[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Administrator
Mohawk Carpet Corporation
Retirement Savings Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the Mohawk Carpet Corporation Retirement Savings Plan ("Plan") as of
December 31, 1996 and 1995, and the related statement of changes in net assets
available for plan benefits for the year ended December 31, 1996. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of December 31, 1996 and 1995, and the changes in net assets available for plan
benefits for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions as of or for the year ended
December 31, 1996, are presented for the purpose of additional analysis and are
not a required part of the basic financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedules have been subjected to auditing procedures
applied in the audit of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ KPMG Peat Marwick LLP
March 28, 1997
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 1996 and 1995
1996 1995
----------- -----------
Assets:
Investments (notes 3, 4, and 6):
Common trust fund, at fair value $16,271,095 10,444,435
Group annuity contracts, at contract value 32,122,563 32,406,424
Mohawk Industries, Inc. common stock, at fair value 6,196,168 3,757,266
Money market funds, at fair value 258,980 97,182
Loans to participants, at fair value 2,442,484 1,891,412
----------- -----------
57,291,290 48,596,719
Cash -- 599,997
Accrued investment income 1,951 1,398
Contributions receivable from employer 162,282 176,314
Contributions receivable from participants 632,067 619,203
----------- -----------
Total assets 58,087,590 49,993,631
Liabilities - accounts payable 202,690 150,293
----------- -----------
Net assets available for plan benefits $57,884,900 49,843,338
=========== ===========
See accompanying notes to financial statements.
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MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Statement of Changes in Net Assets Available for Plan Benefits
Year ended December 31, 1996
Additions:
Investment income:
Interest and dividends $ 2,180,276
Net appreciation in fair value of investments:
Common trust fund 2,446,528
Mohawk Industries, Inc. common stock 1,943,609
-----------
Total investment income 6,570,413
Contributions from employer 2,334,311
Contributions from participants 6,647,547
-----------
Total additions 15,552,271
-----------
Deductions:
Participants' benefits 7,487,459
Administrative expenses 23,250
-----------
Total deductions 7,510,709
-----------
Increase in net assets available for plan benefits 8,041,562
Net assets available for plan benefits at beginning of year 49,843,338
-----------
Net assets available for plan benefits at end of year $57,884,900
===========
See accompanying notes to financial statements.
-3-
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
------------------------------------------
The accompanying financial statements of the Mohawk Carpet Corporation
Retirement Savings Plan (Plan) have been prepared on the accrual basis of
accounting and present the net assets available for plan benefits and
changes in those net assets.
Investments in common trust funds, common stock, money market funds, and
loans to participants are stated at fair value based on quoted market
prices or as determined by SunTrust Bank (Trustee).
Investments in group annuity contracts are payable in one lump sum at
maturity or on demand and are recorded at contract value, which
approximates fair value. The contractual interest rates and crediting
interest rates ranged from 5.21% to 8.71% at December 31, 1996 and 1995.
The average yield on the group annuity contracts was 6.02% and 6.53% for
the years ended December 31, 1996 and 1995, respectively.
Realized and unrealized investment gains and losses are included in net
appreciation (depreciation) in fair value of investments in the statement
of changes in net assets available for plan benefits.
Certain administrative expenses of the Plan are paid by Mohawk Carpet
Corporation (Company), a wholly owned subsidiary of Mohawk Industries,
Inc.
Certain reclassifications were made to the 1995 amounts in order to
conform to the 1996 classifications.
(2) Description of the Plan
-----------------------
The following description of the Plan provides only general information.
Participants should refer to the Plan agreement for a more complete
description of the Plan's provisions. As of January 1, 1995, participants
in the Horizon Industries Employee Retirement Plan (Horizon Plan) became
members of the Plan and $7,659,547 of assets were transferred from the
Horizon Plan to the Plan.
The Plan is a defined contribution plan and covers all employees of the
Company. The Plan provides for retirement savings to qualified active
participants through both participant and employer contributions and is
subject to certain provisions of the Employee Retirement Income Security
Act of 1974 (ERISA).
(Continued)
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MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
An employee becomes a participant in the Plan on the first enrollment
date (any January 1, April 1, July 1, or October 1) after completing one
year of eligible service. Under the terms of the Plan, participants may
contribute a maximum of 16% of their gross compensation, subject to
certain limitations. Participants are permitted to allocate their
contributions in multiples of 10% to the Equity Fund, Interest Rate
Contract Fund, and Mohawk Stock Fund. The employer makes a 50% matching
contribution up to the first 4% of each participant's gross compensation
contributed to the Plan. The terms of the Plan also provide for
discretionary employer profit sharing contributions to the Mohawk Stock
Fund for plan participants employed on the last day of the plan year or
terminated during the plan year on account of death, disability, or
retirement. Although it has not expressed an intent to do so, the Company
has the right under the Plan to discontinue contributions at any time and
to terminate the Plan, subject to the provisions of ERISA.
Each participant's account is credited with their contribution for the
period as well as the employer's matching contribution and an allocation
of any employer profit sharing contribution. Investment income, realized
gains, employer profit sharing contributions, and the change in
unrealized appreciation or depreciation on plan investments are credited
to participants' accounts monthly based on the proportion of each
participant's account balance to the total account balance within each
investment fund at the beginning of the month.
Participants are 100% vested in their accounts.
Amounts due to participants who have withdrawn from the Plan but have not
been paid at December 31, 1996 and 1995 totaled $1,032,134 and
$2,020,535, respectively.
Under the terms of the Plan, participants may make hardship withdrawals
from their accounts upon furnishing proof of hardship as specified in the
Plan agreement. Participants may also borrow up to 90% of the value of
their accounts subject to limitations provided by the Plan. Loans must be
paid back to the Plan generally within four years of the loan date.
Upon termination of employment, the participant's account shall be
distributed in a lump-sum cash payment as soon as administratively
practicable, unless the participant elects otherwise. A participant may
elect to receive his distribution in approximate equal installments over
a period designated by the participant, not to exceed the lesser of 15
years or the life expectancy of the last survivor of the participant and
his beneficiary.
(3) Transactions with Parties-In-Interest
-------------------------------------
At December 31, 1996 and 1995, the Plan held investments in trust funds
and money market accounts sponsored by the trustee with current values of
$16,530,075 and $10,541,617, respectively. The Plan also held investments
in 281,644 and 240,465 shares of Mohawk Industries, Inc. common stock at
December 31, 1996 and 1995, respectively.
(Continued)
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MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
(4) Investments
-----------
The following table shows the components of investments:
1996 1995
----------- ----------
Common trust fund:
SunTrust Corporate Equity Fund $16,271,095 10,444,435
Group annuity contracts:
Commonwealth Life Guaranteed Investment Contract 3,155,840 7,427,263
Principal Mutual Life Guaranteed Investment Contract 4,037,196 4,309,242
Sun Life Guaranteed Investment Contract 3,455,584 3,718,671
Northwestern National Life Guaranteed
Investment Contract 1,475,629 1,555,320
Confederation Life Guaranteed Investment Contract 2,386,373 2,386,373
CNA Insurance Guaranteed Investment Contact 4,852,712 --
New York Life Guaranteed Investment Contract 6,756,126 7,239,025
Met Life Group Annuity Contract 2,769,323 2,279,917
Prudential Insurance Group Annuity Contract 3,233,780 3,490,613
----------- ----------
Total group annuity contracts 32,122,563 32,406,424
----------- ----------
Mohawk Industries, Inc. common stock 6,196,168 3,757,266
Money market funds - Trustee 258,980 97,182
Loans to participants 2,442,484 1,891,412
----------- ----------
Total investments $57,291,290 48,596,719
=========== ==========
(Continued)
-6-
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
The Plan permits participants to contribute to three types of investment funds.
The net assets available for plan benefits and the changes in net assets
available for plan benefits at December 31, 1996 and for the year then ended by
investment fund are as follows:
Statement of Net Assets Available for Plan Benefits by Fund
Participant directed
---------------------------------------------------------
Interest rate
contract Equity Participant Mohawk
fund fund loans stock fund Total
------------- ---------- ----------- ---------- ----------
Assets:
Investments:
Common trust fund - 16,271,095 - - 16,271,095
Group annuity contracts 32,122,563 - - - 32,122,563
Mohawk Industries, Inc. common stock - - - 6,196,168 6,196,168
Money market funds - 258,980 - - 258,980
Loans to participants - - 2,442,484 - 2,442,484
---------- ---------- --------- --------- ----------
32,122,563 16,530,075 2,442,484 6,196,168 57,291,290
Accrued investment income 445 1,312 - 194 1,951
Contributions receivable from employer 98,620 45,283 - 18,379 162,282
Contributions receivable from participants 297,960 281,341 - 52,766 632,067
---------- ---------- --------- --------- ----------
Total assets 32,519,588 16,858,011 2,442,484 6,267,507 58,087,590
Liabilities - accounts payable 140,000 50,089 - 12,601 202,690
---------- ---------- --------- --------- ----------
Net assets available for plan benefits 32,379,588 16,807,922 2,442,484 6,254,906 57,884,900
========== ========== ========= ========= ==========
(Continued)
-7-
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
Statement of Changes in Net Assets Available for Plan Benefits by Fund
Participant directed
---------------------------------------------------
Interest rate
contract Equity Participant Mohawk
fund fund loans stock fund Total
------------- ---------- ----------- ---------- ----------
Additions:
Investment income:
Interest and dividends $ 1,967,060 8,837 200,692 3,687 2,180,276
Net appreciation in fair value of investments:
Common trust fund -- 2,446,528 -- -- 2,446,528
Mohawk Industries, Inc. common stock -- -- -- 1,943,609 1,943,609
Contributions from employer 1,440,721 612,493 -- 281,097 2,334,311
Contributions from participants 3,704,660 2,036,554 -- 906,333 6,647,547
------------ ---------- --------- --------- ----------
Total additions 7,112,441 5,104,412 200,692 3,134,726 15,552,271
------------ ---------- --------- --------- ----------
Deductions:
Participants' benefits 5,439,624 1,404,616 225,034 418,185 7,487,459
Administrative expenses 23,250 -- -- -- 23,250
------------ ---------- --------- --------- ----------
Total deductions 5,462,874 1,404,616 225,034 418,185 7,510,709
------------ ---------- --------- --------- ----------
Fund transfers (2,155,669) 2,439,773 575,414 (859,518) --
------------ ---------- --------- --------- ----------
(Decrease) increase in net assets
available for plan benefits (506,102) 6,139,569 551,072 1,857,023 8,041,562
Net assets available for plan benefits at
beginning of year 32,885,690 10,668,353 1,891,412 4,397,883 49,843,338
------------ ---------- --------- --------- ----------
Net assets available for plan benefits at
end of year $ 32,379,588 16,807,922 2,442,484 6,254,906 57,884,900
============ ========== ========= ========= ==========
(Continued)
-8-
(Continued)
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
The Plan permits participants to contribute to three types of investment funds.
The net assets available for plan benefits and the changes in net assets
available for plan benefits at December 31, 1995 by investment fund are as
follows:
Statement of Net Assets Available for Plan Benefits by Fund
Participant directed
----------------------------------------------------
Interest rate
contract Equity Participant Mohawk
fund fund loans stock fund Total
------------ ---------- --------- --------- ----------
Assets:
Investments:
Common trust fund - 10,444,435 - - 10,444,435
Group annuity contracts 32,406,424 - - - 32,406,424
Mohawk Industries, Inc. common stock - - - 3,757,266 3,757,266
Money market funds 26,182 48,964 - 22,036 97,182
Loans to participants - - 1,891,412 - 1,891,412
----------- ---------- --------- --------- ----------
32,432,606 10,493,399 1,891,412 3,779,302 48,596,719
Cash - - - 599,997 599,997
Accrued investment income 505 451 - 442 1,398
Contributions receivable from employer 116,357 37,808 - 22,149 176,314
Contributions receivable from participants 390,407 211,228 - 17,568 619,203
----------- ---------- --------- --------- ----------
Total assets 32,939,875 10,742,886 1,891,412 4,419,458 49,993,631
Liabilities - excess participant contributions payable 54,185 74,533 - 21,575 150,293
----------- ---------- --------- --------- ----------
Net assets available for plan benefits 32,885,690 10,668,353 1,891,412 4,397,883 49,843,338
========== ========== ========= ========= ==========
(Continued)
-9-
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
(5) Income Tax Status
-----------------
The Internal Revenue Service made a favorable ruling on the application
for determination of qualification submitted by the Company in May 1992.
The administrative committee of the Plan is not aware of any course of
action or series of events that might adversely affect the Plan's
qualification under Section 401(a) of the Internal Revenue Code, and
under which the Plan would be subject to tax under present income tax
law.
(6) Contingencies
-------------
In August 1994, a major Canadian life insurer, Confederation Life
Insurance Company, was liquidated. Confederation Life's U.S. subsidiary,
Marietta, Georgia-based Confederation Life Insurance and Annuity Company
(Confederation), was subsequently seized by the State of Georgia on
August 12, 1994 and is currently being managed by several receivers. As
of December 31, 1996, the Plan held a guaranteed investment contract with
Confederation in the amount of $2,386,373. The Trustee currently believes
that the Plan will realize this asset but may receive lower interest
payments than the stated contract interest payments.
-10-
Schedule 1
----------
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1996
Current
Identity of issuer Description of investment Cost value
------------------ ------------------------- ----------- ----------
Common trust funds:
SunTrust Corporate Equity
Fund* 107,789 common trust fund units $11,093,165 16,271,095
Group annuity contracts:
Commonwealth Life Guaranteed Investment Contract, 3,155,840 3,155,840
due March 31, 1998 at 5.21%
Principal Mutual Life Guaranteed Investment Contract, 4,037,196 4,037,196
due March 31, 1997 at 7.57%
Sun Life Guaranteed Investment Contract, 3,455,584 3,455,584
due March 31, 1998 at 6.20%
Northwestern National Life Guaranteed Investment Contract, 1,475,629 1,475,629
due April 1, 1997 at 8.71%
Confederation Life Guaranteed Investment Contract, 2,386,373 2,386,373
due April 1, 1996 at 8.51%
CNA Insurance Guaranteed Investment Contract, 4,852,712 4,852,712
due April 1, 1997 at 6.43%
New York Life Guaranteed Investment Contract, 6,756,126 6,756,126
due April 1, 2000 at 7.35%
Met Life Group Annuity Contract, 2,769,323 2,769,323
due April 1, 1999 at 7.06%
Prudential Insurance Group Annuity Contract, due 3,233,780 3,233,780
March 31, 1997 at rates from
6.0% to 7.5%
Mohawk Industries, Inc.
common stock* 281,644 shares of common stock 4,163,352 6,196,168
Money market funds - Trustee* Money Market Fund 258,980 258,980
Loans to participants (1) 2,442,484 2,442,484
----------- ---------
$50,080,544 57,291,290
=========== ==========
- -----------
*SunTrust Bank, Trustee, and Mohawk Industries, Inc. are parties-in-interest to
the Plan.
(1) Loans are consummated at a fixed rate (then current prime rate plus
1%) for terms up to four years or 20 years for a residence.
-11-
Schedule 2
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Item 27d - Schedule of Reportable Transactions (A)
Year ended December 31, 1996
Expenses Current value
incurred Cost of asset on Net
Purchase Selling with of transaction gain
Description price price transaction asset date (loss)
----------- ---------- --------- ----------- --------- -------------- ------
Commonwealth Life Guaranteed Investment Contract $ 214,498 N/A - 214,498 214,498 -
Commonwealth Life Guaranteed Investment Contract N/A 4,486,191 - 4,486,191 4,486,191 -
CNA Insurance Guaranteed Investment Contract 5,293,496 N/A - 5,293,496 5,293,496 -
CNA Insurance Guaranteed Investment Contract N/A 440,784 - 440,784 440,784 -
SunTrust Retirement Reserve Fund 6,821,682 N/A - 6,821,682 6,821,682 -
SunTrust Retirement Reserve Fund - 6,633,703 - 6,633,703 6,633,703 -
SunTrust Corporate Equity Fund* 3,580,146 N/A - 3,580,146 3,580,146 -
SunTrust Corporate Equity Fund* N/A 200,104 - 141,502 200,014 58,512
SunTrust Money Market Funds, Trustee* 8,530,949 N/A - 8,530,949 8,530,949 -
SunTrust Money Market Funds, Trustee* N/A 8,557,130 - 8,557,130 8,557,130 -
- ---------------
*SunTrust Bank is a party-in-interest to the Plan.
(A) Represents transactions or a series of transactions in securities of the
same issue or with the same person in excess of 5% of the current value of
the Plan's assets as of the beginning of the year.
-12-