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Form 10-Q MOHAWK INDUSTRIES INC For: Jul 02

July 29, 2022 1:02 PM EDT

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
[Mark One]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2022
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 01-13697
 __________________________________________
MOHAWK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware52-1604305
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
160 S. Industrial Blvd.CalhounGeorgia30701
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (706629-7721
Former name, former address and former fiscal year, if changed since last report:
__________________________________________ 

Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, $.01 par valueMHKNew York Stock Exchange
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 whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerx  Accelerated filer¨
Non-accelerated filer¨  Smaller reporting company¨
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x

The number of shares outstanding of the issuer’s common stock as of July 27, 2022, the latest practicable date, is as follows: 63,533,752 shares of common stock, $.01 par value.


MOHAWK INDUSTRIES, INC.
INDEX
 
  Page No
Part I.
Item 1.
Item 2.
Item 3.
Item 4.
Part II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) 
July 2,
2022
December 31,
2021
(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents$223,986 268,895 
Short-term investments265,000 323,000 
Receivables, net2,105,809 1,839,985 
Inventories2,826,044 2,391,672 
Prepaid expenses500,858 394,649 
Other current assets19,037 20,156 
Total current assets5,940,734 5,238,357 
Property, plant and equipment9,371,983 9,250,587 
Less: accumulated depreciation4,789,908 4,613,722 
Property, plant and equipment, net4,582,075 4,636,865 
Right of use operating lease assets404,726 389,967 
Goodwill2,536,314 2,607,909 
Tradenames678,627 694,905 
Other intangible assets subject to amortization, net177,774 205,075 
Deferred income taxes and other non-current assets369,237 451,439 
Total assets$14,689,487 14,224,517 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt$1,498,900 624,503 
Accounts payable and accrued expenses2,316,980 2,217,418 
Current operating lease liabilities108,497 104,434 
Total current liabilities3,924,377 2,946,355 
Deferred income taxes471,044 495,521 
Long-term debt, less current portion1,052,064 1,700,282 
Non-current operating lease liabilities309,261 297,390 
Other long-term liabilities325,803 356,753 
Total liabilities6,082,549 5,796,301 
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred stock, $.01 par value; 60 shares authorized; no shares issued
  
Common stock, $.01 par value; 150,000 shares authorized; 70,878 and 72,952 shares issued and outstanding in 2022 and 2021, respectively
709 729 
Additional paid-in capital1,919,742 1,911,131 
Retained earnings7,910,657 7,692,064 
Accumulated other comprehensive loss(1,014,999)(966,952)
8,816,109 8,636,972 
Less: treasury stock at cost; 7,341 and 7,343 shares in 2022 and 2021, respectively
215,491 215,547 
Total Mohawk Industries, Inc. stockholders’ equity8,600,618 8,421,425 
Nonredeemable noncontrolling interests6,320 6,791 
          Total stockholders’ equity8,606,938 8,428,216 
Total liabilities and stockholders’ equity$14,689,487 14,224,517 
See accompanying notes to condensed consolidated financial statements
3

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 Three Months EndedSix Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
(In thousands, except per share data)
Net sales$3,153,188 2,953,833 6,168,851 5,622,859 
Cost of sales2,279,991 2,051,626 4,493,526 3,928,883 
Gross profit873,197 902,207 1,675,325 1,693,976 
Selling, general and administrative expenses505,270 497,783 986,597 972,037 
Operating income 367,927 404,424 688,728 721,939 
Interest expense12,059 14,894 23,540 30,135 
Other income, net(2,818)(11,168)(380)(13,395)
Earnings before income taxes358,686 400,698 665,568 705,199 
Income tax expense78,176 64,245 139,624 131,935 
Net earnings including noncontrolling interests280,510 336,453 525,944 573,264 
Net earnings attributable to noncontrolling interests79 168 184 172 
Net earnings attributable to Mohawk Industries, Inc.$280,431 336,285 525,760 573,092 
Basic earnings per share attributable to Mohawk Industries, Inc.
Basic earnings per share attributable to Mohawk Industries, Inc.$4.41 4.84 8.20 8.21 
Weighted-average common shares outstanding—basic63,540 69,432 64,116 69,809 
Diluted earnings per share attributable to Mohawk Industries, Inc.
Diluted earnings per share attributable to Mohawk Industries, Inc.$4.40 4.82 8.17 8.18 
Weighted-average common shares outstanding—diluted63,798 69,745 64,374 70,102 
See accompanying notes to condensed consolidated financial statements.

4

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 Three Months EndedSix Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
(In thousands)
Net earnings including noncontrolling interests$280,510 336,453 525,944 573,264 
Other comprehensive income (loss):
Foreign currency translation adjustments34,065 73,895 (48,382)(86,759)
Prior pension and post-retirement benefit service cost and actuarial gain, net of tax70 111 607 208 
Other comprehensive income (loss)34,135 74,006 (47,775)(86,551)
Comprehensive income314,645 410,459 478,169 486,713 
Comprehensive income (loss) attributable to noncontrolling interests613 225 455 (19)
Comprehensive income attributable to Mohawk Industries, Inc.$314,032 410,234 477,714 486,732 
See accompanying notes to condensed consolidated financial statements.
5

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
 Six Months Ended
 July 2,
2022
July 3,
2021
(In thousands)
Cash flows from operating activities:
Net earnings including noncontrolling interests$525,944 573,264 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Restructuring1,387 7,316 
Depreciation and amortization282,984 299,681 
Deferred income taxes(1,377)(36,534)
Loss on disposal of property, plant and equipment2,444 3,239 
Stock-based compensation expense11,309 11,986 
Changes in operating assets and liabilities, net of effects of acquisitions:
Receivables, net(317,984)(297,150)
Inventories(434,686)(184,143)
Accounts payable and accrued expenses176,074 278,988 
Other assets and prepaid expenses(48,068)(144,434)
Other liabilities4,634 85,783 
Net cash provided by operating activities202,661 597,996 
Cash flows from investing activities:
Additions to property, plant and equipment(280,041)(227,439)
Acquisitions, net of cash acquired951 (6,338)
Purchases of short-term investments(1,763,000)(701,221)
Redemption of short-term investments1,821,000 606,489 
Net cash used in investing activities(221,090)(328,509)
Cash flows from financing activities:
Payments on commercial paper(6,686,737)(47,805)
Proceeds from commercial paper6,964,700 47,590 
Net payments of other financing activities(14,263)(6,619)
Purchase of Mohawk common stock(307,188)(264,501)
Change in outstanding checks in excess of cash640 (4,457)
Net cash used in financing activities(42,848)(275,792)
Effect of exchange rate changes on cash and cash equivalents16,368 (8,643)
Net change in cash and cash equivalents(44,909)(14,948)
Cash and cash equivalents, beginning of period268,895 768,625 
Cash and cash equivalents, end of period$223,986 753,677 


See accompanying notes to condensed consolidated financial statements.

6

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)

1. General

Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Mohawk,” or “the Company” as used in this Form 10-Q refer to Mohawk Industries, Inc.

Interim Reporting

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto, and the Company’s description of critical accounting policies, included in the Company’s 2021 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. Results for interim periods are not necessarily indicative of the results for the year.

Hedges of Net Investments in Non-U.S. Operations

The Company has numerous investments outside the United States. The net assets of these subsidiaries are exposed to changes and volatility in currency exchange rates. The Company has in the past and might in the future use foreign currency denominated debt to hedge its non-U.S. net investments against adverse movements in exchange rates. In periods when the Company uses foreign currency denominated debt to hedge its non-U.S. net investments, the gains and losses on the Company’s net investments in its non-U.S. operations are economically offset by losses and gains on its foreign currency borrowings. Changes in the U.S. dollar value of the Company’s euro denominated debt are recorded in the foreign currency translation adjustment component of accumulated other comprehensive income or (loss). In June 2015, the Company designated its €500,000 2.00% Senior Notes borrowing as a net investment hedge of a portion of its European operations. On October 19, 2021, the Company redeemed at par the 2.00% Senior Notes, originally due on January 14, 2022, and paid the remaining €500,000 outstanding principal of the 2.00% Senior Notes, plus any unpaid interest, utilizing cash on hand. In connection with this repayment, the Company dedesignated its €500,000 2.00% Senior Notes borrowing as a net investment hedge of a portion of its European operations. For the six months ended July 3, 2021, the change in the U.S. dollar value of the Company’s euro denominated debt was a decrease of $21,816 ($16,691 net of taxes).

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes which simplified the accounting for income taxes in several areas by removing certain exceptions and by clarifying and amending existing guidance applicable to accounting for income taxes. The Company adopted the new standard on January 1, 2021. The effect of adopting the new standard was not material.



7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Acquisitions

2021 Acquisitions

During the first quarter of 2021, the Company made acquisitions in the Flooring Rest of the World segment for $6,338.

3. Revenue from Contracts with Customers

Contract Liabilities

The Company records contract liabilities when it receives payment prior to fulfilling a performance obligation. Contract liabilities related to revenues are recorded in accounts payable and accrued expenses on the accompanying condensed consolidating balance sheets. The Company had contract liabilities of $70,089 and $65,744 as of July 2, 2022 and December 31, 2021, respectively.

Performance Obligations

Substantially all of the Company’s revenue is recognized at a point in time when the product is either shipped or received from the Company’s facilities and control of the product is transferred to the customer. Accordingly, in any period, the Company does not recognize a significant amount of revenue from performance obligations satisfied or partially satisfied in prior periods and the amount of such revenue recognized during the three and six months ended July 2, 2022 and July 3, 2021 was immaterial.

Costs to Obtain a Contract

The Company incurs certain incremental costs to obtain revenue contracts. These costs relate to marketing display structures and are capitalized when the amortization period is greater than one year, with the amount recorded in other assets on the accompanying condensed consolidated balance sheets. Capitalized costs to obtain contracts were $58,451 and $49,644 as of July 2, 2022 and December 31, 2021, respectively. Straight-line amortization expense recognized during the six months ended July 2, 2022 and July 3, 2021 related to these capitalized costs were $24,876 and $30,196, respectively.



8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Revenue Disaggregation

The following table presents the Company’s segment revenues disaggregated by the geographical market location of customer sales and product categories for the three months ended July 2, 2022 and July 3, 2021:
July 2, 2022Global Ceramic SegmentFlooring NA SegmentFlooring ROW SegmentTotal
Geographical Markets
United States$625,613 1,061,276 4,232 1,691,121 
Europe255,855 1,721 644,032 901,608 
Russia103,989  38,770 142,759 
Other173,112 36,541 208,047 417,700 
$1,158,569 1,099,538 895,081 3,153,188 
Product Categories
Ceramic & Stone$1,153,143 10,055  1,163,198 
Carpet & Resilient5,426 862,033 244,700 1,112,159 
Laminate & Wood 227,450 304,159 531,609 
Other(1)
  346,222 346,222 
$1,158,569 1,099,538 895,081 3,153,188 

July 3, 2021Global Ceramic SegmentFlooring NA SegmentFlooring ROW SegmentTotal
Geographical Markets
United States$568,062 1,047,964 1,922 1,617,948 
Europe246,067 249 598,846 845,162 
Russia78,962 20 37,463 116,445 
Other146,412 32,956 194,910 374,278 
$1,039,503 1,081,189 833,141 2,953,833 
Product Categories
Ceramic & Stone$1,036,733 8,662  1,045,395 
Carpet & Resilient2,770 863,419 266,224 1,132,413 
Laminate & Wood 209,108 273,171 482,279 
Other(1)
  293,746 293,746 
$1,039,503 1,081,189 833,141 2,953,833 

(1) Other includes roofing elements, insulation boards, chipboards and IP contracts.













9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents the Company’s segment revenues disaggregated by the geographical market location of customer sales and product categories for the six months ended July 2, 2022 and July 3, 2021:
July 2, 2022Global Ceramic SegmentFlooring NA SegmentFlooring ROW SegmentTotal
Geographical Markets
United States$1,210,844 2,097,156 7,018 3,315,018 
Europe501,091 3,853 1,281,395 1,786,339 
Russia170,507 23 78,505 249,035 
Other340,884 70,416 407,159 818,459 
$2,223,326 2,171,448 1,774,077 6,168,851 
Product Categories
Ceramic & Stone$2,212,854 19,043  2,231,897 
Carpet & Resilient10,472 1,705,115 488,828 2,204,415 
Laminate & Wood 447,290 601,296 1,048,586 
Other (1)
  683,953 683,953 
$2,223,326 2,171,448 1,774,077 6,168,851 
July 3, 2021Global Ceramic SegmentFlooring NA SegmentFlooring ROW SegmentTotal
Geographical Markets
United States$1,102,609 1,984,062 4,341 3,091,012 
Europe453,567 579 1,156,984 1,611,130 
Russia140,980 50 65,120 206,150 
Other272,218 65,748 376,601 714,567 
$1,969,374 2,050,439 1,603,046 5,622,859 
Product Categories
Ceramic & Stone$1,964,192 16,983  1,981,175 
Carpet & Resilient5,182 1,635,499 513,948 2,154,629 
Laminate & Wood 397,957 526,384 924,341 
Other (1)
  562,714 562,714 
$1,969,374 2,050,439 1,603,046 5,622,859 

(1) Other includes roofing elements, insulation boards, chipboards and IP contracts.

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Restructuring, Acquisition and Integration-Related Costs

The Company incurs costs in connection with acquiring, integrating and restructuring acquisitions and in connection with its global cost-reduction/productivity initiatives. For example:

In connection with acquisition activity, the Company typically incurs costs associated with executing the transactions, integrating the acquired operations (which may include expenditures for consulting and the integration of systems and processes), and restructuring the combined company (which may include charges related to employees, assets and activities that will not continue in the combined company); and

In connection with the Company’s cost-reduction/productivity initiatives, it typically incurs costs and charges associated with site closings and other facility rationalization actions including accelerated depreciation (“Asset write-downs”) and workforce reductions.

Restructuring, acquisition transaction and integration-related costs consisted of the following during the three and six months ended July 2, 2022 and July 3, 2021:
Three Months EndedSix Months Ended
July 2
2022
July 3
2021
July 2
2022
July 3
2021
Cost of sales
Restructuring costs$403 5,273 1,301 15,439 
Acquisition integration-related costs309 26 349 43 
  Restructuring and acquisition integration-related costs$712 5,299 1,650 15,482 
Selling, general and administrative expenses
Restructuring costs$86 406 86 315 
Acquisition transaction-related costs330 895 1,027 1,744 
Acquisition integration-related costs770 180 1,054 423 
  Restructuring, acquisition transaction and integration-related costs$1,186 1,481 2,167 2,482 



11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The restructuring activity for the three months ended July 2, 2022 is as follows:
Asset write-downs (gains on disposals)SeveranceOther
restructuring
costs
Total
Balances as of April 2, 2022$ 744 19 763 
Restructuring costs
Flooring NA Segment(86) (154)(240)
Flooring ROW Segment  729 729 
Total restructuring costs(86) 575 489 
Cash payments (304)(748)(1,052)
Non-cash items86 (10)154 230 
Balances as of July 2, 2022$ 430  430 
Restructuring costs recorded in:
Cost of sales$(86) 489 403 
Selling, general and administrative expenses  86 86 
Total restructuring costs$(86) 575 489 
    

The restructuring activity for the six months ended July 2, 2022 is as follows:
Asset write-downs (gains on disposals)SeveranceOther
restructuring
costs
Total
Balances as of December 31, 2021$ 1,634 995 2,629 
Restructuring costs
Flooring NA Segment(86) (49)(135)
Flooring ROW Segment  1,522 1,522 
Total restructuring costs(86) 1,473 1,387 
Cash payments (1,179)(1,718)(2,897)
Non-cash items86 (25)(750)(689)
Balances as of July 2, 2022$ 430  430 
Restructuring costs recorded in:
Cost of sales$(86) 1,387 1,301 
Selling, general and administrative expenses  86 86 
Total restructuring costs$(86) 1,473 1,387 

The Company expects the remaining severance and other restructuring costs to be paid over the next 12 months.
12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Fair Value

The Company’s wholly-owned captive insurance company may invest in the Company’s commercial paper. These short-term commercial paper investments are classified as trading securities and carried at fair value based upon the Level 2 fair value hierarchy.

Items Measured at Fair Value
The following table presents the items measured at fair value as of July 2, 2022 and December 31, 2021:

 Fair Value
July 2, 2022December 31, 2021
Short-term investments:
Commercial paper (Level 2)$265,000 323,000 

The fair values and carrying values of the Company’s debt are disclosed in Note 18 - Debt.

6. Receivables, net

Receivables, net are as follows:
At July 2, 2022At December 31, 2021
Customers, trade$2,003,358 1,721,584 
Income tax receivable43,328 73,727 
Other132,776 117,823 
2,179,462 1,913,134 
Less: allowance for discounts, claims and doubtful accounts73,653 73,149 
Receivables, net$2,105,809 1,839,985 


7. Inventories

The components of inventories are as follows:
At July 2, 2022At December 31, 2021
Finished goods$1,948,753 1,677,707 
Work in process181,088 144,004 
Raw materials696,203 569,961 
Total inventories$2,826,044 2,391,672 

13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Goodwill and Intangible Assets

The components of goodwill and other intangible assets are as follows:

Goodwill:
Global Ceramic SegmentFlooring NA SegmentFlooring ROW SegmentTotal
Balance as of December 31, 2021
Goodwill$1,563,267 874,198 1,497,869 3,935,334 
Accumulated impairment losses(531,930)(343,054)(452,441)(1,327,425)
1,031,337 531,144 1,045,428 2,607,909 
Goodwill adjustments related to acquisitions  (731)(731)
Currency translation during the period12,250  (83,114)(70,864)
Balance as of July 2, 2022
Goodwill1,575,517 874,198 1,414,024 3,863,739 
Accumulated impairment losses(531,930)(343,054)(452,441)(1,327,425)
Balance as of July 2, 2022, net$1,043,587 531,144 961,583 2,536,314 



14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Intangible assets not subject to amortization:
    
Tradenames
Balance as of December 31, 2021$694,905