def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities
Exchange Act of 1934
Filed by the Registrant
x
Filed by a Party other than the Registrant
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Check the appropriate box:
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o Preliminary
Proxy Statement |
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o Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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x Definitive
Proxy Statement
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o Definitive
Additional Materials
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o Soliciting
Material Pursuant to §240.14a-12
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MOHAWK INDUSTRIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
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Title of each class of securities to which
transaction applies:
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Aggregate number of securities to which
transaction applies:
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Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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To the Stockholders of Mohawk Industries, Inc.:
You are cordially invited to attend the annual meeting of
stockholders to be held on Tuesday, May 11, 2010, at
10:00 a.m. local time, at the corporate headquarters of the
Company, 160 South Industrial Boulevard, Calhoun, Georgia 30701.
The business of the meeting will be to elect a class of
directors to serve a three-year term beginning in 2010 and to
ratify the selection of KPMG LLP as the Companys
independent registered public accounting firm, and there will
not otherwise be a business review at the meeting.
Whether or not you plan to attend the annual meeting, please
complete, sign, date and return the enclosed proxy card in the
enclosed, postage-prepaid envelope at your earliest convenience
so that your shares will be represented at the meeting. If you
choose to attend the meeting, you may revoke your proxy and
personally cast your votes. To receive a map and driving
directions to the corporate headquarters, please call Deby
Forbus at
(706) 624-2246.
Sincerely yours,
JEFFREY S. LORBERBAUM
Chairman and Chief Executive Officer
Calhoun, Georgia
April 5, 2010
MOHAWK
INDUSTRIES, INC.
160 South Industrial Boulevard
Calhoun, Georgia 30701
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
May 11, 2010
The annual meeting of stockholders of Mohawk Industries, Inc.
(the Company) will be held on Tuesday, May 11,
2010, at 10:00 a.m. local time, at the corporate
headquarters of the Company, 160 South Industrial Boulevard,
Calhoun, Georgia 30701.
The meeting is called for the following purposes:
1. To elect four persons who will serve as the
Companys Class III directors for a three-year term
beginning in 2010;
2. To ratify the selection of KPMG LLP as the
Companys independent registered public accounting firm for
the fiscal year ending December 31, 2010; and
3. To consider and act upon such other business as may
properly come before the meeting or any adjournments thereof.
The Board of Directors has fixed March 19, 2010 as the
record date for the determination of stockholders entitled to
notice of and to vote at the meeting.
Important
Notice Regarding the Availability of Proxy Materials for the
Stockholders Meeting
to be held on May 11, 2010:
The Proxy
Statement and the 2009 Summary Annual Report to Stockholders are
available
at www.mohawkind.com.
PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY SO THAT YOUR
SHARES WILL BE REPRESENTED. IF YOU CHOOSE TO ATTEND THE
MEETING, YOU MAY REVOKE YOUR PROXY AND PERSONALLY CAST YOUR
VOTES.
By Order of the Board of Directors,
BARBARA M. GOETZ
Corporate Secretary
Calhoun, Georgia
April 5, 2010
TABLE OF CONTENTS
MOHAWK
INDUSTRIES, INC.
160 South Industrial Boulevard
Calhoun, Georgia 30701
PROXY
STATEMENT
This Proxy Statement is furnished by and on behalf of the Board
of Directors of Mohawk Industries, Inc. (Mohawk or
the Company) in connection with the solicitation of
proxies for use at the annual meeting of stockholders of the
Company to be held on Tuesday, May 11, 2010, and at any and
all adjournments or postponements thereof (the Annual
Meeting). This Proxy Statement and the enclosed proxy card
will be first mailed on or about April 5, 2010 to the
stockholders of record of the Company (the
Stockholders) on March 19, 2010 (the
Record Date).
Proxies will be voted as specified by Stockholders. Unless
contrary instructions are specified, if the enclosed proxy card
is executed and returned (and not revoked) prior to the Annual
Meeting, the shares of the common stock of the Company (the
Common Stock) represented thereby will be voted FOR
election of the nominees listed in this Proxy Statement as
directors of the Company and FOR ratification of KPMG LLP as the
Companys independent registered public accounting firm. A
Stockholders submission of a signed proxy will not affect
his or her right to attend and to vote in person at the Annual
Meeting. Stockholders who execute a proxy may revoke it at any
time before it is voted by (i) filing a written revocation
with the Secretary of the Company, (ii) executing a proxy
bearing a later date or (iii) attending and voting in
person at the Annual Meeting.
The presence of a majority of the outstanding shares of Common
Stock entitled to vote at the Annual Meeting, present in person
or by proxy, will constitute a quorum. Shares of Common Stock
represented by proxies at the meeting, including broker nonvotes
and those that are marked WITHHOLD AUTHORITY
or ABSTAIN will be counted as shares
present for purposes of establishing a quorum. A broker nonvote
occurs when a broker or nominee holding shares for a beneficial
owner votes on one proposal, but does not vote on another
proposal because the broker or nominee does not have
discretionary voting power and has not received instructions
from the beneficial owner. Once a quorum is established,
(i) the election of directors will require the affirmative
vote of a plurality of the shares of Common Stock represented
and entitled to vote in the election at the Annual Meeting and
(ii) the ratification of the appointment of KPMG LLP as our
independent registered public accounting firm for fiscal 2010
will require the affirmative vote of the holders of a majority
of the votes represented at the Annual Meeting in person or by
proxy. Neither withholding authority to vote with respect to one
or more nominees nor a broker nonvote will have an effect on the
outcome of the election of directors. As to ratification of KPMG
LLP as our independent registered public accounting firm, shares
represented by proxies that are marked ABSTAIN
will have the effect of a vote against this proposal, while
a broker nonvote will not have an effect on the outcome of this
proposal.
Pursuant to the Companys Restated Certificate of
Incorporation as amended (the Certificate of
Incorporation), holders of Common Stock will be entitled
to one vote for each share of Common Stock held. Pursuant to the
provisions of the Delaware General Corporation Law,
March 19, 2010 has been fixed as the Record Date for
determination of Stockholders entitled to notice of and to vote
at the Annual Meeting, and, accordingly, only holders of Common
Stock of record at the close of business on that day will be
entitled to notice of and to vote at the Annual Meeting. On the
Record Date, there were 68,571,805 shares of Common Stock
issued and outstanding held by approximately 341 Stockholders.
THE BOARD
OF DIRECTORS URGES YOU TO COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE.
PROPOSAL 1
ELECTION OF DIRECTORS
The Companys Certificate of Incorporation provides for the
Board of Directors of the Company to consist of three classes of
directors serving staggered terms of office. Upon the expiration
of the term of office for a class of directors, the nominees for
that class will be elected for a term of three years to serve
until the election and qualification of their successors.
Phyllis O. Bonanno, David L. Kolb, Joseph A. Onorato, and W.
Christopher Wellborn have been nominated for re-election as
Class III directors at the Annual Meeting. The Class I
and Class II directors have one year and two years,
respectively, remaining on their terms of office and will not be
voted upon at the Annual Meeting.
The Companys Certificate of Incorporation provides that
the Company shall have at least two and no more than eleven
directors, with the Board of Directors to determine the exact
number. In addition, the Certificate of Incorporation divides
the Board of Directors into three classes, with each to consist,
as nearly as possible, of one-third of the total number of
directors constituting the entire Board of Directors. The Board
of Directors has by resolution set the number of directors at
eleven.
It is the intention of the persons named as proxies to vote the
proxies for the election of each of Ms. Bonanno and
Messrs. Kolb, Onorato, and Wellborn as a Class III
director of the Company, unless the Stockholders direct
otherwise in their proxies. Each of Ms. Bonanno and
Messrs. Kolb, Onorato, and Wellborn has consented to
continue to serve as a director of the Company if re-elected. In
the unanticipated event that any of Ms. Bonanno or
Messrs. Kolb, Onorato or Wellborn refuses or is unable to
serve as a director, the persons named as proxies reserve full
discretion to vote for such other person or persons as may be
nominated. The Board of Directors has no reason to believe that
any of Ms. Bonanno or Messrs. Kolb, Onorato or
Wellborn will be unable or will decline to serve as a director.
The affirmative vote of a plurality of the shares represented
and entitled to vote in the election at the Annual Meeting at
which a quorum is present is required for the election of the
nominees.
THE BOARD
OF DIRECTORS RECOMMENDS
A VOTE FOR THE ELECTION OF THE NOMINEES LISTED
BELOW
Director,
Director Nominee and Executive Officer Information
Based on information supplied by them, set forth below is
certain information concerning the nominees for election as
Class III directors and the directors in Classes I
and II whose terms of office will continue after the Annual
Meeting, including the name and age of each, current principal
occupation (which has continued for five years unless otherwise
indicated), the name and principal business of the organization
in which such occupation is carried on, the year each was
elected to the Board of Directors of the Company, all positions
and offices held during 2009 with the Company, and directorships
in other publicly-held companies.
Nominees
for Director
Class III
Nominees for Director (Current Terms Expire 2010)
Phyllis O. Bonanno Ms. Bonanno
(age 67) has been a director of the Company since
February 2004. From 2002 until her retirement in August 2009,
Ms. Bonanno served as the President and Chief Executive
Officer of International Trade Solutions, Inc. Ms. Bonanno
served as President and Chief Executive Officer of Columbia
College from July 1997 until March 2000 and served as the Vice
President for International Trade at Warnaco, Inc. from 1986 to
1997. Ms. Bonanno has also served as a personal assistant
to President Lyndon Johnson and as the first director of the
U.S. Trade Representatives (USTR) Office
of Private Sector Liaison
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in the Executive Office of Presidents Carter and Reagan. In
addition, while serving at the USTR, Ms. Bonanno served as
the Executive Director of the Presidents Advisory
Committee on Trade Negotiations. Ms. Bonanno is also a
director of Adams Express Company, a diversified equity
investment company, BorgWarner Inc., (BorgWarner) a
manufacturer of automotive equipment, and Petroleum and
Resources Corporation, an equity investment company specializing
in energy and natural resources companies.
David L. Kolb Mr. Kolb
(age 71) served as President of Mohawk Carpet
Corporation (now Mohawk Carpet, LLC and one of the
Companys principal operating subsidiaries) until Mohawk
Carpet Corporation was acquired by the Company in December 1988,
at which time he became Chairman of the Board of Directors and
Chief Executive Officer of the Company. Effective January 2001,
Mr. Kolb retired from his position as Chief Executive
Officer. He retired as Chairman in May 2004. Prior to joining
Mohawk Carpet Corporation, Mr. Kolb served in various
executive positions with Allied-Signal Corporation for
19 years. Mr. Kolb is also a director of Aaron Rents,
Inc., a home furnishings retailer, and Chromcraft Revington,
Inc., a furniture manufacturer. In addition, Mr. Kolb is a
trustee of the Schenck School and Mount Vernon Presbyterian
School.
Joseph A. Onorato Mr. Onorato
(age 61) has been a director of the Company since
February 2008. From July 1998 until his retirement in September
2000, Mr. Onorato served as Senior Vice President and Chief
Financial Officer for the Automotive Aftermarket Group of Dana
Corporation, a global leader in the engineering, manufacturing
and distribution of components and systems for worldwide
vehicular and industrial manufacturers. In July 1998, Dana
Corporation merged with Echlin, Inc. (Echlin), a
worldwide manufacturer of motor vehicle parts. At the time of
the merger, Mr. Onorato was Vice President and Chief
Financial Officer for Echlin. While at Echlin, he also served as
Treasurer from 1990 to 1994, and as Vice President and Treasurer
from 1994 to 1997. He previously worked with
PricewaterhouseCoopers. Since his retirement from Dana
Corporation, Mr. Onorato has consulted with a private
equity firm on acquisitions. Mr. Onorato also serves on the
board of directors for Affinia Group Intermediate Holdings, Inc.
(Affinia), a motor vehicle components manufacturer,
where he is chairman of the Audit Committee. He serves as
chairman of the Advisory Board of the School of Business at
Quinnipiac University.
W. Christopher
Wellborn Mr. Wellborn
(age 54) has served as a director of the Company since
our acquisition of Dal-Tile International Inc.,
(Dal-Tile) in March 2002. He has served as the
Companys Chief Operating Officer since November 2005 and
as its President and Chief Operating Officer since November
2009. Mr. Wellborn was Executive Vice President, Chief
Financial Officer and Assistant Secretary of Dal-Tile from
August 1997 through March 2002. From March 2002 to November
2005, he served as President Dal-Tile. From June
1993 to August 1997, Mr. Wellborn was Senior Vice President
and Chief Financial Officer of Lenox, Inc. Mr. Wellborn is
on the board of directors of Palm Harbor Homes, Inc., a builder
of manufactured and modular custom homes.
Continuing
Directors
Class I
Directors Continuing in Office (Terms Expire 2011)
John F. Fiedler Mr. Fiedler
(age 71) has been a director of the Company since
March 2002. Mr. Fiedler is the retired Chairman of the
board of directors of BorgWarner. He most recently served as
Chief Executive Officer of BorgWarner having been named Chairman
and Chief Executive Officer in January 1995. Prior to that,
Mr. Fiedler served as President and Chief Operating Officer
of BorgWarner. Before joining BorgWarner in June 1994,
Mr. Fiedler was Executive Vice President of The Goodyear
Tire & Rubber Company (Goodyear), where he
was responsible for North American Tires.
Mr. Fiedlers
29-year
career with Goodyear included numerous sales, marketing and
manufacturing positions in the United States and Asia.
Mr. Fiedler is also a director of WABCO Holdings, Inc., a
Belgian truck component manufacturer, Snap-on Inc., a global
developer, manufacturer and marketer of tools and equipment
solutions for professional tool users, and AirTran
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Holdings, Inc., a low-cost air travel provider. He is also a
member of the Kent State Foundation Commission and on the
Advisory Board of Prism Capital, a Mezzanine Fund, L.P.
Jeffrey S.
Lorberbaum Mr. Lorberbaum
(age 55) has been a director of the Company since our
acquisition of Aladdin Mills Inc., (Aladdin) in
March 1994. He has served as Chairman of the Board since May
2004 and as the Companys Chief Executive Officer since
January 2001 when he succeeded Mr. Kolb in this position.
From January 1995 until January 2001, Mr. Lorberbaum served
as President and Chief Operating Officer of the Company.
Mr. Lorberbaum joined Aladdin in 1976 and served as Vice
President Operations from 1986 until February 1994
when he became President and Chief Executive Officer.
Robert N. Pokelwaldt Mr. Pokelwaldt
(age 73) has been a director of the Company since
consummation of the Companys initial public offering in
1992 (the Initial Public Offering).
Mr. Pokelwaldt served as Chairman and Chief Executive
Officer of York International Corporation (York), a
manufacturer of air conditioning and cooling systems, from
January 1993 until his retirement in October 1999. He also
served York from June 1991 until January 1993 as President,
Chief Executive Officer and a director, and from January 1990
until June 1991, as President and Chief Operating Officer.
Mr. Pokelwaldt is also a director of Intersil Corporation,
a telecommunications chip manufacturer.
Class II
Directors Continuing in Office (Terms Expire 2012)
Bruce C. Bruckmann Mr. Bruckmann
(age 56) has been a director of the Company since
October 1992. Mr. Bruckmann has been a Managing Director of
Bruckmann, Rosser, Sherrill & Co., Inc., a private
equity investment firm, since January 1995. From March 1994 to
January 1995, Mr. Bruckmann served as Managing Director of
Citicorp Venture Capital, Ltd. (CVC, Ltd.) and as an
executive officer of 399 Venture Partners, Inc. (formerly
Citicorp Investments, Inc.). From 1983 until March 1994,
Mr. Bruckmann served as Vice President of CVC, Ltd.
Mr. Bruckmann is also a director of Town Sports
International, Inc., a fitness club operator, MWI Veterinary
Products, Inc., a distributor of animal health products to
veterinarians, H&E Equipment Services L.L.C., a renter and
distributor of industrial and construction equipment, and
Heritage Crystal Clean Inc., a provider of parts
cleaning services. Mr. Bruckmann also serves as director
for Downtown Locker Room, a private company.
Frans G. De Cock Mr. De Cock
(age 67) was elected to the Companys Board of
Directors in October 2005 effective upon the closing of the
Companys acquisition of Unilin Flooring BVBA and its
affiliated companies (Unilin) (now one of the
Companys principal operating subsidiaries) and was named
President Unilin in November 2005. Mr. De Cock
retired as President Unilin effective
January 1, 2009 but has continued to provide consulting
services to Unilin since that time. Before joining Mohawk,
Mr. De Cock was one of the managing directors of Unilin.
From 1997 until 1999, he also served as President of the
European Federation of Associations of Particleboard
Manufacturers and, from 1999 until 2004, as President of the
European Panel Federation.
Larry W. McCurdy Mr. McCurdy
(age 74) has been a director of the Company since the
Initial Public Offering. Mr. McCurdy was President and
Chief Executive Officer of Moog Automotive, Inc., a privately
held manufacturer of automotive aftermarket products, from
November 1985 until April 1994. Moog Automotive, Inc. was
acquired by Cooper Industries, Inc., (Cooper) a
manufacturer of electrical and automotive products, tools and
hardware, in October 1992, and Mr. McCurdy became Executive
Vice President-Operations of Cooper in April 1994.
Mr. McCurdy held that position until March 7, 1997,
when he became President, Chief Executive Officer and a director
of Echlin. On December 17, 1997, Mr. McCurdy was
elected Chairman of the board of directors of Echlin. Following
the merger of Echlin and Dana Corporation in July 1998,
Mr. McCurdy served as President of the Dana Automotive
Aftermarket Group until his retirement in August 2000.
Mr. McCurdy also serves on the boards of directors of
Affinia, Lear Corporation, an international manufacturer for
original equipment vehicles, and General Parts, Inc., a North
American automotive parts distributor.
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In connection with the merger of Aladdin with a wholly-owned
subsidiary of the Company in February 1994 (the Aladdin
Merger), the Company agreed to nominate up to two persons
designated by the former shareholders of Aladdin for election or
re-election, as the case may be, to the Board of Directors of
the Company and to use its best efforts to cause such nominees
to be elected to the Board of Directors. Beginning in 1999,
Messrs. Jeffrey S. Lorberbaum and Sylvester H. Sharpe were
such designees. Effective May 17, 2006, Mr. Sharpe
retired from the Board of Directors. At this time, the holders
have decided not to designate anyone to fill the vacancy created
by Mr. Sharpes retirement. At such time as the former
shareholders of Aladdin have disposed of 50% or more of the
Common Stock issued to them in the Aladdin Merger, the Company
will be required to nominate only one such person to the Board
of Directors, and at such time as the former shareholders of
Aladdin have disposed of 75% or more of the Common Stock issued
to them in the Aladdin Merger, the Company will no longer be
required to nominate any of such persons to the Board of
Directors.
In connection with the acquisition of Unilin by the Company in
October 2005, the Company agreed to appoint to its Board of
Directors a representative designated by Unilin, and
Mr. Frans G. De Cock was initially appointed to the Board
of Directors as a result.
Executive
Officers
The executive officers of the Company serve at the discretion of
the Board of Directors and are currently comprised of
Messrs. Jeffrey S. Lorberbaum and W. Christopher Wellborn
(who are identified above), Frank H. Boykin, James F. Brunk,
James T. Lucke, Frank T. Peters, Bernard P. Thiers and Harold G.
Turk.
Frank H. Boykin Mr. Boykin
(age 54) was named Vice President Finance
and Chief Financial Officer of the Company in January 2005. In
August 2004, Mr. Boykin was appointed Vice
President Finance. He previously served as Corporate
Controller of the Company from April 1993 until May 1999, when
he was appointed Vice President, Corporate Controller. Before
joining the Company, Mr. Boykin served as a Senior Manager
at KPMG LLP.
James F. Brunk Mr. Brunk
(age 45) was appointed Corporate Controller, Chief
Accounting Officer of the Company in May 2009. Mr. Brunk
joined Mohawk in October 2006 as Chief Financial Officer for the
Mohawk Home Division. Prior to joining Mohawk, Mr. Brunk
was Vice President, Finance
Transportation-Americas
for Exide Technologies, a worldwide leader in production and
recycling of lead acid batteries from January 2005 to October
2006 and also held various senior financial positions with
Oxford Automotive Corp., a Tier 1 automotive metal forming
supplier, from August 1996 to December 2004, including Vice
President of Finance, North American Operations from August 2001
to December 2004.
James T. Lucke Mr. Lucke
(age 49) joined Mohawk in May 2007 and serves as the
Companys Vice President General Counsel.
Mr. Lucke served as Senior Vice President, Secretary and
General Counsel of Spectrum Brands, Inc., a diversified consumer
products company, from October 1999 until joining Mohawk. From
1992 to 1999, Mr. Lucke held several positions within the
legal department of Johnson Controls, Inc., a manufacturer of
automotive systems and products and building controls systems,
most recently serving as General Counsel of Johnson
Controls Battery Division from 1997 to 1999.
Frank T. Peters Mr. Peters
(age 61) was named President Mohawk
Flooring in May 2008. He served as Vice President of Carpet and
Yarn Manufacturing for the Mohawk Residential Flooring business
unit beginning in 2005. Upon joining the Company in 1993, he
served as Vice President of Product Development. Prior to
joining Mohawk, Mr. Peters served in manufacturing and
product development leadership roles with Armstrong World
Industries and Shaw Industries for more than two decades.
Bernard P. Thiers Mr. Thiers
(age 54) was promoted to President Unilin
in January 2009, succeeding Mr. De Cock in this position.
Mr. Thiers joined Unilin in 1984 as a plant manager and has
served in roles
5
of increasing management significance since that time. From 1996
to 2006, he served as Managing Director of Unilin Flooring and
from 2006 until his 2009 promotion, he served as
President Unilin Flooring.
Harold G. Turk Mr. Turk
(age 63) was promoted to his current position of
President Dal-Tile in January 2006. From March 2002
through December 2005, he served as Executive Vice President of
the Dal-Tile
Strategic Business Unit (SBU) of Dal-Tile. Mr. Turk joined
Dal-Tile in 1976.
Meetings
and Committees of the Board of Directors
General. During fiscal 2009, the Board of
Directors held six meetings. All members of the Board of
Directors attended at least 75% of the total number of Board of
Directors and Committee meetings that they were eligible to
attend. All members of the Board of Directors at the time of the
2009 annual stockholder meeting were present at such meeting.
The Board of Directors has affirmatively determined, considering
generally all relevant facts and circumstances regarding each
non-management director, that none of Ms. Bonanno,
Mr. Bruckmann, Mr. Fiedler, Mr. Kolb,
Mr. McCurdy, Mr. Onorato, or Mr. Pokelwaldt have
a material relationship that would interfere with such
directors exercise of independent judgment in carrying out
the responsibilities of a director, and therefore they are
independent within the meaning of the standards for independence
set forth in the Companys corporate governance guidelines,
which are consistent with applicable Securities and Exchange
Commission (SEC) rules and New York Stock Exchange
(NYSE) corporate governance standards. Definitions
of independence for directors and committee members can be found
on the Companys website at www.mohawkind.com under the
heading Corporate Governance.
The Company has a standing Audit Committee (the Audit
Committee) of the Board of Directors established in
accordance with the Securities Exchange Act of 1934, as amended
(the Exchange Act). During 2009, the Audit Committee
was comprised of four directors: Mr. McCurdy (Chairman),
Mr. Bruckmann, Mr. Onorato and Mr. Pokelwaldt.
All such Audit Committee members have been determined by the
Board of Directors to be independent as discussed above. The
Board of Directors has also determined that Mr. McCurdy is
qualified as the audit committee financial expert within the
meaning of applicable SEC regulations, and the Board of
Directors has determined that Mr. McCurdy has the requisite
accounting and financial expertise within the meaning of the
listing standards of the NYSE. The Audit Committee met six times
during 2009. The Audit Committee oversees managements
conduct of the financial reporting process, the system of
internal, financial and administrative controls and the annual
independent audit of the Companys consolidated financial
statements. In addition, the Audit Committee engages the
independent registered public accounting firm, reviews the
independence of such independent registered public accounting
firm, approves the scope of the annual activities of the
independent registered public accounting firm and internal
auditors and reviews audit results. The Board of Directors has
adopted a written charter for the Audit Committee, which is
available on the Companys website at www.mohawkind.com
under the heading Corporate Governance. See also
Audit Committee Report of the Audit Committee of
the Board of Directors of Mohawk Industries, Inc.
The Company has a standing Compensation Committee (the
Compensation Committee), currently consisting of
Mr. Fiedler (Chairman), Mr. Bruckmann, and
Mr. Pokelwaldt. The Compensation Committee met twice during
2009. The Compensation Committee is responsible for deciding,
recommending and reviewing the compensation, including benefits,
of the executive officers and directors of the Company, for
reviewing risks associated with the Companys compensation
policies and practices and for administering the Companys
executive and senior management incentive compensation plans.
The Board of Directors has adopted a written charter for the
Compensation Committee, which is available on the Companys
website at www.mohawkind.com under the heading Corporate
Governance. See also Executive Compensation and Other
Information Compensation Committee Report.
6
The Company has a standing Nominating and Corporate Governance
Committee (the Governance Committee), consisting
during 2009 of Mr. Kolb (Chairman), Ms. Bonanno and
Mr. McCurdy. Mr. Onorato was elected to the Governance
Committee in February 2010. The Governance Committee met three
times in 2009. The Governance Committee is responsible for
assisting the Board of Directors in fulfilling its oversight
responsibilities under the NYSE listing standards and Delaware
law, identifying qualified candidates for nomination to the
Board of Directors and developing and evaluating the
Companys corporate governance policies. The Governance
Committee also considers nominees to the Board of Directors
recommended by stockholders in accordance with the requirements
of the Companys Bylaws. See also Corporate
Governance Nomination Process for the Board of
Directors. The Board of Directors has adopted a written
charter for the Governance Committee and Corporate Governance
Guidelines recommended by the Governance Committee, both of
which are available on the Companys website at
www.mohawkind.com under the heading Corporate
Governance.
Executive Sessions with Non-Management
Directors. All directors who are not members of
the Companys management team meet without the Chief
Executive Officer and other Company personnel as needed during a
portion of each non-telephonic Board of Directors meeting. The
Chairmen of the Companys standing committees chair these
executive sessions on a rotating basis.
2009
DIRECTOR COMPENSATION
The following table presents certain summary information
concerning director compensation paid by the Company for
services rendered during the fiscal year ended December 31,
2009.
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|
|
|
|
|
|
|
|
|
|
|
|
in Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
Earned or
|
|
Stock
|
|
Option
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
Paid in Cash
|
|
Awards
|
|
Awards
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
Name
|
|
($)(1)
|
|
($)(2)
|
|
($)(2)
|
|
Compensation ($)
|
|
Earnings
|
|
Compensation ($)(3)
|
|
Total ($)
|
|
Phyllis O. Bonanno
|
|
|
61,820
|
|
|
|
44,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,920
|
|
Bruce C. Bruckmann
|
|
|
67,820
|
|
|
|
44,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,920
|
|
Frans G. De Cock
|
|
|
|
|
|
|
|
|
|
|
217,585
|
|
|
|
|
|
|
|
|
|
|
|
567,548
|
|
|
|
785,133
|
|
John F. Fiedler
|
|
|
64,357
|
|
|
|
44,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,457
|
|
David L. Kolb
|
|
|
64,343
|
|
|
|
44,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,443
|
|
Larry W. McCurdy
|
|
|
72,825
|
|
|
|
44,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,925
|
|
Joseph A. Onorato
|
|
|
61,641
|
|
|
|
44,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,741
|
|
Robert N. Pokelwaldt
|
|
|
67,787
|
|
|
|
44,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,887
|
|
|
|
|
(1) |
|
Includes fees earned for attending meetings and payment of
annual retainer. Mr. Fiedler, Mr. Kolb,
Mr. McCurdy, Mr. Onorato and Mr. Pokelwaldt
elected to take the 2009 retainer of $32,537, $32,523, $35,005,
$29,967 and $29,967, respectively, in lieu of cash, in the form
of Common Stock of 853, 853, 918, 786 and 786 shares,
respectively, pursuant to the Companys 1997 Non-Employee
Director Stock Plan. Cash representing fractional shares is
carried forward to the following year. For 2009, Mr. Kolb
elected to receive his retainer in the form of phantom stock. |
7
|
|
|
(2) |
|
The amounts reported in the Stock Awards column reflect the
grant date fair value calculated in accordance with the
provisions of the Financial Accounting Standards Board
(FASB) Accounting Standards Codification Topic 718,
Compensation-Stock Compensation (ASC 718).
The assumptions used in determining the grant date fair values
of these awards are set forth in the notes to the Companys
consolidated financial statements, which are included in our
annual Report on
Form 10-K
for the year ended December 31, 2009. |
|
(3) |
|
Pursuant to Mr. De Cocks Service Agreement as
described further in Certain Relationships and Related
Transactions, Mr. De Cock received an annual salary of
$355,684 (Euro 248,730) including his retainer and an annual
bonus of $200,871 (Euro 140,469). |
Employees of the Company or its subsidiaries who are also
directors do not receive any fee or remuneration for services as
members of the Board of Directors or any Committee of the Board
of Directors. Mr. De Cock also does not receive any fees or
remuneration for his services as a member of the Board of
Directors, but he receives compensation for consulting services
as described further in Certain Relationships and Related
Transactions. The Company pays each independent director an
annual retainer of $30,000 and a fee of $4,000 for each Board
meeting and $1,000 for each Committee meeting attended. The
Compensation Committee and Governance Committee Chairmen receive
an additional annual retainer of $2,500 each, and the Audit
Committee Chairman also receives an additional annual retainer
of $5,000. Each independent director also receives a grant of
1,000 restricted stock units on the first business day of each
year provided such director is serving on the Board of Directors
on such date. The Company reimburses all directors for expenses
the directors incur in connection with attendance at meetings of
the Board of Directors or Committees.
In December 1996, the Board of Directors adopted the Mohawk
Industries, Inc. 1997 Non-Employee Director Stock Compensation
Plan (the Director Stock Compensation Plan) to
promote the long-term growth of the Company by providing a
vehicle for its non-employee directors to increase their
proprietary interest in the Company and to attract and retain
highly qualified and capable non-employee directors. Under the
Director Stock Compensation Plan, non-employee directors may
elect to receive their annual cash retainer fees either in cash
or in shares of Common Stock of the Company, based on the fair
market value of the Common Stock at the beginning of each
quarter. Meeting fees for non-employee directors are only paid
in cash. The maximum number of shares of Common Stock which may
be granted under the plan is 37,500 shares, which shares
may not be original issue shares. In 1997, the Director Stock
Compensation Plan was amended by the Board of Directors to
include an optional income deferral feature using a book entry,
stock valued (phantom stock) account that would fluctuate in
value based on the performance of the Common Stock of the
Company over the deferral period. The Board of Directors may
suspend or terminate the Director Stock Compensation Plan at any
time.
8
AUDIT
COMMITTEE
Report of
the Audit Committee of the Board of Directors of Mohawk
Industries, Inc.
The Audit Committee members reviewed and discussed the audited
consolidated financial statements for the year ended
December 31, 2009 with management. The Audit Committee
members also discussed the matters required to be discussed by
Statement of Auditing Standards No. 61, as amended, with
the Companys independent registered public accounting
firm. The Audit Committee received the written disclosure letter
from the independent registered public accounting firm, which
letter is required by relevant professional and regulatory
standards, discussed with the independent registered public
accounting firm any relationships that may impact the
objectivity and independence of the independent registered
public accounting firm and satisfied itself as to the
independence of the independent registered public accounting
firm. In addition, the members of the Audit Committee considered
whether the provision of services for the year ended
December 31, 2009 described below under Principal
Accountant Fees and Services was compatible with maintaining
such independence. Based upon these reviews and discussions, the
Audit Committee recommended to the Board of Directors that the
audited consolidated financial statements be included in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2009, filed with the
Securities and Exchange Commission.
Audit
Committee
Larry W. McCurdy-Chairman
Bruce C. Bruckmann
Joseph A. Onorato
Robert N. Pokelwaldt
9
Principal
Accountant Fees and Services
The following table shows the fees rendered (in thousands) to
the Companys principal independent registered public
accounting firm for the audit of the Companys annual
consolidated financial statements for fiscal 2009 and 2008,
respectively, and fees billed for non-audit related services,
tax services and all other services performed by the
Companys independent registered public accounting firm
during fiscal 2009 and 2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Audit Fees(a)
|
|
$
|
4,108
|
|
|
|
4,272
|
|
Audit-Related Fees(b)
|
|
|
140
|
|
|
|
86
|
|
Tax Fees(c)
|
|
|
6
|
|
|
|
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,254
|
|
|
|
4,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Audit services consist principally of the audit and quarterly
reviews of the consolidated financial statements, the audit of
internal control over financial reporting, and fees for
accounting consultations on matters reflected in the
consolidated financial statements. Audit fees also include fees
for other attest services required by statute or regulation
(foreign or domestic), such as statutory audits in U.S. and
non-U.S.
locations. |
|
(b) |
|
Audit-related services consist principally of audits of
financial statements of employee benefit plans and professional
services related to consultation with management on the
accounting for various matters. |
|
(c) |
|
Tax fees consist principally of professional services rendered
for tax compliance and tax consulting. |
The Audit Committee pre-approved all audit and audit-related
services in fiscal 2009 and 2008. The Audit Committee has
delegated to the Chairman of the Audit Committee the authority
to pre-approve audit and audit-related, tax and non-audit
related services to be performed by the Companys
independent registered public accounting firm.
10
PROPOSAL 2
RATIFICATION OF SELECTION OF KPMG LLP AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected KPMG LLP (KPMG) as
the Companys independent registered public accounting firm
for the fiscal year ending December 31, 2010 and has
directed that management submit the selection of the independent
registered public accounting firm to Stockholders for
ratification at the Annual Meeting. Representatives of KPMG are
expected to be present at the meeting, will have an opportunity
to make a statement if they so desire and will be available to
respond to appropriate questions.
Stockholder ratification of the selection of KPMG as the
Companys independent registered public accounting firm is
not required by the Companys Bylaws or otherwise. If the
Stockholders fail to ratify the selection, the Audit Committee
will reconsider whether to retain KPMG. Even if the selection is
ratified, the Audit Committee in its discretion may direct the
appointment of a different independent registered public
accounting firm at any time during the year if it is determined
that such a change would be in the best interests of the Company
and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE SELECTION OF KPMG LLP AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
11
COMPENSATION
DISCUSSION AND ANALYSIS
General
Overview
Our goal is to have a compensation program that enables us to
attract, motivate and retain highly-qualified executives who
will assist us in meeting our long-range objectives, thereby
serving the interests of our stockholders. We design our
compensation program with a view to attracting and retaining
executive leadership of a caliber and level of experience
necessary to manage effectively our complex global businesses.
We believe that, in order to do this effectively, our program
must meet the following criteria:
|
|
|
|
|
create a strong link between the executives compensation
and our annual and long-term financial performance;
|
|
|
|
create elements of financial risk through performance-based
incentive compensation, which offer an opportunity for financial
reward to the executives;
|
|
|
|
closely align our executives interests with those of our
stockholders by making stock-based incentives an element of our
executives compensation; and
|
|
|
|
provide our executives with total compensation opportunities at
levels that are competitive for comparable positions at
companies with whom we compete for talent.
|
How we
Determine and Assess our Executive Compensation
Our Board of Directors bears the ultimate responsibility for
approving the compensation of our Named Executive Officers. The
Compensation Committee of our Board of Directors (the
Committee) has been delegated authority to discharge
these responsibilities. Information about the Committee and its
composition, responsibilities and operations can be found in
this proxy statement, under the caption Meetings and
Committees of the Board of Directors.
Our determinations and assessments of executive compensation are
primarily driven by two considerations: market data based on the
compensation levels, programs and practices of certain other
companies for comparable executive positions; and Company and
individual performance in specified areas, such as financial
metrics and operational efficiency.
Market
Data
We consider the compensation levels, programs and practices of
certain other companies to assist us in setting our executive
compensation so that it is market competitive. The peer group
consists of companies of comparable size on both a revenue and
market capitalization basis that are engaged, to varying
degrees, in businesses similar to ours. We believe that we
compete, to varying degrees, for business and talent with the
companies in this peer group. For purposes of setting
compensation levels for 2009, the peer group was comprised of
the following companies:
|
|
|
American Standard Companies, Inc.
|
|
Owens Corning
|
Ball Corporation
|
|
PPG Industries, Inc.
|
The Black & Decker Corporation
|
|
The Sherwin-Williams Company
|
Fortune Brands, Inc.
|
|
Temple-Inland Inc.
|
Masco Corporation
|
|
USG Corporation
|
MeadWestvaco Corporation
|
|
Whirlpool Corporation
|
Newell Rubbermaid Inc.
|
|
|
12
We obtained information on the annual compensation levels,
programs and practices of the companies within the peer group
from market surveys periodically conducted by Mercer, Inc.
(Mercer), a compensation consultant engaged by the
Committee. The Committee evaluates compensation levels for our
Named Executive Officers based upon a comparison to the market
median values. We will review the peer group annually to assure
that it provides an appropriate basis of comparison.
Company
and Individual Performance
While market competitiveness is important, we also use other
measurements to determine our compensation levels. To customize
our compensation program and recognize individual performance
and contribution to the Company, we focus on (i) financial
metrics that we believe are indicators of whether the Company
and its business units are achieving our annual or longer-term
business objectives, such as earnings per share, earnings after
capital charge and inventory turns and (ii) personal
performance goals.
We believe that market competitiveness and performance factors,
considered in conjunction, provide a reasonable basis to assess
executive performance and build value for our stockholders. As
described below, we consider each of these areas in making our
executive compensation decisions from setting base salaries to
providing annual and longer-term rewards.
2009
Review of Compensation
For 2009, the Committee used the results of the Mercer survey of
2007 peer group executive compensation and updated the results
to estimate 2008 peer group compensation, which was a basis for
determining 2009 compensation for our Named Executive Officers.
The peer group assessment did not include an assessment of the
compensation for Mr. Thiers who is compensated according to
his services agreement referenced in Certain Relationships
and Related Transactions. The Committee analyzed available
market data in terms of each of the following:
|
|
|
|
|
base salary,
|
|
|
|
annual bonus,
|
|
|
|
total cash compensation, which includes base salary and annual
bonus,
|
|
|
|
total long-term incentive compensation, and
|
|
|
|
total direct compensation, which includes base salary, annual
bonus and long-term incentive opportunity.
|
This assessment showed that our 2009 Named Executive Officers
included in this survey (other than our chief executive officer)
received, on average, for 2008 (i) base salaries at
approximately the market median, (ii) total cash
compensation at approximately 75% of the median,
(iii) long-term incentive compensation at less than 25% of
the median and (iv) total direct compensation at
approximately 43% of the median. Our chief executive officer
received a base salary at 86% of the median, total cash
compensation at 48% of the median, long-term incentive
compensation at 7% of the median and total direct compensation
at 22% of the median.
The Committee reviewed this assessment at its January 2009
meeting, together with Mr. Lorberbaums
recommendations for compensation for the Named Executive
Officers other than himself. At this meeting, the Committee
reviewed a tally sheet detailing the various elements of
compensation of our Named Executive Officers for 2009, including
base salary and annual and long-term incentives. The Committee
believes that all of these elements in the aggregate provide a
reasonable and market competitive compensation opportunity for
our Named Executive Officers and that each element contributes
to our compensation objectives discussed
13
above. Mr. Lorberbaum recommended and the Committee
approved base salary increases of 3% to 6% for
Messrs. Wellborn, Boykin and Peters. The Committee approved
a base salary increase for Mr. Lorberbaum of 1%. In
recognition of Mr. Thiers 2008 performance and his
promotion to President of Unilin in January 2009, his base
salary was increased by approximately Euro 157,000.
We have assessed the compensation policies and practices for our
employees and concluded that they do not create risks that are
reasonably likely to have a material adverse effect on the
Company. The Companys compensation policies and practices
were evaluated to ensure that they do not foster risk taking
above the level of risk associated with the Companys
business model.
Elements
of our Compensation Program
Our executive compensation program consists primarily of the
following integrated components: base salary, annual incentive
awards, and long-term incentive opportunities, which together
comprise an executives total direct compensation in a
given year or performance period. The program is complemented
with perquisites and other executive benefits, including 401(k)
matching contributions and severance benefits.
Base
Salary
Base salary provides our executive officers with a level of
compensation consistent with their skills, experience and
contributions in relation to comparable positions in the
competitive marketplace. Base salary is the one fixed component
of our executives total direct compensation, in contrast
to annual and long-term compensation, which is at risk based on
performance. The Committee reviews the base salaries of our
executive officers annually and whenever an executive is
promoted. Mr. Lorberbaum makes salary recommendations to
the Committee with respect to executive officers other than
himself. We evaluate our Named Executive Officers base
salaries in comparison to the median of the peer group salaries
for that position to maintain competitive levels. In addition,
we also consider the executives experience for the
position, differences in position and responsibilities relative
to the peer group and his or her personal contribution to the
financial and operational performance of the Company and our
businesses.
These other factors could cause any one executive officers
base salary to be above or below the market median for his or
her comparable position. Based on the Committees review of
marketplace comparables and the foregoing individual factors,
base salaries for 2009 for our Named Executive Officers were
increased as referenced in 2009 Review of Compensation.
Annual
Incentives
Annual incentive awards provide a direct link between executive
compensation and our annual performance. Unlike base salary,
which is fixed, our executives annual bonus is at risk
based on how well the Company and our executives perform.
For 2009, the Committee approved a senior executive bonus plan
(the 2009 SEBP) designed to provide total cash
compensation at the 75th percentile of total cash compensation
for our peer group, if outstanding performance is achieved. By
placing a significant portion of an executives annual pay
at risk, the Committee believes that compensation is more
directly related to performance and more closely links the
financial interests of the executives and those of the
stockholders. Given our business objectives, the Committee
believes this policy to be appropriate and fair for both the
executives and the stockholders.
Under the 2009 SEBP, the Company, as a result of achieving
positive consolidated operating income for the year, funded a
bonus pool equal to 1.25% of consolidated operating income for
2009. In January 2009, each Named Executive Officer was assigned
a maximum individual award limit which would be that
officers
14
2009 SEBP award unless the Committee exercised its discretion to
pay a lesser amount. For 2009, and subject to individual award
limits in the Companys 2007 Incentive Plan, the maximum
limits for each of Messrs. Lorberbaum and Wellborn was 20%
of the bonus pool, and for each of our other Named Executive
Officers, the maximum limit was 12% of the bonus pool. The
Grants of Plan-Based Awards table disclosed in this proxy
statement shows the maximum 2009 SEBP award that each of our
Named Executive Officers was eligible to receive for 2009.
To guide its exercise of discretion to pay less than maximum
amounts, the Committee evaluated performance against
intermediate financial performance goals as well as intermediate
individual performance goals. The intermediate financial goals
were based on Company and divisional performance as compared to
earnings per share (EPS), earnings after capital
charge (EAC) and inventory turn thresholds. The
intermediate individual goals for each Named Executive Officer
focused on that persons individual contributions to
Company or divisional performance.
For each financial metric, the Committee set a specific target
performance goal and defined performance range around the EPS,
EAC and inventory turns targets consisting of a threshold
(minimum performance level), a level 1 performance level, a
target (midpoint performance level), and a maximum performance
level. For each individual goal, the Committee sets various
performance goals relating to each executive officers area
of responsibility.
When target performance levels for each financial and individual
performance goals are set, we believe such goals are likely to
be achieved with good performance by our executives taking into
account the variability of economic and industrial conditions.
If the EPS threshold metric is not reached, then the Committee
will give no credit to achievement of any of the financial goals
and will only consider achievement of individual goals in
determining awards. The Committee has the authority to interpret
the 2009 SEBP, make changes to it or grant special bonuses for
exceptional performance, as it determines appropriate.
We have selected the intermediate financial and individual
metrics for the 2009 SEBP because we believe that they create
appropriate incentives, aligned with those of our stockholders,
to improve the operational efficiency and, as a result, the
financial performance, of the Company. We also believe they are
good indicators of our overall performance and lead to the
creation of long-term value for our stockholders.
The 2009 intermediate financial goals, in the case of
Messrs. Lorberbaum, Wellborn and Boykin were based on total
Company EPS, EAC, and inventory turns metrics and, in the case
of total Company EPS consisted of (i) threshold of $2.07,
(ii) level 1 of $2.27, (iii) target of $2.45 and
(iv) maximum of $3.56. The intermediate financial goals for
Mr. Peters and Mr. Thiers were based on their
respective business division financial results.
As the threshold financial goals were not achieved, the
Committee only considered the achievement of intermediate
individual goals in determining annual bonus awards.
Mr. Lorberbaums and Mr. Wellborns
individual goals included, among other things, objectives
relating to developing and executing certain strategic
initiatives, managing cost structure and implementing new
product distribution strategies. Mr. Boykins
individual performance goals included, among other things,
executing various cost savings initiatives, achieving
organizational development goals and driving productivity
improvements. Mr. Peters individual goals included,
among other things, implementing restructuring activities,
continuing to reduce cost structure, improving operations and
introducing new products. Mr. Thiers individual goals
included, among other things, expanding distribution, building
an executive leadership team and developing new business
opportunities. Following consideration of achievement of these
individual goals, the Committee granted 2009 SEBP awards to our
Named Executive Officers as set forth in the Summary
Compensation Table in this proxy statement.
15
Long-Term
Incentives
In 2009, the Committee re-designed the Companys long-term
incentive program for senior executives, including our Named
Executive Officers (LTIP). Under the newly designed
LTIP, the Committee authorizes grants of stock-based awards to
participants based on achievement of positive consolidated
operating income, one-year intermediate individual performance
goals and three-year intermediate financial goals as compared to
a peer group of companies.
To transition from the previous one-year performance period for
financial goals to the new three-year performance period, the
Committee established one-year (2009) and two-year
(2009 2010) transitional periods before the
full three-year (2009 2012) program is in place.
We believe the LTIP provides the opportunity to reward and
assist us with the retention of our executives, including our
Named Executive Officers. By aligning financial rewards with the
economic interests of our stockholders, executives are
encouraged to work toward achieving our long-term strategic
objectives. In 2009, our Named Executive Officers received the
opportunity under the LTIP to earn awards in the form of
restricted stock units (RSUs) (and, in the
case of Mr. Thiers, stock options) based on 2009
performance.
Under the LTIP, each Named Executive Officer was assigned a
maximum number of stock awards (based on a percentage base of
salary) if the Company achieved positive consolidated operating
income for 2009, and which would be his 2009 LTIP award unless
the Committee exercised its discretion to award a lesser number.
The Grants of Plan-Based Awards table disclosed in this
proxy statement shows the maximum 2009 LTIP award that each of
our Named Executive Officers was eligible to receive for 2009.
To guide its exercise of discretion to award less than the
maximum, the Committee evaluated performance against
intermediate financial performance goals and intermediate
individual performance goals. The financial goals for 2009 were
based on Company compounded growth of earnings per share
(EPS Target) and average earnings before interest,
taxes, depreciation and amortization as a percentage of tangible
assets (EBITDA Target) as compared to a group of
peer companies. The Committee then assigned each participant a
target EPS Target and EBITDA Target, which would be awarded
should the number of stock awards (based on a percentage of base
salary), weighted equally, be at the 50th percentile of the peer
group. Amounts ranging from 50% to 200% of the target number
would be earned based on achievement between the 25th and 75th
percentile of the peer group. Additionally, the Committee
assigned each participant a target number of stock awards (based
on a percentage of base salary) which would be awarded should
the individual goals be achieved. The minimum, target and
maximum awards under the LTIP are disclosed under 2009 Grants
of Plan-Based Awards in this proxy statement. These awards
would then vest between two and three years following the grant
date.
When target performance levels for each financial and individual
performance goals are set, we believe such goals are likely to
be achieved with good performance by our executives taking into
account the variability of economic and industrial conditions.
The Committee has the authority to interpret the LTIP, make
changes to it or grant special bonuses for exceptional
performance, as it determines appropriate.
We have selected the financial and individual metrics for the
LTIP because we believe that they create appropriate incentives,
aligned with those of our stockholders, to improve the
operational efficiency and, as a result, the financial
performance, of the Company. We also believe they are good
indicators of our overall performance and lead to the creation
of long-term value for our stockholders.
As the Company did not achieve the threshold intermediate
financial goals for 2009, the Committee only considered the
achievement of intermediate individual goals in determining the
LTIP awards. For a description of these goals, please see the
discussion of intermediate individual goals under the 2009 SEBP
in Annual Incentives.
16
Prior to re-designing the LTIP, the Committee had established a
stock incentive program for our Named Executive Officers in 2008
(2008 Supplemental Program). Under that 2008 Supplemental
Program, Mr. Lorberbaum and Mr. Wellborn were each
eligible to receive Company stock-based awards valued at up to
$500,000, and Mr. Boykin was eligible to receive Company
stock-based awards valued at up to $300,000, with such awards to
be granted in 2010 based upon achievement of Company earnings
per share and earnings after capital charge performance
objectives for 2009. The Committee established EPS and EAC
target and maximum performance levels for this performance
period, with a minimum grant to be awarded upon achievement of
the target metrics and the maximum upon achievement of the
maximum metrics. The target EPS metric for 2009 was $6.67 and
the maximum EPS metric was $7.68. As the Company did not achieve
the target EPS and EAC metrics for the period, no grants were
awarded under this 2008 Supplemental Program to any of our Named
Executive Officers and this program has terminated. The target
and maximum awards are disclosed under the 2009 Grant of Plan
Based Awards in this proxy statement.
Allocation
of Total Direct Compensation
Just as our stockholders put their money at risk when they
invest in our Company, we believe that a significant portion of
our executives compensation should be at risk. For
example, in 2009, assuming achievement of maximum performance
objectives, approximately 20% of Mr. Lorberbaums
total direct compensation was fixed (in the form of salary) and
the remaining approximately 80% was at risk: approximately 15%
was represented by his annual cash bonus award and 65% by his
long-term incentive opportunity. Our other Named Executive
Officers had similar weightings of fixed and at-risk
compensation for 2009.
Perquisites
and Other Executive Benefits
Perquisites and other executive benefits are a part of our
executives overall compensation. Access to health care and
other welfare benefits protects all employees and their
families health and well-being. We offer additional
executive perquisites at the senior leadership level. Under our
executive perquisite policy, we provide our executive officers
with certain additional benefits, including defined contribution
matching benefits, health benefits, life insurance coverage
benefits and otherwise as referenced in the Summary
Compensation Table. Individually and in the aggregate, we
believe that the perquisites we provide to our Named Executive
Officers are appropriate to ensure that our executive
compensation remains competitive.
For information on the incremental cost of these perquisites and
other personal benefits, refer to the footnotes to the
Summary Compensation Table of this proxy statement.
Retirement
Benefits and Deferred Compensation
Retirement Benefits. Retirement benefits also
fulfill an important role within our overall executive
compensation objective because they provide a financial security
component that promotes retention. We believe that our
retirement program, including the amount of benefit, is adequate
to ensure that our executive compensation remains competitive.
We maintain the Mohawk Carpet Corporation Retirement Savings
Plan II, a tax-qualified defined contribution retirement plan in
which our Named Executive Officers are eligible to participate,
along with a substantial number of our employees.
We maintain the Mohawk Industries, Inc. Executive Deferred
Compensation Plan under which a select group of management or
highly compensated employees, including our Named Executive
Officers, may elect to defer up to 25% of their pre-tax earnings
and up to 100% of their year-end bonus payments and receive
tax-deferred returns on those deferrals. The account balances in
this plan are unfunded and represent money that the participants
have previously earned and voluntarily elected to defer in order
to accumulate tax-deferred
17
returns. We do not match contributions to the plan. Plan
participants can allocate their account balances among the same
investment options available under our qualified contribution
retirement plan (other than investments in Company stock), which
also accumulate on a tax-deferred basis. We believe the
provision of this deferral opportunity is a competitive practice
in the marketplace. For more information see the Nonqualified
Deferred Compensation table in this proxy statement.
Severance
Pay Arrangements
As do a substantial number of our employees, our Named Executive
Officers participate in our general employee severance plan
which provides a specified number of weeks of severance pay
based on continuous service time to the Company and the reason
for termination of employment. Our Named Executive Officers,
other than Mr. Wellborn and Mr. Thiers, are employees
at-will and, with the exception of these two Named Executive
Officers, do not have long-term contracts with us. We believe
that the at-will employment status of our employees affords us
the necessary flexibility to remove employees when appropriate
under the circumstances. See Certain Relationships and
Related Transactions for a description of our agreements
with Mr. Wellborn and Mr. Thiers, including severance
benefits provided thereunder.
Tax,
Accounting and Other Considerations
Tax
Considerations
Section 162(m) of the U.S. Internal Revenue Code
(Section 162(m)) places a limit of $1,000,000
on the amount of compensation that we may deduct in any one year
with respect to any one of our Named Executive Officers.
However, qualifying performance-based compensation will not be
subject to the deduction limit if certain requirements are met.
To maintain flexibility in compensating our executives, the
Committee reserves the right to use its judgment to authorize
compensation payments that may be subject to the limit when the
Committee believes that such payments are appropriate.
Accordingly, certain components of our executive compensation
program are designed to be qualifying performance-based
compensation under Section 162(m) while others are not.
Accounting
Considerations
With the adoption of ASC 718, we do not expect accounting
treatment of differing forms of equity awards to vary
significantly and, therefore, accounting treatment did not have
a material effect on the selection of forms of compensation for
2009.
Proposed
Changes for 2010
The intermediate financial goal of the LTIP as described in the
Compensation Discussion and Analysis for the two-year
(2009 2010) transitional period and the full
three-year (2009 2011) period will be total
shareholder return (TSR Target) as compared to the
group of peer companies over the same time periods. The TSR
Target replaces the EPS Target and the EBITDA Target used in the
one-year (2009) transitional period.
18
EXECUTIVE
COMPENSATION AND OTHER INFORMATION
Decisions and recommendations regarding the compensation of our
executives are made by a three-member Compensation Committee
composed entirely of independent directors, as determined by the
Board of Directors. The following is a report of the
Compensation Committee concerning our executive compensation
policies for 2009.
Compensation
Committee Report
The Compensation Committee of the Board of Directors oversees
the compensation programs of the Company on behalf of the Board
of Directors. In fulfilling its oversight responsibilities, the
Compensation Committee reviewed and discussed with management of
the Company the Compensation Discussion and Analysis
included in this proxy statement and based on such review
and discussions recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in this
proxy statement and the Companys Annual Report on
Form 10-K
for the year ended December 31, 2009 filed with the SEC.
Compensation
Committee
John F. Fiedler-Chairman
Bruce C. Bruckmann
Robert N. Pokelwaldt
19
2009
Summary Compensation Table
The following table presents certain summary information
concerning compensation paid or accrued by the Company for
services rendered in all capacities during the fiscal years
ended December 31, 2009, 2008 and 2007 for (i) the
Principal Executive Officer and the Principal Financial Officer
of the Company, and (ii) each of the three other most
highly compensated executive officers of the Company (determined
as of December 31, 2009) (collectively, the Named
Executive Officers).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
and Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Deferred
|
|
All Other
|
|
|
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
Compensation
|
|
Total
|
Name and Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)(1)
|
|
($)(2)
|
|
Earnings ($)
|
|
($)(3)
|
|
($)
|
|
Jeffrey S. Lorberbaum,
|
|
|
2009
|
|
|
|
990,000
|
|
|
|
|
|
|
|
231,698
|
|
|
|
|
|
|
|
270,000
|
|
|
|
|
|
|
|
8,189
|
|
|
|
1,499,887
|
|
Chief Executive Officer
|
|
|
2008
|
|
|
|
980,000
|
|
|
|
|
|
|
|
274,794
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
8,054
|
|
|
|
1,562,848
|
|
|
|
|
2007
|
|
|
|
950,000
|
|
|
|
|
|
|
|
922,881
|
|
|
|
|
|
|
|
701,100
|
|
|
|
|
|
|
|
8,257
|
|
|
|
2,582,238
|
|
Frank H. Boykin,
|
|
|
2009
|
|
|
|
525,000
|
|
|
|
|
|
|
|
118,218
|
|
|
|
|
|
|
|
120,000
|
|
|
|
|
|
|
|
8,231
|
|
|
|
771,449
|
|
Chief Financial Officer
|
|
|
2008
|
|
|
|
500,000
|
|
|
|
|
|
|
|
183,196
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
8,211
|
|
|
|
841,407
|
|
|
|
|
2007
|
|
|
|
460,000
|
|
|
|
|
|
|
|
573,966
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
8,207
|
|
|
|
1,442,173
|
|
W. Christopher Wellborn,
|
|
|
2009
|
|
|
|
850,000
|
|
|
|
|
|
|
|
3,934,943
|
|
|
|
|
|
|
|
280,000
|
|
|
|
|
|
|
|
15,897
|
|
|
|
5,080,840
|
|
President
|
|
|
2008
|
|
|
|
800,000
|
|
|
|
|
|
|
|
1,049,804
|
|
|
|
2,033,130
|
|
|
|
500,000
|
|
|
|
|
|
|
|
13,946
|
|
|
|
4,396,880
|
|
|
|
|
2007
|
|
|
|
775,000
|
|
|
|
|
|
|
|
957,596
|
|
|
|
|
|
|
|
571,950
|
|
|
|
|
|
|
|
14,732
|
|
|
|
2,319,278
|
|
Bernard Thiers
|
|
|
2009
|
|
|
|
729,866
|
|
|
|
|
|
|
|
|
|
|
|
145,217
|
|
|
|
373,877
|
|
|
|
|
|
|
|
|
|
|
|
1,248,960
|
|
President Unilin
|
|
|
2008
|
|
|
|
435,836
|
|
|
|
|
|
|
|
|
|
|
|
142,319
|
|
|
|
140,000
|
|
|
|
|
|
|
|
52,827
|
|
|
|
770,982
|
|
|
|
|
2007
|
|
|
|
443,366
|
|
|
|
|
|
|
|
|
|
|
|
223,897
|
|
|
|
314,303
|
|
|
|
|
|
|
|
894,378
|
|
|
|
1,875,944
|
|
Frank T. Peters,
|
|
|
2009
|
|
|
|
490,000
|
|
|
|
|
|
|
|
112,686
|
|
|
|
|
|
|
|
110,000
|
|
|
|
|
|
|
|
16,235
|
|
|
|
728,921
|
|
President Mohawk
|
|
|
2008
|
|
|
|
475,000
|
|
|
|
|
|
|
|
790,000
|
|
|
|
|
|
|
|
125,000
|
|
|
|
|
|
|
|
13,780
|
|
|
|
1,403,780
|
|
Flooring
|
|
|
2007
|
|
|
|
360,000
|
|
|
|
|
|
|
|
213,536
|
|
|
|
|
|
|
|
194,338
|
|
|
|
|
|
|
|
7,797
|
|
|
|
775,671
|
|
|
|
|
(1) |
|
The amounts reported in the Stock and Option Awards columns
reflect the grant date fair value calculated in accordance with
the provisions of ASC 718 . The assumptions used in determining
the grant date fair values of these awards are set forth in the
notes to the Companys consolidated financial statements,
which are included in our Annual Report on Form
10-K for the
year ended December 31, 2009. |
|
(2) |
|
Represents the cash portion of the SEBP in 2009 and annual bonus
plans in 2008 and 2007. |
|
(3) |
|
Amounts related to Mr. Wellborn and Mr. Peters include
401(k) matching contributions and miscellaneous expenses.
Amounts related to Mr. Thiers for 2008 and 2007 include
$26,255 and $27,777 for auto and $25,082 and $26,536 for group
insurance, respectively. In addition, 2007 includes payment of
$838,488 pursuant to the Discounted Stock Purchase Agreement
(DSPA) entered into with certain members of the
Unilin management team (Unilin Management) in
connection with the Companys acquisition of Unilin in
2005. The Company terminated the DSPA during the year ended
December 31, 2009. Under the terms of the DSPA, the Company
was obligated to make cash payments to the Unilin Management in
the event certain performance goals were satisfied. |
20
2009
Grants of Plan Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
All Other
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Exercise or
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
Base
|
|
Value of
|
|
|
|
|
Estimated Future Payouts under
|
|
Estimated Future Payouts under
|
|
Number of
|
|
Number of
|
|
Price of
|
|
Stock and
|
|
|
|
|
Non-Equity Incentive Plans(1)
|
|
Equity Incentive Plan Awards(2)
|
|
Shares of
|
|
Securities
|
|
Option
|
|
Option
|
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Stock Units
|
|
Underlying
|
|
Awards
|
|
Awards
|
Name
|
|
Grant Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
Options (#)
|
|
($/Sh)
|
|
(3)
|
|
Jeffrey S. Lorberbaum(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,671
|
|
|
|
10,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,200
|
|
|
|
26,400
|
|
|
|
52,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
751,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank H. Boykin(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,739
|
|
|
|
6,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,250
|
|
|
|
10,500
|
|
|
|
21,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Christopher Wellborn(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,671
|
|
|
|
10,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,333
|
|
|
|
22,666
|
|
|
|
45,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,934,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
751,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard Thiers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,184
|
|
|
|
36,368
|
|
|
|
72,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.37
|
|
|
|
145,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank T. Peters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,900
|
|
|
|
9,800
|
|
|
|
19,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents maximum payout levels under the 2009 SEBP. The actual
amount of incentive bonus earned by each Named Executive Officer
in 2009 is reported under the Non-Equity Incentive Plan
Compensation column and accompanying footnote in the Summary
Compensation Table. Additional information regarding the
design of the 2009 SEBP is included in the Compensation
Discussion and Analysis. |
|
(2) |
|
Represents Threshold, Target and Maximum number of
performance-based RSUs and stock options each Named
Executive Officer was eligible to receive under the LTIP based
on a percentage of his base annual salary. Each RSU awarded
represents a contingent right to receive one share of Company
Common Stock in the future. Awarded RSUs vest ratably over
three years on each of the first three anniversaries of the
grant date (or earlier in the event the executives
employment with the Company is terminated due to death or
disability). In the case of Mr. Thiers, represents number
of stock options he is eligible to receive under the LTIP.
Additional information regarding the design of the LTIP is
included in the Compensation Discussion and Analysis. |
|
(3) |
|
Represents the value of RSUs, restricted stock awards and
stock option awards granted in 2009 but earned based on 2008
performance. The grant date fair value is equal to the number of
units issued times the closing trading price of the
Companys stock on the day of grant. The grant date fair
value of options was calculated in accordance with the
provisions of ASC 718. The assumptions used in determining the
grant date fair values of these option awards are set forth in
the notes to the Companys consolidated financial
statements, which, are included in our Annual Report on
Form 10-K
for the year ended December 31, 2009. |
|
(4) |
|
Under the 2008 Supplemental Program, Messrs. Lorberbaum,
Boykin and Wellborn were eligible to receive Company stock-based
awards. Additional information regarding the design of the 2008
Supplement Program is included in the Compensation Discussion
and Analysis. |
21
2009
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information on outstanding equity
awards for each of the Named Executive Officers on
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
Number of
|
|
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
Unearned
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Shares,
|
|
Unearned
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
or Units
|
|
Units or
|
|
Shares,
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares or
|
|
of Stock
|
|
Other
|
|
Units or
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Units of
|
|
That
|
|
Rights That
|
|
Other
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Stock That
|
|
Have Not
|
|
Have Not
|
|
Rights That
|
|
Award
|
|
|
Options (#)
|
|
Options (#)
|
|
Exercise
|
|
Expiration
|
|
Have Not
|
|
Vested
|
|
Vested
|
|
Have
|
|
Vest
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price ($)
|
|
Date
|
|
Vested (#)
|
|
(#)
|
|
(#)
|
|
Not Vested ($)
|
|
Date
|
|
Jeffrey S. Lorberbaum
|
|
|
10,000
|
|
|
|
|
|
|
|
30.53
|
|
|
|
2/27/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400
|
|
|
|
|
|
|
|
63.14
|
|
|
|
2/26/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
|
|
|
|
|
|
48.50
|
|
|
|
2/24/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
|
|
73.45
|
|
|
|
2/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
2,000
|
(1)
|
|
|
88.33
|
|
|
|
2/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,040
|
|
|
$
|
239,904
|
|
|
|
|
|
|
|
|
|
|
|
2/21/2012
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,952
|
|
|
|
140,515
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2013
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,167
|
|
|
|
388,749
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2012
|
(8)
|
Frank H. Boykin
|
|
|
700
|
|
|
|
|
|
|
|
48.50
|
|
|
|
2/24/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400
|
|
|
|
|
|
|
|
73.45
|
|
|
|
2/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,000
|
|
|
|
7,000
|
(1)
|
|
|
88.33
|
|
|
|
2/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,360
|
|
|
$
|
159,936
|
|
|
|
|
|
|
|
|
|
|
|
2/21/2012
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,968
|
|
|
|
93,677
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2013
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,167
|
|
|
|
198,349
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2012
|
(8)
|
W. Christopher Wellborn
|
|
|
25,000
|
|
|
|
|
|
|
|
63.90
|
|
|
|
3/20/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
|
|
|
|
|
|
48.50
|
|
|
|
2/24/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,500
|
|
|
|
|
|
|
|
73.45
|
|
|
|
2/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
2,000
|
(1)
|
|
|
88.33
|
|
|
|
2/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
10,000
|
(1)
|
|
|
81.90
|
|
|
|
11/15/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
80,000
|
(4)
|
|
|
74.47
|
|
|
|
2/20/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,010
|
|
|
$
|
238,476
|
|
|
|
|
|
|
|
|
|
|
|
2/21/2012
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,359
|
|
|
|
635,888
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2013
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667
|
|
|
|
317,349
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2012
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
$
|
4,284,000
|
|
|
|
10/31/2019
|
(9)
|
Bernard Thiers
|
|
|
2,800
|
|
|
|
4,200
|
(3)
|
|
|
93.65
|
|
|
|
2/21/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400
|
|
|
|
5,600
|
(4)
|
|
|
74.47
|
|
|
|
2/20/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,945
|
(5)
|
|
|
28.37
|
|
|
|
2/20/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank T. Peters
|
|
|
700
|
|
|
|
|
|
|
|
48.50
|
|
|
|
2/24/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400
|
|
|
|
|
|
|
|
73.45
|
|
|
|
2/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
1,000
|
(1)
|
|
|
88.33
|
|
|
|
2/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,800
|
|
|
|
1,200
|
(2)
|
|
|
83.50
|
|
|
|
2/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,226
|
|
|
$
|
58,358
|
|
|
|
|
|
|
|
|
|
|
|
2/21/2012
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
380,800
|
|
|
|
|
|
|
|
|
|
|
|
5/1/2013
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,972
|
|
|
|
189,067
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2012
|
(8)
|
|
|
|
(1) |
|
The stock options were granted on February 23, 2005 and
vested ratably over five years on each of the first five
anniversaries of the grant date. In addition, Mr. Wellborn
was granted options on November 15, 2005 in connection with
his promotion to Chief Operating Officer. The options vest
ratably over five years on the anniversary of the grant date. |
|
(2) |
|
The stock options were granted on February 22, 2006 and
vest ratably over five years on each of the first five
anniversaries of the grant date. |
|
(3) |
|
The stock options were granted on February 21, 2007 and
vest ratably over five years on each of the first five
anniversaries of the grant date. |
22
|
|
|
(4) |
|
The stock options were granted on February 20, 2008 and
vest ratably over five years on each of the first five
anniversaries of the grant date. |
|
(5) |
|
The stock options were granted on February 20, 2009 and
vest ratably over three years on each of the first three
anniversaries of the grant date. |
|
(6) |
|
Restricted stock units granted on February 21, 2007, in
connection with each executives annual incentive bonus for
2006 and vest ratably over five years on each of the first five
anniversaries of the grant date. |
|
(7) |
|
Restricted stock units granted on February 20, 2008, in
connection with each executives annual incentive bonus for
2007 and vest ratably over five years on each of the first five
anniversaries of the grant date. |
|
(8) |
|
Restricted stock units granted on February 20, 2009, in
connection with each executives annual incentive bonus for
2008 and vest ratably over three years on each of the first
three anniversaries of the grant date. |
|
(9) |
|
Restricted stock units granted on November 4, 2009, in
connection with Mr. Wellborns promotion to President
and Chief Operating Officer. The RSUs vest ratably over
six years beginning in 2014. |
2009
Option Exercises and Stock Vested
The following table sets forth certain information regarding the
exercise of stock options and vested stock awards by the Named
Executive Officers during fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Shares
|
|
|
|
Number of Shares
|
|
|
|
|
Acquired on
|
|
Value Realized on
|
|
Acquired on
|
|
Value Realized on
|
Name
|
|
Exercise(#)
|
|
Exercise ($)
|
|
Vesting
|
|
Vesting ($)(1)
|
|
Jeffrey S. Lorberbaum
|
|
|
|
|
|
|
|
|
|
|
3,151
|
|
|
|
89,394
|
|
Frank H. Boykin
|
|
|
|
|
|
|
|
|
|
|
1,878
|
|
|
|
53,279
|
|
W. Christopher Wellborn
|
|
|
|
|
|
|
|
|
|
|
3,353
|
|
|
|
95,125
|
|
Bernard Thiers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank T. Peters
|
|
|
|
|
|
|
|
|
|
|
2,528
|
|
|
|
107,559
|
|
|
|
|
(1) |
|
Value realized on vesting of restricted stock. |
2009
Nonqualified Deferred Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
Aggregate
|
|
Aggregate
|
|
Aggregate
|
|
|
Contributions in the
|
|
Contributions in
|
|
Earnings in Last
|
|
Withdrawals/
|
|
Balance at
|
Name
|
|
Last FY ($)(1)
|
|
Last FY ($)
|
|
FY ($)
|
|
Distributions ($)
|
|
Last FYE
|
|
Jeffrey S. Lorberbaum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank H. Boykin
|
|
|
48,688
|
|
|
|
|
|
|
|
201,522
|
|
|
|
|
|
|
|
1,058,852
|
|
W. Christopher Wellborn
|
|
|
40,000
|
|
|
|
|
|
|
|
157,658
|
|
|
|
|
|
|
|
620,503
|
|
Bernard Thiers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank T. Peters
|
|
|
80,250
|
|
|
|
|
|
|
|
1,093
|
|
|
|
|
|
|
|
226,212
|
|
|
|
|
(1) |
|
Reflects elective deferrals under the Executive Deferred
Compensation Plan. These amounts are not reported as 2009
compensation in the Summary Compensation Table. |
23
The Executive Deferred Compensation Plan is a nonqualified
deferred compensation plan where the Named Executive Officers
may elect to defer up to 25% of their annual base salary and up
to 100% of their incentive cash bonus. Deferral elections are
due prior to January 1 of each year, and are irrevocable. Mohawk
directs a trustee to invest the assets which are held in an
irrevocable Rabbi Trust. In order to provide for an accumulation
of assets comparable to the contractual liabilities accruing
under the Plan, Mohawk may direct the trustee in writing to
invest the assets held in the trust to correspond to the
hypothetical investments made for participants in accordance
with their direction. Deferred amounts are credited with
earnings or losses based on the rate of return of mutual funds
in which the assets are invested. The executive must make an
election regarding payment terms at least twelve
(12) months prior to payment, which may be either a lump
sum, or annual installments of from two (2) to ten
(10) years. If a participant dies before receiving the full
value of the deferral account balances, the designated
beneficiary would receive the remainder of that benefit. All
accounts would be immediately distributed upon a change in
control of the Company.
Equity
Compensation Plan Information
The following table gives information about the Common Stock
that may be issued under the Companys existing equity
compensation plans as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
Number of Securities to be
|
|
Weighted Average
|
|
Remaining Available for
|
|
|
Issued Upon Exercise of
|
|
Exercise Price of
|
|
Future Issuance Under
|
|
|
Outstanding Options,
|
|
Outstanding Options,
|
|
Equity Compensation
|
Plan Category
|
|
Warrants and Rights.
|
|
Warrants and Rights.
|
|
Plans.
|
|
Equity Compensation Plans Approved by Stockholders(1)
|
|
|
1,839,660
|
(3)
|
|
$
|
70.11
|
|
|
|
2,714,644
|
|
Equity Compensation Plans Not Approved by Stockholders(2)
|
|
|
|
|
|
|
|
|
|
|
1,805
|
|
|
|
|
(1) |
|
Includes the Companys 2007 Incentive Plan, 1997 Long-Term
Incentive Plan, 1993 Stock Option Plan, 1992 Mohawk-Horizon
Stock Option Plan, 1992 Stock Option Plan, Dal-Tile
International Inc. 2000, 1998 and 1997 Amended and Restated
Stock Option Plans and DTM Investors Inc. 1990 Stock Option Plan. |
|
(2) |
|
Includes the Non-Employee Director Stock Compensation Plan. For
a brief description of the material features of the Non-Employee
Director Stock Compensation Plan, see
Proposal I Election of Directors
Meetings and Committees of the Board of Directors
Director Compensation. |
|
(3) |
|
This amount consists of 1,480,875 stock options outstanding and
358,785 stock awards outstanding. |
Certain
Relationships and Related Transactions
The Companys written Related Person Transaction Policy
(the Policy) can be obtained from the Companys
website at www.mohawkind.com under the heading Corporate
Governance. The Policy includes guidelines for
identifying, reviewing, approving and ratifying Related Person
Transactions, as defined in the Policy. Related Person
Transactions include any transaction, arrangement or
relationship (or any series of similar transactions,
arrangements or relationships) in which the Company was, is or
will be a participant and the amount involved exceeds $120,000,
and in which persons designated in the Policy had, have or will
have a direct or indirect material interest. Related Person
Transactions are submitted to the Audit Committee for
consideration, approval or ratification, after consideration of
the relevant facts and circumstances of a particular Related
Party Transaction, including but not limited to: (i) the
benefits to the Company; (ii) the impact on a
directors independence in the event the transaction
involves a director or a person related to the director;
(iii) the availability of other sources for comparable
products or services; (iv) the terms of the transaction;
(v) the terms available to unrelated third parties or to
employees generally; and (vi) whether the potential Related
Person Transaction is consistent with the Companys Ethics
Standards.
24
On November 4, 2009, the Company amended its employment
agreement with Mr. Wellborn (the Wellborn
Agreement) to reflect his expanded responsibilities as
President and Chief Operating Officer of the Company. Pursuant
to the terms of the amended employment agreement,
Mr. Wellborn will receive a base salary of $850,000 per
year (which may be increased from time to time by the Board of
Directors) and he will be eligible to earn an annual bonus of up
to 135% of his base salary. Additionally, on November 4,
2009, the Company granted to Mr. Wellborn 90,000
RSUs. Subject to certain vesting conditions, 15,000 of
such RSUs are scheduled to vest and convert to shares of
common stock on October 31 of each year from 2014 through 2019.
If Mr. Wellborn remains employed with the Company on
November 5, 2010, the Company will grant him an additional
60,000 RSUs on November 5, 2010, which subject to
certain vesting conditions are scheduled to vest and convert to
shares on December 31, 2019. In the event Mr. Wellborn
exercises any of the options granted to him prior to calendar
year 2008, he will be ineligible to receive an annual bonus in
the year of such exercise as well as in the next fiscal year.
In the event that Mr. Wellborn is terminated without
cause or resigns for good reason,
Mr. Wellborn will be entitled to (i) accrued base
salary through the date of termination, (ii) the
continuation of his base salary for a two-year period following
the termination, (iii) continued participation in employee
benefit plans for a two-year period following the termination,
and (iv) 90% of the base salary for the year in which the
termination occurs (to be paid once during each of the two
fiscal years following the year in which the termination
occurs). In addition, (i) Mr. Wellborns
previously granted stock options (other than the options granted
to Mr. Wellborn prior to calendar year 2008, which shall be
immediately cancelled) will immediately vest and become fully
exercisable if Mr. Wellborn is terminated without
cause or resigns for good reason, and
(ii) the RSUs scheduled to vest for the year in which
the termination occurs will vest, subject to proration for
terminations prior to calendar year end. In the event of a
change of control of the Company in which the successor does not
assume the obligations under the Wellborn Agreement,
Mr. Wellborn will be entitled to the payments and benefits
as if he had resigned for good reason. In addition,
in the event of a change of control, all of
Mr. Wellborns outstanding stock awards will vest or
convert to shares, as applicable. Further, Mr. Wellborn is
prohibited from competing with the Company or soliciting
employees of the Company for five years following his separation
from the Company. The Wellborn Agreement expires on
December 31, 2019.
On February 9, 2009, the Companys Unilin Industries
BVBA subsidiary and Comm. V. Bernard Thiers entered
into a service agreement (the Thiers Service
Agreement) pursuant to which Mr. Thiers would provide
his services to Unilin. Pursuant to the agreement,
Mr. Thiers will receive an annual base amount of
Euro 473,196 and an annual retainer amount of
Euro 37,200. Mr. Thiers will also be eligible for an
annual bonus of up to 115% of the base amount. Unilin will
reimburse all reasonable expenses incurred for services rendered
to Unilin. The Thiers Service Agreement restricts
Mr. Thiers from providing services to competing companies
or soliciting employees or customers for two years following
termination. The initial term of the agreement expires on
December 31, 2013. The agreement may be terminated
(i) by the Company for serious cause at any time without
liability, (ii) by the Company at any time other than for
serious cause with payment to Mr. Thiers of 1.85 times his
annual base amount or (iii) by the Company on
22 months notice. On February 24, 2009, Unilin
Industries BVBA and BVBA F. De Cock Management
entered into a service agreement (the De Cock Service
Agreement) pursuant to which Mr. De Cock will render
certain services to the Unilin business segment. Pursuant to the
De Cock Service Agreement, Mr. De Cock will receive an
annual base amount of Euro 236,598 and an annual retainer
amount of Euro 12,132. Mr. De Cock will also be
eligible for an annual bonus of up to 85% of the base amount and
an annual grant of up to 5,000 options to purchase Mohawk stock.
The Company will reimburse all reasonable expenses incurred for
services rendered to the Company. The De Cock Service Agreement
restricts Mr. De Cock from providing services to competing
companies or soliciting employees or customers for two years
following the termination of the agreement. The agreement has
renewable one year terms, but is subject to termination by
either party upon three months written notice. Mr. De
Cocks son is an executive in the Unilin business unit, and
was paid approximately Euro 600,000 in salary and bonus and
was awarded stock options valued at Euro 100,000 in 2009.
25
Compensation
Committee Interlocks and Insider Participation
The following directors served on the Compensation Committee
during 2009: Mr. Fiedler (Chairman), Mr. Bruckmann and
Mr. Pokelwaldt. None of such persons was a party to a
Related Person Transaction during 2009.
Principal
Stockholders of the Company
The following table sets forth certain information with respect
to the beneficial ownership of the Common Stock as of
March 19, 2010, by (i) each person who is known by the
Company beneficially to own more than five percent (5%) of the
outstanding shares of the Common Stock, (ii) each of the
Companys directors and nominees, (iii) each of the
Named Executive Officers, and (iv) all of the
Companys directors and executive officers as a group.
Unless otherwise indicated, the holders listed below have sole
voting and investment power with respect to all shares of common
stock beneficially owned by them.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares of
|
|
|
|
|
Common Stock
|
|
|
Name of Beneficial Owner
|
|
Beneficially Owned
|
|
Percent of Class
|
|
Jeffrey S. Lorberbaum(1)
|
|
|
11,345,136
|
|
|
|
16.5
|
%
|
Ruane, Cunniff & Goldfarb, Inc.(2)
|
|
|
8,594,581
|
|
|
|
12.5
|
%
|
Aladdin Partners, L.P.(3)
|
|
|
8,414,619
|
|
|
|
12.3
|
%
|
Fidelity Management & Reseach Company(4)
|
|
|
4,425,530
|
|
|
|
6.5
|
%
|
BlackRock, Inc.(5)
|
|
|
3,719,805
|
|
|
|
5.4
|
%
|
David L. Kolb(6)
|
|
|
325,443
|
|
|
|
*
|
|
Bruce C. Bruckmann(7)
|
|
|
286,043
|
|
|
|
*
|
|
Bernard P. Thiers(8)
|
|
|
194,421
|
|
|
|
*
|
|
W. Christopher Wellborn(9)
|
|
|
157,354
|
|
|
|
*
|
|
Robert N. Pokelwaldt(10)
|
|
|
47,411
|
|
|
|
*
|
|
Harold G. Turk(11)
|
|
|
43,729
|
|
|
|
*
|
|
Frank H. Boykin(12)
|
|
|
42,512
|
|
|
|
*
|
|
Larry W. McCurdy(13)
|
|
|
27,721
|
|
|
|
*
|
|
John F. Fiedler(14)
|
|
|
26,097
|
|
|
|
*
|
|
Frans G. De Cock(15)
|
|
|
17,964
|
|
|
|
*
|
|
Phyllis O. Bonanno(16)
|
|
|
17,747
|
|
|
|
*
|
|
Frank T. Peters(17)
|
|
|
16,060
|
|
|
|
*
|
|
Joseph T. Onorato
|
|
|
2,820
|
|
|
|
*
|
|
James T. Lucke(18)
|
|
|
2,577
|
|
|
|
*
|
|
James F. Brunk(19)
|
|
|
578
|
|
|
|
*
|
|
All directors and executive officers as a group (16 persons)
|
|
|
12,553,613
|
|
|
|
18.3
|
%
|
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
The address of Mr. Jeffrey S. Lorberbaum is 2001 Antioch
Road, Dalton, Georgia 30721. Includes 8,414,619 shares held
by Aladdin Partners, L.P.; please see footnote 3 for a
description of Aladdin Partners share ownership. Also
includes 174,993 shares owned by The Alan S. Lorberbaum
Family Foundation, of which Mr. Lorberbaum is a trustee and
may be deemed to share voting and investment power. Includes
2,379,322 shares held by the JMS Group Limited Partnership
(JMS). SJL Management Co., LLC (SJL) is
the general partner of JMS. Mr. Lorberbaum is a one-third
member of SJL and may be |
26
|
|
|
|
|
deemed to share voting and dispositive power with respect to all
shares held by JMS. Includes 140,000 shares owned by Cuddy
Holdings LP (Cuddy). Mr. Lorberbaum owns
one-third of the voting shares of Helm Management Corporation,
the sole general partner of Cuddy, and may be deemed to share
voting and dispositive power with respect to all such shares.
Mr. Lorberbaum disclaims beneficial ownership of all shares
described above to the extent he does not have a pecuniary
interest. Includes 31,500 shares issuable upon the exercise
of currently vested options and 194 shares owned pursuant
to the Companys 401(k) Plan. Mr. Lorberbaum had no
beneficial shares pledged as security as of March 19, 2010. |
|
(2) |
|
Based upon Schedule 13G/A dated February 17, 2010
filed with the SEC by Ruane, Cunniff & Co., Inc. The
address of Ruane, Cunniff & Goldfarb, Inc. is
767 Fifth Avenue, Suite 4701, New York, New York
10153-4798. |
|
(3) |
|
The address of Aladdin Partners, L.P. is 2001 Antioch Road,
Dalton, Georgia 30721. ASL Management Corp. is a general partner
of Aladdin Partners, L.P. and shares voting and investment power
with respect to these shares. The address of ASL Management
Corp. is 2001 Antioch Road, Dalton, Georgia 30721.
Mr. Jeffrey Lorberbaum is the owner of 100% of the
outstanding voting stock of ASL Management Corp. and, as a
result, may be deemed to share voting and investment power with
respect to these shares. Mr. Barry Hoffman is a director of
ASL Management Corp. and as a result of such position, may be
deemed to share voting and investment power with respect to such
shares. The address for Mr. Hoffman is 2001 Antioch
Road Dalton, Georgia 30721. Each of ASL Management Corp.,
Mr. Jeffrey Lorberbaum and Mr. Hoffman disclaim
beneficial ownership of the shares held by Aladdin Partners,
L.P. to the extent they do not have a pecuniary interest. |
|
(4) |
|
Based upon Schedule 13G/A dated February 16, 2010 filed
with the SEC by FMR, Inc. The address of FMR, Inc. is 82
Devonshire Street, Boston, Massachusetts, 02109. |
|
(5) |
|
Based upon Schedule 13G/A dated January 29, 2010 filed
with the SEC by BlackRock, Inc. The address of BlackRock, Inc.
is 40 East
52nd
Street, New York, New York 10022. |
|
(6) |
|
Includes 14,400 shares issuable upon the exercise of
currently vested options and 721 shares owned pursuant to
the Companys 401(k) plan. Also includes
4,820 shares held by two minor children, 369 shares
held by Kolb Holdings, L.P. and 1,465 shares held by a
family foundation. |
|
(7) |
|
Includes 11,250 shares issuable upon the exercise of
currently vested options and 261,500 shares held by a
family limited partnership. |
|
(8) |
|
Includes 12,315 shares issuable upon the exercise of
currently vested options. |
|
(9) |
|
Includes 132,000 shares issuable upon the exercise of
currently vested options. |
|
(10) |
|
Includes 14,400 shares issuable upon the exercise of
currently vested options. |
|
(11) |
|
Includes 33,500 shares issuable upon the exercise of
currently vested options. |
|
(12) |
|
Includes 155 shares owned pursuant to the Companys
401(k) plan. Also 38,100 shares issuable upon the
exercise of currently vested options. |
|
(13) |
|
Includes 14,400 shares issuable upon the exercise of
currently vested options. |
|
(14) |
|
Includes 21,150 shares issuable upon the exercise of
currently vested options. |
|
(15) |
|
Includes 17,964 shares issuable upon the exercise of
currently vested options. |
|
(16) |
|
Includes 16,650 shares issuable upon the exercise of
currently vested options. |
|
(17) |
|
Includes 150 shares owned pursuant to the Companys
401(k) plan, 10,500 shares issuable upon the exercise
of currently vested options, and 2000 RSUs scheduled to
vest on May 1, 2010. |
|
(18) |
|
Includes 734 RSUs scheduled to vest on May 1, 2010 |
|
(19) |
|
Includes 185 shares owned pursuant to the Companys
401(k) plan. |
27
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the
Companys directors and executive officers, and persons who
own more than ten percent of the Companys Common Stock, to
file with the SEC initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities
of the Company. Directors, executive officers and greater than
ten percent stockholders are required by SEC regulation to
furnish the Company copies of all Section 16(a) reports
they file. To the Companys knowledge, based solely on a
review of the copies of such reports furnished to the Company
and written representations that no other reports were required,
during the fiscal year ended December 31, 2009, all
Section 16(a) filing requirements applicable to directors,
executive officers and greater than ten percent beneficial
owners were complied with by such persons.
CORPORATE
GOVERNANCE
General
The Board of Directors and the Governance Committee consider the
experience, skills and characteristics of candidates for Board
membership as well as the Board membership on an annual basis.
The Board and the Committee consider diversity in this process,
and in this regard seek the most capable directors and
candidates who possess the appropriate characteristics, skills
and experience to make a significant contribution to the Board,
the Company and its stockholders. The Board considers gender,
race, nationality, language skills and other personal
characteristics in this process.
The Companys Board of Directors is well
qualified, and each director has the requisite experience,
skills and characteristics to serve on the Board. Among or in
addition to the backgrounds and experiences described in
Biographies:
-Mr. Lorberbaum, our Chairman and CEO, brings over
30 years of management and executive experience in the
carpet industry and is a significant stockholder.
Mr. Wellborn brings over 15 years of executive and
financial experience in the manufacturing sector, with over
12 years of such experience with Dal-Tile and the Company.
Mr. De Cock was CEO of Unilin at the time of its
acquisition by the Company, and he served in various executive
and management positions with Unilin over many years. He brings
unique and strong knowledge of the European and laminate
flooring industries.
-Messrs. McCurdy, Onorato, Pokelwaldt and Fiedler bring
significant executive and financial experience with public,
global manufacturing companies. Mr. Kolb has over
20 years of management and executive experience in the
carpet industry, is a former Chairman and CEO of the Company and
is a significant stockholder in the Company. Ms. Bonanno
brings executive experience in the consumer products sector, as
well as broad international business and trade experience in
both public and private sectors. Mr. Bruckmann, also a
significant stockholder in the Company, brings significant
experience in corporate finance and capital markets. Each serves
on other public company boards of directors.
The Board of Directors has determined that a combined Chairman
and Chief Executive Officer position is most appropriate for the
Company at this time. Mr. Lorberbaum has served in this
combined role since 2004. The Board of Directors believes that
Mr. Lorberbaum has efficiently conducted the business and
affairs of the Company and believes that he has provided
effective leadership and guidance as the Chairman in the
development of the Companys risk profile and pursuit of
its strategic goals. The Board of Directors does not have one
independent lead director; rather, the Board has determined that
each of the three independent chairmen of the Audit,
Compensation and Governance Committees will also provide Board
leadership by presiding at the Boards executive sessions
on a rotating basis.
28
The Board of Directors provides oversight of the financial,
operational, legal and other business risks to the Company on an
ongoing basis. Risk is inherent with every business, and how
well a business manages risk can ultimately determine its
success. We face a number of risks, including economic risks,
financial risks, legal and regulatory risks and others, such as
the impact of competition. Management is responsible for the
day-to-day
management of the risk that we face, while the Board, as a whole
and through its committees, has responsibility for the oversight
of risk management. In its risk oversight role, the Board is
responsible for satisfying itself that the Companys risk
management processes are adequate and functioning as designed.
While the Board is ultimately responsible for risk oversight,
the Audit Committee has primary responsibility for the
financial, legal and other operational risks and the
Compensation Committee assesses the risks associated with our
compensation practices. Each of the Committees routinely reports
to the full Board on material issues considered by such
Committee, which may include issues of risk.
Nomination
Process for the Board of Directors
The Governance Committee evaluates candidates for the Board of
Directors identified by its members, other Board members,
Companys management and stockholders. The Governance
Committee from time to time may also retain a third-party
executive search firm to identify qualified candidates for
membership on the Board of Directors. A stockholder who wishes
to recommend a prospective nominee for consideration by the
Governance Committee should follow the procedures set forth
below under Stockholder Proposals.
Once the Governance Committee has identified a prospective
nominee, it makes an initial determination as to whether to
conduct a full evaluation. In evaluating a prospective nominee,
the Governance Committee may consider among other things, the
following criteria: the ability of the prospective nominee to
represent the interests of the stockholders of the Company; the
prospective nominees standards of integrity, commitment
and independence of thought and judgment; the prospective
nominees ability to dedicate sufficient time, energy and
attention to the performance of his or her duties; the extent to
which the prospective nominee contributes to the range of
talent, skill and expertise of the Board of Directors; and the
extent to which the prospective nominee helps the Board of
Directors reflect the diversity of the Companys
stockholders, employees and customers.
After completing the evaluation, the Governance Committee makes
a recommendation to the Board of Directors.
Communication
with Directors
The Board of Directors has established a process by which
interested parties may send communications to members of the
Board of Directors. Interested parties wishing to send
communications to members of the Board of Directors should write
to the Mohawk Board of Directors at P.O. Box 963,
Calhoun, Georgia 30703. Interested parties should indicate
whether the communication is directed to all Board members or
only non-management Board members. The Companys General
Counsel will relay all communications to all members of the
Board or non-management directors as directed by the writer. For
other information related to interested party opportunities to
communicate with members of the Board of Directors (including
the Companys policy with respect to attendance of
directors at annual stockholder meetings), visit the
Companys website at www.mohawkind.com under the heading
Corporate Governance.
Availability
of Information
The Board of Directors has adopted (i) written charters for
each of the Audit Committee, the Compensation Committee and the
Governance Committee, (ii) Corporate Governance Guidelines
and (iii) the Mohawk Industries, Inc. Standards of Conduct
and Ethics. Each of these documents is available on the
Companys
29
website at www.mohawkind.com under the heading Corporate
Governance and will be made available in print to any
stockholder who requests it.
Financial
Statements
Consolidated financial statements for the fiscal year ended
December 31, 2009, independent registered public accounting
firms reports and managements discussion and
analysis are provided under Appendix A.
STOCKHOLDER
PROPOSALS
Any proposal that a stockholder may desire to have included in
the Companys proxy statement for presentation at the 2011
Annual Meeting must be received by the Company at Mohawk
Industries, Inc., P.O. Box 12069, 160 South Industrial
Boulevard, Calhoun, Georgia 30703, Attention: Secretary, on or
prior to December 6, 2010. In addition, stockholders may
intend to present a director nomination or other proposal from
the floor of the 2011 Annual Meeting, and they may commence
their own proxy solicitation with respect to such director
nomination or other proposal. Under the Companys Bylaws,
the Company must receive notice of a director nomination or
other stockholder proposal prior to December 6, 2010 in
order for the notice to be timely. If the Company does not
receive notice of a director nomination or other stockholder
proposal prior to December 6, 2010, the Company will retain
discretionary voting authority over the proxies returned by
stockholders for the 2011 Annual Meeting with respect to such
director nomination or other stockholder proposal. Discretionary
voting authority is the ability to vote proxies that
stockholders have executed and returned to the Company, on
matters not specifically reflected on the proxy card, and on
which stockholders have not had an opportunity to vote by proxy.
OTHER
MATTERS
The Board of Directors knows of no other matters to be brought
before the Annual Meeting. However, if any other matters are
properly brought before the Annual Meeting or are incidental to
the conduct of the Annual Meeting, the persons appointed in the
accompanying proxy intend to vote the shares represented thereby
in accordance with their best judgment.
The Company will bear the cost of the solicitation of proxies on
behalf of the Company. Directors, officers and other employees
of the Company may, without additional compensation except for
reimbursement for actual expenses, solicit proxies by mail, in
person or by telecommunication. The Company has retained
Georgeson Shareholder to assist in the solicitation of proxies
for a fee of not more than $8,000 plus expenses. The Company
will reimburse brokers, fiduciaries, custodians and other
nominees for
out-of-pocket
expenses incurred in sending the Companys proxy materials
to, and obtaining instructions relating to such materials from,
beneficial owners.
If your shares are held in the name of a brokerage firm, bank
nominee or other institution, only it can sign a proxy card with
respect to your shares. Accordingly, please contact the person
responsible for your account and give instructions for a proxy
card to be signed representing your shares.
A list of Stockholders entitled to be present and vote at the
Annual Meeting will be available at the offices of the Company,
160 South Industrial Boulevard, Calhoun, Georgia 30701, for
inspection by the Stockholders during regular business hours
from May 1, 2010, to the date of the Annual Meeting. The
list also will be available during the Annual Meeting for
inspection by Stockholders who are present.
30
If you cannot be present in person, you are requested to
complete, sign, date and return the enclosed proxy promptly. An
envelope has been provided for that purpose. No postage is
required if mailed in the United States.
BARBARA M. GOETZ
Corporate Secretary
Calhoun, Georgia
April 5, 2010
31
APPENDIX A
FINANCIAL
SECTION
TABLE OF
CONTENTS
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Page No.
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A-2
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|
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A-3
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|
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A-25
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A-27
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A-28
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A-29
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A-30
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A-31
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A-1
Selected
Financial Data
|
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|
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As of or for the Years Ended December 31,
|
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2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,344,024
|
|
|
|
6,826,348
|
|
|
|
7,586,018
|
|
|
|
7,905,842
|
|
|
|
6,620,099
|
|
Cost of sales(a)
|
|
|
4,111,794
|
|
|
|
5,088,584
|
|
|
|
5,471,234
|
|
|
|
5,674,531
|
|
|
|
4,851,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,232,230
|
|
|
|
1,737,764
|
|
|
|
2,114,784
|
|
|
|
2,231,311
|
|
|
|
1,768,246
|
|
Selling, general and administrative expenses
|
|
|
1,188,500
|
|
|
|
1,318,501
|
|
|
|
1,364,678
|
|
|
|
1,392,251
|
|
|
|
1,095,862
|
|
Impairment of goodwill and other intangibles(b)
|
|
|
|
|
|
|
1,543,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
43,730
|
|
|
|
(1,124,134
|
)
|
|
|
750,106
|
|
|
|
839,060
|
|
|
|
672,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
127,031
|
|
|
|
127,050
|
|
|
|
154,469
|
|
|
|
173,697
|
|
|
|
66,791
|
|
Other expense, net
|
|
|
(5,588
|
)
|
|
|
21,288
|
|
|
|
(6,925
|
)
|
|
|
(252
|
)
|
|
|
(3,679
|
)
|
U.S. customs refund(c)
|
|
|
|
|
|
|
|
|
|
|
(9,154
|
)
|
|
|
(19,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,443
|
|
|
|
148,338
|
|
|
|
138,390
|
|
|
|
154,009
|
|
|
|
63,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
(77,713
|
)
|
|
|
(1,272,472
|
)
|
|
|
611,716
|
|
|
|
685,051
|
|
|
|
609,272
|
|
Income taxes (benefit) expense(d)
|
|
|
(76,694
|
)
|
|
|
180,062
|
|
|
|
(102,697
|
)
|
|
|
220,478
|
|
|
|
214,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
|
(1,019
|
)
|
|
|
(1,452,534
|
)
|
|
|
714,413
|
|
|
|
464,573
|
|
|
|
394,277
|
|
Less: Net earnings attributable to the noncontrolling interest
|
|
|
4,480
|
|
|
|
5,694
|
|
|
|
7,599
|
|
|
|
8,740
|
|
|
|
7,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Mohawk Industries, Inc
|
|
$
|
(5,499
|
)
|
|
|
(1,458,228
|
)
|
|
|
706,814
|
|
|
|
455,833
|
|
|
|
387,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(0.08
|
)
|
|
|
(21.32
|
)
|
|
|
10.37
|
|
|
|
6.74
|
|
|
|
5.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
68,452
|
|
|
|
68,401
|
|
|
|
68,172
|
|
|
|
67,674
|
|
|
|
66,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.08
|
)
|
|
|
(21.32
|
)
|
|
|
10.32
|
|
|
|
6.70
|
|
|
|
5.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common and dilutive potential common shares
outstanding
|
|
|
68,452
|
|
|
|
68,401
|
|
|
|
68,492
|
|
|
|
68,056
|
|
|
|
67,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (includes short-term debt)
|
|
$
|
1,474,978
|
|
|
|
1,369,333
|
|
|
|
1,238,220
|
|
|
|
783,148
|
|
|
|
1,277,087
|
|
Total assets (b and d)
|
|
|
6,391,446
|
|
|
|
6,446,175
|
|
|
|
8,680,050
|
|
|
|
8,212,209
|
|
|
|
8,066,025
|
|
Long-term debt (including current portion)
|
|
|
1,854,479
|
|
|
|
1,954,786
|
|
|
|
2,281,834
|
|
|
|
2,783,681
|
|
|
|
3,308,370
|
|
Total equity
|
|
|
3,234,282
|
|
|
|
3,184,933
|
|
|
|
4,738,843
|
|
|
|
3,744,468
|
|
|
|
3,078,522
|
|
|
|
|
(a) |
|
In 2005, gross margin was impacted by a non-recurring $34,300
($22,300 net of tax) fair value adjustment to Unilins
acquired inventory. |
|
(b) |
|
In 2008, the Company recorded an impairment of goodwill and
other intangibles which included $276,807 for the Mohawk
segment, $531,930 for the Dal-Tile segment and $734,660 for the
Unilin segment. |
|
(c) |
|
In 2007 and 2006, the Company received partial refunds from the
U.S. government in reference to settlement of custom disputes
dating back to 1982. |
A-2
|
|
|
(d) |
|
In 2007, the Company implemented a change in residency of one of
its foreign subsidiaries. This tax restructuring resulted in a
step up in the subsidiarys taxable basis, which resulted
in the recognition of a deferred tax asset of approximately
$245,000 and a related income tax benefit of approximately
$272,000. In 2008, the Company recorded a valuation allowance of
approximately $253,000 against the deferred tax asset described
above. |
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company is a leading producer of floor covering products for
residential and commercial applications in the U.S. and
Europe with net sales in 2009 of $5.3 billion. The Company
is the second largest carpet and rug manufacturer in the U.S., a
leading manufacturer, marketer and distributor of ceramic tile,
natural stone and hardwood flooring in the U.S. and a
leading producer of laminate flooring in the U.S. and
Europe. In 2008, the primary categories of the U.S. floor
covering industry, based on sales dollars, were carpet and rug
(58%), ceramic tile (11%), resilient and rubber (11%), hardwood
(10%), stone (5%) and laminate (5%).
The Company believes that the U.S. floor covering industry
has experienced declining demand beginning in the fourth quarter
of 2006 which worsened considerably during the later parts of
2008 and continued to decline throughout 2009. The global
economy continues in the most significant downturn in recent
history. Overall economic conditions and consumer sentiment have
remained challenging, which has intensified the pressure on the
demand for housing and flooring products. Although the Company
cannot determine with certainty as to when market conditions
will stabilize and begin to improve, the Company believes it is
well-positioned in the long-term as the industry improves. The
Company continues to monitor expenses based on current industry
conditions and will continue to adjust as required.
The Company has three reporting segments, the Mohawk segment,
the Dal-Tile segment and the Unilin segment. The Mohawk segment
manufactures, markets and distributes its product lines
primarily in North America, which include carpet, rugs, pad,
ceramic tile, hardwood, resilient and laminate, through its
network of regional distribution centers and satellite
warehouses using company-operated trucks, common carrier or rail
transportation. The segment product lines are sold through
various selling channels, which include floor covering
retailers, home centers, mass merchandisers, department stores,
independent distributors, commercial dealers and commercial end
users. The Dal-Tile segment manufactures, markets and
distributes its product lines primarily in North America, which
include ceramic tile, porcelain tile and stone products, through
its network of regional distribution centers and
company-operated sales service centers using company-operated
trucks, common carriers or rail transportation. The segment
product lines are purchased by floor covering retailers, home
centers, independent distributors, tile specialty dealers, tile
contractors, and commercial end users. The Unilin segment
manufactures, markets and distributes its product lines
primarily in North America and Europe, which include laminate
flooring, wood flooring, roofing systems and other wood products
through various selling channels, which include retailers, home
centers and independent distributors.
The Company reported net loss of $5.5 million or loss per
share of $0.08 for 2009, compared to net loss of
$1,458.2 million or loss per share of $21.32 for 2008. The
net loss for 2008 included a $1,543.4 million impairment
charge to reduce the carrying amount of the Companys
goodwill and intangible assets and a charge of $253 million
to record a tax valuation allowance against the carrying amount
of a deferred tax asset recognized in the fourth quarter of
2007. In addition, the change in EPS resulted from the impact of
lower sales volumes, which the Company believes is attributable
to continued weakness in the U.S. residential remodeling
and new construction markets, commercial real estate market and
European demand, the net effect of price and product mix and
higher warranty requirements, partially offset by lower raw
material, energy and selling general and administrative costs.
During 2009, the Company recognized a higher trend of incidents
related to the use of new technology in certain commercial
carpet tiles and recorded a $121.2 million carpet sales
allowance and a $12.4 million inventory write-off. The
Company discontinued sales of these commercial carpet tiles and
replaced it with an established technology. The amounts recorded
reflect the Companys best reasonable estimate but the
actual amount of claims and related costs could vary from such
estimates.
A-3
For the year ended December 31, 2009, the Company generated
$672.2 million of operating cash flow which it used to
reduce debt by $103.6 million and build cash. As of
December 31, 2009, the Company had cash and cash
equivalents of $531.5 million. In addition, the Company
adjusted capital expenditures to align its manufacturing,
distribution and selling infrastructure to market conditions.
Results
of Operations
Following are the results of operations for the last three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,344.0
|
|
|
|
100.0
|
%
|
|
$
|
6,826.3
|
|
|
|
100.0
|
%
|
|
$
|
7,586.0
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
4,111.8
|
|
|
|
76.9
|
%
|
|
|
5,088.5
|
|
|
|
74.5
|
%
|
|
|
5,471.2
|
|
|
|
72.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,232.2
|
|
|
|
23.1
|
%
|
|
|
1,737.8
|
|
|
|
25.5
|
%
|
|
|
2,114.8
|
|
|
|
27.9
|
%
|
Selling, general and administrative expenses
|
|
|
1,188.5
|
|
|
|
22.2
|
%
|
|
|
1,318.5
|
|
|
|
19.3
|
%
|
|
|
1,364.7
|
|
|
|
18.0
|
%
|
Impairment of goodwill and other intangibles
|
|
|
|
|
|
|
|
|
|
|
1,543.4
|
|
|
|
22.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
43.7
|
|
|
|
0.8
|
%
|
|
|
(1,124.1
|
)
|
|
|
(16.5
|
)%
|
|
|
750.1
|
|
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
127.0
|
|
|
|
2.4
|
%
|
|
|
127.1
|
|
|
|
1.9
|
%
|
|
|
154.5
|
|
|
|
2.0
|
%
|
Other expense, net
|
|
|
(5.6
|
)
|
|
|
(0.1
|
)%
|
|
|
21.3
|
|
|
|
0.3
|
%
|
|
|
(6.9
|
)
|
|
|
(0.1
|
)%
|
U.S. customs refund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.2
|
)
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121.4
|
|
|
|
2.3
|
%
|
|
|
148.4
|
|
|
|
2.2
|
%
|
|
|
138.4
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
(77.7
|
)
|
|
|
(1.5
|
)%
|
|
|
(1,272.5
|
)
|
|
|
(18.6
|
)%
|
|
|
611.7
|
|
|
|
8.1
|
%
|
Income tax (benefit) expense
|
|
|
(76.7
|
)
|
|
|
(1.4
|
)%
|
|
|
180.0
|
|
|
|
2.6
|
%
|
|
|
(102.7
|
)
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
(1,452.5
|
)
|
|
|
(21.3
|
)%
|
|
|
714.4
|
|
|
|
9.4
|
%
|
Less: Net earnings attributable to the noncontrolling interest
|
|
|
4.5
|
|
|
|
0.1
|
%
|
|
|
5.7
|
|
|
|
0.1
|
%
|
|
|
7.6
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Mohawk Industries, Inc.
|
|
$
|
(5.5
|
)
|
|
|
(0.1
|
)%
|
|
$
|
(1,458.2
|
)
|
|
|
(21.4
|
)%
|
|
$
|
706.8
|
|
|
|
9.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2009, as Compared with Year Ended
December 31, 2008
Net
sales
Net sales for 2009 were $5,344.0 million, reflecting a
decrease of $1,482.3 million, or 21.7%, from the
$6,826.3 million reported for 2008. The decrease was
primarily driven by a decline in sales volumes of approximately
$1,047 million due to the continued weakness in the
U.S. residential remodeling and new construction markets,
commercial real estate market and European demand, a decline of
approximately $298 million due to unfavorable price and
product mix as customers trade down to lower priced products, a
decrease of approximately $81 million due to a net increase
in warranty requirements described in the overview and a decline
of approximately $56 million due to unfavorable foreign
exchange rates and other.
Mohawk Segment Net sales decreased
$771.4 million, or 21.3%, to $2,856.7 million in 2009
compared to $3,628.2 million in 2008. The decrease was
primarily driven by a decline in sales volumes of approximately
$531 million due to the continued weakness in the
U.S. residential remodeling and new construction markets
and the declining commercial real estate market, a decline of
approximately $151 million due to unfavorable price and
product mix as customers trade down to lower priced products and
a decrease of approximately $81 million due to a net
increase in warranty requirements described above in the
overview.
Dal-Tile Segment Net sales decreased
$388.6 million, or 21.4%, to $1,426.8 million in 2009
compared to $1,815.4 million in 2008. The decrease was
primarily driven by a decline in sales volumes of approximately
A-4
$301 million due to the continued weakness in the
U.S. residential remodeling and new construction markets
and the declining commercial real estate market, a decline of
approximately $73 million due to unfavorable price and
product mix as customers trade down to lower priced products and
a decline of approximately $15 million due to unfavorable
foreign exchange rates.
Unilin Segment Net sales decreased
$336.9 million, or 23.0%, to $1,128.3 million in 2009
compared to $1,465.2 million in 2008. The decrease was
driven by a decline in sales volumes of approximately
$215 million due to the continued weakness in the
U.S. residential remodeling and new construction markets
and slowing European demand, a decline of approximately
$74 million due to the net effect of price and product mix
as customers trade down to lower priced products and a decline
of approximately $48 million due to unfavorable foreign
exchange rates.
Quarterly net sales and the percentage changes in net sales by
quarter for 2009 versus 2008 were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
First quarter
|
|
$
|
1,208.3
|
|
|
|
1,738.1
|
|
|
|
(30.5
|
)%
|
Second quarter
|
|
|
1,406.0
|
|
|
|
1,840.0
|
|
|
|
(23.6
|
)
|
Third quarter
|
|
|
1,382.6
|
|
|
|
1,763.0
|
|
|
|
(21.6
|
)
|
Fourth quarter
|
|
|
1,347.1
|
|
|
|
1,485.2
|
|
|
|
(9.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total year
|
|
$
|
5,344.0
|
|
|
|
6,826.3
|
|
|
|
(21.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
Gross profit for 2009 was $1,232.2 million (23.1% of net
sales) and represented a decrease of $505.5 million
compared to gross profit of $1,737.8 million (25.5% of net
sales) for 2008. Gross profit in 2009 was unfavorably impacted
by approximately $315 million resulting from lower sales
volume, a decline of approximately $185 million due to the
net effect of price and product mix, a decline of approximately
$89 million due to a net increase in warranty requirements
described above in the overview, restructuring charges of
approximately $28 million and the impact of unfavorable
foreign exchange rates of approximately $9 million,
partially offset by lower manufacturing costs of approximately
$120 million. The decrease in gross profit percentage is
primarily attributable to unfavorable price and product mix,
increased warranty requirements and restructuring costs,
partially offset by lower raw material and manufacturing costs
Selling,
general and administrative expenses
Selling, general and administrative expenses for 2009 were
$1,188.5 million (22.3% of net sales), reflecting a
decrease of $130.0 million, or 9.9%, compared to
$1,318.5 million (19.3% of net sales) for the prior year.
The decrease in selling, general and administrative expenses is
primarily driven by lower sales and various cost savings
initiatives implemented by the Company, partially offset by
approximately $8 million of unfavorable foreign exchange
rates and approximately $4 million for restructuring
charges. The increase in selling general and administrative
expenses as a percentage of net sales is primarily a result of a
higher mix of fixed costs on lower net sales, and restructuring
costs.
Operating
income (loss)
Operating income for 2009 was $43.7 million (0.8% of net
sales) reflecting an increase of $1,167.9 million compared
to an operating loss of $1,124.1 million in 2008. The
change was primarily driven by the recognition of an impairment
of goodwill and other intangibles of approximately
$1,543.4 million in 2008. In addition, operating income in
the current period was impacted by a decline of approximately
$315 million due to lower sales volumes, a decline of
approximately $185 million due to unfavorable price and
product mix, a decrease of approximately $89 million due to
a net increase in warranty requirements described above in the
overview and restructuring charges of approximately
$32 million, partially offset by lower manufacturing and
selling, general and administrative costs of approximately
$244 million.
A-5
Mohawk Segment Operating loss was
$126.0 million in 2009 reflecting a decrease of
$90.2 million compared to operating loss of
$216.2 million in 2008. The increase was primarily driven
by the recognition of an impairment of goodwill and other
intangibles of approximately $276.8 million in 2008. In
addition, operating income in the current period was impacted by
a decline of approximately $133 million due to lower sales
volumes, a decrease of approximately $89 million due to a
net increase in warranty requirements and a decline of
approximately $74 million due to unfavorable price and
product mix and restructuring charges of approximately
$7 million, partially offset by lower manufacturing and
selling, general and administrative costs of approximately
$116 million.
Dal-Tile Segment Operating income was
$84.2 million (5.9% of segment net sales) in 2009
reflecting an increase of $407.5 million compared to
operating loss of $323.4 million for 2008. The change was
primarily driven by the recognition of an impairment of goodwill
and other intangibles of approximately $531.9 million in
2008. In addition, operating income in the current period was
impacted by a decline of approximately $108 million due to
lower sales volumes, a decline of approximately $35 million
due to unfavorable price and product mix and restructuring
charges of approximately $12 million, partially offset by
lower manufacturing and selling, general and administrative
costs of approximately $23 million.
Unilin Segment Operating income was
$106.0 million (9.4% of segment net sales) in 2009
reflecting an increase of $670.9 million compared to
operating loss of $564.9 million for 2008. The increase was
primarily driven by the recognition of an impairment of goodwill
and other intangibles of $734.7 million in 2008. In
addition, operating income in the current period was impacted by
a decline of approximately $76 million due to the net
effect of price and product mix, a decline in sales volumes of
approximately $74 million, restructuring charges of
approximately $13 million and the impact of unfavorable
foreign exchange rates of approximately $8 million,
partially offset by lower raw material, manufacturing and
selling, general and administrative costs of approximately
$107 million.
Interest
expense
Interest expense for 2009 was $127.0 million compared to
$127.1 million in 2008. Interest expense in 2009 was
directly impacted by higher interest rates on the Companys
notes and revolving credit facilities due to three credit rating
downgrades in 2009, partially offset by lower average debt
levels in the current year compared to 2008.
Income
tax (benefit) expense
For 2009, the Company recorded an income tax benefit of
$76.7 million on loss before taxes of $77.7 million as
compared to income tax expense of $180.1 million on loss
before taxes of $1,272.5 million for 2008. The change is
principally due to the non-deductible 2008 goodwill impairment
charge, the recognition of a $253 million valuation
allowance against a deferred asset, and the geographic
distribution of income (loss).
In the fourth quarter of 2007, the Company moved the
intellectual property and treasury operations of an indirectly
owned European entity to a new office in another jurisdiction in
Europe. The Company also indirectly owned a holding company in
the new jurisdiction that provided certain treasury functions to
Unilin, and the move allowed for the consolidation of the
historical intellectual property and treasury operations to be
combined with those of the holding companys treasury
operations in a single jurisdiction in order to integrate and
streamline the operations, to facilitate international
acquisitions and to improve tax and cost efficiencies. This
restructuring resulted in a step up in the subsidiarys
taxable basis of its intellectual property. The step up relates
primarily to intangible assets which will be amortized over
10 years for tax purposes. During the fourth quarter of
2007, the Company evaluated the evidence for recognition of the
deferred tax asset created through the restructuring and
determined that, based on the available evidence at the time,
the deferred tax asset would more likely than not be realized.
The deferred tax asset recognized as of December 31, 2007
was approximately $245 million and the related income tax
benefit recognized in the consolidated financial statements was
approximately $272 million.
A-6
During the third quarter of 2008, the Company reassessed the
need for a valuation allowance against its deferred tax assets.
Cash flows had decreased from that projected as of
December 31, 2007, primarily due to the slowing worldwide
economy and declining sales volume. The Company determined that,
given the current and expected economic conditions and the
corresponding reductions in cash flows, its ability to realize
the benefit of the deferred tax asset related to the transaction
described above as well as tax losses generated in the same
jurisdiction was not more likely than not. Accordingly the
Company recorded a valuation allowance against the deferred tax
asset in the amount of $253 million during the quarter
ended September 27, 2008.
Year
Ended December 31, 2008, as Compared with Year Ended
December 31, 2007
Net
sales
Net sales for the year ended December 31, 2008, were
$6,826.3 million, reflecting a decrease of
$759.7 million, or 10.0%, from the $7,586.0 million
reported for the year ended December 31, 2007. The decrease
was primarily driven by a decline in sales volumes of
approximately $971 million due to the continued decline in
the U.S. residential markets, softening commercial demand
and slowing European demand, partially offset by a benefit of
approximately $132 million due to the net effect of price
increases and product mix, and a benefit of approximately
$79 million due to favorable foreign exchange rates.
Mohawk Segment Net sales decreased
$577.6 million, or 13.7%, to $3,628.2 million in 2008,
compared to $4,205.7 million in 2007. The decrease was
primarily driven by a decline in sales volumes of approximately
$639 million due to the continued decline in the
U.S. residential market and softening commercial demand,
partially offset by a benefit of approximately $83 million
due to the net effect of price increases and product mix.
Dal-Tile Segment Net sales decreased
$122.4 million, or 6.3%, to $1,815.4 million in 2008,
compared to $1,937.7 million reported in 2007. This
decrease was primarily driven by a decline in sales volumes of
approximately $146 million due to the continued decline in
the U.S. residential market, partially offset by a benefit
of approximately $24 million due to the net effect of price
increases and product mix.
Unilin Segment Net sales decreased
$22.4 million, or 1.5%, to $1,465.2 million in 2008,
compared to $1,487.6 million in 2007. The decrease in net
sales was driven by a decline in sales volume of approximately
$188 million due to the continued decline in the
U.S. residential market and slowing European demand,
partially offset by a benefit of approximately $63 million
due to the Wood Acquisition, a benefit of approximately
$79 million due to favorable foreign exchange rates and a
benefit of approximately $23 million due to the net effect
of price increases and product mix.
Quarterly net sales and the percentage changes in net sales by
quarter for 2008 versus 2007 were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
First quarter
|
|
$
|
1,738.1
|
|
|
|
1,863.9
|
|
|
|
(6.7
|
)%
|
Second quarter
|
|
|
1,840.0
|
|
|
|
1,977.2
|
|
|
|
(6.9
|
)
|
Third quarter
|
|
|
1,763.0
|
|
|
|
1,937.7
|
|
|
|
(9.0
|
)
|
Fourth quarter
|
|
|
1,485.2
|
|
|
|
1,807.2
|
|
|
|
(17.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total year
|
|
$
|
6,826.3
|
|
|
|
7,586.0
|
|
|
|
(10.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
Gross profit was $1,737.8 million (25.5% of net sales) for
2008 and represented a decrease of $377.0 million, or
17.8%, compared to gross profit of $2,114.8 million (27.9%
of net sales) for 2007. Gross profit was unfavorably impacted by
increasing costs for raw materials and energy of approximately
$172 million, net of cost savings initiatives, and a
decline in volumes of approximately $279 million, partially
offset by the net effect of price increases and product mix of
approximately $97 million.
A-7
Selling,
general and administrative expenses
Selling, general and administrative expenses for 2008 were
$1,318.5 million (19.3% of net sales), reflecting a
decrease of $46.2 million, or 3.4%, compared to
$1,364.7 million (18.0% of net sales) for 2007. The
decrease in selling, general and administrative expenses is
attributable to various cost savings initiatives implemented by
the Company, offset by approximately $25 million of
unfavorable foreign exchange rates.
Impairment
of goodwill and intangibles
During 2008, the Company recorded a $1,543.4 million
impairment charge to reduce the carrying amount of the
Companys goodwill and intangible assets to their estimated
fair value based upon the results of two interim impairment
tests. The Company performed interim impairment tests because of
a prolonged decline in the Companys market capitalization
which the Company believes is primarily a result of the weakness
in the U.S. residential housing market and the slowing
European economy. In both the third and fourth quarters of 2008,
the Company concluded that the weakness in the
U.S. residential housing market is likely to persist based
on its review of, among other things, sequential quarterly
housing starts, recent turmoil surrounding the nations
largest mortgage lenders, the potential negative impact on the
availability of mortgage financing and housing start forecasts
published by national home builder associations pushing recovery
in the U.S. residential housing market beyond 2009. The
total impairment included $276.8 million in the Mohawk
segment, $531.9 million in the Dal-Tile segment and
$734.7 million in the Unilin segment. If, in the future,
the Companys market capitalization
and/or the
estimated fair value of the Companys reporting units were
to decline further, it may be necessary to record further
impairment charges.
Operating
(loss) income
Operating loss for 2008 was $1,124.1 million reflecting a
decrease of $1,874.2 million compared to operating income
of $750.1 million (9.9% of net sales) in 2007. The decrease
was primarily driven by the recognition of impairment of
goodwill and other intangibles of $1,543.4 million, a
decline in sales volumes of approximately $285 million and
rising costs for raw materials and energy of approximately
$116 million, net of cost savings initiatives, partially
offset by a benefit of approximately $130 million due to
the net effect of price increases and product mix.
Mohawk Segment Operating loss was
$216.2 million in 2008 reflecting a decrease of
$471.1 million compared to operating income of
$254.9 million (6.1% of segment net sales) in 2007. The
decrease was primarily due to the impairment of goodwill and
other intangibles of $276.8 million, a decline in sales
volumes of approximately $142 million and rising costs for
raw materials and energy of approximately $82 million, net
of cost savings initiatives, partially offset by a benefit of
approximately $82 million due to the net effect of price
increases and product mix.
Dal-Tile Segment Operating loss was
$323.4 million in 2008 reflecting a decrease of
$582.1 million, compared to operating income of
$258.7 million (13.4% of segment net sales) in 2007. The
decrease was primarily due to the impairment of goodwill of
$531.9 million, rising costs for raw materials and energy
of approximately $31 million, net of cost savings
initiatives, and a decline in sales volumes of approximately
$56 million, partially offset by a benefit of approximately
$41 million due to the net effect of price increases and
product mix.
Unilin Segment Operating loss was
$564.9 million in 2008, reflecting a decrease of
$837.2 million compared to operating income of
$272.3 million (18.3% of segment net sales) in 2007. The
decrease was primarily due to the impairment of goodwill and
other intangibles of $734.7 million, a decline in sales
volumes of approximately $88 million and rising costs for
raw materials and energy of approximately $19 million, net
of cost savings initiatives, partially offset by a benefit of
approximately $7 million due to the net effect of price
increases and product mix.
A-8
Interest
expense
Interest expense for 2008 was $127.1 million compared to
$154.5 million in 2007. The decrease in interest expense
for 2008 as compared to 2007 was attributable to lower average
debt and lower average interest rates on outstanding revolving
debt.
Income
tax (benefit) expense
The 2008 provision for income tax was $180.1 million, as
compared to an income tax benefit of $102.7 million for
2007. The effective tax rate for 2008 was (14.2)% as compared to
an effective tax rate benefit of 16.8% for 2007. The change in
the tax rate was primarily due to the impact on pre-tax earnings
of the impairment charge on non-deductible goodwill, the 2008
asset restructurings, and the recognition of a valuation
allowance of $253 million, which is described above,
against certain deferred tax assets that the Company believes is
no longer more likely than not to be realized. Without the
impact of these three items, the Company would have reflected a
2008 provision for income tax of $70.5 million, as compared
to a provision of $168.9 million for 2007.
Liquidity
and Capital Resources
The Companys primary capital requirements are for working
capital, capital expenditures and acquisitions. The
Companys capital needs are met primarily through a
combination of internally generated funds, bank credit lines,
term and senior notes and credit terms from suppliers.
Cash flows provided by operations for 2009 were
$672.2 million compared to cash flows provided by
operations of $576.1 million in 2008. The increase in
operating cash flows for 2009 as compared to 2008 is primarily
attributable to lower working capital requirements due to lower
sales demand.
Net cash used in investing activities for 2009 was
$114.8 million compared to $226.1 million in 2008. The
decrease is due to lower capital spending as a result of lower
sales and tighter management of expenditures during 2009 as
compared to 2008. Capital expenditures, including
$161.3 million for acquisitions have totaled
$651.1 million over the past three years. Capital spending
during 2010, excluding acquisitions, is expected to range from
$150 million to $160 million, and is intended to be
used primarily to purchase equipment and to streamline
manufacturing capacity.
Net cash used in financing activities for 2009 was
$125.8 million compared to net cash used by financing
activities of $348.9 million in 2008. The change in cash
used in financing activities as compared to 2008 is primarily
attributable to lower debt levels as the Company manages its
working capital requirements to align with its current sales.
On September 2, 2009, the Company entered into a
$600 million four-year, senior, secured revolving credit
facility (the ABL Facility) in connection with the
replacement of the Companys then-existing senior,
unsecured, revolving credit facility (the Senior Unsecured
Facility). At the time of its termination, the Senior
Unsecured Facility consisted of a $650 million revolving
credit facility, which was to mature on October 28, 2010.
The ABL Facility provides for a maximum of $600 million of
revolving credit, subject to borrowing base availability,
including limited amounts of credit in the form of letters of
credit and swingline loans. The borrowing base is equal to
specified percentages of eligible accounts receivable and
inventories of the Company and other borrowers under the ABL
Facility, which are subject to seasonal variations, less
reserves established in good faith by the Administrative Agent
under the ABL Facility. All obligations under the ABL Facility,
and the guarantees of those obligations, are secured by a
security interest in certain accounts receivable, inventories,
certain deposit and securities accounts, tax refunds and other
personal property (excluding intellectual property) directly
relating to, or arising from, and proceeds of, any of the
foregoing. In connection with the entry into the ABL Facility,
the Company incurred approximately $23.7 million in debt
issuance costs which will be amortized on a straight-line basis
over the four-year term of the facility and recognized as
interest expense in the condensed consolidated statement of
operations.
At the Companys election, revolving loans under the ABL
Facility bear interest at annual rates equal to either
(a) LIBOR for 1, 2, 3 or 6 month periods, as selected
by the Company, plus an applicable margin
A-9
ranging between 3.75% and 4.25%, or (b) the higher of the
prime rate, the Federal Funds rate plus 0.5%, or a daily LIBOR
rate, plus an applicable margin ranging between 2.25% and 2.75%.
The Company also pays a commitment fee to the Lenders under the
ABL Facility on the average amount by which the aggregate
commitments of the Lenders exceed utilization of the ABL
Facility equal to 1.00% per annum during any quarter that this
excess is 50% or more, and 0.75% per annum during any quarter
that this excess is less than 50%.
The ABL Facility includes certain affirmative and negative
covenants that impose restrictions on Mohawks financial
and business operations, including limitations on debt, liens,
investments, fundamental changes, asset dispositions, dividends
and other similar restricted payments, transactions with
affiliates, payments and modifications of certain existing debt,
future negative pledges, and changes in the nature of the
Companys business. Many of these limitations are subject
to numerous exceptions. The Company is also required to maintain
a fixed charge coverage ratio of 1.1 to 1.0 during any period
that the unutilized amount available under the ABL Facility is
less than 15% of the amount available under the ABL Facility.
The ABL Facility is scheduled to mature on September 2,
2013 but the maturity date will be accelerated to:
(i) October 15, 2010 if the Companys outstanding
5.75% senior notes due January 15, 2011 have not been
repaid, refinanced, defeased or adequately reserved for by the
Company, as reasonably determined by the Administrative Agent,
prior to October 15, 2010, and (ii) January 15,
2012, if the Companys outstanding 7.20% senior notes
due April 15, 2012 have not been repaid, refinanced,
defeased or adequately reserved for by the Company, as
reasonably determined by the Administrative Agent, prior to
January 15, 2012. The Company can make adequate reserves
for such senior notes with unrestricted cash on hand and
unutilized borrowing availability under the ABL Facility. The
Company believes cash and cash equivalents and availability
under the ABL Facility will be sufficient to satisfy the
October 15, 2010 requirements of the ABL Facility, although
there can be no assurances the Company will have adequate
reserves as defined in the ABL Facility.
As of December 31, 2009, the amount considered used under
the ABL Facility was $113.4 million leaving a total of
approximately $462 million available under the ABL
Facility. The amount used under the ABL Facility is composed of
$53.5 million standby letters of credit guaranteeing the
Companys industrial revenue bonds and $59.9 million
of standby letters of credit related to various insurance
contracts and foreign vendor commitments.
During 2009, the Company terminated its
Euro 130.0 million, five-year unsecured, revolving
credit facility and its on-balance sheet trade accounts
receivable securitization agreement, which allowed for
borrowings up to $250.0 million based on available accounts
receivable.
On January 17, 2006, the Company issued $500.0 million
aggregate principal amount of 5.750% notes due 2011 and
$900.0 million aggregate principal amount of
6.125% notes due 2016. Interest payable on each series of
the notes is subject to adjustment if either Moodys
Investors Service, Inc. (Moodys) or
Standard & Poors Ratings Services
(Standard & Poors), or both,
downgrades the rating assigned to the notes. Each rating agency
downgrade results in a 0.25% increase in the interest rate,
subject to a maximum increase of 1% per rating agency. If later
the rating of these notes improves, then the interest rates
would be reduced accordingly. Each 0.25% increase in the
interest rate of these notes would increase the Companys
interest expense by approximately $3.5 million per year.
Currently, the interest rates have been increased by an
aggregate amount of 0.75% as a result of downgrades by
Moodys and Standard & Poors during 2009.
These downgrades increase the Companys interest expense by
approximately $10.5 million per year and could adversely
affect the cost of and ability to obtain additional credit in
the future. Additional downgrades in the Companys credit
ratings could further increase the cost of its existing credit
and adversely affect the cost of and ability to obtain
additional credit in the future.
In 2002, the Company issued $400.0 million aggregate
principal amount of its senior 7.2% notes due 2012.
The Company may from time to time seek to retire its outstanding
debt through cash purchases in the open market, privately
negotiated transactions or otherwise. Such repurchases, if any,
will depend on prevailing
A-10
market conditions, the Companys liquidity requirements,
contractual restrictions and other factors. The amount involved
may be material.
As of December 31, 2009, the Company had invested cash of
$464.9 million in money market AAA rated cash investments
of which $367.3 million was in North America and
$97.6 million was in Europe. The Company believes that its
cash and cash equivalents on hand, cash generated from
operations and availability under its ABL Facility will be
sufficient to repay, defease or refinance its 5.75% senior
notes due January 2011 and meet its capital expenditures and
working capital requirements over the next twelve months.
The Companys Board of Directors has authorized the
repurchase of up to 15 million shares of the Companys
outstanding common stock. Since the inception of the program in
1999, a total of approximately 11.5 million shares have
been repurchased at an aggregate cost of approximately
$334.7 million. All of these repurchases have been financed
through the Companys operations and banking arrangements.
No shares were repurchased during 2009, 2008 and 2007.
On October 31, 2005, the Company entered into a Discounted
Stock Purchase Agreement (the DSPA) with certain
members of the Unilin management team (the Unilin
Management). The Company terminated the DSPA during the
year ended December 31, 2009. Under the terms of the DSPA,
the Company was obligated to make cash payments to the Unilin
Management in the event that certain performance goals were
satisfied. In each of the years in the five-year period ended
December 31, 2010, the remaining members of Unilin
Management could earn amounts, in the aggregate, equal to the
average value of 30,671 shares of the Companys common
stock over the 20 trading day period ending on December 31 of
the prior year. Any failure in a given year to reach the
performance goals could have been rectified, and consequently
the amounts payable with respect to achieving such criteria
could have been made, in any of the other years. The amount of
the liability is measured each period and recognized as
compensation expense in the consolidated statement of
operations. No expense related to the DSPA was recognized by the
Company in 2009.
The outstanding checks in excess of cash represent trade
payables checks that have not yet cleared the bank. When the
checks clear the bank, they are funded by the ABL Facility. This
policy does not impact any liquid assets on the consolidated
balance sheets.
Contractual
obligations
The following is a summary of the Companys future minimum
payments under contractual obligations as of December 31,
2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Recorded Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current maturities and capital leases
|
|
$
|
1,854.5
|
|
|
|
52.9
|
|
|
|
499.8
|
|
|
|
400.4
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
900.6
|
|
Unrecorded Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on long-term debt and capital leases(1)
|
|
|
473.4
|
|
|
|
123.3
|
|
|
|
92.1
|
|
|
|
70.2
|
|
|
|
61.9
|
|
|
|
61.9
|
|
|
|
64.0
|
|
Operating leases
|
|
|
379.4
|
|
|
|
94.3
|
|
|
|
77.1
|
|
|
|
58.5
|
|
|
|
45.2
|
|
|
|
37.3
|
|
|
|
67.0
|
|
Purchase commitments(2)
|
|
|
684.1
|
|
|
|
186.5
|
|
|
|
180.4
|
|
|
|
105.8
|
|
|
|
105.7
|
|
|
|
105.7
|
|
|
|
|
|
Expected pension contributions(3)
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax positions(4)
|
|
|
69.3
|
|
|
|
69.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,607.8
|
|
|
|
475.0
|
|
|
|
349.6
|
|
|
|
234.5
|
|
|
|
212.8
|
|
|
|
204.9
|
|
|
|
131.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,462.3
|
|
|
|
527.9
|
|
|
|
849.4
|
|
|
|
634.9
|
|
|
|
213.2
|
|
|
|
205.3
|
|
|
|
1,031.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
(1) |
|
For fixed rate debt, the Company calculated interest based on
the applicable rates and payment dates. For variable rate debt,
the Company estimated average outstanding balances for the
respective periods and applied interest rates in effect as of
December 31, 2009 to these balances. |
A-11
|
|
|
(2) |
|
Includes commitments for natural gas, electricity and raw
material purchases. |
|
(3) |
|
Includes the estimated pension contributions for 2010 only, as
the Company is unable to estimate the pension contributions
beyond 2010. The Companys projected benefit obligation as
of December 31, 2009 was $25.5 million. These
liabilities have not been presented in the table above due to
uncertainty as to amounts and timing regarding future payments. |
|
(4) |
|
Excludes $48.5 million of non-current accrued income tax
liabilities for uncertain tax positions. These liabilities have
not been presented in the table above due to uncertainty as to
amounts and timing regarding future payments. |
Critical
Accounting Policies
In preparing the consolidated financial statements in conformity
with U.S. generally accepted accounting principles, the
Company must make decisions which impact the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosures. Such decisions include the selection of appropriate
accounting principles to be applied and the assumptions on which
to base accounting estimates. In reaching such decisions, the
Company applies judgment based on its understanding and analysis
of the relevant circumstances and historical experience. Actual
amounts could differ from those estimated at the time the
consolidated financial statements are prepared.
The Companys significant accounting policies are described
in Note 1 to the Consolidated Financial Statements included
elsewhere in this report. Some of those significant accounting
policies require the Company to make subjective or complex
judgments or estimates. Critical accounting policies are defined
as those that are both most important to the portrayal of a
companys financial condition and results and require
managements most difficult, subjective, or complex
judgment, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain and may
change in subsequent periods.
The Company believes the following accounting policies require
it to use judgments and estimates in preparing its consolidated
financial statements and represent critical accounting policies.
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Accounts receivable and revenue
recognition. Revenues are recognized when there
is persuasive evidence of an arrangement, delivery has occurred,
the price has been fixed or is determinable, and collectability
can be reasonably assured. The Company provides allowances for
expected cash discounts, returns, claims and doubtful accounts
based upon historical bad debt and claims experience and
periodic evaluation of specific customer accounts and the aging
of accounts receivable. If the financial condition of the
Companys customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required.
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Inventories are stated at the lower of cost or market (net
realizable value). Cost has been determined using
the first-in
first-out method (FIFO). Costs included in inventory
include raw materials, direct and indirect labor and employee
benefits, depreciation, general manufacturing overhead and
various other costs of manufacturing. Market, with respect to
all inventories, is replacement cost or net realizable value.
Inventories on hand are compared against anticipated future
usage, which is a function of historical usage, anticipated
future selling price, expected sales below cost, excessive
quantities and an evaluation for obsolescence. Actual results
could differ from assumptions used to value obsolete inventory,
excessive inventory or inventory expected to be sold below cost
and additional reserves may be required.
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Goodwill and other intangibles. Goodwill is
tested annually for impairment during the fourth quarter or
earlier upon the occurrence of certain events or substantive
changes in circumstances. The Company considers the relationship
between its market capitalization and its book value, among
other factors, when reviewing for indicators of impairment. The
goodwill impairment tests are based on determining the fair
value of the specified reporting units based on management
judgments and assumptions using the discounted cash flows and
comparable company market valuation approaches. The Company has
identified Mohawk, Dal-Tile, Unilin Flooring, Unilin Chipboard
and Melamine, and Unilin Roofing as its reporting units for the
purposes of allocating goodwill and intangibles as well as
assessing
|
A-12
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|
impairments. The valuation approaches are subject to key
judgments and assumptions that are sensitive to change such as
judgments and assumptions about appropriate sales growth rates,
operating margins, weighted average cost of capital
(WACC), and comparable company market multiples.
When developing these key judgments and assumptions, the Company
considers economic, operational and market conditions that could
impact the fair value of the reporting unit. However, estimates
are inherently uncertain and represent only managements
reasonable expectations regarding future developments. These
estimates and the judgments and assumptions upon which the
estimates are based will, in all likelihood, differ in some
respects from actual future results. Should a significant or
prolonged deterioration in economic conditions occur, such as
continued declines in spending for new construction, remodeling
and replacement activities; the inability to pass increases in
the costs of raw materials and fuel on to customers; or a
decline in comparable company market multiples, then key
judgments and assumptions could be impacted. Generally, a
moderate decline in estimated operating income or a small
increase in WACC or a decline in market capitalization could
result in an additional indication of impairment.
|
The impairment test for intangible assets not subject to
amortization involves a comparison of the estimated fair value
of the intangible asset with its carrying value. If the carrying
value of the intangible asset exceeds its fair value, an
impairment loss is recognized in an amount equal to that excess.
Significant judgments inherent in this analysis include
assumptions about appropriate sales growth rates, royalty rates,
WACC and the amount of expected future cash flows. These
judgments and assumptions are subject to the variability
discussed above.
The impairment evaluation for indefinite lived intangible
assets, which for the Company are its trademarks, is conducted
during the fourth quarter of each year, or more frequently if
events or changes in circumstances indicate that an asset might
be impaired. The determination of fair value used in the
impairment evaluation is based on discounted estimates of future
sales projections attributable to ownership of the trademarks.
Significant judgments inherent in this analysis include
assumptions about appropriate sales growth rates, royalty rates,
WACC and the amount of expected future cash flows. The judgments
and assumptions used in the estimate of fair value are generally
consistent with past performance and are also consistent with
the projections and assumptions that are used in current
operating plans. Such assumptions are subject to change as a
result of changing economic and competitive conditions. The
determination of fair value is highly sensitive to differences
between estimated and actual cash flows and changes in the
related discount rate used to evaluate the fair value of the
trademarks. Estimated cash flows are sensitive to changes in the
economy among other things.
The Company reviews its long-lived asset groups, which include
intangible assets subject to amortization, which for the Company
are its patents and customer relationships, for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such asset groups may not be recoverable.
Recoverability of asset groups to be held and used is measured
by a comparison of the carrying amount of long-lived assets to
future undiscounted net cash flows expected to be generated by
these asset groups. If such asset groups are considered to be
impaired, the impairment recognized is the amount by which the
carrying amount of the asset group exceeds the fair value of the
asset group. Assets held for sale are reported at the lower of
the carrying amount or fair value less estimated costs of
disposal and are no longer depreciated.
The Company conducted its annual assessment of goodwill and
indefinite lived intangibles in the fourth quarter and no
impairment was indicated. The Company did record impairment of
goodwill and other intangibles of $1,543.4 million in 2008.
|
|
|
|
|
The Companys effective tax rate is based on its income,
statutory tax rates and tax planning opportunities available in
the jurisdictions in which it operates. Tax laws are complex and
subject to different interpretations by the taxpayer and
respective governmental taxing authorities. Significant judgment
is required in determining the Companys tax expense and in
evaluating the Companys tax positions. Deferred tax assets
represent amounts available to reduce income taxes payable on
taxable income in a future period. The Company evaluates the
recoverability of these future tax benefits by
|
A-13
|
|
|
|
|
assessing the adequacy of future expected taxable income from
all sources, including reversal of taxable temporary
differences, forecasted operating earnings and available tax
planning strategies. These sources of income inherently rely on
estimates, including business forecasts and other projections of
financial results over an extended period of time. In the event
that the Company is not able to realize all or a portion of its
deferred tax assets in the future, a valuation allowance is
provided. The Company would recognize such amounts through a
charge to income in the period in which that determination is
made or when tax law changes are enacted. The Company recorded
valuation allowances of $365.9 million in 2009,
$343.6 million in 2008 and $75.0 million in 2007.
|
In the ordinary course of business there is inherent uncertainty
in quantifying the Companys income tax positions. The
Company assesses its income tax positions and records tax
benefits for all years subject to examination based upon the
Companys evaluation of the facts, circumstances and
information available as of the reporting date. For those tax
positions where it is more likely than not that a tax benefit
will be sustained, the Company has recorded the largest amount
of tax benefit with a greater than 50% likelihood of being
realized upon ultimate settlement with a taxing authority that
has full knowledge of all relevant information, as required by
the provisions of the Financial Accounting Standards Board
(FASB) FASB Accounting Standards Codification Topic
740 (ASC
740-10),
a replacement of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
an Interpretation of FASB Statement No. 109. For
those income tax positions where it is not more likely than not
that a tax benefit will be sustained, no tax benefit has been
recognized in the consolidated financial statements. As of
December 31, 2009, the Company has $105.6 million
accrued for uncertain tax positions.
|
|
|
|
|
Environmental and legal accruals are estimates based on
judgments made by the Company relating to ongoing environmental
and legal proceedings, as disclosed in the Companys
consolidated financial statements. In determining whether a
liability is probable and reasonably estimable, the Company
consults with its internal experts. The Company believes that
the amounts recorded in the accompanying financial statements
are based on the best estimates and judgments available
to it.
|
Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued ASC
820-10,
formerly Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value
Measurements. ASC
820-10
defines fair value, establishes a framework for measuring fair
value and requires enhanced disclosures about fair value
measurements. ASC
820-10
requires companies to disclose the fair value of financial
instruments according to a fair value hierarchy. Additionally,
companies are required to provide certain disclosures regarding
instruments within the hierarchy, including a reconciliation of
the beginning and ending balances for each major category of
assets and liabilities. ASC
820-10 is
effective for the Companys fiscal year beginning
January 1, 2008 for financial assets and liabilities and
January 1, 2009 for non-financial assets and liabilities.
The Companys adoption of ASC
820-10 for
financial assets and liabilities on January 1, 2008 and
non-financial
assets and liabilities on January 1, 2009 did not have a
material impact on the Companys consolidated financial
statements.
In December 2007, the FASB issued ASC
805-10,
formerly SFAS No. 141 (revised 2007),
Business Combinations. ASC
805-10
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. ASC
805-10 also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
ASC 805-10
is to be applied prospectively to business combinations for
which the acquisition date is on or after January 1, 2009.
The adoption of ASC
805-10 on
January 1, 2009 did not have a material impact on the
Companys consolidated financial statements, although the
adoption of ASC
805-10 will
impact the recognition and measurement of future business
combinations and certain income tax benefits recognized from
prior business combinations.
A-14
In December 2007, the FASB issued ASC
810-10,
formerly SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements an
amendment of Accounting Research
Bulletin No. 51. ASC
810-10
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest, and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated. ASC
810-10 also
establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the
interests of the noncontrolling owners. ASC
810-10 is
effective for fiscal years beginning after December 15,
2008. The adoption of ASC
810-10 on
January 1, 2009 did not have a material impact on the
Companys consolidated financial statements. Upon adoption,
the Company reclassified $31.1 million on the condensed
consolidated balance sheets from other long-term liabilities to
noncontrolling interest within equity and reclassified the
related net earnings to net earnings attributable to the
noncontrolling interest on the consolidated statements of
operations.
In March 2008, the FASB issued ASC
815-10,
formerly SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities. ASC
815-10 is
intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their
effects on an entitys financial position, financial
performance, and cash flows. The provisions of ASC
815-10 are
effective for the first quarter of 2009. The adoption of ASC
815-10 on
January 1, 2009 did not have a material impact on the
Companys consolidated financial statements.
In April 2009, the FASB issued ASC
825-10,
formerly the FASB Staff Position on
FAS 107-1
and APB
28-1,
Interim Disclosures About Fair Value of Financial
Instruments. ASC
825-10
requires disclosures about fair value of financial instruments
in interim reporting periods of publicly-traded companies that
were previously only required to be disclosed in annual
financial statements. The provisions of ASC
825-10 are
effective for the second quarter of 2009. The adoption of this
standard on June 27, 2009 did not have a material impact on
the Companys consolidated financial statements.
In May 2009, the FASB issued ASC
855-10-05,
formerly SFAS No. 165, Subsequent
Events. ASC
855-10-05
establishes general standards for accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are available to be issued
(subsequent events). More specifically, ASC
855-10-05
sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or
transactions that may occur for potential recognition in the
financial statements, identifies the circumstances under which
an entity should recognize events or transactions occurring
after the balance sheet date in its financial statements and the
disclosures that should be made about events or transactions
that occur after the balance sheet date. ASC
855-10-05
provides largely the same guidance on subsequent events which
previously existed only in the auditing literature. ASC
855-10-05 is
effective for interim or annual financial periods ending after
June 15, 2009, and is to be applied prospectively. The
adoption of this standard did not have a material impact on the
Companys consolidated financial statements.
In June 2009, the FASB issued ASC 860, formerly
SFAS No. 166, Accounting for Transfers of
Financial Assets an amendment of FASB Statement
No. 140. ASC 860 seeks to improve the relevance,
representational faithfulness, and comparability of the
information that a reporting entity provides in its financial
statements about a transfer of financial assets; the effects of
a transfer on its financial position, financial performance, and
cash flows; and a transferors continuing involvement, if
any, in transferred financial assets. Specifically, ASC 860
eliminates the concept of a qualifying special-purpose entity,
creates more stringent conditions for reporting a transfer of a
portion of a financial asset as a sale, clarifies other
sale-accounting criteria, and changes the initial measurement of
a transferors interest in transferred financial assets.
ASC 860 is effective for annual and quarterly reporting periods
that begin after November 15, 2009. The adoption of this
standard on January 1, 2010 is not expected to have a
material impact on the Companys consolidated financial
statements.
In June 2009, the FASB issued ASC 810, formerly
SFAS No. 167, Amendments to FASB
Interpretation No. 46(R). ASC 810 amends FASB
Interpretation No. 46(R), Variable Interest
Entities for determining whether an entity is a
variable interest entity (VIE) and requires an
enterprise to perform an analysis to
A-15
determine whether the enterprises variable interest or
interests give it a controlling financial interest in a VIE.
Under ASC 810, an enterprise has a controlling financial
interest when it has a) the power to direct the activities
of a VIE that most significantly impact the entitys
economic performance and b) the obligation to absorb losses
of the entity or the right to receive benefits from the entity
that could potentially be significant to the VIE. ASC 810 also
requires an enterprise to assess whether it has an implicit
financial responsibility to ensure that a VIE operates as
designed when determining whether it has power to direct the
activities of the VIE that most significantly impact the
entitys economic performance. ASC 810 also requires
ongoing assessments of whether an enterprise is the primary
beneficiary of a VIE, requires enhanced disclosures and
eliminates the scope exclusion for qualifying special-purpose
entities. ASC 810 is effective for annual and quarterly
reporting periods that begin after November 15, 2009. The
adoption of this standard on January 1, 2010 is not
expected to have a material impact on the Companys
consolidated financial statements.
In June 2009, the FASB issued ASC
105-10,
formerly SFAS No. 168, The FASB Accounting
Standards Codification and Hierarchy of Generally Accepted
Accounting Principles, a replacement of FASB Statement
No. 162. ASC
105-10
establishes the FASB Standards Accounting Codification
(Codification) as the source of authoritative
U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied to
nongovernmental entities and rules and interpretive releases of
the SEC as authoritative GAAP for SEC registrants. The
Codification superseded all the existing non-SEC accounting and
reporting standards upon its effective date. ASC
105-10 also
replaced FASB Statement No. 162, The Hierarchy of
Generally Accepted Accounting Principles given that
once in effect, the Codification carries the same level of
authority. ASC
105-10 is
effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The adoption of
this standard did not have a material impact on the
Companys consolidated financial statements.
Impact of
Inflation
Inflation affects the Companys manufacturing costs,
distribution costs and operating expenses. The carpet, tile and
laminate industry experienced significant inflation in the
prices of raw materials and fuel-related costs beginning in the
first quarter of 2004, and the prices increased dramatically
during the latter part of 2008, peaking in the second half of
2008. The Company expects raw material prices to continue to
fluctuate based upon worldwide demand of commodities utilized in
the Companys production processes. In the past, the
Company has generally been able to pass along these price
increases to its customers and has been able to enhance
productivity to help offset increases in costs resulting from
inflation in its operations.
Seasonality
The Company is a calendar year-end company. With respect to its
Mohawk and Dal-Tile segments, its results of operations for the
first quarter tend to be the weakest. The second, third and
fourth quarters typically produce higher net sales and operating
income in these segments. These results are primarily due to
consumer residential spending patterns for floor covering, which
historically have decreased during the first two months of each
year following the holiday season. The Unilin segment second and
fourth quarters typically produce higher net sales and earnings
followed by a moderate first quarter and a weaker third quarter.
The third quarter is traditionally the weakest due to the
European holiday in late summer.
Certain
Factors affecting the Companys Performance
In addition to the other information provided in this Annual
Report on
Form 10-K,
the following risk factors should be considered when evaluating
an investment in shares of Common Stock.
If any of the events described in these risks were to occur, it
could have a material adverse effect on the Companys
business, financial condition and results of operations.
The
floor covering industry is sensitive to changes in general
economic conditions, such as consumer confidence and income,
corporate and government spending, interest rate levels,
availability of credit and
A-16
demand for housing. The current downturn in the U.S. and
global economies, along with the residential and commercial
markets in such economies, has negatively impacted the floor
covering industry and the Companys business. These
difficult economic conditions may continue or deteriorate in the
foreseeable future. Further, significant or prolonged declines
in such economies or in spending for replacement floor covering
products or new construction activity could have a material
adverse effect on the Companys business.
The floor covering industry in which the Company participates is
highly dependent on general economic conditions, such as
consumer confidence and income, corporate and government
spending, interest rate levels, availability of credit and
demand for housing. The Company derives a majority of the
Companys sales from the replacement segment of the market.
Therefore, economic changes that result in a significant or
prolonged decline in spending for remodeling and replacement
activities could have a material adverse effect on the
Companys business and results of operations.
The floor covering industry is highly dependent on residential
and commercial construction activity, including new
construction, which is cyclical in nature and currently in a
downturn. The current downturn in the U.S. and global
economies, along with the housing markets in such economies, has
negatively impacted the floor covering industry and the
Companys business. Although the impact of a decline in new
construction activity is typically accompanied by an increase in
remodeling and replacement activity, these activities have also
lagged during the current downturn. The difficult economic
conditions may continue or deteriorate in the foreseeable
future. A significant or prolonged decline in residential or
commercial construction activity could have a material adverse
effect on the Companys business and results of operations.
Uncertainty
in the credit market or downturns in the global economy and the
Companys business could affect the Companys overall
availability and cost of credit.
Uncertainty in the credit markets could affect the overall
availability and cost of credit. The impact of the current
situation on our ability to obtain financing, including any
financing necessary to refinance our existing senior unsecured
notes, in the future, and the cost and terms of it, is
uncertain. These and other economic factors could have a
material adverse effect on demand for our products and on our
financial condition and operating results. Further, these
generally negative economic and business conditions may factor
into our periodic credit ratings assessment by either or both
Moodys Investors Service, Inc. and Standard &
Poors Ratings Services. The rating agencys
evaluation is based on a number of factors, which include scale
and diversification, brand strength, profitability, leverage,
liquidity and interest coverage. During 2009, our senior
unsecured notes were downgraded by the rating agencies, which
will increase the Companys interest expense by
approximately $10.5 million per year and could adversely
affect the cost of and ability to obtain additional credit in
the future. Additional downgrades in the Companys credit
ratings could further increase the cost of its existing credit
and adversely affect the cost of and ability to obtain
additional credit in the future, and the Company can provide no
assurances that additional downgrades will not occur.
Additionally, our credit facilities require us to meet certain
affirmative and negative covenants that impose restrictions on
our financial and business operations, including limitations
relating to debt, investments, asset dispositions and changes in
the nature of our business. We are also required to maintain a
fixed charge coverage ratio of 1.1 to 1.0 during any period that
the unutilized amount available under the ABL Facility is less
than 15% of the amount available under the ABL Facility. Failure
to comply with these covenants could materially and adversely
affect our ability to finance our operations or capital needs
and to engage in other activities that may be in our best
interest.
The
Company faces intense competition in the flooring industry,
which could decrease demand for the Companys products or
force it to lower prices, which could have a material adverse
effect on the Companys profitability.
The floor covering industry is highly competitive. The Company
faces competition from a number of manufacturers and independent
distributors. Some of the Companys competitors are larger
and have greater resources and access to capital than the
Company does. Maintaining the Companys competitive
position may require substantial investments in the
Companys product development efforts, manufacturing
facilities,
A-17
distribution network and sales and marketing activities.
Competitive pressures may also result in decreased demand for
the Companys products or force the Company to lower
prices. Any of these factors or others may impact demand which
could have a material adverse effect on the Companys
business.
The
Company may be unable to obtain raw materials on a timely basis,
which could have a material adverse effect on the Companys
business.
The principal raw materials used in the Companys
manufacturing operations include nylon and polyester and
polypropylene and triexta resins and fibers, which are used
primarily in the Companys carpet and rugs business; talc,
clay, nepheline syenite and various glazes, including frit
(ground glass), zircon and stains, which are used exclusively in
the Companys ceramic tile business; wood, paper, and
resins which are used primarily in the Companys laminate
flooring business; and other materials. For certain of such raw
materials, the Company is dependent on one or a small number of
suppliers. An adverse change in the Companys relationship
with such a supplier, the financial condition of such a supplier
or such suppliers ability to manufacture or deliver such
raw materials to the Company could lead to an interruption of
supply. An extended interruption in the supply of these or other
raw materials used in the Companys business or in the
supply of suitable substitute materials would disrupt the
Companys operations, which could have a material adverse
effect on the Companys business.
In
periods of rising costs, the Company may be unable to pass raw
materials and fuel-related cost increases on to its customers,
which could have a material adverse effect on the Companys
profitability.
The prices of raw materials and fuel-related costs vary with
market conditions. Although the Company generally attempts to
pass on increases in raw material and fuel-related costs to its
customers, the Companys ability to do so is dependent upon
the rate and magnitude of any increase, competitive pressures
and market conditions for the Companys 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.
During such periods of time, the Companys profitability
may be materially adversely affected.
Fluctuations
in currency exchange rates may impact the Companys
financial condition and results of operations and may affect the
comparability of results between the Companys financial
periods.
The results of the Companys foreign subsidiaries reported
in the local currency are translated into U.S. dollars for
balance sheet accounts using exchange rates in effect as of the
balance sheet date and for the statement of operations accounts
using, principally, the Companys average rates during the
period. The exchange rates between some of these currencies and
the U.S. dollar in recent years have fluctuated
significantly and may continue to do so in the future. The
Company may not be able to manage effectively the Companys
currency translation risks and volatility in currency exchange
rates may have a material adverse effect on the Companys
consolidated financial statements and affect comparability of
the Companys results between financial periods.
The
Company may experience certain risks associated with
acquisitions.
The Company has typically grown its business through
acquisitions. Growth through acquisitions involves risks, many
of which may continue to affect the Company after the
acquisition. The Company cannot give assurance that an acquired
company will achieve the levels of revenue, profitability and
production that the Company expects. The combination of an
acquired companys business with the Companys
existing businesses involves risks. The Company cannot be
assured that reported earnings will meet expectations because of
goodwill and intangible asset impairment, increased interest
costs and issuance of additional securities or incurrence of
debt. The Company may also face challenges in consolidating
functions, integrating the Companys organizations,
procedures, operations and product lines in a timely and
efficient manner and retaining key personnel. These challenges
may result in:
|
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maintaining executive offices in different locations;
|
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|
manufacturing and selling different types of products through
different distribution channels;
|
A-18
|
|
|
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conducting business from various locations;
|
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maintaining different operating systems and software on
different computer hardware; and
|
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providing different employment and compensation arrangements for
employees.
|
The diversion of management attention and any difficulties
encountered in the transition and integration process could have
a material adverse effect on the Companys revenues, level
of expenses and operating results.
Failure to successfully manage and integrate an acquisition with
the Companys existing operations could lead to the
potential loss of customers of the acquired business, the
potential loss of employees who may be vital to the new
operations, the potential loss of business opportunities or
other adverse consequences that could affect the Companys
financial condition and results of operations. Even if
integration occurs successfully, failure of the acquisition to
achieve levels of anticipated sales growth, profitability or
productivity or otherwise perform as expected, may adversely
impact the Companys financial condition and results of
operations.
A
failure to identify suitable acquisition candidates and to
complete acquisitions could have a material adverse effect on
the Companys business.
As part of the Companys business strategy, the Company
intends to continue to pursue acquisitions of complementary
businesses. Although the Company regularly evaluates acquisition
opportunities, the Company may not be able successfully to
identify suitable acquisition candidates; to obtain sufficient
financing on acceptable terms to fund acquisitions; to complete
acquisitions and integrate acquired businesses with the
Companys existing businesses; or to manage profitably
acquired businesses.
The
Company has been, and in the future may be, subject to claims
and liabilities under environmental, health and safety laws and
regulations, which could be significant.
The Companys operations are subject to various
environmental, health and safety laws and regulations, including
those governing air emissions, wastewater discharges, and the
use, storage, treatment and disposal of materials and finished
product. The applicable requirements under these laws are
subject to amendment, to the imposition of new or additional
requirements and to changing interpretations of agencies or
courts. The Company could incur material expenditures to comply
with new or existing regulations, including fines and penalties.
The nature of the Companys operations, including the
potential discovery of presently unknown environmental
conditions, exposes it to the risk of claims under
environmental, health and safety laws and regulations. The
Company could incur material costs or liabilities in connection
with such claims.
We may
be exposed to litigation, claims and other legal proceedings in
the ordinary course of business relating to our products, which
could affect our results of operations and financial
condition.
In the ordinary course of our business, we are subject to a
variety of product-related claims, lawsuits and legal
proceedings, including those relating to product liability,
product warranty, product recall, personal injury, and other
matters that are inherently subject to many uncertainties
regarding the possibility of a loss to us. Such matters could
have a material adverse effect on our business, results of
operations and financial condition if we are unable to
successfully defend against or resolve these matters or if our
insurance coverage is insufficient to satisfy any judgments
against us or settlements relating to these matters. Although we
have product liability insurance, our policies may not provide
coverage for certain claims against us or may not be sufficient
to cover all possible liabilities. Moreover, adverse publicity
arising from claims made against us, even if the claims were not
successful, could adversely affect our reputation or the
reputation and sales of our products.
A-19
Regulatory
decisions could cause the prices of fuel and energy to
fluctuate, and any price increases that result may reduce
results of operations.
The Companys manufacturing operations and shipping needs
require high inputs of energy, including the use of substantial
amounts of electricity, natural gas, and petroleum based
products, which are subject to price fluctuations due to changes
in supply and demand and are also affected by local, national
and international regulatory decisions. Significant increases in
the cost of these commodities, either as a result of changes in
market prices due to regulatory decisions or as a result of
additional costs in order to comply with regulatory decisions,
may have adverse effects on the Companys results of
operations and cash flows if the Company is unable to pass such
increases to its customers in a timely manner.
Changes
in laws or in the business, political and regulatory
environments in which the Company operates could have a material
adverse effect on the Companys business.
The Companys manufacturing facilities in Mexico and Europe
represent a significant portion of the Companys capacity
for ceramic tile and laminate flooring, respectively, and the
Companys European operations represent a significant
source of the Companys revenues and profits. Accordingly,
an event that has a material adverse impact on either of these
operations or that changes the current tax treatment of the
results thereof could have a material adverse effect on the
Company. The business, regulatory and political environments in
Mexico and Europe differ from those in the U.S., and the
Companys Mexican and European operations are exposed to
legal, currency, tax, political, and economic risks specific to
the countries in which they occur, particularly with respect to
labor regulations, which tend to be more stringent in Europe
and, to a lesser extent, Mexico. The Company cannot assure
investors that the Company will succeed in developing and
implementing policies and strategies to counter the foregoing
factors effectively in each location where the Company does
business and therefore that the foregoing factors will not have
a material adverse effect on the Companys operations or
upon the Companys financial condition and results of
operations.
If the
Company is unable to protect the Companys intellectual
property rights, particularly with respect to the Companys
patented laminate flooring technology and the Companys
registered trademarks, the Companys business and prospects
could be harmed.
The future success and competitive position of certain of the
Companys businesses, particularly the Companys
laminate flooring business, depend in part upon the
Companys ability to obtain and maintain proprietary
technology used in the Companys principal product
families. The Company relies, in part, on the patent, trade
secret and trademark laws of the U.S. and countries in
Europe, as well as confidentiality agreements with some of the
Companys employees, to protect that technology.
The Company has obtained a number of patents relating to the
Companys products and associated methods and has filed
applications for additional patents, including the
UNICLIC®
family of patents, which protects Unilins interlocking
laminate flooring panel technology. The Company cannot assure
investors that any patents owned by or issued to it will provide
the Company with competitive advantages, that third parties will
not challenge these patents, or that the Companys pending
patent applications will be approved. In addition, patent
filings by third parties, whether made before or after the date
of the Companys filings, could render the Companys
intellectual property less valuable.
Furthermore, despite the Companys efforts, the Company may
be unable to prevent competitors
and/or third
parties from using the Companys technology without the
Companys authorization, independently developing
technology that is similar to that of the Company or designing
around the Companys patents. The use of the Companys
technology or similar technology by others could reduce or
eliminate any competitive advantage the Company has developed,
cause the Company to lose sales or otherwise harm the
Companys business. In addition, if the Company does not
obtain sufficient protection for the Companys intellectual
property, the Companys competitiveness in the markets it
serves could be significantly impaired, which would limit the
Companys growth and future revenue.
The Company has obtained and applied for numerous U.S. and
Foreign Service marks and trademark registrations and will
continue to evaluate the registration of additional service
marks and trademarks, as
A-20
appropriate. The Company cannot guarantee that any of the
Companys pending or future applications will be approved
by the applicable governmental authorities. Moreover, even if
such applications are approved, third parties may seek to oppose
or otherwise challenge the registrations. A failure to obtain
trademark registrations in the U.S. and in other countries
could limit the Companys ability to protect the
Companys trademarks and impede the Companys
marketing efforts in those jurisdictions.
The Company generally requires third parties with access to the
Companys trade secrets to agree to keep such information
confidential. While such measures are intended to protect the
Companys trade secrets, there can be no assurance that
these agreements will not be breached, that the Company will
have adequate remedies for any breach or that the Companys
confidential and proprietary information and technology will not
be independently developed by or become otherwise known to third
parties. In any of these circumstances, the Companys
competitiveness could be significantly impaired, which would
limit the Companys growth and future revenue.
Companies
may claim that the Company infringed their intellectual property
or proprietary rights, which could cause it to incur significant
expenses or prevent it from selling the Companys
products.
In the past, companies have claimed that certain technologies
incorporated in the Companys products infringe their
patent rights. There can be no assurance that the Company will
not receive notices in the future from parties asserting that
the Companys products infringe, or may infringe, those
parties intellectual property rights. The Company cannot
be certain that the Companys products do not and will not
infringe issued patents or other intellectual property rights of
others. Historically, patent applications in the U.S. and
some foreign countries have not been publicly disclosed until
the patent is issued (or, in some recent cases, until
18 months following submission), and the Company may not be
aware of currently filed patent applications that relate to the
Companys products or processes. If patents are later
issued on these applications, the Company may be liable for
infringement.
Furthermore, the Company may initiate claims or litigation
against parties for infringement of the Companys
proprietary rights or to establish the invalidity,
noninfringement, or unenforceability of the proprietary rights
of others. Likewise, the Company may have similar claims brought
against it by competitors. Litigation, either as plaintiff or
defendant, could result in significant expense to the Company
and divert the efforts of the Companys technical and
management personnel from operations, whether or not such
litigation is resolved in the Companys favor. In the event
of an adverse ruling in any such litigation, the Company might
be required to pay substantial damages (including punitive
damages and attorneys fees), discontinue the use and sale
of infringing products, expend significant resources to develop
non-infringing technology or obtain licenses to infringing
technology. There can be no assurance that licenses to disputed
technology or intellectual property rights would be available on
reasonable commercial terms, if at all. In the event of a
successful claim against the Company along with failure to
develop or license a substitute technology, the Companys
business, financial condition and results of operations would be
materially and adversely affected.
The
Company is subject to changing regulation of corporate
governance and public disclosure that have increased both costs
and the risk of noncompliance.
The Companys stock is publicly traded. As a result, the
Company is subject to the rules and regulations of federal and
state agencies and financial market exchange entities charged
with the protection of investors and the oversight of companies
whose securities are publicly traded. These entities, including
the Public Company Accounting Oversight Board, the SEC and NYSE,
frequently issue new requirements and regulations, such as the
Sarbanes-Oxley Act of 2002. The Companys efforts to comply
with the regulations and interpretations have resulted in, and
are likely to continue to result in, increased general and
administrative costs and diversion of managements time and
attention from revenue generating activities to compliance
activities.
A-21
Declines
in the Companys business conditions may result in an
impairment of the Companys tangible and intangible assets
which could result in a material non-cash charge.
A decrease in the Companys market capitalization,
including a short-term decline in stock price, or a negative
long-term performance outlook, could result in an impairment of
its tangible and intangible assets which results when the
carrying value of the Companys assets exceed their fair
value. In 2008, the Companys goodwill and other intangible
assets suffered an impairment and additional impairment charges
could occur in future periods.
Forward-Looking
Information
Certain of the statements in this Annual Report on
Form 10-K,
particularly those anticipating future performance, business
prospects, growth and operating strategies, proposed
acquisitions, and similar matters, and those that include the
words believes, anticipates,
forecast, estimates or similar
expressions constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended and Section 21E of the Securities Exchange
Act of 1934, 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. There can be no assurance that the forward-looking
statements will be accurate because they are based on many
assumptions, which involve risks and uncertainties. The
following important factors could cause future results to
differ: changes in industry conditions; competition; raw
material prices; energy costs; timing and level of capital
expenditures; integration of acquisitions; legislative
enactments and regulatory decisions; introduction of new
products; rationalization of operations; litigation; and other
risks identified in Mohawks SEC reports and public
announcements.
Quantitative
and Qualitative Disclosures about Market Risk
Financial exposures are managed as an integral part of the
Companys risk management program, which seeks to reduce
the potentially adverse effect that the volatility of exchange
rates and natural gas markets may have on its operating results.
The Company does not regularly engage in speculative
transactions, nor does it regularly hold or issue financial
instruments for trading purposes.
Natural
Gas Risk Management
The Company uses a combination of natural gas futures contracts
and long-term supply agreements to manage unanticipated changes
in natural gas prices. The contracts are based on forecasted
usage of natural gas measured in Million British Thermal Units
(MMBTU).
The Company has designated the natural gas futures contracts as
cash flow hedges. The outstanding contracts are valued at market
with the offset applied to other comprehensive income, net of
applicable income taxes and any hedge ineffectiveness.
Any gain or loss is reclassified from other comprehensive income
and recognized in cost of sales in the same period or periods
during which the hedged transaction affects earnings. As of
December 31, 2009, the Company had no outstanding natural
gas contracts. As of December 31, 2008, the Company had
natural gas contracts that mature from January 2009 to December
2009 with an aggregate notional amount of approximately 2,650
thousand MMBTUs. The fair value of these contracts was a
liability of $5.9 million as of December 31, 2008. The
offset to these liabilities is recorded in other comprehensive
income, net of applicable income taxes. The ineffective portion
of the derivative is recognized in the cost of sales within the
consolidated statements of operations and was not significant
for the periods reported.
The Companys natural gas long-term supply agreements are
accounted for under the normal purchase provision within ASC
815, formerly SFAS No. 133 and its amendments. As of
December 31, 2009, the Company had no outstanding normal
purchase commitments for natural gas. As of December 31,
2008, the Company had normal purchase commitments of
approximately 2,026 thousand MMBTUs for periods maturing
from January 2009 through December 2009. The contracted value of
these commitments was approximately $17.2 million as of
December 31, 2008.
A-22
Foreign
Currency Rate Management
The Company enters into foreign exchange forward contracts to
hedge foreign denominated costs associated with its operations
in Mexico. The objective of these transactions is to reduce
volatility of exchange rates where these operations are located
by fixing a portion of their costs in U.S. currency.
Accordingly, these contracts have been designated as cash flow
hedges. Gains and losses are reclassified from other
comprehensive income and recognized in cost of sales in the same
period or periods during which the hedged transaction affects
earnings. The Company had no outstanding forward contracts to
purchase Mexican pesos as of December 31, 2009. The Company
had forward contracts to purchase approximately
269.1 million Mexican pesos as of December 31, 2008.
The aggregate U.S. dollar value of these contracts as of
December 31, 2008 was approximately $23.9 million and
the fair value of these contracts was a liability of
approximately $5.2 million.
A-23
Managements
Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting (as defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended). The
Companys management assessed the effectiveness of its
internal control over financial reporting as of
December 31, 2009. In making this assessment, the
Companys management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. The
Companys management has concluded that, as of
December 31, 2009, its internal control over financial
reporting is effective based on these criteria. The
Companys independent registered public accounting firm,
KPMG LLP, has issued an attestation report on the Companys
internal control over financial reporting, which is included
herein.
Jeffrey S. Lorberbaum
Chairman and Chief Executive Officer
Frank H. Boykin
Chief Financial Officer and Vice President Finance
A-24
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Mohawk Industries, Inc.:
We have audited the accompanying consolidated balance sheets of
Mohawk Industries, Inc. and subsidiaries as of December 31,
2009 and 2008, and the related consolidated statements of
operations, equity and comprehensive income, and cash flows for
each of the years in the three-year period ended
December 31, 2009. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Mohawk Industries, Inc. and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 13 to the consolidated financial
statements, the Company adopted Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty
in Income Taxes an Interpretation of FASB Statement
No. 109, included in ASC subtopic
740-10,
Income Taxes-Overall, effective January 1, 2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Mohawk Industries, Inc.s internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated
February 26, 2010 expressed an unqualified opinion on the
effectiveness of the Companys internal control over
financial reporting.
Atlanta, Georgia
February 26, 2010
A-25
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Mohawk Industries, Inc.:
We have audited Mohawk Industries, Inc.s internal control
over financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Mohawk Industries, Inc.s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Mohawk Industries, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Mohawk Industries, Inc. and
subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations, equity and
comprehensive income, and cash flows for each of the years in
the three-year period ended December 31, 2009, and our
report dated February 26, 2010 expressed an unqualified
opinion on those consolidated financial statements.
Atlanta, Georgia
February 26, 2010
A-26
MOHAWK
INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
December 31,
2009 and 2008
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2009
|
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2008
|
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(In thousands, except per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
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Cash and cash equivalents
|
|
$
|
531,458
|
|
|
|
93,519
|
|
Receivables, net
|
|
|
673,931
|
|
|
|
696,284
|
|
Inventories
|
|
|
892,981
|
|
|
|
1,168,272
|
|
Prepaid expenses
|
|
|
108,947
|
|
|
|
125,603
|
|
Deferred income taxes
|
|
|
130,990
|
|
|
|
149,203
|
|
Other current assets
|
|
|
20,693
|
|
|
|
13,368
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,359,000
|
|
|
|
2,246,249
|
|
Property, plant and equipment, net
|
|
|
1,791,412
|
|
|
|
1,925,742
|
|
Goodwill
|
|
|
1,411,128
|
|
|
|
1,399,434
|
|
Tradenames
|
|
|
477,607
|
|
|
|
472,399
|
|
Other intangible assets, net
|
|
|
307,735
|
|
|
|
375,451
|
|
Deferred income taxes and other non-current assets
|
|
|
44,564
|
|
|
|
26,900
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,391,446
|
|
|
|
6,446,175
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
52,907
|
|
|
|
94,785
|
|
Accounts payable and accrued expenses
|
|
|
831,115
|
|
|
|
782,131
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
884,022
|
|
|
|
876,916
|
|
Deferred income taxes
|
|
|
370,903
|
|
|
|
419,985
|
|
Long-term debt, less current portion
|
|
|
1,801,572
|
|
|
|
1,860,001
|
|
Other long-term liabilities
|
|
|
100,667
|
|
|
|
104,340
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,157,164
|
|
|
|
3,261,242
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 60 shares authorized;
no shares issued
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 150,000 shares
authorized; 79,518 and 79,461 shares issued in 2009 and
2008, respectively
|
|
|
795
|
|
|
|
795
|
|
Additional paid-in capital
|
|
|
1,227,856
|
|
|
|
1,217,903
|
|
Retained earnings
|
|
|
1,998,616
|
|
|
|
2,004,115
|
|
Accumulated other comprehensive income, net
|
|
|
296,917
|
|
|
|
254,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,524,184
|
|
|
|
3,477,348
|
|
Less treasury stock at cost; 11,034 and 11,040 shares in
2009 and 2008, respectively
|
|
|
323,361
|
|
|
|
323,545
|
|
|
|
|
|
|
|
|
|
|
Total Mohawk Industries, Inc. stockholders equity
|
|
|
3,200,823
|
|
|
|
3,153,803
|
|
Noncontrolling interest
|
|
|
33,459
|
|
|
|
31,130
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
3,234,282
|
|
|
|
3,184,933
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,391,446
|
|
|
|
6,446,175
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
A-27
MOHAWK
INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
Years
Ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
5,344,024
|
|
|
|
6,826,348
|
|
|
|
7,586,018
|
|
Cost of sales
|
|
|
4,111,794
|
|
|
|
5,088,584
|
|
|
|
5,471,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,232,230
|
|
|
|
1,737,764
|
|
|
|
2,114,784
|
|
Selling, general and administrative expenses
|
|
|
1,188,500
|
|
|
|
1,318,501
|
|
|
|
1,364,678
|
|
Impairment of goodwill and other intangibles
|
|
|
|
|
|
|
1,543,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
43,730
|
|
|
|
(1,124,134
|
)
|
|
|
750,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
127,031
|
|
|
|
127,050
|
|
|
|
154,469
|
|
Other expense
|
|
|
16,935
|
|
|
|
31,139
|
|
|
|
15,398
|
|
Other income
|
|
|
(22,523
|
)
|
|
|
(9,851
|
)
|
|
|
(22,323
|
)
|
U.S. customs refund
|
|
|
|
|
|
|
|
|
|
|
(9,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121,443
|
|
|
|
148,338
|
|
|
|
138,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
(77,713
|
)
|
|
|
(1,272,472
|
)
|
|
|
611,716
|
|
Income taxes (benefit) expense
|
|
|
(76,694
|
)
|
|
|
180,062
|
|
|
|
(102,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
|
(1,019
|
)
|
|
|
(1,452,534
|
)
|
|
|
714,413
|
|
Less: Net earnings attributable to the noncontrolling interest
|
|
|
4,480
|
|
|
|
5,694
|
|
|
|
7,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings attributable to Mohawk Industries, Inc
|
|
$
|
(5,499
|
)
|
|
|
(1,458,228
|
)
|
|
|
706,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share attributable to Mohawk
Industries, Inc.
|
|
$
|
(0.08
|
)
|
|
|
(21.32
|
)
|
|
|
10.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding basic
|
|
|
68,452
|
|
|
|
68,401
|
|
|
|
68,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share attributable to Mohawk
Industries, Inc.
|
|
$
|
(0.08
|
)
|
|
|
(21.32
|
)
|
|
|
10.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding diluted
|
|
|
68,452
|
|
|
|
68,401
|
|
|
|
68,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
A-28
MOHAWK
INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Equity and Comprehensive Income
Years
Ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Interest
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balances at December 31, 2006
|
|
|
78,816
|
|
|
$
|
788
|
|
|
$
|
1,152,420
|
|
|
$
|
2,755,529
|
|
|
$
|
130,372
|
|
|
|
(11,051
|
)
|
|
$
|
(323,846
|
)
|
|
$
|
29,207
|
|
|
$
|
3,744,470
|
|
Shares issued under employee and director stock plans
|
|
|
588
|
|
|
|
6
|
|
|
|
31,115
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
128
|
|
|
|
|
|
|
|
31,249
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
13,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,594
|
|
Tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
6,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,828
|
|
Distribution to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,318
|
)
|
|
|
(5,318
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230,941
|
|
Unrealized gain on hedge instruments net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,453
|
|
Pension prior service cost and actuarial gain or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
706,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,599
|
|
|
|
714,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
948,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
79,404
|
|
|
|
794
|
|
|
|
1,203,957
|
|
|
|
3,462,343
|
|
|
|
363,981
|
|
|
|
(11,046
|
)
|
|
|
(323,718
|
)
|
|
|
31,488
|
|
|
|
4,738,845
|
|
Shares issued under employee and director stock plans
|
|
|
57
|
|
|
|
1
|
|
|
|
1,621
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
173
|
|
|
|
|
|
|
|
1,795
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
11,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,991
|
|
Tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
Distribution to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,052
|
)
|
|
|
(6,052
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101,935
|
)
|
Unrealized loss on hedge instruments net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,127
|
)
|
Pension prior service cost and actuarial gain or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(384
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,458,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,694
|
|
|
|
(1,452,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,561,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
79,461
|
|
|
|
795
|
|
|
|
1,217,903
|
|
|
|
2,004,115
|
|
|
|
254,535
|
|
|
|
(11,040
|
)
|
|
|
(323,545
|
)
|
|
|
31,130
|
|
|
|
3,184,933
|
|
Shares issued under employee and director stock plans
|
|
|
57
|
|
|
|
|
|
|
|
642
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
184
|
|
|
|
|
|
|
|
826
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
9,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,653
|
|
Tax deficit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
(342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(342
|
)
|
Distribution to noncontrolling interest, net of adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,151
|
)
|
|
|
(2,151
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,089
|
|
Unrealized gain on hedge instruments net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,207
|
|
Pension prior service cost and actuarial gain or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(914
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,480
|
|
|
|
(1,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
79,518
|
|
|
$
|
795
|
|
|
$
|
1,227,856
|
|
|
$
|
1,998,616
|
|
|
$
|
296,917
|
|
|
|
(11,034
|
)
|
|
$
|
(323,361
|
)
|
|
$
|
33,459
|
|
|
$
|
3,234,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
A-29
MOHAWK
INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
Years
Ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(1,019
|
)
|
|
|
(1,452,534
|
)
|
|
|
714,413
|
|
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other intangibles
|
|
|
|
|
|
|
1,543,397
|
|
|
|
|
|
Restructuring
|
|
|
57,412
|
|
|
|
29,617
|
|
|
|
|
|
Depreciation and amortization
|
|
|
303,004
|
|
|
|
295,054
|
|
|
|
306,437
|
|
Deferred income taxes
|
|
|
(20,579
|
)
|
|
|
69,842
|
|
|
|
(289,902
|
)
|
Loss on disposal of property, plant and equipment
|
|
|
1,481
|
|
|
|
2,272
|
|
|
|
7,689
|
|
Excess tax deficit (benefit) from stock-based compensation
|
|
|
342
|
|
|
|
(334
|
)
|
|
|
(6,828
|
)
|
Stock-based compensation expense
|
|
|
9,653
|
|
|
|
11,991
|
|
|
|
13,594
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
102,799
|
|
|
|
118,199
|
|
|
|
127,475
|
|
Income tax receivable
|
|
|
(72,515
|
)
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
276,169
|
|
|
|
102,706
|
|
|
|
20,976
|
|
Accounts payable and accrued expenses
|
|
|
11,510
|
|
|
|
(127,905
|
)
|
|
|
(58,776
|
)
|
Other assets and prepaid expenses
|
|
|
17,320
|
|
|
|
(23,774
|
)
|
|
|
31,007
|
|
Other liabilities
|
|
|
(13,372
|
)
|
|
|
7,555
|
|
|
|
14,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
672,205
|
|
|
|
576,086
|
|
|
|
880,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(108,925
|
)
|
|
|
(217,824
|
)
|
|
|
(163,076
|
)
|
Acquisitions, net of cash acquired
|
|
|
(5,924
|
)
|
|
|
(8,276
|
)
|
|
|
(147,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(114,849
|
)
|
|
|
(226,100
|
)
|
|
|
(310,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on revolving line of credit
|
|
|
(412,666
|
)
|
|
|
(1,448,742
|
)
|
|
|
(1,813,731
|
)
|
Proceeds from revolving line of credit
|
|
|
349,571
|
|
|
|
1,270,449
|
|
|
|
1,652,993
|
|
Net change in asset securitization borrowings
|
|
|
(47,000
|
)
|
|
|
(143,000
|
)
|
|
|
|
|
Borrowings (payments) on term loan and other debt
|
|
|
6,537
|
|
|
|
(11,819
|
)
|
|
|
(373,463
|
)
|
Debt issuance costs
|
|
|
(23,714
|
)
|
|
|
|
|
|
|
|
|
Distribution to noncontrolling interest
|
|
|
(4,402
|
)
|
|
|
(6,052
|
)
|
|
|
(5,318
|
)
|
Excess tax (deficit) benefit from stock-based compensation
|
|
|
(342
|
)
|
|
|
334
|
|
|
|
6,828
|
|
Change in outstanding checks in excess of cash
|
|
|
5,288
|
|
|
|
(12,007
|
)
|
|
|
(43,520
|
)
|
Proceeds from stock transactions
|
|
|
884
|
|
|
|
1,915
|
|
|
|
30,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(125,844
|
)
|
|
|
(348,922
|
)
|
|
|
(545,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
6,427
|
|
|
|
2,851
|
|
|
|
1,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
437,939
|
|
|
|
3,915
|
|
|
|
26,112
|
|
Cash and cash equivalents, beginning of year
|
|
|
93,519
|
|
|
|
89,604
|
|
|
|
63,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
531,458
|
|
|
|
93,519
|
|
|
|
89,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
A-30
MOHAWK
INDUSTRIES, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
Years Ended December 31, 2009, 2008 and 2007
(In thousands, except per share data)
|
|
(1)
|
Summary
of Significant Accounting Policies
|
(a) Basis
of Presentation
The consolidated financial statements include the accounts of
Mohawk Industries, Inc. and its subsidiaries (the
Company or Mohawk). All significant
intercompany balances and transactions have been eliminated in
consolidation.
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
(b) Cash
and Cash Equivalents
The Company considers investments with an original maturity of
three months or less when purchased to be cash equivalents. As
of December 31, 2009, the Company had invested cash of
$464,936 in money market AAA rated cash investments of which
$367,305 was in North America and $97,631 was in Europe.
(c) Accounts
Receivable and Revenue Recognition
The Company is principally a carpet, rugs, ceramic tile,
laminate and hardwood manufacturer and sells carpet, rugs,
ceramic tile, natural stone, hardwood, resilient and laminate
flooring products in the United States. In addition, the Company
manufactures laminate and sells carpet, rugs and laminate
flooring products in Europe principally for residential and
commercial use. The Company grants credit to customers, most of
whom are retail-flooring dealers and commercial end users, under
credit terms that the Company believes are customary in the
industry.
Revenues, which are recorded net of taxes collected from
customers, are recognized when there is persuasive evidence of
an arrangement, delivery has occurred, the price has been fixed
or is determinable, and collectability can be reasonably
assured. The Company provides allowances for expected cash
discounts, returns, claims and doubtful accounts based upon
historical bad debt and claims experience and periodic
evaluations of specific customer accounts. Licensing revenues
received from third parties for patents are recognized based on
contractual agreements.
(d) Inventories
The Company accounts for all inventories on the
first-in,
first-out (FIFO) method. Inventories are stated at
the lower of cost or market (net realizable value). Cost has
been determined using the FIFO method. Costs in inventory
include raw materials, direct and indirect labor and employee
benefits, depreciation, general manufacturing overhead and
various other costs of manufacturing. Market, with respect to
all inventories, is replacement cost or net realizable value.
Inventories on hand are compared against anticipated future
usage, which is a function of historical usage, anticipated
future selling price, expected sales below cost, excessive
quantities and an evaluation for obsolescence. Actual results
could differ from assumptions used to value obsolete inventory,
excessive inventory or inventory expected to be sold below cost
and additional reserves may be required.
A-31
(e) Property,
Plant and Equipment
Property, plant and equipment are stated at cost, including
capitalized interest. Depreciation is calculated on a
straight-line basis over the estimated remaining useful lives,
which are
25-35 years
for buildings and improvements, 5-15 years for machinery
and equipment, the shorter of the estimated useful life or lease
term for leasehold improvements and 3-7 years for furniture
and fixtures.
(f) Goodwill
and Other Intangible Assets
In accordance with the provisions of Financial Accounting
Standards Board (FASB) FASB Accounting Standards
Codification Topic 350 (ASC 350), formerly Statement
of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible
Assets, the Company tests goodwill and other
intangible assets with indefinite lives for impairment on an
annual basis in the fourth quarter (or on an interim basis if an
event occurs that might reduce the fair value of the reporting
unit below its carrying value). The Company considers the
relationship between its market capitalization and its book
value, among other factors, when reviewing for indicators of
impairment. The goodwill impairment tests are based on
determining the fair value of the specified reporting units
based on managements judgments and assumptions using the
discounted cash flows and comparable company market valuation
approaches. The Company has identified Mohawk, Dal-Tile, Unilin
Flooring, Unilin Chipboard and Melamine, and Unilin Roofing as
its reporting units for the purposes of allocating goodwill and
intangibles as well as assessing impairments. The valuation
approaches are subject to key judgments and assumptions that are
sensitive to change such as judgments and assumptions about
appropriate sales growth rates, operating margins, weighted
average cost of capital (WACC), and comparable
company market multiples.
When developing these key judgments and assumptions, the Company
considers economic, operational and market conditions that could
impact the fair value of the reporting unit. However, estimates
are inherently uncertain and represent only managements
reasonable expectations regarding future developments. These
estimates and the judgments and assumptions upon which the
estimates are based will, in all likelihood, differ in some
respects from actual future results. Should a significant or
prolonged deterioration in economic conditions occur, such as
continued declines in spending for new construction; remodeling
and replacement activities; the inability to pass increases in
the costs of raw materials and fuel on to customers; or a
decline in comparable company market multiples, then key
judgments and assumptions could be impacted.
The impairment evaluation for indefinite lived intangible
assets, which for the Company are its trademarks, is conducted
during the fourth quarter of each year, or more frequently if
events or changes in circumstances indicate that an asset might
be impaired. The determination of fair value used in the
impairment evaluation is based on discounted estimates of future
sales projections attributable to ownership of the trademarks.
Significant judgments inherent in this analysis include
assumptions about appropriate sales growth rates, royalty rates,
WACC and the amount of expected future cash flows. The judgments
and assumptions used in the estimate of fair value are generally
consistent with past performance and are also consistent with
the projections and assumptions that are used in current
operating plans. Such assumptions are subject to change as a
result of changing economic and competitive conditions. The
determination of fair value is highly sensitive to differences
between estimated and actual cash flows and changes in the
related discount rate used to evaluate the fair value of the
trademarks. Estimated cash flows are sensitive to changes in the
economy among other things. The impairment test for indefinite
lived intangible assets involves a comparison of the estimated
fair value of the intangible asset with its carrying value. If
the carrying value of the intangible asset exceeds its fair
value, an impairment loss is recognized in an amount equal to
that excess. The estimates of fair value of indefinite lived
intangible assets are determined using a discounted cash flows
valuation. Significant judgments inherent in this analysis
include assumptions about appropriate sales growth rates,
royalty rates, WACC and the amount of expected future cash
flows. These judgments and assumptions are subject to the
variability discussed above.
Intangible assets that do not have indefinite lives are
amortized based on average lives, which range from
7-16 years.
A-32
(g) Income
Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
(h) Financial
Instruments
The Companys financial instruments consist primarily of
receivables, accounts payable, accrued expenses and long-term
debt. The carrying amount of receivables, accounts payable and
accrued expenses approximates its fair value because of the
short-term maturity of such instruments. The carrying amount of
the Companys floating rate debt approximates its fair
value based upon level two fair value hierarchy. Interest rates
that are currently available to the Company for issuance of
long-term debt with similar terms and remaining maturities are
used to estimate the fair value of the Companys long-term
debt.
(i) Derivative
Instruments
Accounting for derivative instruments and hedging activities
requires the Company to recognize all derivatives on the
consolidated balance sheet at fair value. Derivatives that are
not qualifying hedges must be adjusted to fair value through
earnings. If the derivative is a qualifying hedge, depending on
the nature of the hedge, changes in its fair value are either
offset against the change in fair value of assets, liabilities,
or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in
earnings. The Company engages in activities that expose it to
market risks, including the effects of changes in interest
rates, exchange rates and natural gas commodity prices.
Financial exposures are managed as an integral part of the
Companys risk management program, which seeks to reduce
the potentially adverse effect that the volatility of the
interest rate, exchange rate and natural gas commodity markets
may have on operating results. The Company does not engage in
speculative transactions, nor does it hold or issue financial
instruments for trading purposes.
The Company formally documents hedging instruments and hedging
items, as well as its risk management objective and strategy for
undertaking hedged items. This process includes linking all
derivatives that are designated as fair value and cash flow
hedges to specific assets, liabilities or firm commitments on
the consolidated balance sheet or to forecasted transactions.
The Company also formally assesses, both at inception and on an
ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair
value or cash flows of hedged items. Regression analysis is used
to assess effectiveness of the hedging relationship and the
dollar offset method is used to measure any ineffectiveness
associated with the hedges. When it is determined that a
derivative is not highly effective, the derivative expires, or
is sold, terminated, or exercised, or the derivative is
discontinued because it is unlikely that a forecasted
transaction will occur, the Company discontinues hedge
accounting prospectively for that specific hedge instrument.
(j) Advertising
Costs and Vendor Consideration
Advertising and promotion expenses are charged to earnings
during the period in which they are incurred. Advertising and
promotion expenses included in selling, general, and
administrative expenses were $43,752 in 2009, $53,643 in 2008
and $56,168 in 2007.
Vendor consideration, generally cash, is classified as a
reduction of net sales, unless specific criteria are met
regarding goods or services that the vendor may receive in
return for this consideration. The Company makes various
payments to customers, including slotting fees, advertising
allowances, buy-downs and co-op advertising. All of these
payments reduce gross sales with the exception of co-op
advertising. Co-op advertising is classified as a selling,
general and administrative expense in accordance with ASC
605-50,
A-33
formerly, FASB, Emerging Issues Task Force
01-09,
Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendors
Products). Co-op advertising expenses, a component of
advertising and promotion expenses, were $3,809 in 2009, $7,359
in 2008 and $5,686 in 2007.
(k) Product
Warranties
The Company warrants certain qualitative attributes of its
flooring products. The Company has recorded a provision for
estimated warranty and related costs, based on historical
experience and periodically adjusts these provisions to reflect
actual experience.
(l) Impairment
of Long-Lived Assets
The Company reviews its long-lived asset groups, which include
intangible assets subject to amortization, which for the Company
are its patents and customer relationships, for impairment
whenever events or changes in circumstances indicate that the
carrying amount of such asset groups may not be recoverable.
Recoverability of asset groups to be held and used is measured
by a comparison of the carrying amount of long-lived assets to
future undiscounted net cash flows expected to be generated by
these asset groups. If such asset groups are considered to be
impaired, the impairment recognized is the amount by which the
carrying amount of the asset group exceeds the fair value of the
asset group. Assets held for sale are reported at the lower of
the carrying amount or fair value less estimated costs of
disposal and are no longer depreciated.
(m) Foreign
Currency Translation
The Companys subsidiaries that operate outside the United
States use their local currency as the functional currency, with
the exception of operations carried out in Canada and Mexico, in
which case the functional currency is the U.S. dollar.
Other than Canada and Mexico, the functional currency is
translated into U.S. dollars for balance sheet accounts
using the month end rates in effect as of the balance sheet date
and average exchange rate for revenue and expense accounts for
each respective period. The translation adjustments are deferred
as a separate component of stockholders equity, within
other comprehensive income. Gains or losses resulting from
transactions denominated in foreign currencies are included in
other income or expense, within the consolidated statements of
operations. The assets and liabilities of the Companys
Canada and Mexico operations are re-measured using a month end
rate, except for non-monetary assets and liabilities, which are
re-measured using the historical exchange rate. Income and
expense accounts are re-measured using an average monthly rate
for the period, except for expenses related to those balance
sheet accounts that are re-measured using historical exchange
rates. The resulting re-measurement adjustment is reported in
the consolidated statements of operations when incurred.
(n) Earnings
per Share (EPS)
Basic net earnings per share (EPS) is calculated
using net earnings available to common stockholders divided by
the weighted-average number of shares of common stock
outstanding during the year. Diluted EPS is similar to basic EPS
except that the weighted-average number of shares is increased
to include the number of additional common shares that would
have been outstanding if the potentially dilutive common shares
had been issued.
Dilutive common stock options are included in the diluted EPS
calculation using the treasury stock method. Common stock
options that were not included in the diluted EPS computation
because the options exercise price was greater than the
average market price of the common shares for the periods
presented were 1,355, 1,083 and 656 for 2009, 2008 and 2007,
respectively. For 2009 and 2008, all outstanding common stock
options to purchase common shares and unvested restricted shares
(units) were excluded from the calculation of diluted loss per
share because their effect on net loss per common share was
anti-dilutive.
A-34
Computations of basic and diluted (loss) earnings per share are
presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net earnings (loss) attributable to Mohawk Industries, Inc
|
|
$
|
(5,499
|
)
|
|
|
(1,458,228
|
)
|
|
|
706,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common sharesoutstanding-basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding basic
|
|
|
68,452
|
|
|
|
68,401
|
|
|
|
68,172
|
|
Add weighted-average dilutive potential common
shares options and RSUs to purchase common
shares, net
|
|
|
|
|
|
|
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding-diluted
|
|
|
68,452
|
|
|
|
68,401
|
|
|
|
68,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share attributable to Mohawk
Industries, Inc
|
|
$
|
(0.08
|
)
|
|
|
(21.32
|
)
|
|
|
10.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share attributable to Mohawk
Industries, Inc
|
|
$
|
(0.08
|
)
|
|
|
(21.32
|
)
|
|
|
10.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(o) Stock-Based
Compensation
The Company recognizes compensation expense for all share-based
payments granted based on the grant-date fair value estimated in
accordance with the ASC
718-10,
formerly SFAS No 123R Stock
Compensation. Compensation expense is generally
recognized on a straight-line basis over the options estimated
lives for fixed awards with ratable vesting provisions.
(p) Comprehensive
Income
Comprehensive income includes foreign currency translation of
assets and liabilities of foreign subsidiaries, effects of
exchange rate changes on intercompany balances of a long-term
nature and transactions and derivative financial instruments
designated as cash flow hedges. The Company does not provide
income taxes on currency translation adjustments, as earnings
from foreign subsidiaries are considered to be indefinitely
reinvested.
Amounts recorded in accumulated other comprehensive income on
the Consolidated Statements of Equity for the years ended
December 31, 2009, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Hedge
|
|
|
SFAS
|
|
|
Tax Expense
|
|
|
|
|
|
|
Adjustment
|
|
|
Instruments
|
|
|
158
|
|
|
(Benefit)
|
|
|
Total
|
|
|
December 31, 2007
|
|
$
|
362,028
|
|
|
|
(126
|
)
|
|
|
2,033
|
|
|
|
46
|
|
|
|
363,981
|
|
2008 activity
|
|
|
(101,935
|
)
|
|
|
(11,024
|
)
|
|
|
(384
|
)
|
|
|
3,897
|
|
|
|
(109,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
260,093
|
|
|
|
(11,150
|
)
|
|
|
1,649
|
|
|
|
3,943
|
|
|
|
254,535
|
|
2009 activity
|
|
|
36,089
|
|
|
|
11,150
|
|
|
|
(914
|
)
|
|
|
(3,943
|
)
|
|
|
42,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
296,182
|
|
|
|
|
|
|
|
735
|
|
|
|
|
|
|
|
296,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(q) Recent
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued ASC
820-10,
formerly Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value
Measurements. ASC
820-10
defines fair value, establishes a framework for measuring fair
value and requires enhanced disclosures about fair value
measurements. ASC
820-10
requires companies to disclose the fair value of financial
instruments according to a fair value hierarchy. Additionally,
companies are required to provide certain disclosures regarding
instruments within the hierarchy, including a reconciliation of
the beginning and ending balances for each major category of
assets and liabilities. ASC
820-10 is
effective for the Companys fiscal year beginning
January 1, 2008 for financial assets and liabilities and
January 1, 2009 for non-financial assets and liabilities.
The Companys adoption of ASC
820-10 for
financial assets and liabilities on January 1, 2008 and
A-35
non-financial
assets and liabilities on January 1, 2009 did not have a
material impact on the Companys consolidated financial
statements.
In December 2007, the FASB issued ASC
805-10,
formerly SFAS No. 141 (revised 2007),
Business Combinations. ASC
805-10
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. ASC
805-10 also
establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination.
ASC 805-10
is to be applied prospectively to business combinations for
which the acquisition date is on or after January 1, 2009.
The adoption of ASC
805-10 on
January 1, 2009 did not have a material impact on the
Companys consolidated financial statements, although the
adoption of ASC
805-10 will
impact the recognition and measurement of future business
combinations and certain income tax benefits recognized from
prior business combinations.
In December 2007, the FASB issued ASC
810-10,
formerly SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements an
amendment of Accounting Research
Bulletin No. 51. ASC
810-10
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest, and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated. ASC
810-10 also
establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the
interests of the noncontrolling owners. ASC
810-10 is
effective for fiscal years beginning after December 15,
2008. The adoption of ASC
810-10 on
January 1, 2009 did not have a material impact on the
Companys consolidated financial statements. Upon adoption,
the Company reclassified $31,130 on the condensed consolidated
balance sheets from other long-term liabilities to
noncontrolling interest within equity and reclassified the
related net earnings to net earnings attributable to the
noncontrolling interest on the consolidated statements of
operations.
In March 2008, the FASB issued ASC
815-10,
formerly SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities. ASC
815-10 is
intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their
effects on an entitys financial position, financial
performance, and cash flows. The provisions of ASC
815-10 are
effective for the first quarter of 2009. The adoption of ASC
815-10 on
January 1, 2009 did not have a material impact on the
Companys consolidated financial statements.
In April 2009, the FASB issued ASC
825-10,
formerly the FASB Staff Position on
FAS 107-1
and APB
28-1,
Interim Disclosures About Fair Value of Financial
Instruments. ASC
825-10
requires disclosures about fair value of financial instruments
in interim reporting periods of publicly-traded companies that
were previously only required to be disclosed in annual
financial statements. The provisions of ASC
825-10 are
effective for the second quarter of 2009. The adoption of this
standard on June 27, 2009 did not have a material impact on
the Companys consolidated financial statements.
In May 2009, the FASB issued ASC
855-10-05,
formerly SFAS No. 165, Subsequent
Events. ASC
855-10-05
establishes general standards for accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are available to be issued
(subsequent events). More specifically, ASC
855-10-05
sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or
transactions that may occur for potential recognition in the
financial statements, identifies the circumstances under which
an entity should recognize events or transactions occurring
after the balance sheet date in its financial statements and the
disclosures that should be made about events or transactions
that occur after the balance sheet date. ASC
855-10-05
provides largely the same guidance on subsequent events which
previously existed only in the auditing literature. ASC
855-10-05 is
effective for interim or annual financial periods ending after
June 15, 2009, and is to be applied prospectively. The
adoption of this standard did not have a material impact on the
Companys consolidated financial statements.
In June 2009, the FASB issued ASC 860, formerly
SFAS No. 166, Accounting for Transfers of
Financial Assets an amendment of FASB Statement
No. 140. ASC 860 seeks to improve the relevance,
A-36
representational faithfulness, and comparability of the
information that a reporting entity provides in its financial
statements about a transfer of financial assets; the effects of
a transfer on its financial position, financial performance, and
cash flows; and a transferors continuing involvement, if
any, in transferred financial assets. Specifically, ASC 860
eliminates the concept of a qualifying special-purpose entity,
creates more stringent conditions for reporting a transfer of a
portion of a financial asset as a sale, clarifies other
sale-accounting criteria, and changes the initial measurement of
a transferors interest in transferred financial assets.
ASC 860 is effective for annual and quarterly reporting periods
that begin after November 15, 2009. The adoption of this
standard on January 1, 2010 is not expected to have a
material impact on the Companys consolidated financial
statements.
In June 2009, the FASB issued ASC 810, formerly
SFAS No. 167, Amendments to FASB
Interpretation No. 46(R). ASC 810 amends FASB
Interpretation No. 46(R), Variable Interest
Entities for determining whether an entity is a
variable interest entity (VIE) and requires an
enterprise to perform an analysis to determine whether the
enterprises variable interest or interests give it a
controlling financial interest in a VIE. Under ASC 810, an
enterprise has a controlling financial interest when it has
a) the power to direct the activities of a VIE that most
significantly impact the entitys economic performance and
b) the obligation to absorb losses of the entity or the
right to receive benefits from the entity that could potentially
be significant to the VIE. ASC 810 also requires an enterprise
to assess whether it has an implicit financial responsibility to
ensure that a VIE operates as designed when determining whether
it has power to direct the activities of the VIE that most
significantly impact the entitys economic performance. ASC
810 also requires ongoing assessments of whether an enterprise
is the primary beneficiary of a VIE, requires enhanced
disclosures and eliminates the scope exclusion for qualifying
special-purpose entities. ASC 810 is effective for annual and
quarterly reporting periods that begin after November 15,
2009. The adoption of this standard on January 1, 2010 is
not expected to have a material impact on the Companys
consolidated financial statements.
In June 2009, the FASB issued ASC
105-10,
formerly SFAS No. 168, The FASB Accounting
Standards Codification and Hierarchy of Generally Accepted
Accounting Principles, a replacement of FASB Statement
No. 162. ASC
105-10
establishes the FASB Standards Accounting Codification
(Codification) as the source of authoritative
U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied to
nongovernmental entities and rules and interpretive releases of
the SEC as authoritative GAAP for SEC registrants. The
Codification superseded all the existing non-SEC accounting and
reporting standards upon its effective date. ASC
105-10 also
replaced FASB Statement No. 162, The Hierarchy of
Generally Accepted Accounting Principles given that
once in effect, the Codification carries the same level of
authority. ASC
105-10 is
effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The adoption of
this standard did not have a material impact on the
Companys consolidated financial statements.
(r) Fiscal
Year
The Company ends its fiscal year on December 31. Each of
the first three quarters in the fiscal year ends on the Saturday
nearest the calendar quarter end.
During 2009 and 2008, the Company acquired a business in the
Unilin segment for $5,604 and certain stone center assets in the
Dal-Tile segment for $8,276, respectively.
During 2007, the Company acquired certain wood flooring assets
and liabilities of Columbia Forest Products, Inc.
(Columbia) for approximately $147,097. The
acquisition included the assets of two pre-finished solid plants
and one engineered wood plant in the United States and an
engineered wood plant in Malaysia. The results of operations
from the date of acquisition are included in the Companys
consolidated results.
A-37
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Customers, trade
|
|
$
|
633,571
|
|
|
|
722,669
|
|
Income tax receivable
|
|
|
72,515
|
|
|
|
|
|
Other
|
|
|
30,654
|
|
|
|
35,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
736,740
|
|
|
|
758,662
|
|
Less allowance for discounts, returns, claims and doubtful
accounts
|
|
|
62,809
|
|
|
|
62,378
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
$
|
673,931
|
|
|
|
696,284
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the activity of allowances for
discounts, returns, claims and doubtful accounts for the years
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
|
|
Balance
|
|
|
Beginning
|
|
Costs and
|
|
|
|
at End
|
|
|
of Year
|
|
Expenses(1)
|
|
Deductions(2)
|
|
of Year
|
|
2007
|
|
$
|
69,799
|
|
|
|
270,993
|
|
|
|
284,482
|
|
|
|
56,310
|
|
2008
|
|
|
56,310
|
|
|
|
274,337
|
|
|
|
268,269
|
|
|
|
62,378
|
|
2009
|
|
|
62,378
|
|
|
|
205,145
|
|
|
|
204,714
|
|
|
|
62,809
|
|
|
|
|
(1) |
|
Includes $1,500 in 2007 related to the Columbia acquisition
which was not charged to costs and expenses. |
|
(2) |
|
Represents charge-offs, net of recoveries. |
The components of inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Finished goods
|
|
$
|
559,339
|
|
|
|
767,138
|
|
Work in process
|
|
|
84,414
|
|
|
|
104,394
|
|
Raw materials
|
|
|
249,227
|
|
|
|
296,740
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
892,981
|
|
|
|
1,168,272
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
Goodwill
and Other Intangible Assets
|
The Company conducted its annual assessment in the fourth
quarter of 2009 and determined the fair values of its reporting
units exceeded their carrying values. As a result, no impairment
was indicated. During 2008, the Company recorded a $1,543,397
impairment charge to reduce the carrying amount of the
Companys goodwill and intangible assets to their estimated
fair value based upon the results of two interim impairment
tests. The total impairment included $276,807 in the Mohawk
segment, $531,930 in the Dal-Tile segment and $734,660 in the
Unilin segment.
A-38
The following table summarizes the components of intangible
assets:
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk
|
|
|
Dal-Tile
|
|
|
Unilin
|
|
|
Total
|
|
|
Balances as of December 31, 2007
|
|
$
|
199,132
|
|
|
|
1,186,013
|
|
|
|
1,412,194
|
|
|
|
2,797,339
|
|
Goodwill recognized during the year
|
|
|
|
|
|
|
900
|
|
|
|
(40,691
|
)
|
|
|
(39,791
|
)
|
Impairment charge
|
|
|
(199,132
|
)
|
|
|
(531,930
|
)
|
|
|
(596,363
|
)
|
|
|
(1,327,425
|
)
|
Currency translation during the year
|
|
|
|
|
|
|
|
|
|
|
(30,689
|
)
|
|
|
(30,689
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
|
|
|
|
654,983
|
|
|
|
744,451
|
|
|
|
1,399,434
|
|
Goodwill recognized during the year
|
|
|
|
|
|
|
|
|
|
|
1,288
|
|
|
|
1,288
|
|
Currency translation during the year
|
|
|
|
|
|
|
|
|
|
|
10,406
|
|
|
|
10,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2009
|
|
$
|
|
|
|
|
654,983
|
|
|
|
756,145
|
|
|
|
1,411,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, the Company recorded additional goodwill of $1,288
in the Unilin segment in a business acquisition. During 2008,
the Company recorded additional goodwill of $1,742 in the
Dal-Tile segment for the acquisition of certain stone center
assets. In addition, during 2008, the Company reversed $842 and
$40,691 of pre-acquisition tax liabilities in the Dal-Tile and
Unilin segments, respectively.
Intangible assets:
|
|
|
|
|
|
|
Tradenames
|
|
|
Indefinite life assets not subject to amortization:
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
707,086
|
|
Impairment charge
|
|
|
(215,972
|
)
|
Effect of translation
|
|
|
(18,715
|
)
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
472,399
|
|
Effect of translation
|
|
|
5,208
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
477,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
|
|
|
|
|
|
|
|
|
|
|
|
|
Relationships
|
|
|
Patents
|
|
|
Other
|
|
|
Total
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
256,092
|
|
|
|
208,691
|
|
|
|
|
|
|
|
464,783
|
|
Intangible assets recognized during the year
|
|
|
2,980
|
|
|
|
|
|
|
|
|
|
|
|
2,980
|
|
Amortization during year
|
|
|
(49,092
|
)
|
|
|
(29,475
|
)
|
|
|
|
|
|
|
(78,567
|
)
|
Effect of translation
|
|
|
(5,916
|
)
|
|
|
(7,829
|
)
|
|
|
|
|
|
|
(13,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
204,064
|
|
|
|
171,387
|
|
|
|
|
|
|
|
375,451
|
|
Intangible assets recognized during the year
|
|
|
972
|
|
|
|
|
|
|
|
1,496
|
|
|
|
2,468
|
|
Amortization during year
|
|
|
(47,175
|
)
|
|
|
(26,812
|
)
|
|
|
(68
|
)
|
|
|
(74,055
|
)
|
Effect of translation
|
|
|
1,441
|
|
|
|
2,433
|
|
|
|
(3
|
)
|
|
|
3,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
159,302
|
|
|
|
147,008
|
|
|
|
1,425
|
|
|
|
307,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregation amortization expense
|
|
$
|
74,055
|
|
|
|
78,567
|
|
|
|
94,953
|
|
A-39
Estimated amortization expense for the years ending
December 31, are as follows:
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
$
|
73,907
|
|
2011
|
|
|
|
|
|
|
71,718
|
|
2012
|
|
|
|
|
|
|
61,758
|
|
2013
|
|
|
|
|
|
|
23,353
|
|
2014
|
|
|
|
|
|
|
21,313
|
|
|
|
(6)
|
Property,
Plant and Equipment
|
Following is a summary of property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
195,171
|
|
|
|
191,523
|
|
Buildings and improvements
|
|
|
722,533
|
|
|
|
719,806
|
|
Machinery and equipment
|
|
|
2,348,689
|
|
|
|
2,245,075
|
|
Furniture and fixtures
|
|
|
80,722
|
|
|
|
60,744
|
|
Leasehold improvements
|
|
|
54,995
|
|
|
|
47,523
|
|
Construction in progress
|
|
|
67,415
|
|
|
|
148,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,469,525
|
|
|
|
3,413,557
|
|
Less accumulated depreciation and amortization
|
|
|
1,678,113
|
|
|
|
1,487,815
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
1,791,412
|
|
|
|
1,925,742
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment included capitalized interest of
$4,469, $6,419 and $4,446 in 2009, 2008 and 2007, respectively.
Depreciation expense was $223,453, $212,281 and $207,613 for
2009, 2008 and 2007, respectively. Included in the property,
plant and equipment are capital leases with a cost of $37,846
and $36,208 and accumulated depreciation of $8,348 and $5,248 as
of December 31, 2009 and 2008, respectively.
(7) Long-Term
Debt
On September 2, 2009, the Company entered into a $600,000
four-year, senior, secured revolving credit facility (the
ABL Facility) in connection with the replacement of
the Companys then-existing senior, unsecured, revolving
credit facility (the Senior Unsecured Facility). At
the time of its termination, the Senior Unsecured Facility
consisted of a $650,000 revolving credit facility, which was to
mature on October 28, 2010. The ABL Facility provides for a
maximum of $600,000 of revolving credit, subject to borrowing
base availability, including limited amounts of credit in the
form of letters of credit and swingline loans. The borrowing
base is equal to specified percentages of eligible accounts
receivable and inventories of the Company and other borrowers
under the ABL Facility, which are subject to seasonal
variations, less reserves established in good faith by the
Administrative Agent under the ABL Facility. All obligations
under the ABL Facility, and the guarantees of those obligations,
are secured by a security interest in certain accounts
receivable, inventories, certain deposit and securities
accounts, tax refunds and other personal property (excluding
intellectual property) directly relating to, or arising from,
and proceeds of, any of the foregoing. In connection with the
entry into the ABL Facility, the Company incurred $23,714 in
debt issuance costs which will be amortized on a straight-line
basis over the four-year term of the facility and recognized as
interest expense in the condensed consolidated statement of
operations.
At the Companys election, revolving loans under the ABL
Facility bear interest at annual rates equal to either
(a) LIBOR for 1, 2, 3 or 6 month periods, as selected
by the Company, plus an applicable margin ranging between 3.75%
and 4.25%, or (b) the higher of the prime rate, the Federal
Funds rate plus 0.5%, or a daily LIBOR rate, plus an applicable
margin ranging between 2.25% and 2.75%. The Company also pays a
commitment fee to the Lenders under the ABL Facility on the
average amount by which the aggregate commitments of the
Lenders exceed utilization of the ABL Facility equal to
1.00% per annum during any
A-40
quarter that this excess is 50% or more, and 0.75% per annum
during any quarter that this excess is less than 50%.
The ABL Facility includes certain affirmative and negative
covenants that impose restrictions on Mohawks financial
and business operations, including limitations on debt, liens,
investments, fundamental changes, asset dispositions, dividends
and other similar restricted payments, transactions with
affiliates, payments and modifications of certain existing debt,
future negative pledges, and changes in the nature of the
Companys business. Many of these limitations are subject
to numerous exceptions. The Company is also required to maintain
a fixed charge coverage ratio of 1.1 to 1.0 during any period
that the unutilized amount available under the ABL Facility is
less than 15% of the amount available under the ABL Facility.
The ABL Facility is scheduled to mature on September 2,
2013 but the maturity date will accelerate to:
(i) October 15, 2010 if the Companys outstanding
5.75% senior notes due January 15, 2011 have not been
repaid, refinanced, defeased or adequately reserved for by the
Company, as reasonably determined by the Administrative Agent,
prior to October 15, 2010, and (ii) January 15,
2012, if the Companys outstanding 7.20% senior notes
due April 15, 2012 have not been repaid, refinanced,
defeased or adequately reserved for by the Company, as
reasonably determined by the Administrative Agent, prior to
January 15, 2012. The Company can make adequate reserves
for such senior notes with unrestricted cash on hand and
unutilized borrowing availability under the ABL Facility. The
Company believes cash and cash equivalents and availability
under the ABL Facility will be sufficient to satisfy the
October 15, 2010 requirements of the ABL Facility, although
there can be no assurances the Company will have adequate
reserves as defined in the ABL Facility.
As of December 31, 2009, the amount considered used under
the ABL Facility was $113,451 leaving a total of $461,871
available under the ABL Facility. The amount used under the ABL
Facility is composed of $53,542 of standby letters of credit
guaranteeing the Companys industrial revenue bonds and
$59,909 of standby letters of credit related to various
insurance contracts and foreign vendor commitments.
During 2009, the Company terminated its Euro 130,000,
five-year unsecured, revolving credit facility and its
on-balance sheet trade accounts receivable securitization
agreement, which allowed for borrowings up to $250,000 based on
available accounts receivable.
On January 17, 2006, the Company issued $500,000 aggregate
principal amount of 5.750% notes due 2011 and $900,000
aggregate principal amount of 6.125% notes due 2016.
Interest payable on each series of the notes is subject to
adjustment if either Moodys Investors Service, Inc.
(Moodys) or Standard & Poors
Ratings Services (Standard & Poors),
or both, downgrades the rating assigned to the notes. Each
rating agency downgrade results in a 0.25% increase in the
interest rate, subject to a maximum increase of 1% per rating
agency. If later the rating of these notes improves, then the
interest rates would be reduced accordingly. Each 0.25% increase
in the interest rate of these notes would increase the
Companys interest expense by approximately $3,500 per
year. Currently, the interest rates have been increased by an
aggregate amount of 0.75% as a result of downgrades by
Moodys and Standard & Poors during 2009.
These downgrades increase the Companys interest expense by
approximately $10,500 per year and could adversely affect the
cost of and ability to obtain additional credit in the future.
Additional downgrades in the Companys credit ratings could
further increase the cost of its existing credit and adversely
affect the cost of and ability to obtain additional credit in
the future.
In 2002, the Company issued $400,000 aggregate principal amount
of its senior 7.2% notes due 2012.
A-41
The fair value and carrying value of our debt instruments are
detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
Fair Value
|
|
|
Value
|
|
|
Fair Value
|
|
|
Value
|
|
|
5.75% notes, payable January 15, 2011 interest payable
semiannually
|
|
$
|
508,703
|
|
|
|
498,240
|
|
|
|
450,000
|
|
|
|
500,000
|
|
7.20% senior notes, payable April 15, 2012 interest
payable semiannually
|
|
|
418,400
|
|
|
|
400,000
|
|
|
|
340,000
|
|
|
|
400,000
|
|
6.125% notes, payable January 15, 2016 interest
payable semiannually
|
|
|
891,900
|
|
|
|
900,000
|
|
|
|
684,000
|
|
|
|
900,000
|
|
Securitization facility, terminated June 2009
|
|
|
|
|
|
|
|
|
|
|
47,000
|
|
|
|
47,000
|
|
Five-year senior unsecured credit facility, terminated September
2009
|
|
|
|
|
|
|
|
|
|
|
55,300
|
|
|
|
55,300
|
|
Four-year senior secured credit facility, due September 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial revenue bonds, capital leases and other
|
|
|
56,239
|
|
|
|
56,239
|
|
|
|
52,486
|
|
|
|
52,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
1,875,242
|
|
|
|
1,854,479
|
|
|
|
1,628,786
|
|
|
|
1,954,786
|
|
Less current portion
|
|
|
52,907
|
|
|
|
52,907
|
|
|
|
94,785
|
|
|
|
94,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion
|
|
$
|
1,822,335
|
|
|
|
1,801,572
|
|
|
|
1,534,001
|
|
|
|
1,860,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values of the Companys debt instruments were
estimated using market observable inputs, including quoted
prices in active markets, market indices and interest rate
measurements. Within the hierarchy of fair value measurements,
these are Level 2 fair values.
The aggregate maturities of long-term debt as of
December 31, 2009 are as follows:
|
|
|
|
|
2010
|
|
$
|
52,907
|
|
2011
|
|
|
499,790
|
|
2012
|
|
|
400,374
|
|
2013
|
|
|
439
|
|
2014
|
|
|
354
|
|
Thereafter
|
|
|
900,615
|
|
|
|
|
|
|
|
|
$
|
1,854,479
|
|
|
|
|
|
|
(8) Accounts
Payable, Accrued Expenses and Deferred Tax Liability
Accounts payable and accrued expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Outstanding checks in excess of cash
|
|
$
|
17,900
|
|
|
|
12,612
|
|
Accounts payable, trade
|
|
|
335,401
|
|
|
|
315,053
|
|
Accrued expenses
|
|
|
169,730
|
|
|
|
210,591
|
|
Product warranties
|
|
|
66,545
|
|
|
|
56,460
|
|
Accrued interest
|
|
|
52,743
|
|
|
|
45,493
|
|
Income taxes payable
|
|
|
85,699
|
|
|
|
40,798
|
|
Deferred tax liability
|
|
|
2,836
|
|
|
|
3,030
|
|
Accrued compensation and benefits
|
|
|
100,261
|
|
|
|
98,094
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses
|
|
$
|
831,115
|
|
|
|
782,131
|
|
|
|
|
|
|
|
|
|
|
A-42
|
|
(9)
|
Derivative
Financial Instruments
|
Natural
Gas Risk Management
The Company uses a combination of natural gas futures contracts
and long-term supply agreements to manage unanticipated changes
in natural gas prices. The contracts are based on forecasted
usage of natural gas measured in Million British Thermal Units
(MMBTU).
The Company has designated the natural gas futures contracts as
cash flow hedges. The outstanding contracts are valued at market
with the offset applied to other comprehensive income, net of
applicable income taxes and any hedge ineffectiveness.
Any gain or loss is reclassified from other comprehensive income
and recognized in cost of goods sold in the same period or
periods during which the hedged transaction affects earnings. As
of December 31, 2009, the Company had no outstanding
natural gas contracts. As of December 31, 2008, the Company
had natural gas contracts that matured from January 2009 to
December 2009 with an aggregate notional amount of approximately
2,650 MMBTUs. The fair value of these contracts was a
liability of $5,913 as of December 31, 2008. The offset to
these liabilities is recorded in other comprehensive income, net
of applicable income taxes. The ineffective portion of the
derivative is recognized in the cost of goods sold within the
consolidated statements of operations and was not significant
for the periods reported.
The Companys natural gas long-term supply agreements are
accounted for under the normal purchase provision within ASC
815, formerly SFAS No. 133 and its amendments. As of
December 31, 2009, the Company had no outstanding normal
purchase commitments for natural gas. As of December 31,
2008, the Company had normal purchase commitments of
approximately 2,026 MMBTUs for periods maturing from
January 2009 through December 2009. The contracted value of
these commitments was approximately $17,151 as of
December 31, 2008.
Foreign
Currency Rate Management
The Company enters into foreign exchange forward contracts to
hedge foreign denominated costs associated with its operations
in Mexico. The objective of these transactions is to reduce
volatility of exchange rates where these operations are located
by fixing a portion of their costs in U.S. currency.
Accordingly, these contracts have been designated as cash flow
hedges. Gains and losses are reclassified from other
comprehensive income and recognized in cost of goods sold in the
same period or periods during which the hedged transaction
affects earnings. The Company had no outstanding forward
contracts to purchase Mexican pesos as of December 31,
2009. The Company had forward contracts to purchase
approximately 269,129 Mexican pesos as of December 31,
2008. The fair value of these contracts was a liability of
$5,237 as of December 31, 2008. The aggregate
U.S. dollar value of these contracts as of
December 31, 2008 was approximately $23,923. The offset to
these liabilities is recorded in other comprehensive income, net
of applicable income taxes. The ineffective portion of the
derivative is recognized in the cost of goods sold within the
consolidated statements of operations and was not significant
for the periods reported.
The Company warrants certain qualitative attributes of its
products for up to 50 years. The Company records a
provision for estimated warranty and related costs in accrued
expenses, based on historical experience and periodically
adjusts these provisions to reflect actual experience.
A-43
Product warranties are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of year
|
|
$
|
56,460
|
|
|
|
46,187
|
|
|
|
30,712
|
|
Warranty claims paid during the year
|
|
|
(167,053
|
)
|
|
|
(81,586
|
)
|
|
|
(54,685
|
)
|
Pre-existing warranty accrual adjustment during the year(1)
|
|
|
125,124
|
|
|
|
|
|
|
|
|
|
Warranty expense during the year(1)
|
|
|
52,014
|
|
|
|
91,859
|
|
|
|
67,301
|
|
Other(2)
|
|
|
|
|
|
|
|
|
|
|
2,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
66,545
|
|
|
|
56,460
|
|
|
|
46,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The increase in warranty expense in 2009 and 2008 relates
primarily to certain commercial carpet tiles that were
discontinued in early 2009. |
|
(2) |
|
Includes $2,859 in 2007 related to the Columbia acquisition.
This amount was not charged to expense. |
(11) Stock
Options, Stock Compensation and Treasury Stock
The Company recognizes compensation expense for all share-based
payments granted based on the
grant-date
fair value estimated in accordance with the provisions of ASC
718-10.
Compensation expense is recognized on a straight-line basis over
the options estimated lives for fixed awards with ratable
vesting provisions.
Under the Companys 2007 Incentive Plan (2007
Plan), which was approved by the Companys
stockholders on May 16, 2007, the Company reserved up to a
maximum of 3,200 shares of common stock for issuance upon
the grant or exercise of stock options, restricted stock,
restricted stock units (RSUs) and other types
of awards, to directors and key employees through 2017. Option
awards are granted with an exercise price equal to the market
price of the Companys common stock on the date of the
grant and generally vest between three and five years with a
10-year
contractual term. Restricted stock and RSUs are granted
with a price equal to the market price of the Companys
common stock on the date of the grant and generally vest between
three and five years.
Additional information relating to the Companys stock
option plans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Options outstanding at beginning of year
|
|
|
1,506
|
|
|
|
1,455
|
|
|
|
2,034
|
|
Options granted
|
|
|
76
|
|
|
|
146
|
|
|
|
64
|
|
Options exercised
|
|
|
(35
|
)
|
|
|
(46
|
)
|
|
|
(588
|
)
|
Options canceled
|
|
|
(66
|
)
|
|
|
(49
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year
|
|
|
1,481
|
|
|
|
1,506
|
|
|
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
1,165
|
|
|
|
1,035
|
|
|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option prices per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted during the year
|
|
$
|
28.37
|
|
|
|
74.47
|
|
|
|
75.10-93.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised during the year
|
|
$
|
16.66-48.50
|
|
|
|
19.63-73.45
|
|
|
|
16.66-88.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options canceled during the year
|
|
$
|
19.94-93.65
|
|
|
|
16.66-93.65
|
|
|
|
22.63-93.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year
|
|
$
|
16.66-93.65
|
|
|
|
16.66-93.65
|
|
|
|
16.66-93.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
$
|
16.66-93.65
|
|
|
|
16.66-93.65
|
|
|
|
16.66-90.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 1996, the Company adopted the 1997 Non-Employee Director
Stock Compensation Plan. The plan provides for awards of common
stock of the Company for non-employee directors to receive in
lieu of
A-44
cash for their annual retainers. During 2009, 2008 and 2007, a
total of 2, 1 and 1 shares, respectively, were awarded to
the non-employee directors under the plan.
In addition, the Company maintains an employee incentive program
that awards restricted stock on the attainment of certain
service criteria. The outstanding awards related to these
programs and related compensation expense was not significant
for any of the years ended December 31, 2009, 2008 and 2007.
The Companys Board of Directors has authorized the
repurchase of up to 15,000 shares of the Companys
outstanding common stock. For the year ended December 31,
2009, 2008 and 2007 no shares of the Companys common stock
were purchased. Since the inception of the program, a total of
approximately 11,512 shares have been repurchased at an
aggregate cost of approximately $334,747. All of these
repurchases have been financed through the Companys
operations and banking arrangements.
On October 31, 2005, the Company entered into a Discounted
Stock Purchase Agreement (the DSPA) with certain
members of the Unilin management team (the Unilin
Management). The Company terminated the DSPA during the
year ended December 31, 2009. Under the terms of the DSPA,
the Company was obligated to make cash payments to the Unilin
Management in the event that certain performance goals are
satisfied. In each of the years in the five-year period ending
December 31, 2010, the remaining members of the Unilin
Management could earn amounts, in the aggregate, equal to the
average value of 30,671 shares of the Companys common
stock over the 20 trading day period ending on December 31 of
the prior year. Any failure in a given year to reach the
performance goals could have been rectified, and consequently
the amounts payable with respect to achieving such criteria
could have been made, in any of the other years. The amount of
the liability was measured each period and recognized as
compensation expense in the consolidated statement of
operations. No expense related to the DSPA was recognized by the
Company in 2009. The Company expensed approximately $0 and
$2,300 under the DSPA for the years ended December 31, 2008
and 2007, respectively.
The fair value of option awards is estimated on the date of
grant using the Black-Scholes-Merton valuation model that uses
the assumptions noted in the following table. Expected
volatility is based on the historical volatility of the
Companys common stock and other factors. The Company uses
historical data to estimate option exercise and forfeiture rates
within the valuation model. Optionees that exhibit similar
option exercise behavior are segregated into separate groups
within the valuation model. The expected term of options granted
represents the period of time that options granted are expected
to be outstanding. The risk-free rate is based on
U.S. Treasury yields in effect at the time of the grant for
the expected term of the award.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
1.7
|
%
|
|
|
2.9
|
%
|
|
|
4.8
|
%
|
Volatility
|
|
|
35.3
|
%
|
|
|
24.0
|
%
|
|
|
29.0
|
%
|
Expected life (years)
|
|
|
5
|
|
|
|
5
|
|
|
|
6
|
|
A-45
A summary of the Companys options under the 2007 Plan as
of December 31, 2009, and changes during the year then
ended is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (Years)
|
|
|
Value
|
|
|
Options outstanding December 31, 2008
|
|
|
1,506
|
|
|
$
|
70.98
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
76
|
|
|
|
28.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(35
|
)
|
|
|
24.50
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(66
|
)
|
|
|
67.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2009
|
|
|
1,481
|
|
|
|
70.11
|
|
|
|
4.6
|
|
|
$
|
2,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of December 31, 2009
|
|
|
1,464
|
|
|
$
|
70.20
|
|
|
|
4.6
|
|
|
$
|
2,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2009
|
|
|
1,165
|
|
|
$
|
70.61
|
|
|
|
3.8
|
|
|
$
|
1,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of an option granted
during 2009, 2008 and 2007, was $9.17, $20.26 and $33.68,
respectively. The total intrinsic value of options exercised
during the years ended December 31, 2009, 2008, and 2007
was $809, $1,169 and $22,943, respectively. Total compensation
expense recognized for the years ended December 31, 2009,
2008 and 2007 was $4,552 ($2,884, net of tax), $6,646 ($4,210,
net of tax) and $8,827 ($6,359, net of tax), respectively, which
was allocated to selling, general and administrative expenses.
The remaining unamortized expense for non-vested compensation
expense as of December 31, 2009 was $3,538 with a weighted
average remaining life of 2.0 years.
The following table summarizes information about the
Companys stock options outstanding as of December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
Number of
|
|
|
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
Exercise Price Range
|
|
Shares
|
|
|
Average Life
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Under $42.86
|
|
|
150
|
|
|
|
5.2
|
|
|
$
|
29.11
|
|
|
|
74
|
|
|
$
|
29.86
|
|
$42.86-$69.46
|
|
|
397
|
|
|
|
2.5
|
|
|
|
58.10
|
|
|
|
397
|
|
|
|
58.10
|
|
$69.95-$74.47
|
|
|
333
|
|
|
|
5.5
|
|
|
|
73.85
|
|
|
|
221
|
|
|
|
73.54
|
|
$74.93-$86.51
|
|
|
255
|
|
|
|
5.6
|
|
|
|
82.56
|
|
|
|
199
|
|
|
|
82.84
|
|
$87.87-$88.00
|
|
|
35
|
|
|
|
5.8
|
|
|
|
87.96
|
|
|
|
28
|
|
|
|
87.96
|
|
$88.33-$93.65
|
|
|
311
|
|
|
|
5.1
|
|
|
|
88.98
|
|
|
|
246
|
|
|
|
88.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,481
|
|
|
|
4.6
|
|
|
$
|
70.11
|
|
|
|
1,165
|
|
|
$
|
70.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-46
A summary of the Companys RSUs under the 2007 Plan as of
December 31, 2009, and changes during the year then ended
is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Average Price
|
|
|
Term (Years)
|
|
|
Intrinsic Value
|
|
|
Restricted Stock Units outstanding December 31, 2008
|
|
|
187
|
|
|
$
|
92.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
204
|
|
|
|
34.77
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
(22
|
)
|
|
|
87.50
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(10
|
)
|
|
|
76.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units outstanding, December 31, 2009
|
|
|
359
|
|
|
|
60.69
|
|
|
|
2.8
|
|
|
$
|
17,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of December 31, 2009
|
|
|
317
|
|
|
$
|
60.69
|
|
|
|
2.4
|
|
|
$
|
15,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognized stock-based compensation costs related to
the issuance of RSUs of $5,009 ($3,173, net of taxes),
$4,977 ($3,153, net of taxes) and $4,446 ($3,203, net of taxes)
for the years ended December 31, 2009, 2008 and 2007,
respectively, which has been allocated to selling, general and
administrative expenses. Pre-tax unrecognized compensation
expense for unvested RSUs granted to employees, net of
estimated forfeitures, was $7,988 as of December 31, 2009,
and will be recognized as expense over a weighted-average period
of approximately 3.4 years.
Additional information relating to the Companys RSUs under
the 2007 Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Restricted Stock Units outstanding, January 1
|
|
|
187
|
|
|
|
137
|
|
|
|
|
|
Granted
|
|
|
204
|
|
|
|
72
|
|
|
|
144
|
|
Released
|
|
|
(22
|
)
|
|
|
(15
|
)
|
|
|
|
|
Forfeited
|
|
|
(10
|
)
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units outstanding, December 31
|
|
|
359
|
|
|
|
187
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of December 31
|
|
|
317
|
|
|
|
175
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12)
|
Employee
Benefit Plans
|
The Company has a 401(k) retirement savings plan (the
Mohawk Plan) open to substantially all of its
employees within the Mohawk segment, Dal-Tile segment and, as of
January 1, 2007, certain U.S. employees of the Unilin
segment, who have completed 90 days of eligible service.
For the Mohawk segment, the Company contributes $0.50 for every
$1.00 of employee contributions up to a maximum of 4% of the
employees salary and an additional $0.25 for every $1.00
of employee contributions in excess of 4% of the employees
salary up to a maximum of 6%. For the Dal-Tile and Unilin
segments, the Company contributes $.50 for every $1.00 of
employee contributions up to a maximum of 6% of the
employees salary. Employee and employer contributions to
the Mohawk Plan were $34,838 and $13,822 in 2009, $40,393 and
$16,024 in 2008, and $43,187 and $16,946 in 2007, respectively.
The Company also made a discretionary contribution to the Mohawk
Plan of approximately $1,908, $4,211 and $5,500 in 2009, 2008
and 2007, respectively.
The Company also has various pension plans covering employees in
Belgium, France, and The Netherlands (the
Non-U.S. Plans)
that it acquired with the acquisition of Unilin. Benefits under
the
Non-U.S. Plans
depend on compensation and years of service. The
Non-U.S. Plans
are funded in accordance with local regulations. The Company
uses December 31 as the measurement date for its
Non-U.S. Plans.
A-47
Components of the net periodic benefit cost of the
Companys
Non-U.S. pension
benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Service cost of benefits earned
|
|
$
|
1,315
|
|
|
|
1,881
|
|
|
|
1,927
|
|
Interest cost on projected benefit obligation
|
|
|
1,352
|
|
|
|
1,245
|
|
|
|
968
|
|
Expected return on plan assets
|
|
|
(1,069
|
)
|
|
|
(993
|
)
|
|
|
(738
|
)
|
Amortization of actuarial gain
|
|
|
(322
|
)
|
|
|
(29
|
)
|
|
|
(12
|
)
|
Effect of curtailments and settlements
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension expense
|
|
$
|
1,076
|
|
|
|
2,104
|
|
|
|
2,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine net periodic pension expense for
Non-U.S. pension
plans:
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Discount rate
|
|
6.00%-6.60%
|
|
5.00%-5.55%
|
Expected rate of return on plan assets
|
|
4.50%-6.60%
|
|
4.50%-5.55%
|
Rate of compensation increase
|
|
0.00%-4.00%
|
|
1.00%-5.00%
|
Underlying inflation rate
|
|
2.25%
|
|
2.00%
|
The obligations, plan assets and funding status of the
Non-U.S. pension
plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of prior year
|
|
$
|
20,090
|
|
|
|
22,045
|
|
Cumulative foreign exchange effect
|
|
|
374
|
|
|
|
(962
|
)
|
Service cost
|
|
|
1,356
|
|
|
|
1,809
|
|
Interest cost
|
|
|
1,395
|
|
|
|
1,198
|
|
Plan participants contributions
|
|
|
763
|
|
|
|
729
|
|
Actuarial gain (loss)
|
|
|
2,588
|
|
|
|
(3,681
|
)
|
Benefits paid
|
|
|
(687
|
)
|
|
|
(1,048
|
)
|
Effect of curtailment and settlement
|
|
|
(411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
25,468
|
|
|
|
20,090
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of prior year
|
|
$
|
16,371
|
|
|
|
18,728
|
|
Cumulative foreign exchange effect
|
|
|
306
|
|
|
|
(817
|
)
|
Actual return on plan assets
|
|
|
3,234
|
|
|
|
955
|
|
Employer contributions
|
|
|
2,059
|
|
|
|
1,861
|
|
Benefits paid
|
|
|
(687
|
)
|
|
|
(1,048
|
)
|
Plan participant contributions
|
|
|
763
|
|
|
|
729
|
|
Actual loss
|
|
|
|
|
|
|
(4,037
|
)
|
Effect of settlement
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
21,841
|
|
|
|
16,371
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans:
|
|
|
|
|
|
|
|
|
Ending funded status
|
|
$
|
(3,627
|
)
|
|
|
(3,719
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized in consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Accrued expenses (current liability)
|
|
$
|
|
|
|
|
|
|
Accrued benefit liability (non-current liability)
|
|
|
(3,628
|
)
|
|
|
(3,719
|
)
|
Accumulated other comprehensive gain
|
|
|
(735
|
)
|
|
|
(1,649
|
)
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(4,363
|
)
|
|
|
(5,368
|
)
|
|
|
|
|
|
|
|
|
|
A-48
The Companys net amount recognized in other comprehensive
income related to actuarial (losses) gains was $(914), $(384)
and $1,215 for the years ended December 31, 2009, 2008 and
2007, respectively.
Assumptions used to determine the projected benefit obligation
for the Companys
Non-U.S. pension
plans were as follows:
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Discount rate
|
|
5.00%
|
|
6.00%-6.60%
|
Rate of compensation increase
|
|
0.00%-6.00%
|
|
1.25%-5.25%
|
Underlying inflation rate
|
|
2.00%
|
|
2.25%
|
The discount rate assumptions used to account for pension
obligations reflect the rates at which the Company believes
these obligations will be effectively settled. In developing the
discount rate, the Company evaluated input from its actuaries,
including estimated timing of obligation payments and yield on
investments. The rate of compensation increase for the
Non-U.S. Plans
is based upon the Companys annual reviews.
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans
|
|
|
2009
|
|
2008
|
|
Plans with accumulated benefit obligations in excess of plan
assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
10,251
|
|
|
|
1,118
|
|
Accumulated benefit obligation
|
|
|
8,585
|
|
|
|
889
|
|
Fair value of plan assets
|
|
|
7,907
|
|
|
|
470
|
|
Plans with plan assets in excess of accumulated benefit
obligations:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
25,468
|
|
|
|
18,972
|
|
Accumulated benefit obligation
|
|
|
21,827
|
|
|
|
15,286
|
|
Fair value of plan assets
|
|
|
21,841
|
|
|
|
15,901
|
|
Estimated future benefit payments for the
Non-U.S. pension
plans are $1,206 in 2010, $757 in 2011, $988 in 2012, $1,157 in
2013, $1,044 in 2014 and $8,019 in total for
2015-2019.
The Company expects to make cash contributions of $856 to its
Non-U.S. pension
plans in 2010.
The fair value of the
Non-U.S. pension
plan investments were estimated using market observable data.
Within the hierarchy of fair value measurements, these
investments represent Level 2 fair values. The fair value
and percentage of each asset category of the total investments
held by the plans as of December 31, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Non-U.S.
pension plans:
|
|
|
|
|
|
|
|
|
Insurance contracts
|
|
$
|
21,841
|
|
|
|
16,371
|
|
|
|
|
|
|
|
|
|
|
The Companys investment policy:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Non-U.S.
pension plans:
|
|
|
|
|
|
|
|
|
Insurance contracts
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
The Companys approach to developing its expected long-term
rate of return on pension plan assets combines an analysis of
historical investment performance by asset class, the
Companys investment guidelines and current and expected
economic fundamentals.
A-49
Following is a summary of earnings (loss) from continuing
operations before income taxes for United States and foreign
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United States
|
|
$
|
(205,737
|
)
|
|
|
(847,624
|
)
|
|
|
357,521
|
|
Foreign
|
|
|
128,024
|
|
|
|
(424,848
|
)
|
|
|
254,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
$
|
(77,713
|
)
|
|
|
(1,272,472
|
)
|
|
|
611,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) for the years ended
December 31, 2009, 2008 and 2007 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
(78,051
|
)
|
|
|
61,186
|
|
|
|
109,810
|
|
State and local
|
|
|
1,139
|
|
|
|
8,248
|
|
|
|
8,636
|
|
Foreign
|
|
|
20,797
|
|
|
|
41,232
|
|
|
|
71,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(56,115
|
)
|
|
|
110,666
|
|
|
|
189,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
18,082
|
|
|
|
(91,813
|
)
|
|
|
25,185
|
|
State and local
|
|
|
(6,931
|
)
|
|
|
(7,511
|
)
|
|
|
(26,535
|
)
|
Foreign
|
|
|
(31,730
|
)
|
|
|
168,720
|
|
|
|
(290,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(20,579
|
)
|
|
|
69,396
|
|
|
|
(292,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(76,694
|
)
|
|
|
180,062
|
|
|
|
(102,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) attributable to earnings (loss)
before income taxes differs from the amounts computed by
applying the U.S. statutory federal income tax rate to
earnings (loss) before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income taxes at statutory rate
|
|
$
|
(27,200
|
)
|
|
|
(445,365
|
)
|
|
|
214,101
|
|
State and local income taxes, net of federal income tax benefit
|
|
|
(3,874
|
)
|
|
|
(4,113
|
)
|
|
|
10,610
|
|
Foreign income taxes
|
|
|
(12,840
|
)
|
|
|
(380
|
)
|
|
|
(25,925
|
)
|
Change in valuation allowance
|
|
|
12,214
|
|
|
|
276,801
|
|
|
|
630
|
|
Intellectual property migration to Luxembourg
|
|
|
|
|
|
|
|
|
|
|
(271,607
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
406,577
|
|
|
|
|
|
Notional interest
|
|
|
(55,956
|
)
|
|
|
(63,694
|
)
|
|
|
(36,446
|
)
|
Tax contingencies and audit settlements
|
|
|
9,634
|
|
|
|
4,990
|
|
|
|
4,406
|
|
Change in statutory tax rate
|
|
|
101
|
|
|
|
(254
|
)
|
|
|
|
|
Other, net
|
|
|
1,227
|
|
|
|
5,500
|
|
|
|
1,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(76,694
|
)
|
|
|
180,062
|
|
|
|
(102,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-50
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities as of December 31, 2009 and 2008 are presented
below:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
22,843
|
|
|
|
21,368
|
|
Inventories
|
|
|
46,536
|
|
|
|
56,622
|
|
Accrued expenses and other
|
|
|
102,665
|
|
|
|
98,284
|
|
Deductible state tax and interest benefit
|
|
|
24,801
|
|
|
|
22,579
|
|
Intangibles
|
|
|
199,660
|
|
|
|
216,047
|
|
Foreign and state net operating losses and credits
|
|
|
214,955
|
|
|
|
158,685
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
611,460
|
|
|
|
573,585
|
|
Valuation allowance
|
|
|
(365,944
|
)
|
|
|
(343,572
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
245,516
|
|
|
|
230,013
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
(5,089
|
)
|
|
|
(5,624
|
)
|
Plant and equipment
|
|
|
(279,668
|
)
|
|
|
(273,076
|
)
|
Intangibles
|
|
|
(160,429
|
)
|
|
|
(167,271
|
)
|
LIFO change in accounting method
|
|
|
(12,850
|
)
|
|
|
(25,700
|
)
|
Other liabilities
|
|
|
(30,144
|
)
|
|
|
(32,125
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(488,180
|
)
|
|
|
(503,796
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability(1)
|
|
$
|
(242,664
|
)
|
|
|
(273,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This amount includes $85 and $29 of non-current deferred tax
assets which are in deferred income taxes and other non-current
assets and $2,836 and $3,030 current deferred tax liabilities
which are included in accounts payable and accrued expenses in
the consolidated balance sheets as of December 31, 2009 and
2008, respectively. |
Management believes it is more likely than not the Company will
realize the benefits of these deductible differences, with the
exception of certain carryforward deferred tax assets discussed
below, based upon the expected reversal of deferred tax
liabilities and the level of historic and forecasted taxable
income over periods in which the deferred tax assets are
deductible.
In accordance with ASC 350, the company is required to test
goodwill and indefinite-lived assets for impairment annually, or
more often if an event or circumstance indicates that an
impairment loss may have been incurred. In 2008, the Company
recorded a non-cash pretax impairment charge of $1,543,397 to
reduce the carrying value of goodwill and other intangibles. The
tax impact was to book an expense of $406,577 related to the
portion of the impaired assets that are non-deductible for tax
purposes.
The Company evaluates its ability to realize the tax benefits
associated with deferred tax assets by analyzing its forecasted
taxable income using both historic and projected future
operating results, the reversal of existing temporary
differences, taxable income in prior carry-back years (if
permitted) and the availability of tax planning strategies. The
valuation allowance as of December 31, 2009 and
December 31, 2008 is $365,944 and $343,572, respectively.
The December 31, 2009 valuation allowance relates to net
operating losses and tax credits of $168,773 and intangibles of
$197,171. The December 31, 2008 valuation allowance relates
to net operating losses and tax credits of $127,525 and
intangibles of $216,047. For 2009, the total change in the
valuation allowance was an increase of $22,372, which includes
an accumulated other comprehensive income change of $6,740
primarily related to foreign currency translation, and a
non-P&L change of $3,418 primarily related to current year
state tax credits which have a full valuation allowance.
A-51
As of December 31, 2009, the Company has state net
operating loss carryforwards and state tax credits with
potential tax benefits of $53,550, net of federal income tax
benefit; these carryforwards expire over various periods based
on taxing jurisdiction. A valuation allowance totaling $32,473
has been recorded against these deferred tax assets as of
December 31, 2009. In addition, as of December 31,
2009, the Company has net operating loss carryforwards in
various foreign jurisdictions of $161,405. A valuation allowance
totaling $136,300 has been recorded against these deferred tax
assets as of December 31, 2009.
In the fourth quarter of 2007, the Company moved the
intellectual property and treasury operations of an indirectly
owned European entity to a new office in another jurisdiction in
Europe. The Company also indirectly owned a holding company in
the new jurisdiction that provided certain treasury functions to
Unilin, and the move allowed for the consolidation of the
historical intellectual property and treasury operations to be
combined with those of the holding companys treasury
operations in a single jurisdiction in order to integrate and
streamline the operations, to facilitate international
acquisitions and to improve tax and cost efficiencies. This
restructuring resulted in a step up in the subsidiarys
taxable basis of its intellectual property. The step up relates
primarily to intangible assets which will be amortized over
10 years for tax purposes. During the fourth quarter of
2007, the Company evaluated the evidence for recognition of the
deferred tax asset created through the restructuring and
determined that, based on the available evidence, the deferred
tax asset would more likely than not be realized. The deferred
tax asset recognized as of December 31, 2007 was
approximately $245,000 and the related income tax benefit
recognized in the consolidated financial statements was
approximately $272,000.
During the third quarter of 2008, the Company reassessed the
need for a valuation allowance against its deferred tax assets.
Actual cash flows have been less than those projected as of
December 31, 2007, primarily due to the slowing worldwide
economy and declining sales volume. The Company determined that,
given the current and expected economic conditions and the
corresponding reductions in cash flows, its ability to realize
the benefit of the deferred tax asset related to the European
step up transaction described above, as well as tax losses
generated in the same jurisdiction was not more likely than not.
Accordingly, the Company recorded a valuation allowance against
the deferred tax asset in the amount of $252,751 during the
quarter ended September 27, 2008.
The Company does not provide for U.S. federal and state
income taxes on the cumulative undistributed earnings of its
foreign subsidiaries because such earnings are permanently
reinvested. As of December 31, 2009 and 2008, the Company
had not provided federal income taxes on earnings of
approximately $723,000 and $654,000, respectively, from its
foreign subsidiaries. Should these earnings be distributed in
the form of dividends or otherwise, the Company would be subject
to both U.S. income taxes and withholding taxes in various
foreign jurisdictions. These taxes may be partially offset by
U.S. foreign tax credits. Determination of the amount of
the unrecognized deferred US tax liability is not practical
because of the complexities associated with this hypothetical
calculation.
Tax
Uncertainties
In the normal course of business, the Companys tax returns
are subject to examination by various taxing authorities. Such
examinations may result in future tax and interest assessments
by these taxing jurisdictions. Accordingly, the Company accrues
liabilities when it believes that it is not more likely than not
that it will realize the benefits of tax positions that it has
taken in its tax returns or for the amount of any tax benefit
that exceeds the cumulative probability threshold in accordance
with ASC
740-10,
formerly FASB Interpretation No. 48 Accounting for
Uncertainty in Income Taxes-an Interpretation of FASB Statement
No. 109. Differences between the estimated and
actual amounts determined upon ultimate resolution, individually
or in the aggregate, are not expected to have a material adverse
effect on the Companys consolidated financial position but
could possibly be material to the Companys consolidated
results of operations or cash flow in any given quarter or
annual period.
The Company adopted the provisions of ASC
740-10 on
January 1, 2007. Upon adoption, the Company recognized no
change to opening retained earnings. As of December 31,
2009, the Companys gross amount of unrecognized tax
benefits is $105,779, excluding interest and penalties. If the
Company were to prevail on all uncertain tax positions, the net
effect would be a benefit of $43,014 to the Companys
effective tax rate and a balance sheet adjustment of $62,765,
exclusive of any benefits related to interest and penalties.
A-52
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance at January 1
|
|
$
|
91,887
|
|
|
|
116,857
|
|
Additions based on tax positions related to the current year
|
|
|
8,678
|
|
|
|
5,610
|
|
Additions for tax positions of prior years
|
|
|
10,630
|
|
|
|
12,167
|
|
Reductions for tax positions of prior years
|
|
|
|
|
|
|
(842
|
)
|
Reductions resulting from the lapse of the statute of limitations
|
|
|
(60
|
)
|
|
|
(36,436
|
)
|
Settlements with taxing authorities
|
|
|
(5,562
|
)
|
|
|
(3,877
|
)
|
Effects of foreign currency translation
|
|
|
206
|
|
|
|
(1,592
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
105,779
|
|
|
|
91,887
|
|
|
|
|
|
|
|
|
|
|
The Company will continue to recognize interest and penalties
related to unrecognized tax benefits as a component of its
income tax provision. As of December 31, 2009 and 2008, the
Company has $47,870 and $39,641, respectively, accrued for the
payment of interest and penalties, excluding the federal tax
benefit of interest deductions where applicable. During the
years ending December 31, 2009, 2008 and 2007, the Company
accrued interest and penalties through continuing operations of
$8,228, $3,657 and $1,115, respectively.
The Companys
2004-2006
federal income tax returns are currently under examination by
the Internal Revenue Service. The Company expects this
examination to end within the next twelve months. The Company is
also protesting through the IRS Appeals division a few open
issues related to the audit of its 1999 2003 tax
years. In connection with this protest, the Company paid a
$35,844 cash bond to the IRS. The Company believes it is
reasonably possible that it will effectively settle all open tax
years, 1999 through 2006, with the Internal Revenue Service
within the next twelve months and expects to make a cash payment
of approximately $33,000 (including penalties and interest). The
Company believes it is reasonably possible that the balance of
unrecognized tax benefits could decrease by an additional
$36,277 (which includes accrued penalties and interest expense)
within the next twelve months due to settlements or statutory
expirations in various tax jurisdictions. Except as noted above,
the Company has substantially concluded all income tax matters
related to years prior to 2004.
|
|
(14)
|
Commitments
and Contingencies
|
The Company is obligated under various operating leases for
office and manufacturing space, machinery, and equipment. Future
minimum lease payments under non-cancelable capital and
operating leases (with initial or remaining lease terms in
excess of one year) as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Future
|
|
|
|
Capital
|
|
|
Operating
|
|
|
Payments
|
|
|
2010
|
|
$
|
1,611
|
|
|
|
94,340
|
|
|
|
95,951
|
|
2011
|
|
|
1,056
|
|
|
|
77,101
|
|
|
|
78,157
|
|
2012
|
|
|
457
|
|
|
|
58,505
|
|
|
|
58,962
|
|
2013
|
|
|
522
|
|
|
|
45,153
|
|
|
|
45,675
|
|
2014
|
|
|
437
|
|
|
|
37,346
|
|
|
|
37,783
|
|
Thereafter
|
|
|
696
|
|
|
|
67,005
|
|
|
|
67,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total payments
|
|
|
4,779
|
|
|
|
379,450
|
|
|
|
384,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of capitalized lease payments
|
|
$
|
4,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense under operating leases was $130,227, $139,103 and
$123,095 in 2009, 2008 and 2007, respectively.
A-53
The Company had approximately $58,603 and $73,928 as of
December 31, 2009 and 2008, respectively, in standby
letters of credit for various insurance contracts and
commitments to foreign vendors that expire within two years. In
addition, as of December 31, 2009 and 2008, the Company
guaranteed approximately $721 and $85,640 for building leases,
respectively, related to its operating facilities in France.
The Company is involved in 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 by the Company to
be contemplated to which the Company is a party or to which any
of its property is subject.
In Shirley Williams et al. v. Mohawk Industries, Inc., four
plaintiffs filed a putative class action lawsuit in January 2004
in the United States District Court for the Northern District of
Georgia (Rome Division), alleging that they are former and
current employees of the Company and that the actions and
conduct of the Company, including the employment of persons who
are not authorized to work in the United States, have damaged
them and the other members of the putative class by suppressing
the wages of the Companys hourly employees in Georgia. The
plaintiffs seek a variety of relief, including (a) treble
damages; (b) return of any allegedly unlawful profits; and
(c) attorneys fees and costs of litigation. In
February 2004, the Company filed a Motion to Dismiss the
Complaint, which was denied by the District Court in April 2004.
Following appellate review of this decision, the case was
returned to the District Court for further proceedings. On
December 18, 2007, the plaintiffs filed a motion for class
certification. On March 3, 2008, the District Court denied
the plaintiffs motion for class certification. The plaintiffs
then appealed the decision to the United States Court of Appeals
for the 11th Circuit on March 17, 2008. On
May 28, 2009, the Court of Appeals issued an order
reversing the District Courts decision and remanding the
case back to the District Court for further proceedings on the
class certification issue. Discovery has been stayed at the
District Court since the appeal. In August 2009, the Company
filed a petition for certiorari with the United States Supreme
Court, which was denied in November 2009. The Company will
continue to vigorously defend itself against this action.
In Collins & Aikman Floorcoverings, Inc., et.
al. v. Interface, Inc., United States District Court for
the Northern District of Georgia (Rome Division), Mohawk
Industries, Inc. joined Collins & Aikman
Floorcoverings, Inc. (CAF) and Shaw Industries
Group, Inc. (Shaw) in suing Interface, Inc.
(Interface) for declaratory judgments that United
States Patent 6,908,656 (the Patent), assigned to
Interface and relating to certain styles of carpet tiles, is not
infringed and is invalid. Also in June 2005, in Interface, Inc.,
et al. v. Mohawk Industries, Inc., et. al. United States
District Court for the Northern District of Georgia (Atlanta
Division), Interface sued Mohawk Industries, Inc., Mohawk Carpet
Corporation, and Mohawk Commercial, Inc. for allegedly
infringing the Patent. Interface brought similar suits against
entities affiliated with CAF and Shaw. Interface sought monetary
damages as well as injunctive relief. The cases were
consolidated in the United States District Court for the
Northern District of Georgia (Rome Division). During the second
quarter of 2009, the Company and Interface reached a settlement
and the pending cases were dismissed by the District Court on
June 26, 2009.
The Company believes that adequate provisions for resolution of
all contingencies, claims and pending litigation have been made
for probable losses and that the ultimate outcome of these
actions will not have a material adverse effect on its financial
condition but could have a material adverse effect on its
results of operations in a given quarter or year.
The Company has received partial refunds from the United States
government in reference to settling custom disputes dating back
to 1982. Accordingly, the Company recorded a net gain of $9,154
($5,799 net of taxes) in other income (expense) for the
year ended December 31, 2007. No refunds were received in
2009 or 2008. Additional future recoveries will be recorded as
realized.
The Company is subject to various federal, state, local and
foreign environmental health and safety laws and regulations,
including those governing air emissions, wastewater discharges,
the use, storage, treatment and disposal of solid and hazardous
materials, and the cleanup of contamination associated
therewith. Because of the nature of the Companys business,
the Company has incurred, and will continue to incur, costs
relating to compliance with such laws and regulations. The
Company is involved in various proceedings relating to
environmental matters and is currently engaged in environmental
investigation, remediation and post-closure care programs at
certain sites. The Company has provided accruals for such
activities that it has determined to
A-54
be both probable and reasonably estimable. The Company does not
expect that the ultimate liability with respect to such
activities will have a material adverse effect on its
operations, but may have an effect on a given quarter or annual
period.
In the normal course of business, the Company has entered into
various collective bargaining agreements with its workforce in
Europe, Mexico and Malaysia, either locally or within its
industry sector. Historically, the Company has maintained
favorable relationships with its workforce and expects to do so
in the future.
The Company recorded pre-tax business restructuring charges of
$61,725 for 2009, of which $43,436 was recorded as cost of sales
and $18,289 was recorded as selling, general and administrative
expenses. The Company recorded pre-tax business restructuring
charges of $29,670 for 2008, of which $15,687 was recorded as
cost of sales and $13,983 was recorded as selling, general and
administrative expenses. The charges primarily relate to the
Companys actions taken to lower its cost structure and
improve the efficiency of its manufacturing and distribution
operations as it adjusts to current economic conditions.
The activity for 2008 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventor
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Write-
|
|
|
Lease
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
Asset Write-Downs(1)
|
|
|
Downs
|
|
|
Impairments
|
|
|
Severance
|
|
|
Costs
|
|
|
Total
|
|
|
Balance at December 31, 2007
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk segment
|
|
|
7,237
|
|
|
|
|
|
|
|
12,561
|
|
|
|
1,625
|
|
|
|
816
|
|
|
|
22,239
|
|
Dal-Tile segment
|
|
|
3,124
|
|
|
|
|
|
|
|
504
|
|
|
|
1,715
|
|
|
|
|
|
|
|
5,343
|
|
Unilin segment
|
|
|
2,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,088
|
|
Cash payments
|
|
|
|
|
|
|
|
|
|
|
(354
|
)
|
|
|
(1,270
|
)
|
|
|
(816
|
)
|
|
|
(2,440
|
)
|
Noncash items
|
|
|
(12,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
|
|
|
|
|
|
|
|
12,711
|
|
|
|
2,070
|
|
|
|
|
|
|
|
14,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk segment
|
|
|
13,604
|
|
|
|
2,300
|
|
|
|
5,365
|
|
|
|
7,075
|
|
|
|
347
|
|
|
|
28,691
|
|
Dal-Tile segment
|
|
|
5,717
|
|
|
|
1,653
|
|
|
|
9,160
|
|
|
|
1,191
|
|
|
|
|
|
|
|
17,721
|
|
Unilin segment
|
|
|
4,310
|
|
|
|
3,096
|
|
|
|
|
|
|
|
4,773
|
|
|
|
3,134
|
|
|
|
15,313
|
|
Cash payments
|
|
|
|
|
|
|
|
|
|
|
(6,163
|
)
|
|
|
(7,285
|
)
|
|
|
(65
|
)
|
|
|
(13,513
|
)
|
Noncash items
|
|
|
(23,631
|
)
|
|
|
(7,049
|
)
|
|
|
|
|
|
|
|
|
|
|
(415
|
)
|
|
|
(31,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
|
|
|
|
|
|
|
|
21,073
|
|
|
|
7,824
|
|
|
|
3,001
|
|
|
|
31,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $4,313 and $53 in 2009 and 2008, respectively, that was
charged to depreciation. |
|
|
(15)
|
Consolidated
Statements of Cash Flows Information
|
Supplemental disclosures of cash flow information are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
127,623
|
|
|
|
129,465
|
|
|
|
157,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
39,594
|
|
|
|
107,638
|
|
|
|
201,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired in acquisition
|
|
$
|
17,911
|
|
|
|
9,745
|
|
|
|
165,407
|
|
Liabilities assumed in acquisition
|
|
|
(11,987
|
)
|
|
|
(1,469
|
)
|
|
|
(18,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,924
|
|
|
|
8,276
|
|
|
|
147,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-55
The Company has three reporting segments, the Mohawk segment,
the Dal-Tile segment and the Unilin segment. The Mohawk segment
manufactures, markets and distributes its product lines
primarily in North America, which include carpet, rugs, pad,
ceramic tile, hardwood, resilient and laminate, through its
network of regional distribution centers and satellite
warehouses using company-operated trucks, common carrier or rail
transportation. The segment product lines are sold through
various selling channels, which include floor covering
retailers, home centers, mass merchandisers, department stores,
independent distributors, commercial dealers and commercial end
users. The Dal-Tile segment manufactures, markets and
distributes its product lines primarily in North America, which
include ceramic tile, porcelain tile and stone products, through
its network of regional distribution centers and
company-operated sales service centers using company-operated
trucks, common carriers or rail transportation. The segment
product lines are purchased by floor covering retailers, home
centers, independent distributors, tile specialty dealers, tile
contractors, and commercial end users. The Unilin segment
manufactures, markets and distributes its product lines
primarily in North America and Europe, which include laminate
flooring, wood flooring, roofing systems, insulation panels and
other wood products through various selling channels, which
include retailers, home centers and independent distributors.
Amounts disclosed for each segment are prior to any elimination
or consolidation entries. Corporate general and administrative
expenses attributable to each segment are estimated and
allocated accordingly. Segment performance is evaluated based on
operating income. No single customer accounted for more than 5%
of net sales for the years ended December 31, 2009, 2008
and 2007.
Segment information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk
|
|
$
|
2,856,741
|
|
|
|
3,628,183
|
|
|
|
4,205,740
|
|
Dal-Tile
|
|
|
1,426,757
|
|
|
|
1,815,373
|
|
|
|
1,937,733
|
|
Unilin
|
|
|
1,128,315
|
|
|
|
1,465,208
|
|
|
|
1,487,645
|
|
Intersegment sales
|
|
|
(67,789
|
)
|
|
|
(82,416
|
)
|
|
|
(45,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,344,024
|
|
|
|
6,826,348
|
|
|
|
7,586,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk
|
|
$
|
(125,965
|
)
|
|
|
(216,152
|
)
|
|
|
254,924
|
|
Dal-Tile
|
|
|
84,154
|
|
|
|
(323,370
|
)
|
|
|
258,706
|
|
Unilin
|
|
|
105,953
|
|
|
|
(564,911
|
)
|
|
|
272,260
|
|
Corporate and eliminations
|
|
|
(20,412
|
)
|
|
|
(19,701
|
)
|
|
|
(35,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,730
|
|
|
|
(1,124,134
|
)
|
|
|
750,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk
|
|
$
|
94,134
|
|
|
|
92,130
|
|
|
|
95,933
|
|
Dal-Tile
|
|
|
47,934
|
|
|
|
46,093
|
|
|
|
44,216
|
|
Unilin
|
|
|
151,450
|
|
|
|
149,543
|
|
|
|
159,859
|
|
Corporate
|
|
|
9,486
|
|
|
|
7,288
|
|
|
|
6,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
303,004
|
|
|
|
295,054
|
|
|
|
306,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (excluding acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk
|
|
$
|
35,149
|
|
|
|
78,239
|
|
|
|
65,842
|
|
Dal-Tile
|
|
|
17,683
|
|
|
|
41,616
|
|
|
|
33,134
|
|
Unilin
|
|
|
45,966
|
|
|
|
90,500
|
|
|
|
58,711
|
|
Corporate
|
|
|
10,127
|
|
|
|
7,469
|
|
|
|
5,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
108,925
|
|
|
|
217,824
|
|
|
|
163,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk
|
|
$
|
1,582,652
|
|
|
|
1,876,696
|
|
|
|
2,302,527
|
|
Dal-Tile
|
|
|
1,546,393
|
|
|
|
1,693,765
|
|
|
|
2,259,811
|
|
Unilin
|
|
|
2,598,182
|
|
|
|
2,663,599
|
|
|
|
3,916,739
|
|
Corporate and intersegment eliminations
|
|
|
664,219
|
|
|
|
212,115
|
|
|
|
200,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,391,446
|
|
|
|
6,446,175
|
|
|
|
8,680,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Geographic net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
4,516,784
|
|
|
|
5,776,701
|
|
|
|
6,477,277
|
|
Rest of world
|
|
|
827,240
|
|
|
|
1,049,647
|
|
|
|
1,108,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,344,024
|
|
|
|
6,826,348
|
|
|
|
7,586,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
2,000,522
|
|
|
|
2,120,067
|
|
|
|
3,028,571
|
|
Rest of world
|
|
|
1,202,018
|
|
|
|
1,205,109
|
|
|
|
1,744,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,202,540
|
|
|
|
3,325,176
|
|
|
|
4,773,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by product categories(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
Soft surface
|
|
$
|
2,650,452
|
|
|
|
3,337,073
|
|
|
|
3,797,584
|
|
Tile
|
|
|
1,491,846
|
|
|
|
1,919,070
|
|
|
|
2,110,705
|
|
Wood
|
|
|
1,201,726
|
|
|
|
1,570,205
|
|
|
|
1,677,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,344,024
|
|
|
|
6,826,348
|
|
|
|
7,586,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating income (loss) includes the impact of the impairment of
goodwill and other intangibles recognized in the third and
fourth quarters of 2008 of $276,807 for the Mohawk segment,
$531,930 for the Dal-Tile segment and $734,660 for the Unilin
segment. |
|
(2) |
|
Long-lived assets are composed of net property, plant and
equipment and goodwill. |
|
(3) |
|
The Soft surface product category includes carpets, rugs, carpet
pad and resilient. The Tile product category includes ceramic
tile, porcelain tile and natural stone. The Wood product
category includes laminate, hardwood, roofing panels and
wood-based panels. |
|
|
(17)
|
Quarterly
Financial Data (Unaudited)
|
The supplemental quarterly financial data are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
|
March 28,
|
|
|
June 27,
|
|
|
September 26,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Net sales
|
|
$
|
1,208,339
|
|
|
|
1,406,012
|
|
|
|
1,382,565
|
|
|
|
1,347,108
|
|
Gross profit
|
|
|
153,689
|
|
|
|
367,388
|
|
|
|
369,459
|
|
|
|
341,694
|
|
Net (loss) earnings
|
|
|
(105,887
|
)
|
|
|
46,261
|
|
|
|
34,348
|
|
|
|
19,779
|
|
Basic (loss) earnings per share
|
|
|
(1.55
|
)
|
|
|
0.68
|
|
|
|
0.50
|
|
|
|
0.29
|
|
Diluted (loss) earnings per share
|
|
|
(1.55
|
)
|
|
|
0.67
|
|
|
|
0.50
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
|
|
March 29,
|
|
|
June 28,
|
|
|
September 27,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Net sales
|
|
$
|
1,738,097
|
|
|
|
1,840,045
|
|
|
|
1,763,034
|
|
|
|
1,485,172
|
|
Gross profit
|
|
|
459,839
|
|
|
|
482,892
|
|
|
|
439,071
|
|
|
|
355,962
|
|
Net earnings (loss)
|
|
|
65,390
|
|
|
|
88,778
|
|
|
|
(1,484,781
|
)
|
|
|
(127,615
|
)(1)
|
Basic earnings (loss) per share
|
|
|
0.96
|
|
|
|
1.30
|
|
|
|
(21.70
|
)
|
|
|
(1.87
|
)
|
Diluted earnings (loss) per share
|
|
|
0.95
|
|
|
|
1.29
|
|
|
|
(21.70
|
)
|
|
|
(1.87
|
)
|
|
|
|
(1) |
|
Includes the impact of a valuation allowance of approximately
$253,000 which was recognized during the third quarter of 2008.
Additionally, the third and fourth quarters of 2008 were
impacted by $1,418,912 and $124,485, respectively, related to
impairment of goodwill and other intangibles. |
A-57
PROXY
MOHAWK INDUSTRIES, INC.
CALHOUN, GEORGIA
ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Mohawk Industries, Inc., a Delaware corporation
(Mohawk), hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement, and hereby appoints Frank H. Boykin and James T. Lucke, and each of them, proxies, with
full power of substitution, for and in the name of the undersigned, to vote all shares of Mohawk
Common Stock which the undersigned is entitled to vote on all matters which may come before the
2010 Annual Meeting of Stockholders (the Annual Meeting) of Mohawk Industries, Inc. to be held
on Tuesday, May 11, 2010 at 10:00 a.m. local time, at 160 South Industrial Boulevard, Calhoun,
Georgia 30701, and at any adjournment or adjournments thereof, unless otherwise specified herein.
The proxies, in their discretion, are further authorized to vote for the election of a person to
the Board of Directors if any nominee named herein becomes unable to serve or for good cause will
not serve, are further authorized to vote on matters which the Board of Directors does not know a
reasonable time before making the proxy solicitation will be presented at the Annual Meeting, and
are further authorized to vote on other matters which may properly come before the Annual Meeting
and any adjournments thereof.
(1) |
|
The election of four Directors, Ms. Bonanno, Mr. Kolb, Mr. Onorato, and Mr. Wellborn, for a
term of three years and until their successors are elected and qualified: |
|
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[ ] FOR
|
[ ] WITHHOLD AUTHORITY
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For, except vote withheld from the following nominee(s):
(2) |
|
The ratification of the selection of KPMG LLP as the Companys independent registered public
accounting firm: |
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|
[ ] FOR
|
|
[ ] AGAINST
|
|
[ ] ABSTAIN
|
|
|
This Proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this Proxy will be voted in accordance with the
recommendation of the Board of Directors. The proxies cannot vote your shares unless you sign and
return this Proxy.
Please sign exactly as your name appears on your stock certificate and date. Where
shares are held jointly, each stockholder should sign. When signing as executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
|
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Signature of Stockholder |
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Signature of Stockholder (If held jointly) |
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Dated:
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|
|
, |
2010 |
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Month Day |
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MOHAWK INDUSTRIES, INC.
AND MAY BE REVOKED BY THE STOCKHOLDER PRIOR TO ITS EXERCISE