Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[Mark One]
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ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015
OR
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
01-13697
MOHAWK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware | | 52-1604305 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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160 S. Industrial Blvd., Calhoun, Georgia | | 30701 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (706) 629-7721
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of Each Class | | Name of Each Exchange on Which Registered |
Common Stock, $.01 par value | | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act Yes ¨ No ý
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | ý | | Accelerated filer | | ¨ |
Non-accelerated filer | | ¨ | | Smaller reporting company | | ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ý
The aggregate market value of the Common Stock of the Registrant held by non-affiliates (excludes beneficial owners of more than 10% of the Common Stock) of the Registrant (62,815,500 shares) on July 2, 2015 (the last business day of the Registrant’s most recently completed fiscal second quarter) was $12,157,940,025. The aggregate market value was computed by reference to the closing price of the Common Stock on such date.
Number of shares of Common Stock outstanding as of February 23, 2016: 73,956,759 shares of Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
This Amendment No. 1 to the Annual Report on Form 10-K (this “Amended Form 10-K”) of Mohawk Industries Inc. (the “Company”) for the fiscal year ended December 31, 2015 (Commission File Number 001-13697) is being filed to amend and restate in their entirety the following items of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 that was filed on February 29, 2016 (the “Original Filing”): (i) Item 8 of Part II, “Consolidated Financial Statements and Supplementary Data,” (ii) Item 9A of Part II, “Controls and Procedures” and (iii) Item 15 of Part IV, “Exhibits, Financial Statement Schedules” because of a previously reported material weakness related to documenting management’s inventory control monitoring.
The Company’s consolidated financial statements as of and for the year ended December 31, 2015, which were included in the Original Filing, have not changed as a result of the material weakness. The Company’s independent registered public accounting firm, KPMG LLP, has amended its report on the effectiveness of internal control over financial reporting dated February 29, 2016 and expressed an adverse report on the operating effectiveness of our internal control over financial reporting as of December 31, 2015 because of the previously reported material weakness. KPMG LLP has also amended its report on the Company’s consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015 included in the Original Filing solely to reference their adverse report on the operating effectiveness of internal control over financial reporting as of December 31, 2015. Item 8 of Part II, “Consolidated Financial Statements and Supplementary Data” of this 2015 Form 10-K/A is being amended and restated solely to include such amended reports.
Except as described above, this Amended Form 10-K does not amend, update or change any other items or disclosures in the Original Filing and does not purport to reflect any information or events after the filing date of the Original Filing. Except as described above, this Amended Form 10-K speaks only as of the date of the Original Filing and the Company has not undertaken to amend, supplement or update any information contained in the Original Filing to give effect to any subsequent events. Accordingly, this Amended Form 10-K should be read in conjunction with the Company’s filings made with the Securities and Exchange Commission after February 29, 2016, including any amendment to those filings.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
At the time of the Original Filing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2015 and the Company's management concluded that the Company's internal control over financial reporting was effective as of December 31, 2015.
Following management's conclusion in the Original Filing, as a result of questions raised during the Public Company Accounting Oversight Board’s routine inspection of the Company’s independent registered public accounting firm, the Company's management, including our Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2015 because of the previously reported material weakness related to documenting management’s inventory control monitoring. As a result, the Company has restated Item 9A of Part II, “Controls and Procedures” to include disclosure of the material weakness and has also restated Item 8 of Part II, “Financial Statements and Supplementary Data” to provide amended reports of the Company's independent registered public accounting firm that take the material weakness into account.
The Company has significant controls in place with respect to its inventory and believes its inventories are properly stated despite the material weakness. After additional testing, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the consolidated financial statements included in the Original Filing and in the Company's subsequent Quarterly Reports on Form 10-Q fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates and for the periods presented in conformity with accounting principles generally accepted in the United States and Article 10 of Regulation S-X of the Securities and Exchange Commission. In addition, the Company’s independent registered public accounting firm has also amended its reports included in the Original Filing as noted above.
Table of Contents
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Item 8. | | |
Item 9A. | | |
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Item 15. | | |
PART II
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Item 8. | Consolidated Financial Statements and Supplementary Data |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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 (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s 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, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 29, 2016 except for the restatement as to the effectiveness of internal control over financial reporting for the material weakness in the design, operation and documentation of controls related to the monitoring of inventory cycle counts and the valuation of obsolete inventory at two of the Company’s divisions, as to which the date is November 23, 2016, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
Atlanta, Georgia
February 29, 2016, except for the restatement as to the effectiveness of internal control over financial reporting for the material weakness in the design, operation and documentation of controls related to the inventory cycle counts and the valuation of obsolete inventory at two of the Company’s divisions, as to which the date is November 23, 2016
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Mohawk Industries, Inc.:
We have audited Mohawk Industries, Inc.’s (the Company) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) published 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, as set forth in Management's Report on Internal Control over Financial Reporting included in Item 9A. of Mohawk Industries, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015. Our responsibility is to express an opinion on the Company’s 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 company’s 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 company’s 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 company’s 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 report dated February 29, 2016, we expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. As described in the following paragraph, the Company subsequently identified a material weakness in its internal control over financial reporting. Accordingly, management has revised its assessment about the effectiveness of the Company’s internal control over financial reporting, and our present opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 as expressed herein, is different from that expressed in our previous report.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness in the design, operation and documentation of controls related to the monitoring of inventory cycle counts and the valuation of obsolete inventory at two of the Company’s divisions has been identified and included in management’s assessment.
This material weakness was considered in evaluating the nature, timing and extent of audit tests applied in our audit of the consolidated financial statements for the year ended December 31, 2015, and this report does not affect our report dated February 29, 2016, which expressed an unqualified opinion on those consolidated financial statements.
In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
On May 12, 2015, June 12, 2015 and December 7, 2015, the Company completed the acquisitions of the KAI Group, the IVC Group and Xtratherm, respectively. As a result, management excluded the KAI Group, the IVC Group and Xtratherm from its assessment of internal control over financial reporting. The KAI Group, the IVC Group and Xtratherm represent 12.7% of the Company's total assets (excluding goodwill and intangible assets of 32.9%); and 4.9% of the Company's net sales of the related
consolidated financial statement amounts as of and for the year ended December 31, 2015, respectively. Our audit of internal control over financial reporting of Mohawk Industries, Inc. also excluded an evaluation of the internal control over financial reporting of the KAI Group, the IVC Group and Xtratherm.
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, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015, and our report dated February 29, 2016 expressed an unqualified opinion on those consolidated financial statements.
Atlanta, Georgia
February 29, 2016, except for the restatement as to the effectiveness of internal control over financial reporting for the material weakness in the design, operation and documentation of controls related to the monitoring of inventory cycle counts and the valuation of obsolete inventory at two of the Company’s divisions, as to which the date is November 23, 2016
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2015 and 2014
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| 2015 | | 2014 |
| (In thousands, except per share data) |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 81,692 |
| | 97,877 |
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Receivables, net | 1,257,505 |
| | 1,081,963 |
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Inventories | 1,607,256 |
| | 1,543,313 |
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Prepaid expenses | 258,633 |
| | 225,759 |
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Other current assets | 44,886 |
| | 31,574 |
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Total current assets | 3,249,972 |
| | 2,980,486 |
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Property, plant and equipment, net | 3,147,118 |
| | 2,703,210 |
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Goodwill | 2,293,365 |
| | 1,604,352 |
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Tradenames | 632,349 |
| | 622,691 |
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Other intangible assets, net | 304,192 |
| | 79,318 |
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Deferred income taxes and other non-current assets | 315,368 |
| | 295,487 |
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| $ | 9,942,364 |
| | 8,285,544 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Current portion of long-term debt | $ | 2,003,003 |
| | 851,305 |
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Accounts payable and accrued expenses | 1,256,025 |
| | 1,095,419 |
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Total current liabilities | 3,259,028 |
| | 1,946,724 |
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Deferred income taxes | 388,130 |
| | 410,764 |
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Long-term debt, less current portion | 1,196,928 |
| | 1,402,135 |
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Other long-term liabilities | 215,463 |
| | 103,108 |
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Total liabilities | 5,059,549 |
| | 3,862,731 |
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Commitments and contingencies (Note 14) |
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Redeemable noncontrolling interest | 21,952 |
| | — |
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Stockholders’ equity: | | | |
Preferred stock, $.01 par value; 60 shares authorized; no shares issued | — |
| | — |
|
Common stock, $.01 par value; 150,000 shares authorized; 81,280 and 81,070 shares issued in 2015 and 2014, respectively | 813 |
| | 811 |
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Additional paid-in capital | 1,760,016 |
| | 1,598,887 |
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Retained earnings | 4,102,707 |
| | 3,487,079 |
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Accumulated other comprehensive loss | (793,568 | ) | | (429,321 | ) |
| 5,069,968 |
| | 4,657,456 |
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Less treasury stock at cost; 7,351 and 8,157 shares in 2015 and 2014, respectively | 215,795 |
| | 239,450 |
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Total Mohawk Industries, Inc. stockholders’ equity | 4,854,173 |
| | 4,418,006 |
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Noncontrolling interest | 6,690 |
| | 4,807 |
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Total stockholders' equity | 4,860,863 |
| | 4,422,813 |
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| $ | 9,942,364 |
| | 8,285,544 |
|
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2015, 2014 and 2013
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| 2015 | | 2014 | | 2013 |
| (In thousands, except per share data) |
Net sales | $ | 8,071,563 |
| | 7,803,446 |
| | 7,348,754 |
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Cost of sales | 5,660,877 |
| | 5,649,254 |
| | 5,427,945 |
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Gross profit | 2,410,686 |
| | 2,154,192 |
| | 1,920,809 |
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Selling, general and administrative expenses | 1,573,120 |
| | 1,381,396 |
| | 1,373,878 |
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Operating income | 837,566 |
| | 772,796 |
| | 546,931 |
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Interest expense | 71,086 |
| | 98,207 |
| | 92,246 |
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Other expense | 17,619 |
| | 10,698 |
| | 9,114 |
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Earnings from continuing operations before income taxes | 748,861 |
| | 663,891 |
| | 445,571 |
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Income tax expense | 131,875 |
| | 131,637 |
| | 78,385 |
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Earnings from continuing operations | 616,986 |
| | 532,254 |
| | 367,186 |
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Loss from discontinued operations, net of income tax benefit of $1,050 | — |
| | — |
| | (17,895 | ) |
Net earnings including noncontrolling interest | 616,986 |
| | 532,254 |
| | 349,291 |
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Net earnings attributable to noncontrolling interest | 1,684 |
| | 289 |
| | 505 |
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Net earnings attributable to Mohawk Industries, Inc. | $ | 615,302 |
| | 531,965 |
| | 348,786 |
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Basic earnings per share attributable to Mohawk Industries, Inc. | | | | | |
Income from continuing operations | $ | 8.37 |
| | 7.30 |
| | 5.11 |
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Loss from discontinued operations | — |
| | — |
| | (0.25 | ) |
Basic earnings per share attributable to Mohawk Industries, Inc. | $ | 8.37 |
| | 7.30 |
| | 4.86 |
|
Weighted-average common shares outstanding—basic | 73,516 |
| | 72,837 |
| | 71,773 |
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Diluted earnings per share attributable to Mohawk Industries, Inc. | | | | |
|
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Income from continuing operations | $ | 8.31 |
| | 7.25 |
| | 5.07 |
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Loss from discontinued operations | — |
| | — |
| | (0.25 | ) |
Diluted earnings per share attributable to Mohawk Industries, Inc. | $ | 8.31 |
| | 7.25 |
| | 4.82 |
|
Weighted-average common shares outstanding—diluted | 74,043 |
| | 73,363 |
| | 72,301 |
|
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31, 2015, 2014 and 2013
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| | | | | | | | | | |
| | 2015 | | 2014 | | 2013 |
| | (in thousands) |
Net earnings including noncontrolling interest | | $ | 616,986 |
| | 532,254 |
| | 349,291 |
|
Other comprehensive income (loss): | | | | | | |
Foreign currency translation adjustments | | (360,147 | ) | | (607,351 | ) | | 18,185 |
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Prior pension and post-retirement benefit service cost and actuarial (loss) gain | | (4,100 | ) | | (659 | ) | | 771 |
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Other comprehensive income (loss) | | (364,247 | ) | | (608,010 | ) | | 18,956 |
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Comprehensive income (loss) | | 252,739 |
| | (75,756 | ) | | 368,247 |
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Comprehensive income attributable to the non-controlling interest | | 1,684 |
| | 289 |
| | 505 |
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Comprehensive income (loss) attributable to Mohawk Industries, Inc. | | $ | 251,055 |
| | (76,045 | ) | | 367,742 |
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See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2015, 2014 and 2013
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Stockholders’ Equity |
| Redeemable Noncontrolling Interest | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Noncontrolling Interest | | Total Stockholders’ Equity |
| | Shares | | Amount | | | | | Shares | | Amount | | |
| (In thousands) |
Balances at December 31, 2012 | $ | — |
| | 80,185 |
| | $ | 802 |
| | $ | 1,277,521 |
| | $ | 2,605,023 |
| | $ | 159,733 |
| | (11,032 | ) | | $ | (323,462 | ) | | $ | — |
| | $ | 3,719,617 |
|
Marazzi acquisition | — |
| | — |
| | — |
| | 229,631 |
| | — |
| | — |
| | 2,874 |
| | 84,275 |
| | — |
| | 313,906 |
|
Shares issued under employee and director stock plans | — |
| | 656 |
| | 6 |
| | 37,583 |
| | — |
| | — |
| | 3 |
| | (47 | ) | | — |
| | 37,542 |
|
Stock-based compensation expense | — |
| | — |
| | — |
| | 18,311 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 18,311 |
|
Tax benefit from stock-based compensation | — |
| | — |
| | — |
| | 3,939 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,939 |
|
Noncontrolling earnings | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 505 |
| | 505 |
|
Acquisition of noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8,744 |
| | 8,744 |
|
Currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | 18,185 |
| | — |
| | — |
| | — |
| | 18,185 |
|
Pension prior service cost and actuarial gain | — |
| | — |
| | — |
| | — |
| | — |
| | 771 |
| | — |
| | — |
| | — |
| | 771 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 348,786 |
| | — |
| | — |
| | — |
| | — |
| | 348,786 |
|
Balances at December 31, 2013 | — |
| | 80,841 |
| | 808 |
| | 1,566,985 |
| | 2,953,809 |
| | 178,689 |
| | (8,155 | ) | | (239,234 | ) | | 9,249 |
| | 4,470,306 |
|
Shares issued under employee and director stock plans | — |
| | 229 |
| | 3 |
| | (1,113 | ) | | — |
| | — |
| | (2 | ) | | (216 | ) | | — |
| | (1,326 | ) |
Stock-based compensation expense | — |
| | — |
| | — |
| | 27,961 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 27,961 |
|
Tax benefit from stock-based compensation | — |
| | — |
| | — |
| | 5,054 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,054 |
|
Distribution of noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,087 | ) | | (1,087 | ) |
Noncontrolling earnings | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 289 |
| | 289 |
|
Currency translation adjustment on non-controlling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,339 | ) | | (2,339 | ) |
Acquisition of noncontrolling interest | — |
| | — |
| | — |
| | — |
| | 1,305 |
| | — |
| | — |
| | — |
| | (1,305 | ) | | — |
|
Currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | (607,351 | ) | | — |
| | — |
| | — |
| | (607,351 | ) |
Pension prior service cost and actuarial loss | — |
| | — |
| | — |
| | — |
| | — |
| | (659 | ) | | — |
| | — |
| | — |
| | (659 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 531,965 |
| | — |
| | — |
| | — |
| | — |
| | 531,965 |
|
Balances at December 31, 2014 | — |
| | 81,070 |
| | 811 |
| | 1,598,887 |
| | 3,487,079 |
| | (429,321 | ) | | (8,157 | ) | | (239,450 | ) | | 4,807 |
| | 4,422,813 |
|
IVC Group acquisition | — |
| | — |
| | — |
| | 129,445 |
| | — |
| | — |
| | 806 |
| | 23,651 |
| | — |
| | 153,096 |
|
Shares issued under employee and director stock plans | — |
| | 210 |
| | 2 |
| | (6,536 | ) | | — |
| | — |
| | — |
| | 4 |
| | — |
| | (6,530 | ) |
Stock-based compensation expense | — |
| | — |
| | — |
| | 32,552 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 32,552 |
|
Tax benefit from stock-based compensation | — |
| | — |
| | — |
| | 5,668 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,668 |
|
Accretion of redeemable noncontrolling interest | 194 |
| | — |
| | — |
| | — |
| | (194 | ) | | — |
| | — |
| | — |
| | — |
| | (194 | ) |
Noncontrolling earnings | 1,428 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 256 |
| | 256 |
|
Currency translation adjustment on non-controlling interests | (713 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (970 | ) | | (970 | ) |
Acquisition of noncontrolling interest, net of tax | 21,043 |
| | — |
| | — |
| | — |
| | 520 |
| | — |
| | — |
| | — |
| | 2,597 |
| | 3,117 |
|
Currency translation adjustment | — |
| | — |
| | — |
| | — |
| | — |
| | (360,147 | ) | | — |
| | — |
| | — |
| | (360,147 | ) |
Prior pension and post-retirement benefit service cost and actuarial loss | — |
| | — |
| | — |
| | — |
| | — |
| | (4,100 | ) | | — |
| | — |
| | — |
| | (4,100 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 615,302 |
| | — |
| | — |
| | — |
| | — |
| | 615,302 |
|
Balances as of December 31, 2015 | $ | 21,952 |
| | 81,280 |
| | $ | 813 |
| | $ | 1,760,016 |
| | $ | 4,102,707 |
| | $ | (793,568 | ) | | (7,351 | ) | | $ | (215,795 | ) | | $ | 6,690 |
| | $ | 4,860,863 |
|
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2015, 2014 and 2013
|
| | | | | | | | | |
| 2015 | | 2014 | | 2013 |
| (In thousands) |
Cash flows from operating activities: | | | | | |
Net earnings | $ | 616,986 |
| | 532,254 |
| | 349,291 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | |
Restructuring | 33,085 |
| | 16,497 |
| | 69,489 |
|
Loss on sale of discontinued operation | — |
| | — |
| | 12,478 |
|
Loss on sale of subsidiary | — |
| | 11,954 |
| | — |
|
Depreciation and amortization | 362,647 |
| | 345,570 |
| | 308,871 |
|
Deferred income taxes | (28,883 | ) | | (24,026 | ) | | (62,525 | ) |
Loss on extinguishment of debt | — |
| | 20,001 |
| | — |
|
Loss on disposal of property, plant and equipment | 3,007 |
| | 2,153 |
| | 1,261 |
|
Stock-based compensation expense | 32,552 |
| | 27,961 |
| | 18,311 |
|
Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | |
Receivables, net | (14,383 | ) | | (107,705 | ) | | (96,313 | ) |
Inventories | 6,400 |
| | (67,016 | ) | | (20,211 | ) |
Accounts payable and accrued expenses | 783 |
| | (49,204 | ) | | (23,921 | ) |
Other assets and prepaid expenses | (75,813 | ) | | (30,376 | ) | | (6,554 | ) |
Other liabilities | (24,508 | ) | | (15,875 | ) | | (25,014 | ) |
Net cash provided by operating activities | 911,873 |
| | 662,188 |
| | 525,163 |
|
Cash flows from investing activities: | | | | | |
Additions to property, plant and equipment | (503,657 | ) | | (561,804 | ) | | (366,550 | ) |
Acquisitions, net of cash acquired | (1,370,567 | ) | | 19 |
| | (443,466 | ) |
Net change in cash from sale of subsidiary | — |
| | (3,867 | ) | | — |
|
Net cash used in investing activities | (1,874,224 | ) | | (565,652 | ) | | (810,016 | ) |
Cash flows from financing activities: | | | | | |
Payments on Senior Credit Facilities | (1,376,082 | ) | | (1,613,484 | ) | | (3,021,613 | ) |
Proceeds from Senior Credit Facilities | 1,315,930 |
| | 1,448,191 |
| | 3,229,503 |
|
Payments on Commercial Paper | (15,934,767 | ) | | (7,424,751 | ) | | — |
|
Proceeds from Commercial Paper | 16,402,507 |
| | 7,726,351 |
| | — |
|
Repayment of senior notes | — |
| | (254,445 | ) | | — |
|
Proceeds from asset securitization borrowings | — |
| | 200,000 |
| | 20,000 |
|
Proceeds from senior note issuance | 564,653 |
| | — |
| | 600,000 |
|
Payments on other debt | — |
| | (55,358 | ) | | (1,745 | ) |
Payments on acquired debt and other financings | (9,530 | ) | | (42,954 | ) | | (964,557 | ) |
Debt issuance costs | (7,109 | ) | | — |
| | (7,669 | ) |
Debt extinguishment costs | — |
| | (18,921 | ) | | — |
|
Distribution to non-controlling interest | — |
| | (1,087 | ) | | — |
|
Change in outstanding checks in excess of cash | (2,052 | ) | | (1,920 | ) | | (7,468 | ) |
Proceeds and net tax benefit from stock transactions | 10,533 |
| | 12,828 |
| | 46,776 |
|
Net cash provided by (used in) financing activities | 964,083 |
| | (25,550 | ) | | (106,773 | ) |
Effect of exchange rate changes on cash and cash equivalents | (17,917 | ) | | (27,175 | ) | | (31,980 | ) |
Net change in cash and cash equivalents | (16,185 | ) | | 43,811 |
| | (423,606 | ) |
Cash and cash equivalents, beginning of year | 97,877 |
| | 54,066 |
| | 477,672 |
|
Cash and cash equivalents, end of year | $ | 81,692 |
| | 97,877 |
| | 54,066 |
|
See accompanying notes to consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
(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 global flooring manufacturer that creates products to enhance residential and commercial spaces around the world. The Company's vertically integrated manufacturing and distribution processes provide competitive advantages in the production of carpet, rugs, ceramic tile, laminate, wood, stone, luxury vinyl tile ("LVT") and vinyl flooring.
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) Segment Realignment
During the second quarter of 2015, the Company realigned its reportable segments to reflect how the Company’s results will be reported by management. The Company has reorganized its business into three segments - Global Ceramic, Flooring North America ("Flooring NA") and Flooring Rest of the World ("Flooring ROW"). In order to leverage its relationship and distribution capabilities, the Company organized its carpet, wood, laminate, LVT and vinyl operations by geography into the Flooring NA segment and Flooring ROW segment. The Company did not make changes to the Global Ceramic segment, which includes our ceramic tile and stone operations. Previously reported segment results have been reclassified to conform to the current period presentation.
This new segment structure is consistent with the strategic objective that management now applies to manage the growth and profitability of the Company’s business. The Global Ceramic segment includes all worldwide tile and natural stone operations. The Flooring NA segment includes North American operations in all product categories except tile and natural stone. The new segment combines the former Carpet segment with the North American operations of the former Laminate and Wood segment and the North American operations of the Company’s newly acquired LVT and vinyl flooring businesses. The Flooring ROW segment includes operations outside of North America in all product categories except tile and natural stone. The new segment combines the European and Rest of the World operations of the former Laminate and Wood segment and the European and Rest of the World operations of the Company’s newly acquired LVT and vinyl flooring businesses.
(c) 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, 2015, the Company had cash of $81,692 of which $61,173 was held outside the United States. As of December 31, 2014, the Company had cash of $97,877 of which $76,771 was held outside the United States.
(d) Accounts Receivable and Revenue Recognition
The Company is principally a carpet, rugs, ceramic tile, laminate, vinyl and hardwood flooring manufacturer and sells carpet, rugs, ceramic tile, natural stone, hardwood, sheet vinyl, LVT and laminate flooring products in the U.S. and to a lesser extent, Mexico, Europe and Russia 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.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(e) 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.
(f) 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 25-40 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.
(g) Accounting for Business Combinations
The Company accounts for business combinations under the acquisition method of accounting which requires it to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company's consolidated statements of operations.
(h) 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 Global Ceramic, Flooring NA, and Flooring ROW 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
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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.
(i) 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. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. 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.
(j) Financial Instruments
The Company’s financial instruments consist primarily of receivables, accounts payable, accrued expenses and long-term debt. The carrying amounts of receivables, accounts payable and accrued expenses approximate 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.
(k) 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 $49,056 in 2015, $45,487 in 2014 and $42,627 in 2013.
Vendor consideration, generally cash, is classified as a reduction of net sales, unless specific criteria are met regarding goods or services that the Company may receive in return for this consideration. The Company makes various payments to customers, including rebates, 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 $5,419 in 2015, $4,826 in 2014 and $4,307 in 2013.
(l) 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.
(m) 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
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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.
(n) Foreign Currency Translation
The Company’s subsidiaries that operate outside the United States use their local currency as the functional currency. 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 (loss). Gains or losses resulting from transactions denominated in foreign currencies are included in other income or expense, within the consolidated statements of operations.
(o) Hedges of Net Investments in Non-U.S. Operations
The Company has numerous investments outside the United States. The net assets of these subsidiaries are exposed to changes and volatility in currency exchange rates. The Company uses foreign currency denominated debt to hedge its non-U.S. net investments against adverse movements in exchange rates. The gains and losses on the Company's net investments in its non-U.S. operations are economically offset by losses and gains on its foreign currency borrowings. The Company designated its €500,000 2.00% Senior Notes borrowing as a net investment hedge of a portion of its European operations. For the year ended December 31, 2015, the change in the U.S. dollar value of the Company's euro denominated debt was $18,025 ($11,266 net of taxes), which is recorded in the foreign currency translation adjustment component of accumulated other comprehensive income (loss). The increase in the U.S. dollar value of the Company's debt partially offsets the euro-to-dollar translation of the Company's net investment in its European operations.
(p) 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. There were no 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 for 2015, 2014 and 2013.
Computations of basic and diluted earnings per share from continuing operations are presented in the following table:
|
| | | | | | | | | |
| 2015 | | 2014 | | 2013 |
Earnings from continuing operations attributable to Mohawk Industries, Inc. | $ | 615,302 |
| | 531,965 |
| | 366,681 |
|
Accretion of redeemable noncontrolling interest (a) | (194 | ) | | — |
| | — |
|
Net earnings available to common stockholders | $ | 615,108 |
| | 531,965 |
| | 366,681 |
|
| | | | | |
Weighted-average common shares outstanding-basic and diluted: | | | | | |
Weighted-average common shares outstanding - basic | 73,516 |
| | 72,837 |
| | 71,773 |
|
Add weighted-average dilutive potential common shares - options and RSU’s to purchase common shares, net | 527 |
| | 526 |
| | 528 |
|
Weighted-average common shares outstanding-diluted | 74,043 |
| | 73,363 |
| | 72,301 |
|
Earnings per share from continuing operations attributable to Mohawk Industries, Inc. | | | | | |
Basic | $ | 8.37 |
| | 7.30 |
| | 5.11 |
|
Diluted | $ | 8.31 |
| | 7.25 |
| | 5.07 |
|
(a) Represents the accretion of the Company's redeemable noncontrolling interest to redemption value. See Note 2 - Acquisitions for further information.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(q) 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.
(r) Employee Benefit Plans
The Company has a 401(k) retirement savings plan (the “Mohawk Plan”) open to substantially all U.S. and Puerto Rico based employees 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 $45,279 and $18,882 in 2015, $42,681 and $17,654 in 2014 and $38,632 and $15,994 in 2013, respectively.
The Company also has various pension plans covering employees in Belgium, France, and the Netherlands (the “Non-U.S. Plans”) within the Flooring ROW segment. 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. As of December 31, 2015, the funded status of the Non-U.S. Plans was a liability of $3,224 of which $1,075 was recorded in accumulated other comprehensive income, for a net liability of $2,149 recorded in other long-term liabilities within the consolidated balance sheets. As of December 31, 2014, the funded status of the Non-U.S. Plans was a liability of $3,320 of which $1,450 was recorded in accumulated other comprehensive income (loss), for a net liability of $1,870 recorded in other long-term liabilities within the consolidated balance sheets.
(s) Comprehensive Income (Loss)
Comprehensive income (loss) 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.
Effective January 1, 2013, the Company adopted the accounting guidance that requires the Company to separately disclose, on a prospective basis, the change in each component of other comprehensive income (loss) relating to reclassification adjustments and current period other comprehensive income (loss). As the guidance relates to presentation only, the adoption did not have a material impact on the Company's results of operations, financial position or cash flows.
The changes in accumulated other comprehensive income (loss) by component, net of tax, for years ended December 31, 2015, 2014 and 2013 are as follows:
|
| | | | | | | | | |
| Foreign currency translation adjustments | | Pensions and post-retirement benefits | | Total |
Balance as of December 31, 2012 | $ | 160,661 |
| | (928 | ) | | 159,733 |
|
Current period other comprehensive income (loss) before reclassifications | 18,185 |
| | 771 |
| | 18,956 |
|
Amounts reclassified from accumulated other comprehensive loss | — |
| | — |
| | — |
|
Balance as of December 31, 2013 | 178,846 |
| | (157 | ) | | 178,689 |
|
Current period other comprehensive income (loss) before reclassifications | (607,351 | ) | | (659 | ) | | (608,010 | ) |
Amounts reclassified from accumulated other comprehensive income | — |
| | — |
| | — |
|
Balance as of December 31, 2014 | (428,505 | ) | | (816 | ) | | (429,321 | ) |
Current period other comprehensive income (loss) before reclassifications | (360,147 | ) | | (4,100 | ) | | (364,247 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | — |
| | — |
|
Balance as of December 31, 2015 | $ | (788,652 | ) | | (4,916 | ) | | (793,568 | ) |
(t) Self-Insurance Reserves
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The Company is self-insured in the U.S. for various levels of general liability, auto liability, workers’ compensation and employee medical coverage. Insurance reserves, excluding workers' compensation, are calculated on an undiscounted basis based on actual claim data and estimates of incurred but not reported claims developed utilizing historical claim trends. Projected settlements and incurred but not reported claims are estimated based on pending claims and historical trends and data. Though the Company does not expect them to do so, actual settlements and claims could differ materially from those estimated. Material differences in actual settlements and claims could have an adverse effect on the Company's results of operations and financial condition.
(u) 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 with a thirteen week fiscal quarter.
(v) Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. This topic converges the guidance within U.S. GAAP and International Financial Reporting Standards ("IFRS") and supersedes ASC 605, Revenue Recognition. The new standard requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, and improve guidance for multiple-element arrangements. The new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period and early application is not permitted. On July 9, 2015, the FASB decided to defer the effective date of ASC 606 for one year. The deferral results in the new revenue standard being effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. The Company currently plans to adopt the provisions of this new accounting standard at the beginning of fiscal year 2018, and is currently assessing the impact on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. This topic converges the guidance within U.S. GAAP and IFRS. The new standard intends to simplify the presentation of debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, versus recording the costs as a prepaid expense in other assets that is amortized. The new standard will more closely align the presentation of debt issuance costs under U.S. GAAP with the presentation under comparable IFRS. In August 2015, the FASB issued ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30) to address the measurement of debt issuance costs associated with line-of-credit arrangements. ASU 2015-15 states that an entity can defer and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless if there are outstanding borrowings on the line-of-credit arrangement. The new guidance is effective for annual reporting periods beginning after December 15, 2015, including interim reporting periods within that reporting period and early application is permitted. Accordingly, the Company plans to adopt the provisions of this new accounting standard at the beginning of fiscal year 2016. As this standard impacts only the classification of certain amounts within the consolidated balance sheets, the Company does not expect this ASU to have a material impact on its consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. This update changes the measurement principle for inventory for entities using FIFO or average cost from the lower of cost or market to lower of cost and net realizable value. Entities that measure inventory using LIFO or the retail inventory method are not affected. This update will more closely align the accounting for inventory under U.S. GAAP with IFRS. The new guidance is effective for annual reporting periods beginning after December 15, 2016 including interim periods within that reporting period and early adoption is permitted. The Company currently accounts for inventory using the FIFO method. Accordingly, the Company plans to adopt the provisions of this update at the beginning of fiscal year 2017, and is currently assessing the impact on its consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Under this ASU, acquirers must recognize measurement-period adjustments in the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. Accordingly, the Company plans to adopt the provisions of this update at the beginning of fiscal year 2017, and is currently assessing the impact on its consolidated financial statements.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The new standard intends to simplify the accounting for and presentation of deferred taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. The new standard will more closely align the presentation of deferred taxes under U.S. GAAP with the presentation under comparable IFRS. The new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period and early application is permitted. The guidance may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company has elected to apply the provisions of this guidance effective December 31, 2015 retrospectively. Accordingly, deferred tax liabilities and assets of $9,090 and $151,784, respectively, were reclassified from current to noncurrent in the December 31, 2014 consolidated balance sheet.
(2) Acquisitions
IVC Group
On January 13, 2015, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) with Enterhold S.A., a Luxembourg societe anonyme (the “Seller”), to acquire all of the outstanding shares of International Flooring Systems S.A., a Luxembourg societe anonyme, and its subsidiaries (collectively, the “IVC Group”). The IVC Group is a global manufacturer, distributor and marketer of luxury vinyl tile ("LVT") and sheet vinyl. On June 12, 2015, pursuant to the terms of the Share Purchase Agreement, the Company completed the acquisition of IVC Group for $1,146,437. The results of the IVC Group's operations have been included in the consolidated financial statements since that date in the Flooring NA and the Flooring ROW segments. The IVC Group acquisition will position the Company as a major participant in both the fast growing LVT category and the expanding fiberglass sheet vinyl business.
Pursuant to the terms of the Share Purchase Agreement, the Seller will indemnify the Company for uncertain tax positions and tax liabilities that were incurred by the Seller. The Company has recorded these tax liabilities and related indemnification asset in the amount of $34,781 as of the acquisition date in other long-term liabilities and other long-term assets, respectively. During the fourth quarter of 2015, the Company reversed $11,180 of these tax liabilities due to the expiration of the statute of limitations on certain tax exposures, and released the related indemnification asset.
The equity value of IVC Group was paid to the Seller in cash and in shares of the Company's common stock (the “Shares”). Pursuant to the Share Purchase Agreement, the Company (i) acquired the entire issued share capital of IVC Group and (ii) acquired $17,122 of indebtedness of the IVC Group, in exchange for a net cash payment of $732,189, debt paid of $261,152, and 806 issued treasury shares for a value of $153,096.
The Company funded the cash portion of the IVC Group acquisition through a combination of proceeds from the 2.00% Senior Notes (as discussed in Note 9 - Long-Term Debt), cash on hand and borrowings under the 2015 Senior Credit Facility (as discussed in Note 9 - Long-Term Debt).
KAI Group
On May 12, 2015, the Company purchased approximately 90% of all outstanding shares of Advent KAI Luxembourg Holdings S.a r.l., a Luxembourg societe a respsonsabilite limitee, and its subsidiaries (collectively, the "KAI Group"), an eastern European ceramic tile floor manufacturer. The Company completed the acquisition of the KAI Group for $194,613. The results of the KAI Group's operations have been included in the consolidated financial statements since the date of acquisition in the Global Ceramic segment. The KAI Group has a low cost position in the Bulgarian and Romanian markets. The combination with the Company will present opportunities to enhance the group's product offering, upgrade its technology and expand its exports to other countries. The remaining 10% ownership interest in the KAI Group is controlled by a third party. The 10% interest is subject to redemption provisions that are not solely within the Company’s control and therefore is recorded as a redeemable noncontrolling interest in the mezzanine section of the balance sheet for $21,952 as of December 31, 2015. Pursuant to the share purchase agreement, the Company (i) acquired approximately 90% of the issued share capital of the KAI Group and (ii) acquired $24 of indebtedness of the KAI Group, in exchange for a net cash payment of $169,540 and debt paid of $25,073.
The Company accounted for the acquisitions of the IVC Group and the KAI Group (the “Acquisitions”) using the acquisition method of accounting, with the Company as the acquirer of the IVC Group and the KAI Group. The preliminary estimated combined consideration transferred of $1,341,050, including debt paid and shares issued, was determined in accordance with the respective share purchase agreements. The preliminary consideration transferred is allocated to tangible and intangible assets and liabilities based upon their respective fair values.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
During the year ended December 31, 2015, the Company incurred direct transaction costs of $9,502 for the Acquisitions which were expensed as incurred in selling, general and administrative expenses.
The following table summarizes the preliminary acquisition-date fair value of the consideration transferred for the Acquisitions and the estimated fair value of the consideration transferred to assets acquired and liabilities assumed as of the date of the Acquisitions, and the allocation of the aggregate purchase price of the IVC Group and the KAI Group acquisitions to the estimated fair values of the tangible and identifiable intangible assets acquired and liabilities assumed (in thousands):
|
| | | |
Fair value of assets, net of cash acquired | $ | 1,382,356 |
|
Noncontrolling interests in assets acquired | (24,160 | ) |
Assumed indebtedness | (17,146 | ) |
Consideration transferred | $ | 1,341,050 |
|
| |
Working capital | 140,606 |
|
Property, plant and equipment | 363,570 |
|
Tradenames | 48,563 |
|
Customer relationships | 224,326 |
|
Goodwill | 740,140 |
|
Other long-term assets | 50,236 |
|
Long-term debt, including current portion | (17,146 | ) |
Other long-term liabilities | (57,832 | ) |
Deferred tax liabilities | (127,253 | ) |
Noncontrolling interest | (24,160 | ) |
Consideration transferred | $ | 1,341,050 |
|
| |
The Company is continuing to obtain information to complete its valuation of tax accounts, legal liabilities and other contingency attributes. The purchase price allocation is preliminary until the Company obtains final information regarding these fair values.
Intangible assets subject to amortization of $224,326 related to customer relationships have estimated lives of 12 to 14 years. In addition to the amortizable intangible assets, there is an additional $48,563 in indefinite-lived tradename intangible assets. The goodwill of $740,140 was allocated to the Company's segments as disclosed in Note 7, Goodwill and Intangible Assets. The factors contributing to the recognition of the amount of goodwill are based on strategic and synergistic benefits that are expected to be realized from the Acquisitions. These benefits include the opportunities to improve the Company's performance by leveraging best practices, operational expertise, product innovation and manufacturing assets. The recognized goodwill from the Acquisitions is not expected to be deductible for tax purposes.
The amount of net sales and earnings of the Acquisitions since the acquisition date included in the consolidated statements of operations for the year ended December 31, 2015 was approximately $396,000 for net sales and not material for earnings. The results of operations for the Acquisitions were not significant to the Company's consolidated results of operations and, accordingly, the Company has not provided pro forma information relating to the Acquisitions.
Xtratherm
On December 7, 2015, the Company completed its purchase of Xtratherm Limited, an Irish company, and certain of its affiliates (collectively, "Xtratherm"), a manufacturer of insulation boards in Ireland, the UK and Belgium. The total value of the acquisition was $158,851. The Xtratherm acquisition will expand the Company's existing insulation board footprint to include Ireland, the UK and Belgium while capitalizing on expanded product offerings in Belgium. The acquisition's results and purchase price allocation have been included in the consolidated financial statements since the date of the acquisition. The Company's acquisition of Xtratherm resulted in a preliminary goodwill allocation of $32,086, indefinite-lived trademark intangible assets of
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
$4,681 and intangible assets subject to amortization of $39,839. The goodwill is not expected to be deductible for tax purposes. The factors contributing to the recognition of the amount of goodwill include the opportunity to optimize the assets of Xtratherm with the Company's existing insulation assets. The Xtratherm results are reflected in the Flooring ROW segment.
The Company is continuing to obtain information to complete its valuation of intangible assets, as well as to determine the fair value of the acquired assets and liabilities including tax accounts, legal liabilities and other attributes. The purchase price allocation is preliminary until the Company obtains final information regarding these fair values.
Other Acquisitions
During the first quarter of 2015, the Company acquired certain assets of a distribution business in the Flooring ROW segment for $2,822, resulting in a preliminary goodwill allocation of $2,659.
During the third quarter of 2015, the Company acquired certain assets of a ceramic business in the Global Ceramic segment for $20,423, resulting in a preliminary goodwill allocation of $269.
(3) Restructuring, Acquisition and Integration-Related Costs
The Company incurs costs in connection with acquiring, integrating and restructuring acquisitions and in connection with its global cost-reduction/productivity initiatives. For example:
| |
• | In connection with acquisition activity, the Company typically incurs costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and |
| |
• | In connection with the Company's cost-reduction/productivity initiatives, it typically incurs costs and charges associated with site closings and other facility rationalization actions including accelerated depreciation and workforce reductions. |
Restructuring, acquisition transaction and integration-related costs consisted of the following during the year ended December 31, 2015, 2014 and 2013, respectively (in thousands):
|
| | | | | | | | | | | |
| | 2015 | | 2014 | | 2013 | |
Cost of sales | | | | | | | |
Restructuring costs(a) | | $ | 35,956 |
| | 19,795 |
| | 36,949 |
| |
Acquisition integration-related costs | | 9,597 |
| | 11,426 |
| | 12,202 |
| |
Restructuring and integration-related costs | | $ | 45,553 |
| | 31,221 |
| | 49,151 |
| |
| | | | | | | |
Selling, general and administrative expenses | | | | | | | |
Restructuring costs(a) | | $ | 5,779 |
| | 5,684 |
| | 32,540 |
| |
Acquisition transaction-related costs | | 9,502 |
| | — |
| | 14,199 |
| |
Acquisition integration-related costs | | 13,770 |
| | 14,697 |
| | 16,049 |
| |
Restructuring, acquisition and integration-related costs | | $ | 29,051 |
| | 20,381 |
| | 62,788 |
| |
(a) The restructuring costs for 2015, 2014 and 2013 primarily relate to the Company's actions taken to lower its cost structure and improve efficiencies of manufacturing and distribution operations as the Company adjusted to changing economic conditions as well as actions related to the Company's recent acquisitions. In 2015 and 2014 restructuring costs included accelerated depreciation of $8,650 and $8,982, respectively.
The restructuring activity for the twelve months ended December 31, 2015 and 2014, respectively is as follows (in thousands):
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
|
| | | | | | | | | | | | | | | |
| Lease impairments | | Asset write-downs | | Severance | | Other restructuring costs | | Total |
Balance as of December 31, 2013 | $ | 5,904 |
| | — |
| | 18,144 |
| | — |
| | 24,048 |
|
Provision - Global Ceramic segment | — |
| | 3,032 |
| | 1,747 |
| | 1,098 |
| | 5,877 |
|
Provision - Flooring NA segment | — |
| | — |
| | 1,192 |
| | — |
| | 1,192 |
|
Provision - Flooring ROW segment | — |
| | 8,728 |
| | 2,540 |
| | 7,142 |
| | 18,410 |
|
Cash payments | (4,163 | ) | | — |
| | (20,586 | ) | | (7,042 | ) | | (31,791 | ) |
Non-cash items | — |
| | (11,760 | ) | | — |
| | (1,098 | ) | | (12,858 | ) |
Balance as of December 31, 2014 | 1,741 |
| | — |
| | 3,037 |
| | 100 |
| | 4,878 |
|
Provision - Global Ceramic segment | 1,877 |
| | 4,279 |
| | 4,600 |
| | 8,688 |
| | 19,444 |
|
Provision - Flooring NA segment | — |
| | 2,318 |
| | 3,227 |
| | (1,180 | ) | | 4,365 |
|
Provision - Flooring ROW segment | — |
| | 8,789 |
| | 5,366 |
| | 3,771 |
| | 17,926 |
|
Cash payments | (3,618 | ) | | — |
| | (7,265 | ) | | (11,494 | ) | | (22,377 | ) |
Non-cash items | — |
| | (15,386 | ) | | — |
| | 1,180 |
| | (14,206 | ) |
Balance as of December 31, 2015 | $ | — |
| | — |
| | 8,965 |
| | 1,065 |
| | 10,030 |
|
The Company expects the remaining severance and other restructuring costs to be paid over the next four years.
(4) Discontinued Operations
On January 22, 2014, the Company sold a non-core sanitary ware business acquired as part of the Marazzi acquisition because the Company did not believe the business was consistent with its long-term strategy. The Company determined that the business met the definition of discontinued operations. Sales attributable to discontinued operations for the year ended December 31, 2013 were immaterial. The loss on sale of $16,569 ($15,651, net of tax) related to the disposition of the business was recorded in discontinued operations for the year ended December 31, 2013.
(5) Receivables
|
| | | | | | |
| December 31,
2015 | | December 31,
2014 |
Customers, trade | $ | 1,243,533 |
| | 1,081,493 |
|
Income tax receivable | 21,835 |
| | 12,301 |
|
Other | 71,084 |
| | 60,772 |
|
| 1,336,452 |
| | 1,154,566 |
|
Less allowance for discounts, returns, claims and doubtful accounts | 78,947 |
| | 72,603 |
|
Receivables, net | $ | 1,257,505 |
| | 1,081,963 |
|
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 | | Acquisitions | | Additions charged to costs and expenses | | Deductions(1) | | Balance at end of year |
2013 | $ | 37,873 |
| | 36,992 |
| | 197,973 |
| | 195,801 |
| | 77,037 |
|
2014 | 77,037 |
| | — |
| | 252,982 |
| | 257,416 |
| | 72,603 |
|
2015 | 72,603 |
| | 7,750 |
| | 272,329 |
| | 273,735 |
| | 78,947 |
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| |
(1) | Represents charge-offs, net of recoveries. |
(6) Inventories
The components of inventories are as follows:
|
| | | | | | |
| December 31,
2015 | | December 31,
2014 |
Finished goods | $ | 1,083,012 |
| | 1,021,188 |
|
Work in process | 137,186 |
| | 129,471 |
|
Raw materials | 387,058 |
| | 392,654 |
|
Total inventories | $ | 1,607,256 |
| | 1,543,313 |
|
(7) Goodwill and Other Intangible Assets
The Company conducted its annual impairment assessment in the fourth quarter of 2015 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: |
| | | | | | | | | | | | |
| Global Ceramic | | Flooring NA | | Flooring ROW | | Total |
Balances as of December 31, 2013 | | | | | | | |
Goodwill | $ | 1,459,812 |
| | 538,515 |
| | 1,065,190 |
| | 3,063,517 |
|
Accumulated impairments losses | (531,930 | ) | | (343,054 | ) | | (452,441 | ) | | (1,327,425 | ) |
| 927,882 |
| | 195,461 |
| | 612,749 |
| | 1,736,092 |
|
Goodwill recognized during the year | (2,497 | ) | | — |
| | 6,507 |
| | 4,010 |
|
Currency translation during the year | (62,183 | ) | | — |
| | (73,567 | ) | | (135,750 | ) |
Balances as of December 31, 2014 | | | | | | | |
Goodwill | 1,395,132 |
| | 538,515 |
| | 998,130 |
| | 2,931,777 |
|
Accumulated impairments losses | (531,930 | ) | | (343,054 | ) | | (452,441 | ) | | (1,327,425 | ) |
| 863,202 |
| | 195,461 |
| | 545,689 |
| | 1,604,352 |
|
Goodwill recognized during the year | $ | 99,848 |
| | 329,401 |
| | 345,905 |
| | 775,154 |
|
Currency translation during the year | (22,223 | ) | | — |
| | (63,918 | ) | | (86,141 | ) |
Balances as of December 31, 2015 | | | | | | | |
Goodwill | 1,472,757 |
| | 867,916 |
| | 1,280,117 |
| | 3,620,790 |
|
Accumulated impairments losses | (531,930 | ) | | (343,054 | ) | | (452,441 | ) | | (1,327,425 | ) |
| $ | 940,827 |
| | 524,862 |
| | 827,676 |
| | 2,293,365 |
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Intangible assets: |
| | | |
| Tradenames |
Indefinite life assets not subject to amortization: | |
Balance as of December 31, 2013 | $ | 700,592 |
|
Intangible assets acquired during the year | — |
|
Currency translation during the year | (77,901 | ) |
Balance as of December 31, 2014 | 622,691 |
|
Intangible assets acquired during the year | 53,244 |
|
Currency translation during the year | (43,586 | ) |
Balance as of December 31, 2015 | $ | 632,349 |
|
|
| | | | | | | | | | | | |
| Customer relationships | | Patents | | Other | | Total |
Intangible assets subject to amortization: | | | | | | | |
Balances as of December 31, 2013 | $ | 40,998 |
| | 69,071 |
| | 941 |
| | 111,010 |
|
Intangible assets acquired during the year | — |
| | — |
| | — |
| | — |
|
Amortization during the year | (6,901 | ) | | (17,700 | ) | | (123 | ) | | (24,724 | ) |
Currency translation during the year | (180 | ) | | (6,780 | ) | | (8 | ) | | (6,968 | ) |
Balances as of December 31, 2014 | 33,917 |
| | 44,591 |
| | 810 |
| | 79,318 |
|
Intangible assets acquired during the year | 258,875 |
| | — |
| | 5,290 |
| | 264,165 |
|
Amortization during the year | (16,567 | ) | | (13,331 | ) | | (11 | ) | | (29,909 | ) |
Currency translation during the year | (5,102 | ) | | (4,275 | ) | | (5 | ) | | (9,382 | ) |
Balances as of December 31, 2015 | $ | 271,123 |
| | 26,985 |
| | 6,084 |
| | 304,192 |
|
|
| | | | | | | | | | | |
| December 31, 2015 |
| Cost | Acquisitions | Currency translation | Accumulated amortization | Net Value |
Customer Relationships | $ | 354,768 |
| 258,875 |
| (24,927 | ) | 317,593 |
| 271,123 |
|
Patents | 270,466 |
| — |
| (27,208 | ) | 216,273 |
| 26,985 |
|
Other | 1,479 |
| 5,290 |
| 21 |
| 706 |
| 6,084 |
|
Total | $ | 626,713 |
| 264,165 |
| (52,114 | ) | 534,572 |
| 304,192 |
|
| | | | | |
|
| | | | | | | | | | | |
| December 31, 2014 |
| Cost | Acquisitions | Currency translation | Accumulated amortization | Net Value |
Customer Relationships | $ | 373,117 |
| — |
| (180 | ) | 339,020 |
| 33,917 |
|
Patents | 297,999 |
| — |
| (6,780 | ) | 246,628 |
| 44,591 |
|
Other | 1,833 |
| — |
| (8 | ) | 1,015 |
| 810 |
|
Total | $ | 672,949 |
| — |
| (6,968 | ) | 586,663 |
| 79,318 |
|
|
| | | | | | | | | |
| Years Ended December 31, |
| 2015 | | 2014 | | 2013 |
Amortization expense | $ | 29,909 |
| | 24,724 |
| | 26,250 |
|
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Estimated amortization expense for the years ending December 31 are as follows: |
| | | |
2016 | $ | 36,648 |
|
2017 | 35,256 |
|
2018 | 26,689 |
|
2019 | 23,643 |
|
2020 | 23,644 |
|
(8) Property, Plant and Equipment
Following is a summary of property, plant and equipment:
|
| | | | | | |
| December 31,
2015 | | December 31,
2014 |
Land | $ | 305,943 |
| | 294,553 |
|
Buildings and improvements | 1,120,193 |
| | 977,411 |
|
Machinery and equipment | 3,750,787 |
| | 3,324,657 |
|
Furniture and fixtures | 133,857 |
| | 121,147 |
|
Leasehold improvements | 68,977 |
| | 63,985 |
|
Construction in progress | 403,500 |
| | 348,460 |
|
| 5,783,257 |
| | 5,130,213 |
|
Less accumulated depreciation and amortization | 2,636,139 |
| | 2,427,003 |
|
Net property, plant and equipment | $ | 3,147,118 |
| | 2,703,210 |
|
Additions to property, plant and equipment included capitalized interest of $7,091, $9,202 and $8,167 in 2015, 2014 and 2013, respectively. Depreciation expense was $328,486, $315,840 and $276,432 for 2015, 2014 and 2013, respectively. Included in the property, plant and equipment are capital leases with a cost of $8,233 and $5,477 and accumulated depreciation of $4,431 and $5,313 as of December 31, 2015 and 2014, respectively.
(9) Long-Term Debt
Senior Credit Facility
On September 25, 2013, the Company entered into a $1,000,000, 5-year, senior revolving credit facility (the "2013 Senior Credit Facility"). The 2013 Senior Credit Facility provided for a maximum of $1,000,000 of revolving credit, including limited amounts of credit in the form of letters of credit and swingline loans. The Company paid financing costs of $1,836 in connection with its 2013 Senior Credit Facility. These costs were deferred and, along with unamortized costs of $11,440 related to the Company’s previous credit facility, were amortized over the term of the 2013 Senior Credit Facility.
On March 26, 2015, the Company amended and restated the 2013 Senior Credit Facility increasing its size from $1,000,000 to $1,800,000 and extending the maturity from September 25, 2018 to March 26, 2020 (the "2015 Senior Credit Facility"). The 2015 Senior Credit Facility eliminates certain provisions in the 2013 Senior Credit Facility, including those that: (a) accelerated the maturity date to 90 days prior to the maturity of senior notes due in January 2016 if certain specified liquidity levels were not met; and (b) required that certain subsidiaries guarantee the Company's obligations if the Company’s credit ratings fell below investment grade. The 2015 Senior Credit Facility also modified certain negative covenants to provide the Company with additional flexibility, including that to make acquisitions and incur indebtedness.
At the Company's election, revolving loans under the 2015 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 1.00% and 1.75% (1.25% as of December 31, 2015), or (b) the higher of the Wells Fargo Bank, National Association prime rate, the Federal Funds rate plus 0.5%, and a monthly LIBOR rate plus 1.0%, plus an applicable margin ranging between 0.00% and 0.75% (0.25% as of December 31, 2015). The Company also pays a commitment fee to the lenders under the 2015 Senior Credit Facility
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
on the average amount by which the aggregate commitments of the lenders' exceed utilization of the 2015 Senior Credit Facility ranging from 0.10% to 0.225% per annum. As of December 31, 2015, the Company is paying a commitment fee of 0.15%. The applicable margins and the commitment fee are determined based on whichever of the Company's Consolidated Net Leverage Ratio or its senior unsecured debt rating (or if not available, corporate family rating) results in the lower applicable margins and commitment fee (with applicable margins and the commitment fee increasing as that ratio increases or those ratings decline, as applicable).
The obligations of the Company and its subsidiaries in respect of the 2015 Senior Credit Facility are unsecured.
The 2015 Senior Credit Facility includes certain affirmative and negative covenants that impose restrictions on the Company's financial and business operations, including limitations on liens, subsidiary indebtedness, fundamental changes, asset dispositions, dividends and other similar restricted payments, transactions with affiliates, future negative pledges, and changes in the nature of the Company's business. The Company is also required to maintain a Consolidated Interest Coverage Ratio of at least 3.0 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. The limitations contain customary exceptions or; in certain cases, do not apply as long as the Company is in compliance with the financial ratio requirements and is not otherwise in default.
The 2015 Senior Credit Facility also contains customary representations and warranties and events of default, subject to customary grace periods.
The Company paid financing costs of $2,641 in connection with its 2015 Senior Credit Facility. These costs were deferred and, along with unamortized costs of $8,654 related to the Company’s 2013 Senior Credit Facility, are being amortized over the term of the 2015 Senior Credit Facility.
As of December 31, 2015, amounts utilized under the 2015 Senior Credit Facility included $134,075 of borrowings and $1,381 of standby letters of credit related to various insurance contracts and foreign vendor commitments. The outstanding borrowings of $756,867 under the Company's U.S. and European commercial paper programs as of December 31, 2015 reduce the availability of the 2015 Senior Credit Facility. Taking the commercial paper borrowings into account, the Company has utilized $892,323 under the 2015 Senior Credit Facility resulting in a total of $907,677 available under the 2015 Senior Credit Facility.
Commercial Paper
On February 28, 2014, the Company established a U.S. commercial paper program for the issuance of unsecured commercial paper in the United States capital markets. Under the commercial paper program, the Company issues commercial paper notes from time to time. On May 21, 2015, following the amendment and restatement of the 2013 Credit Facility, the Company expanded the amount of borrowings permitted under its U.S. commercial paper program from $1,000,000 to $1,800,000. The U.S. commercial paper notes have maturities ranging from one day to 397 days and are not subject to voluntary prepayment by the Company or redemption prior to maturity. The U.S. commercial paper notes rank pari passu with all of the Company's other unsecured and unsubordinated indebtedness.
On July 31, 2015, the Company established a European commercial paper program for the issuance of unsecured commercial paper in the Eurozone capital markets. Under the European commercial paper program, the Company issues commercial paper notes from time to time, subject to a cap equal to €1,000,000. The European commercial paper notes have maturities ranging from one day to 183 days and are not subject to voluntary prepayment by the Company or redemption prior to maturity. The European commercial paper notes rank pari passu with all of the Company's other unsecured and unsubordinated indebtedness. To the extent European commercial paper notes are issued by a subsidiary of the Company, payment on such notes will be fully and unconditionally guaranteed by the Company.
The Company uses its 2015 Senior Credit Facility as a liquidity backstop for its commercial paper programs. Accordingly, the total amount due and payable under all of the Company's commercial paper programs may not exceed $1,800,000 (less any amounts drawn on the 2015 Credit Facility) at any time.
The proceeds from the sale of commercial paper notes will be available for general corporate purposes. The Company used the initial proceeds from the sale of U.S. commercial paper notes to repay borrowings under its 2013 Senior Credit Facility and certain of its industrial revenue bonds. The Company used the initial proceeds from the sale of European commercial paper notes to repay euro-denominated borrowings under its 2015 Senior Credit Facility. As of December 31, 2015, the amount utilized
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
under the commercial paper programs was $756,867 with a weighted-average interest rate and maturity period of 0.65% and 28.35 days, respectively for the U.S. commercial paper program and 0.08% and 34.82 days, respectively for the European commercial paper program.
Senior Notes
On June 9, 2015, the Company issued €500,000 aggregate principal amount of 2.00% Senior Notes due January 14, 2022. The Notes are senior unsecured obligations of the Company and rank pari passu with all of the Company’s existing and future unsecured indebtedness. Interest on the Notes is payable annually in cash on January 14 of each year, commencing on January 14, 2016. The Company paid financing costs of $4,218 in connection with the 2.00% Senior Notes. These costs were deferred and are being amortized over the term of the 2.00% Senior Notes.
On January 31, 2013, the Company issued $600,000 aggregate principal amount of 3.85% Senior Notes due February 1, 2023. The Company paid financing costs of $6,000 in connection with the 3.85% Senior Notes. These costs were deferred and are being amortized over the term of the 3.85% Senior Notes.
On January 17, 2006, the Company issued $900,000 aggregate principal amount of 6.125% Senior Notes due January 15, 2016. On August 15, 2014, the Company purchased for cash approximately $200,000 aggregate principal amount of its outstanding 6.125% senior notes due January 15, 2016 at a price equal to 107.73% of the principal amount, resulting in a premium to redeeming noteholders of approximately $15,450 and fees of $1,080 associated with the redemption. The premium as well as the fees are included in interest expense on the condensed consolidated statement of operations as at December 31, 2015. On November 3, 2014, the Company purchased for cash approximately $54,400 aggregate principal amount of its outstanding 6.125% senior notes due January 15, 2016 at a price equal to 106.38% of the principal amount, resulting in a premium to redeeming noteholders of approximately $3,500. The premium is included in interest expense on the condensed consolidated statement of operations as at December 31, 2015.
On January 15, 2016, the Company paid the remaining approximately $645,555 outstanding principal of its 6.125% senior notes utilizing cash on hand and borrowings under its 2015 Senior Credit Facility.
Accounts Receivable Securitization
On December 19, 2012, the Company entered into a three-year on-balance sheet trade accounts receivable securitization agreement (the "Securitization Facility"). On September 11, 2014, the Company made certain modifications to its Securitization Facility, which modifications, among other things, increased the aggregate borrowings available under the facility from $300,000 to $500,000 and decreased the interest margins on certain borrowings. On December 10, 2015, the Company amended the terms of the Securitization Facility, reducing the applicable margin and extending the termination date from December 19, 2015 to December 19, 2016. The Company paid financing costs of $250 in connection with this extension. These costs were deferred and are being amortized over the remaining term of the Securitization Facility.
Under the terms of the Securitization Facility, certain subsidiaries of the Company sell at a discount certain of their trade accounts receivable (the “Receivables”) to Mohawk Factoring, LLC (“Factoring”) on a revolving basis. The Company has determined that Factoring is a bankruptcy remote subsidiary, meaning that Factoring is a separate legal entity whose assets are available to satisfy the claims of the creditors of Factoring only, not the creditors of the Company or the Company’s other subsidiaries. Factoring may borrow up to $500,000 based on the amount of eligible Receivables owned by Factoring, and Factoring has granted a security interest in all of such Receivables to the third-party lending group as collateral for such borrowings. Amounts loaned to Factoring 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 0.65% per annum. Factoring also pays a commitment fee at a per annum rate of 0.35% on the unused amount of each lender’s commitment. At December 31, 2015, the amount utilized under the Securitization Facility was $500,000.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The fair values and carrying values of our debt instruments are detailed as follows:
|
| | | | | | | | | | | | |
| December 31, 2015 | | December 31, 2014 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
3.85% senior notes, payable February 1, 2023; interest payable semiannually | $ | 584,730 |
| | 600,000 |
| | 603,180 |
| | 600,000 |
|
6.125% notes, payable January 15, 2016; interest payable semiannually | 646,130 |
| | 645,555 |
| | 677,833 |
| | 645,555 |
|
2.00% senior notes, payable January 14, 2022; interest payable annually | 554,209 |
| | 546,627 |
| | — |
| | — |
|
Commercial paper | 756,867 |
| | 756,867 |
| | 301,600 |
| | 301,600 |
|
Five-year senior secured credit facility, due March 26, 2020 | 134,075 |
| | 134,075 |
| | 195,665 |
| | 195,665 |
|
Securitization facility | 500,000 |
| | 500,000 |
| | 500,000 |
| | 500,000 |
|
Capital leases and other | 16,805 |
| | 16,807 |
| | 10,620 |
| | 10,620 |
|
Total debt | 3,192,816 |
| | 3,199,931 |
| | 2,288,898 |
| | 2,253,440 |
|
Less current portion of long term debt and commercial paper | 2,003,578 |
| | 2,003,003 |
| | 851,305 |
| | 851,305 |
|
Long-term debt, less current portion | $ | 1,189,238 |
| | 1,196,928 |
| | 1,437,593 |
| | 1,402,135 |
|
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, 2015 are as follows:
|
| | | |
2016 | $ | 1,999,161 |
|
2017 | 1,875 |
|
2018 | 1,650 |
|
2019 | 1,546 |
|
2020 | 43,161 |
|
Thereafter | 1,152,538 |
|
| $ | 3,199,931 |
|
| |
(10) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are as follows: |
| | | | | | |
| December 31, 2015 | | December 31, 2014 |
Outstanding checks in excess of cash | $ | 14,023 |
| | 16,083 |
|
Accounts payable, trade | 696,974 |
| | 622,360 |
|
Accrued expenses | 293,867 |
| | 260,578 |
|
Product warranties | 35,516 |
| | 29,350 |
|
Accrued interest | 34,623 |
| | 28,365 |
|
Accrued compensation and benefits | 181,022 |
| | 138,683 |
|
Total accounts payable and accrued expenses | $ | 1,256,025 |
| | 1,095,419 |
|
| | | |
(11) Stock-Based Compensation
The Company recognizes compensation expense for all share-based payments granted for the years ended December 31, 2015, 2014 and 2013 based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10. Compensation
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
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 2012 Incentive Plan (“2012 Plan”), the Company's principal stock compensation plan as of 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 December 31, 2022. 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.
Stock Option Plans
Additional information relating to the Company’s stock option plans follows: |
| | | | | | | | | |
| 2015 | | 2014 | | 2013 |
Options outstanding at beginning of year | 298 |
| | 425 |
| | 995 |
|
Options granted | — |
| | — |
| | — |
|
Options exercised | (66 | ) | | (108 | ) | | (561 | ) |
Options forfeited and expired | (63 | ) | | (19 | ) | | (9 | ) |
Options outstanding at end of year | 169 |
| | 298 |
| | 425 |
|
Options exercisable at end of year | 164 |
| | 257 |
| | 343 |
|
Option prices per share: | | | | | |
Options granted during the year | $ | — |
| | — |
| | — |
|
Options exercised during the year | $ 28.37-93.65 |
| | 28.37-93.65 |
| | 28.37-93.65 |
|
Options forfeited and expired during the year | $ 28.37-88.33 |
| | 46.80-93.65 |
| | 48.50-88.33 |
|
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 2015, 2014 and 2013, a total of 1, 0 and 3 shares, respectively, were awarded to the non-employee directors in lieu of cash for their annual retainers.
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 year ended December 31, 2015, the Company did not repurchase any shares. The Company purchased common stock for the years ended December 31, 2014 and 2013, of 2 and 1 shares, respectively. Since the inception of the program, a total of approximately 11,521 shares have been repurchased at an aggregate cost of approximately $335,455. All of these repurchases have been financed through the Company’s operations and banking arrangements.
A summary of the Company’s options under the 2002, 2007 and 2012 Plans as of