Notes to Consolidated Financial Statements
Years Ended December 31, 2012, 2011 and 2010
(In thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
Mohawk Industries, Inc. (“Mohawk” or the “Company”), a term which includes the Company and its subsidiaries, is a leading producer of floor covering products for residential and commercial applications in the United States (“U.S.”) and residential applications in Europe. The Company is the second largest carpet and rug manufacturer and one of the largest manufacturers, marketers and distributors of ceramic tile, natural stone and hardwood flooring in the U.S., as well as a leading producer of laminate flooring in the U.S. and Europe.
The consolidated financial statements include the accounts of the Company and its subsidiaries. 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, 2012
, the Company had invested cash of
$417,541
of which
$415,877
was invested in A-1/P-1 rated money market cash investments in Europe and
$1,664
was in North America and Mexico. As of
December 31, 2011
, the Company had invested cash of
$266,488
of which
$259,991
was invested in A-1/P-1 rated money market cash investments in Europe and
$6,497
was in North America and Mexico.
(c) Accounts Receivable and Revenue Recognition
The Company is principally a carpet, rugs, ceramic tile, laminate and hardwood flooring manufacturer and sells carpet, rugs, ceramic tile, natural stone, hardwood, resilient and laminate flooring products in the U.S. principally for residential and commercial use. In addition, the Company manufactures laminate and sells carpet, rugs, hardwood 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, home centers 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, sales allowances and doubtful accounts based upon historical bad debt and claims experience and periodic evaluations of specific customer accounts and the aging of accounts receivable. 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 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.
(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
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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 the Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic ("ASC") 350,
“Intangibles-Goodwill and Other,”
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 management’s 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 management’s 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. During 2012, the Company adopted Accounting Standard Update No. 2011-08,
"Testing Goodwill for Impairment,"
and early adopted Accounting Standard Update No. 2012-02,
"Testing Indefinite-Lived Intangible Assets for Impairment."
As a result, beginning in 2012, the first step of the impairment tests for our indefinite lived intangible assets is a thorough assessment of qualitative factors to determine the existence of events or circumstances that would indicate that it is not more likely than not that the fair value of these assets is less than their carrying amounts. If the qualitative test indicates it is not more likely than not that the fair value of these assets is less than their carrying amounts, a quantitative assessment is not required. If a quantitative test is necessary, the second step of our impairment test involves comparing the estimated fair value of a reporting unit to its carrying amount. 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. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
Intangible assets that do not have indefinite lives are amortized based on average lives, which range from
7
-
16
years.
(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. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense.
(h) Financial Instruments
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The Company’s 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 their fair value because of the short-term maturity of such instruments. The carrying amount of the Company’s 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 Company’s long-term debt.
(i) 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
$29,175
in
2012
,
$35,847
in
2011
and
$38,553
in
2010
.
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. Co-op advertising expenses, a component of advertising and promotion expenses, were
$6,424
in
2012
,
$3,520
in
2011
and
$4,660
in
2010
.
(j) 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.
(k) 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.
(l) Foreign Currency Translation
Prior to the second quarter of 2012, operations carried out in Mexico used the U.S. dollar as the functional currency. Effective April 1, 2012, the Company changed the functional currency of its Mexico operations to the Mexican peso. The Company believes that the completion of a second plant in Mexico and growth in sales to the local Mexican market indicated a significant change in the economic facts and circumstances that justified the change in the functional currency. The effects of the change in functional currency were not significant to the Company's consolidated financial statements.
The Company’s subsidiaries that operate outside the United States use their local currency as the functional currency, with the exception of operations carried out in Canada in which case the functional currency is the U.S. dollar. Other than Canada, 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 accumulated 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 Company’s Canadian 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.
(m) 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
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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 and unvested restricted shares (units) that were not included in the diluted EPS computation because the price was greater than the average market price of the common shares for the periods presented were
891
,
1,180
and
1,203
for
2012
,
2011
and
2010
, respectively.
Computations of basic and diluted earnings per share are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Net earnings attributable to Mohawk Industries, Inc.
|
$
|
250,258
|
|
|
173,922
|
|
|
185,471
|
|
Accretion of redeemable noncontrolling interest (1)
|
—
|
|
|
—
|
|
|
(3,244
|
)
|
Net earnings available to common stockholders
|
$
|
250,258
|
|
|
173,922
|
|
|
182,227
|
|
Weighted-average common shares outstanding-basic and diluted:
|
|
|
|
|
|
Weighted-average common shares outstanding - basic
|
68,988
|
|
|
68,736
|
|
|
68,578
|
|
Add weighted-average dilutive potential common shares - options and RSU’s to purchase common shares, net
|
318
|
|
|
228
|
|
|
206
|
|
Weighted-average common shares outstanding-diluted
|
69,306
|
|
|
68,964
|
|
|
68,784
|
|
Basic earnings per share attributable to Mohawk Industries, Inc.
|
$
|
3.63
|
|
|
2.53
|
|
|
2.66
|
|
Diluted earnings per share attributable to Mohawk Industries, Inc.
|
$
|
3.61
|
|
|
2.52
|
|
|
2.65
|
|
|
|
(1)
|
Amount represents the adjustment to fair value of a redeemable noncontrolling interest in a consolidated subsidiary of the Company.
|
(n) 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 ASC 718-10, “
Stock Compensation
”. Compensation expense is generally recognized on a straight-line basis over the awards' estimated lives for fixed awards with ratable vesting provisions.
(o) 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 pensions. 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 stockholders' equity for the years ended
December 31, 2012
,
2011
and
2010
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
translation
adjustment
|
|
Pensions
|
|
Total
|
December 31, 2009
|
$
|
296,182
|
|
|
735
|
|
|
296,917
|
|
2010 activity
|
(119,200
|
)
|
|
380
|
|
|
(118,820
|
)
|
December 31, 2010
|
176,982
|
|
|
1,115
|
|
|
178,097
|
|
2011 activity
|
(42,006
|
)
|
|
(452
|
)
|
|
(42,458
|
)
|
December 31, 2011
|
134,976
|
|
|
663
|
|
|
135,639
|
|
2012 activity
|
25,685
|
|
|
(1,591
|
)
|
|
24,094
|
|
December 31, 2012
|
$
|
160,661
|
|
|
(928
|
)
|
|
159,733
|
|
(p) Recent Accounting Pronouncements
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Accounting Standards Update (“ASU”) No. 2011-05, “
Comprehensive Income (Topic 220)-Presentation of Comprehensive Income
” (“ASU 2011-05”) requires comprehensive income to be presented in a single continuous financial statement or in two separate but consecutive statements. The option of presenting other comprehensive income in the statement of stockholders' equity was eliminated. The Company adopted ASU 2011-05 in the first quarter of 2012 and chose to present comprehensive income in two separate but consecutive statements.
(q) 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.
(2) Acquisitions
The Company invested in a Brazilian joint venture in the Unilin segment for
$7,007
in 2012. The Company acquired an Australian distribution business in the Unilin segment for
$24,097
in 2011. The Company acquired a
34%
equity investment in a leading manufacturer and distributor of ceramic tile in China in the Dal-Tile segment for $79,917 in 2010. In June 2012, the Company increased its equity method ownership in the China joint venture to
49%
through a restructuring transaction in which the majority equity owner acquired certain assets of the joint venture. Also in 2012, the Company purchased the non-controlling interest within the Dal-Tile segment for
$35,000
.
On January 10, 2013, the Company completed its purchase of Pergo, a leading manufacturer of laminate flooring in the United States and the Nordic countries. The total value of the acquisition was approximately
$150
million in cash.
On December 20, 2012, the Company entered into a definitive share purchase agreement to acquire Fintiles S.p.A and its subsidiaries (collectively, the "Marazzi Group"), a global manufacturer, distributor and marketer of ceramic tile. At the closing of the transaction, the Company will pay a purchase price based on an enterprise value of
€1.17
billion. The Company expects to complete the transaction in the first half of 2013 pending customary governmental approvals and the satisfaction of other closing conditions.
On January 28, 2013 the Company entered into an agreement to purchase Spano Invest NV, a Belgian panel board manufacturer, for
€125
million. The Company expects to complete the transaction in the second half of 2013 pending customary governmental approvals and the satisfaction of other closing conditions.
(3) Receivables
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
December 31,
2011
|
Customers, trade
|
$
|
691,553
|
|
|
696,856
|
|
Income tax receivable
|
—
|
|
|
1,703
|
|
Other
|
25,793
|
|
|
31,311
|
|
|
717,346
|
|
|
729,870
|
|
Less allowance for discounts, returns, claims and doubtful accounts
|
37,873
|
|
|
43,705
|
|
Receivables, net
|
$
|
679,473
|
|
|
686,165
|
|
The following table reflects the activity of allowances for discounts, returns, claims and doubtful accounts for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning
of year
|
|
Additions
charged to
costs and
expenses
|
|
Deductions(1)
|
|
Balance
at end
of year
|
2010
|
$
|
62,809
|
|
|
170,274
|
|
|
187,328
|
|
|
45,755
|
|
2011
|
45,755
|
|
|
161,073
|
|
|
163,123
|
|
|
43,705
|
|
2012
|
43,705
|
|
|
180,616
|
|
|
186,448
|
|
|
37,873
|
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
|
|
(1)
|
Represents charge-offs, net of recoveries.
|
(4) Inventories
The components of inventories are as follows:
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
December 31,
2011
|
Finished goods
|
$
|
695,606
|
|
|
670,877
|
|
Work in process
|
103,685
|
|
|
113,311
|
|
Raw materials
|
334,445
|
|
|
329,442
|
|
Total inventories
|
$
|
1,133,736
|
|
|
1,113,630
|
|
(5) Goodwill and Other Intangible Assets
The Company conducted its annual impairment assessment in the fourth quarter of
2012
and determined the fair values of its reporting units and trademarks exceeded their carrying values. As a result, no impairment was indicated.
The following table summarizes the components of intangible assets:
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mohawk
|
|
Dal-Tile
|
|
Unilin
|
|
Total
|
Balances as of December 31, 2010
|
|
|
|
|
|
|
|
Goodwill
|
$
|
199,132
|
|
|
1,186,913
|
|
|
1,310,774
|
|
|
2,696,819
|
|
Accumulated impairments losses
|
(199,132
|
)
|
|
(531,930
|
)
|
|
(596,363
|
)
|
|
(1,327,425
|
)
|
|
—
|
|
|
654,983
|
|
|
714,411
|
|
|
1,369,394
|
|
Goodwill recognized during the year
|
—
|
|
|
—
|
|
|
19,066
|
|
|
19,066
|
|
Currency translation during the year
|
—
|
|
|
—
|
|
|
(13,285
|
)
|
|
(13,285
|
)
|
Balances as of December 31, 2011
|
|
|
|
|
|
|
|
Goodwill
|
199,132
|
|
|
1,186,913
|
|
|
1,316,555
|
|
|
2,702,600
|
|
Accumulated impairments losses
|
(199,132
|
)
|
|
(531,930
|
)
|
|
(596,363
|
)
|
|
(1,327,425
|
)
|
|
—
|
|
|
654,983
|
|
|
720,192
|
|
|
1,375,175
|
|
Currency translation during the year
|
—
|
|
|
—
|
|
|
10,596
|
|
|
10,596
|
|
Balances as of December 31, 2012
|
|
|
|
|
|
|
|
Goodwill
|
199,132
|
|
|
1,186,913
|
|
|
1,327,151
|
|
|
2,713,196
|
|
Accumulated impairments losses
|
(199,132
|
)
|
|
(531,930
|
)
|
|
(596,363
|
)
|
|
(1,327,425
|
)
|
|
$
|
—
|
|
|
654,983
|
|
|
730,788
|
|
|
1,385,771
|
|
During
2011
, the Company recorded additional goodwill of
$19,066
in the Unilin segment related to business acquisitions.
Intangible assets:
|
|
|
|
|
|
Tradenames
|
Indefinite life assets not subject to amortization:
|
|
Balance as of December 31, 2010
|
$
|
456,890
|
|
Currency translation during the year
|
(6,458
|
)
|
Balance as of December 31, 2011
|
450,432
|
|
Currency translation during the year
|
5,071
|
|
Balance as of December 31, 2012
|
$
|
455,503
|
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
Patents
|
|
Other
|
|
Total
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
$
|
106,432
|
|
|
112,520
|
|
|
1,285
|
|
|
220,237
|
|
Intangible assets recognized during the year
|
5,181
|
|
|
—
|
|
|
—
|
|
|
5,181
|
|
Amortization during the year
|
(47,460
|
)
|
|
(22,782
|
)
|
|
(122
|
)
|
|
(70,364
|
)
|
Currency translation during the year
|
805
|
|
|
(1,194
|
)
|
|
3
|
|
|
(386
|
)
|
Balance as of December 31, 2011
|
64,958
|
|
|
88,544
|
|
|
1,166
|
|
|
154,668
|
|
Amortization during the year
|
(38,595
|
)
|
|
(18,747
|
)
|
|
(121
|
)
|
|
(57,463
|
)
|
Currency translation during the year
|
(153
|
)
|
|
1,234
|
|
|
10
|
|
|
1,091
|
|
Balance as of December 31, 2012
|
$
|
26,210
|
|
|
71,031
|
|
|
1,055
|
|
|
98,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2012
|
|
2011
|
|
2010
|
Amortization expense
|
$
|
57,463
|
|
|
70,364
|
|
|
69,513
|
|
Estimated amortization expense for the years ending December 31 are as follows:
|
|
|
|
|
2013
|
$
|
22,715
|
|
2014
|
20,716
|
|
2015
|
18,421
|
|
2016
|
15,837
|
|
2017
|
14,207
|
|
(6) Property, Plant and Equipment
Following is a summary of property, plant and equipment:
|
|
|
|
|
|
|
|
|
December 31,
2012
|
|
December 31,
2011
|
Land
|
$
|
178,110
|
|
|
180,584
|
|
Buildings and improvements
|
730,668
|
|
|
682,395
|
|
Machinery and equipment
|
2,550,779
|
|
|
2,470,485
|
|
Furniture and fixtures
|
98,519
|
|
|
90,963
|
|
Leasehold improvements
|
54,880
|
|
|
54,501
|
|
Construction in progress
|
145,368
|
|
|
160,929
|
|
|
3,758,324
|
|
|
3,639,857
|
|
Less accumulated depreciation and amortization
|
2,065,472
|
|
|
1,927,703
|
|
Net property, plant and equipment
|
$
|
1,692,852
|
|
|
1,712,154
|
|
Additions to property, plant and equipment included capitalized interest of
$4,577
,
$6,197
and
$4,240
in
2012
,
2011
and
2010
, respectively. Depreciation expense was
$217,393
,
$220,580
and
$218,649
for
2012
,
2011
and
2010
, respectively. Included in the property, plant and equipment are capital leases with a cost of
$7,219
and
$7,803
and accumulated depreciation of
$5,581
and
$5,881
as of
December 31, 2012
and
2011
, respectively.
(7) Long-Term Debt
On July 8, 2011, the Company entered into a
5
-year, senior, secured revolving credit facility (the “Senior Credit Facility”). The Senior Credit Facility provides for a maximum of
$900,000
of revolving credit, including limited amounts of credit in the form of letters of credit and swingline loans. The Company paid financing costs of
$8,285
in connection with its
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Senior Credit Facility. These costs were deferred and, along with unamortized costs of
$12,277
related to the Company’s prior senior, secured revolving credit facility, are being amortized over the term of the Senior Credit Facility.
On January 20, 2012, the Company entered into an amendment to the Senior Credit Facility that provides for an incremental term loan facility in the aggregate principal amount of
$150,000
. The Company paid financing costs of
$1,018
in connection with the amendment to its Senior Credit Facility. These costs were deferred and are being amortized over the remaining term of the Senior Credit Facility. The incremental term loan facility provides for eight scheduled quarterly principal payments of
$1,875
, with the first such payment due on June 30, 2012, followed by four scheduled quarterly principal payments of
$3,750
, with remaining quarterly principal payments of
$5,625
prior to maturity.
The Senior Credit Facility is scheduled to mature on July 8, 2016. The Company can terminate and prepay the Senior Credit Facility at any time without payment of any termination or prepayment penalty (other than customary breakage costs in respect of loans bearing interest at a rate based on LIBOR).
At the Company’s election, revolving loans under the Senior Credit 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
1.25%
and
2.0%
, or (b) the higher of the Bank of America, N.A. prime rate, the Federal Funds rate plus
0.5%
, and a monthly LIBOR rate plus
1.0%
, plus an applicable margin ranging between
0.25%
and
1.0%
. The Company also pays a commitment fee to the lenders under the Senior Credit Facility on the average amount by which the aggregate commitments of the lenders’ exceed utilization of the Senior Credit Facility ranging from
0.25%
to
0.4%
per annum. The applicable margin and the commitment fee are determined based on the Company’s Consolidated Net Leverage Ratio (with applicable margins and the commitment fee increasing as the ratio increases).
All obligations of the Company and the other borrowers under the Senior Credit Facility are required to be guaranteed by all of the Company’s material domestic subsidiaries and all obligations of borrowers that are foreign subsidiaries are guaranteed by those foreign subsidiaries of the Company which the Company designates as guarantors.
Due to the rating agency upgrade announced on March 14, 2012 by Standard & Poor’s Financial Services, LLC (“S&P”), the security interests in domestic accounts receivable and inventories, certain shares of capital stock (or equivalent ownership interests) of the domestic borrowers’ and domestic guarantors’ subsidiaries, and proceeds of any of the foregoing securing obligations under the Senior Credit Facility were released. The Company will be required to reinstate such security interests if there is a ratings downgrade such that: (a) both (i) the Moody’s Investor’s Service, Inc. (“Moody’s”) rating is Ba2 and (ii) the S&P rating is BB, (b) (i) the Moody’s rating is Ba3 or lower and (ii) the S&P rating is below BBB- (with a stable outlook or better) or (c) (i) the Moody’s rating is below Baa3 (with a stable outlook or better) and (ii) the S&P rating is BB- or lower.
The Senior Credit Facility includes certain affirmative and negative covenants that impose restrictions on the Company’s financial and business operations, including limitations on liens, indebtedness, 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 Company’s business. Many of these limitations are subject to numerous exceptions. The Company is also required to maintain a Consolidated Interest Coverage Ratio of at least
3.00
to
1.0
and a Consolidated Net Leverage Ratio of no more than
3.75
to
1.0
, each as of the last day of any fiscal quarter, as defined in the Senior Credit Facility. The Senior Credit Facility also contains customary representations and warranties and events of default, subject to customary grace periods.
As of
December 31, 2012
, the amount utilized under the Senior Credit Facility including the term loan was
$251,238
, resulting in a total of
$793,137
available under the Senior Credit Facility. The amount utilized included
$153,875
of borrowings,
$46,823
of standby letters of credit guaranteeing the Company’s industrial revenue bonds and
$50,540
of standby letters of credit related to various insurance contracts and foreign vendor commitments.
On December 19, 2012, the Company entered into a
three
-year on-balance sheet trade accounts receivable securitization agreement (the "Securitization Facility"). The Securitization Facility allows the Company to borrow up to
$300,000
based on available accounts receivable and is secured by the Company's U.S. trade accounts receivable. Borrowings under the Securitization Facility bear interest at commercial paper interest rates, in the case of lenders that are commercial paper conduits, or LIBOR, in the case of lenders that are not commercial paper conduits, in each case, plus an applicable margin of
0.75%
per annum. The Company also pays a commitment fee at a per annum rate of
0.30%
on the unused amount of each lender's commitment. At December 31, 2012, the amount utilized under the Securitization Facility was
$280,000
.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
On January 31, 2013, the Company issued
$600,000
aggregate principal amount of
3.850%
Senior Notes due 2023. In the event that the Company does not complete its acquisition of the Marazzi Group on or prior to January 25, 2014 or if, prior to that date, the Share Purchase Agreement with respect to the acquisition is terminated, the Company will be required to redeem all of the notes on the special mandatory redemption date at a redemption price equal to
101%
of the aggregate principal amount of the notes, plus accrued and unpaid interest thereon to, but not including, the special mandatory redemption date.
On January 17, 2006, the Company issued
$900,000
aggregate principal amount of
6.125%
notes due
January 15, 2016
. Interest payable on these notes is subject to adjustment if either Moody’s or S&P, or both, upgrades or 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 Company’s interest expense by approximately
$0.1 million
per quarter per
$100.0 million
of outstanding notes. In 2009, interest rates increased by an aggregate amount of
75
basis points as a result of downgrades by Moody’s and S&P. In the first quarter of 2012, interest rates decreased by
50
basis points as a result of the upgrades from S&P and Moody’s. Any future downgrades in the Company’s credit ratings could 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
7.20%
notes due
April 15, 2012
. During 2011, the Company repurchased
$63,730
of its senior
7.20%
notes, at an average price equal to
102.72%
of the principal amount. On April 16, 2012, the Company repaid the
$336,270
principal amount of outstanding senior
7.20%
notes, together with accrued interest of
$12,106
, at maturity using available borrowings under its Senior Credit Facility.
The fair value and carrying value of the Company’s debt instruments are detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
7.20% senior notes, payable April 15, 2012 interest payable semiannually
|
$
|
—
|
|
|
—
|
|
|
336,606
|
|
|
336,270
|
|
6.125% notes, payable January 15, 2016 interest payable semiannually
|
1,011,600
|
|
|
900,000
|
|
|
963,900
|
|
|
900,000
|
|
Five-year senior secured credit facility, due July 8, 2016
|
153,875
|
|
|
153,875
|
|
|
298,000
|
|
|
298,000
|
|
Securitization facility
|
280,000
|
|
|
280,000
|
|
|
—
|
|
|
—
|
|
Industrial revenue bonds, capital leases and other
|
49,067
|
|
|
49,067
|
|
|
52,169
|
|
|
52,169
|
|
Total long-term debt
|
1,494,542
|
|
|
1,382,942
|
|
|
1,650,675
|
|
|
1,586,439
|
|
Less current portion
|
55,213
|
|
|
55,213
|
|
|
386,591
|
|
|
386,255
|
|
Long-term debt, less current portion
|
$
|
1,439,329
|
|
|
1,327,729
|
|
|
1,264,084
|
|
|
1,200,184
|
|
The fair values of the Company’s 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, 2012
are as follows:
|
|
|
|
|
2013
|
$
|
55,213
|
|
2014
|
13,653
|
|
2015
|
300,944
|
|
2016
|
1,012,864
|
|
2017
|
229
|
|
Thereafter
|
39
|
|
|
$
|
1,382,942
|
|
|
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(8) Accounts Payable, Accrued Expenses and Deferred Tax Liability
Accounts payable and accrued expenses are as follows:
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
Outstanding checks in excess of cash
|
$
|
25,480
|
|
|
17,590
|
|
Accounts payable, trade
|
387,871
|
|
|
372,616
|
|
Accrued expenses
|
180,039
|
|
|
154,560
|
|
Product warranties
|
32,930
|
|
|
30,144
|
|
Accrued interest
|
26,843
|
|
|
34,235
|
|
Deferred tax liability
|
6,309
|
|
|
8,760
|
|
Income taxes payable
|
2,074
|
|
|
—
|
|
Accrued compensation and benefits
|
111,890
|
|
|
97,186
|
|
Total accounts payable and accrued expenses
|
$
|
773,436
|
|
|
715,091
|
|
|
|
|
|
(9) Product Warranties
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.
Product warranties are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Balance at beginning of year
|
$
|
30,144
|
|
|
37,265
|
|
|
66,545
|
|
Warranty claims paid during the year
|
(55,314
|
)
|
|
(57,163
|
)
|
|
(77,017
|
)
|
Pre-existing warranty accrual adjustment during the year
|
—
|
|
|
4,473
|
|
|
2,261
|
|
Warranty expense during the year
|
58,100
|
|
|
45,569
|
|
|
45,476
|
|
Balance at end of year
|
$
|
32,930
|
|
|
30,144
|
|
|
37,265
|
|
|
|
|
|
|
|
(10) 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 provisions of ASC 718-10. Compensation expense is recognized on a straight-line basis over the options’ or other awards’ estimated lives for fixed awards with ratable vesting provisions.
Under the Company’s 2007 Incentive Plan (“2007 Plan”), the Company's principal stock compensation plan prior to May 9, 2012, 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 Company’s 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 Company’s common stock on the date of the grant and generally vest between
three
and
five
years. On May 9, 2012, the Company's stockholders approved the 2012 Long-Term Incentive Plan (“2012 Plan”), which allows the Company to reserve up to a maximum of
3,200
shares of common stock for issuance upon the grant or exercise of awards under the 2012 Plan. No additional awards may be granted under the 2007 Plan after May 9, 2012. As of
December 31, 2012
, there have been no awards granted under the 2012 Plan.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Additional information relating to the Company’s stock option plans follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Options outstanding at beginning of year
|
1,305
|
|
|
1,371
|
|
|
1,481
|
|
Options granted
|
83
|
|
|
76
|
|
|
40
|
|
Options exercised
|
(277
|
)
|
|
(82
|
)
|
|
(74
|
)
|
Options forfeited and expired
|
(116
|
)
|
|
(60
|
)
|
|
(76
|
)
|
Options outstanding at end of year
|
995
|
|
|
1,305
|
|
|
1,371
|
|
Options exercisable at end of year
|
814
|
|
1,106
|
|
|
1,160
|
|
Option prices per share:
|
|
|
|
|
|
Options granted during the year
|
66.14
|
|
|
57.34
|
|
|
46.80
|
|
Options exercised during the year
|
28.37-88.33
|
|
|
28.37-63.14
|
|
|
16.66-57.88
|
|
Options forfeited and expired during the year
|
46.80-93.65
|
|
|
28.37-93.65
|
|
|
22.63-93.65
|
|
Options outstanding at end of year
|
28.37-93.65
|
|
|
28.37-93.65
|
|
|
28.37-93.65
|
|
Options exercisable at end of year
|
28.37-93.65
|
|
|
28.37-93.65
|
|
|
28.37-93.65
|
|
During
2012
,
2011
and
2010
, a total of
2
,
3
and
4
shares, respectively, were awarded to the non-employee directors in lieu of cash for their annual retainers.
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, 2012
,
2011
or
2010
.
The Company’s Board of Directors has authorized the repurchase of up to
15,000
shares of the Company’s outstanding common stock. For the years ended
December 31, 2012
and
2011
, no shares of the Company’s common stock were purchased. For the year ended December 31, 2010, the Company repurchased approximately
6
shares at an average price of
$56.94
in connection with the exercise of stock options under the Company’s 2007 Incentive Plan. Since the inception of the program, a total of approximately
11,518
shares have been repurchased at an aggregate cost of approximately
$335,110
. All of these repurchases have been financed through the Company’s operations and banking arrangements.
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 Company’s 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.
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Dividend yield
|
—
|
|
|
—
|
|
|
—
|
|
Risk-free interest rate
|
1.0
|
%
|
|
2.0
|
%
|
|
2.3
|
%
|
Volatility
|
47.1
|
%
|
|
48.1
|
%
|
|
45.2
|
%
|
Expected life (years)
|
5
|
|
|
5
|
|
|
5
|
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
A summary of the Company’s options under the 2002 and 2007 Plan as of
December 31, 2012
, and changes during the year then ended is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
average
exercise
price
|
|
Weighted
average
remaining
contractual
term (years)
|
|
Aggregate
intrinsic
value
|
Options outstanding, December 31, 2011
|
1,305
|
|
|
$
|
72.08
|
|
|
|
|
|
Granted
|
83
|
|
|
66.14
|
|
|
|
|
|
Exercised
|
(277
|
)
|
|
60.76
|
|
|
|
|
|
Forfeited and expired
|
(116
|
)
|
|
70.93
|
|
|
|
|
|
Options outstanding, December 31, 2012
|
995
|
|
|
74.87
|
|
|
3.9
|
|
$
|
15,643
|
|
Vested and expected to vest as of December 31, 2012
|
989
|
|
|
$
|
74.95
|
|
|
3.9
|
|
$
|
15,453
|
|
Exercisable as of December 31, 2012
|
814
|
|
|
$
|
77.78
|
|
|
3.0
|
|
$
|
10,437
|
|
The weighted-average grant-date fair value of an option granted during
2012
,
2011
and
2010
was
$28.71
,
$25.39
and
$19.10
, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2012
,
2011
, and 2009 was
$4,226
,
$1,148
and
$1,714
, respectively. Total compensation expense recognized for the years ended
December 31, 2012
,
2011
and
2010
was
$2,176
(
$1,378
, net of tax),
$1,885
(
$1,194
, net of tax) and
$2,436
(
$1,543
, 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, 2012
was
$2,096
with a weighted average remaining life of
1.4
years.
The following table summarizes information about the Company’s stock options outstanding as of
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
Exercise price range
|
Number of
shares
|
|
Average
life
|
|
Average
price
|
|
Number of
shares
|
|
Average
price
|
Under $57.34
|
171
|
|
|
6.4
|
|
$
|
47.90
|
|
|
98
|
|
|
$
|
44.34
|
|
$57.88-$73.45
|
197
|
|
|
4.4
|
|
69.97
|
|
|
115
|
|
|
72.75
|
|
$73.54-$81.40
|
162
|
|
|
4.7
|
|
74.91
|
|
|
136
|
|
|
74.99
|
|
$81.90-$86.51
|
167
|
|
|
2.8
|
|
83.16
|
|
|
167
|
|
|
83.16
|
|
$87.87-$88.00
|
35
|
|
|
2.8
|
|
87.96
|
|
|
35
|
|
|
87.96
|
|
$88.33-$93.65
|
263
|
|
|
2.3
|
|
89.08
|
|
|
263
|
|
|
89.08
|
|
Total
|
995
|
|
|
3.9
|
|
$
|
74.87
|
|
|
814
|
|
|
$
|
77.78
|
|
A summary of the Company’s RSUs under the 2007 Plan as of
December 31, 2012
, and changes during the year then ended is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
average price
|
|
Weighted
average
remaining
contractual
term (years)
|
|
Aggregate
intrinsic value
|
Restricted Stock Units outstanding, December 31, 2011
|
495
|
|
|
$
|
50.76
|
|
|
|
|
|
Granted
|
260
|
|
|
65.98
|
|
|
|
|
|
Released
|
(140
|
)
|
|
43.55
|
|
|
|
|
|
Forfeited
|
(10
|
)
|
|
59.07
|
|
|
|
|
|
Restricted Stock Units outstanding, December 31, 2012
|
605
|
|
|
57.87
|
|
|
2.3
|
|
$
|
54,774
|
|
Expected to vest as of December 31, 2012
|
551
|
|
|
|
|
|
2.1
|
|
$
|
49,872
|
|
The Company recognized stock-based compensation costs related to the issuance of RSU’s of
$11,887
(
$7,530
, net of taxes),
$8,186
(
$5,186
, net of taxes) and
$4,262
(
$2,700
, net of taxes) for the years ended
December 31, 2012
,
2011
and
2010
,
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
respectively, which has been allocated to selling, general and administrative expenses. Pre-tax unrecognized compensation expense for unvested RSU’s granted to employees, net of estimated forfeitures, was
$15,437
as of
December 31, 2012
, and will be recognized as expense over a weighted-average period of approximately
2.9
years.
Additional information relating to the Company’s RSUs under the 2007 Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Restricted Stock Units outstanding, January 1
|
495
|
|
|
404
|
|
|
359
|
|
Granted
|
260
|
|
|
196
|
|
|
149
|
|
Released
|
(140
|
)
|
|
(91
|
)
|
|
(95
|
)
|
Forfeited
|
(10
|
)
|
|
(14
|
)
|
|
(9
|
)
|
Restricted Stock Units outstanding, December 31
|
605
|
|
|
495
|
|
|
404
|
|
Expected to vest as of December 31
|
551
|
|
|
438
|
|
|
343
|
|
(11) 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 U.S. based employees of the Unilin segment, who have completed
90
days of eligible service. The Company contributes
$.50
for every
$1.00
of employee contributions up to a maximum of
6%
of the employee’s salary based upon each individual participants election. Employee and employer contributions to the Mohawk Plan were
$35,986
and
$15,046
in
2012
,
$34,595
and
$14,541
in
2011
and
$33,071
and
$13,062
in
2010
, 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.
Components of the net periodic benefit cost of the Non-U.S. Plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Service cost of benefits earned
|
$
|
1,870
|
|
|
1,708
|
|
|
1,506
|
|
Interest cost on projected benefit obligation
|
1,367
|
|
|
1,400
|
|
|
1,219
|
|
Expected return on plan assets
|
(1,192
|
)
|
|
(1,232
|
)
|
|
(1,025
|
)
|
Amortization of actuarial gain
|
(10
|
)
|
|
(26
|
)
|
|
4
|
|
Net pension expense
|
$
|
2,035
|
|
|
1,850
|
|
|
1,704
|
|
Assumptions used to determine net periodic pension expense for the Non-U.S. Plans:
|
|
|
|
|
|
2012
|
|
2011
|
Discount rate
|
4.50%
|
|
4.75%
|
Expected rate of return on plan assets
|
2.50%-3.50%
|
|
4.00%-5.00%
|
Rate of compensation increase
|
2.00%-4.00%
|
|
0.00%-3.00%
|
Underlying inflation rate
|
2.00%
|
|
2.00%
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The obligations, plan assets and funding status of the Non-U.S. Plans were as follows:
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Change in benefit obligation:
|
|
|
|
Projected benefit obligation at end of prior year
|
$
|
29,231
|
|
|
26,977
|
|
Cumulative foreign exchange effect
|
669
|
|
|
(876
|
)
|
Service cost
|
1,870
|
|
|
1,708
|
|
Interest cost
|
1,367
|
|
|
1,400
|
|
Plan participants contributions
|
827
|
|
|
763
|
|
Actuarial loss
|
5,179
|
|
|
455
|
|
Benefits paid
|
(1,552
|
)
|
|
(1,196
|
)
|
Effect of curtailment and settlement
|
(40
|
)
|
|
—
|
|
Projected benefit obligation at end of year
|
$
|
37,551
|
|
|
29,231
|
|
Change in plan assets:
|
|
|
|
Fair value of plan assets at end of prior year
|
$
|
26,109
|
|
|
24,108
|
|
Cumulative foreign exchange effect
|
515
|
|
|
(594
|
)
|
Actual return on plan assets
|
4,771
|
|
|
1,203
|
|
Employer contributions
|
1,888
|
|
|
1,825
|
|
Benefits paid
|
(1,552
|
)
|
|
(1,196
|
)
|
Plan participant contributions
|
827
|
|
|
763
|
|
Fair value of plan assets at end of year
|
$
|
32,558
|
|
|
26,109
|
|
Funded status of the plans:
|
|
|
|
Ending funded status
|
$
|
(4,993
|
)
|
|
(3,122
|
)
|
Net amount recognized in consolidated balance sheets:
|
|
|
|
Accrued benefit liability (non-current liability)
|
$
|
(4,993
|
)
|
|
(3,122
|
)
|
Accumulated other comprehensive income
|
928
|
|
|
(663
|
)
|
Net amount recognized
|
$
|
(4,065
|
)
|
|
(3,785
|
)
|
The Company’s net amount recognized in other comprehensive income related to actuarial gains (losses) was
$(1,591)
,
$(452)
and
$380
for the years ended
December 31, 2012
,
2011
and
2010
, respectively.
Assumptions used to determine the projected benefit obligation for the Non-U.S. Plans were as follows:
|
|
|
|
|
|
2012
|
|
2011
|
Discount rate
|
3.25%
|
|
4.50%
|
Rate of compensation increase
|
2.00%-4.00%
|
|
0.00%-3.00%
|
Underlying inflation rate
|
2.00%
|
|
2.00%
|
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 Company’s annual reviews.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
|
|
|
|
|
|
|
|
|
Non-U.S. Plans
|
|
December 31,
2012
|
|
December 31,
2011
|
Plans with accumulated benefit obligations in excess of plan assets:
|
|
|
|
Projected benefit obligation
|
$
|
15,067
|
|
|
16,492
|
|
Accumulated benefit obligation
|
12,396
|
|
|
15,496
|
|
Fair value of plan assets
|
11,702
|
|
|
14,703
|
|
Plans with plan assets in excess of accumulated benefit obligations:
|
|
|
|
Projected benefit obligation
|
$
|
22,484
|
|
|
12,739
|
|
Accumulated benefit obligation
|
20,640
|
|
|
10,687
|
|
Fair value of plan assets
|
20,856
|
|
|
11,406
|
|
Estimated future benefit payments for the Non-U.S. Plans are as follows:
|
|
|
|
|
2013
|
|
976
|
|
2014
|
|
984
|
|
2015
|
|
1,071
|
|
2016
|
|
1,102
|
|
2017
|
|
1,606
|
|
Thereafter
|
|
10,241
|
|
The Company expects to make cash contributions of
$1,930
to the Non-U.S. Plans in
2013
.
The fair value of the Non-U.S. Plans' 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, 2012
and
2011
were as follows:
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Non-U.S. Plans:
|
|
|
|
Insurance contracts (100%)
|
$
|
32,558
|
|
|
26,109
|
|
The Company’s 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 Company’s investment guidelines and current and expected economic fundamentals.
(12) Other Expense (Income)
Following is a summary of other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Foreign currency losses (gains)
|
$
|
(5,599
|
)
|
|
10,423
|
|
|
(2,270
|
)
|
U.S. customs refund
|
—
|
|
|
—
|
|
|
(7,730
|
)
|
All other, net
|
5,902
|
|
|
3,628
|
|
|
(1,630
|
)
|
Total other expense (income)
|
$
|
303
|
|
|
14,051
|
|
|
(11,630
|
)
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(13) Income Taxes
Following is a summary of earnings from continuing operations before income taxes for United States and foreign operations:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
United States
|
$
|
164,122
|
|
|
78,224
|
|
|
39,332
|
|
Foreign
|
140,370
|
|
|
121,650
|
|
|
153,316
|
|
Earnings before income taxes
|
$
|
304,492
|
|
|
199,874
|
|
|
192,648
|
|
Income tax expense (benefit) for the years ended
December 31, 2012
,
2011
and
2010
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Current income taxes:
|
|
|
|
|
|
U.S. federal
|
$
|
26,204
|
|
|
13,957
|
|
|
14,052
|
|
State and local
|
4,583
|
|
|
5,118
|
|
|
1,514
|
|
Foreign
|
13,775
|
|
|
7,190
|
|
|
8,426
|
|
Total current
|
44,562
|
|
|
26,265
|
|
|
23,992
|
|
Deferred income taxes:
|
|
|
|
|
|
U.S. federal
|
31,106
|
|
|
8,994
|
|
|
(8,578
|
)
|
State and local
|
4,704
|
|
|
(3,488
|
)
|
|
18,562
|
|
Foreign
|
(26,773
|
)
|
|
(10,122
|
)
|
|
(31,263
|
)
|
Total deferred
|
9,037
|
|
|
(4,616
|
)
|
|
(21,279
|
)
|
Total
|
$
|
53,599
|
|
|
21,649
|
|
|
2,713
|
|
Income tax expense (benefit) attributable to earnings before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to earnings before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Income taxes at statutory rate
|
$
|
106,572
|
|
|
69,956
|
|
|
67,427
|
|
State and local income taxes, net of federal income tax benefit
|
6,004
|
|
|
2,821
|
|
|
2,358
|
|
Foreign income taxes
|
(66,538
|
)
|
|
(45,112
|
)
|
|
(21,389
|
)
|
Change in valuation allowance
|
5,703
|
|
|
(2,052
|
)
|
|
(17,139
|
)
|
Tax contingencies and audit settlements
|
(3,598
|
)
|
|
(5,911
|
)
|
|
(3,447
|
)
|
Acquisition related tax contingencies
|
—
|
|
|
—
|
|
|
(30,162
|
)
|
Change in statutory tax rate
|
—
|
|
|
—
|
|
|
(49
|
)
|
Other, net
|
5,456
|
|
|
1,947
|
|
|
5,114
|
|
|
$
|
53,599
|
|
|
21,649
|
|
|
2,713
|
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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, 2012
and
2011
are presented below:
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Deferred tax assets:
|
|
|
|
Accounts receivable
|
$
|
12,289
|
|
|
10,031
|
|
Inventories
|
38,801
|
|
|
39,227
|
|
Accrued expenses and other
|
97,808
|
|
|
90,171
|
|
Deductible state tax and interest benefit
|
13,119
|
|
|
17,224
|
|
Intangibles
|
113,282
|
|
|
136,891
|
|
Federal, foreign and state net operating losses and credits
|
247,786
|
|
|
273,509
|
|
Gross deferred tax assets
|
523,085
|
|
|
567,053
|
|
Valuation allowance
|
(321,585
|
)
|
|
(334,215
|
)
|
Net deferred tax assets
|
201,500
|
|
|
232,838
|
|
Deferred tax liabilities:
|
|
|
|
Inventories
|
(8,106
|
)
|
|
(5,270
|
)
|
Plant and equipment
|
(277,324
|
)
|
|
(294,960
|
)
|
Intangibles
|
(128,433
|
)
|
|
(137,888
|
)
|
Other liabilities
|
(7,854
|
)
|
|
(6,401
|
)
|
Gross deferred tax liabilities
|
(421,717
|
)
|
|
(444,519
|
)
|
Net deferred tax liability (1)
|
$
|
(220,217
|
)
|
|
(211,681
|
)
|
|
|
(1)
|
This amount includes
$4,317
and
$1,822
of non-current deferred tax assets which are in deferred income taxes and other non-current assets and
$6,309
and
$8,760
current deferred tax liabilities which are included in accounts payable and accrued expenses in the consolidated balance sheets as of
December 31, 2012
and
2011
, respectively.
|
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, 2012
,
2011
and
2010
is
$321,585
,
$334,215
and
$325,127
, respectively. The valuation allowance as of
December 31, 2012
relates to the net deferred tax assets of one of the Company’s foreign subsidiaries as well as certain state net operating losses and tax credits. The total change in the
2012
valuation allowance was a decrease of
$12,630
which includes
$5,863
related to foreign currency translation. The total change in the
2011
valuation allowance was an increase of
$9,088
, which includes
$7,040
related to foreign currency translation. The total change in the
2010
valuation allowance was a decrease of
$40,817
, which includes
$22,046
related to foreign currency translation.
Management believes it is more likely than not that the Company will realize the benefits of its deferred tax assets, net of valuation allowances, 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.
As of
December 31, 2012
, the Company has state net operating loss carry forwards and state tax credits with potential tax benefits of
$49,081
, net of federal income tax benefit; these carry forwards expire over various periods based on taxing jurisdiction. A valuation allowance totaling
$39,461
has been recorded against these state deferred tax assets as of
December 31, 2012
. In addition, as of
December 31, 2012
, the Company has net operating loss carry forwards in various foreign jurisdictions with potential tax benefits of
$198,705
. A valuation allowance totaling
$170,394
has been recorded against these deferred tax assets as of
December 31, 2012
.
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 deemed to be permanently reinvested. As of
December 31, 2012
, the Company had not provided federal income taxes on earnings of approximately
$786,000
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.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Determination of the amount of the unrecognized deferred U.S. tax liability is not practical because of the complexities associated with this hypothetical calculation.
Tax Uncertainties
In the normal course of business, the Company’s 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. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest and penalties in income tax expense (benefit). 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 Company’s consolidated financial position but could possibly be material to the Company’s consolidated results of operations or cash flow in any given quarter or annual period.
In January 2012, the Company received a
€23,789
assessment from the Belgian tax authority related to its year ended December 31, 2008, asserting that the Company had understated its Belgian taxable income for that year. The Company filed a formal protest in the first quarter of 2012 refuting the Belgian tax authority's position and in order to eliminate the accrual of additional interest on the assessed amount, the Company remitted payment of the tax assessment, plus applicable interest of
€2,912
(collectively, the “Deposit”). In July 2012, the Company received notification of the Belgian tax authority's intention to extend the statute of limitations back to and including the tax year 2005. On September 10, 2012, the Company received notice from the Belgian tax authority setting aside the 2008 assessment and refunding the Deposit to the Company. On October 23, 2012, the Company received notification from the Belgian tax authority of its intent to increase the Company's tax base for the 2008 tax year under a revised theory. On December 28, 2012, the Company received the refund of the Deposit of
€23,789
. On January 30, 2013, the Company received a refund of the interest Deposit of
€2,912
and interest income of
€1,583
earned on the Deposit.
On December 28, 2012, the Belgian taxing authority issued assessments under a revised theory related to the years ended December 31, 2005 and December 31, 2009, in the amounts of
€46,135
and
€35,567
, respectively, excluding potential interest and penalties. The Company intends to file a formal protest during the first quarter of 2013 relating to the new assessments. The Company disagrees with the views of the Belgian tax authority on this matter and will continue to vigorously defend itself. Although there can be no assurances, the Company believes 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, liquidity or cash flows in a given quarter or year.
As of
December 31, 2012
, the Company’s gross amount of unrecognized tax benefits is
$53,835
, excluding interest and penalties. If the Company were to prevail on all uncertain tax positions,
$36,902
of the unrecognized tax benefits would affect the Company’s effective tax rate, exclusive of any benefits related to interest and penalties.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Balance as of January 1
|
$
|
46,087
|
|
|
49,943
|
|
Additions based on tax positions related to the current year
|
3,142
|
|
|
306
|
|
Additions for tax positions of prior years
|
17,006
|
|
|
7,907
|
|
Reductions for tax positions of prior years
|
(3,571
|
)
|
|
(926
|
)
|
Reductions resulting from the lapse of the statute of limitations
|
(1,764
|
)
|
|
(1,391
|
)
|
Settlements with taxing authorities
|
(7,065
|
)
|
|
(9,752
|
)
|
Balance as of December 31
|
$
|
53,835
|
|
|
46,087
|
|
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, 2012
and
2011
, the Company has
$5,874
and
$7,998
, 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, 2012
,
2011
and
2010
, the Company reversed interest and penalties through the consolidated statements of operations of
$1,585
,
$3,755
and
$9,852
, respectively.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The Company believes that its unrecognized tax benefits could decrease by
$7,499
within the next twelve months. The Company has effectively settled all Federal income tax matters related to years prior to 2009. Various other state and foreign income tax returns are open to examination for various years. The Internal Revenue Service ("IRS") recently concluded its examination of the Company's 2007-2009 federal income tax returns. The results of the federal income tax examination were submitted to the Congressional Joint Committee on Taxation for review. Subsequent to the quarter ended December 31, 2012, the Company received notice that the Congressional Joint Committee on Taxation had completed its review and took no exception to the conclusions reached by the IRS.
(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:
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
Operating
|
|
Total Future
Payments
|
2013
|
$
|
795
|
|
|
87,741
|
|
|
88,536
|
|
2014
|
587
|
|
|
75,509
|
|
|
76,096
|
|
2015
|
354
|
|
|
59,252
|
|
|
59,606
|
|
2016
|
266
|
|
|
33,665
|
|
|
33,931
|
|
2017
|
255
|
|
|
21,160
|
|
|
21,415
|
|
Thereafter
|
16
|
|
|
27,068
|
|
|
27,084
|
|
Total payments
|
2,273
|
|
|
304,395
|
|
|
306,668
|
|
Less amount representing interest
|
228
|
|
|
|
|
|
Present value of capitalized lease payments
|
$
|
2,045
|
|
|
|
|
|
Rental expense under operating leases was
$97,587
,
$103,416
and
$105,976
in
2012
,
2011
and
2010
, respectively.
The Company had approximately
$50,540
as of
December 31, 2012
and
2011
in standby letters of credit for various insurance contracts and commitments to foreign vendors that expire within
two
years.
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.
Beginning in August 2010, a series of civil lawsuits were initiated in several U.S. federal courts alleging that certain manufacturers of polyurethane foam products and competitors of the Company’s carpet underlay division had engaged in price fixing in violation of U.S. antitrust laws. Mohawk has been named as a defendant in a number of the individual cases (the first filed on August 26, 2010), as well as in two consolidated amended class action complaints, the first filed on February 28, 2011, on behalf of a class of all direct purchasers of polyurethane foam products, and the second filed on March 21, 2011, on behalf of a class of indirect purchasers. All pending cases in which the Company has been named as a defendant have been filed in or transferred to the U.S. District Court for the Northern District of Ohio for consolidated pre-trial proceedings under the name
In re: Polyurethane Foam Antitrust Litigation, Case No. 1:10-MDL-02196.
In these actions, the plaintiffs, on behalf of themselves and/or a class of purchasers, seek three times the amount of unspecified damages allegedly suffered as a result of alleged overcharges in the price of polyurethane foam products from at least 1999 to the present. Each plaintiff also seeks attorney fees, pre-judgment and post-judgment interest, court costs, and injunctive relief against future violations. In December 2011, the Company was named as a defendant in a Canadian Class action,
Hi ! Neighbor Floor Covering Co. Limited v. Hickory Springs Manufacturing Company, et.al., filed in the Superior Court of Justice of Ontario, Canada and Options Consommateures v. Vitafoam, Inc. et.al.,
filed in the Superior Court of Justice of Quebec, Montreal, Canada, both of which allege similar claims against the Company as raised in the U.S. actions and seek unspecified damages and punitive damages. The Company denies all of the allegations in these actions and will vigorously defend itself.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The Company believes that adequate provisions for resolution of all contingencies, claims and pending litigation have been made for probable losses that are reasonably estimable. These contingencies are subject to significant uncertainties and we are unable to estimate the amount or range of loss, if any, in excess of amounts accrued. The Company does not believe that the ultimate outcome of these actions will have a material adverse effect on its financial condition but could have a material adverse effect on its results of operations, cash flows or liquidity in a given quarter or year.
On July 1, 2010, Monterrey, Mexico experienced flooding as a result of Hurricane Alex which temporarily interrupted operations at the Company’s Dal-Tile ceramic tile production facility. The plant was fully operational in the latter part of the third quarter of 2010. Prior to the close of the third quarter of 2010, the Company and its insurance carrier agreed to a final settlement of its claim, which included property damage and business interruption for approximately
$25,000
. The amount included approximately
$20,000
to cover costs to repair and/or replace property and equipment and approximately
$5,000
to recover lost margin from lost sales. The settlement with the insurance carrier is recorded in cost of sales in the Company’s 2010 consolidated statement of operations. As a result of the insurance settlement, the flooding did not have a material impact on the Company’s results of operations or financial position.
The Company has received partial refunds from the United States government in reference to settling custom disputes dating back to 1986. Accordingly, the Company realized a gain of
$7,730
in other expense (income) in the Company’s 2010 consolidated statement of operations. The Company is pursuing additional recoveries for prior years but there can be no assurances such recoveries will occur. Additional future recoveries, if any, 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, recycling and disposal of solid and hazardous materials and finished product, and the cleanup of contamination associated therewith. Because of the nature of the Company’s 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 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 financial condition but could have a material adverse effect on its results of operations, cash flows or liquidity in a given quarter or year.
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. The Company believes that its relations with its employees are good.
The Company recorded pre-tax business restructuring charges of
$18,564
in
2012
, of which
$14,816
was recorded as cost of sales and
$3,748
was recorded as selling, general and administrative expenses. The Company recorded pre-tax business restructuring charges of
$23,209
in
2011
, of which
$17,546
was recorded as cost of sales and
$5,663
was recorded as selling, general and administrative expenses. The Company recorded pre-tax business restructuring charges of
$13,156
in
2010
, of which
$12,392
was recorded as cost of sales and
$764
was recorded as selling, general and administrative expenses. The charges primarily relate to the Company’s actions taken to lower its cost structure and improve the efficiency of its manufacturing and distribution operations as it adjusts to current economic conditions.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The activity for
2011
and
2012
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
impairments
|
|
Asset write-downs
|
|
Severance
|
|
Other
restructuring
costs
|
|
Total
|
Balance as of December 31, 2010
|
$
|
10,983
|
|
|
—
|
|
|
2,108
|
|
|
420
|
|
|
13,511
|
|
Provisions
|
|
|
|
|
|
|
|
|
|
Mohawk segment
|
3,680
|
|
|
10,643
|
|
|
5,120
|
|
|
3,766
|
|
|
23,209
|
|
Cash payments
|
(3,707
|
)
|
|
—
|
|
|
(4,850
|
)
|
|
(2,406
|
)
|
|
(10,963
|
)
|
Noncash items
|
—
|
|
|
(10,643
|
)
|
|
—
|
|
|
(269
|
)
|
|
(10,912
|
)
|
Balance as of December 31, 2011
|
10,956
|
|
|
—
|
|
|
2,378
|
|
|
1,511
|
|
|
14,845
|
|
Provisions:
|
|
|
|
|
|
|
|
|
|
Mohawk segment
|
—
|
|
|
6,687
|
|
|
4,069
|
|
|
(252
|
)
|
|
10,504
|
|
Dal-Tile segment
|
373
|
|
|
3,727
|
|
|
2,009
|
|
|
—
|
|
|
6,109
|
|
Unilin segment
|
—
|
|
|
138
|
|
|
1,775
|
|
|
38
|
|
|
1,951
|
|
Cash payments
|
(3,872
|
)
|
|
—
|
|
|
(7,333
|
)
|
|
(1,297
|
)
|
|
(12,502
|
)
|
Noncash items
|
—
|
|
|
(10,552
|
)
|
|
—
|
|
|
—
|
|
|
(10,552
|
)
|
Balance as of December 31, 2012
|
$
|
7,457
|
|
|
—
|
|
|
2,898
|
|
|
—
|
|
|
10,355
|
|
Subsequent to December 31, 2012, in conjunction with the Pergo acquisition, the Company announced its intention to move certain production activities from Sweden to Belgium. The Company is in the beginning stages of union negotiations.
(15) Consolidated Statements of Cash Flows Information
Supplemental disclosures of cash flow information are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Net cash paid (received) during the years for:
|
|
|
|
|
|
Interest
|
$
|
80,985
|
|
|
119,463
|
|
|
139,358
|
|
Income taxes
|
$
|
43,650
|
|
|
34,479
|
|
|
(5,862
|
)
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
|
Fair value of assets acquired in acquisition
|
$
|
—
|
|
|
37,486
|
|
|
—
|
|
Liabilities assumed in acquisition
|
—
|
|
|
(13,389
|
)
|
|
—
|
|
|
$
|
—
|
|
|
24,097
|
|
|
—
|
|
(16) Segment Reporting
The Company has
three
reporting segments: the Mohawk segment, the Dal-Tile segment and the Unilin segment. The Mohawk segment designs, manufactures, sources, distributes and markets its floor covering product lines, which include carpets, ceramic tile, laminate, rugs, carpet pad, hardwood and resilient, primarily in North America through its network of regional distribution centers and satellite warehouses using company-operated trucks, common carrier or rail transportation. The segment’s product lines are sold through various selling channels, which include independent floor covering retailers, home centers, mass merchandisers, department stores, commercial dealers and commercial end users. The Dal-Tile segment designs, manufactures, sources, distributes and markets a broad line of ceramic tile, porcelain tile, natural stone and other products, primarily in North America through its network of regional distribution centers and Company-operated service centers using company-operated trucks, common carriers or rail transportation. The segment’s product lines are sold through Company-owned service centers, independent distributors, home center retailers, tile and flooring retailers and contractors. The Unilin segment designs, manufactures, sources, licenses, distributes and markets laminate, hardwood flooring, roofing systems, insulation panels and other wood products, primarily in North America and Europe through various selling channels, which include retailers, independent distributors and home centers.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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,
2012
,
2011
or
2010
.
Segment information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Net sales:
|
|
|
|
|
|
Mohawk
|
$
|
2,912,055
|
|
|
2,927,674
|
|
|
2,844,876
|
|
Dal-Tile
|
1,616,383
|
|
|
1,454,316
|
|
|
1,367,442
|
|
Unilin
|
1,350,349
|
|
|
1,344,764
|
|
|
1,188,274
|
|
Intersegment sales
|
(90,807
|
)
|
|
(84,496
|
)
|
|
(81,520
|
)
|
|
$
|
5,787,980
|
|
|
5,642,258
|
|
|
5,319,072
|
|
Operating income (loss):
|
|
|
|
|
|
Mohawk
|
$
|
158,196
|
|
|
109,874
|
|
|
122,904
|
|
Dal-Tile
|
120,951
|
|
|
101,298
|
|
|
97,334
|
|
Unilin
|
126,409
|
|
|
127,147
|
|
|
114,298
|
|
Corporate and intersegment eliminations
|
(26,048
|
)
|
|
(22,777
|
)
|
|
(20,367
|
)
|
|
$
|
379,508
|
|
|
315,542
|
|
|
314,169
|
|
Depreciation and amortization:
|
|
|
|
|
|
Mohawk
|
$
|
95,648
|
|
|
90,463
|
|
|
91,930
|
|
Dal-Tile
|
41,176
|
|
|
42,723
|
|
|
45,578
|
|
Unilin
|
132,183
|
|
|
151,884
|
|
|
145,941
|
|
Corporate
|
11,286
|
|
|
12,664
|
|
|
13,324
|
|
|
$
|
280,293
|
|
|
297,734
|
|
|
296,773
|
|
Capital expenditures (excluding acquisitions):
|
|
|
|
|
|
Mohawk
|
$
|
97,972
|
|
|
125,630
|
|
|
84,013
|
|
Dal-Tile
|
49,426
|
|
|
66,419
|
|
|
37,344
|
|
Unilin
|
56,605
|
|
|
78,615
|
|
|
29,439
|
|
Corporate
|
4,291
|
|
|
4,909
|
|
|
5,384
|
|
|
$
|
208,294
|
|
|
275,573
|
|
|
156,180
|
|
Assets:
|
|
|
|
|
|
Mohawk
|
$
|
1,721,214
|
|
|
1,769,065
|
|
|
1,637,319
|
|
Dal-Tile
|
1,731,258
|
|
|
1,732,818
|
|
|
1,644,448
|
|
Unilin
|
2,672,389
|
|
|
2,533,070
|
|
|
2,475,049
|
|
Corporate and intersegment eliminations
|
178,823
|
|
|
171,275
|
|
|
342,110
|
|
|
$
|
6,303,684
|
|
|
6,206,228
|
|
|
6,098,926
|
|
Geographic net sales:
|
|
|
|
|
|
North America
|
$
|
4,798,804
|
|
|
4,619,771
|
|
|
4,447,965
|
|
Rest of world
|
989,176
|
|
|
1,022,487
|
|
|
871,107
|
|
|
$
|
5,787,980
|
|
|
5,642,258
|
|
|
5,319,072
|
|
Long-lived assets (1):
|
|
|
|
|
|
North America
|
$
|
1,968,561
|
|
|
1,996,517
|
|
|
1,971,612
|
|
Rest of world
|
1,110,062
|
|
|
1,090,812
|
|
|
1,084,906
|
|
|
$
|
3,078,623
|
|
|
3,087,329
|
|
|
3,056,518
|
|
Net sales by product categories (2):
|
|
|
|
|
|
Soft surface
|
$
|
2,696,462
|
|
|
2,722,113
|
|
|
2,645,952
|
|
Tile
|
1,676,971
|
|
|
1,513,210
|
|
|
1,428,571
|
|
Wood
|
1,414,547
|
|
|
1,406,935
|
|
|
1,244,549
|
|
|
$
|
5,787,980
|
|
|
5,642,258
|
|
|
5,319,072
|
|
|
|
(1)
|
Long-lived assets are composed of property, plant and equipment, net, and goodwill.
|
|
|
(2)
|
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, wood-based panels and licensing.
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(17) Quarterly Financial Data (Unaudited)
The supplemental quarterly financial data are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
March 31,
2012
|
|
June 30,
2012
|
|
September 29,
2012
|
|
December 31,
2012
|
Net sales
|
$
|
1,409,035
|
|
|
1,469,793
|
|
|
1,473,493
|
|
|
1,435,659
|
|
Gross profit
|
359,426
|
|
|
388,464
|
|
|
372,837
|
|
|
369,331
|
|
Net earnings
|
40,377
|
|
|
73,188
|
|
|
70,304
|
|
|
66,389
|
|
Basic earnings per share
|
0.59
|
|
|
1.06
|
|
|
1.02
|
|
|
0.96
|
|
Diluted earnings per share
|
0.58
|
|
|
1.06
|
|
|
1.01
|
|
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
April 2,
2011
|
|
July 2,
2011
|
|
October 1,
2011
|
|
December 31, 2011 (1)
|
Net sales
|
$
|
1,343,595
|
|
|
1,477,854
|
|
|
1,442,512
|
|
|
1,378,297
|
|
Gross profit
|
341,592
|
|
|
382,247
|
|
|
357,623
|
|
|
335,417
|
|
Net earnings
|
23,442
|
|
|
60,903
|
|
|
46,646
|
|
|
42,931
|
|
Basic earnings per share
|
0.34
|
|
|
0.89
|
|
|
0.68
|
|
|
0.62
|
|
Diluted earnings per share
|
0.34
|
|
|
0.88
|
|
|
0.68
|
|
|
0.62
|
|
|
|
(1)
|
During the fourth quarter of 2011, the Company corrected an immaterial error in its consolidated financial statements. The error related to accounting for operating leases. The correction of
$6,035
resulted in an additional charge to selling, general and administrative expense in the Company’s 2011 fourth quarter consolidated statement of operations. The Company believes the correction of this error to be both quantitatively and qualitatively immaterial to its quarterly results for 2011 or to any of its previously issued consolidated financial statements. The correction had no impact on the Company’s cash flows as previously presented.
|