SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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, 2008
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) |
Title of Each Class Name of Each Exchange on Which Registered 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 þ No o (Check one): company)xþ No ¨o¨o No xþxþ No ¨o¨odefinitionthe definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.Large accelerated filer þ Accelerated filer o Large accelerated filer x Accelerated filer ¨Non-accelerated filer ¨ filer oSmaller reporting company o company ¨¨o No xþ(41,799,782(47,891,122 shares) on June 28, 2008July 2, 2010 (the last business day of the Registrant’s most recently completed fiscal second quarter) was $2,709,043,871.$2,116,308,681. The aggregate market value was computed by reference to the closing price of the Common Stock on such date.25, 2009: 68,443,31821, 2011: 68,645,180 shares of Common Stock, $.01 par value.20092011 Annual Meeting of Stockholders-Part III.
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| Item 1. | Business |
consolidated financial statements.
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The worldwidemarket remains uncertain.
In 2007, the U.S. laminate industry shipped 0.9 billion square feet, or $1.1 billion. In 2007, the European laminate industry produced 4.4 billion square feet which accounted for approximately 12% of the European floor covering market. Sales of U.S. laminate flooring are primarily distributed through the residential replacement market. Sales to other end user markets are not significant.
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website technology.
brand which includes the Merit collection of hospitality carpet.
internet websites.
TheDal-Tile brand is distributed through independent distributor channel offers a distinct product line under the American Olean brand. Currently, thedistributors in Mexico. The American Olean brand is primarily distributed through approximately 50 independent distributors and Company-owned sales service centers that
service a variety of residential and commercial customers. The Company is focused on increasing its presencesales growth opportunities through innovative products and programs in both the independent distributor channel, particularly in tile products that are most commonly used in flooring applications.residential and commercial channels.
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In the U.S., the Unilin operations have three regional distribution centers for laminate and wood products. These distribution centers help deliver high-quality customer service and also enhance the Company’s ability to plan and schedule production and manage inventory requirements.
In Europe, the Unilin operations distribute products directly from manufacturing facilities. This integration with manufacturing sites allows for quick responses to customer needs and high inventory turns.
samples to customers.
competitiveness and develop new capabilities.
the industry’s newest technology. In addition, Dal-Tile also imports or sources a portion of its product to supplement its product offerings. Over the past three years, the Dal-Tile segment has invested in capital expenditures, principally instate-of-the-art equipment, to increase manufacturing capacity, improve efficiency and develop new capabilities.
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In
The In addition, 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 60%74% 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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The Company believes it is substantially larger than the next largest competitor and that it is the only significant manufacturer with its own North American distribution system.
Laminate
In addition, the Company believes it has a competitive advantage in the laminate flooring channel as a result of Unilin’s industry leading design and patented technologies, which allows the Company to distinguish its laminate and hardwood flooring products in the areas of finish, quality, installation and assembly.
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 |
The floor covering industry is sensitive to changes in general economic conditions, such as consumer confidence and income, corporate and government spending, interest rate levels, availability of credit and demand for housing. The Annual Report on Form 10-K, the following risk factors should be considered when evaluating an investment in shares of the Company’s Common Stock.The current uncertainty in the credit markets, downturns in the global economy and the Company’s business could affect the overall availability and cost of credit.The current uncertainty in the credit markets could also limit demand for our products, and affect the overall availability and cost of credit. At this time, it is unclear whether and to what extent the actions taken by the U.S. government, and other measures currently being implemented or contemplated, will mitigate the effects of the situation. While we do not anticipate any immediate need to access the credit markets, the impact of the current situation on our ability to obtain financing in the future, and the cost and terms of it, is uncertain. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results. Further, these generally negative economic and business conditions may factor into our periodic credit ratings assessment by either or both Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services. The rating agency’s evaluation is based on a number of factors, which include scale and diversification, brand strength, profitability, leverage, liquidity and interest coverage. On November 7, 2008, Moody’s Investors Service, Inc. announced that it placed the Company’s Baa3 long term rating on review for possible downgrade. On February 25, 2009, Moody’s Investors Service, Inc. announced that it had downgraded its ratings on the Company’s senior unsecured notes to Ba1 from Baa3 and was maintaining a negative rating outlook, following the completion of its rating review. This downgrade will increase the Company’s interest expense by approximately $3.5 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 rating could further increase the cost of its existing credit and adversely affect the cost of and ability to obtain additional credit in the future, and the Company can provide no assurances that additional downgrades will not occur. Additionally, our credit facilities require us to meet certain financial covenants, including certain debt to capitalization ratios. Failure to comply with these covenants could materially and adversely affect our ability to finance our operations or capital needs and to engage in other activities that may be in our best interest.current downturn in the U.S. and global economies beginning in 2006, along with the housingresidential and commercial markets in such economies, has negatively impacted the floor covering industry and the Company’s business. These difficultWhile overall economic conditions and the housing and flooring industries have begun to show signs of recovering, this improvement may continue orbe temporary and economic conditions may 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.the Company’sits sales from the
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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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businesses or strategic investments.
hazardous materials. materials and finished product. The applicable requirements under these laws are subject to amendment, to the imposition of new or additional requirements and to changing interpretations of agencies or courts. The Company could incur material expenditures to comply with new or existing regulations, including fines and penalties.
penalties and increased costs of its operations. For example, enactment of climate control legislation or other regulatory initiatives by the U.S. Congress or various states, or the adoption of regulations by the EPA and analogous state or foreign governmental agencies that restrict emissions of greenhouse gases in areas in which the Company conducts business could have an adverse effect on its operations and demand for its products. The Company’s manufacturing processes use a significant amount of energy, especially natural gas. Increased regulation of energy use to address the possible emission of greenhouse gases and climate change could materially increase the Company’s manufacturing costs.
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| • | changes in foreign country regulatory requirements; | |
| • | differing business practices associated with foreign operations; | |
| • | various import/export restrictions and the availability of required import/export licenses; | |
| • | imposition of foreign tariffs and other trade barriers; | |
| • | political, legal and economic instability; | |
| • | foreign currency exchange rate fluctuations; | |
| • | changes in foreign country tax rules, regulations and other requirements, such as changes in tax rates and statutory and judicial interpretations in tax laws; | |
| • | inflation; | |
| • | differing labor laws and changes in those laws; | |
| • | work stoppages and disruptions in the shipping of imported and exported products; | |
| • | government price controls; | |
| • | extended payment terms and the inability to collect accounts receivable; and | |
| • | tax inefficiencies and currency exchange controls that may adversely impact its ability to repatriate cash fromnon-U.S. subsidiaries. |
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approved by the applicable governmental authorities. Moreover, even if such applications are approved, third parties may seek to oppose or otherwise challenge the registrations. A failure to obtain trademark registrations in the U.S. and in other countries could limit the Company’s ability to protect the Company’s trademarks and impede the Company’s marketing efforts in those jurisdictions.
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| Item 1B. | Unresolved Staff Comments |
None.
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| Item 2. | Properties |
| Mohawk Segment | Dal-Tile Segment | Unilin Segment | ||||||||||
Primary Purpose | Owned | Leased | Owned | Leased | Owned | Leased | ||||||
Manufacturing | 17,716,649 | 199,954 | 4,380,498 | — | 7,444,026 | 876,529 | ||||||
Selling and Distribution | 3,758,636 | 5,191,315 | 152,811 | 8,341,491 | 120,000 | 89,150 | ||||||
Other | 1,148,400 | — | 321,312 | 36,000 | 142,632 | — | ||||||
Total | 22,623,685 | 5,391,269 | 4,854,621 | 8,377,491 | 7,706,658 | 965,679 | ||||||
feet (in millions):
| Mohawk Segment | Dal-Tile Segment | Unilin Segment | ||||||||||||||||||||||
| Primary Purpose | Owned | Leased | Owned | Leased | Owned | Leased | ||||||||||||||||||
| Manufacturing | 15.7 | — | 4.6 | — | 9.2 | — | ||||||||||||||||||
| Selling and Distribution | 3.4 | 5.2 | 0.4 | 8.1 | 0.1 | 0.2 | ||||||||||||||||||
| Other | 1.1 | 0.1 | 0.3 | — | 0.1 | — | ||||||||||||||||||
| Total | 20.2 | 5.3 | 5.3 | 8.1 | 9.4 | 0.2 | ||||||||||||||||||
| Item 3. | Legal Proceedings |
In Shirley Williams et al. v. Mohawk Industries, Inc., four plaintiffs filed a putative class action lawsuit in January 2004 in the United States District Court for the Northern District of Georgia (Rome Division), alleging that they are former and current employees of the Company and that the actions and conduct of the Company, including the employment of persons who are not authorized to work in the United States, have damaged them and the other members of the putative class by suppressing the wages of the Company’s hourly employees in Georgia. The plaintiffs seek a variety of relief, including (a) treble damages; (b) return of any allegedly unlawful profits; and (c) attorney’s fees and costs of litigation. In February 2004, the Company filed a Motion to Dismiss the Complaint, which was denied by the District Court in April 2004. Following appellate review of this decision, the case was returned to the District Court for further proceedings. On December 18, 2007, the plaintiffs filed a motion for class certification. On March 3, 2008, the District Court denied the plaintiffs motion for class certification. The plaintiffs then appealed the decision to the United States Court of Appeals for the 11th Circuit on March 17, 2008, where the matter is currently pending. Discovery has been stayed at the District Court while the appeal is pending. The Company will continue to vigorously defend itself against this action.
In Collins & Aikman Floorcoverings, Inc., et. al. v. Interface, Inc., United States District Court for the Northern District of Georgia (Rome Division), Mohawk Industries, Inc. joined Collins & Aikman Floorcoverings, Inc. (“CAF”) and Shaw Industries Group, Inc. (“Shaw”) in suing Interface, Inc. (“Interface”) for declaratory judgments that United States Patent 6,908,656 (the “Patent”), assigned to Interface and relating to certain styles of carpet tiles, is not infringed and is invalid. Also in June 2005, in Interface, Inc., et el. v. Mohawk Industries, Inc., et al. United States District Court for the Northern District of Georgia (Atlanta Division), Interface sued Mohawk Industries, Inc., Mohawk Carpet Corporation, and Mohawk Commercial, Inc. for allegedly infringing the Patent. Interface brought similar suits against entities affiliated with CAF and Shaw. Interface is seeking monetary damages as well as injunctive relief. The cases have been consolidated in the United States District Court for the Northern District of Georgia (Rome Division). In January 2008, the Company joined CAF and Shaw in filing summary judgment motions seeking to establish as a matter of law before trial that the Patent was invalid, that it was not willfully infringed, and that Interface could not obtain damages for lost profits. On February 25, 2009, the District Court (i) denied the Company, CAF’s and Shaw’s motions that the patent was invalid (ii) granted their motions that should infringement be found that any such infringement would not be willful, and (iii) granted in part and denied in part their motions that Interface could not obtain damages for lost profits. The Company is vigorously pursuing its declaratory judgment claims of invalidity and non-infringement with respect to the Patent and defending against the claims brought by Interface for infringement of the Patent. A trial date is anticipated to be set for later in 2009.
year.
| Item 4. |
No matters were submitted to a vote of security holders of the Company during the fourth quarter ended December 31, 2008.
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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 | ||||
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 | $ | 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 (through February 25, 2009) | $ | 46.05 | 23.39 | ||
| Mohawk | ||||||||
| Common Stock | ||||||||
| High | Low | |||||||
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 | ||||||
2010 | ||||||||
| First quarter | $ | 55.52 | 41.33 | |||||
| Second quarter | 66.93 | 43.58 | ||||||
| Third quarter | 54.94 | 42.61 | ||||||
| Fourth quarter | 61.28 | 51.55 | ||||||
The Company did not repurchase any of its common stock during the fourth quarter of 2008.
| Maximum Number | ||||||||||||||||
| (or Approximate | ||||||||||||||||
| Total Number of | Dollar Value) of | |||||||||||||||
| Shares (or units) | Shares (or Units) | |||||||||||||||
| Total Number | Average | Purchased as Part | That May Yet Be | |||||||||||||
| of Shares (or | Price Paid | of Publicly | Purchased Under | |||||||||||||
| units) | per Share (or | Announced Plans | the Plans or | |||||||||||||
| Period | Purchased(1) | unit) | or Programs | Programs(2) | ||||||||||||
| October 3, 2010 — November 6, 2010 | — | — | — | 3,488,071 | ||||||||||||
| November 7, 2010 — December 4, 2010 | — | — | — | 3,488,071 | ||||||||||||
| December 5, 2010 — December 31, 2010 | 5,362 | $ | 56.94 | — | 3,482,709 | |||||||||||
| Total | 5,362 | $ | 56.94 | — | 3,482,709 | |||||||||||
| (1) | Shares surrendered to the Company to pay the exercise price in connection with the exercise of stock options under the Company’s 2007 Incentive Plan. | |
| (2) | On September 29, 1999, the Company announced that its Board of Directors authorized the repurchase of up to 5 million shares of the Company’s common stock. On December 16, 1999 and May 18, 2000, the Company announced that its Board of Directors authorized the repurchase, for each announcement, of up to 5 million additional shares of the Company’s common stock, respectively, under the existing repurchase plan. |
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| Item 6. | Selected Financial Data |
| At or for the Years Ended December 31, | ||||||||||||||
| 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||
| (In thousands, except per share data) | ||||||||||||||
Statement of operations data: | ||||||||||||||
Net sales | $ | 6,826,348 | 7,586,018 | 7,905,842 | 6,620,099 | 5,880,372 | ||||||||
Cost of sales(a) | 5,088,584 | 5,471,234 | 5,674,531 | 4,851,853 | 4,256,129 | |||||||||
Gross profit | 1,737,764 | 2,114,784 | 2,231,311 | 1,768,246 | 1,624,243 | |||||||||
Selling, general and administrative expenses | 1,318,501 | 1,364,678 | 1,392,251 | 1,095,862 | 985,251 | |||||||||
Impairment of goodwill and other intangibles(b) | 1,543,397 | — | — | — | — | |||||||||
Operating (loss) income | (1,124,134 | ) | 750,106 | 839,060 | 672,384 | 638,992 | ||||||||
Interest expense | 127,050 | 154,469 | 173,697 | 66,791 | 53,392 | |||||||||
Other expense, net | 26,982 | 674 | 8,488 | 3,460 | 4,809 | |||||||||
U.S. customs refund(c ) | — | (9,154 | ) | (19,436 | ) | — | — | |||||||
| 154,032 | 145,989 | 162,749 | 70,251 | 58,201 | ||||||||||
Earnings (loss) before income taxes | (1,278,166 | ) | 604,117 | 676,311 | 602,133 | 580,791 | ||||||||
Income taxes(d) | 180,062 | (102,697 | ) | 220,478 | 214,995 | 209,994 | ||||||||
Net (loss) earnings | $ | (1,458,228 | ) | 706,814 | 455,833 | 387,138 | 370,797 | |||||||
Basic (loss) earnings per share(d) | $ | (21.32 | ) | 10.37 | 6.74 | 5.78 | 5.56 | |||||||
Weighted-average common shares outstanding | 68,401 | 68,172 | 67,674 | 66,932 | 66,682 | |||||||||
Diluted (loss) earnings per share(d) | $ | (21.32 | ) | 10.32 | 6.70 | 5.72 | 5.49 | |||||||
Weighted-average common and dilutive potential common shares outstanding | 68,401 | 68,492 | 68,056 | 67,644 | 67,557 | |||||||||
Balance sheet data: | ||||||||||||||
Working capital (includes short-term debt). | $ | 1,369,332 | 1,238,220 | 783,148 | 1,277,087 | 972,325 | ||||||||
Total assets (b & d) | 6,446,175 | 8,680,050 | 8,212,209 | 8,066,025 | 4,429,993 | |||||||||
Long-term debt (including current portion) | 1,954,786 | 2,281,834 | 2,783,681 | 3,308,370 | 891,341 | |||||||||
Stockholders’ equity | 3,153,804 | 4,707,357 | 3,715,263 | 3,058,238 | 2,668,512 | |||||||||
| As of or for the Years Ended December 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
Statement of operations data: | ||||||||||||||||||||
| Net sales(a) | $ | 5,319,072 | 5,344,024 | 6,826,348 | 7,586,018 | 7,905,842 | ||||||||||||||
| Cost of sales(a) | 3,916,472 | 4,111,794 | 5,088,584 | 5,471,234 | 5,674,531 | |||||||||||||||
| Gross profit | 1,402,600 | 1,232,230 | 1,737,764 | 2,114,784 | 2,231,311 | |||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||
| expenses | 1,088,431 | 1,188,500 | 1,318,501 | 1,364,678 | 1,392,251 | |||||||||||||||
| Impairment of goodwill and other intangibles(b) | — | — | 1,543,397 | — | — | |||||||||||||||
| Operating income (loss) | 314,169 | 43,730 | (1,124,134 | ) | 750,106 | 839,060 | ||||||||||||||
| Interest expense | 133,151 | 127,031 | 127,050 | 154,469 | 173,697 | |||||||||||||||
| Other (income) expense, net | (3,900 | ) | (5,588 | ) | 21,288 | (6,925 | ) | (252 | ) | |||||||||||
| U.S. customs refund(c) | (7,730 | ) | — | — | (9,154 | ) | (19,436 | ) | ||||||||||||
| 121,521 | 121,443 | 148,338 | 138,390 | 154,009 | ||||||||||||||||
| Earnings (loss) before income taxes | 192,648 | (77,713 | ) | (1,272,472 | ) | 611,716 | 685,051 | |||||||||||||
| Income taxes (benefit) expense(d) | 2,713 | (76,694 | ) | 180,062 | (102,697 | ) | 220,478 | |||||||||||||
| Net earnings (loss) | 189,935 | (1,019 | ) | (1,452,534 | ) | 714,413 | 464,573 | |||||||||||||
| Less: Net earnings attributable to the noncontrolling interest | 4,464 | 4,480 | 5,694 | 7,599 | 8,740 | |||||||||||||||
| Net earnings (loss) attributable to Mohawk Industries, Inc | $ | 185,471 | (5,499 | ) | (1,458,228 | ) | 706,814 | 455,833 | ||||||||||||
| Basic earnings (loss) per share | $ | 2.66 | (0.08 | ) | (21.32 | ) | 10.37 | 6.74 | ||||||||||||
| Diluted earnings (loss) per share | $ | 2.65 | (0.08 | ) | (21.32 | ) | 10.32 | 6.70 | ||||||||||||
Balance sheet data: | ||||||||||||||||||||
| Working capital (includes short-term debt) | $ | 1,199,699 | 1,474,978 | 1,369,333 | 1,238,220 | 783,148 | ||||||||||||||
| Total assets (b and d) | 6,098,926 | 6,391,446 | 6,446,175 | 8,680,050 | 8,212,209 | |||||||||||||||
| Long-term debt (including current portion) | 1,653,582 | 1,854,479 | 1,954,786 | 2,281,834 | 2,783,681 | |||||||||||||||
| Total stockholders’ equity | 3,271,556 | 3,200,823 | 3,153,803 | 4,707,357 | 3,715,263 | |||||||||||||||
| (a) | During 2009, the Company recognized an increased number of warranty claims related to the performance of commercial carpet tiles that used a |
| (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 2010, 2007 and 2006, the Company received |
| (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 deferred tax asset of approximately $245,000 and a related income tax benefit of approximately $272,000. |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
In 2009, the primary categories of the U.S. floor covering industry were carpet and rug (55%), resilient and rubber (12%), ceramic tile (11%), hardwood (11%), stone (6%) and laminate (5%).
In 2007, the primary categories of the U.S. floor covering industry, based on sales dollars, were carpet and rug (62%), ceramic tile (13%), hardwood (11%), resilient and rubber (9%), and laminate (5%).
centers.
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The Company believes that industry demand for the products manufactured by the Company will continue to be impacted by the softened demand that began in the fourth quarter of 2006 and worsened considerably during the later parts of 2008. The global economy continues in the most significant downturn in recent history. Overall economic conditions and consumer sentiment have continued to deteriorate, which has intensified the pressure on the demand for housing and, as a result, the Company’s products. As the Company slowed production and raw materials purchases in the fourth quarter to reduce inventory in response to reduced demand, the proportion of higher cost products in inventory increased. Consequently, the Company anticipates that its margins and earnings will be negatively impacted until demand for the Company’s products increases and the portion of higher cost products in inventory declines as higher cost inventory flows through earnings.
Although the Company cannot determine with certainty as to when the deteriorating market conditions will stabilize and begin to improve, the Company believes it is well-positioned in the long-term as the industry improves. The Company continues to monitor expenses and manufacturing capacity based on current industry conditions and will continue to adjust as required.
2011.
| For the Years Ended December 31, | |||||||||||||||||||
| 2008 | 2007 | 2006 | |||||||||||||||||
| (In thousands) | |||||||||||||||||||
Statement of operations data: | |||||||||||||||||||
Net sales | $ | 6,826,348 | 100.0 | % | 7,586,018 | 100.0 | % | 7,905,842 | 100.0 | % | |||||||||
Cost of sales | 5,088,584 | 74.5 | % | 5,471,234 | 72.1 | % | 5,674,531 | 71.8 | % | ||||||||||
Gross profit | 1,737,764 | 25.5 | % | 2,114,784 | 27.9 | % | 2,231,311 | 28.2 | % | ||||||||||
Selling, general and administrative expenses | 1,318,501 | 19.3 | % | 1,364,678 | 18.0 | % | 1,392,251 | 17.6 | % | ||||||||||
Impairment of goodwill and other intangibles | 1,543,397 | 22.6 | % | — | 0.0 | % | — | 0.0 | % | ||||||||||
Operating (loss) income | (1,124,134 | ) | -16.5 | % | 750,106 | 9.9 | % | 839,060 | 10.6 | % | |||||||||
Interest expense | 127,050 | 1.9 | % | 154,469 | 2.0 | % | 173,697 | 2.2 | % | ||||||||||
Other expense, net | 26,982 | 0.4 | % | 674 | 0.0 | % | 8,488 | 0.1 | % | ||||||||||
U.S. customs refund | — | 0.0 | % | (9,154 | ) | -0.1 | % | (19,436 | ) | -0.2 | % | ||||||||
| 154,032 | 2.3 | % | 145,989 | 1.9 | % | 162,749 | 2.1 | % | |||||||||||
Earnings (loss) before income taxes | (1,278,166 | ) | -18.7 | % | 604,117 | 8.0 | % | 676,311 | 8.6 | % | |||||||||
Income taxes | 180,062 | 2.6 | % | (102,697 | ) | -1.4 | % | 220,478 | 2.8 | % | |||||||||
Net (loss) earnings | $ | (1,458,228 | ) | -21.4 | % | 706,814 | 9.3 | % | 455,833 | 5.8 | % | ||||||||
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||
| Statement of operations data: | ||||||||||||||||||||||||
| Net sales | $ | 5,319.1 | 100.0 | % | $ | 5,344.0 | 100.0 | % | $ | 6,826.3 | 100.0 | % | ||||||||||||
| Cost of sales | 3,916.5 | 73.6 | % | 4,111.8 | 76.9 | % | 5,088.5 | 74.5 | % | |||||||||||||||
| Gross profit | 1,402.6 | 26.4 | % | 1,232.2 | 23.1 | % | 1,737.8 | 25.5 | % | |||||||||||||||
| Selling, general and administrative expenses | 1,088.4 | 20.5 | % | 1,188.5 | 22.2 | % | 1,318.5 | 19.3 | % | |||||||||||||||
| Impairment of goodwill and other intangibles | — | — | — | — | 1,543.4 | 22.6 | % | |||||||||||||||||
| Operating income (loss) | 314.2 | 5.9 | % | 43.7 | 0.8 | % | (1,124.1 | ) | (16.5 | )% | ||||||||||||||
| Interest expense | 133.2 | 2.5 | % | 127.0 | 2.4 | % | 127.1 | 1.9 | % | |||||||||||||||
| Other (income) expense, net | (3.9 | ) | (0.1 | )% | (5.6 | ) | (0.1 | )% | 21.3 | 0.3 | % | |||||||||||||
| U.S. customs refund | (7.7 | ) | (0.1 | )% | — | — | — | — | ||||||||||||||||
| 121.6 | 2.3 | % | 121.4 | 2.3 | % | 148.4 | 2.2 | % | ||||||||||||||||
| Earnings (loss) before income taxes | 192.6 | 3.6 | % | (77.7 | ) | (1.5 | )% | (1,272.5 | ) | (18.6 | )% | |||||||||||||
| Income taxes expense (benefit) | 2.7 | 0.1 | % | (76.7 | ) | (1.4 | )% | 180.0 | 2.6 | % | ||||||||||||||
| Net earnings (loss) | 189.9 | 3.6 | % | (1.0 | ) | (0.0 | )% | (1,452.5 | ) | (21.3 | )% | |||||||||||||
| Less: Net earnings attributable to the noncontrolling interest | 4.4 | 0.1 | % | 4.5 | 0.1 | % | 5.7 | 0.1 | % | |||||||||||||||
| Net earnings (loss) attributable to Mohawk Industries, Inc | $ | 185.5 | 3.5 | % | $ | (5.5 | ) | (0.1 | )% | $ | (1,458.2 | ) | (21.4 | )% | ||||||||||
21
| 2010 | 2009 | Change | ||||||||||||||
| First quarter | $ | 1,347.2 | 1,208.3 | 11.5 | % | |||||||||||
| Second quarter | 1,400.1 | 1,406.0 | (0.4 | ) | ||||||||||||
| Third quarter | 1,309.6 | 1,382.6 | (5.3 | ) | ||||||||||||
| Fourth quarter | 1,262.2 | 1,347.1 | (6.3 | ) | ||||||||||||
| Total year | $ | 5,319.1 | 5,344.0 | (0.5 | )% | |||||||||||
22
23
mix as customers trade down to lower priced products and a decrease of approximately $81 million due to a net increase in warranty requirements described above in the overview.
Unilin Segment—Net sales decreased $22.4 million, or 1.5%,mix as customers trade down to $1,465.2 million in 2008, compared to $1,487.6 million in 2007. The decrease in net sales was driven bylower priced products and a decline in sales volume of approximately $188$48 million due to the continued decline in the U.S. residential market and slowing European demand, partially offset by a benefit of approximately $63 million due to the Wood Acquisition, a benefit of approximately $79 million due to favorableunfavorable foreign exchange rates and a benefit of approximately $23 million due to the net effect of price increases and product mix.
rates.
| 2008 | 2007 | Change | ||||||
First quarter | $ | 1,738,097 | 1,863,863 | -6.7 | % | |||
Second quarter | 1,840,045 | 1,977,210 | -6.9 | |||||
Third quarter | 1,763,034 | 1,937,677 | -9.0 | |||||
Fourth quarter | 1,485,172 | 1,807,268 | -17.8 | |||||
Total year | $ | 6,826,348 | 7,586,018 | -10.0 | % | |||
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 | )% | |||||||
The decrease in gross profit percentage is primarily attributable to unfavorable price and product mix, increased warranty requirements and restructuring costs, partially offset by lower raw material and manufacturing costs
Impairmentrates and approximately $4 million for restructuring charges. The increase in selling general and administrative expenses as a percentage of goodwill and intangibles
During 2008, the Company recorded a $1,543.4 million impairment charge to reduce the carrying amount of the Company’s goodwill and intangible assets to their estimated fair value based upon the results of two interim impairment tests conducted in the third and fourth quarters of 2008. The Company performed interim impairment tests because of a prolonged decline in the Company’s market capitalization during the third and fourth quarters of 2008, which the Company believesnet sales is primarily a result of the weakness in the U.S. residential housing marketa higher mix of fixed costs on lower net sales, and the slowing European economy. In both the third and fourth quartersrestructuring costs.
24
Operating (loss) income
Operating loss for 2008 was $1,124.1 million reflecting a decrease of $1,874.2$1,167.9 million compared to an operating incomeloss of $750.1$1,124.1 million (9.9% of net sales) in 2007.2008. The decreasechange was primarily driven by the recognition of an impairment of goodwill and other intangibles of $1,543.4 million in 2008. In addition, operating income in 2009 was impacted by a decline inof approximately $315 million due to lower sales volumes, a decline of approximately $285$185 million due to unfavorable price and rising costs for raw materials and energyproduct mix, a decrease of approximately $116$89 million due to a net increase in warranty requirements described above in the overview and restructuring charges of cost savings initiatives,approximately $32 million, partially offset by a benefitlower manufacturing and selling, general and administrative costs of approximately $130 million due to the net effect of price increases and product mix.
$244 million.
Dal-Tile Segment—Operating loss was $323.4 million in 2008 reflecting a decrease of $582.1 million, compared to operating income of $258.7 million (13.4%(5.9% of segment net sales) in 2007.2009 reflecting an increase of $407.5 million compared to operating loss of $323.4 million for 2008. The decreasechange was primarily due todriven by the recognition of an impairment of goodwill and other intangibles of $531.9 million rising costs for raw materials and energyin 2008. In addition, operating income in 2009 was impacted by a decline of approximately $31$108 million net of cost savings initiatives, anddue to lower sales volumes, a decline in sales volumes of approximately $56$35 million due to unfavorable price and product mix and restructuring charges of approximately $12 million, partially offset by a benefitlower manufacturing and selling, general and administrative costs of approximately $41$23 million.
Unilin Segment—Operating loss was $564.9 million in 2008, reflecting a decrease of $837.2 million compared to operating income of $272.3 million (18.3%(9.4% of segment net sales) in 2007.2009 reflecting an increase of $670.9 million compared to operating loss of $564.9 million for 2008. The decreaseincrease was primarily due todriven by the recognition of an impairment of goodwill and other intangibles of $734.7 million in 2008. In addition, operating income in 2009 was impacted by a decline in sales volumes of approximately $88 million and rising costs for raw materials and energy of approximately $19 million, net of cost savings initiatives, partially offset by a benefit of approximately $7$76 million due to the net effect of price increases and product mix.
mix, a decline in sales volumes of approximately $74 million, restructuring charges of approximately $13 million and the impact of unfavorable foreign exchange rates of approximately $8 million, partially offset by lower raw material, manufacturing and selling, general and administrative costs of approximately $107 million.
levels in the current year compared to 2008.
The 2008 provision for income tax was $180.1 million, as compared to
(loss).
25
Year Ended December 31, 2007, as Compared with Year Ended December 31, 2006
Net sales for the year ended December 31, 2007, were $7,586.0 million, reflecting a decrease of $319.8 million, or 4.0%, from the $7,905.8 million reported for the year ended December 31, 2006. The decrease primarily occurred in the Company’s U.S. residential new construction and replacement channels, whichamount of $253 million during the Company believes was caused by the slowing U.S. housing industry offset by stronger sales within the European product categories and the impact of the Wood Acquisition.
Mohawk Segment—Net sales decreased $536.4 million, or 11.3%, to $4,205.7 million in 2007 compared to $4,742.1 million in 2006. The decrease was due to lower demand in its residential new construction and replacement channels, which the Company believes resulted primarily from the slowing U.S. housing industry.
Dal-Tile Segment—Net sales decreased $4.1 million, or 0.2%, to $1,937.7 million in 2007 compared to $1,941.8 million reported in 2006. The decrease was primarily attributable to lower sales within its residential channel, which the Company believes was due to the slowing U.S. housing industry.
Unilin Segment—Net sales increased $250.7 million, or 20.3%, to $1,487.6 million in 2007 compared to $1,236.9 million in 2006. The increase in sales was driven by an increase in selling prices, higher demand in Europe, favorable Euro exchange rates, the Wood Acquisition and an increase in patent revenues.
Quarterly net sales and the percentage changes in net sales by quarter for 2007 versus 2006 were as follows (dollars in thousands)
| 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 | % | |||
Gross Profit
Gross profit was $2,114.8 million (27.9% of net sales) for 2007 and represented a decrease of $116.5 million, or 5.2%, compared to gross profit of $2,231.3 million (28.2% of net sales) for 2006. Gross profit as a percentage of net sales for 2007 was unfavorably impacted by lower sales volume in the U.S., higher raw material costs and plant shutdowns in the U.S. offset by price increases and higher demand in Europe.
Selling, general and administrative expenses
Selling, general and administrative expenses for 2007 were $1,364.7 million (18.0% of net sales), reflecting a decrease of $27.6 million, or 2.0%, compared to $1,392.3 million (17.6% of net sales) for 2006. The increase in the selling, general and administrative expenses as a percentage of net sales was primarily attributable to lower sales in proportion to selling, general and administrative expenses.
Operating (loss) income
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 impacted by lower sales volume, which the Company believes was primarily attributable to the slowing U.S. housing industry, and plant shutdowns partially offset by higher sales in Europe.
Mohawk Segment—Operating income was $254.9 million (6.1% of segment net sales) in 2007 reflecting a decrease of $132.5 million 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 construction 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.
Dal-Tile Segment—Operating income was $258.7 million (13.4% of segment net sales) in 2007 reflecting a decrease of $12.2 million 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.
Unilin Segment—Operating income was $272.3 million (18.3% of segment net sales) in 2007 reflecting an increase of $58.2 million compared to $214.1 million (17.3% of segment net sales) in 2006. Operating income as a percentage of the Unilin segment was favorably impacted by an increase in selling prices and higher demand.
Interest Expense
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.
Income tax (benefit) expense
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. The Company moved the intellectual property and treasury operations of an indirectly owned European entity to a new office in another jurisdiction in Europe. The Company also indirectly owned a holding company in the new jurisdiction that provided certain treasury functions to Unilin and the move allowed for the consolidation of the historical intellectual property and treasury operations to be combined with those of the holding company’s treasury operations in a single jurisdiction in order to integrate and streamline the operations, to facilitate international acquisitions and to improve tax and cost efficiencies. This restructuring resulted in a step up in the subsidiary’s taxable basis of its intellectual property. The step up relates primarily to intangible assets which will be amortized over 10 years for tax purposes. During the fourth quarter of 2007, the Company evaluated the evidence for recognition of the deferred tax asset created through the restructuring and determined that, based on the available evidence, the deferred tax asset would more likely than not be realized. The deferred tax asset recognized at December 31, 2007 was approximately $245 million and the related income tax benefit recognized in the financial statements was approximately $272 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.
ended September 27, 2008.
sales demand.
2008.
26
Atcomplete any necessary financing transactions prior to the relevant date under the ABL Facility or the April 15, 2012 maturity date.
On November 8, 2005, one Immediately following the repayment 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”). This agreement bears interest5.75% senior notes due January 15, 2011 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 any of the Company’s other subsidiaries that become borrowers under the Euro revolving credit facility. At December 31, 2008, the Company had no borrowings outstanding under this facility andmaturity, a total of $183$289.6 million (USD equivalent) was available to its European operations under the Company’s €130 million Euro revolving credit facility.
Borrowings outstanding under the senior unsecured credit facilities bears interest, at the Company’s option, 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’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, 2008. 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.
The Company has an on-balance sheet trade accounts receivable securitization agreement (“Securitization Facility”). At December 31, 2008, the Company had $47 million outstanding secured by trade receivables. The Securitization Facility allows the Company to borrow up to $250.0 million based on available accounts receivable. On July 28, 2008, the Company amended and restated the Securitization Facility, reduced total availability from $350.0 million to $250.0 million due to its adequate liquidity position and extended the term until July 27, 2009.
ABL Facility.
27
the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amount involved may be material.
28
On October 31, 2005, the Company entered into a Discounted Stock Purchase Agreement (the “DSPA”) with certain members of the Unilin management team (the “Unilin Management”). Under the terms of the DSPA, the Company will be obligated to make cash payments to the Unilin Management in the event that certain performance goals are satisfied. In each of the years in the five-year period ended December 31, 2010, the remaining members of Unilin Management can earn amounts, in the aggregate, equal to the average value of 30,671 shares of the Company’s common stock over the 20 trading day period ending on December 31 of the prior year. Any failure in a given year to reach the performance goals may be rectified, and consequently the amounts payable with respect to achieving such criteria may be made, in any of the other years. The amount of the liability is measured each period and recognized as compensation expense in the statement of operations. The Company did not recognize any expense under the DSPA for the fiscal year ended December 31, 2008.
The outstanding checks in excess of cash represent trade payables checks that have not yet cleared the bank. When the checks clear the bank, they are funded by the revolving credit facility. This policy does not impact any liquid assets on the consolidated balance sheets.
| Total | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | |||||||||
Recorded Contractual Obligations: | |||||||||||||||
Long-term debt, including current maturities and capital leases | $ | 1,954,786 | 94,785 | 56,796 | 500,881 | 400,451 | 515 | 901,358 | |||||||
Unrecorded Contractual Obligations: | |||||||||||||||
Interest payments on long-term debt and capital leases(1) | 488,261 | 114,376 | 112,740 | 85,145 | 63,430 | 55,148 | 57,422 | ||||||||
Operating leases | 433,928 | 106,932 | 86,277 | 68,017 | 52,516 | 39,814 | 80,372 | ||||||||
Purchase commitments(2) | 357,447 | 225,296 | 125,113 | 7,038 | — | — | — | ||||||||
Expected pension contributions(3) | 1,884 | 1,884 | — | — | — | — | — | ||||||||
Guarantees | 85,640 | 85,640 | — | — | — | — | — | ||||||||
| 1,367,160 | 534,128 | 324,130 | 160,200 | 115,946 | 94,962 | 137,794 | |||||||||
Total | $ | 3,321,946 | 628,913 | 380,926 | 661,081 | 516,397 | 95,477 | 1,039,152 | |||||||
| Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
| Recorded Contractual Obligations: | ||||||||||||||||||||||||||||
| Long-term debt, including current maturities and capital leases | $ | 1,653.6 | 350.6 | 401.5 | 0.4 | 0.4 | 0.3 | 900.4 | ||||||||||||||||||||
| Unrecorded Contractual Obligations: | ||||||||||||||||||||||||||||
| Interest payments on long-term debt and capital leases(1) | 350.3 | 91.7 | 70.3 | 61.9 | 61.9 | 61.9 | 2.6 | |||||||||||||||||||||
| Operating leases | 356.8 | 91.7 | 75.6 | 59.5 | 49.7 | 38.5 | 41.8 | |||||||||||||||||||||
| Purchase commitments(2) | 579.8 | 212.6 | 125.0 | 121.1 | 121.1 | — | — | |||||||||||||||||||||
| Expected pension contributions(3) | 1.9 | 1.9 | — | — | — | — | — | |||||||||||||||||||||
| Uncertain tax positions(4) | 3.2 | 3.2 | — | — | — | — | — | |||||||||||||||||||||
| Guarantees | 0.8 | 0.8 | — | — | — | — | — | |||||||||||||||||||||
| 1,292.8 | 401.9 | 270.9 | 242.5 | 232.7 | 100.4 | 44.4 | ||||||||||||||||||||||
| Total | $ | 2,946.4 | 752.5 | 672.4 | 242.9 | 233.1 | 100.7 | 944.8 | ||||||||||||||||||||
| (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 | |
| (4) | Excludes $62.3 million of non-current accrued income tax liabilities and related interest and penalties for uncertain tax positions. These liabilities have not been presented in the table above due to uncertainty as to amounts and timing regarding future payments. |
As of December 31, 2008, the Company has accrued income tax liabilities for uncertain tax positions of $91.9 million, of which $51.9 million is current. These liabilities have not been presented in the table above due to uncertainty as to amounts and timing regarding future payments.
29
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.
| • | Accounts receivable and revenue recognition. Revenues are recognized when there is persuasive evidence of an arrangement, delivery has occurred, the price has been fixed or is determinable, and collectability can be reasonably assured. The Company provides allowances for expected cash discounts, sales allowances, returns, claims and doubtful accounts based upon historical bad debt and claims experience and periodic evaluation of specific customer accounts and the aging of accounts receivable. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. A 10% change in the Company’s allowance for discounts, returns, claims and doubtful accounts would have affected net earnings by approximately $3 million for the year ended December 31, 2010. | |
| • | 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. A 10% change in the Company’s reserve for excess or obsolete inventory would have affected net earnings by approximately $4 million for the year ended December 31, 2010. | |
| • | 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 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 decline in estimated after tax cash flows of more than 20% or a more than 15% increase in WACC or a decline in market capitalization could result in an additional indication of impairment. |
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 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 market conditions that could impact the fair value of the reporting unit. However, estimates are inherently uncertain and represent only management’s reasonable expectations regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Should a significant or prolonged deterioration in economic conditions occur, such as continued declines in spending for new construction, remodeling and replacement activities; the inability to pass increases in the costs of raw materials and fuel on to customers; or a decline in comparable company market multiples, then key judgments and assumptions could be impacted. Generally, a moderate decline in estimated operating income or a small increase in WACC or a decline in market capitalization could result in an additional indication of impairment.
The impairment test for intangible assets not subject to amortization involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Significant judgments inherent in this analysis include assumptions about appropriate sales growth rates, royalty rates, WACC and the amount of expected future cash flows. These judgments and assumptions are subject to the variability discussed above.
30
judgments inherent in this analysis include assumptions about appropriate sales growth rates, royalty rates, WACC and the amount of expected future cash flows. The judgments and assumptions used in the estimate of fair value are generally consistent with past performance and are also consistent with the projections and assumptions that are used in current operating plans. Such assumptions are subject to change as a result of changing economic and competitive conditions. The determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of the trademarks. Estimated cash flows are sensitive to changes in the economy among other things.
asset group. Assets held for sale are reported at the lower of the carrying amount or fair value less estimated costs of disposal and are no longer depreciated.
The Company’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 does not expect to realize all or a portion of its deferred tax assets in the future, a valuation allowance is provided. The Company would recognize such amounts through a charge to income in the period in which that determination is made or when tax law changes are enacted.
• Income taxes. The Company’s effective tax rate is based on its income, statutory tax rates and tax planning opportunities available in the jurisdictions in which it operates. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining the Company’s tax expense and in evaluating the Company’s tax positions. Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in a future period. The Company evaluates the recoverability of these future tax benefits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely on estimates, including business forecasts and other projections of financial results over an extended period of time. In the event that the Company is not able to realize all or a portion of its deferred tax assets in the future, a valuation allowance is provided. The Company would recognize such amounts through a charge to income in the period in which that determination is made or when tax law changes are enacted. The Company had valuation allowances of $325.1 million in 2010, $365.9 million in 2009 and $343.6 million in 2008. For further information regarding the Company’s valuation allowances, see Note 12 to the consolidated financial statements. atas of the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information, as required by the provisions of the Financial Accounting Standards Board (“FASB”) FASB Accounting Standards Codification Topic 740 (“ASC740-10”), a replacement of FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes—Taxes — an Interpretation of FASB Statement No. 109.”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, 2010, the Company relating to ongoing environmental and legal proceedings, as disclosed inhas $49.9 million accrued for uncertain tax positions. For further information regarding the Company’s uncertain tax positions, see Note 12 to the 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.
31
| • | Environmental and legal accruals. Environmental and legal accruals are estimates based on judgments made by the Company relating to ongoing environmental and legal proceedings, as disclosed in the Company’s consolidated financial statements. In determining whether a liability is probable and reasonably estimable, the Company consults with its internal experts. The Company believes that the amounts recorded in the accompanying financial statements are based on the best estimates and judgments available to it. |
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”). The Company adopted all provisions of SFAS No. 158 as of December 31, 2006, except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008. The adoption of the measurement provisions of SFAS No. 158ASC 810 on January 1, 20082010 did not have any impact on the Company’s consolidated financial statements.
In February 2007, the 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. The Company adopted SFAS No. 159 effective January 1, 2008, but did not elect to adjust any of the eligible assets or liabilities to fair value. Therefore, the adoption did not have any impact on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007),“Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. Once adopted, SFAS 141R will impact the recognition and measurement of future business combinations and certain income tax benefits recognized from prior business combinations.
In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for the first quarter of 2009. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411,“The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In October 2008, the FASB issued Staff Position No. 157-3“Determining Fair Value of a Financial Asset in a Market That Is Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS No. 157 as it relates to the valuation of financial assets in a market that is not active for those financial assets. This FSP is effective immediately and includes those periods for which financial statements have not been issued. The Company currently does not have any financial assets that are valued using inactive markets, and as such is not impacted by the issuance of FSP 157-3.
32
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Natural Gas Risk Management
The Company uses a combinationdid not have any derivative contracts outstanding as of natural gas futures contracts and long-term supply agreements to manage unanticipated changes in natural gas prices. The contracts are based on forecasted usage of natural gas measured in Million British Thermal Units (“MMBTU”).
The Company has designated the natural gas futures contracts as cash flow hedges. The outstanding contracts are valued at market with the offset applied to other comprehensive income, net of applicable income taxes and any hedge ineffectiveness.
Any gain or loss is reclassified from other comprehensive income and recognized in cost of goods sold in the same period or periods during which the hedged transaction affects earnings. At December 31, 2008, the Company had natural gas contracts that mature from January 2009 to December 2009 with an aggregate notional amount of approximately 2,650 thousand MMBTU’s. The fair value of these contracts was a liability of $5.9 million at December 31, 2008. At December 31, 2007, the Company had natural gas contracts that mature from January 2008 to March 2008 with an aggregate notional amount of approximately 310 thousand MMBTU’s. The fair value of these contracts was a liability of $0.3 million at December 31, 2007. The offset to these liabilities is recorded in other comprehensive income, net of applicable income taxes. The ineffective portion of the derivative is recognized in the cost of goods sold within the consolidated statements of operations2010 and was not significant for the periods reported. The amount that the Company anticipates will be reclassified out of accumulated other comprehensive income (loss) in the next twelve months is a loss of approximately $3.8 million, net of taxes.2009.
33
The Company’s natural gas long-term supply agreements are accounted for under the normal purchase provision within SFAS No. 133 and its amendments. At December 31, 2008, the Company had normal purchase commitments of approximately 2,026 thousand MMBTU’s for periods maturing from January 2009 through December 2009. The contracted value of these commitments was approximately $17.2 million at December 31, 2008. At December 31, 2007, the Company had normal purchase commitments of approximately 303 thousand MMBTU’s for periods maturing from January 2008 through March 2008. The contracted value of these commitments was approximately $2.8 million at December 31, 2007.
Foreign Currency Rate Management
The Company enters into foreign exchange forward contracts to hedge foreign denominated costs associated with its operations in Mexico. The objective of these transactions is to reduce volatility of exchange rates where these operations are located by fixing a portion of their costs in U.S. currency. Accordingly, these contracts have been designated as cash flow hedges. Gains and losses are reclassified from other comprehensive income and recognized in cost of goods sold in the same period or periods during which the hedged transaction affects earnings. The Company had forward contracts to purchase approximately 269.1 million Mexican pesos at December 31, 2008. The aggregate U.S. dollar value of these contracts at December 31, 2008 was approximately $23.9 million and the fair value of these contracts was a liability of approximately $5.2 million. The Company had forward contracts to purchase approximately 244.0 million Mexican pesos at December 31, 2007. The aggregate U.S. dollar value of these contracts at December 31, 2007 was approximately $21.8 million and the fair value of these contracts was an asset of approximately $0.2 million.
As discussed in Note 13 to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, effective January 1, 2007.
35
|
|
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 the related combined consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for the year 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 the results of their operations and their cash flows for the year 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
|
Report of Independent Registered Public Accounting Firm
36
|
|
Consolidated Balance Sheets
December 31, 20082010 and 20072009
(In thousands, except per share data)
| 2008 | 2007 | ||||
| ASSETS | |||||
Current assets: | |||||
Cash and cash equivalents | $ | 93,519 | 89,604 | ||
Receivables, net | 696,284 | 821,113 | |||
Inventories | 1,168,272 | 1,276,568 | |||
Prepaid expenses | 125,603 | 123,395 | |||
Deferred income taxes and other assets | 162,571 | 139,040 | |||
Total current assets | 2,246,249 | 2,449,720 | |||
Property, plant and equipment, net | 1,925,742 | 1,975,721 | |||
Goodwill | 1,399,434 | 2,797,339 | |||
Tradenames | 472,399 | 707,086 | |||
Other intangible assets, net | 375,451 | 464,783 | |||
Deferred income taxes and other assets | 26,900 | 285,401 | |||
| $ | 6,446,175 | 8,680,050 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
Current liabilities: | |||||
Current portion of long-term debt | $ | 94,785 | 260,439 | ||
Accounts payable and accrued expenses | 782,131 | 951,061 | |||
Total current liabilities | 876,916 | 1,211,500 | |||
Deferred income taxes | 419,985 | 614,619 | |||
Long-term debt, less current portion | 1,860,001 | 2,021,395 | |||
Other long-term liabilities | 135,470 | 125,179 | |||
Total liabilities | 3,292,372 | 3,972,693 | |||
Stockholders’ equity: | |||||
Preferred stock, $.01 par value; 60 shares authorized; no shares issued | — | — | |||
Common stock, $.01 par value; 150,000 shares authorized; 79,461 and 79,404 shares issued in 2008 and 2007, respectively | 795 | 794 | |||
Additional paid-in capital | 1,217,903 | 1,203,957 | |||
Retained earnings | 2,004,115 | 3,462,343 | |||
Accumulated other comprehensive income | 254,535 | 363,981 | |||
| 3,477,348 | 5,031,075 | ||||
Less treasury stock at cost; 11,040 and 11,046 shares in 2008 and 2007, respectively | 323,545 | 323,718 | |||
Total stockholders’ equity | 3,153,803 | 4,707,357 | |||
| $ | 6,446,175 | 8,680,050 | |||
| 2010 | 2009 | |||||||
| (In thousands, except per share data) | ||||||||
ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 354,217 | 531,458 | |||||
| Restricted cash | 27,954 | — | ||||||
| Receivables, net | 614,473 | 673,931 | ||||||
| Inventories | 1,007,503 | 892,981 | ||||||
| Prepaid expenses | 91,731 | 108,947 | ||||||
| Deferred income taxes | 133,304 | 130,990 | ||||||
| Other current assets | 19,431 | 20,693 | ||||||
| Total current assets | 2,248,613 | 2,359,000 | ||||||
| Property, plant and equipment, net | 1,687,124 | 1,791,412 | ||||||
| Goodwill | 1,369,394 | 1,411,128 | ||||||
| Tradenames | 456,890 | 477,607 | ||||||
| Other intangible assets, net | 220,237 | 307,735 | ||||||
| Deferred income taxes and other non-current assets | 116,668 | 44,564 | ||||||
| $ | 6,098,926 | 6,391,446 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 350,588 | 52,907 | |||||
| Accounts payable and accrued expenses | 698,326 | 831,115 | ||||||
| Total current liabilities | 1,048,914 | 884,022 | ||||||
| Deferred income taxes | 346,503 | 370,903 | ||||||
| Long-term debt, less current portion | 1,302,994 | 1,801,572 | ||||||
| Other long-term liabilities | 93,518 | 100,667 | ||||||
| Total liabilities | 2,791,929 | 3,157,164 | ||||||
| Commitments and contingencies (Notes 7 and 13) | ||||||||
| Redeemable noncontrolling interest | 35,441 | 33,459 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $.01 par value; 60 shares authorized; no shares issued | — | — | ||||||
| Common stock, $.01 par value; 150,000 shares authorized; 79,666 and 79,518 shares issued in 2010 and 2009, respectively | 797 | 795 | ||||||
| Additional paid-in capital | 1,235,445 | 1,227,856 | ||||||
| Retained earnings | 2,180,843 | 1,998,616 | ||||||
| Accumulated other comprehensive income, net | 178,097 | 296,917 | ||||||
| 3,595,182 | 3,524,184 | |||||||
| Less treasury stock at cost; 11,037 and 11,034 shares in 2010 and 2009, respectively | 323,626 | 323,361 | ||||||
| Total stockholders’ equity | 3,271,556 | 3,200,823 | ||||||
| $ | 6,098,926 | 6,391,446 | ||||||
37
(In thousands, except per share data)
| 2008 | 2007 | 2006 | ||||||||
Net sales | $ | 6,826,348 | 7,586,018 | 7,905,842 | ||||||
Cost of sales | 5,088,584 | 5,471,234 | 5,674,531 | |||||||
Gross profit | 1,737,764 | 2,114,784 | 2,231,311 | |||||||
Selling, general and administrative expenses | 1,318,501 | 1,364,678 | 1,392,251 | |||||||
Impairment of goodwill and other intangibles | 1,543,397 | — | — | |||||||
Operating (loss) income | (1,124,134 | ) | 750,106 | 839,060 | ||||||
Other expense (income): | ||||||||||
Interest expense | 127,050 | 154,469 | 173,697 | |||||||
Other expense | 36,833 | 22,997 | 17,515 | |||||||
Other income | (9,851 | ) | (22,323 | ) | (9,027 | ) | ||||
U.S. customs refund | — | (9,154 | ) | (19,436 | ) | |||||
| 154,032 | 145,989 | 162,749 | ||||||||
Earnings (loss) before income taxes | (1,278,166 | ) | 604,117 | 676,311 | ||||||
Income taxes | 180,062 | (102,697 | ) | 220,478 | ||||||
Net (loss) earnings | $ | (1,458,228 | ) | 706,814 | 455,833 | |||||
Basic (loss) earnings per share | $ | (21.32 | ) | 10.37 | 6.74 | |||||
Weighted-average common shares outstanding | 68,401 | 68,172 | 67,674 | |||||||
Diluted (loss) earnings per share | $ | (21.32 | ) | 10.32 | 6.70 | |||||
Weighted-average common and dilutive potential common shares outstanding | 68,401 | 68,492 | 68,056 | |||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands, except per share data) | ||||||||||||
| Net sales | $ | 5,319,072 | 5,344,024 | 6,826,348 | ||||||||
| Cost of sales | 3,916,472 | 4,111,794 | 5,088,584 | |||||||||
| Gross profit | 1,402,600 | 1,232,230 | 1,737,764 | |||||||||
| Selling, general and administrative expenses | 1,088,431 | 1,188,500 | 1,318,501 | |||||||||
| Impairment of goodwill and other intangibles | — | — | 1,543,397 | |||||||||
| Operating income (loss) | 314,169 | 43,730 | (1,124,134 | ) | ||||||||
| Other expense (income): | ||||||||||||
| Interest expense | 133,151 | 127,031 | 127,050 | |||||||||
| Other expense | 8,144 | 16,935 | 31,139 | |||||||||
| Other income | (12,044 | ) | (22,523 | ) | (9,851 | ) | ||||||
| U.S. customs refund | (7,730 | ) | — | — | ||||||||
| 121,521 | 121,443 | 148,338 | ||||||||||
| Earnings (loss) before income taxes | 192,648 | (77,713 | ) | (1,272,472 | ) | |||||||
| Income tax expense (benefit) | 2,713 | (76,694 | ) | 180,062 | ||||||||
| Net earnings (loss) | 189,935 | (1,019 | ) | (1,452,534 | ) | |||||||
| Less: Net earnings attributable to noncontrolling interest | 4,464 | 4,480 | 5,694 | |||||||||
| Net earnings (loss) attributable to Mohawk Industries, Inc. | $ | 185,471 | (5,499 | ) | (1,458,228 | ) | ||||||
| Basic earnings (loss) per share attributable to Mohawk Industries, Inc. | $ | 2.66 | (0.08 | ) | (21.32 | ) | ||||||
| Diluted earnings (loss) per share attributable to Mohawk Industries, Inc. | $ | 2.65 | (0.08 | ) | (21.32 | ) | ||||||
38
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
(Loss)
Years Ended December 31, 2008, 20072010, 2009 and 20062008
(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, 2005 | 78,478 | 785 | 1,123,991 | 2,299,696 | (47,433 | ) | (10,981 | ) | (318,801 | ) | 3,058,238 | ||||||||||||||||
Shares issued under employee and director stock plans | 338 | 3 | 12,926 | — | — | 4 | 135 | 13,064 | |||||||||||||||||||
Stock based compensation expense | — | — | 11,925 | — | — | — | — | 11,925 | |||||||||||||||||||
Purchase of treasury stock | — | — | — | — | — | (74 | ) | (5,180 | ) | (5,180 | ) | ||||||||||||||||
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 | |||||||||||||||||
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 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 | |||||||||||||||||
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 exercise of stock options | — | — | 334 | — | — | — | — | 334 | |||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Currency translation adjustment | — | — | — | — | (101,935 | ) | — | — | (101,935 | ) | |||||||||||||||||
Unrealized gain 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 | ) | — | — | — | (1,458,228 | ) | |||||||||||||||||
Total comprehensive income | (1,567,674 | ) | |||||||||||||||||||||||||
Balances at December 31, 2008 | 79,461 | $ | 795 | $ | 1,217,903 | $ | 2,004,115 | $ | 254,535 | (11,040 | ) | $ | (323,545 | ) | $ | 3,153,803 | |||||||||||
| Stockholders’ equity | ||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Redeemable | Additional | other | Total | |||||||||||||||||||||||||||||||||
| noncontrolling | Common stock | paid-in | Retained | comprehensive | Treasury stock | stockholders’ | ||||||||||||||||||||||||||||||
| interest | Shares | Amount | capital | earnings | income (loss) | Shares | Amount | equity | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2007 | $ | 31,488 | 79,404 | $ | 794 | $ | 1,203,957 | $ | 3,462,343 | $ | 363,981 | (11,046 | ) | $ | (323,718 | ) | $ | 4,707,357 | ||||||||||||||||||
| 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 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| 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 earnings (loss) | 5,694 | — | — | — | (1,458,228 | ) | — | — | — | (1,458,228 | ) | |||||||||||||||||||||||||
| Total comprehensive loss | (1,567,674 | ) | ||||||||||||||||||||||||||||||||||
| Balances at December 31, 2008 | 31,130 | 79,461 | 795 | 1,217,903 | 2,004,115 | 254,535 | (11,040 | ) | (323,545 | ) | 3,153,803 | |||||||||||||||||||||||||
| 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 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| 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 earnings (loss) | 4,480 | — | — | — | (5,499 | ) | — | — | — | (5,499 | ) | |||||||||||||||||||||||||
| Total comprehensive income | 36,883 | |||||||||||||||||||||||||||||||||||
| Balances at December 31, 2009 | 33,459 | 79,518 | 795 | 1,227,856 | 1,998,616 | 296,917 | (11,034 | ) | (323,361 | ) | 3,200,823 | |||||||||||||||||||||||||
| Shares issued under employee and director stock plans | — | 148 | 2 | 1,685 | — | — | (3 | ) | (265 | ) | 1,422 | |||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | 6,888 | — | — | — | — | 6,888 | |||||||||||||||||||||||||||
| Tax deficit from stock-based compensation | — | — | — | (984 | ) | — | — | — | — | (984 | ) | |||||||||||||||||||||||||
| Distribution to noncontrolling interest, net of adjustments | (5,726 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | — | (119,200 | ) | — | — | (119,200 | ) | |||||||||||||||||||||||||
| Pension prior service cost and actuarial gain or loss | — | — | — | — | — | 380 | — | — | 380 | |||||||||||||||||||||||||||
| Net earnings | 4,464 | — | — | — | 185,471 | — | — | — | 185,471 | |||||||||||||||||||||||||||
| Accretion of redeemable noncontrolling interest | 3,244 | — | — | — | (3,244 | ) | — | — | — | (3,244 | ) | |||||||||||||||||||||||||
| Total comprehensive income | 63,407 | |||||||||||||||||||||||||||||||||||
| Balances at December 31, 2010 | $ | 35,441 | 79,666 | $ | 797 | $ | 1,235,445 | $ | 2,180,843 | $ | 178,097 | (11,037 | ) | $ | (323,626 | ) | $ | 3,271,556 | ||||||||||||||||||
39
Consolidated Statements of Cash Flows
Years Ended December 31, 2008, 20072010, 2009 and 20062008
(In thousands, except per share data)
| 2008 | 2007 | 2006 | ||||||||
Cash flows from operating activities: | ||||||||||
Net (loss) earnings | $ | (1,458,228 | ) | 706,814 | 455,833 | |||||
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: | ||||||||||
Impairment of goodwill and other intangibles | 1,543,397 | — | — | |||||||
Depreciation and amortization | 295,054 | 306,437 | 274,952 | |||||||
Deferred income taxes | 69,842 | (289,902 | ) | (68,956 | ) | |||||
Loss on disposal of property, plant and equipment | 28,016 | 7,689 | 5,625 | |||||||
Excess tax benefit from stock-based compensation | (334 | ) | (6,828 | ) | (3,578 | ) | ||||
Stock based compensation expense | 11,991 | 13,594 | 11,925 | |||||||
Changes in assets and liabilities, net of effects of acquisitions: | ||||||||||
Receivables | 118,199 | 127,475 | (20,982 | ) | ||||||
Inventories | 103,293 | 20,976 | 4,823 | |||||||
Accounts payable and accrued expenses | (124,618 | ) | (58,776 | ) | 86,890 | |||||
Other assets and prepaid expenses | (23,774 | ) | 31,007 | 26,688 | ||||||
Other liabilities | 7,196 | 16,591 | 8,825 | |||||||
Net cash provided by operating activities | 570,034 | 875,077 | 782,045 | |||||||
Cash flows from investing activities: | ||||||||||
Additions to property, plant and equipment | (217,824 | ) | (163,076 | ) | (165,769 | ) | ||||
Acquisitions, net of cash acquired | (8,276 | ) | (147,097 | ) | (70,907 | ) | ||||
Net cash used in investing activities | (226,100 | ) | (310,173 | ) | (236,676 | ) | ||||
Cash flows from financing activities: | ||||||||||
Payments on revolving line of credit | (1,448,742 | ) | (1,813,731 | ) | (1,546,679 | ) | ||||
Proceeds from revolving line of credit | 1,270,449 | 1,652,993 | 1,409,611 | |||||||
Repayment on bridge loan | — | — | (1,400,000 | ) | ||||||
Proceeds from issuance of senior notes | — | — | �� | 1,386,841 | ||||||
Net change in asset securitization borrowings | (143,000 | ) | — | 150,000 | ||||||
Payments on term loans | (11,325 | ) | (373,153 | ) | (589,052 | ) | ||||
Payments of other debt | (494 | ) | (310 | ) | (13,380 | ) | ||||
Excess tax benefit from stock-based compensation | 334 | 6,828 | 3,578 | |||||||
Change in outstanding checks in excess of cash | (12,007 | ) | (43,520 | ) | (29,250 | ) | ||||
Acquisition of treasury stock | — | — | (5,180 | ) | ||||||
Common stock transactions | 1,915 | 30,875 | 12,669 | |||||||
Net cash used in financing activities | (342,870 | ) | (540,018 | ) | (620,842 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 2,851 | 1,226 | 4,380 | |||||||
Net change in cash and cash equivalents | 3,915 | 26,112 | (71,093 | ) | ||||||
Cash and cash equivalents, beginning of year | 89,604 | 63,492 | 134,585 | |||||||
Cash and cash equivalents, end of year | $ | 93,519 | 89,604 | 63,492 | ||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In thousands) | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net earnings (loss) | $ | 189,935 | (1,019 | ) | (1,452,534 | ) | ||||||
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||
| Impairment of goodwill and other intangibles | — | — | 1,543,397 | |||||||||
| Restructuring | 12,341 | 57,412 | 29,617 | |||||||||
| Depreciation and amortization | 296,773 | 303,004 | 295,054 | |||||||||
| Deferred income taxes | (21,279 | ) | (20,579 | ) | 69,842 | |||||||
| Loss on extinguishment of debt | 7,514 | — | — | |||||||||
| Loss (gain) on disposal of property, plant and equipment | (4,975 | ) | 1,481 | 2,272 | ||||||||
| Excess tax deficit (benefit) from stock-based compensation | — | 342 | (334 | ) | ||||||||
| Stock-based compensation expense | 6,888 | 9,653 | 11,991 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Receivables, net | (12,273 | ) | 102,799 | 118,199 | ||||||||
| Income tax receivable | 68,740 | (72,515 | ) | — | ||||||||
| Inventories | (118,903 | ) | 276,169 | 102,706 | ||||||||
| Accounts payable and accrued expenses | (86,947 | ) | 11,510 | (127,905 | ) | |||||||
| Other assets and prepaid expenses | (11,791 | ) | 17,320 | (23,774 | ) | |||||||
| Other liabilities | (6,311 | ) | (13,372 | ) | 7,555 | |||||||
| Net cash provided by operating activities | 319,712 | 672,205 | 576,086 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Additions to property, plant and equipment | (156,180 | ) | (108,925 | ) | (217,824 | ) | ||||||
| Proceeds from insurance claim | 4,615 | — | — | |||||||||
| Acquisitions, net of cash acquired | (79,917 | ) | (5,924 | ) | (8,276 | ) | ||||||
| Net cash used in investing activities | (231,482 | ) | (114,849 | ) | (226,100 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Payments on revolving line of credit | — | (412,666 | ) | (1,448,742 | ) | |||||||
| Proceeds from revolving line of credit | — | 349,571 | 1,270,449 | |||||||||
| Repayment of senior notes | (199,992 | ) | — | — | ||||||||
| Net change in asset securitization borrowings | — | (47,000 | ) | (143,000 | ) | |||||||
| Borrowings (payments) on term loan and other debt | (812 | ) | 6,537 | (11,819 | ) | |||||||
| Debt issuance costs | — | (23,714 | ) | — | ||||||||
| Debt extinguishment costs | (7,514 | ) | — | — | ||||||||
| Distribution to noncontrolling interest | (3,472 | ) | (4,402 | ) | (6,052 | ) | ||||||
| Change in restricted cash | (27,954 | ) | — | — | ||||||||
| Excess tax (deficit) benefit from stock-based compensation | — | (342 | ) | 334 | ||||||||
| Change in outstanding checks in excess of cash | (17,900 | ) | 5,288 | (12,007 | ) | |||||||
| Proceeds from stock transactions | 2,445 | 884 | 1,915 | |||||||||
| Net cash used in financing activities | (255,199 | ) | (125,844 | ) | (348,922 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (10,272 | ) | 6,427 | 2,851 | ||||||||
| Net change in cash and cash equivalents | (177,241 | ) | 437,939 | 3,915 | ||||||||
| Cash and cash equivalents, beginning of year | 531,458 | 93,519 | 89,604 | |||||||||
| Cash and cash equivalents, end of year | $ | 354,217 | 531,458 | 93,519 | ||||||||
40
Notes to Consolidated Financial Statements
Years Ended December 31, 2008, 20072010, 2009 and 2006
2008
(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
| (b) | Reclassifications and adjustments |
the Company reduced both basic and diluted earnings per share attributable to common stockholders by $0.04 for the quarter ended July 3, 2010 as a result of an adjustment to the fair value of a redeemable noncontrolling interest in a consolidated subsidiary of the Company (see Note 16). In addition, the Company reclassified $33,459 of its noncontrolling interest from within equity to mezzanine on its consolidated balance sheet as of December 31, 2009. The Company believes the correction of this error to be both quantitatively and qualitatively immaterial to its quarterly results for 2010 or to any of its previously issued consolidated financial statements. The correction had no impact on total assets, total liabilities, net earnings or cash flows as previously presented.
| (c) | Cash and Cash Equivalents and Restricted Cash |
(c) Accounts Receivable As of December 31, 2010, the Company had invested cash of $334,830 in money market AAA rated cash investments of which $149,649 was in North America and Revenue Recognition
$185,181 was in Europe. In addition, the Company had restricted cash of $27,954 under the control of an administrative agent and reserved $280,000 under its $600,000 four-year, senior, secured revolving credit facility (the “ABL Facility”) to repay the remaining amount outstanding of the 5.75% senior notes due January 15, 2011.
| (d) | Accounts Receivable and Revenue Recognition |
41
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
| (e) | Inventories |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(e) Property, Plant and Equipment
| (f) | Property, Plant and Equipment |
(g) | Goodwill and Other Intangible Assets |
42
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(g) Income Taxes
| (h) | Income Taxes |
(h) Financial Instruments
| (i) | Financial Instruments |
(i) Derivative Instruments
Accounting for derivative instruments and hedging activities requires the Company to recognize all derivatives on the consolidated balance sheet at fair value. Derivatives that are not qualifying hedges must be adjusted to fair value through earnings. If the derivative is a qualifying hedge, depending on the nature of the hedge, changes in their fair value are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company engages in activities that expose it to market risks, including the effects of changes in interest rates, exchange rates and natural gas commodity prices. Financial exposures are managed as an integral part of the Company’s risk management program, which seeks to reduce the potentially adverse effect that the volatility of the interest rate, exchange rate and natural gas commodity markets may have on operating results. The Company does not engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes.
The Company formally documents hedging instruments and hedging items, as well as its risk management objective and strategy for undertaking hedged items. This process includes linking all derivatives that are designated as fair value and cash flow hedges to specific assets, liabilities or firm commitments on the consolidated balance sheet or to forecasted transactions. The Company also formally assesses, both at inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items. Regression analysis is used to assess effectiveness of the hedging relationship and the dollar offset method is used to measure any ineffectiveness associated with the hedges. When it is determined that a derivative is not highly effective, the derivative expires, or is sold, terminated, or exercised, or the derivative is discontinued because it is unlikely that a forecasted transaction will occur, the Company discontinues hedge accounting prospectively for that specific hedge instrument.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(j) Advertising Costs and Vendor Consideration
| (j) | Advertising Costs and Vendor Consideration |
2008.
43
| (k) | Product Warranties |
(k) Impairment of Long-Lived Assets
related 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 |
(m) Earnings (loss) per share (“EPS”)
| (n) | Earnings per Share (“EPS”) |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
44
| Years Ended December 31, | ||||||||
| 2008 | 2007 | 2006 | ||||||
Net (loss) earnings | $ | (1,458,228 | ) | 706,814 | 455,833 | |||
Weighted-average common and dilutive potential common shares outstanding: | ||||||||
Weighted-average common shares outstanding | 68,401 | 68,172 | 67,674 | |||||
Add weighted-average dilutive potential common shares—options to purchase common shares, net | — | 320 | 382 | |||||
Weighted-average common and dilutive potential common shares outstanding. | 68,401 | 68,492 | 68,056 | |||||
Basic (loss) earnings per share | $ | (21.32 | ) | 10.37 | 6.74 | |||
Diluted (loss) earnings per share | $ | (21.32 | ) | 10.32 | 6.70 | |||
(n) Stock-Based Compensation
Effective January 1, 2006,
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Net earnings (loss) attributable to Mohawk Industries, Inc. | $ | 185,471 | (5,499 | ) | (1,458,228 | ) | ||||||
| Accretion of redeemable noncontrolling interest(1) | (3,244 | ) | — | — | ||||||||
| Net earnings (loss) available to common stockholders | $ | 182,227 | (5,499 | ) | (1,458,228 | ) | ||||||
| Weighted-average common shares outstanding-basic and diluted: | ||||||||||||
| Weighted-average common shares outstanding — basic | 68,578 | 68,452 | 68,401 | |||||||||
| Add weighted-average dilutive potential common shares — options and RSU’s to purchase common shares, net | 206 | — | — | |||||||||
| Weighted-average common shares outstanding-diluted | 68,784 | 68,452 | 68,401 | |||||||||
| Basic earnings (loss) per share attributable to Mohawk Industries, Inc. | $ | 2.66 | (0.08 | ) | (21.32 | ) | ||||||
| Diluted earnings (loss) per share attributable to Mohawk Industries, Inc. | $ | 2.65 | (0.08 | ) | (21.32 | ) | ||||||
| (1) | Amount represents the adjustment to fair value of a redeemable noncontrolling interest in a consolidated subsidiary of the Company. |
| (o) | Stock-Based Compensation |
(o) Comprehensive Income
| (p) | Comprehensive Income |
| Translation adjustment | Hedge instruments | SFAS 158 | Tax expense (benefit) | Total | ||||||||||||
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 | ||||||||||
2008 activity | (101,935 | ) | (11,024 | ) | (384 | ) | 3,897 | (109,446 | ) | |||||||
December 31, 2008 | $ | 260,093 | (11,150 | ) | 1,649 | 3,943 | 254,535 | |||||||||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| Foreign | ||||||||||||||||||||
| Translation | Hedge | Tax Expense | ||||||||||||||||||
| Adjustment | Instruments | Pensions | (Benefit) | Total | ||||||||||||||||
| 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 | |||||||||||||||
| 2010 activity | (119,200 | ) | — | 380 | — | (118,820 | ) | |||||||||||||
| December 31, 2010 | $ | 176,982 | — | 1,115 | — | 178,097 | ||||||||||||||
(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”). The Company adopted all provisions of SFAS No. 158 as of December 31, 2006, except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008. The adoption of the measurement provisions of SFAS No. 158ASC 810 on January 1, 20082010 did not have any impact on the Company’s consolidated financial statements.
In February 2007, the 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. The Company adopted SFAS No. 159 effective January 1, 2008, but did not elect to adjust any of the eligible assets or liabilities to fair value. Therefore, the adoption did not have any impact on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007),“Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is to be applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009. Once adopted, SFAS 141R will impact the recognition and measurement of future business combinations and certain income tax benefits recognized from prior business combinations.
In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for the first quarter of 2009. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411,“The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.
In October 2008, the FASB issued Staff Position No. 157-3“Determining Fair Value of a Financial Asset in a Market That Is Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS No. 157 as it relates to the valuation of financial assets in a market that is not active for those financial assets. This FSP is effective immediately and includes those periods for which financial statements have not been issued. The Company currently does not have any financial assets that are valued using inactive markets, and as such is not impacted by the issuance of this FSP.
(q) Fiscal Year
| (r) | Fiscal Year |
(2) Acquisitions
During 2006, the
| (2) | Acquisitions |
During 2007, the Company acquired certain wood flooring assets and liabilities of Columbia Forest Products, Inc. (“Columbia”) for approximately $147,153. The acquisition included the assets of two pre-finished solid plants and one engineered wood plantChina in the United States and an engineered wood plantDal-Tile segment for $79,917 in Malaysia. In connection with the acquisition, the Company recorded $13,069 in goodwill. The results of operations from the date of acquisition are included2010, a business in the Company’s consolidated results. Net sales were approximately $65,000Unilin segment for $5,604 in 2009 and operating income was not significant to the consolidated results for the year ending December 31, 2007.
During 2008, the Company acquired certain stone center assets in the Dal-Tile segment for $8,276.$8,276 in 2008.
| (3) | Receivables |
| 2010 | 2009 | |||||||
| Customers, trade | $ | 621,539 | 633,571 | |||||
| Income tax receivable | 11,027 | 72,515 | ||||||
| Other | 27,662 | 30,654 | ||||||
| 660,228 | 736,740 | |||||||
| Less allowance for discounts, returns, claims and doubtful accounts | 45,755 | 62,809 | ||||||
| Receivables, net | $ | 614,473 | 673,931 | |||||
46
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(3) Receivables
| 2008 | 2007 | ||||
Customers, trade | $ | 722,669 | 845,446 | ||
Other | 35,993 | 31,977 | |||
| 758,662 | 877,423 | ||||
Less allowance for discounts, returns, claims and doubtful accounts | 62,378 | 56,310 | |||
Net receivables | $ | 696,284 | 821,113 | ||
| Balance at beginning of year | Additions charged to costs and expenses(1) | Deductions(2) | Balance at end of year | ||||||
2006 | $ | 76,722 | 293,029 | 299,952 | 69,799 | ||||
2007 | 69,799 | 270,993 | 284,482 | 56,310 | |||||
2008 | 56,310 | 274,337 | 268,269 | 62,378 | |||||
| Additions | ||||||||||||||||
| Balance at | Charged to | Balance | ||||||||||||||
| Beginning | Costs and | at End | ||||||||||||||
| of Year | Expenses | Deductions(1) | of Year | |||||||||||||
| 2008 | $ | 56,310 | 274,337 | 268,269 | 62,378 | |||||||||||
| 2009 | 62,378 | 205,145 | 204,714 | 62,809 | ||||||||||||
| 2010 | 62,809 | 170,274 | 187,328 | 45,755 | ||||||||||||
| (1) |
| Represents charge-offs, net of recoveries. |
(4) Inventories
| (4) | Inventories |
| 2008 | 2007 | ||||
Finished goods | $ | 767,138 | 804,408 | ||
Work in process | 104,394 | 100,582 | |||
Raw materials | 296,740 | 371,578 | |||
Total inventories | $ | 1,168,272 | 1,276,568 | ||
(5) Goodwill and Other Intangible Assets
The Company considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment. The Company believes that the weakness in the U.S. residential housing market and the slowing European economy are principal factors in the prolonged decline in its market capitalization as compared to its book value. During the third quarter and again in the fourth quarter of 2008, the Company concluded that the weakness in the U.S. residential housing market is likely to persist based on its review of, among other things, sequential quarterly housing starts, recent turmoil surrounding the nation’s largest mortgage lenders, the potential negative impact on the availability of mortgage financing and housing start forecasts published by national home builder associations pushing recovery in the U.S. residential housing market beyond 2009.
As a result of these impairment indicators, in the third quarter the Company performed an interim first step of its goodwill impairment test and determined that the carrying values of certain reporting units exceeded their fair values, indicating that goodwill was impaired. During the third quarter of 2008, the Company estimated that
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
the implied fair value of its goodwill was less than its carrying value by approximately $1,262,255, which the Company recognized in the third quarter of 2008. The $1,262,255 impairment of goodwill was an estimate based on the results of the determination of and preliminary allocation of fair value. The Company finalized the allocation of fair value in the fourth quarter of 2008 and recorded an additional $65,170, which the Company has recognized as an impairment of goodwill and other intangibles in the accompanying consolidated results of operations.
| 2010 | 2009 | |||||||
| Finished goods | $ | 624,082 | 559,340 | |||||
| Work in process | 97,257 | 84,414 | ||||||
| Raw materials | 286,164 | 249,227 | ||||||
| Total inventories | $ | 1,007,503 | 892,981 | |||||
| (5) | Goodwill and Other Intangible Assets |
As a result of the impairment indicators described above, during the third quarter, and again in the fourth quarter of During 2008, the Company evaluated itsrecorded a $1,543,397 impairment charge to reduce the carrying amount of the Company’s goodwill and intangible assets with indefinite lives for impairment. The Company compared theto their estimated fair value based upon the results of its trademarks to its carrying value and determined that there was a trademarktwo interim impairment of approximately $54,455tests. The total impairment included $276,807 in the Mohawk segment, $531,930 in the Dal-Tile segment and a trademark impairment of approximately $102,202$734,660 in the Unilin segment, which the Company recognized as a preliminary impairment of intangibles in the third quarter of 2008. In the fourth quarter, the Company finalized its analysis and no adjustment to the preliminary impairment of intangibles was necessary. The Company conducted its annual assessment and determined the fair values of its trademarks exceeded their carrying values. As a result, no additional impairment was indicated.segment.
47
In the fourth quarter the Company conducted an additional interim test and compared the estimated fair value of its trademarks to its carrying value and, as a result, recognized an impairment of intangibles in the fourth quarter of 2008 of approximately $23,220 in the Mohawk segment and approximately $36,095 in the Unilin segment.
| Mohawk | Dal-Tile | Unilin | Total | ||||||||||
Balances as of January 1, 2007 | $ | 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 | |||||||||
Goodwill acquired during the year | — | 900 | (40,691 | ) | (39,791 | ) | |||||||
Impairment charge | (199,132 | ) | (531,930 | ) | (596,363 | ) | (1,327,425 | ) | |||||
Effect of translation | — | — | (30,689 | ) | (30,689 | ) | |||||||
Balances as of December 31, 2008 | $ | — | 654,983 | 744,451 | 1,399,434 | ||||||||
| Mohawk | Dal-Tile | Unilin | Total | |||||||||||||
| Balances as of December 31, 2008 | ||||||||||||||||
| Goodwill | $ | 199,132 | 1,186,913 | 1,340,814 | 2,726,859 | |||||||||||
| Accumulated impairments losses | (199,132 | ) | (531,930 | ) | (596,363 | ) | (1,327,425 | ) | ||||||||
| — | 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 | ||||||||||||||||
| Goodwill | 199,132 | 1,186,913 | 1,352,508 | 2,738,553 | ||||||||||||
| Accumulated impairments losses | (199,132 | ) | (531,930 | ) | (596,363 | ) | (1,327,425 | ) | ||||||||
| — | 654,983 | 756,145 | 1,411,128 | |||||||||||||
| Goodwill recognized during the year | — | — | 141 | 141 | ||||||||||||
| Currency translation during the year | — | — | (41,875 | ) | (41,875 | ) | ||||||||||
| Balances as of December 31, 2010 | ||||||||||||||||
| Goodwill | 199,132 | 1,186,913 | 1,310,774 | 2,696,819 | ||||||||||||
| Accumulated impairments losses | (199,132 | ) | (531,930 | ) | (596,363 | ) | (1,327,425 | ) | ||||||||
| $ | — | 654,983 | 714,411 | 1,369,394 | ||||||||||||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
a business acquisition.
| Tradenames | ||||
Indefinite life assets not subject to amortization: | ||||
| Balance as of December 31, 2008 | $ | 472,399 | ||
| Currency translation during the year | 5,208 | |||
| Balance as of December 31, 2009 | 477,607 | |||
| Currency translation during the year | (20,717 | ) | ||
| Balance as of December 31, 2010 | $ | 456,890 | ||
| Customer | ||||||||||||||||
| Relationships | Patents | Other | Total | |||||||||||||
Intangible Assets Subject to Amortization: | ||||||||||||||||
| 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 | ) | ||||||||
| Currency translation during the year | 1,441 | 2,433 | (3 | ) | 3,871 | |||||||||||
| Balance as of December 31, 2009 | 159,302 | 147,008 | 1,425 | 307,735 | ||||||||||||
| Amortization during year | (45,679 | ) | (23,714 | ) | (120 | ) | (69,513 | ) | ||||||||
| Currency translation during the year | (7,191 | ) | (10,774 | ) | (20 | ) | (17,985 | ) | ||||||||
| Balance as of December 31, 2010 | $ | 106,432 | 112,520 | 1,285 | 220,237 | |||||||||||
48
| Tradenames | ||||||||||
Indefinite life assets not subject to amortization: | ||||||||||
Balance as of January 1, 2007 | $ | 662,314 | ||||||||
Effect of translation | 44,772 | |||||||||
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 | ||||||||
| Customer relationships | Patents | Total | ||||||||
Intangible assets subject to amortization: | ||||||||||
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 January 1, 2008 | 256,092 | 208,691 | 464,783 | |||||||
Intangible assets recognized during the period | 2,980 | — | 2,980 | |||||||
Amortization during period | (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 | ||||||
| Years Ended December 31, | ||||||||||
| 2008 | 2007 | 2006 | ||||||||
Amortization expense: | ||||||||||
Aggregation amortization expense | $ | 78,567 | 94,953 | 81,129 | ||||||
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Amortization expense | $ | 69,513 | 74,055 | 78,567 | ||||||||
2009 | $ | 79,173 | |
2010 | 77,240 | ||
2011 | 75,122 | ||
2012 | 64,576 | ||
2013 | 22,791 |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(6) Property, Plant and Equipment
| 2011 | $ | 67,411 | ||
| 2012 | 58,061 | |||
| 2013 | 21,869 | |||
| 2014 | 19,974 | |||
| 2015 | 17,676 |
| (6) | Property, Plant and Equipment |
| 2008 | 2007 | ||||
Land | $ | 191,523 | 193,867 | ||
Buildings and improvements | 719,806 | 747,542 | |||
Machinery and equipment | 2,245,075 | 2,123,351 | |||
Furniture and fixtures | 60,744 | 54,826 | |||
Leasehold improvements | 47,523 | 42,308 | |||
Construction in progress | 148,886 | 151,741 | |||
| 3,413,557 | 3,313,635 | ||||
Less accumulated depreciation and amortization | 1,487,815 | 1,337,914 | |||
Net property, plant and equipment | $ | 1,925,742 | 1,975,721 | ||
| 2010 | 2009 | |||||||
| Land | $ | 186,406 | 195,171 | |||||
| Buildings and improvements | 703,939 | 722,533 | ||||||
| Machinery and equipment | 2,361,605 | 2,348,689 | ||||||
| Furniture and fixtures | 82,287 | 80,722 | ||||||
| Leasehold improvements | 54,156 | 54,995 | ||||||
| Construction in progress | 129,999 | 67,415 | ||||||
| 3,518,392 | 3,469,525 | |||||||
| Less accumulated depreciation and amortization | 1,831,268 | 1,678,113 | ||||||
| Net property, plant and equipment | $ | 1,687,124 | 1,791,412 | |||||
As a result of the impairment indicators described above in Note 5, Goodwill and Other Intangible Assets, during the third quarter, and again in the fourth quarter of 2008, the Company tested its long-lived assets for impairment by comparing the estimated future undiscounted net cash flows expected to be generated by these assets to their carrying value and determined that there was no impairment.
(7) Long-Term Debt
| (7) | Long-Term Debt |
49
At December 31, 2008, the amount used under the revolving credit facility of the senior unsecured credit facilitiesABL Facility was $171,683 leaving$387,091 resulting in a total of approximately $478,317$169,614 available under the revolving credit facility.ABL Facility. The amount used underutilized included the revolving credit facility is composedreserved amount of $55,300 borrowings, $55,599$280,000 related to the repayment of the Company’s outstanding 5.75% senior notes due January 15, 2011, discussed below, $53,542 of standby letters of credit guaranteeing the Company’s industrial revenue bonds and $60,784$53,549 of standby letters of credit related to various insurance contracts and foreign vendor commitments. The balanceImmediately following the repayment of the $389,200 term loan facility under the5.75% senior unsecured credit facilities was repaid in 2006 and the balance of the Euro 300,000 term loan facility was repaid in 2008. At December 31, 2008, nothing was outstanding under the Euro revolving credit facility.
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 interestnotes due January 15, 2011 at EURIBOR plus an indexed amount based on the Company’s senior, unsecured, long-term debt
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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. At December 31, 2008, the Company had no borrowings outstanding under this facility andmaturity, discussed below, a total of $182,970$289,610 was available under the Company’s Euro 130,000 revolving credit facility.
Borrowings outstanding under the senior unsecured credit facilities bear interest, at the Company’s option, 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’s senior unsecured credit facilities and the 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.
The Company has an on-balance sheet trade accounts receivable securitization agreement (“Securitization Facility”). The Securitization Facility allows the Company to borrow up to $250,000 based on available accounts receivable. At December 31, 2008, the Company had $47,000 outstanding secured by trade receivables. On July 28, 2008, the Company amended and restated the Securitization Facility, reduced total availability from $350,000 to $250,000, and extended the term until July 27, 2009.
ABL Facility.
50
Long-term debt consists
| 2008 | 2007 | ||||
Securitization facility, due July 28, 2009 | $ | 47,000 | 190,000 | ||
Five year senior unsecured credit facility, due October 28, 2010 | 55,300 | 215,495 | |||
5.75% notes, 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% notes, payable January 15, 2016 interest payable semiannually | 900,000 | 900,000 | |||
Euro five year unsecured revolving credit facility due November 8, 2010 | — | — | |||
Industrial revenue bonds, capital leases and other | 52,486 | 76,339 | |||
Total long-term debt | 1,954,786 | 2,281,834 | |||
Less current portion | 94,785 | 260,439 | |||
Long-term debt, excluding current portion | $ | 1,860,001 | 2,021,395 | ||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Company’s debt instruments are detailed as follows:
| 2010 | 2009 | |||||||||||||||
| Carrying | Carrying | |||||||||||||||
| Fair Value | Value | Fair Value | Value | |||||||||||||
| 5.75% notes, payable January 15, 2011 interest payable semiannually | $ | 296,459 | 298,248 | 508,703 | 498,240 | |||||||||||
| 7.20% senior notes, payable April 15, 2012 interest payable semiannually | 422,400 | 400,000 | 418,400 | 400,000 | ||||||||||||
| 6.125% notes, payable January 15, 2016 interest payable semiannually | 963,000 | 900,000 | 891,900 | 900,000 | ||||||||||||
| Industrial revenue bonds, capital leases and other | 55,334 | 55,334 | 56,239 | 56,239 | ||||||||||||
| Total long-term debt | 1,737,193 | 1,653,582 | 1,875,242 | 1,854,479 | ||||||||||||
| Less current portion | 348,799 | 350,588 | 52,907 | 52,907 | ||||||||||||
| Long-term debt, less current portion | $ | 1,388,394 | 1,302,994 | 1,822,335 | 1,801,572 | |||||||||||
2009 | $ | 94,785 | |
2010 | 56,796 | ||
2011 | 500,881 | ||
2012 | 400,451 | ||
2013 | 515 | ||
Thereafter | 901,358 | ||
| $ | 1,954,786 | ||
(8) Accounts Payable, Accrued Expenses and Deferred Tax Liability
| 2011 | $ | 350,588 | ||
| 2012 | 401,469 | |||
| 2013 | 433 | |||
| 2014 | 365 | |||
| 2015 | 258 | |||
| Thereafter | 900,469 | |||
| $ | 1,653,582 | |||
| (8) | Accounts Payable, Accrued Expenses and Deferred Tax Liability |
| 2008 | 2007 | ||||
Outstanding checks in excess of cash | $ | 12,612 | 24,619 | ||
Accounts payable, trade | 315,053 | 399,141 | |||
Accrued expenses | 267,051 | 274,465 | |||
Accrued interest | 45,493 | 47,082 | |||
Income taxes payable | 40,798 | 42,090 | |||
Deferred tax liability | 3,030 | 11,890 | |||
Accrued compensation | 98,094 | 151,774 | |||
Total accounts payable and accrued expenses | $ | 782,131 | 951,061 | ||
(9) Derivative Financial Instruments
Natural Gas Risk Management
The Company uses a combination of natural gas futures contracts and long-term supply agreements to manage unanticipated changes in natural gas prices. The contracts are based on forecasted usage of natural gas measured in Million British Thermal Units (“MMBTU”).
The Company has designated the natural gas futures contracts as cash flow hedges. The outstanding contracts are valued at market with the offset applied to other comprehensive income, net of applicable income taxes and any hedge ineffectiveness.
Any gain or loss is reclassified from other comprehensive income and recognized in cost of goods sold in the same period or periods during which the hedged transaction affects earnings. At December 31, 2008, the Company had natural gas contracts that mature from January 2009 to December 2009 with an aggregate notional amount of approximately 2,650 MMBTU’s. The fair value of these contracts was a liability of $5,913 at December 31, 2008. At December 31, 2007, the Company had natural gas contracts that mature from January 2008 to March 2008 with an aggregate notional amount of approximately 310 MMBTU’s. The fair value of these contracts was a liability of $279 at December 31, 2007. The offset to these liabilities is recorded in other comprehensive income, net of applicable income taxes. The ineffective portion of the derivative is recognized in the cost of goods sold within the consolidated statements of operations and was not significant for the periods reported. The amount that the Company anticipates that will be reclassified out of accumulated other comprehensive income (loss) in the next twelve months is a loss of approximately $3,755, net of taxes.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The Company’s natural gas long-term supply agreements are accounted for under the normal purchase provision within SFAS No. 133 and its amendments. At December 31, 2008, the Company had normal purchase commitments of approximately 2,026 MMBTU’s for periods maturing from January 2009 through December 2009. The contracted value of these commitments was approximately $17,151 at December 31, 2008. At December 31, 2007, the Company had normal purchase commitments of approximately 303 MMBTU’s for periods maturing from January 2008 through March 2008. The contracted value of these commitments was approximately $2,842 at December 31, 2007.
Foreign Currency Rate Management
The Company enters into foreign exchange forward contracts to hedge foreign denominated costs associated with its operations in Mexico. The objective of these transactions is to reduce volatility of exchange rates where these operations are located by fixing a portion of their costs in U.S. currency. Accordingly, these contracts have been designated as cash flow hedges. Gains and losses are reclassified from other comprehensive income and recognized in cost of goods sold in the same period or periods during which the hedged transaction affects earnings. The Company had forward contracts to purchase approximately 269,129 Mexican pesos at December 31, 2008. The fair value of these contracts was a liability of $5,237 at December 31, 2008. The aggregate U.S. dollar value of these contracts at December 31, 2008 was approximately $23,923. The offset to these liabilities is recorded in other comprehensive income (loss), net of applicable income taxes. The ineffective portion of the derivative is recognized in the cost of goods sold within the consolidated statements of operations and was not significant for the periods reported. The amount that the Company anticipates that will be reclassified out of accumulated other comprehensive income in the next twelve months is a loss of approximately $3,326, net of taxes. The Company had forward contracts to purchase approximately 244,009 Mexican pesos at December 31, 2007. The fair value of these contracts was an asset of $153 at December 31, 2007. The aggregate U.S. dollar value of these contracts at December 31, 2007 was approximately $21,844. The offset to these assets is recorded in other comprehensive income, net of applicable income taxes. The ineffective portion of the derivative is recognized in the cost of goods sold within the consolidated statements of operations and was not significant for the periods reported.
(10) Product warranties
| 2010 | 2009 | |||||||
| Outstanding checks in excess of cash | $ | — | 17,900 | |||||
| Accounts payable, trade | 353,387 | 335,401 | ||||||
| Accrued expenses | 147,595 | 169,730 | ||||||
| Product warranties | 37,265 | 66,545 | ||||||
| Accrued interest | 45,696 | 52,743 | ||||||
| Income taxes payable | 9,301 | 85,699 | ||||||
| Deferred tax liability | 5,089 | 2,836 | ||||||
| Accrued compensation and benefits | 99,993 | 100,261 | ||||||
| Total accounts payable and accrued expenses | $ | 698,326 | 831,115 | |||||
| (9) | Product Warranties |
51
| 2008 | 2007 | 2006 | ||||||||
Balance at beginning of year | $ | 46,187 | 30,712 | 27,775 | ||||||
Warranty claims | (81,586 | ) | (54,685 | ) | (48,472 | ) | ||||
Warranty expense(1) | 91,859 | 67,301 | 51,409 | |||||||
Other(2) | — | 2,859 | — | |||||||
Balance at end of year | $ | 56,460 | 46,187 | 30,712 | ||||||
| 2010 | 2009 | 2008 | ||||||||||
| Balance at beginning of year | $ | 66,545 | 56,460 | 46,187 | ||||||||
| Warranty claims paid during the year | (77,017 | ) | (167,053 | ) | (81,586 | ) | ||||||
| Pre-existing warranty accrual adjustment | ||||||||||||
| during the year(1) | 2,261 | 125,124 | — | |||||||||
| Warranty expense during the year(1) | 45,476 | 52,014 | 91,859 | |||||||||
| Balance at end of year | $ | 37,265 | 66,545 | 56,460 | ||||||||
| (1) | The increase in warranty expense in 2009 and 2008 |
| (10) | Stock Options, Stock Compensation and Treasury Stock |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(11) Stock Options, Stock Compensation and Treasury Stock
Effective January 1, 2006, the
ASC 718-10. Compensation expense is recognized on a straight-line basis over the award’s estimated lives for fixed awards with ratable vesting provisions.
| 2008 | 2007 | 2006 | ||||||||
Options outstanding at beginning of year | 1,455 | 2,034 | 2,276 | |||||||
Options granted | 146 | 64 | 146 | |||||||
Options exercised | (46 | ) | (588 | ) | (338 | ) | ||||
Options canceled | (49 | ) | (55 | ) | (50 | ) | ||||
Options outstanding at end of year | 1,506 | 1,455 | 2,034 | |||||||
Options exercisable at end of year | 1,035 | 821 | 1,066 | |||||||
Option prices per share: | ||||||||||
Options granted during the year | $ | 74.47 | 75.10-93.65 | 75.82-86.51 | ||||||
Options exercised during the year | $ | 35.73-82.68 | 16.66-88.33 | 11.33-73.45 | ||||||
Options canceled during the year | $ | 16.66-93.65 | 22.63-93.65 | 24.63-89.46 | ||||||
Options outstanding at end of year | $ | 16.66-93.65 | 16.66-93.65 | 16.60-90.97 | ||||||
Options exercisable at end of year | $ | 16.66-93.65 | 16.66-90.97 | 16.60-90.97 | ||||||
| 2010 | 2009 | 2008 | ||||||||||
| Options outstanding at beginning of year | 1,481 | 1,506 | 1,455 | |||||||||
| Options granted | 40 | 76 | 146 | |||||||||
| Options exercised | (74 | ) | (35 | ) | (46 | ) | ||||||
| Options forfeited and expired | (76 | ) | (66 | ) | (49 | ) | ||||||
| Options outstanding at end of year | 1,371 | 1,481 | 1,506 | |||||||||
| Options exercisable at end of year | 1,160 | 1,165 | 1,035 | |||||||||
| Option prices per share: | ||||||||||||
| Options granted during the year | $ | 46.80 | 28.37 | 74.47 | ||||||||
| Options exercised during the year | $ | 16.66-57.88 | 16.66-48.50 | 19.63-73.45 | ||||||||
| Options forfeited and expired during the year | $ | 22.63-93.65 | 19.94-93.65 | 16.66-93.65 | ||||||||
| Options outstanding at end of year | $ | 28.37-93.65 | 16.66-93.65 | 16.66-93.65 | ||||||||
| Options exercisable at end of year | $ | 28.37-93.65 | 16.66-93.65 | 16.66-93.65 | ||||||||
52
2008.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
were purchased. Since the inception of the program, a total of approximately 11,51211,518 shares have been repurchased at an aggregate cost of approximately $334,747.$335,110. All of these repurchases have been financed through the Company’s operations and banking arrangements.
On October 31, 2005, the Company entered into a Discounted Stock Purchase Agreement (the “DSPA”) with certain members of the Unilin management team (the “Unilin Management”). Under the terms of the DSPA, the Company is obligated to make cash payments to the Unilin Management in the event that certain performance goals are satisfied. In each of the years in the five-year period ended December 31, 2010, the remaining members of the Unilin Management can earn amounts, in the aggregate, equal to the average value of 30,671 shares of the Company’s common stock over the 20 trading day period ending on December 31 of the prior year. Any failure in a given year to reach the performance goals may be rectified, and consequently the amounts payable with respect to achieving such criteria may be made, in any of the other years. The amount of the liability is measured each period and recognized as compensation expense in the statement of operations. The Company expensed approximately $0, $2,300 and $2,300 under the DSPA for each of the years ended December 31, 2008, 2007 and 2006, respectively.
| 2008 | 2007 | 2006 | |||||||
Dividend yield | — | — | — | ||||||
Risk-free interest rate | 2.9 | % | 4.8 | % | 4.6 | % | |||
Volatility | 24.0 | % | 29.0 | % | 35.3 | % | |||
Expected life (years) | 5 | 6 | 6 |
| 2010 | 2009 | 2008 | ||||||||||
| Dividend yield | — | — | — | |||||||||
| Risk-free interest rate | 2.3 | % | 1.7 | % | 2.9 | % | ||||||
| Volatility | 45.2 | % | 35.3 | % | 24.0 | % | ||||||
| Expected life (years) | 5 | 5 | 5 | |||||||||
| Shares | Weighted average exercise price | Weighted average remaining contractual term (years) | Aggregate intrinsic value | ||||||||
Options outstanding January 1, 2008 | 1,455 | $ | 69.89 | ||||||||
Granted | 146 | 74.47 | |||||||||
Exercised | (46 | ) | 41.65 | ||||||||
Forfeited and expired | (49 | ) | 76.57 | ||||||||
Options outstanding, end of period | 1,506 | 70.98 | 5.3 | $ | 1,785 | ||||||
Vested and expected to vest at December 31, 2008 | 1,479 | $ | 70.83 | 5.2 | $ | 1,785 | |||||
Exercisable at December 31, 2008 | 1,035 | $ | 66.37 | 4.4 | $ | 1,785 | |||||
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | Aggregate | ||||||||||||||
| Average Exercise | Contractual | Intrinsic | ||||||||||||||
| Shares | Price | Term (Years) | Value | |||||||||||||
| Options outstanding December 31, 2009 | 1,481 | $ | 70.11 | |||||||||||||
| Granted | 40 | 46.80 | ||||||||||||||
| Exercised | (74 | ) | 33.16 | |||||||||||||
| Forfeited and expired | (76 | ) | 69.35 | |||||||||||||
| Options outstanding, December 31, 2010 | 1,371 | 71.48 | 4.0 | $ | 3,765 | |||||||||||
| Vested and expected to vest as of December 31, 2010 | 1,360 | $ | 71.60 | 4.0 | $ | 3,664 | ||||||||||
| Exercisable as of December 31, 2010 | 1,160 | $ | 73.72 | 3.4 | $ | 1,839 | ||||||||||
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
recognized for the periodsyears ended December 31, 2010, 2009 and 2008 2007 and 2006 was $6,646$2,436 ($4,210,1,543, net of tax), $8,827$4,552 ($6,359,2,884, net of tax) and $11,925$6,646 ($7,537,4,210, net of tax), respectively, which was allocated to selling, general and administrative expenses. The remaining unamortized expense for non-vested compensation expense atas of December 31, 2008,2010 was $7,320$1,919 with a weighted average remaining life of 2.11.7 years.
53
| Outstanding | Exercisable | |||||||||||
Exercise price range | Number of shares | Average life | Average price | Number of shares | Average price | |||||||
Under $49.09 | 257 | 2.8 | $ | 38.93 | 257 | $ | 38.93 | |||||
$53.01-$69.46 | 283 | 3.5 | 62.78 | 280 | 62.80 | |||||||
$69.95-$74.47 | 342 | 6.6 | 73.87 | 149 | 73.42 | |||||||
$74.93-$86.51 | 258 | 6.6 | 82.58 | 119 | 82.52 | |||||||
$87.87-$88.00 | 35 | 6.8 | 87.96 | 21 | 87.96 | |||||||
$88.33-$93.65 | 331 | 6.2 | 89.09 | 209 | 88.57 | |||||||
Total | 1,506 | 5.3 | $ | 70.98 | 1,035 | $ | 66.37 | |||||
2010:
| Outstanding | Exercisable | |||||||||||||||||||
| Number of | Average | Number of | Average | |||||||||||||||||
| Exercise Price Range | Shares | Average Life | Price | Shares | Price | |||||||||||||||
| Under $49.09 | 234 | 4.7 | $ | 41.01 | 140 | $ | 44.23 | |||||||||||||
| $53.01-$69.46 | 241 | 1.5 | 62.40 | 241 | 62.40 | |||||||||||||||
| $69.95-$74.47 | 312 | 4.8 | 73.87 | 227 | 73.65 | |||||||||||||||
| $74.93-$84.85 | 242 | 4.5 | 82.38 | 221 | 82.48 | |||||||||||||||
| $86.51-$88.00 | 45 | 4.9 | 87.63 | 45 | 87.63 | |||||||||||||||
| $88.33-$93.65 | 297 | 4.1 | 89.00 | 286 | 88.83 | |||||||||||||||
| Total | 1,371 | 4.0 | $ | 71.48 | 1,160 | $ | 73,72 | |||||||||||||
| Shares | Weighted average price | Weighted average remaining contractual term (years) | Aggregate intrinsic value | ||||||||
Restricted Stock Units outstanding January 1, 2008. | 137 | $ | 93.61 | ||||||||
Granted | 72 | 75.80 | |||||||||
Released | (15 | ) | 93.51 | ||||||||
Forfeited | (7 | ) | 91.56 | ||||||||
Restricted Stock Units outstanding, end of period | 187 | 92.94 | 1.7 | $ | 8,046 | ||||||
Vested and expected to vest at December 31, 2008 | 175 | $ | 92.94 | 1.6 | $ | 7,534 | |||||
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Remaining | ||||||||||||||||
| Weighted | Contractual | Aggregate | ||||||||||||||
| Shares | Average Price | Term (Years) | Intrinsic Value | |||||||||||||
| Restricted Stock Units outstanding, December 31, 2009 | 359 | $ | 60.69 | |||||||||||||
| Granted | 149 | 50.87 | ||||||||||||||
| Released | (95 | ) | 77.62 | |||||||||||||
| Forfeited | (9 | ) | 46.00 | |||||||||||||
| Restricted Stock Units outstanding, December 31, 2010 | 404 | 47.42 | 3.4 | $ | 22,906 | |||||||||||
| Vested and expected to vest as of December 31, 2010 | 343 | $ | 47.42 | 2.8 | $ | 19,474 | ||||||||||
(12) Employee Benefit Plans
| 2010 | 2009 | 2008 | ||||||||||
| Restricted Stock Units outstanding, January 1 | 359 | 187 | 137 | |||||||||
| Granted | 149 | 204 | 72 | |||||||||
| Released | (95 | ) | (22 | ) | (15 | ) | ||||||
| Forfeited | (9 | ) | (10 | ) | (7 | ) | ||||||
| Restricted Stock Units outstanding, December 31 | 404 | 359 | 187 | |||||||||
| Vested and expected to vest as of December 31 | 343 | 317 | 175 | |||||||||
| (11) | Employee Benefit Plans |
54
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 $33,071 and $13,062 in 2010, $34,838 and $13,822 in 2009 and $40,393 and $16,024 in 2008, $43,187 and $16,946 in 2007, and $40,369 and $15,713 in 2006, respectively. The Company also made a discretionary contribution to the Mohawk Plan of approximately $1,908 and $4,211 $5,500in 2009 and $5,900 in 2008, 2007 and 2006, respectively.
The Company discontinued the discretionary match on January 1, 2010.
| 2008 | 2007 | ||||||
Service cost of benefits earned | $ | 1,881 | 1,927 | ||||
Interest cost on projected benefit obligation | 1,245 | 968 | |||||
Expected return on plan assets | (993 | ) | (738 | ) | |||
Amortization of actuarial gain | (29 | ) | (12 | ) | |||
Net pension expense | $ | 2,104 | 2,145 | ||||
| 2010 | 2009 | 2008 | ||||||||||
| Service cost of benefits earned | $ | 1,506 | 1,315 | 1,881 | ||||||||
| Interest cost on projected benefit obligation | 1,219 | 1,352 | 1,245 | |||||||||
| Expected return on plan assets | (1,025 | ) | (1,069 | ) | (993 | ) | ||||||
| Amortization of actuarial gain | 4 | (322 | ) | (29 | ) | |||||||
| Effect of curtailments and settlements | — | (200 | ) | — | ||||||||
| Net pension expense | $ | 1,704 | 1,076 | 2,104 | ||||||||
| 2010 | 2009 | |||
| Discount rate | 5.00% | 6.00%-6.60% | ||
| Expected rate of return on plan assets | 4.00%-5.00% | 4.50%-6.60% | ||
| Rate of compensation increase | 0.00%-3.00% | 0.00%-4.00% | ||
| Underlying inflation rate | 2.00% | 2.25% |
55
| 2008 | 2007 | |||
Discount rate | 5.00%-5.55% | 4.50%-5.06% | ||
Expected rate of return on plan assets | 4.50%-5.55% | 4.50%-4.90% | ||
Rate of compensation increase | 1.00%-5.00% | 2.50%-7.00% | ||
Underlying inflation rate | 2.00% | 2.00% |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| Non-U.S. Plans | |||||||
| 2008 | 2007 | ||||||
Change in benefit obligation: | |||||||
Projected benefit obligation at end of prior year | $ | 22,045 | 18,445 | ||||
Cumulative foreign exchange effect | (962 | ) | 2,118 | ||||
Service cost | 1,809 | 2,072 | |||||
Interest cost | 1,198 | 1,041 | |||||
Plan participants contributions | 729 | 603 | |||||
Actuarial gain | (3,681 | ) | (802 | ) | |||
Benefits paid | (1,048 | ) | (1,432 | ) | |||
Projected benefit obligation at end of year | $ | 20,090 | 22,045 | ||||
Change in plan assets: | |||||||
Fair value of plan assets at end of prior year | $ | 18,728 | 14,852 | ||||
Fair value adjustment | — | 299 | |||||
Cumulative foreign exchange effect | (817 | ) | 1,704 | ||||
Actual return on plan assets | 955 | 794 | |||||
Employer contributions | 1,861 | 1,816 | |||||
Benefits paid | (1,048 | ) | (1,432 | ) | |||
Plan participant contributions | 729 | 603 | |||||
Actual (loss) gain | (4,037 | ) | 92 | ||||
Fair value of plan assets at end of year | $ | 16,371 | 18,728 | ||||
Funded status of the plans: | |||||||
Ending funded status | $ | (3,719 | ) | (3,317 | ) | ||
Net amount recognized in consolidated balance sheets: | |||||||
Accrued expenses (Current liability) | $ | — | — | ||||
Accrued benefit liability (Non-current liability) | (3,719 | ) | (3,317 | ) | |||
Accumulated other comprehensive gain | (1,649 | ) | (2,033 | ) | |||
Net amount recognized | $ | (5,368 | ) | (5,350 | ) | ||
| 2010 | 2009 | |||||||
| Change in benefit obligation: | ||||||||
| Projected benefit obligation at end of prior year | $ | 25,468 | 20,090 | |||||
| Cumulative foreign exchange effect | (1,850 | ) | 458 | |||||
| Service cost | 1,506 | 1,315 | ||||||
| Interest cost | 1,219 | 1,352 | ||||||
| Plan participants contributions | 720 | 763 | ||||||
| Actuarial loss | 863 | 2,588 | ||||||
| Benefits paid | (949 | ) | (687 | ) | ||||
| Effect of curtailment and settlement | — | (411 | ) | |||||
| Projected benefit obligation at end of year | $ | 26,977 | 25,468 | |||||
| Change in plan assets: | ||||||||
| Fair value of plan assets at end of prior year | $ | 21,841 | 16,371 | |||||
| Cumulative foreign exchange effect | (1,599 | ) | 306 | |||||
| Actual return on plan assets | 2,324 | 3,234 | ||||||
| Employer contributions | 1,771 | 2,059 | ||||||
| Benefits paid | (949 | ) | (687 | ) | ||||
| Plan participant contributions | 720 | 763 | ||||||
| Effect of settlement | - | (205 | ) | |||||
| Fair value of plan assets at end of year | $ | 24,108 | 21,841 | |||||
| Funded status of the plans: | ||||||||
| Ending funded status | $ | (2,869 | ) | (3,627 | ) | |||
| Net amount recognized in consolidated balance sheets: | ||||||||
| Accrued expenses (current liability) | $ | — | — | |||||
| Accrued benefit liability (non-current liability) | (2,869 | ) | (3,628 | ) | ||||
| Accumulated other comprehensive income | (1,115 | ) | (735 | ) | ||||
| Net amount recognized | $ | (3,984 | ) | (4,363 | ) | |||
| 2008 | 2007 | |||
Discount rate | 6.00%-6.60% | 5.00%-5.55% | ||
Rate of compensation increase | 1.25%-5.25% | 1.00%-7.00% | ||
Underlying inflation rate | 2.25% | 2.00% |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| 2010 | 2009 | |||
| Discount rate | 4.75% | 5.00% | ||
| Rate of compensation increase | 0.00%-3.00% | 0.00%-6.00% | ||
| Underlying inflation rate | 2.00% | 2.00% |
56
| Non-U.S. Plans | |||||
| 2008 | 2007 | ||||
Plans with accumulated benefit obligations in excess of plan assets: | |||||
Projected benefit obligation | $ | 1,118 | 1,317 | ||
Accumulated benefit obligation | 889 | 899 | |||
Fair value of plan assets | 470 | 532 | |||
Plans with plan assets in excess of accumulated benefit obligations: | |||||
Projected benefit obligation | $ | 18,972 | 20,728 | ||
Accumulated benefit obligation | 15,286 | 17,186 | |||
Fair value of plan assets | 15,901 | 18,196 | |||
| Non-U.S. Plans | ||||||||
| 2010 | 2009 | |||||||
| Plans with accumulated benefit obligations in excess of plan assets: | ||||||||
| Projected benefit obligation | $ | 17,236 | 10,251 | |||||
| Accumulated benefit obligation | 16,122 | 8,585 | ||||||
| Fair value of plan assets | 15,356 | 7,907 | ||||||
| Plans with plan assets in excess of accumulated benefit obligations: | ||||||||
| Projected benefit obligation | $ | 9,741 | 15,217 | |||||
| Accumulated benefit obligation | 8,132 | 13,242 | ||||||
| Fair value of plan assets | 8,752 | 13,934 | ||||||
2016-2020.
2011.
| 2008 | 2007 | ||||
Non-U.S. Plans: | |||||
Insurance contracts | $ | 16,371 | 18,728 | ||
| 2010 | 2009 | |||||||
| Non-U.S. Plans: | ||||||||
| Insurance contracts | $ | 24,108 | 21,841 | |||||
| 2008 | 2007 | |||||
Non-U.S. Plans: | ||||||
Insurance contracts | 100.0 | % | 100.0 | % |
| 2010 | 2009 | |||||||
Non-U.S. Plans: | ||||||||
| Insurance contracts | 100.0 | % | 100.0 | % | ||||
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.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(13) Income Taxes
| (12) | Income Taxes |
| 2010 | 2009 | 2008 | ||||||||||
| United States | $ | 39,332 | (205,737 | ) | (847,624 | ) | ||||||
| Foreign | 153,316 | 128,024 | (424,848 | ) | ||||||||
| Earnings (loss) before income taxes | $ | 192,648 | (77,713 | ) | (1,272,472 | ) | ||||||
57
| 2008 | 2007 | 2006 | ||||||
United States | $ | (853,318 | ) | 349,922 | 494,190 | |||
Foreign | (424,848 | ) | 254,195 | 182,121 | ||||
Income before income taxes | $ | (1,278,166 | ) | 604,117 | 676,311 | |||
| 2008 | 2007 | 2006 | ||||||||
Current income taxes: | ||||||||||
U.S. federal | $ | 61,186 | 109,810 | 206,435 | ||||||
State and local | 8,248 | 8,636 | 20,320 | |||||||
Foreign | 41,232 | 71,047 | 62,322 | |||||||
Total current | $ | 110,666 | 189,493 | 289,077 | ||||||
Deferred income taxes | ||||||||||
U.S. federal | (91,813 | ) | 25,185 | (35,313 | ) | |||||
State and local | (7,511 | ) | (26,535 | ) | (4,932 | ) | ||||
Foreign | 168,720 | (290,840 | ) | (28,354 | ) | |||||
Total deferred | $ | 69,396 | (292,190 | ) | (68,599 | ) | ||||
Total | $ | 180,062 | (102,697 | ) | 220,478 | |||||
| 2010 | 2009 | 2008 | ||||||||||
| Current income taxes: | ||||||||||||
| U.S. federal | $ | 14,052 | (78,051 | ) | 61,186 | |||||||
| State and local | 1,514 | 1,139 | 8,248 | |||||||||
| Foreign | 8,427 | 20,797 | 41,232 | |||||||||
| Total current | 23,993 | (56,115 | ) | 110,666 | ||||||||
| Deferred income taxes: | ||||||||||||
| U.S. federal | (8,578 | ) | 18,082 | (91,813 | ) | |||||||
| State and local | 18,562 | (6,931 | ) | (7,511 | ) | |||||||
| Foreign | (31,264 | ) | (31,730 | ) | 168,720 | |||||||
| Total deferred | (21,280 | ) | (20,579 | ) | 69,396 | |||||||
| Total | $ | 2,713 | (76,694 | ) | 180,062 | |||||||
| 2010 | 2009 | 2008 | ||||||||||
| Income taxes at statutory rate | $ | 67,427 | (27,200 | ) | (445,365 | ) | ||||||
| State and local income taxes, net of federal income tax benefit | 2,358 | (3,874 | ) | (4,113 | ) | |||||||
| Foreign income taxes | (21,389 | ) | (12,840 | ) | (380 | ) | ||||||
| Change in valuation allowance | (17,139 | ) | 12,214 | 276,801 | ||||||||
| Goodwill impairment | — | — | 406,577 | |||||||||
| Notional interest | — | (55,956 | ) | (63,694 | ) | |||||||
| Tax contingencies and audit settlements | (3,447 | ) | 9,634 | 4,990 | ||||||||
| Acquisition related tax contingencies | (30,162 | ) | — | — | ||||||||
| Change in statutory tax rate | (49 | ) | 101 | (254 | ) | |||||||
| Other, net | 5,114 | 1,227 | 5,500 | |||||||||
| $ | 2,713 | (76,694 | ) | 180,062 | ||||||||
58
| 2008 | 2007 | 2006 | ||||||||
Income taxes at statutory rate | $ | (447,358 | ) | 211,441 | 236,709 | |||||
State and local income taxes, net of federal income tax benefit | (4,113 | ) | 10,610 | 4,522 | ||||||
Foreign income taxes | (380 | ) | (25,925 | ) | (26,280 | ) | ||||
Change in valuation allowance | 276,801 | 630 | 28,608 | |||||||
Intellectual property migration to Luxembourg . | — | (271,607 | ) | — | ||||||
Goodwill impairment | 406,577 | — | — | |||||||
Notional interest | (63,694 | ) | (36,446 | ) | (22,510 | ) | ||||
Tax contingencies & audit settlements | 4,990 | 4,406 | — | |||||||
Change in statutory tax rate | (254 | ) | — | (1,528 | ) | |||||
Other, net | 7,493 | 4,194 | 957 | |||||||
| $ | 180,062 | (102,697 | ) | 220,478 | ||||||
SFAS 142
| 2010 | 2009 | |||||||
| Deferred tax assets: | ||||||||
| Accounts receivable | $ | 12,808 | 22,843 | |||||
| Inventories | 46,981 | 46,536 | ||||||
| Accrued expenses and other | 89,549 | 102,665 | ||||||
| Deductible state tax and interest benefit | 15,441 | 24,801 | ||||||
| Intangibles | 164,945 | 199,660 | ||||||
| Federal, foreign and state net operating losses and credits | 201,337 | 214,955 | ||||||
| Gross deferred tax assets | 531,061 | 611,460 | ||||||
| Valuation allowance | (325,127 | ) | (365,944 | ) | ||||
| Net deferred tax assets | 205,934 | 245,516 | ||||||
| Deferred tax liabilities: | ||||||||
| Inventories | (4,358 | ) | (5,089 | ) | ||||
| Plant and equipment | (269,340 | ) | (279,668 | ) | ||||
| Intangibles | (144,120 | ) | (160,429 | ) | ||||
| LIFO change in accounting method | — | (12,850 | ) | |||||
| Other liabilities | (5,338 | ) | (30,144 | ) | ||||
| Gross deferred tax liabilities | (423,156 | ) | (488,180 | ) | ||||
| Net deferred tax liability(1) | $ | (217,222 | ) | (242,664 | ) | |||
| (1) | This amount includes $1,066 and $85 of non-current deferred tax assets which are in deferred income taxes and other non-current assets and $5,089 and $2,836 current deferred tax liabilities which are included in accounts payable and accrued expenses in the consolidated balance sheets as of December 31, 2010 and 2009, respectively. |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Theimpaired assets that are non-deductible for tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 are presented below:
| 2008 | 2007 | ||||||
Deferred tax assets: | |||||||
Accounts receivable | $ | 21,368 | 21,346 | ||||
Inventories | 50,998 | 44,354 | |||||
Accrued expenses and other | 98,284 | 92,672 | |||||
Deductible state tax and interest benefit | 22,579 | 20,747 | |||||
Intangibles | 216,047 | 249,057 | |||||
Foreign and state net operating losses and credits | 158,685 | 99,858 | |||||
Valuation allowance | (343,572 | ) | (75,028 | ) | |||
Gross deferred tax assets | 224,389 | 453,006 | |||||
Deferred tax liabilities: | |||||||
Plant and equipment | (273,076 | ) | (277,013 | ) | |||
Intangibles | (167,271 | ) | (324,284 | ) | |||
LIFO change in accounting method | (25,700 | ) | (38,682 | ) | |||
Other liabilities | (32,125 | ) | (39,856 | ) | |||
Gross deferred tax liabilities | (498,172 | ) | (679,835 | ) | |||
Net deferred tax liability(1) | $ | (273,783 | ) | (226,829 | ) | ||
Management believes it is more likely than not the Company will realize the benefits of these deductible differences, with the exception of certain deferred tax assets discussed below, based upon the expected reversal of deferred tax liabilities and the level of historical and projected taxable income over periods in which the deferred tax assets are deductible.
purposes.
59
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2010.
quarter ended September 27, 2008.
The Company adopted the provisions of FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No 109,”(“FIN 48”) on January 1, 2007. Upon adoption, the Company recognized no change to opening retained earnings.
The2010, the Company’s total balancegross amount of unrecognized tax benefits as of December 31, 2008 and 2007, is $91,887 and $116,857, respectively,$49,943, excluding any accruals for interest and penalties. If the Company were to prevail on all uncertain tax positions, $37,379 of the
60
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
interest and penalties.
| 2008 | 2007 | ||||||
Balance at January 1 | $ | 116,857 | 156,018 | ||||
Additions based on tax positions related to the current year | 5,610 | 2,012 | |||||
Additions for tax positions of prior years | 12,167 | 4,459 | |||||
Effects of foreign currency translation | (1,592 | ) | 5,484 | ||||
Reductions for tax positions of prior years | (842 | ) | (23,179 | ) | |||
Reductions resulting from the lapse of the statute of limitations | (36,436 | ) | (17,239 | ) | |||
Settlements with taxing authorities | (3,877 | ) | (10,698 | ) | |||
Balance at December 31 | $ | 91,887 | 116,857 | ||||
Included in the balance as of December 31, 2008 and 2007, is $39,588 and $29,373, respectively, of uncertain tax positions that, if recognized, would affect the Company’s overall effective tax rate.
| 2010 | 2009 | |||||||
| Balance as of January 1 | $ | 105,779 | 91,887 | |||||
| Additions based on tax positions related to the current year | 4,028 | 8,678 | ||||||
| Additions for tax positions of prior years | 13,726 | 10,630 | ||||||
| Reductions for tax positions of prior years | (9,273 | ) | — | |||||
| Reductions resulting from the lapse of the statute of limitations | (1,517 | ) | (60 | ) | ||||
| Settlements with taxing authorities | (61,063 | ) | (5,562 | ) | ||||
| Effects of foreign currency translation | (1,737 | ) | 206 | |||||
| Balance as of December 31 | $ | 49,943 | 105,779 | |||||
The Company is also under examination for tax years 2004-2006prior to 2007, with the IRS and in various state and foreign jurisdictions for which the anticipated adjustments would not result in a significant changeexception of one open issue related to the total amount of unrecognized2004-2006 tax benefits.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(14) Commitments and Contingencies and Other
years.
| (13) | Commitments and Contingencies |
| Capital | Operating | Total Future Payments | ||||||
2009 | $ | 5,169 | 106,932 | 112,101 | ||||
2010 | 1,496 | 86,277 | 87,773 | |||||
2011 | 881 | 68,017 | 68,898 | |||||
2012 | 451 | 52,516 | 52,967 | |||||
2013 | 515 | 39,814 | 40,329 | |||||
Thereafter | 1,269 | 80,372 | 81,640 | |||||
Total payments | 9,781 | 433,928 | 443,709 | |||||
Less amount representing interest | (795 | ) | ||||||
Present value of capitalized lease payments | $ | 8,986 | ||||||
| Total Future | ||||||||||||
| Capital | Operating | Payments | ||||||||||
| 2011 | $ | 1,383 | 91,696 | 93,079 | ||||||||
| 2012 | 770 | 75,631 | 76,401 | |||||||||
| 2013 | 497 | 59,492 | 59,989 | |||||||||
| 2014 | 418 | 49,706 | 50,124 | |||||||||
| 2015 | 296 | 38,518 | 38,814 | |||||||||
| Thereafter | 538 | 41,773 | 42,311 | |||||||||
| Total payments | 3,902 | 356,816 | 360,718 | |||||||||
| Less amount representing interest | 395 | |||||||||||
| Present value of capitalized lease payments | $ | 3,507 | ||||||||||
61
In Collins & Aikman Floorcoverings, Inc., et. al. v. Interface, Inc., United States District Courtaccrued for its portion of the Northern District of Georgia (Rome Division), Mohawk Industries, Inc. joined Collins & Aikman Floorcoverings, Inc. (“CAF”) and Shaw Industries Group, Inc. (“Shaw”)settlement in suing Interface, Inc. (“Interface”) for
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
declaratory judgments that United States Patent 6,908,656 (the “Patent”), assigned to Interface and relating to certain styles of carpet tiles, is not infringed and is invalid. Also in June 2005, in Interface, Inc., et el. v. Mohawk Industries, Inc., et al. United States District Court for the Northern District of Georgia (Atlanta Division), Interface sued Mohawk Industries, Inc., Mohawk Carpet Corporation, and Mohawk Commercial, Inc. for allegedly infringing the Patent. Interface brought similar suits against entities affiliated with CAF and Shaw. Interface is seeking monetary damages as well as injunctive relief.a prior year. The cases have been consolidatedclaims process was completed in the United States District Court for the Northern Districtthird quarter of Georgia (Rome Division). In January 2008, the Company joined CAF and Shaw in filing summary judgement motions seeking to establish as a matter of law before trial that the Patent was invalid, that it was not willfully infringed, and that Interface could not obtain damages for lost profits. On February 25, 2009, the District Court (i) denied the Company, CAF’s and Shaw’s motions that the patent was invalid (ii) granted their motions that should infringement be found that any such infringement would not be willful, and (iii) granted in part and denied in part their motions that Interface could not obtain damages for lost profits. The Company is vigorously pursuing its declaratory judgment claims of invalidity and non-infringement with respect to the Patent and defending against the claims brought by Interface for infringement of the Patent. A trial date is anticipated to be set for later in 2009.
2010.
year.
During the fourth quarter of 2008, the
62
| �� | ||||||||||||||||||||||||
| Inventory | Other | |||||||||||||||||||||||
| Asset | Write- | Lease | Restructuring | |||||||||||||||||||||
| Write-Downs(1) | Downs | Impairments | Severance | Costs | Total | |||||||||||||||||||
| 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 | ||||||||||||||||||
| Provisions | ||||||||||||||||||||||||
| Mohawk segment | 3,989 | — | (403 | ) | 305 | 6,452 | 10,343 | |||||||||||||||||
| Dal-Tile segment | — | — | — | 1,223 | — | 1,223 | ||||||||||||||||||
| Unilin segment | 815 | — | — | 775 | — | 1,590 | ||||||||||||||||||
| Cash payments | — | — | (9,687 | ) | (8,019 | ) | (9,033 | ) | (26,739 | ) | ||||||||||||||
| Noncash items | (4,804 | ) | — | — | — | — | (4,804 | ) | ||||||||||||||||
| Balance as of December 31, 2010 | $ | — | — | 10,983 | 2,108 | 420 | 13,511 | |||||||||||||||||
| (1) | Includes $815 and $4,313 in 2010 and 2009, respectively which were charged to depreciation. |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(15) Consolidated Statements of Cash Flows Information
2011.
| (14) | Consolidated Statements of Cash Flows Information |
| 2008 | 2007 | 2006 | ||||||||
Net cash paid during the year for: | ||||||||||
Interest | $ | 129,465 | 157,296 | 154,897 | ||||||
Income taxes | $ | 107,638 | 201,851 | 267,075 | ||||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||||
Fair value of assets acquired in acquisition | $ | 9,745 | 165,463 | 113,008 | ||||||
Liabilities assumed in acquisition | (1,469 | ) | (18,310 | ) | (33,366 | ) | ||||
| $ | 8,276 | 147,153 | 79,642 | |||||||
(16) Segment Reporting
| 2010 | 2009 | 2008 | ||||||||||
| Net cash paid (received) during the year for: | ||||||||||||
| Interest | $ | 139,358 | 127,623 | 129,465 | ||||||||
| Income taxes | $ | (5,862 | ) | (3,841 | ) | 107,638 | ||||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||||||
| Fair value of assets acquired in acquisition | $ | — | 17,911 | 9,745 | ||||||||
| Liabilities assumed in acquisition | — | (11,987 | ) | (1,469 | ) | |||||||
| $ | — | 5,924 | 8,276 | |||||||||
| (15) | Segment Reporting |
63
centers.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
2008.
| 2010 | 2009 | 2008 | ||||||||||
| Net sales: | ||||||||||||
| Mohawk | $ | 2,844,876 | 2,856,741 | 3,628,183 | ||||||||
| Dal-Tile | 1,367,442 | 1,426,757 | 1,815,373 | |||||||||
| Unilin | 1,188,274 | 1,128,315 | 1,465,208 | |||||||||
| Intersegment sales | (81,520 | ) | (67,789 | ) | (82,416 | ) | ||||||
| $ | 5,319,072 | 5,344,024 | 6,826,348 | |||||||||
| Operating income (loss)(1): | ||||||||||||
| Mohawk | $ | 122,904 | (125,965 | ) | (216,152 | ) | ||||||
| Dal-Tile | 97,334 | 84,154 | (323,370 | ) | ||||||||
| Unilin | 114,298 | 105,953 | (564,911 | ) | ||||||||
| Corporate and eliminations | (20,367 | ) | (20,412 | ) | (19,701 | ) | ||||||
| $ | 314,169 | 43,730 | (1,124,134 | ) | ||||||||
| Depreciation and amortization: | ||||||||||||
| Mohawk | $ | 91,930 | 94,134 | 92,130 | ||||||||
| Dal-Tile | 45,578 | 47,934 | 46,093 | |||||||||
| Unilin | 145,941 | 151,450 | 149,543 | |||||||||
| Corporate | 13,324 | 9,486 | 7,288 | |||||||||
| $ | 296,773 | 303,004 | 295,054 | |||||||||
| Capital expenditures (excluding acquisitions): | ||||||||||||
| Mohawk | $ | 84,013 | 35,149 | 78,239 | ||||||||
| Dal-Tile | 37,344 | 17,683 | 41,616 | |||||||||
| Unilin | 29,439 | 45,966 | 90,500 | |||||||||
| Corporate | 5,384 | 10,127 | 7,469 | |||||||||
| $ | 156,180 | 108,925 | 217,824 | |||||||||
| Assets: | ||||||||||||
| Mohawk | $ | 1,637,319 | 1,582,652 | 1,876,696 | ||||||||
| Dal-Tile | 1,644,448 | 1,546,393 | 1,693,765 | |||||||||
| Unilin | 2,475,049 | 2,598,182 | 2,663,599 | |||||||||
| Corporate and intersegment eliminations | 342,110 | 664,219 | 212,115 | |||||||||
| $ | 6,098,926 | 6,391,446 | 6,446,175 | |||||||||
| Geographic net sales: | ||||||||||||
| North America | $ | 4,447,965 | 4,516,784 | 5,776,701 | ||||||||
| Rest of world | 871,107 | 827,240 | 1,049,647 | |||||||||
| $ | 5,319,072 | 5,344,024 | 6,826,348 | |||||||||
64
| 2008 | 2007 | 2006 | ||||||||
Net sales: | ||||||||||
Mohawk. | $ | 3,628,183 | 4,205,740 | 4,742,060 | ||||||
Dal-Tile | 1,815,373 | 1,937,733 | 1,941,819 | |||||||
Unilin | 1,465,208 | 1,487,645 | 1,236,918 | |||||||
Corporate and eliminations | (82,416 | ) | (45,100 | ) | (14,955 | ) | ||||
| $ | 6,826,348 | 7,586,018 | 7,905,842 | |||||||
Operating income(1): | ||||||||||
Mohawk | $ | (216,152 | ) | 254,924 | 387,386 | |||||
Dal-Tile | (323,370 | ) | 258,706 | 270,901 | ||||||
Unilin | (564,911 | ) | 272,260 | 214,093 | ||||||
Corporate and eliminations | (19,701 | ) | (35,784 | ) | (33,320 | ) | ||||
| $ | (1,124,134 | ) | 750,106 | 839,060 | ||||||
Depreciation and amortization: | ||||||||||
Mohawk | $ | 92,130 | 95,933 | 95,089 | ||||||
Dal-Tile | 46,093 | 44,216 | 37,576 | |||||||
Unilin | 149,543 | 159,859 | 135,337 | |||||||
Corporate | 7,288 | 6,429 | 6,950 | |||||||
| $ | 295,054 | 306,437 | 274,952 | |||||||
Capital expenditures (excluding acquisitions): | ||||||||||
Mohawk | $ | 78,239 | 65,842 | 71,793 | ||||||
Dal-Tile | 41,616 | 33,134 | 63,177 | |||||||
Unilin | 90,500 | 58,711 | 28,688 | |||||||
Corporate | 7,469 | 5,389 | 2,111 | |||||||
| $ | 217,824 | 163,076 | 165,769 | |||||||
Assets: | ||||||||||
Mohawk | $ | 1,876,696 | 2,302,527 | 2,488,856 | ||||||
Dal-Tile | 1,693,765 | 2,259,811 | 2,257,107 | |||||||
Unilin | 2,663,599 | 3,916,739 | 3,309,574 | |||||||
Corporate and eliminations | 212,115 | 200,973 | 156,672 | |||||||
| $ | 6,446,175 | 8,680,050 | 8,212,209 | |||||||
Geographic net sales: | ||||||||||
North America | $ | 5,776,701 | 6,477,277 | 6,974,488 | ||||||
Rest of world | 1,049,647 | 1,108,741 | 931,354 | |||||||
| $ | 6,826,348 | 7,586,018 | 7,905,842 | |||||||
Long-lived assets(2): | ||||||||||
North America | $ | 2,120,067 | 3,028,571 | 2,995,968 | ||||||
Rest of world | 1,205,109 | 1,744,489 | 1,591,759 | |||||||
| $ | 3,325,176 | 4,773,060 | 4,587,727 | |||||||
Net Sales by Product Categories(3): | ||||||||||
Soft surface | $ | 3,337,073 | 3,797,584 | 4,225,514 | ||||||
Tile | 1,919,070 | 2,110,705 | 2,200,918 | |||||||
Wood | 1,570,205 | 1,677,729 | 1,479,410 | |||||||
| $ | 6,826,348 | 7,586,018 | 7,905,842 | |||||||
| 2010 | 2009 | 2008 | ||||||||||
| Long-lived assets(2): | ||||||||||||
| North America | $ | 1,971,611 | 2,000,522 | 2,120,067 | ||||||||
| Rest of world | 1,084,906 | 1,202,018 | 1,205,109 | |||||||||
| $ | 3,056,517 | 3,202,540 | 3,325,176 | |||||||||
| Net sales by product categories(3): | ||||||||||||
| Soft surface | $ | 2,645,952 | 2,650,452 | 3,337,073 | ||||||||
| Tile | 1,428,571 | 1,491,846 | 1,919,070 | |||||||||
| Wood | 1,244,549 | 1,201,726 | 1,570,205 | |||||||||
| $ | 5,319,072 | 5,344,024 | 6,826,348 | |||||||||
| (1) | Operating income (loss) includes the impact of the impairment of goodwill and other intangibles recognized in |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| (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) Fair Value of Financial Instruments
As noted above in Note 1, the Company has only adopted the provisions of SFAS No. 157 with respect to its financial assets and liabilities that are measured at fair value within the consolidated financial statements. At December 31, 2008, these provisions only apply to derivative contracts, which include natural gas futures contracts and foreign exchange forward contracts. The income approach is used which consists of a discounted cash flow model that takes into account the present value of future cash flows under the terms of the contracts using observable market inputs such as natural gas and foreign exchange spot and forward rates, interest rates, the Company’s credit risk and its counterparties’ credit risks. As of December 31, 2008, there has not been any significant impact to the fair value of the Company’s derivative liabilities due to its own credit risk.
The following table provides a summary of the fair values of financial assets and liabilities subject to SFAS No. 157:
| Fair Value Measurements at December 31, 2008 Using | |||||||||||
| December 31, 2008 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||
Derivative assets (liabilities) | $ | (11,150 | ) | — | (11,150 | ) | — | ||||
(18) Quarterly Financial Data (Unaudited)
| (16) | Quarterly Financial Data (Unaudited) |
| Quarters Ended | |||||||||||
| March 29, 2008 | June 28, 2008 | September 27, 2008 | December 31, 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 | 65,390 | 88,778 | (1,484,781 | ) | (127,615 | )(1) | |||||
Basic earnings per share | 0.96 | 1.30 | (21.70 | ) | (1.87 | ) | |||||
Diluted earnings per share | 0.95 | 1.29 | (21.70 | ) | (1.87 | ) | |||||
| 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 | (2) | ||||||
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 3, | July 3, | October 2, | December 31, | |||||||||||||
| 2010 | 2010(1) | 2010(1) | 2010(1) | |||||||||||||
| Net sales | $ | 1,347,236 | 1,400,086 | 1,309,552 | 1,262,198 | |||||||||||
| Gross profit | 341,246 | 374,756 | 344,932 | 341,666 | ||||||||||||
| Net earnings | 20,538 | 68,081 | 51,094 | 45,758 | ||||||||||||
| Basic earnings per share | 0.30 | 0.95 | 0.74 | 0.67 | ||||||||||||
| Diluted earnings per share | 0.30 | 0.95 | 0.74 | 0.66 | ||||||||||||
| 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 | |||||||||||
| (1) | Basic and diluted earnings per share for the |
65
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None
| Item 9A. | Controls and Procedures |
| Item 9B. | Other Information |
None.
66
| Item 10. | Directors and Executive Officers and Corporate Governance |
20092011 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”Compliance,” “Audit Committee” and “Audit Committee.“Corporate Governance.” The Company has adopted the Mohawk Industries, Inc. Standards of Conduct and Ethics, which applies to all of its directors, officers and employees. The standards of conduct and ethics are publicly available on ourthe Company’s website athttp://mohawkind.comwww.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 20092011 Annual Meeting of Stockholders under the following headings: “Compensation, Discussion and Analysis,” “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,” “—Compensation Committee Report,”Report” and “Director Compensation.”Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 20092011 Annual Meeting of Stockholders under the following headings: “Executive Compensation and Other Information—Information — Equity Compensation Plan Information,” and “—Principal Stockholders of the Company.”Item 13. Certain Relationships and Related Transactions, and Director Independence 20092011 Annual Meeting of Stockholders under the following 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 AccountantAccounting Fees and Services20092011 Annual Meeting of Stockholders under the following heading: “Audit Committee—Committee — Principal Accountant Fees and Services” and “Meetings and Committees of the Board.”
67
| Item 15. | Exhibits and Financial Statement Schedules |
(a) 1. Consolidated Financial Statements
| (a) | 1. Consolidated Financial Statements |
2. Consolidated Financial Statement Schedules
| 2. | Consolidated Financial Statement Schedules |
3. Exhibits
| 3. | Exhibits |
|
| |||
| 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 Mohawk. (Incorporated herein by reference to Exhibit 3.2 in Mohawk’s Report onForm 8-K dated December 4, 2007.) | ||||
| *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 Mohawk. (Incorporated herein by reference to Exhibit 3.2 in Mohawk’s Current Report onForm 8-K dated December 4, 2007.) | ||||
| *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.) | ||
68
| Mohawk | ||||
| Exhibit | ||||
| Number | Description | |||
| * | .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 | ||||
|
| |||
| *10 | ||||
Exhibits Related to Executive Compensation Plans, Contracts and other Arrangements: | ||||
| *10 | ||||
| Service Agreement dated February 24, 2009, by and between Unilin Industries BVBA and BVBA “F. De Cock | ||||
| *10 | ||||
| Service Agreement dated February 9, 2009, by and between Unilin Industries BVBA and Comm. V. “Bernard Thiers”. (Incorporated herein by reference to Exhibit 10.7 in Mohawk’s Annual Report onForm 10-K (FileNo. 001-13697) for the fiscal year ended December 31, 2009.) | ||||
| *10 | .9 | Second Amended and Restated Employment Agreement, dated | ||
| *10 | ||||
| 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 | ||||
| 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 | ||||
| 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 | ||||
| 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 | ||
| 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, RegistrationNumber | ||
| *10 | ||
| 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 | ||
| 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 | ||
| 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.) |
69
| Mohawk | ||||
| Exhibit | ||||
| Number | Description | |||
| *10 | .18 | 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 | .19 | The Mohawk Industries, Inc. Senior Management Deferred Compensation Plan. | ||
| *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. | ||
| 101 | .INS | XBRL Instance Document | ||
| 101 | .SCH | XBRL Taxonomy Extension Schema Document | ||
| 101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101 | .DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||
| 101 | .LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
| 101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||
| * | ||
| Indicates exhibit incorporated by reference. |
70
Dated: March | By: /s/ JEFFREY S. LORBERBAUM | |||
| ||||
| Jeffrey S. Lorberbaum, | ||||
Chairman and Chief Executive Officer |
Dated: March 2, 2009 /s/ JEFFREY S. LORBERBAUM Dated: March 1, 2011 Jeffrey S. Lorberbaum,
Chairman and Chief Executive Officer
(principal executive officer)Dated: March 2, 2009 /s/ FRANK H. BOYKIN Dated: March 1, 2011 Frank H. Boykin,
Chief Financial Officer and Vice President-Finance
(principal financial officer)Dated: March 2, 2009 /s/ THOMAS J. KANUK Thomas J. Kanuk, Dated: March 1, 2011 James F. Brunk,
Vice President and Corporate Controller
(principal accounting officer)Dated: March 2, 2009 /s/ PHYLLIS O. BONANNO Dated: March 1, 2011 Phyllis O. Bonanno,
Director DirectorDated: March 2, 2009 /s/ BRUCE C. BRUCKMANN Dated: March 1, 2011 Bruce C. Bruckmann,
Director DirectorDated: March 2, 2009 /s/ FRANS DE COCK Dated: March 1, 2011 Frans De Cock,
Director DirectorDated: Dated: March 1, 2011 John F. Fiedler,
Director DirectorDated: March 2, 2009 /s/ DAVID L. KOLB Dated: March 1, 2011 David L. Kolb,
Director
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Dated: March |
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| Robert N. Pokelwaldt, Director | ||
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| Dated: March 1, 2011 | /s/ JOSEPH A. ONORATO | |
| Joseph A. Onorato, Director | ||
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| Dated: March 1, 2011 | /s/ W. CHRISTOPHER WELLBORN | |
| W. Christopher Wellborn, | ||
Director | ||
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