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (6,052 | ) | | | (6,052 | ) |
| Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | (101,935 | ) | | | — | | | | — | | | | — | | | | (101,935 | ) |
| Unrealized loss on hedge instruments net of taxes | | | — | | | | — | | | | — | | | | — | | | | (7,127 | ) | | | — | | | | — | | | | — | | | | (7,127 | ) |
| Pension prior service cost and actuarial gain or loss | | | — | | | | — | | | | — | | | | — | | | | (384 | ) | | | — | | | | — | | | | — | | | | (384 | ) |
| Net loss | | | — | | | | — | | | | — | | | | (1,458,228 | ) | | | — | | | | — | | | | — | | | | 5,694 | | | | (1,452,534 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,561,980 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2008 | | | 79,461 | | | | 795 | | | | 1,217,903 | | | | 2,004,115 | | | | 254,535 | | | | (11,040 | ) | | | (323,545 | ) | | | 31,130 | | | | 3,184,933 | |
| Shares issued under employee and director stock plans | | | 57 | | | | — | | | | 642 | | | | — | | | | — | | | | 6 | | | | 184 | | | | — | | | | 826 | |
| Stock-based compensation expense | | | — | | | | — | | | | 9,653 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 9,653 | |
| Tax deficit from stock-based compensation | | | — | | | | — | | | | (342 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (342 | ) |
| Distribution to noncontrolling interest, net of adjustments | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,151 | ) | | | (2,151 | ) |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 36,089 | | | | — | | | | — | | | | — | | | | 36,089 | |
| Unrealized gain on hedge instruments net of taxes | | | — | | | | — | | | | — | | | | — | | | | 7,207 | | | | — | | | | — | | | | — | | | | 7,207 | |
| Pension prior service cost and actuarial gain or loss | | | — | | | | — | | | | — | | | | — | | | | (914 | ) | | | — | | | | — | | | | — | | | | (914 | ) |
| Net loss | | | — | | | | — | | | | — | | | | (5,499 | ) | | | — | | | | — | | | | — | | | | 4,480 | | | | (1,019 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 41,363 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2009 | | | 79,518 | | | $ | 795 | | | $ | 1,227,856 | | | $ | 1,998,616 | | | $ | 296,917 | | | | (11,034 | ) | | $ | (323,361 | ) | | $ | 33,459 | | | $ | 3,234,282 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
39
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2009, 2008 and 2007
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| | | (In thousands, except per share data) | |
| |
| Cash flows from operating activities: | | | | | | | | | | | | |
| Net (loss) earnings | | $ | (1,019 | ) | | | (1,452,534 | ) | | | 714,413 | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | | | | | | | |
| Impairment of goodwill and other intangibles | | | — | | | | 1,543,397 | | | | — | |
| Restructuring | | | 57,412 | | | | 29,617 | | | | — | |
| Depreciation and amortization | | | 303,004 | | | | 295,054 | | | | 306,437 | |
| Deferred income taxes | | | (20,579 | ) | | | 69,842 | | | | (289,902 | ) |
| Loss on disposal of property, plant and equipment | | | 1,481 | | | | 2,272 | | | | 7,689 | |
| Excess tax deficit (benefit) from stock-based compensation | | | 342 | | | | (334 | ) | | | (6,828 | ) |
| Stock-based compensation expense | | | 9,653 | | | | 11,991 | | | | 13,594 | |
| Changes in operating assets and liabilities, net of acquisitions: | | | | | | | | | | | | |
| Receivables | | | 102,799 | | | | 118,199 | | | | 127,475 | |
| Income tax receivable | | | (72,515 | ) | | | — | | | | — | |
| Inventories | | | 276,169 | | | | 102,706 | | | | 20,976 | |
| Accounts payable and accrued expenses | | | 11,510 | | | | (127,905 | ) | | | (58,776 | ) |
| Other assets and prepaid expenses | | | 17,320 | | | | (23,774 | ) | | | 31,007 | |
| Other liabilities | | | (13,372 | ) | | | 7,555 | | | | 14,310 | |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 672,205 | | | | 576,086 | | | | 880,395 | |
| | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | |
| Additions to property, plant and equipment | | | (108,925 | ) | | | (217,824 | ) | | | (163,076 | ) |
| Acquisitions, net of cash acquired | | | (5,924 | ) | | | (8,276 | ) | | | (147,097 | ) |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (114,849 | ) | | | (226,100 | ) | | | (310,173 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | |
| Payments on revolving line of credit | | | (412,666 | ) | | | (1,448,742 | ) | | | (1,813,731 | ) |
| Proceeds from revolving line of credit | | | 349,571 | | | | 1,270,449 | | | | 1,652,993 | |
| Net change in asset securitization borrowings | | | (47,000 | ) | | | (143,000 | ) | | | — | |
| Borrowings (payments) on term loan and other debt | | | 6,537 | | | | (11,819 | ) | | | (373,463 | ) |
| Debt issuance costs | | | (23,714 | ) | | | — | | | | — | |
| Distribution to noncontrolling interest | | | (4,402 | ) | | | (6,052 | ) | | | (5,318 | ) |
| Excess tax (deficit) benefit from stock-based compensation | | | (342 | ) | | | 334 | | | | 6,828 | |
| Change in outstanding checks in excess of cash | | | 5,288 | | | | (12,007 | ) | | | (43,520 | ) |
| Proceeds from stock transactions | | | 884 | | | | 1,915 | | | | 30,875 | |
| | | | | | | | | | | | | |
| Net cash used in financing activities | | | (125,844 | ) | | | (348,922 | ) | | | (545,336 | ) |
| | | | | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 6,427 | | | | 2,851 | | | | 1,226 | |
| | | | | | | | | | | | | |
| Net change in cash and cash equivalents | | | 437,939 | | | | 3,915 | | | | 26,112 | |
| Cash and cash equivalents, beginning of year | | | 93,519 | | | | 89,604 | | | | 63,492 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents, end of year | | $ | 531,458 | | | | 93,519 | | | | 89,604 | |
| | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
40
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2009, 2008 and 2007
(In thousands, except per share data) | | | | | | |
| | | 2006 | | 2005 | |
| ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 63,492 | | 134,585 | |
Receivables, net | | | 851,428 | | 848,666 | |
Inventories | | | 1,225,874 | | 1,215,427 | |
Prepaid expenses and other assets | | | 138,866 | | 140,789 | |
Deferred income taxes | | | 99,251 | | 49,534 | |
| | | | | | |
Total current assets | | | 2,378,911 | | 2,389,001 | |
Property, plant and equipment, net | | | 1,888,088 | | 1,810,728 | |
Goodwill | | | 2,699,639 | | 2,621,963 | |
Tradenames | | | 662,314 | | 622,094 | |
Other intangible assets, net | | | 517,780 | | 552,003 | |
Other assets | | | 31,662 | | 44,248 | |
| | | | | | |
| | $ | 8,178,394 | | 8,040,037 | |
| | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
Current liabilities: | | | | | | |
Current portion of long-term debt | | $ | 576,134 | | 113,809 | |
Accounts payable and accrued expenses | | | 1,019,629 | | 998,105 | |
| | | | | | |
Total current liabilities | | | 1,595,763 | | 1,111,914 | |
Deferred income taxes | | | 628,311 | | 643,283 | |
Long-term debt, less current portion | | | 2,207,547 | | 3,194,561 | |
Other long-term liabilities | | | 31,510 | | 32,041 | |
| | | | | | |
Total liabilities | | | 4,463,131 | | 4,981,799 | |
| | | | | | |
Stockholders' equity: | | | | | | |
Preferred stock, $.01 par value; 60 shares authorized; no shares issued | | | — | | — | |
Common stock, $.01 par value; 150,000 shares authorized; 78,816 and 78,478 shares issued in 2006 and 2005, respectively | | | 788 | | 785 | |
Additional paid-in capital | | | 1,152,420 | | 1,123,991 | |
Retained earnings | | | 2,755,529 | | 2,299,696 | |
Accumulated other comprehensive gain (loss) | | | 130,372 | | (47,433 | ) |
| | | | | | |
| | | 4,039,109 | | 3,377,039 | |
Less treasury stock at cost; 11,051 and 10,981 shares in 2006 and 2005, respectively | | | 323,846 | | 318,801 | |
| | | | | | |
Total stockholders' equity | | | 3,715,263 | | 3,058,238 | |
| | | | | | |
| | $ | 8,178,394 | | 8,040,037 | |
| | | | | | |
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years Ended December 31, 2006, 2005 and 2004
(In thousands, except per share data)
| | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
Net sales | | $ | 7,905,842 | | | 6,620,099 | | | 5,880,372 | |
Cost of sales | | | 5,674,531 | | | 4,851,853 | | | 4,256,129 | |
| | | | | | | | | | |
Gross profit | | | 2,231,311 | | | 1,768,246 | | | 1,624,243 | |
Selling, general and administrative expenses | | | 1,392,251 | | | 1,095,862 | | | 985,251 | |
| | | | | | | | | | |
Operating income | | | 839,060 | | | 672,384 | | | 638,992 | |
| | | | | | | | | | |
Other expense (income): | | | | | | | | | | |
Interest expense | | | 173,697 | | | 66,791 | | | 53,392 | |
Other expense | | | 17,515 | | | 11,714 | | | 9,731 | |
Other income | | | (9,027 | ) | | (8,254 | ) | | (4,922 | ) |
U.S. customs refund | | | (19,436 | ) | | — | | | — | |
| | | | | | | | | | |
| | | 162,749 | | | 70,251 | | | 58,201 | |
| | | | | | | | | | |
Earnings before income taxes | | | 676,311 | | | 602,133 | | | 580,791 | |
Income taxes | | | 220,478 | | | 214,995 | | | 209,994 | |
| | | | | | | | | | |
Net earnings | | $ | 455,833 | | | 387,138 | | | 370,797 | |
| | | | | | | | | | |
Basic earnings per share | | $ | 6.74 | | | 5.78 | | | 5.56 | |
| | | | | | | | | | |
Weighted-average common shares outstanding | | | 67,674 | | | 66,932 | | | 66,682 | |
| | | | | | | | | | |
Diluted earnings per share | | $ | 6.70 | | | 5.72 | | | 5.49 | |
| | | | | | | | | | |
Weighted-average common and dilutive potential common shares outstanding | | | 68,056 | | | 67,644 | | | 67,557 | |
| | | | | | | | | | |
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years Ended December 31, 2006, 2005 and 2004
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common stock | | Additional
paid-in capital | | Retained earnings | | Accumulated
other
comprehensive Income (loss) | | | Treasury stock | | | Total
stockholders' equity | |
| | | Shares | | Amount | | | | | Shares | | | Amount | | |
Balances at December 31, 2003 | | 77,050 | | $ | 770 | | $ | 1,035,733 | | $ | 1,541,761 | | $ | 2,313 | | | (10,515 | ) | | $ | (282,776 | ) | | $ | 2,297,801 | |
Stock options exercised | | 464 | | | 5 | | | 14,952 | | | — | | | — | | | — | | | | — | | | | 14,957 | |
Purchase of treasury stock | | — | | | — | | | — | | | — | | | — | | | (250 | ) | | | (18,413 | ) | | | (18,413 | ) |
Grant to executive incentive plan and other | | — | | | — | | | 307 | | | — | | | — | | | 10 | | | | 272 | | | | 579 | |
Tax benefit from exercise of stock options | | — | | | — | | | 7,545 | | | — | | | — | | | — | | | | — | | | | 7,545 | |
Comprehensive Income: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Currency translation adjustment | | — | | | — | | | — | | | — | | | (1,675 | ) | | — | | | | — | | | | (1,675 | ) |
Unrealized loss on hedge instruments net of taxes | | — | | | — | | | — | | | — | | | (3,079 | ) | | — | | | | — | | | | (3,079 | ) |
Net earnings | | — | | | — | | | — | | | 370,797 | | | — | | | — | | | | — | | | | 370,797 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Comprehensive Income | | | | | | | | | | | | | | | | | | | | | | | | | 366,043 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2004 | | 77,514 | | | 775 | | | 1,058,537 | | | 1,912,558 | | | (2,441 | ) | | (10,755 | ) | | | (300,917 | ) | | | 2,668,512 | |
Stock options exercised | | 378 | | | 4 | | | 10,070 | | | — | | | — | | | — | | | | — | | | | 10,074 | |
Stock issuance | | 586 | | | 6 | | | 47,429 | | | — | | | — | | | — | | | | — | | | | 47,435 | |
Purchase of treasury stock | | — | | | — | | | — | | | — | | | — | | | (186 | ) | | | (14,521 | ) | | | (14,521 | ) |
Grant to executive incentive plan and other | | — | | | — | | | 2,717 | | | — | | | — | | | (40 | ) | | | (3,363 | ) | | | (646 | ) |
Tax benefit from exercise of stock options | | — | | | — | | | 5,238 | | | — | | | — | | | — | | | | — | | | | 5,238 | |
Comprehensive Income: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Currency translation adjustment | | — | | | — | | | — | | | — | | | (47,074 | ) | | — | | | | — | | | | (47,074 | ) |
Unrealized gain on hedge instruments net of taxes | | — | | | — | | | — | | | — | | | 2,082 | | | — | | | | — | | | | 2,082 | |
Net earnings | | — | | | — | | | — | | | 387,138 | | | — | | | — | | | | — | | | | 387,138 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Comprehensive Income | | | | | | | | | | | | | | | | | | | | | | | | | 342,146 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2005 | | 78,478 | | | 785 | | | 1,123,991 | | | 2,299,696 | | | (47,433 | ) | | (10,981 | ) | | | (318,801 | ) | | | 3,058,238 | |
Stock options exercised | | 338 | | | 3 | | | 12,666 | | | — | | | — | | | — | | | | — | | | | 12,669 | |
Stock based compensation expense | | — | | | — | | | 11,925 | | | — | | | — | | | — | | | | — | | | | 11,925 | |
Purchase of treasury stock | | — | | | — | | | — | | | — | | | — | | | (74 | ) | | | (5,180 | ) | | | (5,180 | ) |
Grant to executive incentive plan and other | | — | | | — | | | 260 | | | — | | | — | | | 4 | | | | 135 | | | | 395 | |
Tax benefit from exercise of stock options | | — | | | — | | | 3,578 | | | — | | | — | | | — | | | | — | | | | 3,578 | |
Adoption of SFAS 158 | | | | | | | | | | | | | | (818 | ) | | | | | | | | | | (818 | ) |
Comprehensive Income: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Currency translation adjustment | | — | | | — | | | — | | | — | | | 181,425 | | | — | | | | — | | | | 181,425 | |
Unrealized loss on hedge instruments net of taxes | | — | | | — | | | — | | | — | | | (2,802 | ) | | — | | | | — | | | | (2,802 | ) |
Net earnings | | — | | | — | | | — | | | 455,833 | | | — | | | — | | | | — | | | | 455,833 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Comprehensive Income | | | | | | | | | | | | | | | | | | | | | | | | | 634,456 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2006 | | 78,816 | | $ | 788 | | $ | 1,152,420 | | $ | 2,755,529 | | $ | 130,372 | | | (11,051 | ) | | $ | (323,846 | ) | | $ | 3,715,263 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2006, 2005 and 2004
(In thousands, except per share data)
| | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
Cash flows from operating activities: | | | | | | | | | | |
Net earnings | | $ | 455,833 | | | 387,138 | | | 370,797 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | |
Depreciation and amortization | | | 274,952 | | | 150,657 | | | 123,088 | |
Deferred income taxes | | | (68,956 | ) | | 9,304 | | | 39,927 | |
Loss on sale of property, plant and equipment | | | 5,625 | | | 4,676 | | | 3,037 | |
Tax benefit on exercise of stock awards | | | — | | | 5,238 | | | 7,545 | |
Excess tax benefit from stock-based compensation | | | (3,578 | ) | | — | | | — | |
Stock based compensation expense | | | 11,925 | | | — | | | — | |
Changes in assets and liabilities, net of effects of acquisitions: | | | | | | | | | | |
Receivables | | | 11,623 | | | 3,574 | | | (85,417 | ) |
Inventories | | | 4,823 | | | (33,570 | ) | | (183,167 | ) |
Accounts payable and accrued expenses | | | 79,063 | | | 91,960 | | | (25,241 | ) |
Other assets and prepaid expenses | | | 1,910 | | | (62,205 | ) | | (6,598 | ) |
Other liabilities | | | 8,825 | | | 4,772 | | | (1,134 | ) |
| | | | | | | | | | |
Net cash provided by operating activities | | | 782,045 | | | 561,544 | | | 242,837 | |
| | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | |
Additions to property, plant and equipment | | | (165,769 | ) | | (247,306 | ) | | (106,601 | ) |
Acquisitions, net of cash | | | (70,907 | ) | | (2,613,529 | ) | | (14,998 | ) |
| | | | | | | | | | |
Net cash used in investing activities | | | (236,676 | ) | | (2,860,835 | ) | | (121,599 | ) |
| | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | |
Net change in short term credit lines | | | — | | | (37,721 | ) | | (3,981 | ) |
Payments on revolving line of credit | | | (1,546,679 | ) | | (539,294 | ) | | — | |
Proceeds from revolving line of credit | | | 1,409,611 | | | 856,940 | | | — | |
(Repayment) proceeds on bridge loan | | | (1,400,000 | ) | | 1,400,000 | | | — | |
Proceeds from issuance of senior notes | | | 1,386,841 | | | — | | | — | |
Net change in asset securitization borrowings | | | 150,000 | | | (50,000 | ) | | (92,000 | ) |
Payments on term loans | | | (589,052 | ) | | (15,055 | ) | | (25,034 | ) |
Proceeds on term loans | | | — | | | 750,000 | | | — | |
Payments of other debt | | | (13,380 | ) | | (30,861 | ) | | (57 | ) |
Excess tax benefit from stock-based compensation | | | 3,578 | | | — | | | — | |
Change in outstanding checks in excess of cash | | | (29,250 | ) | | 63,670 | | | 3,290 | |
Acquisition of treasury stock | | | (5,180 | ) | | (14,521 | ) | | (18,413 | ) |
Common stock transactions | | | 12,669 | | | 57,509 | | | 14,957 | |
| | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (620,842 | ) | | 2,440,667 | | | (121,238 | ) |
| | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | 4,380 | | | (6,791 | ) | | — | |
| | | | | | | | | | |
Net change in cash and cash equivalents | | | (71,093 | ) | | 134,585 | | | — | |
Cash and cash equivalents, beginning of year | | | 134,585 | | | — | | | — | |
| | | | | | | | | | |
Cash and cash equivalents, end of year | | $ | 63,492 | | | 134,585 | | | — | |
| | | | | | | | | | |
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2006, 2005 and 2004
(In thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
| |
| (1) | Summary of Significant Accounting Policies |
| |
| (a) | Basis of Presentation |
The consolidated financial statements include the accounts of Mohawk Industries, Inc. and its subsidiaries (the “Company” or “Mohawk”). 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
in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
atas 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
| |
| (b) | Cash and Cash Equivalents |
The Company considers investments with an original maturity of three months or less when purchased to be cash equivalents.
(c) Accounts Receivable As of December 31, 2009, the Company had invested cash of $464,936 in money market AAA rated cash investments of which $367,305 was in North America and Revenue Recognition
$97,631 was in Europe.
| |
| (c) | Accounts Receivable and Revenue Recognition |
The Company is principally a carpet, rugs, ceramic tile,
laminate and
laminatehardwood manufacturer and sells carpet, rugs, ceramic tile, natural stone, hardwood, resilient and laminate flooring products in the United States. In addition, the Company manufactures laminate and sells carpet, rugs and laminate flooring products in Europe principally for residential and commercial use. The Company grants credit to customers, most of whom are retail-flooring dealers and commercial end users, under credit terms that the Company believes are customary in the industry.
The Company warrants certain qualitative attributes
Revenues, which are recorded net 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.Revenuestaxes 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 collectibilitycollectability can be reasonably assured. The Company provides allowances for expected cash discounts, returns, claims and doubtful accounts based upon historical bad debt and claims experience and periodic evaluations of specific customer accounts. RoyaltyLicensing revenues received from third parties for patents are recognized based on contractual agreements.
(d) Inventories
Effective April 2, 2006, the
The Company changed the method of accountingaccounts for all inventories not previously accounted for on thefirst-in, first-out (“FIFO”) method from the last-in, first-out (“LIFO”) method to the FIFO method. Inventories are stated at the lower of cost or market (net realizable value). Cost has been determined using the FIFO.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. 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. See Note 4 for further discussion.
41
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(e) Property, Plant and Equipment
| |
| (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
25-35 years for buildings and improvements, 5-15 years for machinery and equipment, the shorter of the estimated useful life or lease term for leasehold improvements and 3-7 years for furniture and fixtures.
(f) Goodwill and Other Intangible Assets
| |
| (f) | Goodwill and Other Intangible Assets |
In accordance with the provisions of Financial Accounting Standards Board (“FASB”) FASB Accounting Standards Codification Topic 350 (“ASC 350”), formerly Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill“Goodwill and Other Intangible Assets,”the Company tests goodwill and other intangible assets with indefinite lives for impairment on an annual basis in 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 conducts testingconsiders the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment. The goodwill impairment tests are based on determining the fair value of the specified reporting units based on management’s judgments and assumptions using the discounted cash flows and comparable company market valuation approaches. The Company has identified Mohawk, Dal-Tile, Unilin Flooring, Unilin Chipboard and Melamine, and Unilin Roofing 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 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.
The impairment evaluation for indefinite lived intangible assets, which for the Company are its trademarks, is conducted during 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. Significant judgments inherent in this analysis include assumptions about appropriate sales growth rates, royalty rates, WACC 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. Estimated cash flows are sensitive to changes in the economy among other things. The impairment test for indefinite lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its fiscal year. carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of indefinite lived intangible assets are determined using a discounted cash flows valuation. 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.
Intangible assets that do not have indefinite lives are amortized based on average lives, which range from 7-16 years.
42
(g) 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 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.
(h) Financial Instruments
| |
| (h) | Financial Instruments |
The
Company'sCompany’s financial instruments consist primarily of receivables, accounts payable, accrued expenses and long-term debt. The carrying amount of receivables, accounts payable and accrued expenses approximates its fair value because of the short-term maturity of such instruments. The carrying amount of the
Company'sCompany’s floating rate debt approximates its fair
value.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'sCompany’s long-term debt.
The estimated fair value of the Company's long-term debt at December 31, 2006 and 2005 was $2,796,668 and $3,282,715, compared to a carrying amount of $2,783,681 and $3,308,370, respectively.(i) Derivative Instruments
| |
| (i) | Derivative Instruments |
Accounting for derivative instruments and hedging activities requires the Company to recognize all derivatives on the consolidated balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If the derivative is a qualifying hedge, depending on the nature of the hedge, changes in its fair value are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company engages in activities that expose it to market risks, including the effects of changes in interest rates, exchange rates and natural gas commodity prices. Financial exposures are managed as an integral part of the
Company'sCompany’s risk management program, which seeks to reduce the potentially adverse effect that the volatility of the interest rate, exchange rate and natural gas commodity markets may have on operating results. The Company does not engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The Company formally documents hedging instruments and hedging items, as well as its risk management objective and strategy for undertaking hedged items. This process includes linking all derivatives that are designated as fair value and cash flow hedges to specific assets, liabilities or firm commitments on the consolidated balance sheet or to forecasted transactions. The Company also formally assesses, both at inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items.
Regression analysis is used to assess effectiveness of the hedging relationship and the dollar offset method is used to measure any ineffectiveness associated with the hedges. When it is determined that a derivative is not highly effective, the derivative expires, or is sold, terminated, or exercised, or the derivative is discontinued because it is unlikely that a forecasted transaction will occur, the Company discontinues hedge accounting prospectively for that specific hedge instrument.
(j) Advertising Costs and Vendor Consideration
| |
| (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,
administrative,general, and
generaladministrative expenses were
$55,254$43,752 in
2006, $41,3392009, $53,643 in
20052008 and
$31,474$56,168 in
2004.2007.
Vendor consideration, generally cash, is classified as a reduction of net sales, unless specific criteria are met regarding goods or services that the vendor may receive in return for this consideration. The Company makes various payments to customers, including 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 is classified as a selling, general and administrative expense in accordance with EITF 01-09. ASC605-50,
43
formerly, FASB, Emerging Issues Task Force01-09,“Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).”Co-op advertising expenses, a component of advertising and promotion expenses, were
$13,352$3,809 in
2006, $14,4082009, $7,359 in
20052008 and
$10,389$5,686 in
2004.(k) Impairment2007.
The Company warrants certain qualitative attributes of
Long-Lived AssetsLong-livedits 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
and intangibles subject to amortization,
which for the Company are
reviewedits patents and customer relationships, for impairment
whenwhenever events or changes in circumstances indicate that the carrying amount of
thesuch asset
groups may not be recoverable.
IfRecoverability of asset groups to be held and used is measured by a comparison of the carrying amount of
the asset exceeds the expectedlong-lived assets to future undiscounted
net cash flows
ofexpected to be generated by these asset groups. If such asset groups are considered to be impaired, the
asset, an impairment
chargerecognized is
recognized equal to the amount by which the carrying amount
of the asset group exceeds the
expected undiscounted cash flows.fair value of the asset group. Assets
to be disposed ofheld for sale are reported at the lower of the carrying amount or fair value less estimated costs of disposal and are no longer depreciated.
(l) Foreign Currency Translation
| |
| (m) | Foreign Currency Translation |
The
Company'sCompany’s subsidiaries that operate outside the United States use their local currency as the functional currency, with the exception of operations carried out in Canada and Mexico, in which case the functional currency is the U.S. dollar. Other than Canada and Mexico, 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'stockholders’ equity, within other comprehensive income. Gains or losses resulting from transactions denominated in foreign currencies are included in other income or expense, within the consolidated statements of
earnings.operations. The assets and liabilities of the
Company'sCompany’s Canada and Mexico operations are re-measured using a month end rate, except for non-monetary assets and liabilities, which are re-measured using the historical exchange rate. Income and expense accounts are re-measured using an average monthly rate for the period, except for expenses related to those balance sheet accounts that are re-measured using historical exchange rates. The resulting re-measurement adjustment is reported in the consolidated statements of
earningsoperations when incurred.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(m) Earnings per Share (“EPS”)
| |
| (n) | 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 are included in the diluted EPS calculation using the treasury stock method. Common stock options that were not included in the diluted EPS computation because the options'options’ exercise price was greater than the average market price of the common shares for the periods presented were 1,271, 351,1,355, 1,083 and 21656 for 2006, 20052009, 2008 and 2004,2007, respectively. For 2009 and 2008, all outstanding common stock options to purchase common shares and unvested restricted shares (units) were excluded from the calculation of diluted loss per share because their effect on net loss per common share was anti-dilutive.
44
Computations of basic and diluted
(loss) earnings per share are presented in the following table:
| | | | | | | |
| | | Years Ended December 31, |
| | | 2006 | | 2005 | | 2004 |
Net earnings | | $ | 455,833 | | 387,138 | | 370,797 |
| | | | | | | |
Weighted-average common and dilutive potential common shares outstanding: | | | | | | | |
Weighted-average common shares outstanding | | | 67,674 | | 66,932 | | 66,682 |
Add weighted-average dilutive potential common shares—options to purchase common shares, net | | | 382 | | 712 | | 875 |
| | | | | | | |
Weighted-average common and dilutive potential common shares outstanding | | | 68,056 | | 67,644 | | 67,557 |
| | | | | | | |
Basic earnings per share | | $ | 6.74 | | 5.78 | | 5.56 |
| | | | | | | |
Diluted earnings per share | | $ | 6.70 | | 5.72 | | 5.49 |
| | | | | | | |
(n) Stock-Based Compensation
Prior to January 1, 2006, the
| | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Net earnings (loss) attributable to Mohawk Industries, Inc | | $ | (5,499 | ) | | | (1,458,228 | ) | | | 706,814 | |
| | | | | | | | | | | | | |
| Weighted-average common sharesoutstanding-basic and diluted: | | | | | | | | | | | | |
| Weighted-average common shares outstanding — basic | | | 68,452 | | | | 68,401 | | | | 68,172 | |
| Add weighted-average dilutive potential common shares — options and RSU’s to purchase common shares, net | | | — | | | | — | | | | 320 | |
| | | | | | | | | | | | | |
| Weighted-average common shares outstanding-diluted | | | 68,452 | | | | 68,401 | | | | 68,492 | |
| | | | | | | | | | | | | |
| Basic earnings (loss) per share attributable to Mohawk Industries, Inc | | $ | (0.08 | ) | | | (21.32 | ) | | | 10.37 | |
| | | | | | | | | | | | | |
| Diluted earnings (loss) per share attributable to Mohawk Industries, Inc | | $ | (0.08 | ) | | | (21.32 | ) | | | 10.32 | |
| | | | | | | | | | | | | |
| |
| (o) | Stock-Based Compensation |
The Company
accounted for its stockrecognizes compensation
plans under the recognition and measurement provisions of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB No. 123,Accounting for Stock-Based Compensation. Accordingly, no stock-based employee compensation cost related to stock options was recognized in the Consolidated Statement of Earnings as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB No. 123(R),Share-Based Payment, using the modified-prospective-transition method. Under that transition method, compensation cost for 2006 includes: (a) compensation costexpense for all share-based payments granted
prior to, but not yet vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of FASB No. 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of FASB No. 123(R)ASC718-10, formerly SFAS No 123R “Stock Compensation”. Compensation expense is
generally recognized on a straight-line basis over the options estimated lives for fixed awards with ratable vesting provisions.
Results for prior periods have not been restated.MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB No. 123(R) to options granted under the Plan in the period presented. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes-Merton option-pricing formula and amortized to expense over the options’ vesting periods.
| | | | | | | |
| | | 2005 | | | 2004 | |
Net earnings as reported | | $ | 387,138 | | | 370,797 | |
Deduct: Stock-based employee compensation expense determined under fair value based method for all options, net of related tax effects | | | (8,628 | ) | | (7,519 | ) |
| | | | | | | |
Pro forma net earnings | | $ | 378,510 | | | 363,278 | |
| | | | | | | |
Net earnings per common share (basic) | | | | | | | |
As reported | | $ | 5.78 | | | 5.56 | |
Pro forma | | $ | 5.66 | | | 5.45 | |
Net earnings per common share (diluted) | | | | | | | |
As reported | | $ | 5.72 | | | 5.49 | |
Pro forma | | $ | 5.60 | | | 5.38 | |
(o) Comprehensive Income
Comprehensive income 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 transactions and derivative financial instruments designated as cash flow hedges. The Company does not provide income taxes on currency translation adjustments, as earnings from foreign subsidiaries are considered to be indefinitely reinvested.
Amounts recorded in accumulated other comprehensive income on the Consolidated Statements of
Shareholders’ Equity for the years ended December 31,
2006, 20052009, 2008 and
20042007 are as follows:
| | | | | | | | | | | | | | | | |
| | | Translation
Adjustment | | | Hedge
Instruments | | | SFAS
158 | | | Tax expense
(benefit) (1) | | | Total | |
December 31, 2004 | | $ | (1,628 | ) | | (1,280 | ) | | — | | | 467 | | | (2,441 | ) |
2005 Activity | | | (47,074 | ) | | 3,278 | | | — | | | (1,196 | ) | | (44,992 | ) |
| | | | | | | | | | | | | | | | |
December 31, 2005 | | | (48,702 | ) | | 1,998 | | | — | | | (729 | ) | | (47,433 | ) |
2006 Activity | | | 181,425 | | | (4,412 | ) | | (818 | ) | | 1,610 | | | 177,805 | |
| | | | | | | | | | | | | | | | |
December 31, 2006 | | $ | 132,723 | | | (2,414 | ) | | (818 | ) | | 881 | | | 130,372 | |
| | | | | | | | | | | | | | | | |
(p) Recent Accounting Pronouncements
| | | | | | | | | | | | | | | | | | | | | |
| | | Translation
| | | Hedge
| | | SFAS
| | | Tax Expense
| | | | |
| | | Adjustment | | | Instruments | | | 158 | | | (Benefit) | | | Total | |
| |
| December 31, 2007 | | $ | 362,028 | | | | (126 | ) | | | 2,033 | | | | 46 | | | | 363,981 | |
| 2008 activity | | | (101,935 | ) | | | (11,024 | ) | | | (384 | ) | | | 3,897 | | | | (109,446 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2008 | | | 260,093 | | | | (11,150 | ) | | | 1,649 | | | | 3,943 | | | | 254,535 | |
| 2009 activity | | | 36,089 | | | | 11,150 | | | | (914 | ) | | | (3,943 | ) | | | 42,382 | |
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2009 | | $ | 296,182 | | | | — | | | | 735 | | | | — | | | | 296,917 | |
| | | | | | | | | | | | | | | | | | | | | |
| |
| (q) | Recent Accounting Pronouncements |
In
November 2004,September 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 151, “Inventory Costs-An Amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and re-handling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. Effective January 1, 2006, the Company adopted SFAS 151 which did not have a material impact on the Company's consolidated financial statements.ASCMOHAWK INDUSTRIES, INC. AND SUBSIDIARIES820-10,
Notes to Consolidated Financial Statements—(Continued)
In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109,” which clarifies the accounting for uncertainty in income taxes.FIN 48 prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective as of the beginning of the Company's 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. Based on its current evaluation, the Company does not believe the adoption of FIN 48 will have a material impact on the consolidated financial statements.
In September 2006, FASB issued formerly Statement of Financial Accounting Standards (“SFAS”) No. 157, (“SFAS No. 157”), “Fair“Fair Value Measurements.” SFAS No. 157Measurements”. ASC820-10 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. SFAS No. 157ASC820-10 requires companies to disclose the fair value of its financial instruments according to a fair value hierarchy. Additionally, companies are required to provide certain disclosures regarding instruments within the hierarchy, including a reconciliation of the beginning and ending balances for each major category of assets and liabilities. SFAS 157ASC820-10 is effective for the Company’s fiscal year beginning January 1, 2008. The Company is currently evaluating the impact of SFAS No. 157 on its consolidated2008 for financial statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans- an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires an employer that sponsors one or more single-employer defined benefit plans to recognize the over-funded or under-funded status of a benefit plan in its statement of financial position, recognize as a component of other comprehensive income, net of tax, gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit costs pursuant to SFAS No. 87, “Employers Accounting for Pensions,” or SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” to measure defined benefit plan assets and obligations asliabilities and January 1, 2009 for non-financial assets and liabilities. The Company’s adoption of the date of the employer’s fiscal year-end,ASC820-10 for financial assets and disclose in the notes to financial statements additional information about certain effectsliabilities on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits,January 1, 2008 and transition
45
non-financial assets
or obligations. The recognition and
disclosure provisions required by SFAS No. 158 are effective for the Company’s fiscal year ending December 31, 2006. The measurement date provisions are effective for fiscal years ending after December 15, 2008. The Company adopted SFAS No. 158 for its fiscal year ended December 31, 2006 which resulted in the Company recording $818 in accumulated other comprehensive income for amounts that had not been previously recorded in net periodic benefit cost.In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidanceliabilities on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both the balance sheet and income statement approach when quantifying a misstatement. SAB 108 is effective for the Company’s fiscal year ending December 31, 2006. Effective December 31, 2006, the Company adopted SAB 108 whichJanuary 1, 2009 did not have a material impact on the Company’s consolidated financial statements.
In December 2007, the FASB issued ASC805-10, formerly SFAS No. 141 (revised 2007),“Business Combinations”. ASC805-10 establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. ASC805-10 also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. ASC805-10 is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The adoption of ASC805-10 on January 1, 2009 did not have a material impact on the Company’s consolidated financial statements, although the adoption of ASC805-10 will impact the recognition and measurement of future business combinations and certain income tax benefits recognized from prior business combinations.
In December 2007, the FASB issued ASC810-10, formerly SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51”. ASC810-10 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. ASC810-10 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. ASC810-10 is effective for fiscal years beginning after December 15, 2008. The adoption of ASC810-10 on January 1, 2009 did not have a material impact on the Company’s consolidated financial statements. Upon adoption, the Company reclassified $31,130 on the condensed consolidated balance sheets from other long-term liabilities to noncontrolling interest within equity and reclassified the related net earnings to net earnings attributable to the noncontrolling interest on the consolidated statements of operations.
In March 2008, the FASB issued ASC815-10, formerly SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities”. ASC815-10 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The provisions of ASC815-10 are effective for the first quarter of 2009. The adoption of ASC815-10 on January 1, 2009 did not have a material impact on the Company’s consolidated financial statements.
In April 2009, the FASB issued ASC825-10, formerly the FASB Staff Position onFAS 107-1 and APB28-1, “Interim Disclosures About Fair Value of Financial Instruments”. ASC825-10 requires disclosures about fair value of financial instruments in interim reporting periods of publicly-traded companies that were previously only required to be disclosed in annual financial statements. The provisions of ASC825-10 are effective for the second quarter of 2009. The adoption of this standard on June 27, 2009 did not have a material impact on the Company’s consolidated financial statements.
In May 2009, the FASB issued ASC855-10-05, formerly SFAS No. 165,“Subsequent Events”. ASC855-10-05 establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are available to be issued (“subsequent events”). More specifically, ASC855-10-05 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that should be made about events or transactions that occur after the balance sheet date. ASC855-10-05 provides largely the same guidance on subsequent events which previously existed only in the auditing literature. ASC855-10-05 is effective for interim or annual financial periods ending after June 15, 2009, and is to be applied prospectively. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In June 2009, the FASB issued ASC 860, formerly SFAS No. 166,“Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140”. ASC 860 seeks to improve the relevance,
46
representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Specifically, ASC 860 eliminates the concept of a qualifying special-purpose entity, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets. ASC 860 is effective for annual and quarterly reporting periods that begin after November 15, 2009. The adoption of this standard on January 1, 2010 is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2009, the FASB issued ASC 810, formerly SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”. ASC 810 amends FASB Interpretation No. 46(R),“Variable Interest Entities”for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under ASC 810, an enterprise has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. ASC 810 also requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. ASC 810 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. ASC 810 is effective for annual and quarterly reporting periods that begin after November 15, 2009. The adoption of this standard on January 1, 2010 is not expected to have a material impact on the Company’s consolidated financial statements.
In June 2009, the FASB issued ASC105-10, formerly SFAS No. 168,(q)“The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162”. ASC105-10 establishes the FASB Standards Accounting Codification (“Codification”) as the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied to nongovernmental entities and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The Codification superseded all the existing non-SEC accounting and reporting standards upon its effective date. ASC105-10 also replaced FASB Statement No. 162,“The Hierarchy of Generally Accepted Accounting Principles”given that once in effect, the Codification carries the same level of authority. ASC105-10 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
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.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(r) Reclassifications
The Company reclassified certain prior period financial statement balances to conform to current presentations.
(2) Acquisitions
On October 31, 2005
During 2009 and 2008, the Company acquired alla business in the outstanding sharesUnilin segment for $5,604 and certain stone center assets in the Dal-Tile segment for $8,276, respectively.
During 2007, the Company acquired certain wood flooring assets and liabilities of Unilin Holding NV by acquiring Unilin Flooring, BVBA, which then purchased Unilin Holdings NV.Columbia Forest Products, Inc. (“Columbia”) for approximately $147,097. The Company simultaneously acquired allacquisition included the outstanding sharesassets of Unilin Holding Inc.,two pre-finished solid plants and its subsidiaries (together with Unilin Flooring BVBA, “Unilin”). Unilin, together with its subsidiaries, is a leading manufacturer, distributor and marketer of laminate flooringone engineered wood plant in Europe and the United States.States and an engineered wood plant in Malaysia. The total purchase price of acquiring Unilin, net of cash of $165,709, was Euro 2,105,918 or $2,540,949 based on the prevailing exchange rate at the closing. The acquisition was accounted for by the purchase method and, accordingly, the results of operations from the date of Unilin have beenacquisition are included in the Company’s consolidated financial statements from October 31, 2005. The purchase price was allocated to the assets acquired and liabilities assumed based upon the estimated fair values at the date of acquisition. Intangibles and property plant and equipment values were established with the assistance of an independent third party. The excess of the purchase price over the fair value of the net identifiable assets acquired of approximately $1,230,511 was recorded as goodwill. The primary reason for the acquisition was to expand the Company's presence in the laminate flooring market.results.
47
The Company considered whether identifiable intangible assets existed during the purchase price negotiations and during the subsequent purchase allocation period. Accordingly the Company recognized goodwill, tradenames, patents, customer lists, contingent assets and backlogs.
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill recorded in the Unilin Acquisition will not be amortized. Additionally, the Company determined that the tradenames intangible assets have indefinite useful lives because they are expected to generate cash flows indefinitely. Goodwill and the tradenames intangible assets are subject to annual impairment testing.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition, excluding cash of $165,709. During October 2006, the Company finalized the allocation of the purchase price related to the Unilin Acquisition.
| | | |
Current assets | | $ | 389,923 |
Property, plant and equipment | | | 752,892 |
Goodwill | | | 1,230,511 |
Intangible assets | | | 882,886 |
Other assets | | | 890 |
| | | |
Total assets acquired | | | 3,257,102 |
| | | |
Current liabilities | | | 261,921 |
Long-term debt | | | 32,027 |
Other liabilities | | | 422,205 |
| | | |
Total liabilities assumed | | | 716,153 |
| | | |
Net assets acquired | | $ | 2,540,949 |
| | | |
Of the $882,886 of acquired intangibles, $356,521 was assigned to registered tradenames that are not subject to amortization. The remaining acquired intangibles were assigned to customer relationships for $270,709
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(7 year weighted average useful life) and patents for $255,656 (12 year weighted average useful life). The $1,230,511 of goodwill is not deductible for tax purposes.
The following unaudited pro forma financial information presents the combined results of operations of the Company and Unilin as if the acquisition had occurred at the beginning of 2004, after giving effect to certain adjustments, including increased interest expense on debt related to the acquisition, and the amortization of intangible assets. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company and Unilin constituted a single entity during such periods. The following table discloses the results for the fiscal years ended December 31:
| | | | | |
| | | 2005 (a) | | 2004 |
Net sales | | $ | 7,553,506 | | 6,873,858 |
Net earnings (a) | | | 414,421 | | 376,930 |
Basic earnings per share | | | 6.19 | | 5.65 |
Diluted earnings per share | | | 6.13 | | 5.58 |
(a) | Excludes a non-recurring $34,300 ($22,300 net of tax) fair value adjustment applied to Unilin’s acquired inventory and $6,000 (net of tax of $3,900) adjustment related to non-recurring transaction costs. |
| (3) | Receivables |
During 2005, the Company acquired certain assets of a carpet backing manufacturer and all outstanding shares of a distributor of natural stone slabs for approximately $67,642 in cash. Goodwill related to the acquisitions was approximately $10,955.
During 2006, the Company acquired certain assets of a carpet backing manufacturer for approximately $73,242, which was paid for in cash.
(3) Receivables
Receivables are as follows:
| | | | | |
| | | 2006 | | 2005 |
Customers, trade | | $ | 907,244 | | 925,714 |
Other | | | 47,798 | | 25,662 |
| | | | | |
| | | 955,042 | | 951,376 |
Less allowance for discounts, returns, claims and doubtful accounts | | | 103,614 | | 102,710 |
| | | | | |
Net receivables | | $ | 851,428 | | 848,666 |
| | | | | |
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Customers, trade | | $ | 633,571 | | | | 722,669 | |
| Income tax receivable | | | 72,515 | | | | — | |
| Other | | | 30,654 | | | | 35,993 | |
| | | | | | | | | |
| | | | 736,740 | | | | 758,662 | |
| Less allowance for discounts, returns, claims and doubtful accounts | | | 62,809 | | | | 62,378 | |
| | | | | | | | | |
| Receivables, net | | $ | 673,931 | | | | 696,284 | |
| | | | | | | | | |
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 | | Additions
charged to
costs and
expenses(1) | | Deductions(2) | | Balance
at end of year |
2004 | | $ | 94,417 | | 310,368 | | 309,482 | | 95,303 |
2005 | | | 95,303 | | 324,024 | | 316,617 | | 102,710 |
2006 | | | 102,710 | | 347,051 | | 346,147 | | 103,614 |
| | | | | | | | | | | | | | | | | |
| | | | | Additions
| | | | |
| | | Balance at
| | Charged to
| | | | Balance
|
| | | Beginning
| | Costs and
| | | | at End
|
| | | of Year | | Expenses(1) | | Deductions(2) | | of Year |
| |
| 2007 | | $ | 69,799 | | | | 270,993 | | | | 284,482 | | | | 56,310 | |
| 2008 | | | 56,310 | | | | 274,337 | | | | 268,269 | | | | 62,378 | |
| 2009 | | | 62,378 | | | | 205,145 | | | | 204,714 | | | | 62,809 | |
| | |
| (1) | | Includes $ 2,035 for 2005$1,500 in 2007 related to the Unilin AcquisitionColumbia acquisition which was not charged to costs and expenses. |
|
| (2) | | Represents charge-offs, net of recoveries. |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(4) Inventories
The components of inventories are as follows:
| | | | | |
| | | 2006 | | 2005 |
Finished goods | | $ | 806,463 | | 788,037 |
Work in process | | | 95,746 | | 93,266 |
Raw materials | | | 323,665 | | 334,124 |
| | | | | |
Total inventories | | $ | 1,225,874 | | 1,215,427 |
| | | | | |
Effective April 2, 2006, the Company changed the method of accounting for all inventories not previously accounted for on the first-in, first-out (“FIFO”) method from the last-in, first-out (“LIFO”) method to the FIFO method.
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Finished goods | | $ | 559,339 | | | | 767,138 | |
| Work in process | | | 84,414 | | | | 104,394 | |
| Raw materials | | | 249,227 | | | | 296,740 | |
| | | | | | | | | |
| Total inventories | | $ | 892,981 | | | | 1,168,272 | |
| | | | | | | | | |
| |
| (5) | Goodwill and Other Intangible Assets |
The Company
believesconducted its annual assessment in the
FIFO methodfourth quarter of
accounting for inventory costs is preferable because it provides a better measure of2009 and determined the
current valuefair values of its
inventory and provides a better matching of manufacturing costs with revenues. The change resulted in the application of a single costing method to all of the Company's inventories.reporting units exceeded their carrying values. As a result,
all inventories are stated at the lower of cost, determined on a FIFO basis, or market. In accordance with FASB No. 154, “Accounting Changes and Error Corrections,”no impairment was indicated. During 2008, the Company
has retrospectively applied this change in method of inventory costing. The impact ofrecorded a $1,543,397 impairment charge to reduce the
change in method on certain financial statement line items is as follows: | | | |
| | | As of December 31, 2005 |
Balance sheet: | | | |
As originally reported | | | |
Inventory | | $ | 1,166,913 |
Total Assets | | | 7,991,523 |
Deferred income taxes | | | 625,887 |
Total Liabilities | | | 4,964,403 |
Retained earnings | | | 2,268,578 |
Total liabilities and Shareholders’ equity | | | 7,991,523 |
| |
Effect of Change | | | |
Inventory | | | 48,514 |
Deferred income taxes | | | 17,396 |
Retained earnings | | | 31,118 |
| |
As adjusted | | | |
Inventory | | | 1,215,427 |
Total Assets | | | 8,040,037 |
Deferred income taxes | | | 643,283 |
Total Liabilities | | | 4,981,799 |
Retained earnings | | | 2,299,696 |
Total liabilities and Shareholders’ equity | | $ | 8,040,037 |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| | | | | | | |
| | | Years Ended December 31, | |
| | | 2005 | | | 2004 | |
Statement of earnings: As originally reported | | | | | | | |
Cost of sales | | $ | 4,896,965 | | | 4,259,531 | |
Operating income | | | 627,272 | | | 635,590 | |
Income taxes | | | 198,826 | | | 208,767 | |
Net earnings | | | 358,195 | | | 368,622 | |
Basic earnings per share | | $ | 5.35 | | | 5.53 | |
Diluted earnings per share | | $ | 5.30 | | | 5.46 | |
| | |
Effect of Change-Increase (decrease) | | | | | | | |
Cost of sales | | $ | (45,112 | ) | | (3,402 | ) |
Operating income | | | 45,112 | | | 3,402 | |
Income taxes | | | 16,169 | | | 1,227 | |
Net earnings | | | 28,943 | | | 2,175 | |
Basic earnings per share | | $ | 0.43 | | | 0.03 | |
Diluted earnings per share | | $ | 0.43 | | | 0.03 | |
| | |
As adjusted | | | | | | | |
Cost of sales | | $ | 4,851,853 | | | 4,256,129 | |
Operating income | | | 672,384 | | | 638,992 | |
Income taxes | | | 214,995 | | | 209,994 | |
Net earnings | | | 387,138 | | | 370,797 | |
Basic earnings per share | | $ | 5.78 | | | 5.56 | |
Diluted earnings per share | | $ | 5.72 | | | 5.49 | |
| | |
Statement of Cash Flows: As originally reported | | | | | | | |
Net earnings | | $ | 358,195 | | | 368,622 | |
Deferred taxes | | | (6,866 | ) | | 38,700 | |
Change in inventories | | | 11,542 | | | (179,765 | ) |
Net cash provided by operating activities | | $ | 561,544 | | | 242,837 | |
| | |
Effect of Change | | | | | | | |
Net earnings | | $ | 28,943 | | | 2,175 | |
Deferred taxes | | | 16,170 | | | 1,227 | |
Change in inventories | | | (45,112 | ) | | (3,402 | ) |
Net cash provided by operating activities | | $ | — | | | — | |
| | |
As adjusted | | | | | | | |
Net earnings | | $ | 387,138 | | | 370,797 | |
Deferred taxes | | | 9,304 | | | 39,927 | |
Change in inventories | | | (33,570 | ) | | (183,167 | ) |
Net cash provided by operating activities | | $ | 561,544 | | | 242,837 | |
Thecarrying amount of the accounting change priorCompany’s goodwill and intangible assets to 2004 was not significant because FIFO approximatedtheir estimated fair value based upon the inventory carrying value. Had the Company continued to apply the LIFO methodresults of accounting, the impact on the statement of earnings during 2006 would have experienced a decrease in operating income of $10,285 ($6,065 net of tax) and a decrease in basic and diluted earnings per share of approximately $0.09 per share for the year ended December 31, 2006. Had the Company continued to apply LIFO for the twelve months ended December 31, 2005 and December 31, 2004, it would have experienced a decrease to operating income of $45,112 (28,943, net of tax) and $3,402 ($2,175) for the twelve month period ended December 31, 2005 and
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2004, respectively and decreased basic and diluted earnings per share of approximately $0.43, $0.43, $0.03 and $0.03 for the twelve month periods ended December 31, 2005 and 2004, respectively as compared to amountstwo interim impairment tests. The total impairment included $276,807 in the consolidated financial statements.
(5) Goodwill and Other Intangible Assets
The Company evaluates its goodwill and indefinite life intangibles on an annual basis for impairment. The Company has three reporting segments, the Mohawk segment, $531,930 in the Dal-Tile segment and $734,660 in the Unilin segment. Accordingly the Company has assigned the acquired goodwill and indefinite life intangibles to the respective reporting segments. During the fourth quarter of 2006, the Company evaluated the goodwill and indefinite life intangibles using the discounted cash flow and market approaches and determined that there was no impairment.
48
The following table summarizes the components of intangible assets:
Goodwill:
| | | | | | | | | | | | |
| | | Mohawk | | Dal-Tile | | | Unilin | | | Total | |
Balance as of January 1, 2005 | | $ | 196,632 | | 1,180,717 | | | — | | | 1,377,349 | |
Goodwill recognized during the period | | | 1,500 | | 10,955 | | | 1,249,720 | | | 1,262,175 | |
Effect of translation | | | — | | — | | | (17,561 | ) | | (17,561 | ) |
| | | | | | | | | | | | |
Balance as of December 31, 2005 | | | 198,132 | | 1,191,672 | | | 1,232,159 | | | 2,621,963 | |
Goodwill recognized during the period | | | 1,000 | | (8,882 | ) | | (19,209 | ) | | (27,091 | ) |
Effect of translation | | | — | | — | | | 104,767 | | | 104,767 | |
| | | | | | | | | | | | |
Balance as of December 31, 2006 | | $ | 199,132 | | 1,182,790 | | | 1,317,717 | | | 2,699,639 | |
| | | | | | | | | | | | |
The change in
| | | | | | | | | | | | | | | | | |
| | | Mohawk | | | Dal-Tile | | | Unilin | | | Total | |
| |
| Balances as of December 31, 2007 | | $ | 199,132 | | | | 1,186,013 | | | | 1,412,194 | | | | 2,797,339 | |
| Goodwill recognized during the year | | | — | | | | 900 | | | | (40,691 | ) | | | (39,791 | ) |
| Impairment charge | | | (199,132 | ) | | | (531,930 | ) | | | (596,363 | ) | | | (1,327,425 | ) |
| Currency translation during the year | | | — | | | | — | | | | (30,689 | ) | | | (30,689 | ) |
| | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2008 | | | — | | | | 654,983 | | | | 744,451 | | | | 1,399,434 | |
| Goodwill recognized during the year | | | — | | | | — | | | | 1,288 | | | | 1,288 | |
| Currency translation during the year | | | — | | | | — | | | | 10,406 | | | | 10,406 | |
| | | | | | | | | | | | | | | | | |
| Balances as of December 31, 2009 | | $ | — | | | | 654,983 | | | | 756,145 | | | | 1,411,128 | |
| | | | | | | | | | | | | | | | | |
During 2009, the Company recorded additional goodwill during 2005 was attributable to the acquisitions made within the Mohawk and Dal-Tile reporting segments and the Unilin Acquisition. The changeof $1,288 in goodwill during 2006 within the Unilin segment resulted from adjustments to the opening balance sheet including the reversal of pre acquisition tax liabilities of $16,644. In addition,in a business acquisition. During 2008, the Company recognizedrecorded additional goodwill of $1,000 related to an earn-out agreement entered into in 2003$1,742 in the MohawkDal-Tile segment for the acquisition of certain stone center assets. In addition, during 2008, the Company reversed $842 and reversed certain$40,691 of pre-acquisition tax liabilities in the Dal-Tile segment in 2006.and Unilin segments, respectively.
Intangible assets:
| | | | | |
| | | Tradenames | |
| |
Indefinite life assets not subject to amortization: | | | | |
| Balance as of December 31, 2007 | | $ | 707,086 | |
| Impairment charge | | | (215,972 | ) |
| Effect of translation | | | (18,715 | ) |
| | | | | |
| Balance as of December 31, 2008 | | | 472,399 | |
| Effect of translation | | | 5,208 | |
| | | | | |
| Balance as of December 31, 2009 | | $ | 477,607 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| | | Customer
| | | | | | | | | | |
| | | Relationships | | | Patents | | | Other | | | Total | |
| |
Intangible assets subject to amortization: | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2007 | | $ | 256,092 | | | | 208,691 | | | | — | | | | 464,783 | |
| Intangible assets recognized during the year | | | 2,980 | | | | — | | | | — | | | | 2,980 | |
| Amortization during year | | | (49,092 | ) | | | (29,475 | ) | | | — | | | | (78,567 | ) |
| Effect of translation | | | (5,916 | ) | | | (7,829 | ) | | | — | | | | (13,745 | ) |
| | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2008 | | | 204,064 | | | | 171,387 | | | | — | | | | 375,451 | |
| Intangible assets recognized during the year | | | 972 | | | | — | | | | 1,496 | | | | 2,468 | |
| Amortization during year | | | (47,175 | ) | | | (26,812 | ) | | | (68 | ) | | | (74,055 | ) |
| Effect of translation | | | 1,441 | | | | 2,433 | | | | (3 | ) | | | 3,871 | |
| | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2009 | | $ | 159,302 | | | | 147,008 | | | | 1,425 | | | | 307,735 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2009 | | 2008 | | 2007 |
| |
| Amortization expense: | | | | | | | | | | | | |
| Aggregation amortization expense | | $ | 74,055 | | | | 78,567 | �� | | | 94,953 | |
49
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Intangible Assets:
| | | | | | | | | | | | | |
| | | Mohawk | | | Dal-Tile | | | Unilin | | | Total | |
Indefinite Life Assets not subject to amortization: | | | | | | | | | | | | | |
Balance as of January 1, 2005 | | $ | 125,580 | | | 146,700 | | | — | | | 272,280 | |
Additions | | | — | | | — | | | 356,521 | | | 356,521 | |
Effect of translation | | | — | | | — | | | (6,707 | ) | | (6,707 | ) |
| | | | | | | | | | | | | |
Balance as of December 31, 2005 | | | 125,580 | | | 146,700 | | | 349,814 | | | 622,094 | |
Effect of translation | | | — | | | — | | | 40,220 | | | 40,220 | |
| | | | | | | | | | | | | |
Balance as of December 31, 2006 | | $ | 125,580 | | | 146,700 | | | 390,034 | | | 662,314 | |
| | | | | | | | | | | | | |
Intangible Assets Subject to Amortization: | | | | | | | | | | | | | |
Balance as of December 31, 2004 | | $ | 53,360 | | | 1,400 | | | — | | | 54,760 | |
Less: Accumulated Amortization | | | (4,100 | ) | | (294 | ) | | | | | (4,394 | ) |
| | | | | | | | | | | | | |
Balance as of January 1, 2005, net | | | 49,260 | | | 1,106 | | | — | | | 50,366 | |
Additions | | | — | | | 1,170 | | | 526,365 | | | 527,535 | |
Amortization during period | | | (3,610 | ) | | (457 | ) | | (13,257 | ) | | (17,324 | ) |
Effect of translation | | | — | | | — | | | (8,574 | ) | | (8,574 | ) |
| | | | | | | | | | | | | |
Balance as of January 1, 2006 | | | 45,650 | | | 1,819 | | | 504,534 | | | 552,003 | |
Additions | | | — | | | — | | | — | | | — | |
Amortization during period | | | (3,578 | ) | | (815 | ) | | (76,736 | ) | | (81,129 | ) |
Effect of translation | | | — | | | — | | | 46,906 | | | 46,906 | |
| | | | | | | | | | | | | |
Balance as of December 31, 2006 | | $ | 42,072 | | | 1,004 | | | 474,704 | | | 517,780 | |
| | | | | | | | | | | | | |
| | | | | | | |
| | | December 31,
2006 | | December 31,
2005 | | December 31,
2004 |
Amortization Expense: | | | | | | | |
Aggregate Amortization Expense | | $ | 81,129 | | 17,324 | | 3,843 |
| | | | | | | |
Estimated amortization expense for the years
endedending December 31, are as follows:
| | | |
2007 | | $ | 88,126 |
2008 | | | 69,635 |
2009 | | | 66,956 |
2010 | | | 65,198 |
2011 | | | 63,087 |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(6) Property, Plant and Equipment
| | | | | | | | | |
| 2010 | | | | | | $ | 73,907 | |
| 2011 | | | | | | | 71,718 | |
| 2012 | | | | | | | 61,758 | |
| 2013 | | | | | | | 23,353 | |
| 2014 | | | | | | | 21,313 | |
| |
| (6) | Property, Plant and Equipment |
Following is a summary of property, plant and equipment:
| | | | | |
| | | 2006 | | 2005 |
Land | | $ | 178,553 | | 155,670 |
Buildings and improvements | | | 698,878 | | 559,723 |
Machinery and equipment | | | 2,006,849 | | 1,802,370 |
Furniture and fixtures | | | 53,961 | | 44,765 |
Leasehold improvements | | | 33,702 | | 28,784 |
Construction in progress | | | 96,579 | | 233,525 |
| | | | | |
| | | 3,068,522 | | 2,824,837 |
Less accumulated depreciation and amortization | | | 1,180,434 | | 1,014,109 |
| | | | | |
Net property, plant and equipment | | $ | 1,888,088 | | 1,810,728 |
| | | | | |
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Land | | $ | 195,171 | | | | 191,523 | |
| Buildings and improvements | | | 722,533 | | | | 719,806 | |
| Machinery and equipment | | | 2,348,689 | | | | 2,245,075 | |
| Furniture and fixtures | | | 80,722 | | | | 60,744 | |
| Leasehold improvements | | | 54,995 | | | | 47,523 | |
| Construction in progress | | | 67,415 | | | | 148,886 | |
| | | | | | | | | |
| | | | 3,469,525 | | | | 3,413,557 | |
| Less accumulated depreciation and amortization | | | 1,678,113 | | | | 1,487,815 | |
| | | | | | | | | |
| Net property, plant and equipment | | $ | 1,791,412 | | | | 1,925,742 | |
| | | | | | | | | |
Property, plant and equipment included capitalized interest of
$7,477, $6,000$4,469, $6,419 and
$3,197$4,446 in
2006, 20052009, 2008 and
2004,2007, respectively. Depreciation expense was
$189,388, $133,333$223,453, $212,281 and
$117,768$207,613 for
2006, 20052009, 2008 and
2004,2007, respectively. Included in the property, plant and equipment are capital leases with a cost of
$29,945$37,846 and
$135,210$36,208 and accumulated depreciation
of $8,348 and
amortization$5,248 as of
$2,060 and $118 at December 31,
20062009 and
2005,2008, respectively.
On October 28, 2005,September 2, 2009, the Company entered into a $1,500,000 five-year,$600,000 four-year, senior, secured revolving credit facility (the “ABL Facility”) in connection with the replacement of the Company’s then-existing senior, unsecured, revolving credit and term loan facility (the “senior unsecured credit facilities”“Senior Unsecured Facility”). The senior unsecured credit facilities replacedAt the time of its termination, the Senior Unsecured Facility consisted of a then-existing credit facility and various uncommitted credit lines. The senior unsecured credit facilities consist of (i) a multi-currency $750,000$650,000 revolving credit facility, (ii) a $389,200 term loan facility and (iii) a Euro 300,000 term loan facility, all of which was to mature on October 28, 2010. The ABL Facility provides for a maximum of $600,000 of revolving credit, subject to borrowing base availability, including limited amounts of credit in the form of letters of credit and swingline loans. The borrowing base is equal to specified percentages of eligible accounts receivable and inventories of the Company enteredand other borrowers under the ABL Facility, which are subject to seasonal variations, less reserves established in good faith by the Administrative Agent under the ABL Facility. All obligations under the ABL Facility, and the guarantees of those obligations, are secured by a security interest in certain accounts receivable, inventories, certain deposit and securities accounts, tax refunds and other personal property (excluding intellectual property) directly relating to, or arising from, and proceeds of, any of the foregoing. In connection with the entry into the ABL Facility, the Company incurred $23,714 in debt issuance costs which will be amortized on a straight-line basis over the four-year term of the facility and recognized as interest expense in the condensed consolidated statement of operations.
At the Company’s election, revolving loans under the ABL Facility bear interest at annual rates equal to either (a) LIBOR for 1, 2, 3 or 6 month periods, as selected by the Company, plus an applicable margin ranging between 3.75% and 4.25%, or (b) the higher of the prime rate, the Federal Funds rate plus 0.5%, or a daily LIBOR rate, plus an applicable margin ranging between 2.25% and 2.75%. The Company also pays a commitment fee to the Lenders under the ABL Facility on the average amount by which the aggregate commitments of the Lenders’ exceed utilization of the ABL Facility equal to 1.00% per annum during any
50
quarter that this excess is 50% or more, and 0.75% per annum during any quarter that this excess is less than 50%.
The ABL Facility includes certain affirmative and negative covenants that impose restrictions on Mohawk’s financial and business operations, including limitations on debt, liens, investments, 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. Many of these limitations are subject to numerous exceptions. The Company is also required to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that the unutilized amount available under the ABL Facility is less than 15% of the amount available under the ABL Facility.
The ABL Facility is scheduled to mature on September 2, 2013 but the maturity date will accelerate to: (i) October 15, 2010 if the Company’s outstanding 5.75% senior unsecured credit facilitynotes due January 15, 2011 have not been repaid, refinanced, defeased or adequately reserved for by the Company, as reasonably determined by the Administrative Agent, prior to financeOctober 15, 2010, and (ii) January 15, 2012, if the Unilin AcquisitionCompany’s outstanding 7.20% senior notes due April 15, 2012 have not been repaid, refinanced, defeased or adequately reserved for by the Company, as reasonably determined by the Administrative Agent, prior to January 15, 2012. The Company can make adequate reserves for such senior notes with unrestricted cash on hand and unutilized borrowing availability under the ABL Facility. The Company believes cash and cash equivalents and availability under the ABL Facility will be sufficient to provide for working capital requirements. Atsatisfy the October 15, 2010 requirements of the ABL Facility, although there can be no assurances the Company will have adequate reserves as defined in the ABL Facility.
As of December 31,
2006, $395,321 of borrowings was outstanding under these facilities. The borrowings outstanding are comprised of $197,3012009, the amount considered used under the
revolving credit facility and Euro 150,000, or approximately $198,020, borrowings outstanding under the Euro term facility. The balance of the $389,200 facilityABL Facility was
repaid in 2006.At December 31, 2006,$113,451 leaving a total of approximately $455,581 was$461,871 available under the revolving credit facility.ABL Facility. The amount used under the revolving credit facility at December 31, 2006, was $294,419. The amount used under the revolving credit facilityABL Facility is composed of $197,301 borrowings, $55,599$53,542 of standby letters of credit guaranteeing the Company'sCompany’s industrial revenue bonds and $41,519$59,909 of standby letters of credit related to various insurance contracts and foreign vendor commitments.
The senior
During 2009, the Company terminated its Euro 130,000, five-year unsecured,
revolving credit
facilities bear interest at (i) the greater of (x) prime rate or (y) the overnight federal funds rate plus 0.50%, or (ii) LIBOR plus an indexed amount based on the Company's senior, unsecured, long-term debt rating.The Company has anfacility and its on-balance sheet trade accounts receivable securitization agreement, (the “Securitization Facility”). The Securitization Facility allows the Company to borrowwhich allowed for borrowings up to $350,000$250,000 based on available accounts receivable. At December 31, 2006, the Company had $190,000 outstanding compared to $40,000 at December 31, 2005. The Securitization Facility is secured by trade receivables. During the third quarter of 2006, the Company extended the term of its Securitization Facility until July 2007.
On November 8, 2005, one of the Company's subsidiaries entered into a Euro 130,000 five-year unsecured, revolving credit facility, maturing on November 8, 2010 (the “Euro revolving credit facility”). This agreement
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
bears interest at EURIBOR plus an indexed amount based on the Company's senior, unsecured, long-term debt rating. The Company guaranteed the obligations of that subsidiary under the Euro revolving credit facility and of any of the Company's other subsidiaries that become borrowers under the Euro revolving credit facility. As of December 31, 2006, the Company had borrowings outstanding of Euro 18,810 or approximately $24,831 under this facility. No borrowings were outstanding at December 31, 2005 under this facility.
The Company's senior unsecured credit facilities and the Euro revolving credit facility both contain debt to capital ratio requirements and other customary covenants. The Company was in compliance with these covenants at December 31, 2006. Under both of these credit facilities, the Company must pay an annual facility fee ranging from 0.06% to 0.25% depending upon the Company's senior, unsecured long-term debt rating.
On January 17, 2006, the Company issued $500,000 aggregate principal amount of 5.750% notes due 2011 and $900,000 aggregate principal amount of 6.125% notes due 2016.
The net proceeds from the issuance of these notes were used to pay off a $1,400,000 bridge credit facility entered into in connection with the Unilin Acquisition. Interest payable on each series of the notes is subject to adjustment if either
Moody's InvestorMoody’s Investors Service, Inc.
(“Moody’s”) or Standard &
Poor'sPoor’s Ratings Services
(“Standard & Poor’s”), or both, downgrades the rating
they have assigned to the notes. Each rating agency downgrade results in a 0.25% increase in the interest rate, subject to a maximum increase of 1% per rating agency. If later the rating of these notes improves, then the interest rates would be reduced accordingly.
The provision for increasing the interest rate will no longer apply if the rating of these notes from both rating agencies improves above the rating of these notesEach 0.25% increase in
effect at the time of the issuance of the notes. There have been no adjustments to the interest rate of
these notes would increase the
notes.Company’s interest expense by approximately $3,500 per year. Currently, the interest rates have been increased by an aggregate amount of 0.75% as a result of downgrades by Moody’s and Standard & Poor’s during 2009. These downgrades increase the Company’s interest expense by approximately $10,500 per year and could adversely affect the cost of and ability to obtain additional credit in the future. Additional downgrades in the Company’s credit ratings could further increase the cost of its existing credit and adversely affect the cost of and ability to obtain additional credit in the future.
In 2002, the Company issued $300,000 aggregate principal amount of its senior 6.5% notes due 2007 and $400,000 aggregate principal amount of its senior 7.2% notes due 2012.
51
Long-term
The fair value and carrying value of our debt consistsinstruments are detailed as follows:
| | | | | | | | | | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | | | | Carrying
| | | | | | Carrying
| |
| | | Fair Value | | | Value | | | Fair Value | | | Value | |
| |
| 5.75% notes, payable January 15, 2011 interest payable semiannually | | $ | 508,703 | | | | 498,240 | | | | 450,000 | | | | 500,000 | |
| 7.20% senior notes, payable April 15, 2012 interest payable semiannually | | | 418,400 | | | | 400,000 | | | | 340,000 | | | | 400,000 | |
| 6.125% notes, payable January 15, 2016 interest payable semiannually | | | 891,900 | | | | 900,000 | | | | 684,000 | | | | 900,000 | |
| Securitization facility, terminated June 2009 | | | — | | | | — | | | | 47,000 | | | | 47,000 | |
| Five-year senior unsecured credit facility, terminated September 2009 | | | — | | | | — | | | | 55,300 | | | | 55,300 | |
| Four-year senior secured credit facility, due September 2013 | | | — | | | | — | | | | — | | | | — | |
| Industrial revenue bonds, capital leases and other | | | 56,239 | | | | 56,239 | | | | 52,486 | | | | 52,486 | |
| | | | | | | | | | | | | | | | | |
| Total long-term debt | | | 1,875,242 | | | | 1,854,479 | | | | 1,628,786 | | | | 1,954,786 | |
| Less current portion | | | 52,907 | | | | 52,907 | | | | 94,785 | | | | 94,785 | |
| | | | | | | | | | | | | | | | | |
| Long-term debt, excluding current portion | | $ | 1,822,335 | | | | 1,801,572 | | | | 1,534,001 | | | | 1,860,001 | |
| | | | | | | | | | | | | | | | | |
The fair values of the
following: | | | | | |
| | | 2006 | | 2005 |
364-day senior, unsecured bridge term credit facility, due October 27, 2006 | | $ | — | | 1,400,000 |
6.50% senior notes, payable April 15, 2007 interest payable semiannually | | | 300,000 | | 300,000 |
Securitization Facility, due July 30, 2007 | | | 190,000 | | 40,000 |
Five year unsecured credit facility, due October 28, 2010 | | | 395,321 | | 1,062,041 |
5.75% note, payable in January 15, 2011 interest payable semiannually | | | 500,000 | | — |
7.20% senior notes, payable April 15, 2012 interest payable semiannually | | | 400,000 | | 400,000 |
6.125% note, payable January 15, 2016 interest payable semiannually | | | 900,000 | | — |
Euro five year unsecured revolving credit facility due November 8, 2010 | | | 24,831 | | — |
Industrial revenue bonds, capital leases and other | | | 73,529 | | 106,329 |
| | | | | |
Total long-term debt | | | 2,783,681 | | 3,308,370 |
Less current portion | | | 576,134 | | 113,809 |
| | | | | |
Long-term debt, excluding current portion | | $ | 2,207,547 | | 3,194,561 |
| | | | | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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 long-term debt as of December 31,
20062009 are as follows:
| | | |
2007 | | $ | 576,134 |
2008 | | | 7,637 |
2009 | | | 3,417 |
2010 | | | 395,574 |
2011 | | | 500,249 |
Thereafter | | | 1,300,670 |
| | | |
| | $ | 2,783,681 |
| | | |
| | | | | |
| 2010 | | $ | 52,907 | |
| 2011 | | | 499,790 | |
| 2012 | | | 400,374 | |
| 2013 | | | 439 | |
| 2014 | | | 354 | |
| Thereafter | | | 900,615 | |
| | | | | |
| | | $ | 1,854,479 | |
| | | | | |
(8) Accounts Payable, Accrued Expenses and Deferred Tax Liability Accounts payable and accrued expenses are as follows:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Outstanding checks in excess of cash | | $ | 17,900 | | | | 12,612 | |
| Accounts payable, trade | | | 335,401 | | | | 315,053 | |
| Accrued expenses | | | 169,730 | | | | 210,591 | |
| Product warranties | | | 66,545 | | | | 56,460 | |
| Accrued interest | | | 52,743 | | | | 45,493 | |
| Income taxes payable | | | 85,699 | | | | 40,798 | |
| Deferred tax liability | | | 2,836 | | | | 3,030 | |
| Accrued compensation and benefits | | | 100,261 | | | | 98,094 | |
| | | | | | | | | |
| Total accounts payable and accrued expenses | | $ | 831,115 | | | | 782,131 | |
| | | | | | | | | |
52
| | | | | |
| | | 2006 | | 2005 |
Outstanding checks in excess of cash | | $ | 68,139 | | 97,389 |
Accounts payable, trade | | | 371,538 | | 401,543 |
Accrued expenses | | | 297,511 | | 235,716 |
Income taxes payable | | | 125,046 | | 121,533 |
Deferred tax liability | | | 4,565 | | 5,111 |
Accrued compensation | | | 152,830 | | 136,813 |
| | | | | |
Total accounts payable and accrued expenses | | $ | 1,019,629 | | 998,105 |
| | | | | |
(9) Derivative Financial Instruments
| |
| (9) | Derivative Financial Instruments |
Natural Gas Risk Management The Company uses a combination of natural gas futures contracts and long-term supply agreements to manage unanticipated changes in natural gas prices. The contracts are based on forecasted usage of natural gas measured in Million British Thermal Units (“MMBTU”).
The Company has designated the natural gas futures contracts as cash flow hedges. The outstanding contracts are valued at market with the offset applied to other comprehensive income, net of applicable income taxes and any hedge ineffectiveness.
Any gain or loss is reclassified from other comprehensive income and recognized in cost of goods sold in the same period or periods during which the hedged transaction affects earnings. AtAs of December 31, 2006,2009, the Company had no outstanding natural gas contracts. As of December 31, 2008, the Company had natural gas contracts that maturematured from January 20072009 to October 2007December 2009 with an aggregate notional amount of approximately 1,400 MMBTU's.2,650 MMBTU’s. The fair value of these contracts was a liability of $2,414$5,913 as of December 31, 2006. At December 31, 2005, the Company had natural gas contracts that mature from January 2006 to October 2006 with an aggregate notional amount of approximately 660 MMBTU's. The fair value of these contracts was an asset of $1,941 as of December 31, 2005.2008. The offset to these assetsliabilities is recorded in other comprehensive income, net of applicable income taxes. The ineffective portion of the derivative is recognized in the cost of goods sold within the consolidated statements of earningsoperations and was not significant for the periods reported.
The
amount that the Company anticipates that will be reclassified out of accumulated other comprehensive income in the next twelve months is a loss of approximately $2,414, net of taxes.The Company'sCompany’s natural gas long-term supply agreements are accounted for under the normal purchase provision within ASC 815, formerly SFAS No. 133 and its amendments. AtAs of December 31, 2006,2009, the Company had no outstanding normal purchase commitments for natural gas. As of December 31, 2008, the Company had normal purchase
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
commitments of approximately 1,748 MMBTU's2,026 MMBTU’s for periods maturing from January 20072009 through March 2008.December 2009. The contracted value of these commitments was approximately $15,357 and the fair value$17,151 as of these commitments was approximately $12,071, at December 31, 2006. At December 31, 2005, the Company had normal purchase commitments of approximately 1,867 MMBTU's for periods maturing from January 2006 through October 2006. The contracted value of these commitments was approximately $17,219 and the fair value of these commitments was approximately $20,488, at December 31, 2005.
2008.
Foreign Currency Rate Management The Company enters into foreign exchange forward contracts to hedge foreign denominated costs associated with its operations in Mexico. The objective of these transactions is to reduce volatility of exchange rates where these operations are located by fixing a portion of their costs in U.S. currency. Accordingly, these contracts have been designated as cash flow hedges. Gains and losses are reclassified from other comprehensive income and recognized in cost of goods sold in the same period or periods during which the hedged transaction affects earnings. The
companyCompany had no
outstanding forward contracts
outstanding atto purchase Mexican pesos as of December 31,
2006.2009. The Company had forward contracts to purchase approximately
8,000269,129 Mexican pesos
atas of December 31,
2005.2008. The fair value of these contracts was a liability of $5,237 as of December 31, 2008. The aggregate U.S. dollar value of these contracts
atas of December 31,
20052008 was approximately
$697.(10) Product warranties
$23,923. The offset to these liabilities is recorded in other comprehensive income, net of applicable income taxes. The ineffective portion of the derivative is recognized in the cost of goods sold within the consolidated statements of operations and was not significant for the periods reported.
The Company warrants certain qualitative attributes of its products for up to 2050 years. The Company records a provision for estimated warranty and related costs in accrued expenses, based on historical experience and periodically adjusts these provisions to reflect actual experience.
53
Product warranties are as follows:
| | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
Balance at beginning of year | | $ | 25,988 | | | 23,473 | | | 24,063 | |
Warranty claims | | | (48,308 | ) | | (46,850 | ) | | (45,553 | ) |
Warranty expense | | | 48,755 | | | 49,365 | | | 44,963 | |
| | | | | | | | | | |
Balance at end of year | | $ | 26,435 | | | 25,988 | | | 23,473 | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Balance at beginning of year | | $ | 56,460 | | | | 46,187 | | | | 30,712 | |
| Warranty claims paid during the year | | | (167,053 | ) | | | (81,586 | ) | | | (54,685 | ) |
| Pre-existing warranty accrual adjustment during the year(1) | | | 125,124 | | | | — | | | | — | |
| Warranty expense during the year(1) | | | 52,014 | | | | 91,859 | | | | 67,301 | |
| Other(2) | | | — | | | | — | | | | 2,859 | |
| | | | | | | | | | | | | |
| Balance at end of year | | $ | 66,545 | | | | 56,460 | | | | 46,187 | |
| | | | | | | | | | | | | |
| | |
| (1) | | The increase in warranty expense in 2009 and 2008 relates primarily to certain commercial carpet tiles that were discontinued in early 2009. |
|
| (2) | | Includes $2,859 in 2007 related to the Columbia acquisition. This amount was not charged to expense. |
(11) Stock Options, Stock Compensation and Treasury StockPrior to January 1, 2006, the
The Company
accounted for its stockrecognizes compensation
plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB No. 123, Accounting for Stock-Based Compensation. Accordingly, no stock-based employee compensation cost related to stock options was recognized in the Consolidated Statement of Earnings as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB No. 123(R), Share-Based Payment, using the modified-prospective-transition method. Under that transition method, compensation cost includes: (a) compensation costexpense for all share-based payments granted
prior to, but not yet vested as of, January 1, 2006, based on the
grant date fair value estimated in accordance with the original provisions of FASB No. 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of
FASB No. 123(R). ResultsASC718-10. Compensation expense is recognized on a straight-line basis over the options estimated lives for
prior periods have not been restated.Prior tofixed awards with ratable vesting provisions.
Under the
adoption of FASB No. 123(R)Company’s 2007 Incentive Plan (“2007 Plan”),
which was approved by the Company’s stockholders on May 16, 2007, the Company
presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Consolidated Statement of Cash Flows. FASBMOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notesreserved up to Consolidated Financial Statements—(Continued)
No. 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. Accordingly, the Company has classified the excess tax benefit as a financing cash inflow.
Under the Company's 2002 Long-Term Incentive Plan (“Plan”), the Company's principal stock compensation plan, stock options may be granted to directors and key employees through 2012 to purchase a maximum of 3,200 shares of common stock.stock for issuance upon the grant or exercise of stock options, restricted stock, restricted stock units (“RSU’s”) and other types of awards, to directors and key employees through 2017. Option awards are generally granted with an exercise price equal to the market price of the Company'sCompany’s common stock on the date of the grant. Those option awardsgrant and generally vest between three and five years and havewith a10-year contractual term. Restricted stock and RSU’s are granted with a 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.
Additional information relating to the Company’s stock option plans follows:
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Options outstanding at beginning of year | | | 1,506 | | | | 1,455 | | | | 2,034 | |
| Options granted | | | 76 | | | | 146 | | | | 64 | |
| Options exercised | | | (35 | ) | | | (46 | ) | | | (588 | ) |
| Options canceled | | | (66 | ) | | | (49 | ) | | | (55 | ) |
| | | | | | | | | | | | | |
| Options outstanding at end of year | | | 1,481 | | | | 1,506 | | | | 1,455 | |
| | | | | | | | | | | | | |
| Options exercisable at end of year | | | 1,165 | | | | 1,035 | | | | 821 | |
| | | | | | | | | | | | | |
| Option prices per share: | | | | | | | | | | | | |
| Options granted during the year | | $ | 28.37 | | | | 74.47 | | | | 75.10-93.65 | |
| | | | | | | | | | | | | |
| Options exercised during the year | | $ | 16.66-48.50 | | | | 19.63-73.45 | | | | 16.66-88.33 | |
| | | | | | | | | | | | | |
| Options canceled during the year | | $ | 19.94-93.65 | | | | 16.66-93.65 | | | | 22.63-93.65 | |
| | | | | | | | | | | | | |
| Options outstanding at end of year | | $ | 16.66-93.65 | | | | 16.66-93.65 | | | | 16.66-93.65 | |
| | | | | | | | | | | | | |
| Options exercisable at end of year | | $ | 16.66-93.65 | | | | 16.66-93.65 | | | | 16.66-90.97 | |
| | | | | | | | | | | | | |
During 1996, the Company adopted the 1997 Non-Employee Director Stock Compensation Plan. The plan provides for awards of common stock of the Company for non-employee directors to receive in lieu of
54
cash for their annual retainers. During 2009, 2008 and 2007, a total of 2, 1 and 1 shares, respectively, were awarded to the non-employee directors under the plan.
In addition, the Company maintains an employee incentive program that awards restricted stock on the attainment of certain service criteria. The outstanding awards related to these programs and related compensation expense was not significant for
any of the years ended December 31,
2006, 20052009, 2008 and
2004, respectively.During 1996, the Company adopted the 1997 Non-Employee Director Stock Compensation Plan. The plan provides for awards of common stock of the Company for non-employee directors to receive in lieu of cash for their annual retainers. During 2006, 2005 and 2004, a total of 1, 1 and 1 shares, respectively, were awarded to the non-employee directors under the plan.
Additional information relating to the Company's stock option plans follows:
| | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
Options outstanding at beginning of year | | | 2,276 | | | 2,281 | | | 2,413 | |
Options granted | | | 146 | | | 460 | | | 411 | |
Options exercised | | | (338 | ) | | (378 | ) | | (464 | ) |
Options canceled | | | (50 | ) | | (87 | ) | | (79 | ) |
| | | | | | | | | | |
Options outstanding at end of year | | | 2,034 | | | 2,276 | | | 2,281 | |
| | | | | | | | | | |
Options exercisable at end of year | | | 1,066 | | | 857 | | | 791 | |
| | | | | | | | | | |
Option prices per share: | | | | | | | | | | |
Options granted during the year | | $ | 75.82-86.51 | | | 76.73-89.46 | | | 61.33-90.97 | |
| | | | | | | | | | |
Options exercised during the year | | $ | 11.33-73.45 | | | 9.33-82.50 | | | 9.33-65.02 | |
| | | | | | | | | | |
Options canceled during the year | | $ | 24.63-89.46 | | | 30.53-90.97 | | | 11.17-82.50 | |
| | | | | | | | | | |
Options outstanding at end of year | | $ | 16.60-90.97 | | | 11.33-90.97 | | | 9.33-90.97 | |
| | | | | | | | | | |
Options exercisable at end of year | | $ | 16.60-90.97 | | | 11.33-90.97 | | | 9.33-74.93 | |
| | | | | | | | | | |
2007.
The Company’s Board of Directors has authorized the repurchase of up to 15,000 shares of the Company’s outstanding common stock. For the year ended December 31,
2006, a total of approximately 742009, 2008 and 2007 no shares of the
Company'sCompany’s common stock were
purchased at an aggregate cost of approximately $5,180.purchased. Since the inception of the program, a total of approximately 11,512 shares have been repurchased at an aggregate cost of approximately $334,747. All of these repurchases have been financed through the Company’s operations and banking arrangements.
On October 31, 2005, the Company entered into a Discounted Stock Purchase Agreement (the “DSPA”) with certain members of the Unilin management team (the “Unilin Management”).
The Company terminated the DSPA during the year ended December 31, 2009. Under the terms of the DSPA, the Company
iswas obligated to make cash payments to the Unilin Management in the event that certain performance goals are satisfied. In each of the years in the five-year period
endedending December 31, 2010, the remaining members
of the Unilin Management
cancould earn amounts, in the aggregate, equal to the average value of 30,671
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
shares of the Company'sCompany’s common stock over the 20 trading day period ending on December 31 of the prior year. Any failure in a given year to reach the performance goals may becould have been rectified, and consequently the amounts payable with respect to achieving such criteria may becould have been made, in any of the other years. The amount of the liability iswas measured each period and recognized as compensation expense in the consolidated statement of earnings. As of December 31, 2006,operations. No expense related to the DSPA was recognized by the Company in 2009. The Company expensed approximately $0 and $2,300 under the DSPA.
DSPA for the years ended December 31, 2008 and 2007, respectively.
The fair value of the option awardawards is estimated on the date of grant using the Black-Scholes-Merton valuation model that uses the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company'sCompany’s common stock and other factors. The Company uses historical data to estimate option exercise and forfeiture rates within the valuation model. Optionees that exhibit similar option exercise behavior are segregated into separate groups within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on U.S. Treasury yields in effect at the time of the grant for the expected term of the award.
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Dividend yield | | | — | | | | — | | | | — | |
| Risk-free interest rate | | | 1.7 | % | | | 2.9 | % | | | 4.8 | % |
| Volatility | | | 35.3 | % | | | 24.0 | % | | | 29.0 | % |
| Expected life (years) | | | 5 | | | | 5 | | | | 6 | |
55
| | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
Dividend yield | | — | | | — | | | — | |
Risk-free interest rate | | 4.6 | % | | 4.0 | % | | 2.9 | % |
Volatility | | 35.3 | % | | 37.7 | % | | 43.1 | % |
Expected life (years) | | 6 | | | 6 | | | 6 | |
The
A summary of the Company’s
options under the 2007 Plan as of December 31,
2006,2009, and changes during the
periodyear then ended is presented as follows:
| | | | | | | | | | | |
| | | Shares | | | Weighted
Average Exercise
Price | | Weighted
Average
Remaining
Contractual
Term (years) | | Average
Intrinsic
Value |
Options outstanding January 1, 2006 | | 2,276 | | | $ | 59.60 | | | | | |
Granted | | 146 | | | | 83.63 | | | | | |
Exercised | | (338 | ) | | | 38.44 | | | | | |
Forfeited and expired | | (50 | ) | | | 71.89 | | | | | |
| | | | | | | | | | | |
Options outstanding, end of period | | 2,034 | | | | 64.43 | | 6.3 | | $ | 28,349 |
| | | | | | | | | | | |
Vested and expected to vest at December 31, 2006 | | 1,928 | | | $ | 63.62 | | 6.2 | | $ | 28,006 |
| | | | | | | | | | | |
Exercisable at December 31, 2006 | | 1,066 | | | $ | 53.17 | | 5.2 | | $ | 24,141 |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Weighted
| | | | |
| | | | | | | | | Average
| | | | |
| | | | | | Weighted
| | | Remaining
| | | Aggregate
| |
| | | | | | Average Exercise
| | | Contractual
| | | Intrinsic
| |
| | | Shares | | | Price | | | Term (Years) | | | Value | |
| |
| Options outstanding December 31, 2008 | | | 1,506 | | | $ | 70.98 | | | | | | | | | |
| Granted | | | 76 | | | | 28.37 | | | | | | | | | |
| Exercised | | | (35 | ) | | | 24.50 | | | | | | | | | |
| Forfeited and expired | | | (66 | ) | | | 67.00 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Options outstanding, December 31, 2009 | | | 1,481 | | | | 70.11 | | | | 4.6 | | | $ | 2,768 | |
| | | | | | | | | | | | | | | | | |
| Vested and expected to vest as of December 31, 2009 | | | 1,464 | | | $ | 70.20 | | | | 4.6 | | | $ | 2,669 | |
| | | | | | | | | | | | | | | | | |
| Exercisable as of December 31, 2009 | | | 1,165 | | | $ | 70.61 | | | | 3.8 | | | $ | 1,316 | |
| | | | | | | | | | | | | | | | | |
The weighted-average grant-date fair value of an option granted during
2006, 20052009, 2008 and
2004,2007, was
$33.80, $37.29$9.17, $20.26 and
$34.39,$33.68, respectively. The total intrinsic value of options exercised during the years ended December 31,
2006, 2005,2009, 2008, and
20042007 was
$14,032, $20,241,$809, $1,169 and
$22,355,$22,943, respectively. Total compensation expense recognized for the
periodyears ended December 31,
20062009, 2008 and 2007 was
$11,925$4,552 ($
7,537,2,884, net of tax)
, $6,646 ($4,210, net of tax) and $8,827 ($6,359, net of tax), respectively, which was allocated to selling, general and administrative expenses. The remaining unamortized expense for non-vested compensation expense
atas of December 31,
2006,2009 was
$18,591$3,538 with a weighted average remaining life of
2.12.0 years.
If the Company had continued to account for share-based compensation under APB Opinion No. 25, basic and diluted net earnings per share for the year ended December 31, 2006 would have been $6.85 and $6.80, respectively.MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The following table summarizes information about the Company’s stock options outstanding atas of December 31, 2006:2009:
| | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding | | | Exercisable | |
| | | Number of
| | | | | | Average
| | | Number of
| | | Average
| |
Exercise Price Range | | Shares | | | Average Life | | | Price | | | Shares | | | Price | |
| |
| Under $42.86 | | | 150 | | | | 5.2 | | | $ | 29.11 | | | | 74 | | | $ | 29.86 | |
| $42.86-$69.46 | | | 397 | | | | 2.5 | | | | 58.10 | | | | 397 | | | | 58.10 | |
| $69.95-$74.47 | | | 333 | | | | 5.5 | | | | 73.85 | | | | 221 | | | | 73.54 | |
| $74.93-$86.51 | | | 255 | | | | 5.6 | | | | 82.56 | | | | 199 | | | | 82.84 | |
| $87.87-$88.00 | | | 35 | | | | 5.8 | | | | 87.96 | | | | 28 | | | | 87.96 | |
| $88.33-$93.65 | | | 311 | | | | 5.1 | | | | 88.98 | | | | 246 | | | | 88.63 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | | 1,481 | | | | 4.6 | | | $ | 70.11 | | | | 1,165 | | | $ | 70.61 | |
| | | | | | | | | | | | | | | | | | | | | |
56
| | | | | | | | | | | | |
| | | Outstanding | | Exercisable |
Exercise price range | | Number of
Shares | | Average Life | | Average
Price | | Number of
Shares | | Average
Price |
Under $48.5 | | 566 | | 4.46 | | $ | 37.22 | | 484 | | $ | 35.36 |
$49.09-63.90 | | 453 | | 5.18 | | | 61.43 | | 336 | | | 61.34 |
$65.02-73.45 | | 371 | | 6.72 | | | 72.29 | | 149 | | | 71.65 |
$73.54-88.33 | | 634 | | 8.35 | | | 85.84 | | 94 | | | 85.39 |
$89.46-89.46 | | 3 | | 8.54 | | | 89.46 | | 1 | | | 89.46 |
$90.97-90.97 | | 7 | | 7.96 | | | 90.97 | | 2 | | | 90.97 |
| | | | | | | | | | | | |
Total | | 2,034 | | 6.27 | | | 64.43 | | 1,066 | | | 53.17 |
| | | | | | | | | | | | |
(12) Employee Benefit Plans
A summary of the Company’s RSUs under the 2007 Plan as of December 31, 2009, and changes during the year then ended is presented as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Weighted
| | | | |
| | | | | | | | | Average
| | | | |
| | | | | | | | | Remaining
| | | | |
| | | | | | Weighted
| | | Contractual
| | | Aggregate
| |
| | | Shares | | | Average Price | | | Term (Years) | | | Intrinsic Value | |
| |
| Restricted Stock Units outstanding December 31, 2008 | | | 187 | | | $ | 92.94 | | | | | | | | | |
| Granted | | | 204 | | | | 34.77 | | | | | | | | | |
| Released | | | (22 | ) | | | 87.50 | | | | | | | | | |
| Forfeited | | | (10 | ) | | | 76.54 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Restricted Stock Units outstanding, December 31, 2009 | | | 359 | | | | 60.69 | | | | 2.8 | | | $ | 17,066 | |
| | | | | | | | | | | | | | | | | |
| Vested and expected to vest as of December 31, 2009 | | | 317 | | | $ | 60.69 | | | | 2.4 | | | $ | 15,111 | |
| | | | | | | | | | | | | | | | | |
The Company recognized stock-based compensation costs related to the issuance of RSU’s of $5,009 ($3,173, net of taxes), $4,977 ($3,153, net of taxes) and $4,446 ($3,203, net of taxes) for the years ended December 31, 2009, 2008 and 2007, respectively, which has been allocated to selling, general and administrative expenses. Pre-tax unrecognized compensation expense for unvested RSU’s granted to employees, net of estimated forfeitures, was $7,988 as of December 31, 2009, and will be recognized as expense over a weighted-average period of approximately 3.4 years.
Additional information relating to the Company’s RSUs under the 2007 Plan is as follows:
| | | | | | | | | | | | | |
| | | 2009 | | 2008 | | 2007 |
| |
| Restricted Stock Units outstanding, January 1 | | | 187 | | | | 137 | | | | — | |
| Granted | | | 204 | | | | 72 | | | | 144 | |
| Released | | | (22 | ) | | | (15 | ) | | | — | |
| Forfeited | | | (10 | ) | | | (7 | ) | | | (7 | ) |
| | | | | | | | | | | | | |
| Restricted Stock Units outstanding, December 31 | | | 359 | | | | 187 | | | | 137 | |
| | | | | | | | | | | | | |
| Vested and expected to vest as of December 31 | | | 317 | | | | 175 | | | | 121 | |
| | | | | | | | | | | | | |
| |
| (12) | Employee Benefit Plans |
The Company has a 401(k) retirement savings plan (the
"Mohawk Plan"“Mohawk Plan”) open to substantially all of its employees within the Mohawk
segment, Dal-Tile segment and,
Dal-Tile segments,as of January 1, 2007, certain U.S. employees of the Unilin segment, who have completed 90 days of eligible service. For the Mohawk segment, the Company contributes $0.50 for every $1.00 of employee contributions up to a maximum of 4% of the
employee'semployee’s salary and an additional $0.25 for every $1.00 of employee contributions in excess of 4% of the employee’s salary up to a maximum of 6%. For the Dal-Tile
segment,and Unilin segments, the Company contributes $.50 for every $1.00 of employee contributions up to a maximum of 6% of the
employee'semployee’s salary. Employee and employer contributions to the Mohawk Plan were
$40,369$34,838 and
$15,713$13,822 in
2006, $38,3222009, $40,393 and
$15,118$16,024 in
2005,2008, and
$35,440$43,187 and
$13,896$16,946 in
2004,2007, respectively. The Company also made a discretionary contribution to the Mohawk Plan of approximately
$5,900, $5,710$1,908, $4,211 and
$5,214$5,500 in
2006, 20052009, 2008 and
2004,2007, respectively.
The Unilin segment also has a defined contribution plan that covers certain employees in the United States of America. Eligible employees may elect to contribute a portion of their annual salary subject to a certain maximum each year. The Company’s matching of employee contributions is discretionary and is set each year by the Company. The Company’s match was approximately $676 for 2006 and $40 for the two-month period ended December 31, 2005.The Company has a non-contributory defined benefit plan (the “U.S. Plan”) assumed in the acquisition of Lees Carpet from Burlington Industries, Inc., in November 2003. The U.S. Plan was frozen in September 2003 and accordingly the participants became 100% vested. In October 2006, the Company made the decision to terminate the U.S. Plan. The Company used December 31 as the measurement date for its U.S. Plan.
The Company also has various pension plans covering employees in Belgium, France, and The Netherlands (the “Non-U.S.“Non-U.S. Plans”) that it acquired with the acquisition of Unilin. Benefits under theNon-U.S. Plans depend on compensation and years of service. TheNon-U.S. Plans are funded in accordance with local regulations. The Company uses December 31 as the measurement date for itsNon-U.S. Plans.
57
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Components of the net periodic benefit cost of the Company’s
Non-U.S. pension benefit plans
wereare as follows:
U.S. Plan:
| | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
Service cost of benefits earned | | $ | — | | | 26 | | | 26 | |
Interest cost on projected benefit obligation | | | 1,285 | | | 1,213 | | | 1,299 | |
Settlement and curtailment | | | — | | | (65 | ) | | (672 | ) |
Expected return on plan assets | | | (1,439 | ) | | (1,542 | ) | | (1,433 | ) |
Recognized acturial (gain) or loss | | | 3,092 | | | — | | | — | |
Net amortization and deferral | | | — | | | (391 | ) | | (238 | ) |
| | | | | | | | | | |
Net pension expense/(income) | | $ | 2,938 | | | (759 | ) | | (1,018 | ) |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Service cost of benefits earned | | $ | 1,315 | | | | 1,881 | | | | 1,927 | |
| Interest cost on projected benefit obligation | | | 1,352 | | | | 1,245 | | | | 968 | |
| Expected return on plan assets | | | (1,069 | ) | | | (993 | ) | | | (738 | ) |
| Amortization of actuarial gain | | | (322 | ) | | | (29 | ) | | | (12 | ) |
| Effect of curtailments and settlements | | | (200 | ) | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net pension expense | | $ | 1,076 | | | | 2,104 | | | | 2,145 | |
| | | | | | | | | | | | | |
Assumptions used to determine net periodic pension expense for
U.S. Plan: | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
Discount rate | | 5.50 | % | | 5.50 | % | | 5.25 | % |
Expected rate of return on plan assets | | 8.00 | % | | 8.00 | % | | 7.00 | % |
Non-U.S. Plans:
| | | | | | | |
| | | 2006 | | | 2005 | |
Service cost of benefits earned | | $ | 1,607 | | | 283 | |
Interest cost on projected benefit obligation | | | 833 | | | 113 | |
Expected return on plan assets | | | (633 | ) | | (92 | ) |
| | | | | | | |
Net pension expense/(income) | | $ | 1,807 | | | 304 | |
| | | | | | | |
Assumptions used to determine net periodic pension expense for Non-U.S. Plans:
| | | | | | |
| | | 2006 | | | 2005 | |
Discount rate | | 4.90%-4.50 | % | | 4.18 | % |
Expected rate of return on plan assets | | 4.90%-4.50 | % | | 4.17 | % |
Rate of compensation increase | | 2.50%-7.00 | % | | 3.45 | % |
Underlying inflation rate | | 2.00 | % | | 2.15 | % |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
plans:
| | | | | |
| | | 2009 | | 2008 |
| |
| Discount rate | | 6.00%-6.60% | | 5.00%-5.55% |
| Expected rate of return on plan assets | | 4.50%-6.60% | | 4.50%-5.55% |
| Rate of compensation increase | | 0.00%-4.00% | | 1.00%-5.00% |
| Underlying inflation rate | | 2.25% | | 2.00% |
The obligations, plan assets and funding status of theNon-U.S. pension plans were as follows:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Change in benefit obligation: | | | | | | | | |
| Projected benefit obligation at end of prior year | | $ | 20,090 | | | | 22,045 | |
| Cumulative foreign exchange effect | | | 374 | | | | (962 | ) |
| Service cost | | | 1,356 | | | | 1,809 | |
| Interest cost | | | 1,395 | | | | 1,198 | |
| Plan participants contributions | | | 763 | | | | 729 | |
| Actuarial gain (loss) | | | 2,588 | | | | (3,681 | ) |
| Benefits paid | | | (687 | ) | | | (1,048 | ) |
| Effect of curtailment and settlement | | | (411 | ) | | | — | |
| | | | | | | | | |
| Projected benefit obligation at end of year | | $ | 25,468 | | | | 20,090 | |
| | | | | | | | | |
| Change in plan assets: | | | | | | | | |
| Fair value of plan assets at end of prior year | | $ | 16,371 | | | | 18,728 | |
| Cumulative foreign exchange effect | | | 306 | | | | (817 | ) |
| Actual return on plan assets | | | 3,234 | | | | 955 | |
| Employer contributions | | | 2,059 | | | | 1,861 | |
| Benefits paid | | | (687 | ) | | | (1,048 | ) |
| Plan participant contributions | | | 763 | | | | 729 | |
| Actual loss | | | — | | | | (4,037 | ) |
| Effect of settlement | | | (205 | ) | | | — | |
| | | | | | | | | |
| Fair value of plan assets at end of year | | $ | 21,841 | | | | 16,371 | |
| | | | | | | | | |
| Funded status of the plans: | | | | | | | | |
| Ending funded status | | $ | (3,627 | ) | | | (3,719 | ) |
| | | | | | | | | |
| Net amount recognized in consolidated balance sheets: | | | | | | | | |
| Accrued expenses (current liability) | | $ | — | | | | — | |
| Accrued benefit liability (non-current liability) | | | (3,628 | ) | | | (3,719 | ) |
| Accumulated other comprehensive gain | | | (735 | ) | | | (1,649 | ) |
| | | | | | | | | |
| Net amount recognized | | $ | (4,363 | ) | | | (5,368 | ) |
| | | | | | | | | |
58
| | | | | | | | | | | | | |
| | | U.S. Plan | | | Non-U.S. Plans | |
| | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
Change in benefit obligation: | | | | | | | | | | | | | |
Projected benefit obligation at end of prior year | | $ | 25,128 | | | 23,116 | | | 16,158 | | | 16,318 | |
Cumulative foreign exchange effect | | | — | | | — | | | 1,858 | | | — | |
Service cost | | | — | | | 26 | | | 1,607 | | | 283 | |
Interest cost | | | 1,285 | | | 1,213 | | | 833 | | | 113 | |
Plan participants contributions | | | — | | | — | | | 530 | | | 70 | |
Actuarial (gain) loss | | | 4,124 | | | 2,807 | | | (1,214 | ) | | (447 | ) |
Settlement and curtailment | | | (2,065 | ) | | (1,944 | ) | | — | | | — | |
Benefits paid | | | — | | | (90 | ) | | (1,327 | ) | | (179 | ) |
| | | | | | | | | | | | | |
Projected benefit obligation at end of year | | $ | 28,472 | | | 25,128 | | | 18,445 | | | 16,158 | |
| | | | | | | | | | | | | |
Change in plan assets: | | | | | | | | | | | | | |
Fair value of plan assets at end of prior year | | $ | 19,747 | | | 20,341 | | | 13,050 | | | 12,907 | |
Cumulative foreign exchange effect | | | — | | | — | | | 1,501 | | | — | |
Actual return on plan assets | | | 1,629 | | | 1,440 | | | 633 | | | 92 | |
Employer contributions | | | — | | | — | | | 1,426 | | | 99 | |
Benefits paid | | | — | | | (90 | ) | | (1,327 | ) | | (178 | ) |
Plan participant contributions | | | — | | | — | | | 530 | | | 70 | |
Actuarial (loss) gain | | | — | | | — | | | (961 | ) | | 60 | |
Settlement and curtailment | | | (2,065 | ) | | (1,944 | ) | | — | | | — | |
| | | | | | | | | | | | | |
Fair value of plan assets at end of year | | $ | 19,311 | | | 19,747 | | | 14,852 | | | 13,050 | |
| | | | | | | | | | | | | |
Funded status of the plans: | | | | | | | | | | | | | |
Ending funded status | | $ | 9,161 | | | (5,381 | ) | | 3,593 | | | (3,108 | ) |
| | | | | | | | | | | | | |
Unrecognized net actuarial (gain) loss | | | | | | (842 | ) | | | | | (507 | ) |
| | | | | | | | | | | | | |
(Accrued) prepaid benefit cost | | | | | | (6,223 | ) | | | | | (3,615 | ) |
| | | | | | | | | | | | | |
Net Amount recognized in consolidated balance sheets: | | | | | | | | | | | | | |
Accrued expenses (current liability) | | $ | 9,161 | | | — | | | — | | | — | |
Accrued benefit liability (non-current liability) | | | — | | | (6,982 | ) | | 3,593 | | | (3,615 | ) |
Net periodic benefit cost | | | — | | | 694 | | | — | | | — | |
Settlement | | | — | | | 65 | | | — | | | — | |
| | | | | | | | | | | | | |
Net amount recognized | | $ | 9,161 | | | (6,223 | ) | | 3,593 | | | (3,615 | ) |
| | | | | | | | | | | | | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NotesThe Company’s net amount recognized in other comprehensive income related to
Consolidated Financial Statements—(Continued)actuarial (losses) gains was $(914), $(384) and $1,215 for the years ended December 31, 2009, 2008 and 2007, respectively.
Assumptions used to determine the projected benefit obligation for the Company’s
Non-U.S. pension benefit plans were as follows:
Projected Benefit Obligation U.S. Plan:
| | | | | | |
| | | 2006 | | | 2005 | |
U.S. Plan: | | | | | | |
Discount rate | | 5.16 | % | | 5.50 | % |
| | |
Non-U.S. Plans: | | | | | | |
Discount rate | | 4.90%-4.50 | % | | 4.26 | % |
Rate of compensation increase | | 2.50%-7.00 | % | | 3.43 | % |
Underlying inflation rate | | 2.00 | % | | 2.15 | % |
| | | | | |
| | | 2009 | | 2008 |
| |
| Discount rate | | 5.00% | | 6.00%-6.60% |
| Rate of compensation increase | | 0.00%-6.00% | | 1.25%-5.25% |
| Underlying inflation rate | | 2.00% | | 2.25% |
The discount rate assumptions used to account for pension obligations reflect the rates at which the Company believes these obligations will be effectively settled. In developing the discount rate, the Company evaluated input from its actuaries, including estimated timing of obligation payments and yield on investments. The rate of compensation increase for the
Non-U.S. Plans is based upon the Company’s annual reviews.
| | | | | | | | | |
| | | U.S. Plan | | Non-U.S. Plans |
| | | 2006 | | 2005 | | 2006 | | 2005 |
Plans with accumulated benefit obligations in excess of plan assets: | | | | | | | | | |
Projected benefit obligation | | $ | 28,472 | | 25,128 | | 18,445 | | 16,158 |
Accumulated benefit obligation | | | 28,472 | | 25,128 | | 16,115 | | 14,345 |
Fair value of plan assets | | | 19,311 | | 19,747 | | 14,852 | | 13,050 |
| | | | | | | | | |
| | | Non-U.S. Plans |
| | | 2009 | | 2008 |
| |
| Plans with accumulated benefit obligations in excess of plan assets: | | | | | | | | |
| Projected benefit obligation | | $ | 10,251 | | | | 1,118 | |
| Accumulated benefit obligation | | | 8,585 | | | | 889 | |
| Fair value of plan assets | | | 7,907 | | | | 470 | |
| Plans with plan assets in excess of accumulated benefit obligations: | | | | | | | | |
| Projected benefit obligation | | $ | 25,468 | | | | 18,972 | |
| Accumulated benefit obligation | | | 21,827 | | | | 15,286 | |
| Fair value of plan assets | | | 21,841 | | | | 15,901 | |
Estimated future benefit payments for the
U.S. PlanNon-U.S. pension plans are
$28,472 in 2007. Estimated future benefit payments for the Non-U.S. Plans are $982 in 2007, $121 in 2008, $160 in 2009, $194$1,206 in 2010,
$349$757 in 2011,
$988 in 2012, $1,157 in 2013, $1,044 in 2014 and
$3,041$8,019 in total for
2012-2016.2015-2019.
The Company expects to make cash contributions of $1,485$856 to itsNon-U.S. Planspension plans in 2010.
The fair value of theNon-U.S. pension plan investments were estimated using market observable data. Within the hierarchy of fair value measurements, these investments represent Level 2 fair values. The fair value and
$9,161 for its U.S. Plan in 2007.The percentage of each asset category of the total assetsinvestments held by the plans as of December 31, 2009 and 2008 were as follows:
| | | | | |
| | | 2006 | | 2005 |
Plan asset allocation by category U.S. Plan: | | | | | |
Equity | | $ | — | | 11,986 |
Debt security | | | 8,999 | | 4,858 |
Cash fund | | | 10,312 | | 2,903 |
| | | | | |
Total plan assets | | $ | 19,311 | | 19,747 |
| | | | | |
Plan asset allocation by category Non-U.S. Plans: | | | | | |
Insurance contracts | | $ | 14,852 | | 13,050 |
| | | | | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
Non-U.S. pension plans: | | | | | | | | |
| Insurance contracts | | $ | 21,841 | | | | 16,371 | |
| | | | | | | | | |
The Company’s investment policy:
| | | | | | |
| | | 2006 | | | 2005 | |
Company's investment policy: | | | | | | |
U.S. Plan: | | | | | | |
Equity | | 0.0 | % | | 60.0 | % |
Debt securities | | 50.0 | % | | 25.0 | % |
Cash fund | | 50.0 | % | | 15.0 | % |
| | | | | | |
| | 100.0 | % | | 100.0 | % |
| | | | | | |
Company's investment policy: | | | | | | |
Non-U.S. Plans: | | | | | | |
Insurance contracts | | 100.0 | % | | 100.0 | % |
| | | | | | |
| | | | | | | | | |
| | | 2009 | | 2008 |
| |
Non-U.S. pension plans: | | | | | | | | |
| Insurance contracts | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | | |
The Company’s investment policy isapproach to optimize thedeveloping its expected long-term rate of return on pension plan assets atcombines an acceptable levelanalysis of riskhistorical investment performance by asset class, the Company’s investment guidelines and to maintain careful control of the risk level within each asset class.current and expected economic fundamentals.
59
On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS 158. SFAS 158 required the Company to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its benefit plans in the December 31, 2006 Consolidated Balance Sheet, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The Company recorded an increase to its pension liability of $818 and an adjustment to accumulated other comprehensive income of $818 which represents the net unrecognized prior service costs.
(13) Income Taxes
Following is a summary of
incomeearnings (loss) from continuing operations before income taxes for United States and foreign operations:
| | | | | | | |
| | | 2006 | | 2005 | | 2004 |
United States | | $ | 494,190 | | 590,539 | | 572,226 |
Foreign | | | 182,121 | | 11,594 | | 8,565 |
| | | | | | | |
Income before income taxes | | $ | 676,311 | | 602,133 | | 580,791 |
| | | | | | | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| United States | | $ | (205,737 | ) | | | (847,624 | ) | | | 357,521 | |
| Foreign | | | 128,024 | | | | (424,848 | ) | | | 254,195 | |
| | | | | | | | | | | | | |
| Earnings (loss) before income taxes | | $ | (77,713 | ) | | | (1,272,472 | ) | | | 611,716 | |
| | | | | | | | | | | | | |
Income tax expense (benefit) for the years ended December 31,
2006, 20052009, 2008 and
2004,2007 consists of the following:
| | | | | | | | | |
| | | Current | | Deferred | | | Total | |
2006: | | | | | | | | | |
U.S. federal | | $ | 206,435 | | (35,313 | ) | | 171,122 | |
State and local | | | 20,320 | | (4,932 | ) | | 15,388 | |
Foreign | | | 62,322 | | (28,354 | ) | | 33,968 | |
| | | | | | | | | |
| | $ | 289,077 | | (68,599 | ) | | 220,478 | |
| | | | | | | | | |
2005: | | | | | | | | | |
U.S. federal | | $ | 183,807 | | 17,795 | | | 201,602 | |
State and local | | | 15,147 | | 300 | | | 15,447 | |
Foreign | | | 11,555 | | (13,609 | ) | | (2,054 | ) |
| | | | | | | | | |
| | $ | 210,509 | | 4,486 | | | 214,995 | |
| | | | | | | | | |
2004: | | | | | | | | | |
U.S. federal | | $ | 158,704 | | 33,639 | | | 192,343 | |
State, local and other | | | 11,363 | | 6,288 | | | 17,651 | |
| | | | | | | | | |
| | $ | 170,067 | | 39,927 | | | 209,994 | |
| | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Current income taxes: | | | | | | | | | | | | |
| U.S. federal | | $ | (78,051 | ) | | | 61,186 | | | | 109,810 | |
| State and local | | | 1,139 | | | | 8,248 | | | | 8,636 | |
| Foreign | | | 20,797 | | | | 41,232 | | | | 71,047 | |
| | | | | | | | | | | | | |
| Total current | | | (56,115 | ) | | | 110,666 | | | | 189,493 | |
| | | | | | | | | | | | | |
| Deferred income taxes: | | | | | | | | | | | | |
| U.S. federal | | | 18,082 | | | | (91,813 | ) | | | 25,185 | |
| State and local | | | (6,931 | ) | | | (7,511 | ) | | | (26,535 | ) |
| Foreign | | | (31,730 | ) | | | 168,720 | | | | (290,840 | ) |
| | | | | | | | | | | | | |
| Total deferred | | | (20,579 | ) | | | 69,396 | | | | (292,190 | ) |
| | | | | | | | | | | | | |
| Total | | $ | (76,694 | ) | | | 180,062 | | | | (102,697 | ) |
| | | | | | | | | | | | | |
Income tax expense (benefit) attributable to earnings (loss) before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to earnings (loss) before income taxes as follows:
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Income taxes at statutory rate | | $ | (27,200 | ) | | | (445,365 | ) | | | 214,101 | |
| State and local income taxes, net of federal income tax benefit | | | (3,874 | ) | | | (4,113 | ) | | | 10,610 | |
| Foreign income taxes | | | (12,840 | ) | | | (380 | ) | | | (25,925 | ) |
| Change in valuation allowance | | | 12,214 | | | | 276,801 | | | | 630 | |
| Intellectual property migration to Luxembourg | | | — | | | | — | | | | (271,607 | ) |
| Goodwill impairment | | | — | | | | 406,577 | | | | — | |
| Notional interest | | | (55,956 | ) | | | (63,694 | ) | | | (36,446 | ) |
| Tax contingencies and audit settlements | | | 9,634 | | | | 4,990 | | | | 4,406 | |
| Change in statutory tax rate | | | 101 | | | | (254 | ) | | | — | |
| Other, net | | | 1,227 | | | | 5,500 | | | | 1,534 | |
| | | | | | | | | | | | | |
| | | $ | (76,694 | ) | | | 180,062 | | | | (102,697 | ) |
| | | | | | | | | | | | | |
60
| | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
Computed “expected” tax expense | | $ | 236,709 | | | 210,747 | | | 203,277 | |
State and local income taxes, net of federal income tax benefit | | | 4,522 | | | 4,748 | | | 11,711 | |
Foreign income taxes | | | (26,280 | ) | | (589 | ) | | (892 | ) |
Change in valuation allowance | | | 28,608 | | | (1,351 | ) | | (1,821 | ) |
Change in statutory tax rate | | | (1,528 | ) | | — | | | — | |
Belgium Notional interest | | | (22,510 | ) | | — | | | — | |
Other, net | | | 957 | | | 1,440 | | | (2,281 | ) |
| | | | | | | | | | |
| | $ | 220,478 | | | 214,995 | | | 209,994 | |
| | | | | | | | | | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to 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
atas of December 31,
20062009 and
2005,2008 are presented below:
| | | | | | | |
| | | 2006 | | | 2005 | |
Deferred tax assets: | | | | | | | |
Accounts receivable | | $ | 21,756 | | | 20,147 | |
Inventories | | | 47,507 | | | (22,365 | ) |
Accrued expenses | | | 112,639 | | | 99,836 | |
Foreign and State net operating losses and credits | | | 81,589 | | | 44,620 | |
Valuation allowance | | | (68,773 | ) | | (32,180 | ) |
| | | | | | | |
Gross deferred tax assets | | | 194,718 | | | 110,058 | |
| | | | | | | |
Deferred tax liabilities: | | | | | | | |
Plant and equipment | | | (291,233 | ) | | (302,552 | ) |
Intangibles | | | (336,636 | ) | | (325,183 | ) |
LIFO change in accounting method | | | (50,424 | ) | | — | |
Other liabilities | | | (47,356 | ) | | (56,069 | ) |
| | | | | | | |
Gross deferred tax liabilities | | | (725,649 | ) | | (683,804 | ) |
| | | | | | | |
Net deferred tax liability(1) | | $ | (530,931 | ) | | (573,746 | ) |
| | | | | | | |
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Deferred tax assets: | | | | | | | | |
| Accounts receivable | | $ | 22,843 | | | | 21,368 | |
| Inventories | | | 46,536 | | | | 56,622 | |
| Accrued expenses and other | | | 102,665 | | | | 98,284 | |
| Deductible state tax and interest benefit | | | 24,801 | | | | 22,579 | |
| Intangibles | | | 199,660 | | | | 216,047 | |
| Foreign and state net operating losses and credits | | | 214,955 | | | | 158,685 | |
| | | | | | | | | |
| Gross deferred tax assets | | | 611,460 | | | | 573,585 | |
| Valuation allowance | | | (365,944 | ) | | | (343,572 | ) |
| | | | | | | | | |
| Net deferred tax assets | | | 245,516 | | | | 230,013 | |
| | | | | | | | | |
| Deferred tax liabilities: | | | | | | | | |
| Inventories | | | (5,089 | ) | | | (5,624 | ) |
| Plant and equipment | | | (279,668 | ) | | | (273,076 | ) |
| Intangibles | | | (160,429 | ) | | | (167,271 | ) |
| LIFO change in accounting method | | | (12,850 | ) | | | (25,700 | ) |
| Other liabilities | | | (30,144 | ) | | | (32,125 | ) |
| | | | | | | | | |
| Gross deferred tax liabilities | | | (488,180 | ) | | | (503,796 | ) |
| | | | | | | | | |
| Net deferred tax liability(1) | | $ | (242,664 | ) | | | (273,783 | ) |
| | | | | | | | | |
| | |
| (1) | | This amount includes $2,693$85 and $25,114$29 of non-current deferred tax assets which are in deferred income taxes and other non-current assets and $4,565$2,836 and $5,111$3,030 current deferred tax liabilities which are included in accounts payable and accrued expenses in the consolidated balance sheetsheets as of December 31, 20062009 and 2005,2008, respectively. |
Management believes it is more likely than not the Company will realize the benefits of these deductible differences, with the exception of certain carryforward deferred tax assets discussed below, based upon the expected reversal of deferred tax liabilities and the level of historicalhistoric and projectedforecasted taxable income over periods in which the deferred tax assets are deductible.
In accordance with ASC 350, the company is required to test goodwill and indefinite-lived assets for impairment annually, or more often if an event or circumstance indicates that an impairment loss may have been incurred. In 2008, the Company recorded a non-cash pretax impairment charge of $1,543,397 to reduce the carrying value of goodwill and other intangibles. The tax impact was to book an expense of $406,577 related to the portion of the impaired assets that are non-deductible for tax purposes.
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, 2009 and December 31, 2008 is $365,944 and $343,572, respectively. The December 31, 2009 valuation allowance relates to net operating losses and tax credits of $168,773 and intangibles of $197,171. The December 31, 2008 valuation allowance relates to net operating losses and tax credits of $127,525 and intangibles of $216,047. For 2009, the total change in the valuation allowance was an increase of $22,372, which includes an accumulated other comprehensive income change of $6,740 primarily related to foreign currency translation, and a non-P&L change of $3,418 primarily related to current year state tax credits which have a full valuation allowance.
61
As of December 31, 2006,2009, the Company hadhas state net operating loss carryforwards and state tax credits with potential tax benefits of approximately $45,163,$53,550, net of federal income tax benefit; these carryforwards expire over various periods based on taxing jurisdiction. Because the Company generates more state tax credits on an annual basis in certain jurisdictions than the related state taxable income, it is the Company’s opinion that it is more likely than not that the benefit of theA valuation allowance totaling $32,473 has been recorded against these deferred tax assets related to state tax credits and certain state net operating losses will not be realized. Accordingly, a valuation allowanceas of approximately $44,324 has been recorded for the year ended December 31, 2006. Of this balance, approximately $4,000 of the future tax benefit, if realized, from the reversal of the valuation allowance would be allocable as a reduction of goodwill.2009. In addition, as of December 31, 2009, the Company has tax credit and net operating loss carryforwards in various foreign jurisdictions of approximately $36,426 as of December 31, 2006. The credit carryforwards begin to expire in 2011; the net operating loss carryforwards have an indefinite life. Based on historical and future income projections, it is the Company’s opinion that it is more likely than not that the benefit of net operating loss carryforwards in certain foreign jurisdictions will not be realized; therefore, a$161,405. A valuation allowance totaling $24,449 as of December 31, 2006$136,300 has been recorded against these deferred tax assets. The valuation allowance of $32,180 consists principally of state net operating lossesassets as of December 31, 2005. For 2006,2009.
In the total changefourth quarter of 2007, the Company moved the intellectual property and treasury operations of an indirectly owned European entity to a new office in another jurisdiction in Europe. The Company also indirectly owned a holding company in the valuation allowance was an increasenew jurisdiction that provided certain treasury functions to Unilin, and the move allowed for the consolidation of $36,593. An increasethe historical intellectual property and treasury operations to be combined with those of $28,608 was primarily asthe holding company’s treasury operations in a result ofsingle jurisdiction in order to integrate and streamline the operations, to facilitate international acquisitions and to improve tax and cost efficiencies. This restructuring resulted in a generating additional net operating losses and credit carryforwardsstep up in the current period in foreignsubsidiary’s taxable basis of its intellectual property. The step up relates primarily to intangible assets which will be amortized over 10 years for tax purposes. During the fourth quarter of 2007, the Company evaluated the evidence for recognition of the deferred tax asset created through the restructuring and state jurisdictions for which no benefit is expected todetermined that, based on the available evidence, the deferred tax asset would more likely than not be realized. The remaining differencedeferred tax asset recognized as of $7,985 is an adjustment to reflect additional net operating loss carryforwardsDecember 31, 2007 was approximately $245,000 and credits reportedthe related income tax benefit recognized in the 2005consolidated financial statements was approximately $272,000.
During the third quarter of 2008, the Company reassessed the need for a valuation allowance against its deferred tax
returnsassets. Actual cash flows have been less than those projected as
filed.MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notesof December 31, 2007, primarily due to Consolidated Financial Statements—(Continued)
the slowing worldwide economy and declining sales volume. The Company determined that, given the current and expected economic conditions and the corresponding reductions in cash flows, its ability to realize the benefit of the deferred tax asset related to the European step up transaction described above, as well as tax losses generated in the same jurisdiction was not more likely than not. Accordingly, the Company recorded a valuation allowance against the deferred tax asset in the amount of $252,751 during the quarter ended September 27, 2008.
The Company does not provide for U.S. federal and state income taxes on the cumulative undistributed earnings of its foreign subsidiaries because such earnings are
reinvested and will continue to be reinvested indefinitely. Atpermanently reinvested. As of December 31,
20062009 and
2005,2008, the Company had not provided federal income taxes on earnings of approximately
$257,000$723,000 and
$56,763$654,000, respectively, from its foreign subsidiaries. Should these earnings be distributed in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes in various
internationalforeign jurisdictions. These taxes
wouldmay be partially offset by U.S. foreign tax credits. Determination of the amount of
the unrecognized deferred
U.S.US tax liability is not practical because of the complexities associated with this hypothetical calculation.
Tax Uncertainties
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 authorities andjurisdictions. Accordingly, the Company has accrued a liabilityaccrues liabilities when it believes that it is probablenot more likely than not that it will be assessed.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 ASC740-10, formerly FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109”. 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 aany given quarter or annual period.
The Company reversed pre acquisitionadopted the provisions of ASC740-10 on January 1, 2007. Upon adoption, the Company recognized no change to opening retained earnings. As of December 31, 2009, the Company’s gross amount of unrecognized tax liabilitiesbenefits is $105,779, excluding interest and penalties. If the Company were to prevail on all uncertain tax positions, the net effect would be a benefit of $25,526 with$43,014 to the Company’s effective tax rate and a corresponding reductionbalance sheet adjustment of $62,765, exclusive of any benefits related to goodwillinterest and penalties.
62
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| |
| Balance at January 1 | | $ | 91,887 | | | | 116,857 | |
| Additions based on tax positions related to the current year | | | 8,678 | | | | 5,610 | |
| Additions for tax positions of prior years | | | 10,630 | | | | 12,167 | |
| Reductions for tax positions of prior years | | | — | | | | (842 | ) |
| Reductions resulting from the lapse of the statute of limitations | | | (60 | ) | | | (36,436 | ) |
| Settlements with taxing authorities | | | (5,562 | ) | | | (3,877 | ) |
| Effects of foreign currency translation | | | 206 | | | | (1,592 | ) |
| | | | | | | | | |
| Balance at December 31 | | $ | 105,779 | | | | 91,887 | |
| | | | | | | | | |
The Company will continue to recognize interest and penalties related to unrecognized tax benefits as a component of its income tax provision. As of December 31, 2009 and 2008, the Company has $47,870 and $39,641, respectively, accrued for the
year endedpayment of interest and penalties, excluding the federal tax benefit of interest deductions where applicable. During the years ending December 31,
2006.(14) Commitments2009, 2008 and Contingencies2007, the Company accrued interest and penalties through continuing operations of $8,228, $3,657 and $1,115, respectively.
The Company’s2004-2006 federal income tax returns are currently under examination by the Internal Revenue Service. The Company expects this examination to end within the next twelve months. The Company is also protesting through the IRS Appeals division a few open issues related to the audit of its 1999 — 2003 tax years. In connection with this protest, the Company paid a $35,844 cash bond to the IRS. The Company believes it is reasonably possible that it will effectively settle all open tax years, 1999 through 2006, with the Internal Revenue Service within the next twelve months and expects to make a cash payment of approximately $33,000 (including penalties and interest). The Company believes it is reasonably possible that the balance of unrecognized tax benefits could decrease by an additional $36,277 (which includes accrued penalties and interest expense) within the next twelve months due to settlements or statutory expirations in various tax jurisdictions. Except as noted above, the Company has substantially concluded all income tax matters related to years prior to 2004.
| |
| (14) | 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:
| | | | | | | | |
| | | Capital | | | Operating | | Total Future
Payments |
2007 | | $ | 7,139 | | | 103,333 | | 110,472 |
2008 | | | 7,057 | | | 90,126 | | 97,183 |
2009 | | | 3,419 | | | 78,361 | | 81,780 |
2010 | | | 254 | | | 58,441 | | 58,695 |
2011 | | | 249 | | | 44,846 | | 45,095 |
Thereafter | | | 1,577 | | | 98,643 | | 100,220 |
| | | | | | | | |
Total payments | | | 19,695 | | | 473,750 | | 493,445 |
| | | | | | | | |
Less amount representing interest | | | (941 | ) | | | | |
| | | | | | | | |
Present value of capitalized lease payments | | $ | 18,754 | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | Total Future
| |
| | | Capital | | | Operating | | | Payments | |
| |
| 2010 | | $ | 1,611 | | | | 94,340 | | | | 95,951 | |
| 2011 | | | 1,056 | | | | 77,101 | | | | 78,157 | |
| 2012 | | | 457 | | | | 58,505 | | | | 58,962 | |
| 2013 | | | 522 | | | | 45,153 | | | | 45,675 | |
| 2014 | | | 437 | | | | 37,346 | | | | 37,783 | |
| Thereafter | | | 696 | | | | 67,005 | | | | 67,701 | |
| | | | | | | | | | | | | |
| Total payments | | | 4,779 | | | | 379,450 | | | | 384,229 | |
| | | | | | | | | | | | | |
| Less amount representing interest | | | 543 | | | | | | | | | |
| | | | | | | | | | | | | |
| Present value of capitalized lease payments | | $ | 4,236 | | | | | | | | | |
| | | | | | | | | | | | | |
Rental expense under operating leases was $118,280, $99,697$130,227, $139,103 and $87,659$123,095 in 2006, 20052009, 2008 and 2004,2007, respectively.
63
The Company
hashad approximately
$57,080$58,603 and
$40,958$73,928 as of December 31,
20062009 and
20052008, respectively, in standby letters of credit for various insurance contracts and commitments to foreign vendors that expire within two years. In addition,
atas of December 31,
20062009 and
2005,2008, the Company guaranteed approximately
$80,324$721 and
$72,040$85,640 for
VAT and building leases, respectively, related to its operating facilities in France.
The Company is involved in litigation from time to time in the regular course of its business. Except as noted below 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.
In Shirley Williams et al. v. Mohawk Industries, Inc., four plaintiffs filed a putative class action lawsuit in January 2004 in the United States District Court for the Northern District of Georgia
(Rome Division), alleging that they are
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
former and current employees of the Company and that the actions and conduct of the Company, including the employment of persons who are not authorized to work in the United States, have damaged them and the other members of the putative class by suppressing the wages of the Company’s hourly employees in Georgia. The plaintiffs seek a variety of relief, including (a) treble damages; (b) return of any allegedly unlawful profits; and (c) attorney’s fees and costs of litigation. In February 2004, the Company filed a Motion to Dismiss the Complaint, which was denied by the District Court in April 2004. The Company then sought and obtained permissionFollowing appellate review of this decision, the case was returned to file an immediate appeal of the District Court’sCourt for further proceedings. On December 18, 2007, the plaintiffs filed a motion for class certification. On March 3, 2008, the District Court denied the plaintiffs motion for class certification. The plaintiffs then appealed the decision to the United States Court of Appeals for the Eleventh Circuit.11th Circuit on March 17, 2008. On May 28, 2009, the Court of Appeals issued an order reversing the District Court’s decision and remanding the case back to the District Court for further proceedings on the class certification issue. Discovery has been stayed at the District Court since the appeal. In June 2005, the Eleventh Circuit reversed in part and affirmed in part the lower court’s decision (Williams v. Mohawk Industries, Inc., 411 F.3d 1252 (11th Cir. 2005)). In June 2005, the Company filed a petition requesting review by the full Eleventh Circuit, which was denied in August 2005. In October 2005,2009, the Company filed a petition for certiorari with the United States Supreme Court, which was granted in December of 2005. The case was argued before the Supreme Court on April 26, 2006. On June 5, 2006, the Supreme Court vacated the Eleventh Circuit’s ruling and ordered the Eleventh Circuit to reconsider the case in light of the Supreme Court’s decision in Anza v. Ideal Steel Supply Co., 126 S. Ct. 1991 (2006). On September 27, 2006, the Eleventh Circuit issued a second decision reversing in part and affirming in part the lower court’s decision. On October 18, 2006, the Company filed a petition requesting review of this decision by the full Eleventh Circuit, which was denied in November 2006. In December 2006, the Company filed a second petition for certiorari with the United States Supreme Court.2009. The Company will continue to vigorously defend itself against this action.
In Collins & Aikman Floorcoverings, Inc., et. al. v. Interface, Inc., United States District Court for the Northern District of Georgia (Rome Division), Mohawk Industries, Inc. joined Collins & Aikman Floorcoverings, Inc. (“CAF”) and Shaw Industries Group, Inc. (“Shaw”) in suing Interface, Inc. (“Interface”) for declaratory judgments that United States Patent 6,908,656 (the “Patent”), assigned to Interface and relating to certain styles of carpet tiles, is not infringed and is invalid. Also in June 2005, in Interface, Inc., et al. v. Mohawk Industries, Inc., et. al. United States District Court for the Northern District of Georgia (Atlanta Division), Interface sued Mohawk Industries, Inc., Mohawk Carpet Corporation, and Mohawk Commercial, Inc. for allegedly infringing the Patent. Interface brought similar suits against entities affiliated with CAF and Shaw. Interface sought monetary damages as well as injunctive relief. The cases were consolidated in the United States District Court for the Northern District of Georgia (Rome Division). During the second quarter of 2009, the Company and Interface reached a settlement and the pending cases were dismissed by the District Court on June 26, 2009.
The Company believes that adequate provisions for resolution of all
contingencies, claims and pending litigation have been made for probable losses and that the ultimate outcome of these actions will not have a material adverse effect on its financial condition but could have a material
adverse effect on its results of operations in a given quarter or
annual period.year.
The Company has received partial refunds from the United States government in reference to settling custom disputes dating back to 1982. Accordingly, the Company recorded a net gain of
$19,436$9,154 ($
12,2885,799 net of taxes) in other income (expense) for the
twelve monthsyear ended December 31,
2006.2007. No refunds were received in 2009 or 2008. Additional future recoveries will be recorded as realized.
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 and disposal of solid and hazardous materials, 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
64
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 operations, but may have an effect on a given quarter or annual period.
In the normal course of business, the Company has entered into various
European collective bargaining agreements with its workforce
in Europe, Mexico and Malaysia, either locally or within its industry sector. Historically, the Company
and its industry havehas maintained favorable relationships with its workforce and
expectexpects to do so in the future.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes
The Company recorded pre-tax business restructuring charges of $61,725 for 2009, of which $43,436 was recorded as cost of sales and $18,289 was recorded as selling, general and administrative expenses. The Company recorded pre-tax business restructuring charges of $29,670 for 2008, of which $15,687 was recorded as cost of sales and $13,983 was recorded as selling, general and administrative expenses. The charges primarily relate to
Consolidated Financial Statements—(Continued)(15) Consolidated Statementsthe Company’s actions taken to lower its cost structure and improve the efficiency of Cash Flows Information
its manufacturing and distribution operations as it adjusts to current economic conditions.
The activity for 2008 and 2009 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Inventor
| | | | | | | | | Other
| | | | |
| | | | | | Write-
| | | Lease
| | | | | | Restructuring
| | | | |
| | | Asset Write-Downs(1) | | | Downs | | | Impairments | | | Severance | | | Costs | | | Total | |
| |
| Balance at December 31, 2007 | | $ | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Provisions | | | | | | | | | | | | | | | | | | | | | | | | |
| Mohawk segment | | | 7,237 | | | | — | | | | 12,561 | | | | 1,625 | | | | 816 | | | | 22,239 | |
| Dal-Tile segment | | | 3,124 | | | | — | | | | 504 | | | | 1,715 | | | | — | | | | 5,343 | |
| Unilin segment | | | 2,088 | | | | — | | | | — | | | | — | | | | — | | | | 2,088 | |
| Cash payments | | | — | | | | — | | | | (354 | ) | | | (1,270 | ) | | | (816 | ) | | | (2,440 | ) |
| Noncash items | | | (12,449 | ) | | | — | | | | — | | | | — | | | | — | | | | (12,449 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2008 | | $ | — | | | | — | | | | 12,711 | | | | 2,070 | | | | — | | | | 14,781 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Provisions | | | | | | | | | | | | | | | | | | | | | | | | |
| Mohawk segment | | | 13,604 | | | | 2,300 | | | | 5,365 | | | | 7,075 | | | | 347 | | | | 28,691 | |
| Dal-Tile segment | | | 5,717 | | | | 1,653 | | | | 9,160 | | | | 1,191 | | | | — | | | | 17,721 | |
| Unilin segment | | | 4,310 | | | | 3,096 | | | | — | | | | 4,773 | | | | 3,134 | | | | 15,313 | |
| Cash payments | | | — | | | | — | | | | (6,163 | ) | | | (7,285 | ) | | | (65 | ) | | | (13,513 | ) |
| Noncash items | | | (23,631 | ) | | | (7,049 | ) | | | — | | | | — | | | | (415 | ) | | | (31,095 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2009 | | $ | — | | | | — | | | | 21,073 | | | | 7,824 | | | | 3,001 | | | | 31,898 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| (1) | | Includes $4,313 and $53 in 2009 and 2008, respectively, that was charged to depreciation. |
| |
| (15) | Consolidated Statements of Cash Flows Information |
Supplemental disclosures of cash flow information are as follows:
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Net cash paid during the year for: | | | | | | | | | | | | |
| Interest | | $ | 127,623 | | | | 129,465 | | | | 157,296 | |
| | | | | | | | | | | | | |
| Income taxes | | $ | 39,594 | | | | 107,638 | | | | 201,851 | |
| | | | | | | | | | | | | |
| Supplemental schedule of non-cash investing and financing activities: | | | | | | | | | | | | |
| Fair value of assets acquired in acquisition | | $ | 17,911 | | | | 9,745 | | | | 165,407 | |
| Liabilities assumed in acquisition | | | (11,987 | ) | | | (1,469 | ) | | | (18,310 | ) |
| | | | | | | | | | | | | |
| | | $ | 5,924 | | | | 8,276 | | | | 147,097 | |
| | | | | | | | | | | | | |
65
| | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
Net cash paid during the year for: | | | | | | | | | | |
Interest | | $ | 113,426 | | | 61,468 | | | 60,744 | |
| | | | | | | | | | |
Income taxes | | $ | 267,075 | | | 191,601 | | | 226,227 | |
| | | | | | | | | | |
Supplemental schedule of non-cash investing and financing activities: | | | | | | | | | | |
Fair value of assets acquired in acquisitions | | $ | 113,008 | | | 3,375,605 | | | 16,236 | |
Liabilities assumed in acquisitions | | | (33,366 | ) | | (762,076 | ) | | (1,238 | ) |
| | | | | | | | | | |
| | $ | 79,642 | | | 2,613,529 | | | 14,998 | |
| | | | | | | | | | |
(16) Segment Reporting
The Company has three reporting segments, the Mohawk segment, the Dal-Tile segment and the Unilin segment. The Mohawk segment manufactures,
sources, markets and distributes its product lines
primarily in North America, which include carpet, rugs, pad, ceramic tile, hardwood, resilient and laminate, through
independentits network of regional distribution centers and satellite warehouses using company-operated trucks, common carrier or rail transportation. The segment product lines are sold through various selling channels, which include floor covering retailers, home centers, mass merchandisers, department stores,
independent distributors, commercial dealers and commercial end users. The Dal-Tile segment
manufactures, markets and distributes its product lines
primarily in North America, which include ceramic tile, porcelain tile and stone products,
sold through
tileits network of regional distribution centers and
flooringcompany-operated sales service centers using company-operated trucks, common carriers or rail transportation. The segment product lines are purchased by floor covering retailers,
contractors,home centers, independent distributors,
tile specialty dealers, tile contractors, and
home centers.commercial end users. The Unilin segment
manufactures, markets and distributes its product lines primarily in North America and Europe, which
is headquartered in Belgium, is a leading manufacturer, distributor and marketer ofinclude laminate flooring,
insulatedwood flooring, roofing
systems, insulation panels and other wood
panels in Europe and the United States. Unilin sells its laminate flooring products through
various selling channels, which include retailers, home centers and independent
distributors and specialty stores in Europe and the United States, as well as through traditional retailers in France, Belgium and The Netherlands and, in some circumstances, under private label names.distributors.
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 5% of net sales for the years ended December 31,
2006, 20052009, 2008 and
2004. In addition, inter-segment net sales were approximately $15,200 between the Unilin and Mohawk segments for the year ended December 31, 2006. There were no significant inter-segment sales for the year ended December 31, 2005.MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2007.
Segment information is as follows:
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Net sales: | | | | | | | | | | | | |
| Mohawk | | $ | 2,856,741 | | | | 3,628,183 | | | | 4,205,740 | |
| Dal-Tile | | | 1,426,757 | | | | 1,815,373 | | | | 1,937,733 | |
| Unilin | | | 1,128,315 | | | | 1,465,208 | | | | 1,487,645 | |
| Intersegment sales | | | (67,789 | ) | | | (82,416 | ) | | | (45,100 | ) |
| | | | | | | | | | | | | |
| | | $ | 5,344,024 | | | | 6,826,348 | | | | 7,586,018 | |
| | | | | | | | | | | | | |
| Operating income (loss)(1): | | | | | | | | | | | | |
| Mohawk | | $ | (125,965 | ) | | | (216,152 | ) | | | 254,924 | |
| Dal-Tile | | | 84,154 | | | | (323,370 | ) | | | 258,706 | |
| Unilin | | | 105,953 | | | | (564,911 | ) | | | 272,260 | |
| Corporate and eliminations | | | (20,412 | ) | | | (19,701 | ) | | | (35,784 | ) |
| | | | | | | | | | | | | |
| | | $ | 43,730 | | | | (1,124,134 | ) | | | 750,106 | |
| | | | | | | | | | | | | |
| Depreciation and amortization: | | | | | | | | | | | | |
| Mohawk | | $ | 94,134 | | | | 92,130 | | | | 95,933 | |
| Dal-Tile | | | 47,934 | | | | 46,093 | | | | 44,216 | |
| Unilin | | | 151,450 | | | | 149,543 | | | | 159,859 | |
| Corporate | | | 9,486 | | | | 7,288 | | | | 6,429 | |
| | | | | | | | | | | | | |
| | | $ | 303,004 | | | | 295,054 | | | | 306,437 | |
| | | | | | | | | | | | | |
| Capital expenditures (excluding acquisitions): | | | | | | | | | | | | |
| Mohawk | | $ | 35,149 | | | | 78,239 | | | | 65,842 | |
| Dal-Tile | | | 17,683 | | | | 41,616 | | | | 33,134 | |
| Unilin | | | 45,966 | | | | 90,500 | | | | 58,711 | |
| Corporate | | | 10,127 | | | | 7,469 | | | | 5,389 | |
| | | | | | | | | | | | | |
| | | $ | 108,925 | | | | 217,824 | | | | 163,076 | |
| | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | |
| Mohawk | | $ | 1,582,652 | | | | 1,876,696 | | | | 2,302,527 | |
| Dal-Tile | | | 1,546,393 | | | | 1,693,765 | | | | 2,259,811 | |
| Unilin | | | 2,598,182 | | | | 2,663,599 | | | | 3,916,739 | |
| Corporate and intersegment eliminations | | | 664,219 | | | | 212,115 | | | | 200,973 | |
| | | | | | | | | | | | | |
| | | $ | 6,391,446 | | | | 6,446,175 | | | | 8,680,050 | |
| | | | | | | | | | | | | |
66
| | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
Net sales: | | | | | | | | | | |
Mohawk. | | $ | 4,742,060 | | | 4,716,659 | | | 4,368,831 | |
Dal-Tile | | | 1,941,819 | | | 1,734,781 | | | 1,511,541 | |
Unilin | | | 1,236,918 | | | 168,814 | | | — | |
Corporate and eliminations | | | (14,955 | ) | | (155 | ) | | — | |
| | | | | | | | | | |
| | $ | 7,905,842 | | | 6,620,099 | | | 5,880,372 | |
| | | | | | | | | | |
Operating income: | | | | | | | | | | |
Mohawk | | $ | 387,386 | | | 426,811 | | | 427,658 | |
Dal-Tile | | | 270,901 | | | 260,194 | | | 219,831 | |
Unilin | | | 214,093 | | | (5,162 | ) | | — | |
Corporate and eliminations | | | (33,320 | ) | | (9,459 | ) | | (8,497 | ) |
| | | | | | | | | | |
| | $ | 839,060 | | | 672,384 | | | 638,992 | |
| | | | | | | | | | |
Depreciation and amortization: | | | | | | | | | | |
Mohawk | | $ | 95,089 | | | 91,452 | | | 89,479 | |
Dal-Tile | | | 37,576 | | | 31,731 | | | 29,210 | |
Unilin | | | 135,337 | | | 23,695 | | | — | |
Corporate | | | 6,950 | | | 3,779 | | | 4,399 | |
| | | | | | | | | | |
| | $ | 274,952 | | | 150,657 | | | 123,088 | |
| | | | | | | | | | |
Capital expenditures (excluding acquisitions): | | | | | | | | | | |
Mohawk | | $ | 71,793 | | | 153,238 | | | 66,563 | |
Dal-Tile | | | 63,177 | | | 84,363 | | | 38,720 | |
Unilin | | | 28,688 | | | 6,207 | | | — | |
Corporate | | | 2,111 | | | 3,498 | | | 1,318 | |
| | | | | | | | | | |
| | $ | 165,769 | | | 247,306 | | | 106,601 | |
| | | | | | | | | | |
Assets: | | | | | | | | | | |
Mohawk | | $ | 2,462,420 | | | 2,473,497 | | | 2,288,427 | |
Dal-Tile | | | 2,257,107 | | | 2,207,514 | | | 2,063,195 | |
Unilin | | | 3,302,195 | | | 3,263,248 | | | — | |
Corporate and eliminations | | | 156,672 | | | 95,778 | | | 54,898 | |
| | | | | | | | | | |
| | $ | 8,178,394 | | | 8,040,037 | | | 4,406,520 | |
| | | | | | | | | | |
Geographic net sales: | | | | | | | | | | |
North America | | $ | 6,974,488 | | | 6,489,511 | | | 5,880,372 | |
Rest of world | | | 931,354 | | | 130,588 | | | — | |
| | | | | | | | | | |
| | $ | 7,905,842 | | | 6,620,099 | | | 5,880,372 | |
| | | | | | | | | | |
Long-lived assets(1): | | | | | | | | | | |
North America | | $ | 2,995,968 | | | 2,951,681 | | | | |
Rest of world | | | 1,591,759 | | | 1,481,010 | | | | |
| | | | | | | | | | |
| | $ | 4,587,727 | | | 4,432,691 | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Geographic net sales: | | | | | | | | | | | | |
| North America | | $ | 4,516,784 | | | | 5,776,701 | | | | 6,477,277 | |
| Rest of world | | | 827,240 | | | | 1,049,647 | | | | 1,108,741 | |
| | | | | | | | | | | | | |
| | | $ | 5,344,024 | | | | 6,826,348 | | | | 7,586,018 | |
| | | | | | | | | | | | | |
| Long-lived assets(2): | | | | | | | | | | | | |
| North America | | $ | 2,000,522 | | | | 2,120,067 | | | | 3,028,571 | |
| Rest of world | | | 1,202,018 | | | | 1,205,109 | | | | 1,744,489 | |
| | | | | | | | | | | | | |
| | | $ | 3,202,540 | | | | 3,325,176 | | | | 4,773,060 | |
| | | | | | | | | | | | | |
| Net sales by product categories(3): | | | | | | | | | | | | |
| Soft surface | | $ | 2,650,452 | | | | 3,337,073 | | | | 3,797,584 | |
| Tile | | | 1,491,846 | | | | 1,919,070 | | | | 2,110,705 | |
| Wood | | | 1,201,726 | | | | 1,570,205 | | | | 1,677,729 | |
| | | | | | | | | | | | | |
| | | $ | 5,344,024 | | | | 6,826,348 | | | | 7,586,018 | |
| | | | | | | | | | | | | |
| | |
| (1) | | Operating income (loss) includes the impact of the impairment of goodwill and other intangibles recognized in the third and fourth quarters of 2008 of $276,807 for the Mohawk segment, $531,930 for the Dal-Tile segment and $734,660 for the Unilin segment. |
|
| (2) | | Long-lived assets are composed of net property, plant and equipment goodwill, trademarks and other intangibles.goodwill. |
|
| (3) | | The Soft surface product category includes carpets, rugs, carpet pad and resilient. The Tile product category includes ceramic tile, porcelain tile and natural stone. The Wood product category includes laminate, hardwood, roofing panels and wood-based panels. |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(17) Quarterly Financial Data (Unaudited)
| |
| (17) | Quarterly Financial Data (Unaudited) |
The supplemental quarterly financial data are as follows:
| | | | | | | | | |
| | | Quarters Ended |
| | | April 1, 2006 | | July 1,
2006 | | September 30,
2006 | | December 31,
2006 |
Net sales | | $ | 1,925,106 | | 2,058,123 | | 2,024,019 | | 1,898,594 |
Gross profit | | | 516,344 | | 592,378 | | 568,511 | | 554,078 |
Net earnings | | | 79,121 | | 119,513 | | 127,708 | | 129,491 |
Basic earnings per share | | | 1.17 | | 1.77 | | 1.89 | | 1.91 |
Diluted earnings per share | | | 1.16 | | 1.76 | | 1.88 | | 1.90 |
| |
| | | Quarters Ended |
| | | April 2, 2005 | | July 2,
2005 | | October 1,
2005 | | December 31,
2005 |
Net sales | | $ | 1,493,222 | | 1,624,692 | | 1,697,634 | | 1,804,551 |
Gross profit | | | 390,369 | | 438,165 | | 462,954 | | 476,758 |
Net earnings | | | 73,662 | | 98,080 | | 115,763 | | 99,633 |
Basic earnings per share | | | 1.10 | | 1.47 | | 1.73 | | 1.48 |
Diluted earnings per share | | | 1.09 | | 1.45 | | 1.71 | | 1.47 |
2005 includes a non-recurring $34,300 ($22,300 net of tax) fair value adjustment applied to Unilin’s acquired inventory related to the Unilin acquisition.
| | | | | | | | | | | | | | | | | |
| | | Quarters Ended | |
| | | March 28,
| | | June 27,
| | | September 26,
| | | December 31,
| |
| | | 2009 | | | 2009 | | | 2009 | | | 2009 | |
| |
| Net sales | | $ | 1,208,339 | | | | 1,406,012 | | | | 1,382,565 | | | | 1,347,108 | |
| Gross profit | | | 153,689 | | | | 367,388 | | | | 369,459 | | | | 341,694 | |
| Net (loss) earnings | | | (105,887 | ) | | | 46,261 | | | | 34,348 | | | | 19,779 | |
| Basic (loss) earnings per share | | | (1.55 | ) | | | 0.68 | | | | 0.50 | | | | 0.29 | |
| Diluted (loss) earnings per share | | | (1.55 | ) | | | 0.67 | | | | 0.50 | | | | 0.29 | |
| | | | | | | | | | | | | | | | | |
| | | Quarters Ended | |
| | | March 29,
| | | June 28,
| | | September 27,
| | | December 31,
| |
| | | 2008 | | | 2008 | | | 2008 | | | 2008 | |
| |
| Net sales | | $ | 1,738,097 | | | | 1,840,045 | | | | 1,763,034 | | | | 1,485,172 | |
| Gross profit | | | 459,839 | | | | 482,892 | | | | 439,071 | | | | 355,962 | |
| Net earnings (loss) | | | 65,390 | | | | 88,778 | | | | (1,484,781 | ) | | | (127,615 | )(1) |
| Basic earnings (loss) per share | | | 0.96 | | | | 1.30 | | | | (21.70 | ) | | | (1.87 | ) |
| Diluted earnings (loss) per share | | | 0.95 | | | | 1.29 | | | | (21.70 | ) | | | (1.87 | ) |
| | |
| (1) | | Includes the impact of a valuation allowance of approximately $253,000 which was recognized during the third quarter of 2008. Additionally, the third and fourth quarters of 2008 were impacted by $1,418,912 and $124,485, respectively, related to impairment of goodwill and other intangibles. |
67
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None
None.
| |
| 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’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’s management assessed the effectiveness of its internal control over financial reporting as of December 31,
2006.2009. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. The Company’s management has concluded that, as of December 31,
2006,2009, its internal control over financial reporting is effective based on these criteria. The Company’s independent registered public accounting firm, KPMG LLP, has issued an attestation report on
management’s assessment of the Company’s internal control over financial reporting, 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 period covered by this report 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
including our Chief Executive Officer and Chief Financial Officer, does not expectrecognizes that
the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent all errors and all fraud. Aa 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 |
None.
None.
68
| |
| Item 10. | Directors and 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
20072010 Annual Meeting of Stockholders under the following headings: “Election of
Directors—Directors — Director, Director Nominee and Executive Officer Information,” “—Nominees for Director,” “—Continuing Directors,” “—Executive Officers,” “—Meetings and Committees of the Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Audit Committee.” 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 our website at
http://mohawkind.comand will be made available in print to any stockholder who requests them without charge. 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 to any stockholder who requests it.
| |
| 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
20072010 Annual Meeting of Stockholders under the following headings: “Executive Compensation and Other
Information—Information — Summary Compensation Table,” “—Compensation, Discussion and Analysis,” “—Grants of Plan Based Awards,” “—Outstanding Equity Awards at Fiscal Year End,” “—Option Exercises and Stock Vested,” “—Pension Benefits,” “—Nonqualified Deferred Compensation,” “—Certain Relationships and Related Transactions,” “—Compensation Committee Interlocks and Insider
Participation” andParticipation,” “—Compensation Committee
Report.Report” and “Director Compensation.”
| |
| 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
20072010 Annual Meeting of Stockholders under the following headings: “Executive Compensation and Other
Information—Information — Equity Compensation Plan
Information”Information,” and “—Principal Stockholders of the Company.”
| |
| 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
20072010 Annual Meeting of Stockholders under the following
heading;heading: “Election of
Directors—Directors — Meetings and Committees of the Board of Directors,” and “Executive Compensation and Other
Information—Information — Certain Relationships and Related Transactions.”
| |
| Item 14. | Principal Accountant Fees and Services |
The information required by this item is incorporated by reference to information contained in the Company’s Proxy Statement for the 20072010 Annual Meeting of Stockholders under the following heading: “Audit Committee—Committee — Principal Accountant Fees and Services.Services” and “Meetings and Committees of the Board.”
69
| |
| Item 15. | Exhibits and Financial Statement Schedules |
(a) 1. Consolidated Financial Statements
| |
| (a) | 1. Consolidated Financial Statements |
The Consolidated Financial Statements of Mohawk Industries, Inc. and subsidiaries listed in Item 8 of Part II 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 statements or notes thereto.
The exhibit number for the exhibit as originally filed is included in parentheses at the end of the description.
| | |
Mohawk
Exhibit
Number
| | Description
| | |
Mohawk
| | |
Exhibit
| | |
Number | | Description |
|
| *2.12 | .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 Mohawk’s Registration Statement onForm S-4, RegistrationNo. 333-74220.) |
| *3 |
*3.1.1 | | Restated Certificate of Incorporation of Mohawk, as amended. (Incorporated herein by reference to Exhibit 3.1 in Mohawk’s Annual Report onForm 10-K for the fiscal year ended December 31, 1998.) |
| *3 |
*3.2.2 | | Restated Bylaws of Mohawk, as amended.Mohawk. (Incorporated herein by reference to Exhibit 3.13.2 in Mohawk’s Report onForm 8-K dated February 23, 2006.December 4, 2007.) |
| *4 |
*4.1.1 | | See Article 4 of the Restated Certificate of Incorporation of Mohawk. (Incorporated herein by reference to Exhibit 3.1 in Mohawk’s Annual Report onForm 10-K (FileNo. 001-13697) for the fiscal year ended December 31, 1998.) |
| *4 |
*4.2.2 | | See Articles 2, 6, and 9 of the Restated Bylaws of Mohawk, as amended.Mohawk. (Incorporated herein by reference to Exhibit 3.13.2 in Mohawk’s Current Report onForm 8-K dated February 23, 2006.December 4, 2007.) |
| *4 |
*4.3.3 | | Indenture, dated as of April 2, 2002 between Mohawk Industries, Inc. and Wachovia Bank, National Association, as Trustee (Incorporated herein by reference to Exhibit 4.1 in Mohawk’s Registration Statement onForm S-4, RegistrationNo. 333-86734, as filed April 22, 2002.) |
| *4 |
*4.4.4 | | Indenture dated as of January 9, 2006, between Mohawk Industries, Inc. and SunTrust Bank, as trustee. (Incorporated herein by reference to Exhibit 4.4 in Mohawk’s Registration Statement onForm S-3, Registration StatementNo. 333-130910.) |
| *4 |
*4.5.5 | | First Supplemental Indenture, dated as of January 17, 2006, by and between Mohawk Industries, Inc., and SunTrust Bank, as trustee. (Incorporated by reference to Exhibit 4.1 in Mohawk’s Current Report onform 8-K dated January 17, 2006.) |
| |
*10.110 | | Five Year Credit Agreement dated as of October 28, 2005, by and among Mohawk Industries, Inc., each of the Banks party thereto from time to time, and Wachovia Bank, National Assocation, as Administrative Agent. (Incorporated by reference to Exhibit 10.3 of Mohawk’s Current Report on form 8-K dated as of October 28, 2005.) |
| |
*10.2 | | Five Year Credit Agreement dated as of November 8, 2005, by and among Mohawk International Holdings S.a.r.l, each of the Banks party thereto from time to time, and KBC Bank, N.V., as Administrative Agent. (Incorporated herein by reference to Exhibit 10.1 in Mohawk’s Current Report on form 8-K dated as of November 9, 2005.) |
| | |
Mohawk
Exhibit
Number
| | Description
|
| |
*10.3.1 | | Registration Rights Agreement by and among Mohawk, Citicorp Investments, Inc., ML-Lee Acquisition Fund, L.P. and Certain Management Investors. (Incorporated herein by reference to Exhibit 10.14 of Mohawk’s Registration Statement onForm S-1, RegistrationNo. 33-45418.) |
| *10 |
*10.4.2 | | Voting Agreement, Consent of Stockholders and Amendment to 1992 Registration Rights Agreement dated December 3, 1993 by and among Aladdin, Mohawk, Citicorp Investments, Inc., ML-Lee Acquisition Fund, L.P., David L. Kolb, Donald G. Mercer, Frank A. Procopio and John D. Swift. (Incorporated herein by reference to Exhibit 10(b) of Mohawk’s Registration Statement onForm S-4, RegistrationNo. 33-74220.) |
| *10 |
*10.5.3 | | Registration Rights Agreement by and among Mohawk and the former shareholders of Aladdin. (Incorporated herein by reference to Exhibit 10.32 of Mohawk’s Annual Report onForm 10-K (FileNo. 001-13697) for the fiscal year ended December 31, 1993.) |
| |
*10.6 | | 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 Mohawk’s Quarterly Report on Form 10-Q (File No. 001-13697) for the quarter ended July 2, 1994.) |
| |
*10.7 | | Amended and Restated Receivables Purchase and Sale Agreement, dated as of August 4, 2003, among Mohawk Carpet Distribution, L.P. and Dal-Tile Corporation, as originators, and Mohawk Factoring, Inc. (Incorporated herein by reference to Exhibit 10.3 of Mohawk’s Quarterly Report on Form 10-Q for the period ended September 27, 2003.) |
| |
*10.8 | | Amended and Restated Credit and Security Agreement, dated as of August 4, 2003, Among Mohawk Factoring, Inc., Mohawk Servicing, Inc., Blue Ridge Asset Funding Corporation, Three Pillars Funding Corporation, SunTrust Capital Markets, Inc., as a co-agent, and Wachovia Bank, National Association, as a co-agent and administrative agent. (Incorporated herein by reference to Exhibit 10.3 of Mohawk’s Quarterly Report on Form 10-Q for the period ended September 27, 2003.) |
| |
*10.9 | | First Amendment to Amended and Restated Credit and Security Agreement dated September 29, 2004, among Mohawk Factoring, Inc., Blue Ridge Asset Funding Corporation, Wachovia Bank, National Association, Three Pillars Funding LLC, and SunTrust Capital Markets, Inc. (Incorporated herein by reference to Exhibit 10.4 of Mohawk’s Quarterly Report on Form 10-Q for the period ended October 2, 2004.) |
| |
*10.10 | | Second Amendment to the Liquidity Asset Purchase Agreement dated as of October 23, 2002 by and among Mohawk Factoring, Inc, as borrower, Mohawk Servicing, Inc., as Servicer, Blue Ridge Asset Funding Corporation, The Liquidity Banks and Wachovia Bank, N.A., as Agent dated as of October 25, 2000. (Incorporated herein by reference to Exhibit 10.28 of Mohawk’s Annual Report on Form 10-K for the year ended December 31, 2002) |
| |
*10.11 | | Amendment to Second Amended and Restated Liquidity Asset Purchase Agreement dated August 2, 2004, among Mohawk Factoring, Inc., Blue Ridge Asset Funding Corporation and Wachovia Bank, National Association. (Incorporated herein by reference to Exhibit 10.2 of Mohawk’s Quarterly Report on Form 10-Q for the period ended October 2, 2003.) |
| |
*10.12 | | Amendment to Second Amended and Restated Liquidity Asset Purchase Agreement dated August 2, 2004, among Mohawk Factoring, Inc., Three Pillars Funding Corporation, and SunTrust Capital Markets, Inc. (Incorporated herein by reference to Exhibit 10.2 of Mohawk’s Quarterly Report on Form 10-Q for the period ended October 2, 2003.) |
| |
*10.13 | | Discounted Stock Purchase Agreement dated October 31, 2005, by and between Mohawk Industries, Inc. and Paul De Cock, Bernard Thiers, Marc Van Canneyt and Paul De Fraeye. (Incorporated herein by reference to Mohawk’s Current Report on form 8-K dated October 28, 2005.) |
70
| | | | | |
Mohawk
| | |
Exhibit
| | |
Number | | Description |
| |
| | *10 | .4 | | 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 Mohawk’s Quarterly Report onForm 10-Q (FileNo. 001-13697) for the quarter ended July 2, 1994.) |
| | *10 | .5 | | Loan and Security Agreement dated as of September 2, 2009 by and among Mohawk Industries, Inc. and certain of its Subsidiaries, as Borrowers, certain of its Subsidiaries, as Guarantors, the Lenders from time to time party thereto, Wachovia Bank, National Association, as Administrative Agent, and the other parties thereto (Incorporated by reference to the Company’s Current Report onForm 8-K dated Sept 1, 2009). |
Exhibits Related to Executive Compensation Plans, Contracts and other Arrangements: |
| | *10 | .6 | | Service Agreement dated February 24, 2009, by and between Unilin Industries BVBA and BVBA “F. De Cock Management”. (Incorporated by reference to the Company’s Current Report onForm 8-K dated February 24, 2009). |
| | 10 | .7 | | Service Agreement dated February 9, 2009, by and between Unilin Industries BVBA and Comm. V. “Bernard Thiers”. |
| | *10 | .8 | | Second Amended and Restated Employment Agreement, dated as of November 4, 2009, by and between the Company and W. Christopher Wellborn (Incorporated by reference to the Company’s Current Report onForm 8-K dated November 4, 2009). |
| | *10 | .9 | | Mohawk Carpet Corporation Supplemental Executive Retirement Plan, as amended. (Incorporated herein by reference to Exhibit 10.2 of Mohawk’s Registration Statement onForm S-1, RegistrationNo. 33-45418.) |
| | *10 | .10 | | Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.8 of Mohawk’s Registration Statement onForm S-1, RegistrationNo. 33-45418.) |
| | *10 | .11 | | Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.2 in Mohawk’s quarterly report onForm 10-Q (FileNo. 001-13697) for the quarter ended July 3, 1993.) |
| | *10 | .12 | | Second Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.35 of Mohawk’s Annual Report onForm 10-K (FileNo. 001-13697) for the fiscal year ended December 31, 1999.) |
| | *10 | .13 | | Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.15 of Mohawk’s Registration Statement onForm S-1, Registration Number33-53932.) |
| | *10 | .14 | | Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.1 of Mohawk’s quarterly report onForm 10-Q (FileNo. 001-13697) for the quarter ended July 3, 1993.) |
| | *10 | .15 | | Second Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.38 of Mohawk’s Annual Report onForm 10-K (FileNo. 001-13697) for the fiscal year ended December 31, 1999.) |
| | *10 | .16 | | Mohawk Industries, Inc. 1993 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.39 of Mohawk’s Annual Report onForm 10-K (FileNo. 001-13697) for the fiscal year ended December 31, 1992.) |
| | *10 | .17 | | First Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1993 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.40 of Mohawk’s Annual Report onForm 10-K (FileNo. 001-13697) for the fiscal year ended December 31, 1999.) |
| | *10 | .18 | | The Mohawk Industries, Inc. Amended and Restated Executive Deferred Compensation Plan. (Incorporated herein by reference to Exhibit 10.30 in Mohawk’s Annual Report onForm 10-K for the fiscal year ended December 31, 2008.) |
| | *10 | .19 | | The Mohawk Industries, Inc. Amended and Restated Management Deferred Compensation Plan. (Incorporated herein by reference to Exhibit 10.31 in Mohawk’s Annual Report onForm 10-K for the fiscal year ended December 31, 2008.) |
71
| | | | | |
Mohawk
| | |
Exhibit
| | |
Number | | Description |
| |
| | *10 | .20 | | Mohawk Industries, Inc. 1997 Non-Employee Director Stock Compensation Plan (Amended and Restated as of January 1, 2009) (Incorporated herein by reference to Exhibit 10.32 in Mohawk’s Annual Report onForm 10-K for the fiscal year ended December 31, 2008.). |
| | *10 | .21 | | 1997 Long-Term Incentive Plan. (Incorporated herein by reference to Exhibit 10.80 of Mohawk’s Annual Report onForm 10-K (FileNo. 001-13697) for the fiscal year ended December 31, 1996.) |
| | *10 | .22 | | 2002 Long-Term Incentive Plan. (Incorporated herein by reference to Appendix A in the 2002 Mohawk Industries, Inc. Proxy Statement dated March 29, 2002.) |
| | *10 | .23 | | Mohawk Industries, Inc. 2007 Incentive Plan (Incorporated herein by reference to Appendix A of the Company’s Definitive Proxy Statement on Schedule 14A (FileNo. 001-13697) filed with the Securities and Exchange Commission on April 9, 2007) |
| | 21 | | | Subsidiaries of the Registrant. |
| | 23 | .1 | | Consent of Independent Registered Public Accounting Firm (KPMG LLP). |
| | 31 | .1 | | Certification Pursuant toRule 13a-14(a). |
| | 31 | .2 | | Certification Pursuant toRule 13a-14(a). |
| | 32 | .1 | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | 32 | .2 | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
Mohawk
Exhibit
Number
* | | Description
|
| |
10.14 | | Amendment to Third Amended and Restated Liquidity Asset Purchase Agreement dated July 31, 2006, among Mohawk Factoring, Inc., Variable Funding Capital Company LLC, and Wachovia Bank, National Association. |
| |
10.15 | | Amendment to Third Amended and Restated Liquidity Asset Purchase Agreement dated July 31, 2006 among Mohawk Factoring, Inc., Suntrust Bank, Three Pillars Funding Corporation, and SunTrust Capital Markets, Inc. |
|
Exhibits Related to Executive Compensation Plans, Contracts and other Arrangements: |
| |
*10.16 | | Management Agreement dated October 31, 2005, by and between Unilin Flooring BVBA and Frans De Cock. (Incorporated herein by reference to Exhibit 10.1 of Mohawk’s Current Report on form 8-K dated October 28, 2005.) |
| |
*10.17 | | Employment Agreement dated November 15, 2005, by and between Mohawk Industries, Inc. and W. Christopher Wellborn. (Incorporated herein by reference to Exhibit 10.1 of Mohawk’s Quarterly Report on form 10-Q for the period ended April 1, 2006.) |
| |
*10.18 | | Mohawk Carpet Corporation Retirement Savings Plan, as amended. (Incorporated herein by reference to Exhibit 10.1 of Mohawk’s Registration Statement on Form S-1, Registration No. 33-45418.) |
| |
*10.19 | | Mohawk Carpet Corporation Supplemental Executive Retirement Plan, as amended. (Incorporated herein by reference to Exhibit 10.2 of Mohawk’s Registration Statement on Form S-1, Registration No. 33-45418.) |
| |
*10.20 | | Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.8 of Mohawk’s Registration Statement on Form S-1, Registration No. 33-45418.) |
| |
*10.21 | | Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.2 in Mohawk’s quarterly report on Form 10-Q (File No. 001-13697) for the quarter ended July 3, 1993.) |
| |
*10.22 | | Second Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.35 of Mohawk’s Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1999.) |
| |
*10.23 | | Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.15 of Mohawk’s Registration Statement on Form S-1, Registration Number 33-53932.) |
| |
*10.24 | | Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.1 of Mohawk’s quarterly report on Form 10-Q (File No. 001-13697) for the quarter ended July 3, 1993.) |
| |
*10.25 | | Second Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.38 of Mohawk’s Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1999.) |
| |
*10.26 | | Mohawk Industries, Inc. 1993 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.39 of Mohawk’s Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1992.) |
| |
*10.27 | | First Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1993 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.40 of Mohawk’s Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1999.) |
| | |
Mohawk
Exhibit
Number
| | Description
|
| |
*10.28 | | The Mohawk Industries, Inc. Executive Deferred Compensation Plan. (Incorporated herein by reference to Exhibit 10.65 of Mohawk’s Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1994.) |
| |
*10.29 | | The Mohawk Industries, Inc. Management Deferred Compensation Plan. (Incorporated herein by reference to Exhibit 10.66 of Mohawk’s Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1994.) |
| |
*10.30 | | Mohawk Industries, Inc. 1997 Non-Employee Director Stock Compensation Plan (Amended and Restated as of March 31, 2003). (Incorporated herein by reference to Exhibit 10.38 of Mohawk’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.) |
| |
*10.31 | | 1997 Long-Term Incentive Plan. (Incorporated herein by reference to Exhibit 10.80 of Mohawk’s Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1996.) |
| |
*10.32 | | 2002 Long-Term Incentive Plan. (Incorporated herein by reference to Appendix A in the 2002 Mohawk Industries, Inc. Proxy Statement dated March 29, 2002.) |
| |
*10.33 | | Supply Agreement dated as of December 29, 1999, between Dal-Tile Corporation and Wold Talc Company. (Incorporated herein by reference to Exhibit 10.18 of the Dal-Tile International Inc., Form 10-K (File No. 033-64140) for fiscal year 1999.) |
| |
21 | | Subsidiaries of the Registrant. |
| |
23.1 | | Consent of Independent Registered Public Accounting Firm (KPMG). |
| |
23.2 | | Consent of Independent Registered Public Accounting Firm (BDO). |
| |
31.1 | | Certification Pursuant to Rule 13a-14(a). |
| |
31.2 | | Certification Pursuant to Rule 13a-14(a). |
| |
32.1 | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
32.2 | | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Indicates exhibit incorporated by reference. |
72
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.
| | | | |
| | | MOHAWK INDUSTRIES, INC. |
| | |
Dated: February 23, 200726, 2010 | | By: /s/ JEFFREY S. LORBERBAUM |
| | /s/: JEFFREY S. LORBERBAUM
|
| | | | 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. | | |
| | |
Dated: February 23, 200726, 2010 | | /s/: JEFFREYJEFFREY S. LORBERBAUM LORBERBAUM
|
| | |
| | Jeffrey S. Lorberbaum, |
| |
Chairman and Chief Executive Officer
(principal executive officer)
|
| | |
| | |
| | |
Dated: February 23, 200726, 2010 | | /s/ /S/: FRANKFRANK H. BOYKIN BOYKIN |
| | |
| | Frank H. Boykin, |
| |
Chief Financial Officer and Vice President-Finance
(principal financial officer)
|
| | |
| | |
| | |
Dated: February 23, 200726, 2010 | | /s/: THOMAS J. KANUK JAMES F. BRUNK
|
| | Thomas J. Kanuk, |
| | James F. Brunk,
Vice President and Corporate Controller
(principal accounting officer)
|
| |
Dated: February 23, 2007 | | /S/: LEO BENATAR
|
| | Leo Benatar, |
| | Director |
| |
Dated: February 23, 2007 | | /S/: PHYLLIS O. BONANNO
|
| | Phyllis O. Bonanno, |
| | Director |
| |
Dated: February 23, 2007 | | /S/: BRUCE C. BRUCKMANN
|
| | Bruce C. Bruckmann, |
| | Director |
| |
Dated: | | |
| | Frans De Cock, |
| | Director |
| |
Dated: February 23, 200726, 2010 | | /s/ /S/: JOHN F. FIEDLER PHYLLIS O. BONANNO |
| | John F. Fiedler, |
| | Phyllis O. Bonanno,
Director |
| | |
| | |
| | |
| | |
Dated: February 23, 200726, 2010 | | /s/: DAVID L. KOLB BRUCE C. BRUCKMANN
|
| | David L. Kolb, |
| | Bruce C. Bruckmann,
Director |
| | |
| | |
| | |
Dated: February 23, 200726, 2010 | | /s/: LARRY W. MCCURDYFRANS DE COCK
|
| | Larry W. McCurdy, |
| | Frans De Cock,
Director |
| | |
| | |
| | |
Dated: February 23, 200726, 2010 | | /s/ /S/: ROBERT N. POKELWALDTJOHN F. FIEDLER |
| | Robert N. Pokelwaldt, |
| | John F. Fiedler,
Director |
| | |
| | |
| | |
Dated: February 23, 200726, 2010 | | /s/ /S/: W. CHRISTOPHER WELLBORNDAVID L. KOLB |
| | |
| | David L. Kolb,
Director |
73
| | |
| | |
| | |
| | |
| Dated: February 26, 2010 | | /s/ LARRY W. MCCURDY |
| | |
| | Larry W. McCurdy,
Director |
| | |
| | |
| | |
| Dated: February 26, 2010 | | /s/ ROBERT N. POKELWALDT |
| | |
| | Robert N. Pokelwaldt,
Director |
| | |
| | |
| | |
| Dated: February 26, 2010 | | /s/ JOSEPH A. ONORATO |
| | |
| | Joseph A. Onorato,
Director |
| | |
| | |
| | |
| Dated: February 26, 2010 | | /s/ W. CHRISTOPHER WELLBORN |
| | |
| | W. Christopher Wellborn, |
| |
Director |
74