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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): DECEMBER 7, 2001
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DAL-TILE INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-64140 13-3548809
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of incorporation) Identification Number)
7834 HAWN FREEWAY 75217
DALLAS, TEXAS (Zip code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (214) 398-1411
NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
Dal-Tile International Inc. ("Dal-Tile") is filing the following
information for the purpose of incorporating it by reference into the
Registration Statement on Form S-4 to be filed by Mohawk Industries, Inc.
("Mohawk") on December 7, 2001. The Registration Statement includes the joint
proxy statement-prospectus regarding the proposed acquisition of Dal-Tile by
Mohawk pursuant to the terms of the Merger Agreement, dated November 19,
2001, by and among Dal-Tile, Mohawk and Maverick Merger Sub, Inc.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW. IF ANY OF THE
FOLLOWING EVENTS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS
OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.
RISKS RELATING TO OUR INDUSTRY AND OUR BUSINESS
OUR INDUSTRY IS CYCLICAL AND PROLONGED DECLINES IN RESIDENTIAL OR COMMERCIAL
CONSTRUCTION ACTIVITY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
The U.S. ceramic tile industry is highly dependent on residential and
commercial construction activity--new construction as well as remodeling. This
construction activity is cyclical in nature and a prolonged decline in
residential or commercial construction could have a material adverse effect on
our business, financial condition and results of operations. Construction
activity is significantly affected by numerous factors, all of which are beyond
our control, including:
- national and local economic conditions;
- interest rates;
- housing demand;
- employment levels;
- changes in disposable income;
- financing availability;
- commercial rental vacancy rates;
- federal and state income tax policies; and
- consumer confidence.
The U.S. construction industry has experienced significant downturns in the
past, which have adversely affected suppliers to the industry, including
suppliers of ceramic tile. We cannot assure you that the industry will not
experience similar downturns in the future.
WE FACE INTENSE COMPETITION IN OUR INDUSTRY, WHICH COULD DECREASE DEMAND FOR OUR
PRODUCTS.
Our industry is highly fragmented and competitive. We face competition from
a large number of domestic and foreign manufacturers and independent
distributors of ceramic tile. In addition, our products compete with numerous
other wall and floor coverings for residential and commercial uses, including
carpet, resilient flooring, wood flooring, laminates, stone, wallpaper, wood
paneling, paint and other products. Some of our existing and potential
competitors may be larger and have greater resources and access to capital than
we do. Maintaining our competitive position may require us to make substantial
investments in our product development efforts, manufacturing facilities,
distribution network and sales and marketing activities. Competitive pressures
may also result in decreased demand for our products and in the loss of market
share. In addition, we face, and will continue to face, pressure on sales prices
of our products from competitors, as well as from large customers. As a result
of these pricing pressures, we may in the future experience reductions in the
profit margins on sales.
In 1999, approximately 75% of U.S. ceramic tile unit sales consisted of
imports, including ceramic tile manufactured at our Monterrey, Mexico facility
and sold by us in the United States. Production from our Mexican facility
accounted for approximately 7% of U.S. ceramic tile unit sales in 2000. In
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recent years, imports have accounted for an increasing proportion of U.S.
ceramic tile sales. Consequently, changes in exchange rates or global economic
conditions could affect our competitive position with respect to our foreign
competitors.
WE RELY ON THIRD PARTY SUPPLIERS FOR RAW MATERIALS, AND IF WE WERE UNABLE TO
OBTAIN THESE MATERIALS ON A TIMELY BASIS, OUR BUSINESS COULD BE MATERIALLY
ADVERSELY AFFECTED.
Our business is dependent upon a continuous supply of raw materials from
third party suppliers. The principal raw materials used in our manufacturing
operations include talc, clay, impure nepheline syenite, pure nepheline syenite
and various glazes, including frit (ground glass), zircon, stains and other
materials. We purchase all of our impure nepheline syenite requirements from
Minnesota Mining and Manufacturing Company and all of our pure nepheline syenite
requirements from Unimin Corporation. Unimin is the only major supplier of pure
nepheline syenite in North America. An extended interruption in the supply of
these or other raw materials used in our business or in the supply of suitable
substitute materials would disrupt our operations, which could have a material
adverse affect on our business, financial condition and results of operations.
Manufacturing and delivery problems may occur with our suppliers and they may
fail to supply materials to us on a timely basis, or may supply us with
materials that do not meet our quality, quantity or cost requirements. In
addition, we cannot assure you that suitable alternative suppliers or substitute
materials will be available in the future.
WE MAY BE UNABLE TO PASS ON TO OUR CUSTOMERS INCREASES IN THE COSTS OF RAW
MATERIAL AND ENERGY.
Significant increases in the costs of raw materials and natural gas used in
the manufacture of our products could materially adversely affect our operating
margins and our business, financial condition and results of operations. We
purchase talc, clay, impure nepheline syenite, pure nepheline syenite, frit,
zircon, stains and other materials from third party suppliers. In addition, we
also purchase significant amounts of natural gas to supply the energy required
in our production process. The prices of these raw materials and of natural gas
vary with market conditions. Our ability to pass on increases in the costs of
raw materials and natural gas to our customers is, to a large extent, dependent
upon the rate and magnitude of any increase and on market conditions for our
products. There have been in the past, and may be in the future, periods of time
during which increases in these costs cannot be recovered.
WE ARE HEAVILY DEPENDENT ON THIRD PARTY TRANSPORTATION, WHICH SUBJECTS US TO
RISKS WE CANNOT CONTROL AND WHICH MAY ADVERSELY AFFECT OUR BUSINESS.
We rely heavily on railroads and trucking and other transportation companies
to transport raw materials to our manufacturing facilities, to import finished
goods for resale and to ship finished product throughout our distribution system
and to our customers. These companies are subject to various risks, including
extreme weather conditions, work stoppages and strikes and operating hazards. If
any of these events occur, we may experience delays or interruptions in
transportation or significant increases in related costs. If we are unable to
arrange efficient alternatives and timely means to obtain raw materials and
finished goods or to ship our goods, our business, financial condition and
results of operations could be materially adversely affected.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY LABOR DISPUTES.
Approximately 10% of our employees in the United States are represented by
unions under collective bargaining agreements with the United Steelworkers of
America International Union, which expire in November 5, 2002 and February 1,
2004. Approximately 90% of our employees in Mexico are
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represented by a union under a collective bargaining agreement with the
Sindicato Industrial de Trabajadores y Empleados del Estado de Nuevo Leon,
which expires in December 2001 and which we expect to be renegotiated in
January 2002. Although we consider our relations with our employees to be
generally good, we cannot assure you that we will not experience work
stoppages, strikes or slowdowns in the future. A prolonged work stoppage,
strike or slowdown could have a material adverse effect on our business,
financial condition and results of operations. In addition, we cannot assure
you that, upon expiration of any of our existing collective bargaining
agreements, new agreements will be reached without union action or that any
new agreement will be on terms satisfactory to us. Moreover, we cannot assure
you that our non-union facilities will not become subject to labor union
organizing efforts. If any of our current non-union facilities were to
unionize, we would incur increased risk of work stoppages, and possibly
higher labor costs.
OUR BUSINESS WOULD BE ADVERSELY AFFECTED IF WE WERE UNABLE TO MAINTAIN OUR
RELATIONSHIP WITH MAJOR HOME CENTER RETAILERS.
Approximately 9.5% of our revenues in fiscal 2000 were derived from sales to
Home Depot and Lowe's. We believe our relationships with Home Depot and Lowe's
are good, but we cannot assure you that we will be able to maintain these
relationships. The loss of Home Depot or Lowe's as a customer or a significant
reduction in sales to these customers could have a material adverse affect on
our business, financial condition and results of operations.
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WE HAVE BEEN, AND MAY IN THE FUTURE BE, SUBJECT TO CLAIMS AND LIABILITIES UNDER
ENVIRONMENTAL, HEALTH AND SAFETY LAWS AND REGULATIONS.
Our operations are subject to federal, state, local and foreign
environmental, health and safety laws and regulations, including those governing
air emissions, wastewater discharges, and the use, storage, treatment and
disposal of hazardous materials. Compliance with current laws and regulations
has not had, and is not expected to have, a material adverse effect on us,
including with respect to our capital expenditures, earnings and competitive
position. However, 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. We cannot assure you that new or
additional requirements will not be imposed, or that expenditures, including
material expenditures, will not be required to comply with these regulations.
The nature of our operations and previous operations by others at real
property currently or formerly owned or operated by us and the disposal of waste
at third party sites exposes us to the risk of claims under environmental,
health and safety laws and regulations, and we cannot assure you that material
costs or liabilities will not be incurred in connection with such claims. We
have been, and will continue to be, subject to these claims, and have provided
adequate reserves for the activities that we have determined to be both probable
and reasonably estimable. Based on our experience to date, and various
indemnification rights, we do not believe that those existing claims will have
any material effect on our business, operating results or financial condition.
We cannot assure you that the discovery of presently unknown environmental
conditions, changes in environmental, health, and safety laws and regulations,
enforcement of existing or new requirements or other unanticipated events will
not give rise to expenditures or liabilities, including fines or penalties, that
may have a material effect, or that indemnification will be available or
sufficient to cover all costs.
WE RELY ON OUR MONTERREY, MEXICO PLANT FOR A SIGNIFICANT PORTION OF OUR
MANUFACTURING CAPACITY.
Our largest manufacturing facility, which we believe to be one of the
lowest-cost facilities in the ceramic tile industry, is located in Monterrey,
Mexico and represents approximately 44% of our total manufacturing capacity.
This facility contains five distinct manufacturing plants, three of which
produce ceramic tile, one which produces frit used in the production of
manufactured tile and one which produces refractories. We are increasing our
manufacturing capacity outside of the Monterrey facility; however, a significant
interruption in our manufacturing at this facility could have a material adverse
effect on our business, financial condition and results of operations.
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CHANGES IN INTERNATIONAL TRADE LAWS AND IN THE BUSINESS, POLITICAL AND
REGULATORY ENVIRONMENT IN MEXICO COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Our operations in Mexico include our Monterrey facility and contractual
arrangements with Recumbrimientos Interceramic, S.A. de C.V., our Mexican joint
venture. Accordingly, an event that has a material adverse impact on our Mexican
operations may materially adversely affect our operations as a whole. The
business, regulatory and political environments in Mexico differ from those in
the United States and our Mexican operations are exposed to a number of inherent
risks, including:
- changes in international trade laws, such as the North American Free Trade
Agreement, or NAFTA, affecting our import and export activities in Mexico;
- changes in Mexican labor laws and regulations affecting our ability to
hire and retain employees in Mexico;
- currency exchange restrictions and fluctuations in the value of foreign
currency;
- potentially adverse tax consequences;
- longer payment cycles;
- greater difficulties in accounts receivable collection;
- political conditions in Mexico;
- unexpected changes in the regulatory environment in Mexico; and
- changes in general economic conditions in Mexico.
If any of the events described in these risks were to occur, it could have a
material adverse effect on our business, financial condition and results of
operations.
FUTURE EXCHANGE RATE FLUCTUATIONS OR INFLATION MAY ADVERSELY AFFECT OUR RESULTS
OF OPERATIONS.
Our Mexican facility, which is considered an extension of our U.S.
operations, primarily provides ceramic tile to our U.S. distribution network
and, to a more limited extent, sells ceramic tile in Mexico. In fiscal 2000, our
Mexican facility's expenses represented approximately 9.0% of our consolidated
expenses, while our sales in Mexico represented approximately 3.4% of our
consolidated net sales. As a result, we have more peso-denominated expenses than
revenues. This means that we realize a benefit when the peso devalues against
the U.S. dollar, although this benefit may be offset by Mexican inflation. Any
future increases in the Mexican inflation rate which are not offset by
devaluation of the peso may negatively affect our results of operations. The
Mexican peso has been, and may in the future be, subject to significant
fluctuations. To the extent that the peso appreciates against the U.S. dollar,
our business, financial condition and results of operations could be adversely
affected.
In addition, we purchase equipment for our manufacturing facilities and are
increasingly purchasing products for distribution to our customers from
suppliers based in various European countries, including porcelain tile from Dal
Italia LLC, our Italian joint venture with EmilCeramica S.p.A. Because we have
higher expenses than revenues in foreign currencies, any devaluation of the U.S.
dollar as compared to foreign currencies could have an adverse effect on our
business, financial condition and results of operations.
We recognize foreign currency transaction and translation gains or losses in
other income and expense. We use foreign currency forward contracts to hedge
against a portion of currency risk associated with various foreign currencies.
However, we cannot assure you that our hedging activities will be successful in
eliminating or substantially reducing our exposure to fluctuations in the value
of foreign currencies.
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WE COULD FACE INCREASED COMPETITION AS THE RESULT OF THE GENERAL AGREEMENT ON
TARIFFS AND TRADE AND THE NORTH AMERICAN FREE TRADE AGREEMENT.
The United States is a party to the General Agreement on Tariffs and Trade,
or GATT. Under GATT, the United States currently imposes import duties on
ceramic tile imported from countries outside of North America at no more than
13%, to be reduced ratably to no less than 8.5% by 2004. Accordingly, as these
duties decrease, GATT may stimulate competition from manufacturers in these
countries which now export, or may seek to export, ceramic tile to the United
States. We are uncertain what effect GATT may have on our operations.
NAFTA, which was entered into by Canada, Mexico and the United States and
became effective on January 1, 1994, has created the world's largest free-trade
zone. NAFTA has, among other things, removed and will continue to remove, over a
transition period, most normal customs duties imposed on goods traded among the
three countries. In addition, NAFTA will remove or limit many investment
restrictions, liberalize trade in services, provide a specialized means for
settlement of, and remedies for, trade disputes arising under its laws and will
result in new laws and regulations to further these goals. Although NAFTA lowers
the tariffs imposed on our ceramic tile manufactured in Mexico and sold in the
United States, it also may stimulate competition in the United States and Canada
from manufacturers located in Mexico. For example, the United States currently
imposes import duties on glazed ceramic tile from Mexico of approximately 8.8%,
although these duties are being phased out ratably under NAFTA through 2008. We
are uncertain what effect NAFTA may have on our operations.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAL-TILE INTERNATIONAL INC.
By: /s/ Mark A. Solls
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Name: Mark A. Solls
Title: General Counsel
Date: December 7, 2001
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