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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[Mark One]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number
01-19826
MOHAWK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1604305
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 12069, 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:
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 whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 the
Form 10-K. [_]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant (26,551,688 shares) on March 6, 2000 was
$547,628,565. 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 March 6, 2000:
55,046,097 shares of Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders--Part III
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PART I
Item 1. Business
General
Mohawk Industries, Inc. ("Mohawk" or the "Company," a term which includes
the Company and its subsidiaries, including its primary operating subsidiaries,
Mohawk Carpet Corporation ("Mohawk Carpet"), Aladdin Manufacturing Corporation
("Aladdin Manufacturing", formerly known as Mohawk Manufacturing Corporation)
and Durkan Patterned Carpets, Inc. ("Durkan")) is a leading producer of woven
and tufted broadloom carpet and rugs for principally residential applications.
The Company is the second largest carpet and rug manufacturer in the United
States, with 1999 net sales of approximately $3.1 billion. The Company designs,
manufactures and markets carpet and rugs in a broad range of colors, textures
and patterns. The Company is widely recognized through its premier brand names,
some of which are "Mohawk," "Aladdin," "American Rug Craftsmen," "American
Weavers," "Bigelow," "Custom Weave," "Durkan," "Galaxy," "Harbinger," "Helios,"
"Horizon," "Image," "Karastan," "Mohawk Commercial," "Newmark Rug," "World" and
"WundaWeve," and markets its products primarily through carpet retailers, home
centers, mass merchandisers, department stores, commercial dealers and
commercial end users. Mohawk's operations are vertically integrated from the
extrusion of resin and post-consumer plastics into fiber, to the conversion of
fiber into yarn and to the manufacture and shipment of finished carpet and rugs.
History
The Company was organized in Delaware in 1988 to acquire Aladdin
Manufacturing from its predecessor owner, Mohasco Corporation, in a leveraged
buyout transaction. The Company completed its initial public offering of Common
Stock in April 1992, raising approximately $42.5 million in proceeds, which were
used to retire indebtedness and redeem preferred stock outstanding at that time.
Mohawk acquired Horizon Industries, Inc. ("Horizon") in October 1992 for
approximately $63.9 million in cash and 4,009,500 shares of Common Stock valued
at approximately $22.5 million. Mohawk purchased American Rug Craftsmen, Inc.
("American Rug") in April 1993 for approximately $32.0 million in cash and
Karastan Bigelow in July 1993 for approximately $155.5 million, which was
substantially all cash. In May 1993, the Company completed an offering of
4,725,000 shares of Common Stock. Of the total number of shares, 3,600,000
shares were sold by the Company and 1,125,000 shares were sold by selling
stockholders. The net proceeds to the Company were approximately $46.0 million.
On February 25, 1994, Mohawk acquired all of the common stock of Aladdin Mills,
Inc. ("Aladdin") in exchange for approximately 20,343,000 shares of Common
Stock, valued at $386.5 million, based upon the closing stock price at the date
the agreement was executed. On January 13, 1995, Mohawk acquired all of the
capital stock of Galaxy Carpet Mills, Inc. ("Galaxy") for $42.2 million in cash.
On July 23, 1997, the Company acquired certain assets of Diamond Rug &
Carpet Mills, Inc. ("Diamond") and other assets owned by Diamond's principal
shareholders for approximately $36.0 million, which consisted of $19.6 million
in cash at closing, $7.0 million in cash over the six-month period following
closing and a $9.4 million note payable in seven annual installments of
principal plus interest at 6%. The acquisition was accomplished through a plan
of reorganization filed by Diamond under Chapter 11 of the United States
Bankruptcy Code.
The Company completed its acquisitions of Newmark & James, Inc. ("Newmark")
and American Weavers LLC ("American Weavers"), on June 30, 1998 and August 10,
1998, respectively. On November 12, 1998, the Company acquired all of the
outstanding capital stock of World Carpets, Inc. ("World") in exchange for
approximately 4.9 million shares of the Company's common stock valued at $149.5
million, based on the closing stock price on the day the agreement was executed.
On January 29, 1999, the Company acquired certain assets of Image
Industries, Inc. ("Image") for approximately $192 million, including the
assumption of $30 million of tax exempt bonds, and on March 9, 1999, the Company
acquired all of the outstanding capital stock of Durkan, for approximately 3.1
million shares valued at $116.5 million based on the closing stock price the day
the letter of intent was executed.
2
On October 23, 1997, the Board of Directors of the Company declared a
3-for-2 stock split that was paid as a 50% stock dividend on December 4, 1997,
to holders of record on November 4, 1997. All share information presented herein
gives effect to this stock split and the World and Durkan mergers.
Industry
According to the most recent figures available from the United States
Department of Commerce, worldwide carpet and rug sales volume of American
manufacturers and their domestic divisions was 1.8 billion square yards in 1998.
This volume represents a market in excess of approximately $10.9 billion at the
"mill level," which management believes, based on standard industry mark-ups,
translates into approximately $17.4 billion to $19.5 billion at the retail
level. Based upon data obtained from recent industry publications, the worldwide
carpet and rug sales volume of American manufacturers in 1999 was approximately
1.9 billion square yards and $11.1 billion. The overall level of sales in the
carpet industry is influenced by a number of factors, including consumer
confidence in spending for durable goods, interest rates, turnover in housing,
the condition of the residential and commercial construction industries and the
overall strength of the economy.
Broadloom carpet (defined as carpet over six feet by nine feet in size)
represented 82% of the volume shipped by the industry in 1998. Tufted broadloom
carpet (a category that refers to the manner of construction in addition to
size) represented 95% of the broadloom industry volume shipped in 1998. The
broadloom carpet industry has two primary markets, residential and commercial,
with the residential market making up approximately 74% of industry volume
shipped and the commercial market comprising approximately 26% in 1998. An
estimated 55% of industry shipments is made in response to replacement demand,
which usually involves exact yardage (or "cut order") shipments that typically
provide higher profit margins than sales of carpet sold in full rolls. Because
the replacement business generally involves higher quality carpet cut to order
by the manufacturer, rather than the dealer, this business tends to be more
profitable for manufacturers than the new construction business.
Products and Markets
The Company designs, manufactures and markets hundreds of styles of carpet,
rugs and mats in a broad range of colors, textures and patterns. Mohawk
positions its products in all price ranges and emphasizes quality, style,
performance and service. The Company is widely recognized through its premier
brand names, "Mohawk," "Aladdin," "American Rug Craftsmen," "American Weavers,"
"Bigelow," "Bigelow Commercial," "Custom Weave," "Durkan," "Galaxy,"
"Harbinger," "Helios," "Horizon," "Image," "Karastan," "Karastan Contract,"
"Mohawk Commercial," "Newmark Rug," "World" and "WundaWeve," and markets its
products primarily through carpet retailers, home centers, mass merchandisers,
department stores, commercial dealers, and commercial end users. Some products
are also marketed through private labeling programs.
Mohawk markets certain of its products outside the United States, but does
not consider sales of such products to be material.
Sales to residential customers represent a significant portion of the total
industry and the majority of the Company's sales. The Company currently markets
approximately 900 residential products to more than 25,000 customers, which
include independent retailers, department stores, mass merchandisers, buying
groups, and building and tenant improvement contractors.
The Company has positioned its premier residential brand names across all
price ranges. "Mohawk," "Custom Weave," "WundaWeve," "Bigelow," "Galaxy,"
"Horizon," "Helios," "Karastan" and "World," are positioned to sell primarily in
the medium-to-high retail price range in the residential broadloom market and
these lines are also sold under private labels. These lines have substantial
brand name recognition among carpet dealers and retailers with the "Karastan,"
"Mohawk" and "Bigelow" brands having the highest consumer recognition in the
industry. "Karastan" is the leader in the exclusive high-end market. The
"Aladdin" brand name competes primarily in the low-to-medium retail price range.
The Company believes it is considered a leader within the industry of U.S.
carpet manufacturers providing marketing support. Through dealer programs like
Karastan Gallery, Mohawk Color Center and Mohawk FloorScapes, the Company offers
intensive marketing and advertising support. These programs offer varying
3
degrees of support to dealers in sales and management training, display racks,
exclusive promotions and assistance in certain administrative functions such as
consumer credit, advertising and insurance.
The Company generally markets its residential products through its
residential sales forces that report to common management on a regional basis.
All of the regional vice presidents report to one senior vice president of
sales. Each region has responsibility for sales, distribution and inventory
management in its region, all of which is coordinated by the senior vice
president of sales at a national level. The inventory management on a regional
level is accomplished by a hub-and-spoke distribution network. In this system,
Company trucks generally deliver carpet from mill sites to regional warehouses.
From there, it is shipped to local distribution warehouses, then to retailers.
The Company believes that the current structure of the residential sales group
has contributed to a more efficient and profitable organization.
The commercial customer base is divided into several groups: educational
institutions, corporate office space, hospitality facilities, retail space and
health care facilities. In addition, Mohawk produces and sells carpet for the
export market, the federal government and other niche businesses. Different
purchase decision makers and decision-making processes exist for each group. For
example, in the corporate office group, decisions are usually made by architects
or specifiers, whose responsibility is to manage the project budget and
coordinate interior design. In the institutional group, by comparison, decisions
are often made by purchasing agents employed by the end user who have
longstanding relationships with carpet manufacturers. The commercial market is
generally a more complex market in which to sell than the residential market.
In the commercial market, the Company markets its products under the brand
names "Mohawk Commercial," "Harbinger," "Aladdin," "Durkan Commercial," "World
Contract," "Karastan Contract" and "Bigelow Commercial." The marketing strategy
of the Mohawk Commercial, Karastan Contract and Bigelow Commercial brands is to
leverage the brands' traditional sales strength in the educational institution
part of the market to the office, hospitality, retail and health care groups.
These brands are comprised of specialized products for these groups that
emphasize product quality and specification rather than just price. The Company
has also added carpet tile to its product groups, which service the corporate
space market.
The Harbinger brand is a specialized line of commercial carpet generally
specified by architects and designers for end users in the hospitality,
corporate, health care and institutional market sectors. Harbinger products are
largely custom designed and colored and are marketed through its sales
organization of commercial carpet sales specialists. The Harbinger brand is
considered to be an industry leader in product quality, styling and innovation
for the high-end commercial market. Harbinger products were the first to
introduce "graphics" tufting technology to the industry and have maintained
their product development leadership by employing tufting and dyeing
technologies that produce intricate multicolored patterns.
The Aladdin brand is marketed primarily to the "mainstreet" sector of the
commercial market. The "mainstreet" sector is generally comprised of the low-to-
medium price range styles and is distributed primarily through retail dealers
for smaller installations.
Woven commercial products accounted for a significant portion of the
Company's net sales of commercial product in 1999, including the Mohawk
Commercial brand's exclusive woven interlock products, which are manufactured by
a unique weaving process that increases performance, wear and durability. The
Company's ability to make woven carpet under the Mohawk Commercial, Karastan
Contract and Bigelow Commercial brand names in large volume for commercial
applications differentiates it from other manufacturers, most of which produce
tufted carpet almost exclusively. Woven carpet and specifically the Company's
woven interlock products sell at higher prices than tufted carpet and generally
produce higher profit margins. Management believes that the Company is the
largest producer of woven carpet in the United States and that the Company has
several carpet weaving machines and processes that no other manufacturer has,
thereby allowing the Company to create carpet to meet specifications that its
competitors cannot duplicate.
The machine-made rug market is currently the fastest growing segment of the
U. S. carpet and rug industry with an annual growth rate estimated to be
approximately 6% in 1999. Much of this growth has occurred at the low-to-medium
retail price ranges. The distribution channels for the rug market primarily
4
include department stores, mass merchants, floorcovering stores, catalog stores,
home centers and furniture stores.
The Company's product lines include a broad array of rugs. The Karastan
brand name rugs represent the higher retail price ranges with one of the most
valued brand names in the industry and are distributed through specialty stores,
along with department and furniture stores. These are higher quality woven wool
rugs manufactured primarily on Axminster looms.
The Company emphasizes the fast growing lower retail price ranges through
its American Rug Craftsmen and American Weavers brand names. The rugs sold under
these brands are primarily woven polypropylene area rugs, tufted border rugs and
decorative mats, which are made from purchased matting material that is cut,
serged and screen printed by the Company. These products are distributed
primarily through mass merchants and home centers.
The Company also sells to the bath mat and washable bath rug components of
the rug market through its Newmark Rug and Aladdin brand names. The Aladdin
products are tufted nylon and polyester products, which are distributed through
department stores and mass merchants. The Newmark products are high-end washable
cotton bath rugs that are distributed to the luxury market of department stores,
specialty stores, and catalogue businesses.
Advertising and Promotion
The Company promotes its products in the form of co-operative advertising,
point-of-sale displays and marketing literature provided to assist in marketing
various carpet styles. Mohawk also continues to rely on the substantial brand
name identification of its "Aladdin," "Alexander Smith," "American Rug
Craftsmen," "American Weavers," "Bigelow," "Bigelow Commercial," "Custom Weave,"
"Durkan," "Galaxy," "Harbinger," "Helios," "Horizon," "Image," "Karastan,"
"Karastan Contract," "Mohawk," "Mohawk Commercial," "Newmark Rug," "World" and
"WundaWeve" lines. The cost of producing display samples, a significant
promotional expense, is partially offset by sales of samples and support from
raw materials suppliers.
Manufacturing and Operations
The Company's manufacturing operations are vertically integrated and
include the extrusion of resin and post-consumer plastics into polypropylene,
polyester and nylon fiber, yarn processing, tufting, weaving, dyeing, coating
and finishing. Capital expenditures are primarily focused on increasing
capacity, improving productivity and reducing costs. Mohawk incurred $509.6
million in capital expenditures over the past three years, including
acquisitions. These expenditures increased manufacturing efficiency and
capacity, while improving overall cost competitiveness.
Raw Materials and Suppliers
The principal raw materials the Company uses are nylon staple fibers; nylon
filament fibers; raw wool; polypropylene filament fibers; polyester staple
fibers; olefin and polyester resins and post-consumer plastics; synthetic
backing materials, polyurethane and latex; and various dyes and chemicals.
Mohawk obtains all of its major raw materials from independent sources and all
of its externally purchased nylon fibers from four major suppliers: E.I. du Pont
de Nemours and Company, Solutia, Inc., BASF Corporation and Honeywell, Inc. Most
of the fibers the Company uses in carpet production are treated with stain-
resistant chemicals. The Company has not experienced significant shortages of
raw materials in recent years. The Company believes that the loss of any one
supplier would not have a material effect on the Company and that an alternative
supply arrangement could be made in a relatively short period of time.
Competition
All of the markets in which the Company does business are highly competitive,
with less than 100
5
companies engaged in the manufacture and sale of carpet in the United States.
Carpet manufacturers also face competition from the hard surface floorcovering
industry. Based on industry publications, the top twenty North American carpet
and rug manufacturers (including their American and foreign divisions) in 1998
had worldwide sales in excess of $10 billion, and the top twenty manufacturers
in 1990 had sales in excess of $6 billion. In 1999, the top five manufacturers
had worldwide sales in excess of $9 billion. Mohawk, with 1999 net sales of
approximately $3.1 billion, is the second largest producer of carpet and rugs
(in terms of sales volume).
Certain of the Company's competitors may have greater financial resources
than the Company. Mohawk has one competitor whose size could allow it certain
manufacturing cost advantages compared to other industry participants.
The principal methods of competition within the industry are price, style,
quality and service. In each of the Company's markets, price competition and
market coverage are particularly important because there is relatively little
perceived differentiation among competing product lines. Mohawk's recent
investments in modernized, advanced manufacturing and data processing equipment,
the extensive diversity of equipment in which it has invested and its marketing
strategy contribute to its ability to compete primarily on the basis of
performance, quality, style and service, rather than just price.
Trademarks
Mohawk uses several trademarks that it considers important in the marketing
of its products, including "Aladdin," "Alexander Smith (R)," "American Rug
Craftsmen," "Bigelow (R)," "Ciboney (R)," "Commercial Horizons (R)," "Custom
Weave" "Galaxy(R)" "Hamilton (R)" "Harbinger (R)," "Helios (R)," "Horizon (R),"
"Image," "Karastan (R)," "Mohawk (R)," "Mohawk Color Center (R)," "Mohawk
Commercial," "Tommy Mohawk (R)," "Townhouse," "World" and "WundaWeve."
Sales Terms and Major Customers
The Company's sales terms are the same as those generally available
throughout the industry. The Company generally permits its customers to return
broadloom carpet purchased from it within 30 days from the date of sale if the
customer is not satisfied with the quality of the carpet. This return policy is
consistent with the Company's emphasis on quality, style and performance and
promotes customer satisfaction without generating enough returns to affect
materially the Company's operating results or financial position.
During 1999, no single customer accounted for more than 5.0% of Mohawk's
total net sales. The Company believes the loss of one or a few major customers
would not have a material adverse effect on the Company's business.
Backlog
Backlog of orders is generally insignificant in the carpet manufacturing
business because most residential orders are filled within several days and
commercial backlogs reflect the terms of the relevant contracts, which generally
require delivery within four to six weeks.
Employees
As of December 31, 1999, the Company employed 23,050 persons. Approximately
310 Mohawk employees are members of the Union of Needletrades, Industrial and
Textile Employees, AFL-CIO, CLC with which the Company is party to a collective
bargaining agreement. Other than with respect to these employees, the Company is
not a party to any collective bargaining agreements. Additionally, the Company
has not experienced any strikes or work stoppages. The Company believes that its
relations with its employees are good.
6
Environmental Matters
The Company's operations must meet federal, state and local regulations
governing the discharge of materials into the environment. All of the plants
operated by the Company were built or have been upgraded to meet current
environmental standards. The Company believes it is in material compliance with
all applicable regulations. The Company estimates that any expenses incurred in
maintaining compliance with these regulations will not materially affect
earnings.
Cyclical Nature of Industry; Current Economic Conditions
The carpet industry is a cyclical business, influenced by a number of
general economic factors, including consumer confidence, spending for durable
goods, disposable income, interest rates, turnover in housing and the condition
of the residential and commercial construction industries (including the number
of new housing starts and the level of commercial construction). During economic
downturns, the carpet industry can be expected to experience a general decline
in sales and profitability.
Item 2. Properties
The Company owns a 47,500 square foot headquarters office in Calhoun,
Georgia on an eight acre site. The following table lists the principal
manufacturing and distribution facilities owned by the Company:
Approx.
Enclosed
Area in
Square
Location Primary Products or Purposes Footage
- ---------------------- ----------------------------------------------------------- ---------------
Dalton, GA............ Carpet and rug manufacturing and warehousing............. 2,089,000
Dalton, GA............ Carpet manufacturing, distribution and offices........... 1,103,200
Dalton, GA............ Carpet manufacturing, distribution and offices........... 396,900
Dalton, GA............ Carpet and yarn manufacturing............................ 1,101,600
Chatsworth, GA........ Carpet manufacturing, warehousing and offices............ 787,800
Dublin, GA............ Carpet manufacturing, warehousing and offices............ 831,000
Lyerly, GA............ Carpet manufacturing and warehousing..................... 820,000
Eden, NC.............. Carpet and rug manufacturing............................. 784,200
Calhoun, GA........... Carpet manufacturing and distribution center............. 792,000
Dalton, GA............ Carpet manufacturing..................................... 342,000
Eton, GA.............. Carpet manufacturing..................................... 577,205
Armuchee, GA.......... Carpet manufacturing..................................... 232,000
Chatsworth, GA........ Distribution center...................................... 812,075
Shannon, GA........... Distribution center...................................... 567,000
Landrum, SC........... Weaving and finishing of carpet.......................... 350,000
Dalton, GA............ Carpet dyeing............................................ 259,000
Dalton, GA............ Carpet dyeing............................................ 216,000
Dalton, GA............ Sample storage and distribution.......................... 123,000
Eden, NC.............. Carpet and rug distribution.............................. 194,000
Summerville, GA....... Sample manufacturing and distribution.................... 235,000
Chatsworth, GA........ Sample manufacturing..................................... 291,800
Sugar Valley, GA...... Rug manufacturing, warehousing and offices............... 472,500
Dalton, GA............ Rug manufacturing and offices............................ 135,000
Calhoun, GA........... Rug manufacturing and warehousing........................ 250,000
Chatsworth, GA........ Yarn extrusion........................................... 257,800
Summerville, GA....... Yarn extrusion........................................... 579,000
Dahlonega, GA......... Yarn manufacturing....................................... 380,000
Calhoun Falls, SC..... Yarn manufacturing....................................... 425,000
Bennettsville, SC..... Yarn manufacturing....................................... 412,000
7
Dalton, GA............ Yarn manufacturing....................................... 105,400
Laurel Hill, NC....... Yarn manufacturing....................................... 203,000
Fort Oglethorpe, GA . Yarn manufacturing....................................... 194,000
Dalton, GA............ Yarn manufacturing....................................... 231,000
Dalton, GA............ Yarn manufacturing....................................... 180,000
Calhoun, GA........... Yarn manufacturing....................................... 121,000
Calhoun, GA........... Yarn manufacturing....................................... 113,800
Dillon, SC............ Yarn manufacturing....................................... 102,000
South Pittsburg, TN . Yarn manufacturing....................................... 102,000
Chatsworth, GA........ Yarn manufacturing....................................... 138,100
Rome, GA.............. Yarn manufacturing....................................... 240,400
Rome, GA.............. Yarn manufacturing....................................... 224,000
Cartersville, GA...... Yarn manufacturing....................................... 178,100
Milledgeille, GA...... Yarn manufacturing....................................... 255,000
Ulmer, SC............. Yarn manufacturing....................................... 238,666
Chatsworth, GA........ Yarnset plant............................................ 121,200
Chatsworth, GA........ Commercial warehouse..................................... 128,000
Eton, GA.............. Storage warehouse........................................ 121,300
Greenville, NC........ Wool processing.......................................... 103,000
Calhoun, GA........... Textile and Rug Manufacturing............................ 287,688
________________
The following table lists the Company's material leased office,
manufacturing and warehouse facilities:
Approx.
Enclosed Lease
Area in Term
Square Through
Location Primary Products or Purposes Footage (1)
- ---------------------- -------------------------------------------------- ------------- --------------
Calhoun, GA........... Mat manufacturing and warehouse (2)............. 164,400 Jun-2004
La Mirada, CA......... Distribution warehouse.......................... 220,000 Jan-2011
Grand Prairie, TX..... Distribution warehouse.......................... 202,890 Jun-2012
Bowlingbrook, IL...... Distribution warehouse.......................... 201,959 Nov-2019
Glen Burnie, MD....... Distribution warehouse.......................... 187,200 Apr-2007
Pembroke Park, FL..... Distribution warehouse.......................... 186,537 Jul-2020
Pompton Plains, NJ.... Distribution warehouse.......................... 164,347 Jul-2011
Miami, FL............. Distribution warehouse (2)...................... 139,574 May-2001
Columbus, OH.......... Distribution warehouse.......................... 112,500 Sep-2004
Romeoville, IL........ Distribution warehouse.......................... 108,000 Oct-2004
Calhoun, GA........... Carpet manufacturing............................ 80,762 Jun-2000
Rome, GA.............. Warehouse....................................... 140,000 Feb-2000
Bentonville, AR....... Textile manufacturing........................... 134,067 Nov-2004
Kensington, GA........ Warehouse....................................... 277,484 May-2000
________________
(1) Include renewal options exercisable by the Company.
(2) Includes a number of separately leased adjoining or adjacent buildings with
varying lease terms. The expiration date shown in the table is the earliest
expiration date of the respective group of leases.
The Company's properties are in good condition and adequate for its
requirements. The Company also believes its principal plants are generally
adequate to meet its production plans pursuant to its long-term sales goals. In
the ordinary course of its business, the Company monitors the condition of its
facilities to ensure that they remain adequate to meet long-term sales goals and
production plans.
8
Item 3. Legal Proceedings
The Company is involved in routine litigation from time to time in the
regular course of its business. Except as noted below, there are no material
legal proceedings pending or known to be contemplated to which the Company is a
party or to which any of its property is subject.
In December 1995, the Company and four other carpet manufacturers were
added as defendants in a purported class action lawsuit, In re Carpet Antitrust
Litigation, pending in the United States District Court for the Northern
District of Georgia, Rome Division. The amended complaint alleges price-fixing
regarding polypropylene products in violation of Section One of the Sherman Act.
In September 1997, the Court determined that the plaintiffs met their burden of
establishing the requirements for class certification and granted the
plaintiffs' motion to certify the class. The Company is a party to two
consolidated lawsuits captioned Gaehwiler v. Sunrise Carpet Industries, Inc. et
al. and Patco Enterprises, Inc. v. Sunrise Carpet Industries, Inc. et al., both
of which were filed in the Superior Court of the State of California, City and
County of San Francisco, in 1996. Both complaints were brought on behalf of a
purported class of indirect purchasers of carpet in the State of California and
seek damages for alleged violations of California antitrust and unfair
competition laws. The complaints filed do not specify any amount of damages but
do request for any unlawful conduct to be enjoined and treble damages plus
reimbursement for fees and costs. In October 1998, two plaintiffs, on behalf of
an alleged class of purchasers of nylon carpet products, filed a complaint in
the United States District Court for the Northern District of Georgia against
the Company and two of its subsidiaries, as well as a competitor and one of its
subsidiaries. The complaint alleges that the Company acted in concert with other
carpet manufacturers to restrain competition in the sale of certain nylon carpet
products. The Company has filed an answer, denied the allegations in the
complaint and set forth its defenses. In February 1999, a similar complaint was
filed in the Superior Court of the State of California, City and County of San
Francisco, on behalf of a purported class based on indirect purchases of nylon
carpet in the State of California and alleges violations of California antitrust
and unfair competition laws. The complaints described above do not specify any
specific amount of damages but do request injunctive relief and treble damages
plus reimbursement for fees and costs. The Company believes it has meritorious
defenses and intends to vigorously defend against these actions.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders of the Company
during the fourth quarter ended December 31, 1999.
9
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Market for the Common Stock
The Company's common stock is quoted on the New York Stock Exchange
("NYSE") under the symbol "MHK." The table below shows the high and low sales
prices per share of the Common Stock as reported on the NYSE Composite Tape, for
each fiscal period indicated.
Mohawk
Common Stock
------------------------
High Low
---------- ----------
1998
----
First quarter.......................................... $ 33.50 20.50
Second quarter......................................... 35.50 28.44
Third quarter.......................................... 34.94 22.63
Fourth quarter......................................... 42.44 22.69
1999
----
First quarter.......................................... $ 42.00 25.94
Second quarter......................................... 38.56 28.19
Third quarter.......................................... 30.44 18.38
Fourth quarter......................................... 26.81 19.69
2000
----
First quarter (through March 6, 2000)................. $ 26.00 20.31
As of March 6, 2000, there were 463 holders of record of Common Stock.
Mohawk has not paid or declared any cash dividends on shares of its Common Stock
since completing its initial public offering. The Company's policy is to retain
all net earnings for the development of its business, and it does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. The payment
of future cash dividends will be at the sole discretion of the Board of
Directors and will depend upon the Company's profitability, financial condition,
cash requirements, future prospects and other factors deemed relevant by the
Board of Directors. The payment of cash dividends is limited by certain
covenants within various Company loan agreements.
On March 9, 1999, the Company issued approximately 3.1 million shares of
Common Stock to the former shareholders of Durkan in exchange for all of their
shares of Durkan. This issuance of securities was made in reliance on the
exemption from registration provided under Section 4(2) of the Securities Act of
1933 as a transaction by an issuer not involving a public offering. All of the
securities were acquired by the recipients for investment and with no view
toward the public resale or distribution of the securities without registration.
There was not any public solicitation and the issued stock certificates bear
restrictive legends.
10
Item 6. Selected Financial Data
The following table sets forth the selected financial data of the Company
for the periods indicated, derived from the consolidated financial statements of
the Company. On January 13, 1995, the Company acquired all of the outstanding
capital stock of Galaxy. On July 23, 1997, the Company acquired certain assets
of Diamond Rug & Carpet Mills, Inc. and other assets owned by Diamond's
principal shareholders. The acquisitions of Galaxy and Diamond were recorded
using the purchase method of accounting. On November 12, 1998, the Company
acquired all of the outstanding capital stock of World in exchange for
approximately 4.9 million shares of the Company's common stock in a transaction
recorded using the pooling-of-interests method of accounting. On January 29,
1999, the Company acquired certain assets and assumed certain liabilities of
Image. The acquisition was recorded using the purchase method of accounting. On
March 9, 1999, the Company acquired all of the outstanding capital stock of
Durkan in exchange for approximately 3.1 million shares of the Company's common
stock in a transaction recorded using the pooling-of-interests method of
accounting. All financial data has been restated to include the accounts and
results of operations of World and Durkan. The selected financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements and notes thereto included elsewhere herein.
At or for the Years ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- -------------- ------------- ------------- -------------
(In thousands, except per share data)
Statement of earnings data:
Net sales............................. $ 3,083,264 2,744,620 2,429,085 2,239,471 2,041,865
Cost of sales......................... 2,306,405 2,063,333 1,869,221 1,726,765 1,594,050
--------------- ------------- ------------- ------------- -------------
Gross profit........................ 776,859 681,287 559,864 512,706 447,815
Selling, general and administrative
expenses............................ 482,062 432,191 383,523 367,251 348,278
Restructuring costs (a)............... - - - 700 8,439
Carrying value reduction of property,
plant and equipment and other
assets (b).......................... - 2,900 5,500 3,060 23,711
Compensation expense for stock
option exercises (c)................ - - 2,600 - 4,000
--------------- ------------- ------------- ------------- -------------
Operating income.................... 294,797 246,196 168,241 141,695 63,387
--------------- ------------- ------------- ------------- -------------
Interest expense...................... 32,632 31,023 36,474 39,772 42,398
Acquisition costs - World Merger (d) - 17,700 - - -
Other expense, net.................... 2,266 2,667 338 4,586 1,170
--------------- ------------- ------------- ------------- -------------
34,898 51,390 36,812 44,358 43,568
--------------- ------------- ------------- ------------- -------------
Earnings before income taxes........ 259,899 194,806 131,429 97,337 19,819
Income taxes ......................... 102,660 79,552 51,866 40,395 8,022
--------------- ------------- ------------- ------------- -------------
Net earnings........................ $ 157,239 115,254 79,563 56,942 11,797
=============== ============= ============= ============= =============
Basic earnings per share (e).......... $ 2.63 1.91 1.33 0.96 0.21
=============== ============= ============= ============= =============
Weighted-average common shares
outstanding (e)..................... 59,730 60,393 59,962 59,310 57,235
=============== ============= ============= ============= =============
Diluted earnings per share (e)........ $ 2.61 1.89 1.32 0.95 0.20
=============== ============= ============= ============= =============
Weighted-average common and
dilutive potential common shares
outstanding (e).................... 60,349 61,134 60,453 59,899 58,485
=============== ============= ============= ============= =============
11
At or for the Years ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- -------------- ------------- ------------- -------------
(In thousands, except per share data)
Balance sheet data:
Working capital....................... $ 560,057 438,474 389,378 390,889 305,370
Total assets.......................... 1,682,873 1,405,486 1,233,361 1,226,959 1,110,438
Short-term note payable............... - - - 21,200 50,000
Long-term debt (including current
portion) . 596,065 377,089 402,854 486,952 435,940
Stockholders' equity.................. 692,546 611,059 493,841 409,616 343,452
(a) During 1995 and 1996, the Company recorded pre-tax restructuring costs of
$8.4 million and $0.7 million, respectively, related to certain mill closings
whose operations have been consolidated into other Mohawk facilities.
(b) During 1995, the Company adopted FAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, as of January
1, 1995. A charge of $23.7 million was recorded for the reduction of the
carrying value of property, plant and equipment at certain mills. During 1996,
the Company recorded a charge of $3.1 million arising from the write-down of
property, plant and equipment to be disposed of related to the closing of a
manufacturing facility in 1996 and a revision in the estimate of fair value of
certain property, plant and equipment based on current market conditions related
to mill closings in 1995. During 1997, the Company recorded a charge of $5.5
million arising from a revision in the estimated fair value of certain property,
plant and equipment held for sale based on current appraisals and other market
information related to a mill closing in 1995. During 1998, the Company recorded
a charge of $2.9 million for the write-down of assets to be disposed of relating
to the acquisition of World.
(c) Charges of $4.0 million and $2.6 million were recorded in 1995 and 1997,
respectively, for income tax reimbursements to be made to certain executives
related to the exercise of stock options granted in 1988 and 1989 in connection
with the Company's 1988 leveraged buyout.
(d) The Company recorded a one-time charge of $17.7 million in 1998 for
transaction expenses related to the World Merger.
(e) The Board of Directors declared a 3-for-2 stock split on October 23, 1997,
which was paid on December 4, 1997 to holders of record on November 4, 1997.
Earnings per share and weighted-average common share data have been restated to
reflect the split.
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
During the three-year period ended December 31, 1999, the Company continued to
experience significant growth both internally and through acquisitions.
On July 23, 1997, the Company acquired certain assets of Diamond Rug & Carpet
Mills, Inc. ("Diamond") and other assets owned by Diamond's principal
shareholders for approximately $36.0 million, which consisted of $19.6 million
in cash at closing, $7.0 million in cash over the six-month period following
closing and a $9.4 million note payable in seven annual installments of
principal plus interest at 6%. The acquisition was accounted for using the
purchase method of accounting.
The Company completed its acquisitions of Newmark and American Weavers on June
30, 1998 and August 10, 1998, respectively. Both of these acquisitions were
accounted for using the purchase method of accounting. On November 12, 1998,
the Company acquired all of the outstanding capital stock of World in exchange
for approximately 4.9 million shares of the Company's common stock valued at
$149.5 million, based on the closing stock price on the day the agreement was
executed. The acquisition of World was accounted for using the pooling-of-
interests method of accounting.
On January 29, 1999, the Company acquired certain assets of Image for
approximately $192 million, including acquisition costs and the assumption of
$30 million of tax-exempt debt, and on March 9, 1999, the Company acquired all
of the outstanding capital stock of Durkan for approximately 3.1 million shares
of the Company's common stock valued at $116.5 million based on the closing
stock price the day the letter of intent was executed. The Image acquisition
was accounted for using the purchase method of accounting, and the Durkan
acquisition was accounted for using the pooling-of-interests method of
accounting.
These acquisitions have created opportunities to enhance Mohawk's operations
by (i) broadening price points, (ii) increasing vertical integration efforts,
(iii) expanding distribution capabilities and (iv) facilitating entry into niche
businesses, such as rugs, decorative throws and table runners.
Prior to December 31, 1999, the impact of the changeover to 2000 on computer
software programs and internal operating systems was uncertain and recent
publications have suggested that February 29, 2000, may cause interruptions or
system failure in computer software programs and internal operating systems. In
1999, the Company spent approximately $.5 million to review and upgrade its
computer and business systems in its effort to make these systems Year 2000
compliant and thereby avoid such interruptions resulting from the changeover to
2000 or the occurrence of February 29, 2000. To date the Company has not
incurred, and does not expect to incur any significant interruptions as a result
of the changeover to 2000 and the Company is not expecting to incur significant
interruptions as a result of the occurrence of February 29, 2000.
Effective January 1, 2000, the Company changed the estimated useful lives of
certain property, plant and equipment. Management believes this change more
accurately reflects the actual lives of these assets and is more consistent with
industry practice. The prospective change is estimated to reduce annual
depreciation expense by approximately $20 million in 2000. See accompanying
Notes to Consolidated Financial Statements for further discussion.
Results of Operations
Year Ended December 31, 1999 as Compared with Year Ended December 31, 1998
- --------------------------------------------------------------------------
Net sales for the year ended December 31, 1999 were $3,083.3 million,
reflecting an increase of $338.6 million, or approximately 12.3%, over the
$2,744.6 million reported in the year ended December 31, 1998. All major
product categories achieved sales increases in 1999 as compared to 1998. The
Company believes that the 1999 net sales increase was attributable to internal
growth and the acquisition of Image.
13
Quarterly net sales and the percentage changes in net sales by quarter for
1999 versus 1998 were as follows (dollars in thousands):
1999 1998 Change
--------------- --------------- ---------------
First quarter...................... $ 707,167 589,473 20.0%
Second quarter..................... 790,617 689,488 14.7
Third quarter...................... 809,933 718,772 12.7
Fourth quarter..................... 775,547 746,887 3.8
--------------- --------------- ---------------
Total year.................. $ 3,083,264 2,744,620 12.3%
=============== =============== ===============
The Company's fiscal calendar reflected differences for the 1999 first
quarter, with four more shipping days, when compared to 1998 and four fewer
shipping days when the fourth quarter of 1999 is compared to 1998.
Gross profit for 1999 was $776.9 million (25.2% of net sales) and represented
an increase over the gross profit of $681.3 million (24.8% of net sales) for
1998. Gross profit dollars for the current year were impacted favorably by
better absorption of fixed costs through higher production volume.
Selling, general and administrative expenses for 1999 were $482.1 million
(15.6% of net sales) compared to $432.2 million (15.7% of net sales) for 1998.
Interest expense for the current year was $32.6 million compared to $31.0
million in 1998. The primary factor contributing to the increase was an
increase in debt levels, which was attributable to acquisitions, the stock
repurchase program and capital expenditures, compared to the prior year, which
was offset by a decrease in the Company's weighted average interest rate in
1999.
In the current year, income tax expense was $102.7 million, or 39.5% of
earnings before income taxes. In 1998, income tax expense was $79.6 million,
representing 40.8% of earnings before income taxes. The primary reason for the
decrease in the 1999 effective income tax rate was that certain costs included
in the nonrecurring pre-tax charge of $17.7 million related to the World
acquisition recorded in 1998 were not deductible for income tax purposes.
Year Ended December 31, 1998 as Compared with Year Ended December 31, 1997
- --------------------------------------------------------------------------
Net sales for the year ended December 31, 1998 were $2,744.6 million,
reflecting an increase of $315.5 million, or approximately 13%, over the
$2,429.1 million reported in the year ended December 31, 1997. All major
product categories achieved sales increases in 1998 as compared to 1997. These
sales increases were impacted by continued favorable industry conditions and a
gain in the Company's market share, which, the Company believes, primarily
resulted from continued emphasis on supporting its dealers and strong customer
acceptance of new product introductions.
Quarterly net sales and the percentage changes in net sales by quarter for
1998 versus 1997 were as follows (dollars in thousands):
1999 1998 Change
--------------- --------------- ---------------
First quarter...................... $ 589,473 537,145 9.7%
Second quarter..................... 689,488 607,059 13.6
Third quarter...................... 718,772 626,751 14.7
Fourth quarter..................... 746,887 658,130 13.5
--------------- --------------- ---------------
Total year.................. $ 2,744,620 2,429,085 13.0%
=============== =============== ===============
Gross profit for 1998 was $681.3 million (24.8% of net sales) and represented
an increase over the gross profit of $559.9 million (23.0% of net sales) for
1997. Gross profit dollars for 1998 were impacted favorably by better
absorption of fixed costs through higher production volume, and continued
improvements in manufacturing efficiencies from restructuring efforts.
14
Selling, general and administrative expenses for 1998 were $432.2 million
(15.7% of net sales) compared to $383.5 million (15.8% of net sales) for 1997.
Selling, general and administrative expenses as a percentage of net sales
decreased primarily due to lower administrative, bad debt and sample expenses.
During the fourth quarter of 1998, the Company recorded a charge of $2.9
million for the write-down of fixed assets to be disposed of in connection with
the World acquisition. Also, a $17.7 million charge was recorded for
nonrecurring costs associated with the World acquisition.
During the fourth quarter of 1997, the Company revised its estimate of the
fair value of certain property, plant and equipment held for sale. The revision
resulted in a $5.5 million write-down to the carrying value of those assets.
The revision was based upon current appraisals and other market information. In
addition, a $2.6 million charge was recorded for additional income tax
reimbursements to be made to certain executives for the exercise of stock
options. The income tax reimbursements were recorded in connection with stock
options granted in 1988 and 1989 related to the Company's 1988 leveraged buyout.
Interest expense for 1998 was $31.0 million compared to $36.5 million in 1997.
The primary factor contributing to the decrease was a significant reduction in
debt levels.
In 1998, income tax expense was $79.6 million, or 40.8% of earnings before
income taxes. In 1997, income tax expense was $51.9 million, representing 39.5%
of earnings before income taxes. The primary reason for the increase in the
1998 effective income tax rate was that certain costs included in the
nonrecurring pre-tax charge of $17.7 million related to the World acquisition
were not deductible for income tax purposes.
Liquidity and Capital Resources
The Company's primary capital requirements are for working capital, capital
expenditures and acquisitions. The Company's capital needs are met through a
combination of internally generated funds, bank credit lines and credit terms
from suppliers.
The level of accounts receivable increased from $331.9 million at the
beginning of 1999 to $337.8 million at December 31, 1999. The $5.9 million
increase was attributable to strong sales growth. Inventories increased from
$423.8 million at the beginning of 1999 to $494.8 million at December 31, 1999,
due primarily to acquisitions and the need for a higher level of inventory to
meet the increased sales volume.
Capital expenditures totaled $146 million during 1999, and the Company spent
an additional $162 million related to the Image acquisition. The capital
expenditures made during 1999 were incurred primarily to modernize and expand
manufacturing facilities and equipment. The Company's capital projects are
primarily focused on increasing capacity, improving productivity and reducing
costs. Capital expenditures for Mohawk, including $233 million for
acquisitions, have totaled $510 million over the past three years. Capital
spending during 2000 is expected to range from $105 million to $120 million, the
majority of which will be used to purchase equipment to increase production
capacity and productivity.
On November 23, 1999, the Company amended and restated its credit agreement to
provide for an interest rate of either (i) LIBOR plus 0.2% to 0.5%, depending
upon the Company's performance measured against certain financial ratios, or
(ii) the prime rate less 1.0%. Additionally, the termination date of the credit
agreement was extended to January 28, 2004. At December 31, 1999, the Company
had credit availability of $450 million under its revolving credit line and $45
million under various short-term uncommitted credit lines. At December 31, 1999,
a total of approximately $110.5 million was unused under these lines. The
credit agreement contains customary financial and other covenants. The Company
must pay an annual facility fee ranging from .0015 to .0025 of the total credit
commitment, depending upon the Company's performance measured against specific
coverage ratios, under the revolving credit line.
The Company's Board of Directors approved a stock repurchase plan in September
1999, whereby the Company's management was authorized to purchase up to five
million common shares. In December 1999 it amended the plan to increase the
shares authorized for purchase by an additional five million shares, bringing
the total authorized repurchase up to 10 million shares of its outstanding
common shares. For the year ended
15
December 31, 1999, a total of approximately four million shares of the Company's
common stock had been purchased at an aggregate cost of approximately $84
million. All of this repurchase has been financed through the Company's
operations and revolving line of credit.
Impact of Inflation
Inflation affects the Company's manufacturing costs and operating expenses.
The carpet industry has experienced moderate inflation in the prices of raw
materials and outside processing for the last three years. The Company has
generally passed along nylon fiber price increases to its customers.
Seasonality
The carpet business is seasonal, with the Company's second, third and fourth
quarters typically producing higher net sales and operating income. By
comparison, results for the first quarter tend to be the weakest. This
seasonality is primarily attributable to consumer residential spending patterns
and higher installation levels during the spring and summer months.
Certain factors affecting the Company's performance
In addition to the other information provided in this Form 10-K, the following
risk factors should be considered when evaluating an investment in shares of
Mohawk common stock.
A failure by Mohawk to complete acquisitions and successfully integrate acquired
- --------------------------------------------------------------------------------
operations could materially and adversely affect its business.
- --------------------------------------------------------------
Management intends to pursue acquisitions of complementary businesses as part
of its business and growth strategies. Although management regularly evaluates
acquisition opportunities, it cannot offer assurance that it will be able to:
. successfully identify suitable acquisition candidates;
. obtain sufficient financing on acceptable terms to fund acquisitions;
. complete acquisitions;
. integrate acquired operations into Mohawk's existing operations; or
. profitably manage acquired businesses.
Acquired operations may not achieve levels of sales, operating income or
productivity comparable to those of Mohawk's existing operations, or otherwise
perform as expected. Acquisitions may also involve a number of special risks,
some or all of which could have a material adverse effect on Mohawk's business,
results of operations and financial condition, including, among others:
. possible adverse effects on Mohawk's operating results;
. diversion of Mohawk management's attention and its resources; and
. dependence on retaining and training acquired key personnel.
The carpet industry is cyclical and a downturn in the overall economy could
- ---------------------------------------------------------------------------
lesson the demand for Mohawk's products and impair growth and profitability.
- ----------------------------------------------------------------------------
The carpet industry is cyclical and is influenced by a number of general
economic factors. Prevailing interest rates, consumer confidence, spending for
durable goods, disposable income, turnover in housing and the condition of the
residential and commercial construction industries (including the number of new
housing starts and the level of new commercial construction) all have an impact
on Mohawk's growth and profitability. In addition, sales of Mohawk's principal
products are related to construction and renovation of commercial and
residential buildings. Any adverse cycle could lessen the overall demand for
Mohawk's products and could, in turn, impair Mohawk's growth and profitability.
The carpet business is seasonal and this seasonality causes Mohawk's results of
- -------------------------------------------------------------------------------
operations to fluctuate on a quarterly basis.
- ---------------------------------------------
Mohawk is a calendar year end company and its results of operations for the
first quarter tend to be the weakest. Mohawk's second, third and fourth quarters
typically produce higher net sales and operating income. These results are
primarily due to consumer residential spending patterns and more carpet being
installed in the spring and summer months.
16
Mohawk's business is competitive and a failure by Mohawk to compete effectively
- -------------------------------------------------------------------------------
could have a material and adverse impact on Mohawk's results of operations.
- ---------------------------------------------------------------------------
Mohawk operates in a highly competitive industry. Mohawk and other
manufacturers in the carpet industry compete on the basis of price, style,
quality and service. Some of Mohawk's competitors may have greater financial
resources at their disposal. Mohawk has one competitor whose size could allow it
certain manufacturing cost advantages compared to other industry participants.
If competitors substantially increase production and marketing of competing
products, then Mohawk might be required to lower its prices or spend more on
product development, marketing and sales, which could adversely affect Mohawk's
profitability.
An increase in the cost of raw materials could negatively impact Mohawk's
- -------------------------------------------------------------------------
profitability.
- --------------
The cost of raw materials has a significant impact on the profitability of
Mohawk. In particular, Mohawk's business requires it to purchase large volumes
of nylon fiber and polypropylene resin, which is used to manufacture fiber.
Mohawk does not have any long-term supply contracts for any of these products.
While Mohawk generally attempts to match cost increases with price increases,
large increases in the cost of such raw materials could adversely affect its
business, results of operations and financial condition if it is unable to pass
these costs through to its customers.
Mohawk may be responsible for environmental cleanup, which could negatively
- ---------------------------------------------------------------------------
impact profitability.
- ---------------------
Various federal, state and local environmental laws govern the use of Mohawk's
facilities. Such laws govern:
. discharges to air and water;
. handling and disposal of solid and hazardous substances and waste; and
. remediation of contamination from releases of hazardous substances in
Mohawk's facilities and off-site disposal locations.
Mohawk's operations are also governed by the laws relating to workplace safety
and worker health, which, among other things, establish asbestos and noise
standards and regulate the use of hazardous chemicals in the workplace. Mohawk
has taken and will continue to take steps to comply with these laws. Based upon
current available information, Mohawk believes that complying with environmental
and safety and health requirements will not require material capital
expenditures in the foreseeable future. However, Mohawk cannot provide assurance
that complying with these environmental or health and safety laws and
requirements will not adversely affect its business, results of operations and
financial condition. Future laws, ordinances or regulations could give rise to
additional compliance or remediation costs, which could have a material adverse
effect on its business, results of operations and financial condition.
Forward-Looking Information
Certain of the matters discussed in the preceding pages, particularly
regarding anticipating future financial performance, business prospects, growth
and operating strategies, proposed acquisitions, new products and similar
matters, and those preceded by, followed by or that otherwise include the words
"believes," "expects," "anticipates," "intends," "estimates" or similar
expressions constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended. For those statements,
Mohawk claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. Forward-
looking statements involve a number of risks and uncertainties. The following
important factors, in addition to those discussed elsewhere in this document,
affect the future results of Mohawk and could cause those results to differ
materially from those expressed in the forward-looking statements: materially
adverse changes in economic conditions generally in the carpet, rug and
floorcovering markets served by Mohawk; competition from other carpet, rug and
floorcovering manufacturers; raw material prices; timing and level of capital
expenditures; the successful integration of acquisitions, including the
challenges inherent in diverting Mohawk management's attention and resources
from other strategic matters and from operational matters for an extended period
of time; the successful introduction of new products; the successful
rationalization of existing operations; and other risks identified from time to
time in the Company's SEC reports and public announcements.
17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk-sensitive instruments do not subject the Company to
material market risk exposures.
Item 8. Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Reports............................................................... 19
Consolidated Balance Sheets as of December 31, 1999 and 1998................................ 21
Consolidated Statements of Earnings for the Years ended December 31, 1999, 1998 and 1997.... 22
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1999, 1998 and 1997....................................................... 23
Consolidated Statements of Cash Flows for the Years ended December 31, 1999, 1998 and 1997.. 24
Notes to Consolidated Financial Statements.................................................. 25
18
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
Mohawk Industries, Inc.:
We have audited the consolidated financial statements of Mohawk Industries, Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedules as listed in Item 14(a)2. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits. We did not audit the consolidated statements of operations and cash
flows of World Carpets, Inc. and Subsidiary, a wholly owned subsidiary, for the
year ended June 28, 1998 (not presented herein), which statements of operations
and cash flows have been combined with those of Mohawk Industries, Inc. and
subsidiaries for the year ended December 31, 1997. The consolidated statement
of operations of World Carpets, Inc. and Subsidiary reflects total net sales
constituting 18 percent for the year ended December 31, 1997, of the related
consolidated total. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for World Carpets, Inc. and Subsidiary, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.
KPMG LLP
Atlanta, Georgia
February 11, 2000
19
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors
and Shareholders of
World Carpets, Inc.
In our opinion, the consolidated statements of operations, of changes in
shareholders' equity and of cash flows present fairly, in all material respects,
the results of operations and cash flows of World Carpets Inc. and its
subsidiary (the "Company") for the year ended June 28, 1998 (not presented
separately herein), in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards, which 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 and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of the Company for any period subsequent to
June 28, 1998.
PricewaterhouseCoopers LLP
Atlanta, Georgia
September 21, 1998
20
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except per share data)
ASSETS 1999 1998
---------------- ------------
Current assets:
Cash............................................................................... $ - 2,384
Receivables........................................................................ 337,824 331,928
Inventories........................................................................ 494,774 423,837
Prepaid expenses................................................................... 25,184 19,322
Deferred income taxes.............................................................. 76,628 69,464
---------------- --------------
Total current assets............................................................ 934,410 846,935
Property, plant and equipment, net.................................................. 624,814 454,867
Other assets........................................................................ 123,649 103,684
---------------- --------------
$ 1,682,873 1,405,486
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................................. $ 33,961 44,424
Accounts payable and accrued expenses.............................................. 340,392 364,037
---------------- --------------
Total current liabilities....................................................... 374,353 408,461
Deferred income taxes............................................................... 53,783 47,921
Long-term debt, less current portion................................................ 562,104 332,665
Other long-term liabilities......................................................... 87 5,380
---------------- --------------
Total liabilities............................................................... 990,327 794,427
---------------- --------------
Stockholders' equity:
Preferred stock, $.01 par value; 60 shares authorized; no shares issued............ - -
Common stock, $.01 par value; 150,000 shares authorized; 60,657 and 60,533
shares issued in 1999 and 1998, respectively...................................... 607 606
Additional paid-in capital......................................................... 179,993 172,045
Retained earnings.................................................................. 595,932 438,408
---------------- --------------
776,532 611,059
Less treasury stock at cost; 3,952 shares in 1999................................ 83,986 -
---------------- --------------
Total stockholders' equity..................................................... 692,546 611,059
Commitments and contingencies (Notes 10 and 12).....................................
---------------- --------------
$ 1,682,873 1,405,486
================ ==============
See accompanying notes to consolidated financial statements.
21
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years Ended December 31, 1999, 1998 and 1997
(In thousands, except per share data)
1999 1998 1997
----------------- ----------- -----------
Net sales.............................................................. $ 3,083,264 2,744,620 2,429,085
Cost of sales.......................................................... 2,306,405 2,063,333 1,869,221
----------------- ----------- -----------
Gross profit.................................................... 776,859 681,287 559,864
Selling, general and administrative expenses........................... 482,062 432,191 383,523
Carrying value reduction of property, plant and equipment and
other assets....................................................... - 2,900 5,500
Compensation expense for stock option exercises........................ - - 2,600
----------------- ------------ -----------
Operating income................................................ 294,797 246,196 168,241
----------------- ------------ -----------
Other expense:
Interest expense.................................................... 32,632 31,023 36,474
Acquisition costs - World Merger.................................... - 17,700 -
Other expense, net.................................................. 2,266 2,667 338
----------------- ------------ -----------
34,898 51,390 36,812
----------------- ------------ -----------
Earnings before income taxes.................................... 259,899 194,806 131,429
Income taxes........................................................... 102,660 79,552 51,866
----------------- ------------ -----------
Net earnings.................................................... $ 157,239 115,254 79,563
================= ============ ===========
Basic earnings per share............................................... $ 2.63 1.91 1.33
================= =========== ============
Weighted-average common shares outstanding............................. 59,730 60,393 59,962
================== =========== ===========
Diluted earnings per share............................................. $ 2.61 1.89 1.32
================= =========== ===========
Weighted-average common and dilutive potential common
shares outstanding................................................. 60,349 61,134 60,453
================= =========== ===========
See accompanying notes to consolidated financial statements.
22
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
(In thousands)
Common stock Additional Total
--------------------------- paid-in Retained Treasury stockholders'
Shares Amount capital earnings stock equity
-------- --------- ----------- ---------- ---------- --------------
Balances at December 31, 1996........... 59,757 $ 598 162,707 246,311 - 409,616
Stock options exercised................. 460 5 3,631 - - 3,636
Dividends paid.......................... - - - (24) - (24)
Tax benefit from exercise of stock
options............................ - - 1,050 - - 1,050
Net earnings............................ - - - 79,563 - 79,563
--------- --------- ----------- ---------- ---------- --------------
Balances at December 31, 1997........... 60,217 603 167,388 325,850 - 493,841
Stock options exercised................. 316 3 4,414 - - 4,417
Dividends paid.......................... - - - (24) - (24)
Tax benefit from exercise of stock
options............................ - - 243 - - 243
Adjustments to conform fiscal year end
of World........................... - - - (2,672) - (2,672)
Net earnings............................ - - - 115,254 - 115,254
--------- --------- ----------- ---------- ---------- --------------
Balances at December 31, 1998........... 60,533 606 172,045 438,408 - 611,059
Stock options exercised................. 124 1 1,390 - - 1,391
Purchase of treasury stock.............. - - - - (83,986) (83,986)
Tax benefit from exercise of stock
options............................ - - 836 - - 836
Durkan pooling adjustment............... - - 5,722 - - 5,722
Adjustments to conform fiscal year end
of Durkan.......................... - - - 285 - 285
Net earnings............................ - - - 157,239 - 157,239
--------- --------- ----------- ---------- ---------- --------------
Balances at December 31, 1999........... 60,657 $ 607 179,993 595,932 (83,986) 692,546
========= ========= =========== ========== ========== ==============
See accompanying notes to consolidated financial statements.
23
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
-------------- -------------- --------------
Cash flows from operating activities:
Net earnings...................................................... $ 157,239 115,254 79,563
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization................................... 105,297 72,591 72,893
Deferred income taxes........................................... (1,302) (14,194) (3,132)
Provision for doubtful accounts................................. 15,804 13,173 8,458
Loss (gain) on sale of property, plant and equipment............ 2,516 2,121 (440)
Carrying value reduction of property, plant and equipment
and other assets............................................... - 2,900 5,500
Compensation expense for stock option exercises................. - - 2,600
Changes in assets and liabilities, net of effects of
acquisitions:
Receivables.................................................... 2,904 (36,523) (33,720)
Inventories.................................................... (32,437) (31,083) 23,610
Accounts payable and accrued expenses.......................... (57,274) 57,295 29,953
Other assets and prepaid expenses.............................. (16,086) (7,653) 1,502
Other liabilities.............................................. (5,293) (1,673) (2,571)
-------------- -------------- --------------
Net cash provided by operating activities..................... 171,368 172,208 184,216
-------------- -------------- --------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment and other
assets ........................................................ - - 2,168
Additions to property, plant and equipment........................ (145,621) (83,180) (47,625)
Acquisitions...................................................... (162,463) (36,574) (34,141)
Other............................................................. - - 895
-------------- -------------- --------------
Net cash used in investing activities......................... (308,084) (119,754) (78,703)
-------------- -------------- --------------
Cash flows from financing activities:
Net change in revolving line of credit............................ 255,530 83,658 (83,376)
Payment of note payable........................................... - - (21,200)
Payments on term loans............................................ (32,229) (38,554) (22,896)
Redemption of acquisition indebtedness............................ (20,917) (102,201) -
Proceeds from new loan............................................ - - 10,661
(Redemption) proceeds from Industrial Revenue Bonds and other,
net of payments............................................... (7,779) 11,329 11,593
Change in outstanding checks in excess of cash.................... 15,479 (6,486) (5,841)
Dividends paid.................................................... - (24) (24)
Acquisition of treasury stock..................................... (83,986) - -
Common stock transactions......................................... 8,234 1,988 4,686
-------------- -------------- --------------
Net cash provided by (used in) financing activities........... 134,332 (50,290) (106,397)
-------------- -------------- --------------
Net change in cash............................................ (2,384) 2,164 (884)
Cash, beginning of year............................................. 2,384 220 1,104
-------------- -------------- --------------
Cash, end of year................................................... $ - 2,384 220
============== ============== ==============
See accompanying notes to consolidated financial statements.
24
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(In thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of Mohawk
Industries, Inc. and its subsidiaries (the "Company" or "Mohawk"). All
significant intercompany balances and transactions have been eliminated in
consolidation. On November 12, 1998, the Company acquired all of the outstanding
capital stock of World Carpets, Inc. ("World") in exchange for 4,900 shares of
the Company's common stock ("World Merger"). On November 12, 1998, the
Securities and Exchange Commission declared effective a shelf registration
statement to register for resale 4,900 shares of Company common stock issued in
connection with the World Merger. The historical consolidated financial
statements have been restated to give retroactive effect to the World Merger.
The World Merger is being accounted for as a pooling-of-interests in the
accompanying consolidated financial statements.
On March 9, 1999, the Company acquired all of the outstanding capital stock
of Durkan Patterned Carpets, Inc. ("Durkan") for 3,150 shares of the Company's
common stock ("Durkan Merger"). On April 28, 1999, a shelf registration
statement was filed with the Securities and Exchange Commission to register for
resale 3,150 shares of the Company's common stock in connection with the Durkan
Merger. The historical consolidated financial statements have been restated to
give retroactive effect to the Durkan Merger. The Durkan Merger is being
accounted for as a pooling-of-interests in the accompanying consolidated
financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at 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) Accounts Receivable and Revenue Recognition
The Company is principally a broadloom carpet and rug manufacturer and
sells carpet and rugs throughout the United States principally for residential
use. The Company grants credit to customers, most of whom are retail carpet
dealers, under credit terms that are customary in the industry.
Revenues are recognized when goods are shipped. The Company provides
allowances for expected cash discounts, returns, claims and doubtful accounts
based upon historical bad debt and claims experience and periodic evaluations of
the aging of the accounts receivable.
(c) Inventories
Inventories are stated at the lower of cost or market (net realizable
value). Cost is determined using the last-in, first-out (LIFO) method, which
matches current costs with current revenues, for substantially all inventories
and the first-in, first-out (FIFO) method for the remaining inventories.
(d) Property, Plant and Equipment
Property, plant and equipment is stated at cost, including interest on
funds borrowed to finance the acquisition or construction of major capital
additions. Depreciation is calculated on a straight-line basis over the
estimated remaining useful lives, which are 25 years for buildings and
improvements and 5-7 years for furniture and equipment.
25
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Effective January 1, 2000, the Company changed the estimated useful lives
of buildings (25 years to 35 years), tufting equipment (7 years to 10 years),
extrusion equipment (7 years to 15 years) and furniture and fixtures (5 years to
7 years). Management believes this change more accurately reflects the actual
lives of these assets and is more consistent with industry practice. The
prospective change is estimated to reduce annual depreciation expense by
approximately $20,000 in 2000.
(e) 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. 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.
(f) Earnings per Share ("EPS")
The Company applies the provisions of Financial Accounting Standards Board
("FASB") FAS No. 128, Earnings per Share, which requires companies to present
basic EPS and diluted EPS. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.
The Company's weighted-average common and dilutive potential common shares
outstanding have been adjusted for the 3-for-2 stock split approved by the Board
of Directors on October 23, 1997 and paid on December 4, 1997 to holders of
record on November 4, 1997 and for the World and Durkan mergers. Dilutive common
stock options are included in the diluted EPS calculation using the treasury
stock method. Common stock options that were not included in the diluted EPS
computation because the options' exercise price was greater than the average
market price of the common shares for the periods presented are immaterial.
(g) Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, notes payable and long-term debt. The carrying
amount of cash, accounts receivable, accounts payable and notes payable
approximates their fair value because of the short-term maturity of such
instruments. 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. The estimated fair
value of the Company's long-term debt at December 31, 1999 and 1998 was $605,332
and $384,242, compared to a carrying amount of $596,065 and $377,089,
respectively.
(h) 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.
(i) Goodwill
Goodwill arises in connection with business combinations accounted for as
purchases. Goodwill is amortized primarily on a straight-line basis over 40
years. Amortization charged to earnings was $2,808 in 1999, $2,437 in 1998 and
$2,518 in 1997.
26
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(j) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of FAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. Under FAS No. 121, the Company
evaluates impairment of long-lived assets on a business unit basis, rather than
on an aggregate entity basis, whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, an impairment loss is recognized. Measurement of an
impairment loss for long-lived assets is based on the fair value of the asset.
(k) Effect of New Accounting Pronouncement
In 1997, the FASB issued FAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which supersedes FAS No. 14, Financial
Reporting for Segments of a Business Enterprise. This statement, which the
Company was required to adopt in fiscal year 1998, requires public companies to
report certain financial and descriptive information about their reportable
operating segments, including related disclosures about products and services,
geographic areas and major customers. The implementation of FAS No. 131 did not
have a material effect on the Company's consolidated financial statements.
(l) Reclassifications
Certain prior period financial statement balances have been reclassified to
conform with the current period's presentation.
(2) Acquisitions
The Company completed its acquisitions of Newmark & James, Inc. and
American Weavers, LLC on June 30, 1998 and August 10, 1998, respectively. Both
of these acquisitions have been accounted for under the purchase method of
accounting and their results are included in the Company's 1998 consolidated
statement of earnings from the respective dates of acquisition.
On November 12, 1998, the Company acquired all of the outstanding capital
stock of World in exchange for 4,900 shares of the Company's common stock. The
acquisition of World has been accounted for under the pooling-of-interests basis
of accounting and, accordingly, the Company's historical consolidated financial
statements have been restated to include the accounts and results of operations
of World. The Company incurred before-tax, nonrecurring charges aggregating
$20,600 in 1998 related to the World Merger, of which $17,700 of the charge was
recorded as nonoperating expense and $2,900 of the charge was recorded as a
write-down of World computer equipment that was disposed of.
On January 29, 1999, the Company acquired certain assets of Image
Industries, Inc. ("Image") for approximately $192,000, including acquisition
costs and the assumption of $30,000 of tax-exempt debt. The acquisition was
accounted for using the purchase method of accounting and, accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on the estimated fair values at the date of acquisition. The estimated
fair values were $205,366 for assets acquired and $42,903 for liabilities
assumed.
The operating results of Image are included in the Company's 1999
consolidated statement of earnings from the date of acquisition. The following
unaudited pro forma information presents a summary of consolidated results of
operations of the Company and Image for the fiscal years ended December 31, 1999
and 1998, respectively as if the acquisition had occurred at the beginning of
1998.
27
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
1999 1998
------------ ------------
Net sales........................................................... $ 3,099,113 2,946,736
Net earnings........................................................ $ 156,877 119,360
Basic earnings per share............................................ $ 2.63 1.98
Diluted earnings per share.......................................... $ 2.60 1.95
On March 9, 1999, the Company acquired all of the outstanding capital stock
of Durkan for approximately 3,100 shares of the Company's common stock valued at
$116,500 based on the closing price the day the letter of intent was executed.
The Durkan acquisition has been accounted for under the pooling-of-interests
method of accounting and, accordingly, the Company's historical consolidated
financial statements have been restated to include the accounts and results of
operations of Durkan.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are presented below:
Three Months Year Ended Year Ended
Ended December 31, December 31,
April 3, 1999 1998 1997
--------------- --------------- --------------
(unaudited)
Net sales
Mohawk....................................... $ 683,494 2,638,820 2,327,341
Durkan....................................... 23,673 105,800 101,744
--------------- --------------- --------------
Combined..................................... $ 707,167 2,744,620 2,429,085
=============== =============== ==============
Net earnings
Mohawk....................................... $ 27,128 107,613 73,424
Durkan....................................... 764 7,641 6,139
--------------- --------------- --------------
Combined..................................... $ 27,892 115,254 79,563
=============== =============== ==============
Prior to the combination, Durkan's fiscal year ended on February 28. In
recording the pooling-of-interests combination, Durkan's financial statements
for the year ended December 31, 1999 were combined with Mohawk's consolidated
financial statements for the same period. Durkan's financial statements for the
years ended February 27, 1999 and February 28, 1998 were combined with Mohawk's
financial statements for the years ended December 31, 1998 and 1997,
respectively. An adjustment has been made to stockholders' equity in the year
ended December 31, 1999 to eliminate the effect of including Durkan's results of
operations for the two months ended February 28, 1999 in the Company's
consolidated financial statements for the years ended December 31, 1999 and
1998. There were no significant inter-company transactions between Mohawk and
Durkan prior to the combination.
(3) Receivables
Receivables are as follows:
1999 1998
----------- ----------
Customers, trade............................................... $ 405,477 385,783
Other.......................................................... 2,826 4,378
----------- ----------
408,303 390,161
Less allowance for discounts, returns, claims and
doubtful accounts............................................ 70,479 58,233
----------- ----------
Net receivables.......................................... $ 337,824 331,928
=========== ==========
28
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(4) Inventories
The components of inventories are as follows:
1999 1998
---------- ----------
Finished goods..................................................... $ 254,179 219,776
Work in process.................................................... 65,456 60,266
Raw materials...................................................... 175,139 143,795
---------- ----------
Total inventories................................... $ 494,774 423,837
========== ==========
(5) Property, Plant and Equipment
Following is a summary of property, plant and equipment:
1999 1998
----------- -----------
Land............................................................... $ 21,767 14,320
Buildings and improvements......................................... 236,119 177,264
Machinery and equipment............................................ 791,839 613,997
Furniture and fixtures............................................. 33,436 31,666
Leasehold improvements............................................. 4,854 5,085
Construction in progress........................................... 51,645 41,576
----------- -----------
1,139,660 883,908
Less accumulated depreciation and amortization..................... 514,846 429,041
----------- -----------
Net property, plant and equipment................... $ 624,814 454,867
=========== ===========
Property, plant and equipment includes capitalized interest of $3,213,
$1,661 and $799 in 1999, 1998 and 1997, respectively.
During 1998, the Company recorded a charge of $2,900 related to a write-
down of computer equipment acquired in the World acquisition and disposed of in
1999.
During 1997, the Company recorded a charge of $5,500 arising from a
revision in the estimated fair value of certain property, plant and equipment
held for sale based on current appraisals and other market information related
to a mill closing in 1995.
(6) Other Assets
The components of other assets are summarized below:
1999 1998
----------- -----------
Goodwill, net of accumulated amortization of $13,171 and
$10,363, respectively............................................. $ 113,560 85,972
Other assets....................................................... 10,089 17,712
----------- -----------
Total other assets.................................. $ 123,649 103,684
=========== ===========
29
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(7) Long-Term Debt
On November 23, 1999, the Company amended and restated its credit agreement
to provide for an interest rate of either (i) LIBOR plus 0.2% to 0.5%, depending
upon the Company's performance measured against certain financial ratios, or
(ii) the prime rate less 1.0%. Additionally, the termination date of the credit
agreement was extended to January 28, 2004. At December 31, 1999, the Company
had credit availability of $450,000 under its revolving credit line and $45,000
under various short-term uncommitted credit lines. At December 31, 1999, a total
of $110,548 was unused under these lines. The credit agreement contains
customary financial and other covenants. The Company must pay an annual facility
fee ranging from .0015 to .0025 of the total credit commitment, depending upon
the Company's performance measured against specific coverage ratios, under the
revolving credit line.
Long-term debt consists of the following:
1999 1998
------------- -------------
Revolving line of credit, due January 28, 2004............................. $ 384,452 128,922
Durkan term loans, interest payable at prime or LIBOR plus
1.5% to 3%, payable in monthly installments of $207....................... - 11,696
Durkan revolving line of credit, interest payable at LIBOR
plus 1.25% to 2.75%, due November 1999.................................... - 3,277
Note payable to Durkan officer, interest payable at 8.5%,
due February 2000......................................................... - 5,400
8.46% senior notes, payable in annual principal installments
beginning in 1998, due September 16, 2004, interest
payable quarterly......................................................... 71,429 85,714
7.14%-7.23% senior notes, payable in annual principal
installments beginning in 1997, due September 1, 2005,
interest payable semiannually............................................. 56,666 66,111
8.48% term loans, payable in annual principal installments,
due October 26, 2002, interest payable quarterly.......................... 17,143 22,857
7.58% senior notes, payable in annual principal installments
beginning in 1997, due July 30, 2003, interest payable
semiannually.............................................................. 5,714 7,143
6% term note, payable in annual principal and interest
installments beginning in 1998, due July 23, 2004......................... 6,679 8,014
Industrial Revenue Bonds and other......................................... 53,982 37,955
------------- -------------
Total long-term debt............................................ 596,065 377,089
Less current portion....................................................... 33,961 44,424
------------- -------------
Long-term debt, excluding current portion....................... $ 562,104 332,665
============= =============
The aggregate maturities of long-term debt as of December 31,
1999 are as follows:
2000....................................................................... $ 33,961
2001....................................................................... 33,593
2002....................................................................... 33,396
2003....................................................................... 27,179
2004....................................................................... 409,546
Thereafter................................................................. 58,390
-------------
$ 596,065
=============
30
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(8) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are as follows:
1999 1998
------------ ------------
Outstanding checks in excess of cash............................. $ 42,373 26,897
Accounts payable, trade.......................................... 159,812 159,966
Accrued expenses................................................. 83,253 126,023
Accrued compensation............................................. 54,954 51,151
------------ ------------
Total accounts payable and accrued expenses $ 340,392 364,037
============ ============
(9) Stock Options, Stock Compensation and Treasury Stock
Under the Company's 1992 and 1993 stock option plans, options may be
granted to directors and key employees through 2002 and 2003 to purchase a
maximum of 2,250 and 675 shares of common stock, respectively. During 1999,
options to purchase 20 and 356 shares, respectively, were granted under these
plans. Options granted under each of these plans expire 10 years from the date
of grant and become exercisable at such dates and at prices as determined by the
Compensation Committee of the Company's Board of Directors.
During 1996, the Company adopted the 1997 Non-Employee Director Stock
Compensation Plan. The plan provides for awards of common stock of the Company
for nonemployee directors to receive in lieu of cash for their annual retainers.
During 1999, a total of 3 shares were awarded to the nonemployee directors under
the plan.
During 1997, the Board of Directors adopted the 1997 Long-Term Incentive Plan
whereby the Company reserved 2,550 shares of common stock for issuance in
connection with options and awards. During 1999, a total of 433 shares were
awarded to employees under this plan.
Additional information relating to the Company's stock option plans
follows:
1999 1998 1997
------------- ------------- -------------
Options outstanding at beginning of year ................. 1,387 1,568 2,142
Options granted........................................... 809 174 65
Options exercised......................................... (124) (316) (460)
Options canceled.......................................... (29) (39) (179)
------------- ------------- -------------
Options outstanding at end of year........................ 2,043 1,387 1,568
============= ============= =============
Options exercisable at end of year........................ 873 686 742
============= ============= =============
Option prices per share:
Options granted during the year........................... $ 19.69 - 35.13 17.23 - 32.31 5.67 - 19.38
=============== ============= =============
Options exercised during the year......................... $ 5.67 - 19.17 5.67 - 19.38 0.02 - 19.17
=============== ============= =============
Options canceled during the year.......................... $ 9.33 - 35.13 5.67 - 31.94 5.67 - 19.17
=============== ============= =============
Options outstanding at end of year........................ $ 5.61 - 35.13 5.61 - 32.31 5.61 - 19.38
=============== ============= =============
A charge of $2,600 was recorded in the fourth quarter of 1997 for income
tax reimbursements to be made to certain executives for the exercise of stock
options. The income tax reimbursements were recorded in connection with stock
options granted in 1988 and 1989 related to the Company's 1988 leveraged buyout.
The agreements allowed the Company to receive an income tax benefit on its tax
return for the tax effect of the taxable compensation provided to the
individuals upon the exercise of these options. Such income tax benefit
31
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
resulted in a direct increase in stockholders' equity of $7,606 in 1996
primarily from the exercise of these options.
As allowed under FAS No. 123, the Company accounts for stock options
granted as prescribed under Accounting Principles Board Opinion No. 25, which
recognizes compensation cost based upon the intrinsic value of the award.
Accordingly, no compensation expense has been recognized in the consolidated
statement of earnings for any stock options granted in 1999, 1998 and 1997. The
following table represents pro forma net income and pro forma earnings per share
had the Company elected to account for stock option grants using the fair value
based method.
1999 1998 1997
------------- ------------- -------------
Net income
As reported.......................................... $ 157,239 115,254 79,563
Pro forma............................................ 155,282 114,411 78,898
Net income per common share (basic)
As reported.......................................... $ 2.63 1.91 1.33
Pro forma............................................ 2.60 1.89 1.32
Net income per common share (diluted)
As reported.......................................... $ 2.61 1.89 1.32
Pro forma............................................ 2.57 1.87 1.31
This pro forma impact only takes into account options granted.since January
1, 1996 and is likely to increase in future years as additional options are
granted and amortized ratably over the vesting period. The average.fair value of
options granted during 1999, 1998 and 1997 was $15.28, $17.24 and $9.41,
respectively. This fair value was estimated using the Black-Scholes option
pricing model based on a weighted-average market price at grant date of $ 26.48
in 1999, $30.44 in 1998 and $17.03 in 1997 and the following weighed-average
assumptions:
1999 1998 1997
-------------- --------------- --------------
Dividend yield............................................ - - -
Risk-free interest rate................................... 6.4% 4.7% 6.2%
Volatility................................................ 46.7% 48.9% 45.0%
Expected life (years)..................................... 7 7 7
Summarized information about stock options outstanding and exercisable at
December 31, 1999, is as follows:
Outstanding Exercisable
-------------------------------------------------- ---------------------------------
Number of Average Life Average Number of Average
Exercise price range Shares (1) Price Shares (2) Life (1)
- ------------------------------- -------------- -------------- ----------- -------------- -----------
Under $11.00................... 741 5.56 $ 10.54 538 $ 10.29
$12.00 to 17.00................ 204 4.63 14.40 189 14.49
$17.00 to 19.69................ 531 8.38 19.49 118 19.03
$19.94 to 31.94................ 276 8.97 29.06 25 31.11
$32.00 to 36.00................ 291 9.11 34.93 3 32.31
-------------- --------------
Total 2,043 873
============== ==============
_____________
(1) Weighted average contractual life remaining in years.
(2) Weighted average exercise price.
The Company's Board of Directors approved a stock repurchase plan in
September 1999, whereby the Company's management was authorized to purchase up
to 5,000 common shares. In December 1999, it
32
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
amended the plan to increase the shares authorized for purchase by an additional
5,000 shares, bringing the total authorized repurchase up to 10,000 shares of
its outstanding common shares. For the year ended December 31, 1999, a total of
3,952 shares of the Company's common stock had been purchased at an aggregate
cost of $83,986. All of this repurchase has been financed through the Company's
operations and revolving line of credit.
(10) Employee Benefit Plans
The Company has a 401(k) retirement savings plan (the "Plan") open to
substantially all of its employees who have completed one year of eligible
service. The Company contributes $0.50 for every $1.00 of employee contributions
up to a maximum of 4% of the employee's salary. The Company amended the Plan
during 1999 to match an additional $0.25 for every $1.00 of employee
contribution in excess of 4% of the employee's salary up to a maximum of 6%.
This change is effective January 1, 2000. Employee and employer contributions to
the Plan were $14,873 and $5,080 in 1999, $12,345 and $4,213 in 1998, and $9,334
and $3,075 in 1997, respectively. The Company also made a discretionary
contribution to the Plan of $2,100 during the year.
A portion of the employees who were not eligible to participate in the Plan
participated in a defined contribution profit-sharing plan through June 1997.
After June 1997, the employee balances in the profit-sharing plan were rolled
over into the 401(k) retirement savings plan. Contributions were discretionary
and the Company expensed $991 for the year ended December 31, 1997.
The World Carpet Savings Retirement Plan (the "World Plan"), a defined
contribution 401(k) plan covering substantially all World employees, was merged
into the Plan on March 1, 1999. Employees were eligible to participate after
completion of one year of service. Under the terms of the World Plan, World
would match employee contributions up to a maximum of 2% of the employee's
salary and employees vested in the contributions based on years of credited
service. For the years ended December 31, 1999, 1998 and 1997, the Company
contributed approximately $142, $703 and $698, respectively, to the World Plan.
Durkan maintains a 401(k) retirement savings plan (the" Durkan Plan") open
to substantially all Durkan employees. Durkan contributes $0.50 for every $1.00
of employee contributions up to a maximum of 6% of eligible wages. For the years
ended December 31, 1999, 1998 and 1997, Durkan contributed approximately $343,
$328 and $265, respectively, to the Durkan Plan.
(11) Income Taxes
Income tax expense attributable to earnings before income taxes for the
years ended December 31, 1999, 1998 and 1997 consists of the following:
Current Deferred Total
--------------- --------------- --------------
1999:
U.S. federal............................. $ 92,736 (1,928) 90,808
State and local.......................... 12,104 (252) 11,852
--------------- --------------- --------------
$ 104,840 (2,180) 102,660
=============== =============== ==============
1998:
U.S. federal............................. $ 75,985 (11,485) 64,500
State and local.......................... 17,761 (2,709) 15,052
--------------- --------------- --------------
$ 93,746 (14,194) 79,552
=============== =============== ==============
1997:
U.S. federal............................. $ 45,921 (2,540) 43,381
State and local.......................... 9,077 (592) 8,485
--------------- --------------- --------------
$ 54,998 (3,132) 51,866
=============== =============== ==============
33
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Income tax expense attributable to earnings before income taxes differs from
the amounts computed by applying the U.S. statutory federal income tax rate to
earnings before income taxes as follows:
1999 1998 1997
-------------------- --------------- ---------------
Computed "expected" tax expense........ $ 90,965 68,182 46,000
State and local income taxes, net of federal
income tax benefit.................. 7,704 9,784 4,810
Amortization of goodwill............... 684 746 472
Other, net............................. 3,307 840 584
-------------------- --------------- ---------------
$ 102,660 79,552 51,866
==================== =============== ===============
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below:
1999 1998
----------- ----------
Deferred tax assets:
Accounts receivable............................... $ 21,621 17,860
Inventories...................................... 15,533 12,381
Accrued expenses.................................. 41,366 39,442
-------------- -------------
Gross deferred tax assets................. 78,520 69,683
-------------- -------------
Deferred tax liabilities:
Plant and equipment............................... (47,138) (43,428)
Prepaid expenses.................................. (1,892) (219)
Other............................................. (6,645) (4,493)
-------------- -------------
Gross deferred tax liabilities............ (55,675) (48,140)
-------------- -------------
Net deferred tax assets................... $ 22,845 21,543
============== =============
Based upon the level of historical and projected taxable income over periods
in which the deferred tax assets are deductible, the Company's management
believes it is more likely than not the Company will realize the benefits of
these deductible differences at December 31, 1999.
(12) Commitments and Contingencies
The Company is obligated under various capital and operating leases for office
and manufacturing space, machinery and equipment.
Future minimum lease payments under noncancelable capital and operating leases
(with initial or remaining lease terms in excess of one year) at December 31,
1999 are:
34
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
Total
Capital Operating Future
Leases Leases Payments
------------------ -------------- --------------
2000.................................. $ 2,009 30,168 32,177
2001.................................. 1,432 24,979 26,411
2002.................................. 1,223 19,926 21,149
2003.................................. 647 15,188 15,835
2004.................................. - 10,797 10,797
Thereafter............................ - 20,118 20,118
------------------ -------------- ------------
Total payments........................ $ 5,311 121,176 126,487
============== ==============
Less amount representing interest..... 608
------------------
Present value of capitalized lease
payments with a weighted interest
rate of 7.85%........................ $ 4,703
==================
The Company assumed several capitalized leases from recent acquisitions for
machinery and equipment, at a cost of $8,899 for both periods ended December 31,
1999 and 1998. The amortization of these capital leases is included in
depreciation expense. Accumulated amortization was $3,619 at December 31, 1999
and $2,547 at December 31, 1998.
Rental expense under operating leases was $28,407, $27,347 and $20,970 in
1999, 1998 and 1997, respectively.
In December 1995, the Company and four other carpet manufacturers were added
as defendants in a purported class action lawsuit, In re Carpet Antitrust
Litigation, pending in the United States District Court for the Northern
District of Georgia, Rome Division. The amended complaint alleges price-fixing
regarding polypropylene products in violation of Section One of the Sherman Act.
In September 1997, the Court determined that the plaintiffs met their burden of
establishing the requirements for class certification and granted the
plaintiffs' motion to certify the class. The Company is a party to two
consolidated lawsuits captioned Gaehwiler v. Sunrise Carpet Industries, Inc. et
al. and Patco Enterprises, Inc. v. Sunrise Carpet Industries, Inc. et al., both
of which were filed in the Superior Court of the State of California, City and
County of San Francisco, in 1996. Both complaints were brought on behalf of a
purported class of indirect purchasers of carpet in the State of California and
seek damages for alleged violations of California antitrust and unfair
competition laws. The complaints filed do not specify any amount of damages but
do request for any unlawful conduct to be enjoined and treble damages plus
reimbursement for fees and costs. In October 1998, two plaintiffs, on behalf of
an alleged class of purchasers of nylon carpet products, filed a complaint in
the United States District Court for the Northern District of Georgia against
the Company and two of its subsidiaries, as well as a competitor and one of its
subsidiaries. The complaint alleges that the Company acted in concert with other
carpet manufacturers to restrain competition in the sale of certain nylon carpet
products. The Company has filed an answer, denied the allegations in the
complaint and set forth its defenses. In February 1999, a similar complaint was
filed in the Superior Court of the State of California, City and County of San
Francisco, on behalf of a purported class based on indirect purchases of nylon
carpet in the State of California and alleges violations of California antitrust
and unfair competition laws. The complaints described above do not specify any
specific amount of damages but do request injunctive relief and treble damages
plus reimbursement for fees and costs. The Company believes it has meritorious
defenses and intends to vigorously defend against these actions.
35
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(13) Consolidated Statements of Cash Flows Information
Supplemental disclosures of cash flow information are as follows:
1999 1998 1997
-------------------- --------------- ---------------
Net cash paid during the year for:
Interest....................... $ 37,740 30,852 37,849
==================== =============== ===============
Income taxes................... $ 120,371 75,640 55,882
==================== =============== ===============
(14) Quarterly Financial Data (Unaudited)
The supplemental quarterly financial data are as follows:
Quarters Ended
---------------------------------------------------------------------------
April 3, July 3, October 2, Dec. 31,
1999 1999 1999 1999
---------------- --------------- --------------- ---------------
Net sales................. $ 707,167 790,617 809,933 775,547
Gross profit.............. 178,329 200,911 203,246 194,373
Net earnings.............. 27,892 44,093 45,079 40,175
Basic earnings per share.. 0.46 0.73 0.74 0.70
Diluted earnings per share.. 0.46 0.72 0.74 0.70
Quarters Ended
---------------------------------------------------------------------------
March 28, June 27, Sept. 26, Dec. 31,
1998 1998 1998 1998
-------------------- --------------- --------------- ---------------
Net sales................. $ 589,473 689,488 718,772 746,887
Gross profit.............. 136,389 177,606 177,762 189,530
Net earnings.............. 17,135 35,947 37,060 25,112
Basic earnings per share.. 0.28 0.60 0.61 0.42
Diluted earnings per share 0.28 0.59 0.61 0.41
36
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference to
information contained in the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders under the following headings: "Election of Directors--
Director, Director Nominee and Executive Officer Information"; "--Nominees for
Director"; "--Continuing Directors"; "--Executive Officers;" and "--Section 16a
Beneficial Ownership Reporting Compliance."
Item 11. Executive Compensation
The information required by this item is incorporated by reference to
information contained in the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders under the following headings: "Executive Compensation
and Other Information--Summary of Cash and Certain Other Compensation"; "--
Option Grants"; "--Option Exercises and Holdings"; "--Pension Plans"; "--Certain
Relationships and Related Transactions"; and "Election of Directors--Meetings
and Committees of the Board of Directors."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to
information contained in the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders under the following heading: "Executive Compensation and
Other Information--Principal Stockholders of the Company."
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to
information contained in the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders under the following heading: "Executive Compensation and
Other Information--Certain Relationships and Related Transactions."
37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Consolidated Financial Statements
The Consolidated Financial Statements of Mohawk Industries, Inc. and
subsidiaries listed in Item 8 of Part II are incorporated by reference into this
item.
2. Consolidated Financial Statement Schedules
Schedule I-Condensed Financial Information of Registrant............. 44
Schedule II-Consolidated Valuation and Qualifying Accounts........... 48
Schedules not listed above have been omitted because they are not applicable
or the required information is included in the consolidated financial statements
or notes thereto.
3. Exhibits
The exhibit number for the exhibit as originally filed is included in
parentheses at the end of the description.
Mohawk
Exhibit
Number Description
------ -----------
*2.1 Agreement and Plan of Merger dated as of December 3, 1993 and
amended as of January 17, 1994 among Mohawk, AMI Acquisition
Corp., Aladdin and certain Shareholders of Aladdin.
(Incorporated herein by reference to Exhibit 2(i)(a) in Mohawk's
Registration Statement on Form S-4, Registration No. 33-74220.)
*2.2 Stock Purchase Agreement by and among Mohawk, Galaxy and the
Stockholder of Galaxy dated December 1, 1994. (Incorporated
herein by reference to Exhibit 2 in Mohawk's Current Report on
Form 8-K dated January 13, 1995.)
*2.3 Agreement and Plan of Merger by and among Mohawk, WC Acquisition
Corp., World Carpets, Inc. and the shareholders of World
Carpets, Inc. dated as of October 22, 1998. (Incorporated herein
by reference to Exhibit 2 of the Mohawk Registration Statement
on Form S-3, Registration No. 333-66061, as filed October 22,
1998).
*2.4 Asset Purchase Agreement by and among Aladdin Manufacturing
Corporation, Image Industries, Inc. and The Maxim Group, Inc.
dated as of November 12, 1998, as amended and restated on
January 29, 1999. (Incorporated herein by reference to Exhibit
2.1 in Mohawk's Current Report on Form 8-K dated January 29,
1999).
*2.5 Agreement and Plan of Merger by and among Mohawk, Durkan
Acquisition Corp., Nonpareil Acquisition Corp.,Durkan Patterned
Carpets, Inc.; the shareholders of Durkan Patterned Carpets,
Inc. and the shareholders of Nonpareil Dying and finishing,
Inc., dated as of February 26, 1999. (Incorporated herein by
reference to Exhibit 2.1 of the Mohawk Registration Statement on
Form S-3, Registration No. 333-77231, as filed April 28, 1999).
*3.1 Restated Certificate of Incorporation of Mohawk, as amended.
(Incorporated herein by reference to Exhibit 3.1 in Mohawk's
Annual report on Form 10-K for the fiscal year ended December
31, 1999.)
*3.2 Amended and Restated Bylaws of Mohawk. (Incorporated herein by
reference to Exhibit 3.2 in Mohawk's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996).
38
*4.1 See Article 4 of the Restated Certificate of Incorporation of
Mohawk. (Incorporated herein by reference to Exhibit 3.1 in
Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
*4.2 See Articles 2, 6, and 9 of the Amended and Restated Bylaws of
Mohawk. (Incorporated herein by reference to Exhibit 3.2 in
Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.)
*10.1 Lease dated April 1, 1988 between Horizon and Kay D. Owens
concerning the addition between the Tufting and Coater Buildings
on South Industrial Boulevard in Calhoun, Georgia. (Incorporated
herein by reference to Exhibit 10.24 in Mohawk's Registration
Statement on Form S-1, Registration No. 33-53932.)
*10.2 Lease dated August 15, 1989 between Joan Jones Webb and assigns
and Aladdin related to a finished goods distribution warehouse
in Miami, Florida. (Incorporated herein by reference to Exhibit
10.27 of Mohawk's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.)
*10.3 Lease dated October 15, 1990 between NBD Trust Company of
Illinois and Aladdin related to a finished goods distribution
warehouse in Romeoville, Illinois. (Incorporated herein by
reference to Exhibit 10.28 of Mohawk's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993.)
*10.4 Lease dated October 3, 1994 between Almoda and Aladdin related to
a finished goods distribution warehouse in Columbus, Ohio.
(Incorporated herein by reference to Exhibit 10.29 of Mohawk's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994.)
*10.5 Lease dated March 1, 1994 between Design Leasing and Holding
Company, Inc. and American Rug Craftsmen, Inc. related to a
manufacturing facility and warehouse in Calhoun, Georgia.
(Incorporated herein by reference to Exhibit 10.35 of Mohawk's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994.)
*10.6 Lease dated May 1, 1997 between Opus East, LLC and Mohawk
concerning a distribution warehouse in Glen Burnie, Maryland.
(Incorporated herein by reference to Exhibit 10.8 of Mohawk's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998.)
*10.7 Lease dated September 23, 1996 between West End Road Associates
and Mohawk concerning a distribution warehouse in Pompton
Plains, New Jersey. (Incorporated herein by reference to Exhibit
10.10 of Mohawk's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.)
*10.8 Lease dated September 1, 1996 between Catellus Development Corp.
and Mohawk concerning a distribution warehouse in LaMirada,
California. (Incorporated herein by reference to Exhibit 10.11
of Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
*10.9 Lease dated November 27, 1996 between CP-Regency Business Park
LTD and Aladdin concerning a distribution warehouse in Grand
Prairie, Texas. (Incorporated herein by reference to Exhibit
10.12 of Mohawk's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.)
*10.10 Lease dated December 14, 1992, between First Union National Bank
of Georgia, as Trustee under item 8 u/w of James E. Minge; First
Union National Bank of Georgia, as Trustee u/a W. G. Minge,
dated September 15, 1987; First Union National Bank of Georgia
and Jerry L. Minge, co-executors u/w/o C. A. Minge and Image, as
amended by that certain lease modification and extension
agreement dated July 24, 1995 with respect to that certain
warehouse located at 15 Old Airport Road in Rome, Georgia.
(Incorporated herein by reference to Exhibit 10.24 of Mohawk's
Annual Report on Form 10-K for the fiscal year ended December
31, 1998.)
39
10.11 Lease dated June 1, 1998 between Intermark USA, Inc. and Aladdin
Manufacturing Corporation concerning a warehouse in Kensington,
Georgia.
10.12 Lease dated February 18, 1999 between Aladdin Manufacturing
Corporation and Industrial Developments International Inc.
concerning a warehouse in Bolingbrook, Illinois.
10.13 Lease dated February 18, 1999 between Mohawk Industries, Inc. and
Senecca G&H, L.L.C. concerning a warehouse in Miami, Florida.
10.14 Lease dated December 3, 1999 between Aladdin Manufacturing
Corporation and Ex-Cell Home Fashions, Inc. concerning a plant
in Bentonville, Arkansas.
10.15 Fifth Amended and Restated Credit Agreement dated as of November
23, 1999 among Mohawk, Wachovia Bank, N.A. Suntrust Bank,
Atlanta and First Union National Bank.
*10.16 Amended and Restated Series Note Agreement dated as of August 31,
1999 for $85 million of senior notes due September 1, 2005 among
Mohawk, John Hancock Mutual Life Insurance Company, John Hancock
Variable Life Insurance Company, Investors Partner Life
Insurance Company, Principal Life Insurance Company, The
Franklin Life Insurance Company and The Prudential Insurance
Company of America. (Incorporated herein by reference to Exhibit
10.2 of Mohawk's Quarterly Report on Form 10-Q for the quarter
ended October 2, 1999.)
*10.17 Amended and Restated Note Purchase Agreement dated as of August
31, 1999 for $100 million senior notes due September 16, 2004
among Mohawk, The Prudential Insurance Company of America,
Principal Life Insurance Company, John Hancock Mutual Life
Insurance Company, Massachusetts Mutual Life Insurance Company,
Alexander Hamilton Life Insurance Company of America and The
Franklin Life Insurance Company. (Incorporated herein by
reference to Exhibit 10.2 of Mohawk's Quarterly Report on Form
10-Q for the quarter ended October 2, 1999.)
*10.18 Registration Rights Agreement by and among Mohawk, Citicorp
Investments, Inc., ML-Lee Acquisition Fund, L.P. and Certain
Management Investors. (Incorporated herein by reference to
Exhibit 10.14 of Mohawk's Registration Statement on Form S-1,
Registration No. 33-45418.)
*10.19 Voting Agreement, Consent of Stockholders and Amendment to 1992
Registration Rights Agreement dated December 3, 1993 by and
among Aladdin, Mohawk, Citicorp Investments, Inc., ML-Lee
Acquisition Fund, L.P., David L. Kolb, Donald G. Mercer, Frank
A. Procopio and John D. Swift. (Incorporated herein by reference
to Exhibit 10(b) of Mohawk's Registration Statement on Form S-4,
Registration No. 33-74220.)
*10.20 Registration Rights Agreement by and among Mohawk and the former
shareholders of Aladdin. (Incorporated herein by reference to
Exhibit 10.32 of Mohawk's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.)
*10.21 Waiver Agreement between Alan S. Lorberbaum and Mohawk dated as
of March 23, 1994 to the Registration Rights Agreement dated as
of February 25, 1994 between Mohawk and those other persons who
are signatories thereto. (Incorporated herein by reference to
Exhibit 10.3 of Mohawk's Quarterly Report on Form 10-Q for the
quarter ended July 2, 1994.)
*10.22 Stock Restriction and Registration Rights Agreement dated as of
October 22, 1998 by and among Mohawk and the former shareholders
of World. (Incorporated herein by reference to Exhibit 99.1 of
Mohawk's Current Report on Form 8-K dated February 19, 1999.)
*10.23 Second Consolidated, Amended and Restated Note Agreement dated as
of August 31, 1999 for $50 million of senior notes, $40,000,000
of which are due October 26, 2002 and $10,000,000 of which are
due July 30, 2002, among Mohawk and The Prudential Insurance
Company of America.
40
(Incorporated herein by reference to Exhibit 10.3 of Mohawk's
Quarterly Report on Form 10-Q dated October 2, 1999.)
Exhibits Related to Executive Compensation Plans, Contracts and other
Arrangements:
*10.24 Mohawk Carpet Corporation Retirement Savings Plan, as amended.
(Incorporated herein by reference to Exhibit 10.1 of Mohawk's
Registration Statement on Form S-1, Registration No. 33-45418.)
*10.25 Mohawk Carpet Corporation Supplemental Executive Retirement Plan,
as amended. (Incorporated herein by reference to Exhibit 10.2 of
Mohawk's Registration Statement on Form S-1, Registration No.
33-45418.)
*10.26 World Carpets, Inc. Savings and Retirement Plan dated January 1,
1989. (Incorporated herein by reference to Exhibit 10.70 of
Mohawk's Annual Report on Form 10-K for the year ended December
31, 1998)
*10.27 Mohawk Industries, Inc. Employee Stock Purchase Plan together
with forms of related Management Investment Agreement, Non-
Qualified Stock Option Agreement, and amendments thereto.
(Incorporated herein by reference to Exhibit 10.3 of Mohawk's
Registration Statement on Form S-1, Registration No. 33-45418.)
*10.28 Stock Purchase Agreement dated as of December 30, 1988 between
Mohawk and Mohasco as supplemented by Supplement to Stock
Purchase Agreement dated December 30, 1988. (Incorporated herein
by reference to Exhibit 10.4 of Mohawk's Registration Statement
on Form S-1, Registration No. 33-45418.)
*10.29 Securities Purchase and Holders Agreement dated as of December
31, 1988, as amended and restated March 30, 1989, together with
amendments thereto and forms of related Non-Qualified Stock
Option Agreement and amendments thereto. (Incorporated herein by
reference to Exhibit 10.5 of Mohawk's Registration Statement on
Form S-1, Registration No. 33-45418.)
*10.30 Investment Agreement dated as of March 31, 1989 among Mohawk,
Mohawk Carpet, Citicorp Capital Investors Ltd., Citicorp Venture
Capital Ltd. and ML-Lee Acquisition Fund, L.P. (Incorporated
herein by reference to Exhibit 10.6 of Mohawk's Registration
Statement on Form S-1, Registration No. 33-45418.)
*10.31 Equity Securities Agreement dated March 31, 1989 among Mohawk,
ML-Lee Acquisition Fund, L.P. and Citicorp Venture Capital Ltd.
(Incorporated herein by reference to Exhibit 10.7 of Mohawk's
Registration Statement on Form S-1, Registration No. 33-45418.)
*10.32 Securities Holders Agreement among Mohawk and Certain Management
Investors dated as of March 6, 1992. (Incorporated herein by
reference to Exhibit 10.40 of Mohawk's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993.)
*10.33 Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated
herein by reference to Exhibit 10.8 of Mohawk's Registration
Statement on Form S-1, Registration No. 33-45418.)
*10.34 Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992
Stock Option Plan. (Incorporated herein by reference to Exhibit
10.2 in Mohawk's quarterly report on Form 10-Q for the quarter
ended July 3, 1993.)
10.35 Second Amendment dated February 17, 2000 to the Mohawk
Industries, Inc. 1992 Stock Option Plan.
*10.36 Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.15 of Mohawk's
Registration Statement on Form S-1, Registration Number 33-
53932.)
*10.37 Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992
Mohawk-Horizon Stock Option Plan. (Incorporated herein by
reference to Exhibit 10.1 of Mohawk's quarterly report on Form
10-Q for the quarter ended July 3, 1993.)
41
10.38 Second Amendment dated February 17, 2000 to the Mohawk
Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan.
*10.39 Mohawk Industries, Inc. 1993 Stock Option Plan. (Incorporated
herein by reference to Exhibit 10.39 of Mohawk's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.)
10.40 First Amendment dated February 17, 2000 to Mohawk Industries,
Inc. 1993 Stock Option Plan.
*10.41 Form of Promissory Note between Mohawk and each of the following;
David L. Kolb, John D. Swift and Frank A. Procopio.
(Incorporated herein by reference to Exhibit 10.75 of Mohawk's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995.)
*10.42 The Mohawk Industries, Inc. Executive Deferred Compensation Plan.
(Incorporated herein by reference to Exhibit 10.65 of Mohawk's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994.)
*10.43 The Mohawk Industries, Inc. Management Deferred Compensation
Plan. (Incorporated herein by reference to Exhibit 10.66 of
Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.)
*10.44 1997 Non-Employee Director Stock Compensation Plan. (Incorporated
herein by reference to Exhibit 10.79 of Mohawk's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996.)
*10.45 1997 Long-Term Incentive Plan. (Incorporated herein by reference
to Exhibit 10.80 of Mohawk's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.)
*10.46 Amendment No. 1 to 1997 Non-Employee Director Stock Compensation
Plan. (Incorporated herein by reference to Exhibit 10.74 of
Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.)
11 Statement re: Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent - KPMG LLP.
23.2 Consent of Independent Accountants - PricewaterhouseCoopers LLP.
27.1 1999 Financial Data Schedule.
27.2 1998 Financial Data Schedule (restated)
- -----------
* Indicates exhibit incorporated by reference.
(b) Reports on Form 8-K.
1. Current Report on Form 8-K: Reclassified prior period financial
statements, dated October 7, 1999.
2. Current Report on Form 8-K: Third quarter earnings press release,
dated October 21, 1999.
3. Current Report on Form 8-K: Stock repurchase press release dated,
December 16, 1999.
4. Current Report on Form 8-K: Fourth quarter earnings press release
dated, February 10, 2000.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Mohawk Industries, Inc.
Dated: March 6, 2000
By: /s/ David L. Kolb
----------------------------------------------
David L. Kolb,
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 6, 2000 /s/ David L. Kolb
-------------------------------------------------
David L. Kolb,
Chairman of the Board and Chief Executive Officer
(principal executive officer)
Dated: March 6, 2000 /s/ John D. Swift
-------------------------------------------------
John D. Swift,
Chief Financial Officer, Vice President-Finance
and Assistant Secretary
(principal financial and accounting officer)
Dated: March 6, 2000 /s/ Leo Benatar
-------------------------------------------------
Leo Benatar,
Director
Dated: March 6, 2000 /s/ Bruce C. Bruckmann
-------------------------------------------------
Bruce C. Bruckmann,
Director
Dated: March 6, 2000 /s/ S. H. Sharpe
-------------------------------------------------
S. H. Sharpe
Director
Dated: March 6, 2000 /s/ Jeffrey S. Lorberbaum
-------------------------------------------------
Jeffrey S. Lorberbaum,
Director
Dated: March 6, 2000 /s/ Larry W. McCurdy
-------------------------------------------------
Larry W. McCurdy,
Director
Dated: March 6, 2000 /s/ Robert N. Pokelwaldt
-------------------------------------------------
Robert N. Pokelwaldt,
Director
43
SCHEDULE I
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Financial Information Of Registrant
Mohawk Industries, Inc.
Balance Sheets
December 31, 1999 and 1998
(In thousands, except per share data)
ASSETS 1999 1998
------------ ----------
Current assets - intercompany receivable............................................ $ 507,386 47,734
Investment in subsidiaries.......................................................... 720,564 563,325
------------ ----------
$ 1,227,950 611,059
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities-current portion of long-term debt............................... $ 30,873 -
Long-term debt, less current portion................................................ 504,531 -
------------ ----------
Total liabilities.............................................................. 535,404 -
============ ==========
Preferred stock, $.01 par value; 60 shares authorized; no shares issued............. - -
Common stock, $.01 par value; 150,000 shares authorized; 60,657 and 60,533
shares issued in 1999 and 1998, respectively..................................... 607 606
Additional paid-in capital.......................................................... 179,993 172,045
Retained earnings................................................................... 595,932 438,408
------------ ----------
776,532 611,059
Less treasury stock at cost; 3,952 shares in 1999............................... 83,986 -
------------ ----------
Total stockholder's equity.................................................... 692,546 611,059
------------ ----------
$ 1,227,950 611,059
============ ==========
44
SCHEDULE I
(continued)
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Financial Information Of Registrant
Mohawk Industries, Inc.
Statements of Earnings
Years Ended December 31, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
--------- ------- -------
Equity in earnings of subsidiaries.................................... $ 157,239 115,254 79,563
---------- -------- -------
Net earnings....................................................... $ 157,239 115,254 79,563
========== ======== =======
45
SCHEDULE I
(continued)
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Financial Information Of Registrant
Mohawk Industries, Inc.
Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
Cash flows from operating activities: ---------- -------- --------
Net earnings....................................................... $ 157,239 115,254 79,563
Adjustments to reconcile net earnings to net cash used in
operating activities:
Equity in earnings of subsidiaries.............................. (157,239) (115,254) (79,563)
Increase in intercompany receivable............................. 459,652 1,964 4,662
---------- -------- --------
Net cash used in operating activities........................... 459,652 1,964 4,662
---------- -------- --------
Cash flows from financing activities:
Net proceeds from revolving line of credit......................... 384,452 - -
Net proceeds from term loans...................................... 150,952 - -
Stock options exercised............................................ 1,391 4,417 3,636
Tax benefit from exercise of stock options......................... 216 243 1,050
Purchase of treasury stock......................................... (83,986) - -
Other.............................................................. 6,627 (2,696) (24)
---------- -------- --------
Net cash provided by financing activities....................... 459,652 1,964 4,662
---------- -------- --------
Net change in cash.......................................... - - -
Cash, beginning of year............................................... - - -
---------- -------- --------
Cash, end of year..................................................... $ - - -
========== ======== ========
46
SCHEDULE I
(continued)
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Information Of Registrant
Mohawk Industries, Inc.
December 31, 1999 and 1998
(In thousands, except per share data)
(1) Long-Term Debt
On November 23, 1999 the Company amended and restated its credit agreement to
provide for an interest rate of either (i) LIBOR plus 0.2% to 0.5%, depending
upon the Company's performance measured against certain financial ratios, or
(ii) the prime rate less 1.0%. Additionally, the termination date of the credit
agreement was extended to January 28, 2004. At December 31, 1999, the Company
had credit availability of $450,000 under its revolving credit line and $45,000
under various short-term uncommitted credit lines. At December 31, 1999, a total
of $110,548 was unused under these lines. The credit agreement contains
customary financial and other covenants. The Company must pay an annual facility
fee ranging from .0015 to .0025 of the total credit commitment, depending upon
the Company's performance measured against specific coverage ratios, under the
revolving credit line.
Long term debt consists of the following
1999 1998
--------------- --------------
Revolving line of credit, due January 28, 2004................. $ 384,452 -
8.46% senior notes, payable in annual principal installments
beginning in 1998, due September 16, 2004, interest payable
quarterly.................................................... 71,429 -
7.14%-7.23% senior notes, payable in annual principal
installments beginning in 1997, due September 1, 2005,
interest payable semiannually................................ 56,666 -
8.48% term loans, payable in annual principal installments,
due October 26, 2002, interest payable quarterly............. 17,143 -
7.58% senior notes, payable in annual principal installments
beginning in 1997, due July 30, 2003, interest payable
semiannually................................................. 5,714 -
---------------- --------------
Total long-term debt.................................. 535,404 -
Less current portion.......................................... 30,873 -
---------------- --------------
Long-term debt, excluding current portion............. $ 504,531 -
================ ==============
The aggregate maturities of long-term debt as of December 31,
1999 are as follows:
2000.......................................................... $ 30,873
2001.......................................................... 30,873
2002.......................................................... 30,873
2003.......................................................... 25,159
2004.......................................................... 408,182
Thereafter.................................................... 9,444
----------------
$ 535,404
================
47
SCHEDULE II
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Valuation and Qualifying Accounts
Years Ended December 31, 1999, 1998 and 1997
(In thousands)
Additions
Balance at charged to Balance
beginning costs and at end
Description of year expenses Deductions(1) of year
----------- ------------- ------------- ----------------- --------------
Year ended December 31, 1997:
Allowance for doubtful accounts - trade........... $ 15,829 8,458 7,125 17,162
Provision for cash discounts...................... 7,124 51,971 49,059 10,036
Provision for claims and allowances............... 17,821 121,812 114,596 25,037
------------- ------------- ----------------- --------------
Total.......................................... $ 40,774 182,241 170,780 52,235
============= ============= ================= ==============
Year ended December 31, 1998:
Allowance for doubtful accounts - trade........... $ 17,162 13,173 7,325 23,010
Provision for cash discounts...................... 10,036 73,349 72,898 10,487
Provision for claims and allowances............... 25,037 190,730 191,031 24,736
------------- ------------- ----------------- --------------
Total.......................................... $ 52,235 277,252 271,254 58,233
============= ============= ================= ==============
Year ended December 31, 1999:
Allowance for doubtful accounts - trade........... $ 23,010 15,804 4,710 34,104
Provision for cash discounts...................... 10,487 75,155 76,680 8,962
Provision for claims and allowances............... 24,736 238,413 235,736 27,413
------------- ------------- ----------------- --------------
Total.......................................... $ 58,233 329,372 317,126 70,479
============= ============= ================= ==============
_______________
(1) Represents charge offs, net of recoveries, to the reserves.
48
EXHIBIT INDEX
Mohawk
Exhibit
Number Description
- ------ -----------
*2.1 Agreement and Plan of Merger dated as of December 3, 1993 and amended
as of January 17, 1994 among Mohawk, AMI Acquisition Corp., Aladdin
and certain Shareholders of Aladdin. (Incorporated herein by
reference to Exhibit 2(i)(a) in Mohawk's Registration Statement on
Form S-4, Registration No. 33-74220.)
*2.2 Stock Purchase Agreement by and among Mohawk, Galaxy and the
Stockholder of Galaxy dated December 1, 1994. (Incorporated herein by
reference to Exhibit 2 in Mohawk's Current Report on Form 8-K dated
January 13, 1995.)
*2.3 Agreement and Plan of Merger by and among Mohawk, WC Acquisition
Corp., World Carpets, Inc. and the shareholders of World Carpets,
Inc. dated as of October 22, 1998. (Incorporated herein by reference
to Exhibit 2 of the Mohawk Registration Statement on Form S-3,
Registration No. 333-66061, as filed October 22, 1998).
*2.4 Asset Purchase Agreement by and among Aladdin Manufacturing
Corporation, Image Industries, Inc. and The Maxim Group, Inc. dated
as of November 12, 1998, as amended and restated on January 29, 1999.
(Incorporated herein by reference to Exhibit 2.1 in Mohawk's Current
Report on Form 8-K dated January 29, 1999).
*2.5 Agreement and Plan of Merger by and among Mohawk, Durkan Acquisition
Corp., Nonpareil Acquisition Corp.,Durkan Patterned Carpets, Inc.;
the shareholders of Durkan Patterned Carpets, Inc. and the
shareholders of Nonpareil Dying and finishing, Inc., dated as of
February 26, 1999. (Incorporated herein by reference to Exhibit 2.1
of the Mohawk Registration Statement on Form S-3, Registration No.
333-77231, as filed April 28, 1999).
*3.1 Restated Certificate of Incorporation of Mohawk, as amended.
(Incorporated herein by reference to Exhibit 3.1 in Mohawk's Annual
report on Form 10-K for the fiscal year ended December 31, 1999.)
*3.2 Amended and Restated Bylaws of Mohawk. (Incorporated herein by
reference to Exhibit 3.2 in Mohawk's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996).
*4.1 See Article 4 of the Restated Certificate of Incorporation of Mohawk.
(Incorporated herein by reference to Exhibit 3.1 in Mohawk's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.)
*4.2 See Articles 2, 6, and 9 of the Amended and Restated Bylaws of Mohawk.
(Incorporated herein by reference to Exhibit 3.2 in Mohawk's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.)
*10.1 Lease dated April 1, 1988 between Horizon and Kay D. Owens concerning
the addition between the Tufting and Coater Buildings on South
Industrial Boulevard in Calhoun, Georgia. (Incorporated herein by
reference to Exhibit 10.24 in Mohawk's Registration Statement on Form
S-1, Registration No. 33-53932.)
*10.2 Lease dated August 15, 1989 between Joan Jones Webb and assigns and
Aladdin related to a finished goods distribution warehouse in Miami,
Florida. (Incorporated herein by reference to Exhibit 10.27 of
Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
*10.3 Lease dated October 15, 1990 between NBD Trust Company of Illinois and
Aladdin related to a finished goods distribution warehouse in
Romeoville, Illinois. (Incorporated herein by
reference to Exhibit 10.28 of Mohawk's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.)
*10.4 Lease dated October 3, 1994 between Almoda and Aladdin related to a
finished goods distribution warehouse in Columbus, Ohio.
(Incorporated herein by reference to Exhibit 10.29 of Mohawk's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.)
*10.5 Lease dated March 1, 1994 between Design Leasing and Holding Company,
Inc. and American Rug Craftsmen, Inc. related to a manufacturing
facility and warehouse in Calhoun, Georgia. (Incorporated herein by
reference to Exhibit 10.35 of Mohawk's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.)
*10.6 Lease dated May 1, 1997 between Opus East, LLC and Mohawk concerning a
distribution warehouse in Glen Burnie, Maryland. (Incorporated herein
by reference to Exhibit 10.8 of Mohawk's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998.)
*10.7 Lease dated September 23, 1996 between West End Road Associates and
Mohawk concerning a distribution warehouse in Pompton Plains, New
Jersey. (Incorporated herein by reference to Exhibit 10.10 of
Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
*10.8 Lease dated September 1, 1996 between Catellus Development Corp. and
Mohawk concerning a distribution warehouse in LaMirada, California.
(Incorporated herein by reference to Exhibit 10.11 of Mohawk's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.)
*10.9 Lease dated November 27, 1996 between CP-Regency Business Park LTD and
Aladdin concerning a distribution warehouse in Grand Prairie, Texas.
(Incorporated herein by reference to Exhibit 10.12 of Mohawk's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.)
*10.10 Lease dated December 14, 1992, between First Union National Bank of
Georgia, as Trustee under item 8 u/w of James E. Minge; First Union
National Bank of Georgia, as Trustee u/a W. G. Minge, dated September
15, 1987; First Union National Bank of Georgia and Jerry L. Minge,
co-executors u/w/o C. A. Minge and Image, as amended by that certain
lease modification and extension agreement dated July 24, 1995 with
respect to that certain warehouse located at 15 Old Airport Road in
Rome, Georgia. (Incorporated herein by reference to Exhibit 10.24 of
Mohawk's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.)
10.11 Lease dated June 1, 1998 between Intermark USA, Inc. and Aladdin
Manufacturing Corporation concerning a warehouse in Kensington,
Georgia.
10.12 Lease dated February 18, 1999 between Aladdin Manufacturing
Corporation and Industrial Developments International Inc. concerning
a warehouse in Bolingbrook, Illinois.
10.13 Lease dated February 18, 1999 between Mohawk Industries, Inc. and
Senecca G&H, L.L.C. concerning a warehouse in Miami, Florida.
10.14 Lease dated December 3, 1999 between Aladdin Manufacturing Corporation
and Ex-Cell Home Fashions, Inc. concerning a plant in Bentonville,
Arkansas.
10.15 Fifth Amended and Restated Credit Agreement dated as of November 23,
1999 among Mohawk, Wachovia Bank, N.A. Suntrust Bank, Atlanta and
First Union National Bank.
*10.16 Amended and Restated Series Note Agreement dated as of August 31,
1999 for $85 million of senior notes due September 1, 2005 among
Mohawk, John Hancock Mutual Life Insurance Company, John Hancock
Variable Life Insurance Company, Investors Partner Life Insurance
Company, Principal Life Insurance Company, The Franklin Life
Insurance Company and The Prudential Insurance Company of America.
(Incorporated herein by reference to Exhibit 10.2 of Mohawk's
Quarterly Report on Form 10-Q for the quarter ended October 2,
1999.)
*10.17 Amended and Restated Note Purchase Agreement dated as of August 31,
1999 for $100 million senior notes due September 16, 2004 among
Mohawk, The Prudential Insurance Company of America, Principal Life
Insurance Company, John Hancock Mutual Life Insurance Company,
Massachusetts Mutual Life Insurance Company, Alexander Hamilton Life
Insurance Company of America and The Franklin Life Insurance
Company. (Incorporated herein by reference to Exhibit 10.2 of
Mohawk's Quarterly Report on Form 10-Q for the quarter ended October
2, 1999.)
*10.18 Registration Rights Agreement by and among Mohawk, Citicorp
Investments, Inc., ML-Lee Acquisition Fund, L.P. and Certain
Management Investors. (Incorporated herein by reference to Exhibit
10.14 of Mohawk's Registration Statement on Form S-1, Registration
No. 33-45418.)
*10.19 Voting Agreement, Consent of Stockholders and Amendment to 1992
Registration Rights Agreement dated December 3, 1993 by and among
Aladdin, Mohawk, Citicorp Investments, Inc., ML-Lee Acquisition
Fund, L.P., David L. Kolb, Donald G. Mercer, Frank A. Procopio and
John D. Swift. (Incorporated herein by reference to Exhibit 10(b) of
Mohawk's Registration Statement on Form S-4, Registration No.
33-74220.)
*10.20 Registration Rights Agreement by and among Mohawk and the former
shareholders of Aladdin. (Incorporated herein by reference to
Exhibit 10.32 of Mohawk's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.)
*10.21 Waiver Agreement between Alan S. Lorberbaum and Mohawk dated as of
March 23, 1994 to the Registration Rights Agreement dated as of
February 25, 1994 between Mohawk and those other persons who are
signatories thereto. (Incorporated herein by reference to Exhibit
10.3 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended
July 2, 1994.)
*10.22 Stock Restriction and Registration Rights Agreement dated as of
October 22, 1998 by and among Mohawk and the former shareholders of
World. (Incorporated herein by reference to Exhibit 99.1 of Mohawk's
Current Report on Form 8-K dated February 19, 1999.)
*10.23 Second Consolidated, Amended and Restated Note Agreement dated as of
August 31, 1999 for $50 million of senior notes, $40,000,000 of
which are due October 26, 2002 and $10,000,000 of which are due July
30, 2002, among Mohawk and The Prudential Insurance Company of
America. (Incorporated herein by reference to Exhibit 10.3 of
Mohawk's Quarterly Report on Form 10-Q dated October 2, 1999.)
Exhibits Related to Executive Compensation Plans, Contracts and other
Arrangements:
*10.24 Mohawk Carpet Corporation Retirement Savings Plan, as amended.
(Incorporated herein by reference to Exhibit 10.1 of Mohawk's
Registration Statement on Form S-1, Registration No. 33-45418.)
*10.25 Mohawk Carpet Corporation Supplemental Executive Retirement Plan, as
amended. (Incorporated herein by reference to Exhibit 10.2 of
Mohawk's Registration Statement on Form S-1, Registration No.
33-45418.)
*10.26 World Carpets, Inc. Savings and Retirement Plan dated January 1,
1989. (Incorporated herein by reference to Exhibit 10.70 of Mohawk's
Annual Report on Form 10-K for the year ended December 31, 1998)
*10.27 Mohawk Industries, Inc. Employee Stock Purchase Plan together with
forms of related Management Investment Agreement, Non-Qualified
Stock Option Agreement, and amendments thereto. (Incorporated herein
by reference to Exhibit 10.3 of Mohawk's Registration Statement on
Form S-1, Registration No. 33-45418.)
*10.28 Stock Purchase Agreement dated as of December 30, 1988 between Mohawk
and Mohasco as supplemented by Supplement to Stock Purchase
Agreement dated December 30, 1988. (Incorporated herein by reference
to Exhibit 10.4 of Mohawk's Registration Statement on Form S-1,
Registration No. 33-45418.)
*10.29 Securities Purchase and Holders Agreement dated as of December 31,
1988, as amended and restated March 30, 1989, together with
amendments thereto and forms of related Non-Qualified Stock Option
Agreement and amendments thereto. (Incorporated herein by reference
to Exhibit 10.5 of Mohawk's Registration Statement on Form S-1,
Registration No. 33-45418.)
*10.30 Investment Agreement dated as of March 31, 1989 among Mohawk, Mohawk
Carpet, Citicorp Capital Investors Ltd., Citicorp Venture Capital
Ltd. and ML-Lee Acquisition Fund, L.P. (Incorporated herein by
reference to Exhibit 10.6 of Mohawk's Registration Statement on Form
S-1, Registration No. 33-45418.)
*10.31 Equity Securities Agreement dated March 31, 1989 among Mohawk, ML-Lee
Acquisition Fund, L.P. and Citicorp Venture Capital Ltd.
(Incorporated herein by reference to Exhibit 10.7 of Mohawk's
Registration Statement on Form S-1, Registration No. 33-45418.)
*10.32 Securities Holders Agreement among Mohawk and Certain Management
Investors dated as of March 6, 1992. (Incorporated herein by
reference to Exhibit 10.40 of Mohawk's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.)
*10.33 Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein
by reference to Exhibit 10.8 of Mohawk's Registration Statement on
Form S-1, Registration No. 33-45418.)
*10.34 Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992
Stock Option Plan. (Incorporated herein by reference to Exhibit 10.2
in Mohawk's quarterly report on Form 10-Q for the quarter ended July
3, 1993.)
10.35 Second Amendment dated February 17, 2000 to the Mohawk Industries,
Inc. 1992 Stock Option Plan.
*10.36 Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.15 of Mohawk's
Registration Statement on Form S-1, Registration Number 33-53932.)
*10.37 Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992
Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference
to Exhibit 10.1 of Mohawk's quarterly report on Form 10-Q for the
quarter ended July 3, 1993.)
10.38 Second Amendment dated February 17, 2000 to the Mohawk Industries,
Inc. 1992 Mohawk-Horizon Stock Option Plan.
*10.39 Mohawk Industries, Inc. 1993 Stock Option Plan. (Incorporated herein
by reference to Exhibit 10.39 of Mohawk's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992.)
10.40 First Amendment dated February 17, 2000 to Mohawk Industries, Inc.
1993 Stock Option Plan.
*10.41 Form of Promissory Note between Mohawk and each of the following;
David L. Kolb, John D. Swift and Frank A. Procopio. (Incorporated
herein by reference to Exhibit 10.75 of Mohawk's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.)
*10.42 The Mohawk Industries, Inc. Executive Deferred Compensation Plan.
(Incorporated herein by reference to Exhibit 10.65 of Mohawk's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.)
*10.43 The Mohawk Industries, Inc. Management Deferred Compensation Plan.
(Incorporated herein by reference to Exhibit 10.66 of Mohawk's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.)
*10.44 1997 Non-Employee Director Stock Compensation Plan. (Incorporated
herein by reference to Exhibit
10.79 of Mohawk's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.)
*10.45 1997 Long-Term Incentive Plan. (Incorporated herein by reference to
Exhibit 10.80 of Mohawk's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
*10.46 Amendment No. 1 to 1997 Non-Employee Director Stock Compensation
Plan. (Incorporated herein by
reference to Exhibit 10.74 of Mohawk's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.)
11 Statement re: Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent - KPMG LLP.
23.2 Consent of Independent Accountants - PricewaterhouseCoopers LLP.
27.1 1999 Financial Data Schedule.
27.2 1998 Financial Data Schedule (restated)
_________
* Indicates exhibit incorporated by reference.
(b) Reports on Form 8-K.
1. Current Report on Form 8-K: Reclassified prior period financial
statements, dated October 7, 1999.
2. Current Report on Form 8-K: Third quarter earnings press release, dated
October 21, 1999.
3. Current Report on Form 8-K: Stock repurchase press release dated,
December 16, 1999.
4. Current Report on Form 8-K: Fourth quarter earnings press release dated,
February 10, 2000.