UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number: 01-19826
MOHAWK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1604305
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
Post Office Box 12069, 160 South Industrial Boulevard, Calhoun, Georgia 30703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 629-7721
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No
-------- ---------
The number of shares outstanding of the issuer's classes of capital stock as of
November 1, 1999, the latest practicable date, is as follows: 60,624,947 shares
of Common Stock, $.01 par value.
MOHAWK INDUSTRIES, INC.
INDEX
Page No.
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Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
October 2, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Earnings -
Three months ended October 2, 1999 and September 26, 1998 5
Nine months ended October 2, 1999 and September 26, 1998 6
Condensed Consolidated Statements of Cash Flows -
Nine months ended October 2, 1999 and September 26, 1998 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risks 14
Part II. Other Information 14
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
(Unaudited)
October 2, 1999 December 31, 1998
--------------- -----------------
Current assets:
Cash $ - 2,384
Receivables 385,344 331,928
Inventories 537,579 423,837
Prepaid expenses 13,444 19,322
Deferred income taxes 52,568 52,568
--------------- -----------------
Total current assets 988,935 830,039
--------------- -----------------
Property, plant and equipment, at cost 1,111,433 883,675
Less accumulated depreciation and
amortization 491,440 428,808
--------------- -----------------
Net property, plant and equipment 619,993 454,867
--------------- -----------------
Other assets 107,310 103,684
--------------- -----------------
Total assets $ 1,716,238 1,388,590
=============== =================
See accompanying notes to condensed consolidated financial statements.
3
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands, except per share data)
(Unaudited)
October 2, 1999 December 31, 1998
--------------- -----------------
Current liabilities:
Current portion of long-term debt $ 197,013 44,424
Accounts payable and accrued expenses 401,869 364,037
--------------- -----------------
Total current liabilities 598,882 408,461
Deferred income taxes 31,025 31,025
Long-term debt 363,252 332,665
Other long-term liabilities 864 5,380
--------------- -----------------
Total liabilities 994,023 777,531
--------------- -----------------
Stockholders' equity:
Preferred stock, $.01 par value; 60 shares
authorized; no shares issued - -
Common stock, $.01 par value; 150,000 shares
authorized; 60,625 and 60,533 shares issued
in 1999 and 1998, respectively 606 606
Additional paid-in capital 179,714 172,045
Retained earnings 555,757 438,408
--------------- -----------------
736,077 611,059
Less treasury stock, at cost;
701 shares in 1999 13,862 -
--------------- -----------------
Total stockholders' equity 722,215 611,059
--------------- -----------------
Total liabilities and stockholders'
equity $ 1,716,238 1,388,590
=============== =================
See accompanying notes to condensed consolidated financial statements.
4
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
----------------------------------------------
October 2, 1999 September 26, 1998
--------------- ------------------
Net sales $ 809,933 718,772
Cost of sales 606,687 541,010
--------------- ------------------
Gross profit 203,246 177,762
Selling, general and administrative expenses 119,258 108,279
--------------- ------------------
Operating income 83,988 69,483
--------------- ------------------
Other expense:
Interest expense 8,335 7,245
Other expense, net 1,142 805
--------------- ------------------
9,477 8,050
--------------- ------------------
Earnings before income taxes 74,511 61,433
Income taxes 29,432 24,373
--------------- ------------------
Net earnings $ 45,079 37,060
=============== ==================
Basic earnings per share $ 0.74 0.61
=============== ==================
Weighted-average common shares outstanding 60,600 60,435
=============== ==================
Diluted earnings per share $ 0.74 0.61
=============== ==================
Weighted-average common and dilutive potential common
shares outstanding 61,114 61,169
=============== ==================
See accompanying notes to condensed consolidated financial statements.
5
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
----------------------------------------------
October 2, 1999 September 26, 1998
--------------- ------------------
Net sales $ 2,307,717 1,997,733
Cost of sales 1,725,231 1,505,976
--------------- ------------------
Gross profit 582,486 491,757
Selling, general and administrative expenses 361,920 316,102
--------------- ------------------
Operating income 220,566 175,655
--------------- ------------------
Other expense:
Interest expense 23,942 23,336
Other expense, net 3,130 1,624
--------------- ------------------
27,072 24,960
--------------- ------------------
Earnings before income taxes 193,494 150,695
Income taxes 76,430 60,553
--------------- ------------------
Net earnings $ 117,064 90,142
=============== ==================
Basic earnings per share $ 1.93 1.49
=============== ==================
Weighted-average common shares outstanding 60,586 60,359
=============== ==================
Diluted earnings per share 1.91 1.48
=============== ==================
Weighted-average common and dilutive potential common
shares outstanding 61,218 61,107
=============== ==================
See accompanying notes to condensed consolidated financial statements.
6
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
-----------------------------------------------
October 2, 1999 September 26, 1998
--------------- ------------------
Cash flows from operating activities:
Net earnings $ 117,064 90,142
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 76,099 59,198
Deferred taxes - 5,951
Provision for doubtful accounts 11,599 8,057
Loss on sale of property, plant and equipment 2,184 17
Changes in operating assets and liabilities,
net of effects of acquisitions:
Receivables (40,411) (66,906)
Inventories (75,242) (52,683)
Accounts payable and accrued expenses (21,775) 65,010
Other assets and prepaid expenses 15,939 7,353
Other liabilities (4,516) (1,427)
--------------- ------------------
Net cash provided by operating activities 80,941 114,712
--------------- ------------------
Cash flows used in investing activities:
Additions to property, plant and equipment, net (115,216) (100,403)
Acquisition (162,463) 25
--------------- ------------------
Net cash used in investing activities (277,679) (100,378)
--------------- ------------------
Cash flows from financing activities:
Net change in revolving line of credit 214,282 15,785
Payments on term loans (26,503) (32,143)
Redemption of acquisition indebtedness (20,917) (19,517)
(Redemption)/Proceeds of IRBs and other, net of proceeds (8,057) 9,596
Change in outstanding checks in excess of cash 41,457 8,291
Acquisition of treasury stock (13,862) -
Common stock transactions 7,954 3,526
--------------- ------------------
Net cash provided by (used in) financing activities 194,354 (14,462)
--------------- ------------------
Net change in cash (2,384) (128)
Cash, beginning of period 2,384 200
--------------- ------------------
Cash, end of period $ - 72
=============== ==================
Net cash paid during the period for:
Interest $ 29,529 25,456
=============== ==================
Income taxes $ 92,558 49,713
=============== ==================
See accompanying notes to condensed consolidated financial statements.
7
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with instructions to Form 10-Q and do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1998 Annual Report filed on Form 10-K, as filed with the Securities
and Exchange Commission, which includes consolidated financial statements for
the fiscal year ended December 31, 1998.
The Company's basic earnings per share are computed by dividing net earnings by
the weighted-average common shares outstanding, and diluted earnings per share
are computed by dividing net earnings by the weighted-average common and
dilutive potential common shares outstanding. Dilutive common stock options are
included in the diluted earnings per share calculation using the treasury stock
method.
Certain prior year financial statement balances have been reclassified to
conform with the current year's presentation.
2. Acquisitions
On January 29, 1999, the Company acquired certain assets of Image Industries,
Inc. ("Image") for approximately $192,000, including acquisition costs and the
assumption of $30,000 of tax exempt debt. The Image acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on the estimated fair values at the date of acquisition. The estimated
fair values were $205,366 for assets acquired and $42,903 for the liabilities
assumed.
The operating results of Image are included in the Company's 1999 consolidated
statement of earnings from the date of acquisition. The following unaudited pro
forma information presents a summary of consolidated results of operations of
the Company and Image as if the acquisition had occurred at the beginning of
1998.
Nine Months Ended
--------------------------------------
October 2, 1999 September 26,1998
--------------- -----------------
Net sales $ 2,323,566 2,146,137
Net earnings $ 116,702 92,422
Basic earnings per share $ 1.93 1.53
Diluted earnings per share $ 1.91 1.51
On March 9, 1999, the Company acquired all the outstanding capital stock of
Durkan Patterned Carpets, Inc. ("Durkan") for approximately 3,150 shares of the
Company's common stock valued at $116,500 based on the closing stock price the
day the letter of intent was executed. The Durkan acquisition has been accounted
for using the pooling-of-interests method of accounting and, accordingly, the
Company's historical consolidated financial statements have been restated to
include the accounts and results of operations of Durkan.
3. Treasury Stock
In the third quarter of 1999, the Company began acquiring shares of its common
stock in connection with a stock repurchase program announced in September 1999.
That program authorizes the Company to purchase up to 5,000 common shares from
time to time on the open market at such times and at such prices as the
Company's management may determine is appropriate. The Company purchased
approximately 701 shares of common stock at an aggregate cost of approximately
$13,900 as of October 2, 1999.
8
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(In thousands)
(Unaudited)
4. Receivables
Receivables are as follows:
October 2, 1999 December 31, 1998
--------------- -----------------
Customers, trade $ 447,775 385,783
Other 3,300 4,378
--------------- -----------------
451,075 390,161
Less allowance for discounts, returns,
claims doubtful accounts 65,731 58,233
--------------- -----------------
Net receivables $ 385,344 331,928
=============== =================
5. Inventories
The components of inventories are as
follows:
October 2, 1999 December 31, 1998
--------------- -----------------
Finished goods $ 274,755 219,776
Work in process 72,008 60,266
Raw materials 190,816 143,795
--------------- -----------------
Total inventories $ 537,579 423,837
=============== =================
6. Other assets
Other assets are as follows:
October 2, 1999 December 31, 1998
--------------- -----------------
Goodwill, net of accumulated
amortization of
$12,387 and $10,363, respectively $ 97,344 85,972
Other assets 9,966 17,712
--------------- -----------------
Total other assets $ 107,310 103,684
=============== =================
9
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(In thousands)
(Unaudited)
7. Accounts payable and accrued expenses
Accounts payable and accrued expenses are as follows:
October 2, 1999 December 31, 1998
--------------- -----------------
Outstanding checks in excess of cash $ 68,351 26,897
Accounts payable, trade 171,739 159,966
Accrued expenses 99,334 126,023
Accrued compensation 62,445 51,151
--------------- -----------------
Total accounts payable and accrued $ 401,869 364,037
expenses =============== =================
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
On January 29, 1999, the Company acquired certain assets of Image Industries,
Inc. ("Image") for approximately $192 million, including acquisition costs and
the assumption of $30 million of tax exempt debt. The Image acquisition has
been accounted for under the purchase method of accounting.
On March 9, 1999, the Company acquired all of the outstanding capital stock of
Durkan Patterned Carpets, Inc. ("Durkan") for approximately 3.1 million shares
of the Company's common stock valued at $116.5 million based on the closing
stock price the day the letter of intent was executed. The Durkan acquisition
has been accounted for using the pooling of interests method of accounting and,
accordingly, the Company's historical consolidated financial statements have
been restated to include the accounts and results of operations of Durkan.
These acquisitions have created opportunities to enhance Mohawk's operations
by (i) broadening price points,(ii) increasing vertical integration efforts,
(iii) expanding distribution capabilities and (iv) facilitating entry into niche
businesses.
In the third quarter of 1999, the Company began acquiring shares of its common
stock in connection with a stock purchase program announced in September 1999.
That program authorized the Company to purchase up to 5 million common shares
from time to time on the open market at such times and at such prices as the
Company's management may determine is appropriate. As of October 2, 1999, the
Company had purchased .7 million shares of common stock at an aggregate cost of
$13.9 million
Through the Company's restructuring efforts over the past three years, new
information technology systems have been installed throughout all of the
organization, most of which are Year 2000 compliant. In addition, the Company
has concluded identification of all other significant information technology
systems that are not Year 2000 compliant. The Company has completed its review
of equipment and software with the respective vendors from whom the equipment
and software was purchased to address any noncompliance issues. The Company has
identified certain Year 2000 issues with respect to its business systems. The
Company has formed a committee of employees familiar with its information
technology systems to assess and prioritize the need to act, on the basis of
each system's importance, to ensure that its business systems will be made Year
2000 compliant. The Company has also completed a review of all process control
systems, both proprietary and non-proprietary. This review revealed that
certain Year 2000 issues exist. Although the Company can provide no assurances,
all upgrades have been substantially completed, and testing of these upgrades
will continue into the fourth quarter of 1999.
The Company has completed the review of its top suppliers and customers to
determine its progress in becoming Year 2000 compliant. The review indicated
that all of its major suppliers and customers appear to be in the process of
resolving any of their Year 2000 compliance issues and that they do not foresee
any material problems. The Company continues to follow-up with all of its
suppliers and customers to insure that all potential problems, including those
of its individual plant locations and local suppliers, are managed correctly.
If the Company cannot successfully and timely resolve its Year 2000 issues,
its business, results of operations and financial condition could be materially
adversely affected. The Company has not developed a contingency plan in the
event of a Year 2000 problem, however, based upon the results of its internal
review, the Company does not believe a contingency plan is necessary. The
Company will, however, continue to evaluate the need for a contingency plan.
Results of Operations
Quarter Ended October 2, 1999 As Compared With Quarter Ended September 26, 1998
- -------------------------------------------------------------------------------
Net sales for the quarter ended October 2, 1999 were $809.9 million, which
represented an increase of 13% from the $718.8 million reported for the third
quarter of 1998. The Company believes the third quarter 1999 net sales increase
was attributable to internal growth and the impact of the Image acquisition.
Gross profit for the third quarter of the current year was $203.2 million
(25.1% of net sales). In the third quarter of 1998, gross profit was $177.8
million (24.7% of net sales).
11
Selling, general and administrative expenses for the current quarter were
$119.3 million (14.7% of net sales) compared to $108.3 million (15.1% of net
sales) for the prior year's third quarter. The decrease was primarily due to
better leveraging of these expenses against a higher sales volume in 1999.
Interest expense for the current period was $8.3 million compared to $7.2
million in the third quarter of 1998. The primary factor for the increase was
an increase in debt levels in the third quarter of 1999 compared to the third
quarter of 1998 primarily due to the Image acquisition.
In the current period, income tax expense was $29.4 million, or 39.5% of
earnings before income taxes, compared to $24.4 million, or 39.7% of earnings
before income taxes, in the third quarter of 1998. The higher income tax rate in
1998 is due to the impact of prior-year restatements related to the acquisitions
of World Carpets, Inc. ("World") and Durkan.
Nine Months Ended October 2, 1999 As Compared With Nine Months Ended September
- ------------------------------------------------------------------------------
26, 1998
- --------
Net sales for the first nine months ended October 2, 1999 were $2,307.7
million, which represented an increase of 16% from the $1,997.7 million reported
for the first nine months of 1998. This sales increase was attributable to
favorable industry conditions, internal growth, the impact of the Image
acquisition and four additional business days in the first nine months of fiscal
1999 when compared to the first nine months of fiscal 1998.
Gross profit for the first nine months of the current year was $582.5 million
(25.2% of net sales). In the first nine months of 1998, gross profit was $491.8
million (24.6% of net sales). Much of the increase in gross profit can be
attributed to favorable product mix, improved productivity, and better
leveraging of expenses with higher sales volume.
Selling, general and administrative expenses for the current period were
$361.9 million (15.7% of net sales) compared to $316.1 million (15.8% of net
sales) for the prior year's first nine months.
Interest expense for the current period was $23.9 million compared to $23.3
million in the prior year's first nine months. The primary factor for the
increase was an increase in debt levels in the current period compared to the
prior year.
In the current period, income tax expense was $76.4 million, or 39.5% of
earnings before income taxes, compared to $60.6 million, or 40.2% of earnings
before income taxes, in the prior year's first nine months. The higher income
tax rate in 1998 is due to the impact of prior-year restatements related to the
acquisitions of World and Durkan.
Liquidity and Capital Resources
The Company's primary capital requirements are for working capital, capital
expenditures and acquisitions. The Company's capital needs are met through a
combination of internally generated funds, bank credit lines and credit terms
from suppliers.
The level of accounts receivable increased from $331.9 million at the
beginning of 1999 to $385.3 million at October 2, 1999. The $53.4 million
increase resulted primarily from seasonally higher sales volume in the third
quarter as compared to December and the acquisition of Image. Inventories rose
from $423.8 million at the beginning of 1999 to $537.6 million at October 2,
1999, due to requirements to meet seasonal customer demand and the acquisition
of Image.
Capital expenditures totaled $278 million for the first nine months of 1999
(including amounts paid for the Image acquisition) and were incurred primarily
to modernize and expand manufacturing facilities and equipment. The Company's
capital projects are primarily focused on increasing capacity, improving
productivity and reducing costs. Capital spending for the remainder of 1999 is
expected to range from $30 million to $40 million, the majority of which will be
used to increase capacity and productivity.
Impact of Inflation
Inflation affects the Company's manufacturing costs and operating expenses.
The carpet industry has experienced moderate inflation in the prices of certain
raw materials and outside processing for the last three years. The Company has
generally passed along nylon fiber cost increases to its customers.
12
Seasonality
The carpet business is seasonal, with the Company's second, third and fourth
quarters typically producing higher net sales and operating income. By
comparison, results for the first quarter tend to be the weakest. This
seasonality is primarily attributable to consumer residential spending patterns
and higher installation levels during the spring and summer months.
Certain factors affecting our performance
In addition to the other information provided in this Form 10-Q, the following
risk factors should be considered when evaluating an investment in shares of
Mohawk common stock.
Risks related to acquisitions.
- ------------------------------
Management intends to pursue acquisitions of complementary businesses as part
of its business and growth strategies. Although management regularly evaluates
acquisition opportunities, it cannot offer assurance that it will be able to:
. successfully identify suitable acquisition candidates;
. obtain sufficient financing on acceptable terms to fund acquisitions;
. complete acquisitions;
. integrate acquired operations into Mohawk's existing operations; or
. profitably manage acquired businesses.
Acquired operations may not achieve levels of sales, operating income or
productivity comparable to those of Mohawk's existing operations, or otherwise
perform as expected. Acquisitions may also involve a number of special risks,
some or all of which could have a material adverse effect on Mohawk's business,
results of operations and financial condition, including, among others:
. possible adverse effects on Mohawk's operating results;
. diversion of Mohawk's management's attention and its resources; and
. dependence on retaining and training acquired key personnel.
The carpet industry is cyclical.
- --------------------------------
The carpet industry is cyclical and is influenced by a number of general
economic factors. Prevailing interest rates, consumer confidence in spending for
durable goods and disposable income all have an impact on Mohawk's growth and
profitability. In addition, sales of Mohawk's principal products are related to
construction and renovation of commercial and residential buildings. Any adverse
cycle could lessen the overall demand for Mohawk's products and could, in turn,
impair Mohawk's growth and profitability.
The carpet business is seasonal.
- --------------------------------
Mohawk is a calendar year end company and its results of operations for the
first quarter tend to be the weakest. Mohawk's second, third and fourth quarters
typically produce higher net sales and operating income. These results are
primarily due to consumer residential spending patterns and more carpet being
installed in the summer months.
Mohawk's business is competitive.
- ---------------------------------
Mohawk operates in a highly competitive industry. Mohawk and other
manufacturers in the carpet industry compete on the basis of price, style,
quality and service. Some of Mohawk's competitors may have greater financial
resources at their disposal. Mohawk has one competitor whose size could allow it
certain manufacturing cost advantages compared to other industry participants.
If competitors substantially increase production and marketing of competing
products, then Mohawk might be required to lower its prices or spend more on
product development, marketing, and sales, which could adversely affect Mohawk's
profitability.
An increase in the costs of raw materials could negatively impact Mohawk's
- --------------------------------------------------------------------------
profitability.
- --------------
The cost of raw materials has a significant impact on the profitability of
Mohawk. In particular, Mohawk's business requires it to purchase large volumes
of nylon fiber and polypropylene resin, which is used to manufacture fiber.
Mohawk does not have any long-term supply contracts for any of these products.
13
While Mohawk generally attempts to match cost increases with price increases,
large increases in the cost of such raw materials could adversely affect its
business, results of operations and financial condition if it is unable to pass
these costs through to its customers.
Mohawk may be responsible for environmental cleanup.
- ----------------------------------------------------
Various federal, state and local environmental laws govern the use of Mohawk's
facilities. Such laws govern:
. discharge to air and water;
. handling and disposal of solid and hazardous substances and waste; and
. remediation of contamination from releases of hazardous substances in
Mohawk's facilities and off-site disposal locations.
Mohawk's operations are also governed by the laws relating to workplace safety
and worker health, which, among other things, establish asbestos and noise
standards and regulate the use of hazardous chemicals in the workplace. Mohawk
has taken and will continue to take steps to comply with these laws. Based upon
current available information, Mohawk believes that complying with environmental
and safety and health requirements will not require material capital
expenditures in the foreseeable future. However, Mohawk cannot provide assurance
that complying with these environmental or health and safety laws and
requirements will not adversely affect its business, results of operations and
financial condition. Future laws, ordinances or regulations could give rise to
additional compliance or remediation costs, which could have a material adverse
affect on its business, results of operations and financial condition.
Forward-Looking Information
Certain of the matters discussed in the preceding pages, particularly
regarding anticipating future financial performance, business prospects, growth
and operating strategies, proposed acquisitions, new products, Year 2000
compliance and similar matters, and those preceded by, followed by or that
otherwise include the words "believes," "expects," "anticipates," "intends,"
"estimates," or similar expressions constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended.
For those statements, Mohawk claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. Forward-looking statements involve a number of risks and
uncertainties. The following important factors, in addition to those discussed
elsewhere in this document, affect the future results of Mohawk and could cause
those results to differ materially from those expressed in the forward-looking
statements: materially adverse changes in economic conditions generally in the
carpet, rug and floor-covering markets served by Mohawk; failure of our vendors,
customers and suppliers to timely identify and adequately address Year 2000
compliance issues; competition from other carpet, rug and floor-covering
manufacturers, raw material prices, timing and level of capital expenditures,
the successful integration of acquisitions including the challenges inherent in
diverting Mohawk's management attention and resources from other strategic
matters and from operational matters for an extended period of time, the
successful introduction of new products, the successful rationalization of
existing operations, and other risks identified from time to time in the
Company's SEC reports and public announcements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk- sensitive instruments do not subject the Company to
material risk exposure.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine litigation from time to time in the regular
course of its business. Except as noted below, there are no material legal
proceedings pending or known to be contemplated to which the Company is a party
or to which any of its property is subject.
In December 1995, the Company and four other carpet manufacturers were added
as defendants in a purported class action lawsuit, In re Carpet Antitrust
Litigation, pending in the United States District Court for the Northern
District of Georgia, Rome Division. The amended complaint alleges price fixing
regarding polypropylene products in violation of Section One of the Sherman Act.
In September 1997, the Court determined that the plaintiffs met their burden of
establishing the requirements for class certification
14
and granted the plaintiffs' motion to certify the class. The Company is a party
to two consolidated lawsuits captioned Gaehwiler v. Sunrise Carpet Industries,
Inc. et. al. and Patco Enterprises, Inc. v. Sunrise Carpet Industries, Inc. et.
al.; both of which were filed in the Superior Court of the State of California,
City and County of San Francisco in 1996. Both complaints were brought on behalf
of a purported class of indirect purchasers of carpet in the State of California
and seek damages for alleged violations of California antitrust and unfair
competition laws. The complaints filed do not specify any amount of damages but
do request for any unlawful conduct to be enjoined and treble damages plus
reimbursement for fees and costs. In October 1998, two plaintiffs, on behalf of
an alleged class of purchasers of nylon carpet products, filed a complaint in
the United States District Court for the Northern District of Georgia against
the Company and two of its subsidiaries as well as a competitor and one of its
subsidiaries. The complaint alleges that the Company acted in concert with other
carpet manufacturers to restrain competition in the sale of certain nylon carpet
products. The Company has filed an answer and denied the allegations in the
complaint and set forth its defenses. In February 1999, a similar complaint was
filed in the Superior Court of the State of California, City and County of San
Francisco, on behalf of a purported class based on indirect purchases of nylon
carpet in the State of California and alleges violations of California antitrust
and unfair competition laws. The complaints described above do not specify any
specific amount of damages but do request injunctive relief and treble damages
plus reimbursement for fees and costs. The Company believes it has meritorious
defenses and intends to vigorously defend against these actions.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Note Purchase agreement dated as of August 31,
1999 for $100 million 8.46% Senior Notes due September, 2004 among
Mohawk Industries, Inc., The Prudential Insurance Company of America,
Principal Life Insurance Company, John Hancock Mutual Life Insurance
Company, Massachusetts Mutual Life Insurance Company, Alexander
Hamilton Life Insurance Company of America and The Franklin Life
Insurance Company.
10.2 Amended and Restated Series Note Agreement dated as of August 31, 1999
for $85 million due September 1, 2005 among Mohawk Industries, Inc.,
John Hancock Mutual Life Insurance Company, John Hancock Variable Life
Insurance Company, Investors Partner Life Insurance Company, Principal
Life Insurance Company, The Franklin Life Insurance Company and The
Prudential Insurance Company of America.
10.3 Second Consolidated, Amended and Restated Note Agreement dated as of
August 31, 1999 for $50 million, among Mohawk Industries, Inc., and The
Prudential Insurance Company of America.
15
No. Description
- --- -----------
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
27.1 1999 Financial Data Schedule (restated)
27.2 1998 Financial Data Schedule (restated)
(b) Reports on Form 8-K
None.
16
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.
MOHAWK INDUSTRIES, INC.
Dated: November 8, 1999 By: /s/ David L. Kolb
-----------------
DAVID L. KOLB, Chairman of the Board and
Chief Executive Officer (principal executive
officer)
Dated: November 8, 1999 By: /s/ John D. Swift
-----------------
JOHN D. SWIFT, Chief Financial Officer,
Vice President-Finance and Assistant Secretary
(principal financial and accounting officer)
17
EXHIBIT INDEX
No. Description
- --- -----------
(a) Exhibits
10.1 Amended and Restated Note Purchase agreement dated as of August 31,
1999 for $100 million 8.46% Senior Notes due September, 2004 among
Mohawk Industries, Inc., The Prudential Insurance Company of America,
Principal Life Insurance Company, John Hancock Mutual Life Insurance
Company, Massachusetts Mutual Life Insurance Company, Alexander
Hamilton Life Insurance Company of America and The Franklin Life
Insurance Company.
10.2 Amended and Restated Series Note Agreement dated as of August 31,
1999 for $85 million due September 1, 2005 among Mohawk Industries,
Inc., John Hancock Mutual Life Insurance Company, John Hancock
Variable Life Insurance Company, Investors Partner Life Insurance
Company, Principal Life Insurance Company, The Franklin Life
Insurance Company and The Prudential Insurance Company of America.
10.3 Second Consolidated, Amended and Restated Note Agreement dated as of
August 31, 1999 for $50 million, among Mohawk Industries, Inc., and
The Prudential Insurance Company of America.
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
27.1 1999 Financial Data Schedule (restated)
27.2 1998 Financial Data Schedule (restated)
18