EXHIBIT 99.1
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, 1998 and 1997, and the related statement of changes in net assets
available for plan benefits for the year ended December 31, 1998. 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, 1998 and 1997, and the changes in net assets available for plan
benefits for the year ended December 31, 1998 in conformity with generally
accepted accounting principles.
Our audits were performed 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 and for the year
ended December 31, 1998, 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. These supplemental schedules are the responsibility of
the Plan's management. The supplemental schedules have been subjected to
auditing procedures applied in the audits 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 LLP
Atlanta, Georgia
March 31, 1999
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 1998 and 1997
1998 1997
---- ----
Assets:
Investments (notes 3 and 4):
Mutual funds, at fair value $34,799,216 27,055,697
Guaranteed investment contracts, at contract value 36,585,191 33,627,717
Mohawk Industries, Inc. common stock, at fair value 17,111,270 7,308,908
Money market funds, at cost 194,825 759,263
Loans to participants, at cost 2,686,268 2,546,235
----------- ----------
Total investments 91,376,770 71,297,820
Cash -- 61,984
Accrued investment income 300,701 3,386
Contributions receivable from employer 253,002 193,173
Contributions receivable from participants 779,265 698,676
----------- ----------
Total assets 92,709,738 72,255,039
Liabilities - accounts payable 407,255 152,552
----------- ----------
Net assets available for plan benefits $92,302,483 72,102,487
=========== ==========
See accompanying notes to financial statements.
2
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Statement of Changes in Net Assets Available for Plan Benefits
Year ended December 31, 1998
Additions:
Investment income:
Interest and dividends $ 2,796,261
Net appreciation in fair value of investments:
Mutual funds 7,035,085
Mohawk Industries, Inc. common stock 7,498,471
-----------
Net investment income 17,329,817
Contributions from employer 2,270,212
Contributions from participants 7,328,929
-----------
Total additions 26,928,958
-----------
Deductions:
Participants' benefits 6,705,437
Administrative expenses 23,525
-----------
Total deductions 6,728,962
-----------
Increase in net assets available for plan benefits 20,199,996
Net assets available for plan benefits at beginning of year 72,102,487
-----------
Net assets available for plan benefits at end of year $92,302,483
===========
See accompanying notes to financial statements.
3
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(1) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Plan in preparing its financial statements.
(a) Basis of Presentation
The records of the Plan are maintained on the cash basis of
accounting. The accompanying financial statements of the Mohawk Carpet
Corporation Retirement Savings Plan (the "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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities and changes therein, and disclosure of contingent assets
and liabilities. Actual results could differ from those estimates.
(b) Investments
Investments in mutual funds and common stock are stated at fair value
based on quoted market prices or as determined by SunTrust Bank
(Trustee). Investments in money market funds and loans to participants
are stated at cost which approximate fair value. Securities
transactions are accounted for on a trade date basis.
Investments in guaranteed investment contracts are payable on demand
and are recorded at contract value, which approximates fair value. The
contractual interest rates and crediting interest rates ranged from
6.0% to 7.5% and 5.21% to 7.35% at December 31, 1998 and 1997,
respectively. The average yield on the guaranteed investment contracts
was 6.48% and 6.86% for the years ended December 31, 1998 and 1997,
respectively. Guaranteed investment contracts are renegotiated at
current rates available from insurance companies annually on April 1.
Realized and unrealized investment gains and losses are included in
net appreciation in fair value of investments in the statement of
changes in net assets available for plan benefits.
(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.
(a) General
The Plan is a defined contribution plan and covers all employees of
Mohawk Carpet Corporation (the "Company"), a wholly owned subsidiary
of Mohawk Industries, Inc. 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). During 1997, the Plan
was amended to allow employees to become eligible to participate in
the Plan at the beginning of a calendar month after completing one
year of service rather than specific enrollment dates (any January 1,
April 1, July 1, or October 1).
The Plan is administered by an Administrative Committee appointed by
the Company. The Administrative Committee is responsible for the
control, management, and administration of the Plan and the assets
held in trust at SunTrust Bank.
(Continued)
4
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(b) Contributions
Contributions to the Plan are made by both participants and the
Company. Participants may contribute a maximum of 16% of their gross
compensation, subject to certain limitations. During 1997, the Plan
was amended to allow participants to allocate their contributions in
multiples of 1% to various investment funds of the Plan rather than in
multiples of 10%. 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.
(c) Participant Accounts
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.
Participant contributions may be invested in one or more of the
investment funds available under the Plan at the direction of the
participant. During 1997, the Plan was amended to allow monthly
valuation of accounts rather than quarterly valuation. As a result of
this amendment, several new investment options were available under
the Plan. Current investment funds available within the Plan include
the following:
Investment Fund Fund Objective
--------------- --------------
Equity Fund To deliver capital growth through investments
in the stocks of large, well-known companies.
Stable Value Fund To provide a fixed principal value and generate
regular interest payments through investments
in a diversified portfolio of investment
contracts issued by sound financial
institutions.
Balanced Fund To provide capital growth and current income
while minimizing the risk of principal loss
associated with common stocks by investing in a
changing mix of high-quality stocks and bonds.
Index Fund To track the performance of the Standard and
Poor's 500 Composite Stock Price Index, which
emphasizes stocks of large U.S. companies.
International Fund To provide long-term capital growth through a
flexible policy of investing in stocks and debt
obligations of companies and governments
outside the U.S.
Mohawk Stock Fund To provide long-term appreciation through the
ownership of Mohawk Industries shares.
(Continued)
5
(d) Distributions to Participants
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.
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.
Amounts due to participants who have withdrawn from the Plan but have
not been paid at December 31, 1998 and 1997 totaled $657,537 and
$1,288,860, respectively.
(e) Vesting
Participants are immediately vested in their contributions and the
Company's matching and discretionary contributions and the income
earned on such contributions.
(f) Administrative Expenses
Certain administrative expenses of the Plan are paid by the Company.
These costs include legal, accounting, and certain administrative
fees.
(3) Transactions with Parties-In-Interest
At December 31, 1998 and 1997, the Plan held investments in trust funds and
money market accounts sponsored by the trustee with current values of
$29,701,669 and $23,151,056, respectively. The Plan also held investments
in 406,801 and 333,162 shares of Mohawk Industries, Inc. common stock at
December 31, 1998 and 1997, respectively.
(Continued)
6
(4) Investments
The following table shows the components of investments:
1998 1997
---- ----
Mutual funds:
STI Capital Growth Fund $29,506,844 22,391,793
Dodge & Cox Balanced Fund 1,684,680 2,119,448
Vanguard Index Fund 3,088,218 1,985,222
Templeton Foreign Fund 519,474 559,234
----------- ----------
Total mutual funds 34,799,216 27,055,697
----------- ----------
Guaranteed investment contracts:
Commonwealth Life Guaranteed
Investment Contract -- 3,097,703
Sun Life Guaranteed
Investment Contract 1,679,510 3,424,172
CNA Insurance Guaranteed
Investment Contracts 6,247,618 6,057,002
New York Life Guaranteed
Investment Contract 6,710,388 6,767,385
Met Life Group Annuity Contract 2,735,741 2,766,396
Prudential Insurance
Group Annuity Contract 1,571,355 3,203,984
Travelers Insurance Guaranteed
Investment Contract 1,540,909 2,337,866
John Hancock Life Guaranteed
Investment Contract 5,352,065 5,973,209
Life of Virginia Guaranteed
Investment Contract 10,747,605 --
----------- ----------
Total Guaranteed Investment
Contracts 36,585,191 33,627,717
----------- ----------
Mohawk Industries, Inc. common stock 17,111,270 7,308,908
Money market funds - Trustee 194,825 759,263
Loans to participants 2,686,268 2,546,235
----------- ----------
Total investments $91,376,770 71,297,820
=========== ==========
(5) Income Tax Status
The Internal Revenue Service made a favorable ruling on the application for
determination of qualification submitted by the Company in September 1995.
The Plan has been amended since receiving the determination letter and the
Plan has filed an application for an updated determination letter. 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) Plan Termination
While it is the Company's intention to continue the Plan indefinitely, the
Company has the right under the Plan to discontinue its contributions at
any time and to terminate the Plan subject to the provisions of ERISA and
the Plan agreement.
(Continued)
7
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
(7) Investment by Fund
The net assets available for plan benefits and the changes in net assets
available for plan benefits at December 31, 1998 and for the year then
ended by investment fund are as follows:
Statement of Net Assets Available for Plan Benefits by Fund
Participant Directed
-------------------------------------------------------------------------------------------------------
Stable Equity Participant Mohawk Balanced Index International
Value Fund Fund Loan Fund Stock Fund Fund Fund Fund Total
---------- ------ ----------- ---------- -------- ----- ------------- -----
Assets:
Investments:
Mutual funds $ -- 29,506,844 -- -- 1,684,680 3,088,218 519,474 34,799,216
Guaranteed investment
contracts 36,585,191 -- -- -- -- -- -- 36,585,191
Mohawk Industries, Inc.
common stock -- -- -- 17,111,270 -- -- -- 17,111,270
Money market funds 45 77,249 -- 49,580 24,730 30,862 12,359 194,825
Loans to participants -- -- 2,686,268 -- -- -- -- 2,686,268
----------- ---------- --------- ---------- --------- --------- ------- ----------
Total investments 36,585,236 29,584,093 2,686,268 17,160,850 1,709,410 3,119,080 531,833 91,376,770
Accrued investment income 203,208 17,140 -- 253 79,982 82 36 300,701
Contributions receivable
from employer 123,971 70,841 -- 32,890 10,120 12,650 2,530 253,002
Contributions receivable
from participants 385,794 217,659 -- 107,032 26,830 37,076 4,874 779,265
----------- ---------- --------- ---------- --------- --------- ------- ----------
Total assets 37,298,209 29,889,733 2,686,268 17,301,025 1,826,342 3,168,888 539,273 92,709,738
Liabilities - accounts payable 236,654 58,843 -- 17,276 89,762 4,843 (123) 407,255
----------- ---------- --------- ---------- --------- --------- ------- ----------
Net assets available for
plan benefits $37,061,555 29,830,890 2,686,268 17,283,749 1,736,580 3,164,045 539,396 92,302,483
=========== ========== ========= ========== ========= ========= ======= ==========
(Continued)
8
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
Statement of Changes in Net Assets Available for Plan Benefits by Fund
Participant Directed
------------------------------------------------------------------------------------------------------
Stable Equity Participant Mohawk Balanced Index International
Value Fund Fund Loan Fund Stock Fund Fund Fund Fund Total
---------- ------ ----------- ---------- -------- ----- ------------- -----
Additions:
Investment income:
Interest and dividends $ 2,315,201 139,544 230,126 5,287 57,000 34,561 14,542 2,796,261
Net appreciation
(depreciation) in fair
value of investments:
Mutual funds -- 6,348,685 -- -- 91,069 616,492 (21,161) 7,035,085
Mohawk Industries, Inc.
common stock -- -- -- 7,498,471 -- -- -- 7,498,471
Contributions from
employer 1,184,579 637,352 -- 264,408 72,579 88,436 22,858 2,270,212
Contributions from
participants 3,417,041 2,287,326 -- 907,328 283,758 357,882 75,594 7,328,929
----------- ---------- --------- ---------- --------- --------- ------- ----------
Total additions 6,916,821 9,412,907 230,126 8,675,494 504,406 1,097,371 91,833 26,928,958
----------- ---------- --------- ---------- --------- --------- ------- ----------
Deductions:
Participants' benefits 3,278,249 2,240,420 125,861 777,809 83,275 96,333 103,490 6,705,437
Administrative expenses 23,525 -- -- -- -- -- -- 23,525
----------- ---------- --------- ---------- --------- --------- ------- ----------
Total deductions 3,301,774 2,240,420 125,861 777,809 83,275 96,333 103,490 6,728,962
----------- ---------- --------- ---------- --------- --------- ------- ----------
Fund transfers, net (971,951) (188,689) 35,768 1,894,569 (866,036) 121,981 (25,642) --
Increase (decrease)
in net assets
available for plan
benefits 2,643,096 6,983,798 140,033 9,792,254 (444,905) 1,123,019 (37,299) 20,199,996
Net assets available for
plan benefits at
beginning of year 34,418,459 22,847,092 2,546,235 7,491,495 2,181,485 2,041,026 576,695 72,102,487
----------- ---------- --------- ---------- --------- --------- ------- ----------
Net assets available for
plan benefits at end
of year $37,061,555 29,830,890 2,686,268 17,283,749 1,736,580 3,164,045 539,396 92,302,483
=========== ========== ========= ========== ========= ========= ======= ==========
(Continued)
9
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Notes to Financial Statements
The net assets available for plan benefits at December 31, 1997 by investment
fund are as follows:
Statement of Net Assets Available for Plan Benefits by Fund
Participant Directed
------------------------------------------------------------------------------------------------------
Stable Equity Participant Mohawk Balanced Index International
Value Fund Fund Loan Fund Stock Fund Fund Fund Fund Total
---------- ------ ----------- ---------- -------- ----- ------------- -----
Assets:
Investments:
Mutual funds $ -- 22,391,793 -- -- 2,119,448 1,985,222 559,234 27,055,697
Guaranteed investment
contracts 33,627,717 -- -- -- -- -- -- 33,627,717
Mohawk Industries, Inc.
common stock -- -- -- 7,308,908 -- -- -- 7,308,908
Money market funds 392,330 224,266 -- 62,152 44,369 27,106 9,040 759,263
Loans to participants -- -- 2,546,235 -- -- -- -- 2,546,235
----------- ---------- --------- --------- --------- --------- ------- ----------
Total investments 34,020,047 22,616,059 2,546,235 7,371,060 2,163,817 2,012,328 568,274 71,297,820
Cash 1,976 -- -- 60,007 (3,516) -- 3,517 61,984
Accrued investment income 1,792 1,047 -- 298 115 105 29 3,386
Contributions receivable
from employer 110,542 52,157 -- 17,604 5,664 5,431 1,775 193,173
Contributions receivable
from participants 375,412 199,767 -- 60,680 25,754 28,520 8,543 698,676
----------- ---------- --------- --------- --------- --------- ------- ----------
Total assets 34,509,769 22,869,030 2,546,235 7,509,649 2,191,834 2,046,384 582,138 72,255,039
Liabilities - accounts
payable 91,310 21,938 -- 18,154 10,349 5,358 5,443 152,552
----------- ---------- --------- --------- --------- --------- ------- ----------
Net assets available
for plan benefits $34,418,459 22,847,092 2,546,235 7,491,495 2,181,485 2,041,026 576,695 72,102,487
=========== ========== ========= ========= ========= ========= ======= ==========
(8) Subsequent Event
Effective March 1, 1999, the assets from the Galaxy Carpet Mills, Inc.
Deferred Income Retirement Plan and the Aladdin Retirement Savings Plan
were merged with the Plan.
(Continued)
10
Schedule 1
Mohawk Industries 401(k)
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
Current
Identity of the issuer Description of investments Cost value
- -------------------------------- --------------------------------------------- ----------- ----------
Mutual funds:
STI Capital Growth Fund* 1,787,210 mutual fund units $29,085,728 29,506,844
Dodge & Cox Balanced Fund 25,831 mutual fund units 1,768,952 1,684,680
Vanguard Index Trust Fund 27,102 mutual fund units 2,443,255 3,088,218
Templeton Foreign Fund 61,916 mutual fund units 619,569 519,474
Guaranteed investment contracts:
Sunlife of America Guaranteed Investment Contract due March 31,
1998 at 6.20% 1,679,510 1,679,510
New York Life Guaranteed Investment Contract due April 1,
2000 at 7.35% 6,710,388 6,710,388
CNA Insurance Guaranteed Investment Contract due April 2,
2001 at 6.43% 2,428,870 2,428,870
CNA Insurance Guaranteed Investment Contract due April 2,
2002 at 7.15% 3,818,748 3,818,748
Travelers Insurance Company Guaranteed Investment Contract due April 1,
2002 at 7.03% 1,540,909 1,540,909
Prudential Insurance Guaranteed Investment Contract due March 31,
1998 at rates from 6.0% to 7.5% 1,571,355 1,571,355
John Hancock Life Guaranteed Investment Contract due April 2,
2002 at 7.0% 5,352,065 5,352,065
Met Life Guaranteed Investment Contract due April 1,
1999 at 7.06% 2,735,741 2,735,741
Life of Virginia Guaranteed Investment Contract due April 2,
2002 at 6.0% 10,747,605 10,747,605
Mohawk Industries, Inc. - common
stock* 406,801 shares of common stock 5,890,427 17,111,270
Money Market Funds - Trustee* Money Market Fund 194,825 194,825
Loans to participants (1) 2,686,268 2,686,268
----------- ----------
Total $79,274,215 91,376,770
=========== ==========
* 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.
See accompanying independent auditors' report.
11
Schedule 2
MOHAWK CARPET CORPORATION RETIREMENT SAVINGS PLAN
Item 27d - Schedule of Reportable Transactions (A)
Year ended December 31, 1998
Current value
Expense of asset on
Identity of party involved Purchase Selling Lease incurred with Cost of transaction Net gain
and description of asset price price rental transaction asset date or (loss)
- ------------------------------------------ -------- ------- ------ ------------- ------- ------------- ---------
Life of Virginia Guaranteed
Investment Contract $11,212,496 N/A -- -- 11,212,496 11,212,496 --
Life of Virginia Guaranteed
Investment Contract N/A 515,271 -- -- 515,271 515,271 --
John Hancock Life Guaranteed
Investment Contract 2,348,342 N/A -- -- 2,348,342 2,348,342 --
John Hancock Life Guaranteed
Investment Contract N/A 2,951,078 -- -- 2,951,078 2,951,078 --
SunTrust Retirement Reserve Fund* 8,167,331 N/A -- -- 8,167,331 8,167,331 --
SunTrust Retirement Reserve Fund* N/A 8,326,920 -- -- 8,326,920 8,326,920 --
STI Capital Growth Fund* 5,979,216 N/A -- -- 5,979,216 5,979,216 --
STI Capital Growth Fund* N/A 2,069,406 -- -- 1,988,999 2,069,406 80,407
SunTrust Money Market Funds, Trustee* 21,248,768 N/A -- -- 21,248,768 21,248,768 --
SunTrust Money Market Funds, Trustee* N/A 21,653,617 -- -- 21,653,617 21,653,617 --
* 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.
See accompanying independent auditors' report.
12