SECURITIES AND EXCHANGE COMMISSION
[Mark One]
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
OR
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
For the transition period from to
01-13697
Delaware | 52-1604305 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | 30701 (Zip Code) |
Common Stock, $.01 par value New York Stock Exchange
(§ 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 oxþ No ¨o¨o No xþxþ No ¨o¨o“accelerated filer, large“large accelerated filer,” “accelerated filer” and smaller“smaller reporting company” inRule 12b-2 of the Exchange Act.xþ Accelerated filer ¨o Non-accelerated filer ¨o Smaller reporting company ¨o(Do not check if a smaller reporting company) ¨o No xþ(43,300,714(37,727,179 shares) on June 30, 200726, 2009 (the last business day of the Registrant’s most recently completed fiscal second quarter) was $4,364,278,964$1,337,051,224. The aggregate market value was computed by reference to the closing price of the Common Stock on such date.25, 2008: 68,392,77122, 2010: 68,493,861 shares of Common Stock, $.01 par value.20082010 Annual Meeting of Stockholders-Part III.
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Item 1. | Business |
consolidated financial statements.
products.
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Compound average growth rates for alland flooring categories for the period from 2002 through 2006 have met or exceeded the growth rates (measured in sales dollars) for the real gross domestic product of the U.S. over the same period. During this period, the compound average growth rate was 4.3% for carpets and rugs, 7.6% for ceramic tile, 5.3% for resilient and rubber, 13.5% for laminate and 7.1% for hardwood.
products.
made in response to residential replacement demand.
In 2006, the U.S. hardwood industry shipped 1.0 billion square feet, representing a market of approximately $2.6 billion. Sales of U.S. hardwood are primarily distributed to the residential market for both new construction and residential replacement.
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website technology.
source of manufacture.
residential and commercial channels.
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The Company has long-term clay mining rights in 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 48%66% of its frit requirements.
Wood supply is a very fragmented market in Europe. The Company has long-standing relationships with approximately 50numerous 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 U.S., the Company has a long-term contract with a contiguously located lumber company that supplies most of its total needs for HDF board production. Supply for hardwood flooring is both localized and global depending on theThe supply of various species of hardwoods and hardwood veneers used in the production of solid wood and engineered hardwood flooring being available.
is both localized and global.
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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Mohawk Segment
The carpet and rug industry is highly competitive. Based on industry publications, the top 10 North American carpet and rug manufacturers (including their American and foreign divisions) in 2006 had worldwide carpet and rug sales in excess of $11 billion of the over $15 billion market. The Company believes it is the second largest producer of carpets and rugs (in terms of sales dollars) in the world based on its 2006 sales.
Dal-Tile Segment
The Company estimates that over 100 tile manufacturers, more than half of which are based outside the U.S., compete for sales of ceramic tile to customers located in the 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 U.S. and the world.
Laminate
high-end products. TheIn the U.S., the Company is also one of the fewhas vertically-integrated laminate flooring manufacturers in the U.S. 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. With the acquisition of Columbia, theThe Company believes it is one of the largest manufacturers and distributors of hardwood flooring in the U.S.
These trademarks represent unique innovations that highlight competitive advantages and provide differentiation from competing brands in the market.
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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’s website as soon as practicable after they are filed with, or furnished to, the Securities and Exchange Commission (“SEC”).
Item 1A. | Risk Factors |
Annual Report on Form 10-K, the following risk factors should be considered when evaluating an investment in shares of Common Stock.housing marketand global economies, along with the residential and commercial markets in such economies, has negatively impacted the floor covering industry and the Company’s business and furtherbusiness. These difficult economic conditions may continue or deteriorate in the foreseeable future. Further, significant or prolonged declines 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.
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The floor covering industry is highly competitive. The Company faces competition from a number of manufacturersconsolidated financial statements and independent distributors. Someaffect comparability 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 could have a material adverse effect on the Company’s business.
results between financial periods.
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.
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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.
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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 eliminated tariffs imposed on the Company’s ceramic tile manufactured in Mexico and sold in the United States effective 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.
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Item 1B. | Unresolved Staff Comments |
None
Item 2. | Properties |
Mohawk Segment | Dal-Tile Segment | Unilin Segment | ||||||||||
Primary Purpose | Owned | Leased | Owned | Leased | Owned | Leased | ||||||
Manufacturing | 19,803,505 | 110,454 | 4,420,098 | — | 7,509,582 | 876,529 | ||||||
Selling and Distribution | 4,294,843 | 5,169,960 | 152,811 | 7,942,001 | 120,000 | 89,150 | ||||||
Other | 982,825 | — | 321,312 | 36,000 | 142,632 | — | ||||||
Total | 25,081,173 | 5,280,414 | 4,894,221 | 7,978,001 | 7,772,214 | 965,679 | ||||||
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 | ||||||||||||||||||
Item 3. | Legal Proceedings |
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District Court on June 26, 2009.
year.
Item 4. | Submission of Matters to a Vote of Security Holders |
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Mohawk Common Stock | |||||
High | Low | ||||
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 | $ | 94.35 | 75.15 | ||
Second quarter | 108.00 | 81.28 | |||
Third quarter | 103.73 | 80.32 | |||
Fourth quarter | 87.44 | 73.40 | |||
2008 | |||||
First quarter (through February 25, 2008) | $ | 83.09 | 63.00 |
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 |
2009.
Item 6. | Selected Financial Data |
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At or for the Years Ended December 31, | ||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||
(In thousands, except per share data) | ||||||||||||||
Statement of earnings data: | ||||||||||||||
Net sales | $ | 7,586,018 | 7,905,842 | 6,620,099 | 5,880,372 | 4,999,381 | ||||||||
Cost of sales(a) | 5,471,234 | 5,674,531 | 4,851,853 | 4,256,129 | 3,605,579 | |||||||||
Gross profit | 2,114,784 | 2,231,311 | 1,768,246 | 1,624,243 | 1,393,802 | |||||||||
Selling, general and administrative expenses | 1,364,678 | 1,392,251 | 1,095,862 | 985,251 | 851,773 | |||||||||
Operating income | 750,106 | 839,060 | 672,384 | 638,992 | 542,029 | |||||||||
Interest expense | 154,469 | 173,697 | 66,791 | 53,392 | 55,575 | |||||||||
Other expense (income), net | 674 | 8,488 | 3,460 | 4,809 | (1,980 | ) | ||||||||
U.S. customs refund(b) | (9,154 | ) | (19,436 | ) | — | — | — | |||||||
145,989 | 162,749 | 70,251 | 58,201 | 53,595 | ||||||||||
Earnings before income taxes | 604,117 | 676,311 | 602,133 | 580,791 | 488,434 | |||||||||
Income taxes(c) | (102,697 | ) | 220,478 | 214,995 | 209,994 | 178,285 | ||||||||
Net earnings | $ | 706,814 | 455,833 | 387,138 | 370,797 | 310,149 | ||||||||
Basic earnings per share(c) | $ | 10.37 | 6.74 | 5.78 | 5.56 | 4.68 | ||||||||
Weighted-average common shares outstanding | 68,172 | 67,674 | 66,932 | 66,682 | 66,251 | |||||||||
Diluted earnings per share(c) | $ | 10.32 | 6.70 | 5.72 | 5.49 | 4.62 | ||||||||
Weighted-average common and dilutive potential common shares outstanding | 68,492 | 68,056 | 67,644 | 67,557 | 67,121 | |||||||||
Balance sheet data: | ||||||||||||||
Working capital | $ | 1,238,220 | 783,148 | 1,277,087 | 972,325 | 592,310 | ||||||||
Total assets(c) | 8,680,050 | 8,212,209 | 8,066,025 | 4,429,993 | 4,187,638 | |||||||||
Long-term debt (including current portion) | 2,281,834 | 2,783,681 | 3,308,370 | 891,341 | 1,012,413 | |||||||||
Stockholders’ equity | 4,707,357 | 3,715,263 | 3,058,238 | 2,668,512 | 2,297,801 |
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 2008, the Company recorded an impairment of goodwill and other intangibles which included $276,807 for the Mohawk segment, $531,930 for the Dal-Tile segment and $734,660 for the Unilin segment. | |
(c) | In 2007 and 2006, the Company received partial refunds from the U.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 |
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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’s Discussion and Analysis of Financial Condition and Results of Operations |
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%).
In 2006, the primary categories of the U.S. floor covering industry were carpet and rug (62%), ceramic tile (13%), hardwood (11%), resilient and rubber (8%), and laminate (6%). While the U.S. floor covering industry has experienced softened demand in 2007, due to the downturn in the U.S. residential housing market, compound average growth rates for all flooring categories for the period from 2002 through 2006 have met or exceeded the growth rates (measured in sales dollars) for the real gross domestic product of the U.S. over the same period. During this period, the compound average growth rate was 4.3% for carpets and rugs, 7.6% for ceramic tile, 5.3% for resilient and rubber, 13.5% for laminate and 7.1% for hardwood.
distributors.
residential remodeling and new construction markets, commercial real estate market and European demand, the net effect of price 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.
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market conditions.
For the Years Ended December 31, | ||||||||||||||||||
2007 | 2006 | 2005 | ||||||||||||||||
(In thousands) | ||||||||||||||||||
Statement of earnings data: | ||||||||||||||||||
Net sales | $ | 7,586,018 | 100.0 | % | 7,905,842 | 100.0 | % | 6,620,099 | 100.0 | % | ||||||||
Cost of sales | 5,471,234 | 72.1 | % | 5,674,531 | 71.8 | % | 4,851,853 | 73.3 | % | |||||||||
Gross profit | 2,114,784 | 27.9 | % | 2,231,311 | 28.2 | % | 1,768,246 | 26.7 | % | |||||||||
Selling, general and administrative expenses | 1,364,678 | 18.0 | % | 1,392,251 | 17.6 | % | 1,095,862 | 16.6 | % | |||||||||
Operating income | 750,106 | 9.9 | % | 839,060 | 10.6 | % | 672,384 | 10.2 | % | |||||||||
Interest expense | 154,469 | 2.0 | % | 173,697 | 2.2 | % | 66,791 | 1.0 | % | |||||||||
Other (income) expense, net | 674 | 0.0 | % | 8,488 | 0.1 | % | 3,460 | 0.1 | % | |||||||||
U.S. customs refund | (9,154 | ) | -0.1 | % | (19,436 | ) | -0.2 | % | — | 0.0 | % | |||||||
145,989 | 1.9 | % | 162,749 | 2.1 | % | 70,251 | 1.1 | % | ||||||||||
Earnings before income taxes | 604,117 | 8.0 | % | 676,311 | 8.6 | % | 602,133 | 9.1 | % | |||||||||
Income taxes | (102,697 | ) | -1.4 | % | 220,478 | 2.8 | % | 214,995 | 3.2 | % | ||||||||
Net earnings | $ | 706,814 | 9.3 | % | 455,833 | 5.8 | % | 387,138 | 5.8 | % | ||||||||
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 | % | ||||||||||
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rates.
2007 | 2006 | Change | ||||||
First quarter | $ | 1,863,863 | 1,925,106 | -3.2 | % | |||
Second quarter | 1,977,210 | 2,058,123 | -3.9 | |||||
Third quarter | 1,937,677 | 2,024,019 | -4.3 | |||||
Fourth quarter | 1,807,268 | 1,898,594 | -4.8 | |||||
Total year | $ | 7,586,018 | 7,905,842 | -4.0 | % | |||
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 | )% | |||||||
administrative expenses
Operating income for 2007 was $750.1 million (9.9% of net sales) compared to $839.1 million (10.6% of net sales) in 2006. Operating income as a percentage of net sales in 2007 was unfavorably impacteddriven by lower sales volume, whichand various cost savings initiatives implemented by the Company, believes was primarily attributable to the slowing U.S. housing industry, and plant shutdowns partially offset by higher sales in Europe. Operating income attributable to the Mohawk segment was $254.9approximately $8 million (6.1% of segment net sales) in 2007 compared to $387.4 million (8.2% of segment net sales) in 2006. Operating income as a percentage of the Mohawk segment net sales was unfavorably impacted by its residential new constructionunfavorable foreign exchange rates and replacement channels, which the Company believes resulted from the slowing U.S. housing industry, increased manufacturing costs resulting from lower production volume, higher raw material costs and plant shutdowns. Operating income attributable to the Dal-Tile segment was $258.7 million (13.4% of segment net sales) in 2007, compared to $270.9 million (14.0% of segment net sales) in 2006. Operating income as a percentage of the Dal-Tile segment net sales was unfavorably impacted by its residential channel, which the Company believes resulted from the slowing U.S. housing industry and a plant shutdown. Operating income attributable to the Unilin segment was $272.3 million (18.3% of segment net sales) for 2007 compared to $214.1 million (17.3% of segment net sales) for 2006. Operating income as a percentage of the Unilin segment was favorably impacted by an increase in selling prices and higher demand.
Interest expense for 2007 was $154.5 million compared to $173.7 million in 2006. The decrease in interest expense for 2007 as compared to 2006 was attributable to lower average debt, partially offset by higher interest rates in 2007 when compared to 2006.
The Company has received partial refunds from the U.S. government in reference to settling custom disputes dating back to 1982. Accordingly, the Company recorded a gain of $9.2 million ($5.8 million net of taxes) and $19.4 million ($12.3 million net of taxes) in other income (expense) in 2007 and 2006, respectively. Additional future recoveries will be recorded as realized.
The Company had an income tax benefit of $102.7 million, or (17.0)% of earnings before income taxes for 2007, compared to an income tax expense of $220.5 million, or 32.6% of earnings before income taxes for 2006. During the fourth quarter of 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 deferred tax asset of $245.1 million and a related income tax benefit of $271.6 million. The recognition of the deferred tax asset resulted in a reduction in the Company’s effective tax rate for the year. In addition the tax rate also decreased due to a greater percentage of income in lower taxed jurisdictions and changes implemented in the third quarter of 2007, which resulted in higher interest deductions outside the U.S.
Year Ended December 31, 2006, as Compared with Year Ended December 31, 2005
Net sales for the year ended December 31, 2006, were $7,905.8 million, reflecting an increase of $1,285.7 million, or approximately 19.4%, over the $6,620.1 million reported for the year ended December 31, 2005. The increased net sales are primarily attributable to the acquisition of Unilin in October 2005 (which represented approximately 81% of the net sales growth), internal sales growth within hard surfaces and selling price increases. The Mohawk segment recorded net sales of $4,742.1 million in 2006 compared 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$4 million for twelve months of 2006 compared to $168.8 million for two months of 2005.
Quarterly net sales and the percentage changes in net sales by quarter for 2006 versus 2005 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 | % | |||
Gross profit was $2,231.3 million (28.2% of net sales) for 2006 and $1,768.2 million (26.7% of net sales) for 2005. Gross profit as a percentage of net sales was favorably impacted by the Unilin Acquisition, selling price increases, internal growth and acquisitions within the Dal-Tile segment. The increase was offset by increased raw material, distribution and start up costs when compared to 2005. In addition, the 2005 gross margin was impacted by 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 for 2006 were $1,392.3 million (17.6% of net sales) compared to $1,095.9 million (16.6% of net sales) for 2005.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.
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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 | )% | |||||||
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The Company has received partial refunds from the U.S. government in reference to settling custom disputes dating back to 1982. Accordingly, the Company recorded a gain of $19.4 million ($12.3approximately $19 million, net of taxes) in other income (expense) forcost savings initiatives, partially offset by a benefit of approximately $7 million due to the twelve months ended December 31, 2006. Additional future recoveries will be recorded as realized.
net effect of price increases and product mix.
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Incomean income tax expensebenefit of $102.7 million for 2007. The effective tax rate for 2008 was $220.5 million, or 32.6% of earnings before income taxes for 2006(14.2)% as compared to $215.0 million, or 35.7%an effective tax rate benefit of earnings before income taxes16.8% for 2005.2007. The decreasechange in the tax rate iswas primarily due to the combinationimpact on pre-tax earnings of domesticthe impairment charge on non-deductible goodwill, the 2008 asset restructurings, and internationalthe recognition of a valuation allowance of $253 million, which is described above, against certain deferred tax rates resulting fromassets that the Unilin Acquisition whenCompany 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 2005.
a provision of $168.9 million for 2007.
lower sales demand.
align with its current sales.
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At December 31, 2007,leaving a total of approximately $504.4$462 million was available under the revolving credit facility.ABL Facility. The amount used under the revolving credit facility at December 31, 2007, was $245.6 million. The amount used under the revolving credit facilityABL Facility is composed of $141.9 million borrowings, $55.6$53.5 million standby letters of credit guaranteeing the Company’s industrial revenue bonds and $48.1$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
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 any of the Company’s other subsidiaries that become borrowers under the Euro revolving credit facility. As of December 31, 2007, the Company had no borrowings outstanding under this facility. As of December 31, 2006, the Company had borrowings outstanding of Euro 18.8 million, or approximately $24.8 million, 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, 2007. 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.
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.
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The
over the next twelve months.
No shares were repurchased during 2009, 2008 and 2007.
in 2009.
Total | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | |||||||||
Recorded Contractual Obligations: | |||||||||||||||
Long-term debt, including current maturities and capital leases | $ | 2,281,834 | 260,439 | 4,141 | 215,685 | 500,197 | 400,201 | 901,171 | |||||||
Unrecorded Contractual Obligations: | |||||||||||||||
Interest payments on long-term debt and capital leases(1) | 641,389 | 136,604 | 124,042 | 121,908 | 85,115 | 63,419 | 110,301 | ||||||||
Operating leases | 458,656 | 106,376 | 93,337 | 72,930 | 56,530 | 42,824 | 86,659 | ||||||||
Purchase commitments (2) | 372,568 | 279,236 | 85,399 | 7,582 | 351 | — | — | ||||||||
Expected pension contributions(3) | 1,958 | 1,958 | — | — | — | — | — | ||||||||
Guarantees | 89,546 | 89,546 | — | — | — | — | — | ||||||||
1,564,117 | 613,720 | 302,778 | 202,420 | 141,996 | 106,243 | 196,960 | |||||||||
Total | $ | 3,845,951 | 874,159 | 306,919 | 418,105 | 642,193 | 506,444 | 1,098,131 | |||||||
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 |
(2) | Includes commitments for natural gas, electricity and raw material purchases. |
(3) | Includes the estimated pension contributions for |
As of December 31, 2007, the Company has accrued income tax liabilities for uncertain tax positions of $116.9 million, of which $48.8 million is current. These liabilities have not been presented in the table above due to uncertainty as to amounts and timing regarding future payments.
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$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. |
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 |
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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 Company’s 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.no impairment was indicated. The Company evaluates the recoverabilitydid record impairment of these future tax deductions 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 forecastsgoodwill and other projectionsintangibles of financial results over an extended period of time. In the event that the Company is not able to realize all or a portion of its deferred tax assets$1,543.4 million 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.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 |
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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. |
full knowledge of all relevant information.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.
Environmental and legal accruals are estimates based on judgments made by As of December 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 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.
• | 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. |
In September 2006, FASB issuedASC820-10, 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 for financial assets and liabilities and January 1, 2009 for non-financial assets and liabilities. The Company is currently evaluatingCompany’s adoption of ASC820-10 for financial assets and liabilities on January 1, 2008 andnon-financial assets and liabilities on January 1, 2009 did not have a material impact on the impact of SFAS No. 157 on itsCompany’s consolidated financial statements.
In September 2006, 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 as of the date of the employer’s fiscal year-end, and disclose in the notes to financial statements additional information about certain effects 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, and transition assets or obligations. The recognition and disclosure provisions required by SFAS No. 158 were 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. The Company is currently evaluating the impact of the measurement date provisions of SFAS No. 158 on its consolidated financial statements.
In February 2007, FASB issued SFAS No. 159 (“SFAS No. 159”), “The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FASB Statement No. 115.” SFAS No. 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be
carried at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS No. 159, a company may elect to use fair value to measure eligible items at a specified election date and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Eligible items include, but are not limited to, accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and firm commitments. If elected, SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing whether fair value accounting is appropriate for any eligible items and has not estimated the impact, if any, on its consolidated financial statements.
combinations and certain income tax benefits recognized from prior business combinations.
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Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
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Item 8. | Consolidated Financial Statements and Supplementary Data |
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The 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
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Report of Independent Registered Public Accounting Firm
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20072009 and 20062008 2009 2008 (In thousands, except per share data) 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
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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 | |||||||||
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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 | ||||||||||||||||||
39
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 | ||||||||
40
2007 | 2006 | ||||
ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 89,604 | 63,492 | ||
Receivables, net | 821,113 | 910,021 | |||
Inventories | 1,276,568 | 1,225,874 | |||
Prepaid expenses and other assets | 123,395 | 114,088 | |||
Deferred income taxes | 139,040 | 99,251 | |||
Total current assets | 2,449,720 | 2,412,726 | |||
Property, plant and equipment, net | 1,975,721 | 1,888,088 | |||
Goodwill | 2,797,339 | 2,699,639 | |||
Tradenames | 707,086 | 662,314 | |||
Other intangible assets, net | 464,783 | 517,780 | |||
Deferred income taxes and other assets | 285,401 | 31,662 | |||
$ | 8,680,050 | 8,212,209 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
Current liabilities: | |||||
Current portion of long-term debt | $ | 260,439 | 576,134 | ||
Accounts payable and accrued expenses | 951,061 | 1,053,444 | |||
Total current liabilities | 1,211,500 | 1,629,578 | |||
Deferred income taxes | 614,619 | 628,311 | |||
Long-term debt, less current portion | 2,021,395 | 2,207,547 | |||
Other long-term liabilities | 125,179 | 31,510 | |||
Total liabilities | 3,972,693 | 4,496,946 | |||
Stockholders’ equity: | |||||
Preferred stock, $.01 par value; 60 shares authorized; no shares issued | — | — | |||
Common stock, $.01 par value; 150,000 shares authorized; 79,404 and 78,816 shares issued in 2007 and 2006, respectively | 794 | 788 | |||
Additional paid-in capital | 1,203,957 | 1,152,420 | |||
Retained earnings | 3,462,343 | 2,755,529 | |||
Accumulated other comprehensive gain | 363,981 | 130,372 | |||
5,031,075 | 4,039,109 | ||||
Less treasury stock at cost; 11,046 and 11,051 shares in 2007 and 2006, respectively | 323,718 | 323,846 | |||
Total stockholders’ equity | 4,707,357 | 3,715,263 | |||
$ | 8,680,050 | 8,212,209 | |||
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years Ended December 31, 2007, 2006 and 2005
(In thousands, except per share data)
2007 | 2006 | 2005 | ||||||||
Net sales | $ | 7,586,018 | 7,905,842 | 6,620,099 | ||||||
Cost of sales | 5,471,234 | 5,674,531 | 4,851,853 | |||||||
Gross profit | 2,114,784 | 2,231,311 | 1,768,246 | |||||||
Selling, general and administrative expenses | 1,364,678 | 1,392,251 | 1,095,862 | |||||||
Operating income | 750,106 | 839,060 | 672,384 | |||||||
Other expense (income): | ||||||||||
Interest expense | 154,469 | 173,697 | 66,791 | |||||||
Other expense | 22,997 | 17,515 | 11,714 | |||||||
Other income | (22,323 | ) | (9,027 | ) | (8,254 | ) | ||||
U.S. customs refund | (9,154 | ) | (19,436 | ) | — | |||||
145,989 | 162,749 | 70,251 | ||||||||
Earnings before income taxes | 604,117 | 676,311 | 602,133 | |||||||
Income taxes | (102,697 | ) | 220,478 | 214,995 | ||||||
Net earnings | $ | 706,814 | 455,833 | 387,138 | ||||||
Basic earnings per share | $ | 10.37 | 6.74 | 5.78 | ||||||
Weighted-average common shares outstanding | 68,172 | 67,674 | 66,932 | |||||||
Diluted earnings per share | $ | 10.32 | 6.70 | 5.72 | ||||||
Weighted-average common and dilutive potential common shares outstanding | 68,492 | 68,056 | 67,644 | |||||||
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
Years Ended December 31, 2007, 2006 and 2005
(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, 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 | — | — | — | — | 179,789 | — | — | 179,789 | ||||||||||||||||||
Unrealized loss on hedge instruments net of taxes | — | — | — | — | (2,802 | ) | — | — | (2,802 | ) | ||||||||||||||||
Net earnings | — | — | — | 455,833 | — | — | — | 455,833 | ||||||||||||||||||
Total comprehensive income | 632,820 | |||||||||||||||||||||||||
Balances at December 31, 2006 | 78,816 | 788 | 1,152,420 | 2,755,529 | 130,372 | (11,051 | ) | (323,846 | ) | 3,715,263 | ||||||||||||||||
Stock options exercised | 588 | 6 | 30,869 | — | — | — | — | 30,875 | ||||||||||||||||||
Stock based compensation expense | — | — | 13,594 | — | — | — | — | 13,594 | ||||||||||||||||||
Grant to executive incentive plan and other | — | — | 246 | — | — | 5 | 128 | 374 | ||||||||||||||||||
Tax benefit from exercise of stock options | — | — | 6,828 | — | — | — | — | 6,828 | ||||||||||||||||||
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 | — | — | — | 706,814 | ||||||||||||||||||
Total comprehensive income | 940,423 | |||||||||||||||||||||||||
Balances at December 31, 2007 | 79,404 | $ | 794 | $ | 1,203,957 | $ | 3,462,343 | $ | 363,981 | (11,046 | ) | $ | (323,718 | ) | $ | 4,707,357 | ||||||||||
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2007, 2006 and 2005
(In thousands, except per share data)
2007 | 2006 | 2005 | ||||||||
Cash flows from operating activities: | ||||||||||
Net earnings | $ | 706,814 | 455,833 | 387,138 | ||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 306,437 | 274,952 | 150,657 | |||||||
Deferred income taxes | (289,902 | ) | (68,956 | ) | 9,304 | |||||
Loss on sale of property, plant and equipment | 7,689 | 5,625 | 4,676 | |||||||
Tax benefit on exercise of stock awards | — | — | 5,238 | |||||||
Excess tax benefit from stock-based compensation | (6,828 | ) | (3,578 | ) | — | |||||
Stock based compensation expense | 13,594 | 11,925 | — | |||||||
Changes in assets and liabilities, net of effects of acquisitions: | ||||||||||
Receivables | 127,475 | (20,982 | ) | 1,059 | ||||||
Inventories | 20,976 | 4,823 | (33,570 | ) | ||||||
Accounts payable and accrued expenses | (58,776 | ) | 86,890 | 94,475 | ||||||
Other assets and prepaid expenses | 31,007 | 26,688 | (62,205 | ) | ||||||
Other liabilities | 16,591 | 8,825 | 4,772 | |||||||
Net cash provided by operating activities | 875,077 | 782,045 | 561,544 | |||||||
Cash flows from investing activities: | ||||||||||
Additions to property, plant and equipment | (163,076 | ) | (165,769 | ) | (247,306 | ) | ||||
Acquisitions, net of cash | (147,097 | ) | (70,907 | ) | (2,613,529 | ) | ||||
Net cash used in investing activities | (310,173 | ) | (236,676 | ) | (2,860,835 | ) | ||||
Cash flows from financing activities: | ||||||||||
Net change in short term credit lines | — | — | (37,721 | ) | ||||||
Payments on revolving line of credit | (1,813,731 | ) | (1,546,679 | ) | (539,294 | ) | ||||
Proceeds from revolving line of credit | 1,652,993 | 1,409,611 | 856,940 | |||||||
Proceeds (repayment) 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 | ) | ||||||
Payments on term loans | (373,153 | ) | (589,052 | ) | (15,055 | ) | ||||
Proceeds on term loans | — | — | 750,000 | |||||||
Payments of other debt | (310 | ) | (13,380 | ) | (30,861 | ) | ||||
Excess tax benefit from stock-based compensation | 6,828 | 3,578 | — | |||||||
Change in outstanding checks in excess of cash | (43,520 | ) | (29,250 | ) | 63,670 | |||||
Acquisition of treasury stock | — | (5,180 | ) | (14,521 | ) | |||||
Common stock transactions | 30,875 | 12,669 | 57,509 | |||||||
Net cash provided by (used in) financing activities | (540,018 | ) | (620,842 | ) | 2,440,667 | |||||
Effect of exchange rate changes on cash and cash equivalents | 1,226 | 4,380 | (6,791 | ) | ||||||
Net change in cash and cash equivalents | 26,112 | (71,093 | ) | 134,585 | ||||||
Cash and cash equivalents, beginning of year | 63,492 | 134,585 | — | |||||||
Cash and cash equivalents, end of year | $ | 89,604 | 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, 2007, 2006 and 2005
(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 |
(b) Cash and Cash Equivalents
(b) | Cash and 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 warrants certain qualitative attributes of its flooring products. The Company has recorded a provision for estimated warranty and related costs, based on historical experience and periodically adjusts these provisions to reflect actual experience.
(d) Inventories
(d) | Inventories |
41
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(e) Property, Plant and Equipment
(e) | Property, Plant and Equipment |
(f) | Goodwill and Other Intangible Assets |
42
(g) Income Taxes
(g) | Income Taxes |
(h) Financial Instruments
(h) | Financial Instruments |
(i) Derivative Instruments
(i) | Derivative Instruments |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(j) Advertising Costs and Vendor Consideration
(j) | Advertising Costs and Vendor Consideration |
2007.
43
(k) | Product Warranties |
(k) Impairment of Long-Lived Assets
Long-livedrelated costs, based on historical experience and periodically adjusts these provisions to reflect actual experience.
(l) | Impairment of Long-Lived Assets |
(l) Foreign Currency Translation
(m) | Foreign Currency Translation |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(m) Earnings per Share (“EPS”)
(n) | Earnings per Share (“EPS”) |
44
Years Ended December 31, | |||||||
2007 | 2006 | 2005 | |||||
Net earnings | $ | 706,814 | 455,833 | 387,138 | |||
Weighted-average common and dilutive potential common shares outstanding: | |||||||
Weighted-average common shares outstanding | 68,172 | 67,674 | 66,932 | ||||
Add weighted-average dilutive potential common shares—options to purchase common shares, net | 320 | 382 | 712 | ||||
Weighted-average common and dilutive potential common shares outstanding. | 68,492 | 68,056 | 67,644 | ||||
Basic earnings per share | 10.37 | 6.74 | 5.78 | ||||
Diluted earnings per share | 10.32 | 6.70 | 5.72 | ||||
(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 |
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 | ||||
Net earnings as reported | $ | 387,138 | ||
Deduct: Stock-based employee compensation expense determined under fair value based method for all options, net of related tax effects | (8,628 | ) | ||
Pro forma net earnings | $ | 378,510 | ||
Net earnings per common share (basic) | ||||
As reported | $ | 5.78 | ||
Pro forma | $ | 5.66 | ||
Net earnings per common share (diluted) | ||||
As reported | $ | 5.72 | ||
Pro forma | $ | 5.60 |
(o) Comprehensive Income
(p) | Comprehensive Income |
Translation adjustment | Hedge instruments | SFAS 158 | Tax expense (benefit) | Total | |||||||||||
December 31, 2005 | $ | (48,702 | ) | 1,998 | — | (729 | ) | (47,433 | ) | ||||||
2006 activity | 179,789 | (4,412 | ) | 818 | 1,610 | 177,805 | |||||||||
December 31, 2006 | 131,087 | (2,414 | ) | 818 | 881 | 130,372 | |||||||||
2007 activity | 230,941 | 2,288 | 1,215 | (835 | ) | 233,609 | |||||||||
December 31, 2007 | $ | 362,028 | (126 | ) | 2,033 | 46 | 363,981 | ||||||||
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 |
45
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 as of the date of the employer’s fiscal year-end, and disclose in the notes to financial statements additional information about certain effects 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, and transition assets or obligations. The recognition and disclosure provisions required by SFAS No. 158 were 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. The Company is currently evaluating the impact of the measurement date provisions of SFAS No. 158 on its consolidated financial statements.
In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS No. 159, a company may elect to use fair value to measure eligible items at a specified election date and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Eligible items include, but are not limited to, accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and firm commitments. If elected, SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing whether fair value accounting is appropriate for any eligible items and has not estimated the impact, if any, on its consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
combinations and certain income tax benefits recognized from prior business combinations.
46
(r) Reclassifications
The Company reclassified certain prior period financial statement balances to conform to the current year presentations (See Note 3).
(2) Acquisitions
(2) | Acquisitions |
$8,276, respectively.
47
(3) Receivables
Receivables are as follows:
2007 | 2006 | ||||
Customers, trade | $ | 845,446 | 932,022 | ||
Other | 31,977 | 47,798 | |||
877,423 | 979,820 | ||||
Less allowance for discounts, returns, claims and doubtful accounts | 56,310 | 69,799 | |||
Net receivables | $ | 821,113 | 910,021 | ||
At December 31, 2006, the Company reclassified approximately $28,500 of product warranty claims from the allowance for discounts, returns, claims and doubtful accounts to current liabilities. In addition, at December 31, 2006, the Company reclassified approximately $24,800 of receivables from prepaid expenses and other assets to customers, trade.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(3) | Receivables |
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 | |||||
Balance at beginning of year | Additions charged to costs and expenses(1) | Deductions(2) | Balance at end of year | ||||||
2005 | $ | 71,830 | 274,659 | 269,767 | 76,722 | ||||
2006 | 76,722 | 293,029 | 299,952 | 69,799 | |||||
2007 | 69,799 | 270,993 | 284,482 | 56,310 |
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 $1,500 in 2007 related to the Columbia acquisition |
(2) | Represents charge-offs, net of recoveries. |
(4) Inventories
(4) | Inventories |
2007 | 2006 | |||||
Finished goods | $ | 804,408 | $ | 806,463 | ||
Work in process | 100,582 | 95,746 | ||||
Raw materials | 371,578 | 323,665 | ||||
Total inventories | $ | 1,276,568 | 1,225,874 | |||
(5) Goodwill and Other Intangible Assets
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 |
48
Mohawk | Dal-Tile | Unilin | Total | |||||||||
Balances as of January 1, 2006 | $ | 198,132 | 1,191,672 | 1,232,159 | 2,621,963 | |||||||
Goodwill acquired during the year | 1,000 | (8,882 | ) | (19,209 | ) | (27,091 | ) | |||||
Effect of translation | — | — | 104,767 | 104,767 | ||||||||
Balances as of December 31, 2006 | 199,132 | 1,182,790 | 1,317,717 | 2,699,639 | ||||||||
Goodwill acquired during the year | — | 3,223 | (19,379 | ) | (16,156 | ) | ||||||
Effect of translation | — | — | 113,856 | 113,856 | ||||||||
Balances as of December 31, 2007 | $ | 199,132 | 1,186,013 | 1,412,194 | 2,797,339 | |||||||
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 | |||||||||||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
of pre acquisition tax liabilities of $32,448. During 2007, changes in the Dal-Tile segment relate to adjustments to the opening balance sheet including the adjustment of pre acquisition liabilities of $3,223. The change 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.stone center assets. In addition, during 2008, the Company recognized additional goodwillreversed $842 and $40,691 of $1,000 related to an earn-out agreement entered into in 2003 in the Mohawk segment and reversed certain pre-acquisition tax liabilities in the Dal-Tile segment in 2006.
and Unilin segments, respectively.
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
Tradenames | ||||||||||
Indefinite life assets not subject to amortization: | ||||||||||
Balance as of January 1, 2006 | $ | 622,094 | ||||||||
Effect of translation | 40,220 | |||||||||
Balance as of December 31, 2006 | 662,314 | |||||||||
Effect of translation | 44,772 | |||||||||
Balance as of December 31, 2007 | $ | 707,086 | ||||||||
Customer relationships | Patents | Total | ||||||||
Intangible assets subject to amortization: | ||||||||||
Balance as of January 1, 2006 | $ | 307,566 | 244,437 | 552,003 | ||||||
Amortization during period | (44,186 | ) | (36,943 | ) | (81,129 | ) | ||||
Effect of translation | 20,733 | 26,173 | 46,906 | |||||||
Balance as of January 1, 2007 | 284,113 | 233,667 | 517,780 | |||||||
Amortization during period | (46,751 | ) | (48,202 | ) | (94,953 | ) | ||||
Effect of translation | 18,730 | 23,226 | 41,956 | |||||||
Balance as of December 31, 2007 | $ | 256,092 | 208,691 | 464,783 | ||||||
Years Ended December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||
Amortization expense: | ||||||||||
Aggregation amortization expense | $ | 94,953 | 81,129 | 17,324 |
2008 | $ | 83,650 | |
2009 | 82,172 | ||
2010 | 80,152 | ||
2011 | 77,937 | ||
2012 | 66,911 |
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 |
2007 | 2006 | ||||
Land | $ | 193,867 | 178,553 | ||
Buildings and improvements | 747,542 | 698,878 | |||
Machinery and equipment | 2,123,351 | 2,006,849 | |||
Furniture and fixtures | 54,826 | 53,961 | |||
Leasehold improvements | 42,308 | 33,702 | |||
Construction in progress | 151,741 | 96,579 | |||
3,313,635 | 3,068,522 | ||||
Less accumulated depreciation and amortization | 1,337,914 | 1,180,434 | |||
Net property, plant and equipment | $ | 1,975,721 | 1,888,088 | ||
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 | |||||
50
At December 31, 2007,$113,451 leaving a total of approximately $504,381 was$461,871 available under the revolving credit facility.ABL Facility. The amount used under the revolving credit facility at December 31, 2007, was $245,619. The amount used under the revolving credit facilityABL Facility is composed of $141,911 borrowings, $55,599$53,542 of standby letters of credit guaranteeing the Company’s industrial revenue bonds and $48,109$59,909 of standby letters of credit related to various insurance contracts and foreign vendor commitments.
The senior
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, 2007 and 2006, the Company had $190,000 outstanding. The Securitization Facility is secured by trade receivables. During the third quarter of 2007, the Company extended the term of its Securitization Facility until July 2008.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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 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, 2007, the Company had no borrowings outstanding under this facility. As of December 31, 2006, the Company had borrowings outstanding of Euro 18,810 or approximately $24,831 under this facility.
The Company’s senior unsecured credit facilities and the unsecured Euro revolving credit facility both contain debt to capital ratio requirements and other customary covenants. 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.
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.
51
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 | |||||||||||
Long-term debt consistsfair values of the following:
2007 | 2006 | ||||
6.50% senior notes, payable April 15, 2007 interest payable semiannually | $ | — | 300,000 | ||
Securitization facility, due July 30, 2008 | 190,000 | 190,000 | |||
Five year senior unsecured credit facility, due October 28, 2010 | 215,495 | 395,321 | |||
5.75% note, payable January 15, 2011 interest payable semiannually | 500,000 | 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 | 900,000 | |||
Euro five year unsecured revolving credit facility due November 8, 2010 | — | 24,831 | |||
Industrial revenue bonds, capital leases and other | 76,339 | 73,529 | |||
Total long-term debt | 2,281,834 | 2,783,681 | |||
Less current portion | 260,439 | 576,134 | |||
Long-term debt, excluding current portion | $ | 2,021,395 | 2,207,547 | ||
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.
2008 | $ | 260,439 | |
2009 | 4,141 | ||
2010 | 215,685 | ||
2011 | 500,197 | ||
2012 | 400,201 | ||
Thereafter | 901,171 | ||
$ | 2,281,834 | ||
2010 | $ | 52,907 | ||
2011 | 499,790 | |||
2012 | 400,374 | |||
2013 | 439 | |||
2014 | 354 | |||
Thereafter | 900,615 | |||
$ | 1,854,479 | |||
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
2007 | 2006 | ||||
Outstanding checks in excess of cash | $ | 24,619 | 68,139 | ||
Accounts payable, trade | 399,141 | 371,538 | |||
Accrued expenses | 321,547 | 331,326 | |||
Income taxes payable | 42,090 | 125,046 | |||
Deferred tax liability | 11,890 | 4,565 | |||
Accrued compensation | 151,774 | 152,830 | |||
Total accounts payable and accrued expenses | $ | 951,061 | 1,053,444 | ||
(9) Derivative Financial Instruments
(9) | Derivative Financial Instruments |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(10) Product warranties
(10) | Product Warranties |
53
2007 | 2006 | 2005 | ||||||||
Balance at beginning of year | $ | 30,712 | 27,775 | 23,473 | ||||||
Warranty claims | (54,685 | ) | (48,472 | ) | (46,850 | ) | ||||
Warranty expense | 67,301 | 51,409 | 49,365 | |||||||
Other(1) | 2,859 | — | 1,787 | |||||||
Balance at end of year | $ | 46,187 | 30,712 | 27,775 | ||||||
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 |
Prior to January 1, 2006, the
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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 to the adoption of FASB No. 123(R), 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. FASB 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.
fixed awards with ratable vesting provisions.
2007 | 2006 | 2005 | ||||||||
Options outstanding at beginning of year | 2,034 | 2,276 | 2,281 | |||||||
Options granted | 64 | 146 | 460 | |||||||
Options exercised | (588 | ) | (338 | ) | (378 | ) | ||||
Options canceled | (55 | ) | (50 | ) | (87 | ) | ||||
Options outstanding at end of year. | 1,455 | 2,034 | 2,276 | |||||||
Options exercisable at end of year | 821 | 1,066 | 857 | |||||||
Option prices per share: | ||||||||||
Options granted during the year | $ | 75.10-93.65 | 75.82-86.51 | 76.73-89.46 | ||||||
Options exercised during the year | $ | 16.66-88.33 | 11.33-73.45 | 9.33-82.50 | ||||||
Options canceled during the year | $ | 22.63-93.65 | 24.63-89.46 | 30.53-90.97 | ||||||
Options outstanding at end of year | $ | 16.66-93.65 | 16.60-90.97 | 11.33-90.97 | ||||||
Options exercisable at end of year | $ | 16.66-90.97 | 16.60-90.97 | 11.33-90.97 | ||||||
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 | ||||||||
54
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2007.
respectively.
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
2007 | 2006 | 2005 | |||||||
Dividend yield | — | — | — | ||||||
Risk-free interest rate | 4.8 | % | 4.6 | % | 4.0 | % | |||
Volatility | 29.0 | % | 35.3 | % | 37.7 | % | |||
Expected life (years) | 6 | 6 | 6 |
Shares | Weighted average exercise price | Weighted average remaining contractual term (years) | Average intrinsic value | ||||||||
Options outstanding January 1, 2007 | 2,034 | $ | 64.43 | ||||||||
Granted | 64 | 89.07 | |||||||||
Exercised | (588 | ) | 52.45 | ||||||||
Forfeited and expired | (55 | ) | 76.41 | ||||||||
Options outstanding, end of period | 1,455 | 69.89 | 5.8 | $ | 14,376 | ||||||
Vested and expected to vest at December 31, 2007 | 1,371 | $ | 69.14 | 5.7 | $ | 14,240 | |||||
Exercisable at December 31, 2007 | 821 | $ | 60.86 | 4.9 | $ | 13,118 | |||||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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 | ||||||||||
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
Exercise price range | Outstanding | Exercisable | ||||||||||
Number of shares | Average life | Average price | Number of shares | Average price | ||||||||
Under $48.50 | 289 | 3.6 | $ | 38.13 | 253 | $ | 36.67 | |||||
$49.09-$63.90 | 261 | 4.2 | 61.26 | 248 | 61.36 | |||||||
$65.02-$73.45 | 246 | 5.7 | 72.54 | 141 | 72.19 | |||||||
$73.54-$84.85 | 261 | 7.6 | 82.18 | 80 | 82.13 | |||||||
$86.51-$88.00 | 48 | 7.9 | 87.56 | 14 | 87.96 | |||||||
$88.33-$93.65 | 350 | 7.3 | 89.11 | 85 | 88.48 | |||||||
Total | 1,455 | 5.8 | $ | 69.89 | 821 | $ | 60.86 | |||||
Shares | Weighted average price | Weighted average remaining contractual term (years) | Average intrinsic value | ||||||||
Restricted Stock Units outstanding January 1, 2007 | — | $ | — | ||||||||
Granted | 144 | 93.61 | |||||||||
Forfeited | (7 | ) | 93.65 | ||||||||
Restricted Stock Units outstanding, end of period | 137 | 93.61 | 2.1 | $ | 10,205 | ||||||
Vested and expected to vest at December 31, 2007 | 121 | $ | 93.61 | 2.1 | $ | 9,018 | |||||
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 | ||||||||||
(12) Employee Benefit Plans
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 |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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 and Unilin segments, the Company contributes $.50 for every $1.00 of employee contributions up to a maximum of 6% of the employee’s salary. Employee and employer contributions to the Mohawk Plan were $34,838 and $13,822 in 2009, $40,393 and $16,024 in 2008, and $43,187 and $16,946 in 2007, $40,369 and $15,713 in 2006, and $38,322 and $15,118 in 2005, respectively. The Company also made a discretionary contribution to the Mohawk Plan of approximately $1,908, $4,211 and $5,500 $5,900in 2009, 2008 and $5,710 in 2007, 2006 and 2005, respectively.
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. The Company terminated the U.S. Plan as of December 31, 2006. All benefits associated with the U.S. Plan were distributed to participants during 2007. The Company used December 31 as the measurement date for its U.S. Plan.
57
U.S. Plan:
2007 | 2006 | 2005 | |||||||
Service cost of benefits earned | $ | — | — | 26 | |||||
Interest cost on projected benefit obligation | — | 1,285 | 1,213 | ||||||
Settlement and curtailment | — | — | (65 | ) | |||||
Expected return on plan assets | — | (1,439 | ) | (1,542 | ) | ||||
Recognized acturial (gain) or loss | — | 3,092 | — | ||||||
Net amortization and deferral | — | — | (391 | ) | |||||
Settlements | 1,050 | — | — | ||||||
Net pension expense/(income) | $ | 1,050 | 2,938 | (759 | ) | ||||
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 | ||||||||
2007 | 2006 | 2005 | ||||||
Discount rate | — | 5.50 | % | 5.50 | % | |||
Expected rate of return on plan assets | — | 8.00 | % | 8.00 | % |
Non-U.S. Plans:
2007 | 2006 | ||||||
Service cost of benefits earned | $ | 1,927 | 1,607 | ||||
Interest cost on projected benefit obligation | 968 | 833 | |||||
Expected return on plan assets | (738 | ) | (633 | ) | |||
Amortization of actuarial gain | (12 | ) | — | ||||
Net pension expense | $ | 2,145 | 1,807 | ||||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIESpension
Notes to Consolidated Financial Statements—(Continued)
Assumptions used to determine net periodic pension expense for Non-U.S. Plans:
2007 | 2006 | |||
Discount rate | 4.50%-5.06% | 4.50%-4.90% | ||
Expected rate of return on plan assets | 4.50%-4.90% | 4.50%-4.90% | ||
Rate of compensation increase | 2.50%-7.00% | 2.50%-7.00% | ||
Underlying inflation rate | 2.00% | 2.00% |
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% |
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 | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
Change in benefit obligation: | |||||||||||||
Projected benefit obligation at end of prior year | $ | 28,472 | 25,128 | 18,445 | 16,158 | ||||||||
Cummulative foreign exchange effect | — | — | 2,118 | 1,858 | |||||||||
Service cost | — | — | 2,072 | 1,607 | |||||||||
Interest cost | — | 1,285 | 1,041 | 833 | |||||||||
Plan participants contributions | — | — | 603 | 530 | |||||||||
Actuarial (gain) loss | (366 | ) | 4,124 | (802 | ) | (1,214 | ) | ||||||
Settlement payments and curtailment | (28,106 | ) | (2,065 | ) | — | — | |||||||
Benefits paid | — | — | (1,432 | ) | (1,327 | ) | |||||||
Projected benefit obligation at end of year | $ | — | 28,472 | 22,045 | 18,445 | ||||||||
Change in plan assets: | |||||||||||||
Fair value of plan assets at end of prior year | $ | 19,311 | 19,747 | 14,852 | 13,050 | ||||||||
Fair value adjustment | — | — | 299 | — | |||||||||
Cummulative foreign exchange effect | — | — | 1,704 | 1,501 | |||||||||
Actual return on plan assets | 684 | 1,629 | 794 | 633 | |||||||||
Employer contributions | 8,214 | — | 1,816 | 1,426 | |||||||||
Benefits paid | — | — | (1,432 | ) | (1,327 | ) | |||||||
Plan participant contributions | — | — | 603 | 530 | |||||||||
Actuarial (loss) gain | (103 | ) | — | 92 | (961 | ) | |||||||
Settlement payments and curtailment | (28,106 | ) | (2,065 | ) | — | — | |||||||
Fair value of plan assets at end of year | $ | — | 19,311 | 18,728 | 14,852 | ||||||||
Funded status of the plans: | |||||||||||||
Ending funded status | $ | — | (9,161 | ) | (3,317 | ) | (3,593 | ) | |||||
Net amount recognized in consolidated balance sheets: | |||||||||||||
Accrued expenses (Current liability) | $ | — | (9,161 | ) | — | — | |||||||
Accrued benefit liability (Non-current liability) | — | — | (3,317 | ) | (3,593 | ) | |||||||
Accumulated other comprehensive gain | — | — | (2,033 | ) | (818 | ) | |||||||
Net amount recognized | $ | — | (9,161 | ) | (5,350 | ) | (4,411 | ) | |||||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2007 | 2006 | |||
U.S. Plan: | ||||
Discount rate | — | 5.16% | ||
Non-U.S. Plan: | ||||
Discount rate | 5.00%-5.55% | 4.50%-4.90% | ||
Rate of compensation increase | 1.00%-7.00% | 2.50%-7.00% | ||
Underlying inflation rate | 2.00% | 2.00% |
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% |
U.S. Plan | Non-U.S. Plans | ||||||||
2007 | 2006 | 2007 | 2006 | ||||||
Plans with accumulated benefit obligations in excess of plan assets: | |||||||||
Projected benefit obligation | $ | — | 28,472 | 1,317 | 18,445 | ||||
Accumulated benefit obligation | — | 28,472 | 899 | 16,115 | |||||
Fair value of plan assets | — | 19,311 | 532 | 14,852 | |||||
Plans with plan assets in excess of accumulated benefit obligations: | |||||||||
Projected benefit obligation | $ | — | — | 20,728 | — | ||||
Accumulated benefit obligation | — | — | 17,186 | — | |||||
Fair value of plan assets | — | — | 18,196 | — |
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 |
2015-2019.
2010.
2007 | 2006 | ||||
U.S. Plan: | |||||
Debt security | $ | — | 8,999 | ||
Cash fund | — | 10,312 | |||
Total plan assets | $ | — | 19,311 | ||
Non-U.S. Plans: | |||||
Insurance contracts | $ | 18,728 | 14,852 | ||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2009 | 2008 | |||||||
Non-U.S. pension plans: | ||||||||
Insurance contracts | $ | 21,841 | 16,371 | |||||
2007 | 2006 | |||||
U.S. Plan: | ||||||
Debt securities | — | 50.0 | % | |||
Cash fund | — | 50.0 | % | |||
— | 100.0 | % | ||||
Non-U.S. Plans: | ||||||
Insurance contracts | 100.0 | % | 100.0 | % | ||
2009 | 2008 | |||||||
Non-U.S. pension plans: | ||||||||
Insurance contracts | 100.0 | % | 100.0 | % | ||||
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 a decrease 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
(13) | Income Taxes |
2007 | 2006 | 2005 | |||||
United States | $ | 349,922 | 494,190 | 590,539 | |||
Foreign | 254,195 | 182,121 | 11,594 | ||||
Income before income taxes | $ | 604,117 | 676,311 | 602,133 | |||
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 | ||||||
2007 | 2006 | 2005 | ||||||||
Current income taxes: | ||||||||||
U.S. federal | $ | 109,810 | 206,435 | 183,807 | ||||||
State and local | 8,636 | 20,320 | 15,147 | |||||||
Foreign | 71,047 | 62,322 | 11,555 | |||||||
Total current | $ | 189,493 | 289,077 | 210,509 | ||||||
Deferred income taxes | ||||||||||
U.S. federal | 25,185 | (35,313 | ) | 17,795 | ||||||
State and local | (26,535 | ) | (4,932 | ) | 300 | |||||
Foreign | (290,840 | ) | (28,354 | ) | (13,609 | ) | ||||
Total deferred | $ | (292,190 | ) | (68,599 | ) | 4,486 | ||||
Total | $ | (102,697 | ) | 220,478 | 214,995 | |||||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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 | ) | ||||||
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
2007 | 2006 | 2005 | ||||||||
Computed “expected” tax expense | $ | 211,441 | 236,709 | 210,747 | ||||||
State and local income taxes, net of federal income tax benefit | 10,610 | 4,522 | 4,748 | |||||||
Foreign income taxes | (25,925 | ) | (26,280 | ) | (589 | ) | ||||
Change in valuation allowance | 630 | 28,608 | (1,351 | ) | ||||||
Change in statutory tax rate | — | (1,528 | ) | — | ||||||
Belgium notional interest | (36,446 | ) | (22,510 | ) | — | |||||
Tax contingencies & audit settlements | 4,406 | — | — | |||||||
Intellectual property migration to Luxembourg | (271,607 | ) | — | — | ||||||
Other, net | 4,194 | 957 | 1,440 | |||||||
$ | (102,697 | ) | 220,478 | 214,995 | ||||||
2007 | 2006 | ||||||
Deferred tax assets: | |||||||
Accounts receivable | $ | 21,346 | 21,756 | ||||
Inventories | 44,354 | 47,507 | |||||
Accrued expenses and other | 92,672 | 112,639 | |||||
FIN 48 indirect benefits | 20,747 | — | |||||
Intangibles | 249,057 | — | |||||
Foreign and state net operating losses and credits | 99,858 | 81,589 | |||||
Valuation allowance | (75,028 | ) | (68,773 | ) | |||
Gross deferred tax assets | 453,006 | 194,718 | |||||
Deferred tax liabilities: | |||||||
Plant and equipment | (277,013 | ) | (291,233 | ) | |||
Intangibles | (324,284 | ) | (336,636 | ) | |||
LIFO change in accounting method | (38,682 | ) | (50,424 | ) | |||
Other liabilities | (39,856 | ) | (47,356 | ) | |||
Gross deferred tax liabilities | (679,835 | ) | (725,649 | ) | |||
Net deferred tax liability(1) | $ | (226,829 | ) | (530,931 | ) | ||
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 |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes
During the fourth quarter of 2007,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 implementedrecorded a change in residencynon-cash pretax impairment charge of one$1,543,397 to reduce the carrying value of its foreign subsidiaries. Thisgoodwill and other intangibles. The tax restructuring resulted in a step up inimpact was to book an expense of $406,577 related to the subsidiary’s taxable basisportion of its intellectual property and the recognition of a deferred tax asset of approximately $245,000 and a related income tax benefit of approximately $272,000. The step up relates primarily to intangibleimpaired assets which will be amortized over 10 yearsthat are non-deductible for tax purposes.
As of December 31, 2007, the Company had state net operating loss carryforwards and state tax credits with potential tax benefits of approximately $43,787, net of federal income tax benefit; these carryforwards expire over various periods based on jurisdiction.
61
$252,751 during the quarter ended September 27, 2008.
62
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2007 | ||||
Balance at January 1, 2007 | $ | 156,018 | ||
Additions based on tax positions related to the current year | 2,012 | |||
Additions for tax positions of prior years | 4,459 | |||
Effects of foreign currency translation | 5,484 | |||
Reductions for tax positions of prior years | (23,179 | ) | ||
Reductions resulting from the lapse of the statute of limitations | (17,239 | ) | ||
Settlements with taxing authorities | (10,698 | ) | ||
Balance at December 31, 2007 | $ | 116,857 | ||
Included in the balance as of December 31, 2007 is approximately $29,373 of uncertain tax positions that, if recognized, would affect the Company’s overall effective tax rate.
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 | |||||
$8,228, $3,657 and $1,115, respectively.
The Except as noted above, the Company is also under examination forhas substantially concluded all income tax matters related to years 2002-2003 with the IRS and in various state and foreign jurisdictions for which the anticipated adjustments would not result in a significant changeprior to the total amount of unrecognized tax benefits.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(14) Commitments and Contingencies
2004.
(14) | Commitments and Contingencies |
Capital | Operating | Total Future Payments | ||||||
2008 | $ | 8,117 | 106,376 | 114,493 | ||||
2009 | 4,066 | 93,337 | 97,403 | |||||
2010 | 264 | 72,930 | 73,194 | |||||
2011 | 257 | 56,530 | 56,787 | |||||
2012 | 257 | 42,824 | 43,081 | |||||
Thereafter | 1,301 | 86,659 | 87,960 | |||||
Total payments | 14,262 | 458,656 | 472,918 | |||||
Less amount representing interest | (835 | ) | ||||||
Present value of capitalized lease payments | $ | 13,427 | ||||||
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 | ||||||||||
63
District Court on June 26, 2009.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
year.
64
(15) Consolidated Statements
$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 the Company’s actions taken to lower its cost structure and improve the efficiency of its manufacturing and distribution operations as it adjusts to current economic conditions.
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 |
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
2007 | 2006 | 2005 | ||||||||
Net cash paid during the year for: | ||||||||||
Interest | $ | 157,296 | 154,897 | 61,468 | ||||||
Income taxes | $ | 201,851 | 267,075 | 191,601 | ||||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||||
Fair value of assets acquired in acquisition | $ | 165,463 | 113,008 | 3,375,605 | ||||||
Liabilities assumed in acquisition | (18,310 | ) | (33,366 | ) | (762,076 | ) | ||||
$ | 147,153 | 79,642 | 2,613,529 | |||||||
(16) Segment Reporting
(16) | Segment Reporting |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
distributors.
2007.
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
2007 | 2006 | 2005 | ||||||||
Net sales: | ||||||||||
Mohawk | $ | 4,205,740 | 4,742,060 | 4,716,659 | ||||||
Dal-Tile | 1,937,733 | 1,941,819 | 1,734,781 | |||||||
Unilin | 1,487,645 | 1,236,918 | 168,814 | |||||||
Corporate and eliminations | (45,100 | ) | (14,955 | ) | (155 | ) | ||||
$ | 7,586,018 | 7,905,842 | 6,620,099 | |||||||
Operating income: | ||||||||||
Mohawk | $ | 254,924 | 387,386 | 426,811 | ||||||
Dal-Tile | 258,706 | 270,901 | 260,194 | |||||||
Unilin | 272,260 | 214,093 | (5,162 | ) | ||||||
Corporate and eliminations | (35,784 | ) | (33,320 | ) | (9,459 | ) | ||||
$ | 750,106 | 839,060 | 672,384 | |||||||
Depreciation and amortization: | ||||||||||
Mohawk | $ | 95,933 | 95,089 | 91,452 | ||||||
Dal-Tile | 44,216 | 37,576 | 31,731 | |||||||
Unilin | 159,859 | 135,337 | 23,695 | |||||||
Corporate | 6,429 | 6,950 | 3,779 | |||||||
$ | 306,437 | 274,952 | 150,657 | |||||||
Capital expenditures (excluding acquisitions): | ||||||||||
Mohawk | $ | 65,842 | 71,793 | 153,238 | ||||||
Dal-Tile | 33,134 | 63,177 | 84,363 | |||||||
Unilin | 58,711 | 28,688 | 6,207 | |||||||
Corporate | 5,389 | 2,111 | 3,498 | |||||||
$ | 163,076 | 165,769 | 247,306 | |||||||
Assets: | ||||||||||
Mohawk | $ | 2,302,527 | 2,488,856 | 2,499,485 | ||||||
Dal-Tile | 2,259,811 | 2,257,107 | 2,207,514 | |||||||
Unilin | 3,916,739 | 3,309,574 | 3,263,248 | |||||||
Corporate and eliminations | 200,973 | 156,672 | 95,778 | |||||||
$ | 8,680,050 | 8,212,209 | 8,066,025 | |||||||
Geographic net sales: | ||||||||||
North America | $ | 6,477,277 | 6,974,488 | 6,489,511 | ||||||
Rest of world | 1,108,741 | 931,354 | 130,588 | |||||||
$ | 7,586,018 | 7,905,842 | 6,620,099 | |||||||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2007 | 2006 | 2005 | |||||
Long-lived assets(1): | |||||||
North America | $ | 3,028,571 | 2,995,968 | 2,951,681 | |||
Rest of world | 1,744,489 | 1,591,759 | 1,481,010 | ||||
$ | 4,773,060 | 4,587,727 | 4,432,691 | ||||
Net Sales by Product Categories(2): | |||||||
Soft surface | $ | 3,797,584 | 4,225,514 | 4,240,032 | |||
Tile | 2,110,705 | 2,200,918 | 1,956,471 | ||||
Wood | 1,677,729 | 1,479,410 | 423,596 | ||||
$ | 7,586,018 | 7,905,842 | 6,620,099 | ||||
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 and 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. |
(17) Quarterly Financial Data (Unaudited)
(17) | Quarterly Financial Data (Unaudited) |
Quarters Ended | ||||||||||
March 31, 2007 | June 30, 2007 | September 29, 2007 | December 31, 2007 | |||||||
Net sales | $ | 1,863,863 | 1,977,210 | 1,937,677 | 1,807,268 | |||||
Gross profit | 523,440 | 556,698 | 545,383 | 489,263 | ||||||
Net earnings | 90,378 | 115,268 | 122,054 | 379,114 | (1) | |||||
Basic earnings per share | 1.33 | 1.69 | 1.79 | 5.55 | ||||||
Diluted earnings per share | 1.32 | 1.68 | 1.78 | 5.53 | ||||||
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 | ||||||||||||||||
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 |
67
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None
Item 9A. | Controls and Procedures |
Item 9B. | Other Information |
None.
68
Item 10. | Directors and Executive Officers and Corporate Governance |
20082010 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 athttp://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 onForm 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 20082010 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 20082010 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 20082010 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 20082010 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 |
|
| |||
Mohawk | ||||
Exhibit | ||||
Number | Description | |||
| ||||
*2 | .1 | Agreement and Plan of Merger dated as of December 3, 1993 and amended as of January 17, 1994 among Mohawk, AMI Acquisition Corp., Aladdin and certain Shareholders of Aladdin. (Incorporated herein by reference to Exhibit 2.1(a) in Mohawk’s Registration Statement onForm S-4, RegistrationNo. 333-74220.) | ||
| *3 | .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 | ||||
Restated Bylaws of | ||||
*4 | ||||
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 | ||||
See Articles 2, 6, and 9 of the Restated Bylaws of | ||||
*4 | ||||
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 | ||||
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 | .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.) | |
* |
|
| |
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 | ||
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 | ||
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.) | ||
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. |
|
| |
|
| |
Indicates exhibit incorporated by reference. |
72
Dated: February | By: /s/ JEFFREY S. LORBERBAUM | |||
| ||||
Jeffrey S. Lorberbaum, | ||||
Chairman and Chief Executive Officer |
Dated: February 29, 2008 /s/: JEFFREY S. LORBERBAUM Dated: February 26, 2010 Jeffrey S. Lorberbaum,
Chairman and Chief Executive Officer
(principal executive officer)Dated: February 29, 2008 /s/: FRANK H. BOYKIN Dated: February 26, 2010 Frank H. Boykin,
Chief Financial Officer and Vice President-Finance
(principal financial officer)Dated: February 29, 2008 /s/: THOMAS J. KANUK Thomas J. Kanuk, Dated: February 26, 2010 James F. Brunk,
Vice President and Corporate Controller
(principal accounting officer)Dated: February 29, 2008 /s/: PHYLLIS O. BONANNO Dated: February 26, 2010 Phyllis O. Bonanno,
Director DirectorDated: February 29, 2008 /s/: BRUCE C. BRUCKMANN Dated: February 26, 2010 Bruce C. Bruckmann,
Director DirectorDated: February 29, 2008 /s/: FRANS DE COCK Dated: February 26, 2010 Frans De Cock,
Director DirectorDated: February 29, 2008 /s/: JOHN F. FIEDLER Dated: February 26, 2010 John F. Fiedler,
Director DirectorDated: February 29, 2008 /s/: DAVID L. KOLB Dated: February 26, 2010 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
72