Notes to Consolidated Financial Statements
Years Ended December 31, 2021, 2020 and 2019
(In thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
Mohawk Industries, Inc. (“Mohawk” or the “Company”), a term which includes the Company and its subsidiaries, is a leading global flooring manufacturer that creates products to enhance residential and commercial spaces around the world. The Company’s vertically integrated manufacturing and distribution processes provide competitive advantages in the production of carpet, rugs, ceramic tile, laminate, wood, stone, luxury vinyl tile (“LVT”) and sheet vinyl flooring.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(b) The COVID-19 Pandemic
During 2020 and 2021, the Company experienced certain disruptions to its business and further disruptions may occur that could materially affect the Company’s ability to obtain supplies, manufacture its products or deliver inventory in a timely manner. Future disruptions may result in lost revenue, additional costs or impairments to goodwill or other assets. Although the Company believes that it can manage its exposure to these risks, there is no guarantee that it will be able to do so in the future. The Company continues to follow the recommendations of local health authorities to minimize exposure risk for its employees, suppliers, customers and other stakeholders. The Company has implemented business continuity plans during the crisis and is attempting to minimize the pandemic’s impact, but it may be unable to adequately respond to further outbreaks in particular geographies and its operations may be materially impacted. The extent to which the COVID-19 pandemic may impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including the successful implementation of vaccination programs and the continued fiscal support currently provided by governments. Accordingly, the COVID-19 pandemic and the related global reaction could have a material adverse effect on the Company’s business, results of operations and financial condition.
(c) Cash and Cash Equivalents
The Company considers investments with an original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2021, the Company had cash and cash equivalents of $268,895 of which $200,501 was held outside the United States. As of December 31, 2020, the Company had cash and cash equivalents of $768,625 of which $436,948 was held outside the United States.
(d) Short-term Investments
The Company invests in high quality credit instruments. At December 31, 2021, short-term investments consisted solely of investments in the Company’s commercial paper by its wholly-owned captive insurance company. At December 31, 2020, amounts consisted of a short-duration bond fund and managed income fund. Such investments are not insured by the Federal Deposit Insurance Corporation.
The Company’s investment in the short-duration bond fund and managed income fund at December 31, 2020 was classified as an equity security, recorded at fair value based on the closing market price of the security. The Company recognized dividends, realized and unrealized gains and losses to other expense (income), net in the statement of operations.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(e) Fair Value
Accounting principles generally accepted in the U.S. define fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
(f) Accounts Receivable and Revenue Recognition
The Company recognizes revenues when it satisfies performance obligations as evidenced by the transfer of control of the promised goods to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. The nature of the promised goods are ceramic, stone, carpet, resilient (includes sheet vinyl and LVT), laminate, wood and other flooring products. Payment is typically received 90 days or less from the invoice date. The Company adjusts the amounts of revenue for expected cash discounts, sales allowances, returns, and claims, based upon historical experience. The Company adjusts accounts receivable for doubtful account allowances based upon historical bad debt, claims experience, periodic evaluation of specific customer accounts, and the aging of accounts receivable. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
The Company accounts for incremental costs of obtaining a contract as an expense when incurred in selling, general and administrative expenses if the amortization period is less than one year.
The Company accounts for shipping and handling activities performed after control has been transferred as a fulfillment cost in cost of sales.
(g) Inventories
The Company accounts for all inventories on the first-in, first-out (“FIFO”) method. Inventories are stated at the lower of cost or net realizable value. Cost has been determined using the FIFO method. Costs included in inventory include raw materials, direct and indirect labor and employee benefits, depreciation, general manufacturing overhead and various other costs of manufacturing. Inventories on hand are compared against anticipated future usage, which is a function of historical usage, anticipated future selling price, expected sales below cost, excessive quantities and an evaluation for obsolescence.
(h) Property, Plant and Equipment
Property, plant and equipment are stated at cost, including capitalized interest. Depreciation is calculated on a straight-line basis over the estimated remaining useful lives, which are 15-40 years for buildings and improvements, 3-25 years for machinery and equipment, the shorter of the estimated useful life or lease term for leasehold improvements and 3-7 years for furniture and fixtures.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(i) Accounting for Business Combinations
The Company accounts for business combinations under the acquisition method of accounting which requires it to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations.
(j) Goodwill and Other Intangible Assets
In accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic (“ASC”) 350, Intangibles-Goodwill and Other, the Company tests goodwill and other intangible assets with indefinite lives for impairment on an annual basis on the first day of the fourth quarter (or on an interim basis if an event occurs that might reduce the fair value of the reporting unit below its carrying value). The Company considers the relationship between its market capitalization and its book value, among other factors, when reviewing for indicators of impairment. The goodwill impairment tests are based on determining the fair value of the specified reporting units based on management’s judgments and assumptions using the discounted cash flows and comparable company market valuation approaches. The Company has identified Global Ceramic, Flooring NA, and Flooring ROW as its reporting units for the purposes of allocating goodwill and intangibles as well as assessing impairments. The valuation approaches are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about appropriate sales growth rates, operating margins, weighted average cost of capital (“WACC”), and comparable company market multiples.
When developing these key judgments and assumptions, the Company considers economic, operational and market conditions that could impact the fair value of the reporting unit. However, estimates are inherently uncertain and represent only management’s reasonable expectations regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Should a significant or prolonged deterioration in economic conditions occur, such as continued declines in spending for new construction, remodeling and replacement activities; the inability to pass increases in the costs of raw materials and fuel on to customers; or a decline in comparable company market multiples, then key judgments and assumptions could be impacted.
The impairment evaluation for indefinite lived intangible assets, which for the Company are its trademarks, is conducted on the first day of the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that an asset might be impaired. The impairment tests for indefinite lived intangible assets may be completed through an assessment of qualitative factors to determine the existence of events or circumstances that would indicate that it is not more likely than not that the fair value of these assets is less than their carrying amounts. If the qualitative assessment indicates it is not more likely than not that the fair value of these assets is less than their carrying amounts, a quantitative impairment test is not required. If a quantitative test is necessary, the Company estimates the fair value of the intangible asset and compares it to its carrying amount. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The Company may also elect to bypass the qualitative assessment and perform a quantitative impairment test in any period. If the Company elects to perform a quantitative impairment test, it may resume the qualitative assessment in subsequent periods.
The determination of fair value used in the impairment evaluation is based on discounted estimates of future sales projections attributable to ownership of the trademarks. Significant judgments inherent in this analysis include assumptions about appropriate sales growth rates, royalty rates, applicable discount rate and the amount of expected future cash flows. The judgments and assumptions used in the estimate of fair value are generally consistent with past performance and are also consistent with the projections and assumptions that are used in current operating plans. Such assumptions are subject to change as a result of changing economic and competitive conditions. The determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of the trademarks. Estimated cash flows are sensitive to changes in the economy among other things.
Intangible assets that do not have indefinite lives are amortized based on average lives, which range from 7-20 years.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(k) Leases
The Company measures right of use (“ROU”) assets and lease liabilities based on the present value of the future minimum lease payments over the lease term at the commencement date. Minimum lease payments include the fixed lease and non-lease components of the agreement, as well as any variable rent payments that depend on an index, initially measured using the index at the lease commencement date. The ROU assets are adjusted for any initial direct costs incurred less any lease incentives received, in addition to payments made on or before the commencement date of the lease. The Company recognizes lease expense for leases on a straight-line basis over the lease term.
As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company’s credit spread adjusted for current market factors and foreign currency rates. The Company also made a policy election to determine its incremental borrowing rate, at the initial application date, using the total lease term and the total minimum rental payments, as the Company believes this rate is more indicative of the implied financing cost.
The Company determines if a contract is or contains a lease at inception. The Company has operating and finance leases for service centers, warehouses, showrooms, and machinery and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet and expensed as incurred. The Company enters into lease contracts ranging from 1 to 60 years with a majority of the Company’s lease terms ranging from 1 to 10 years.
Some leases include one or more options to renew, with renewal terms that can extend the lease term from 3 to 10 years or more. The exercise of these lease renewal options is at the Company’s sole discretion. An insignificant number of the Company’s leases include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term.
(l) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense.
(m) Financial Instruments
The Company’s financial instruments consist primarily of short-term investments, receivables, accounts payable, accrued expenses and long-term debt. The carrying amounts of receivables, accounts payable and accrued expenses approximate their fair value because of the short-term maturity of such instruments. The Company has a wholly-owned captive insurance company that may periodically 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 level two fair value hierarchy. The carrying amount of the Company’s floating rate debt approximates its fair value based upon level two fair value hierarchy. Interest rates that are currently available to the Company for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of the Company’s long-term debt.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(n) Advertising Costs and Vendor Consideration
Advertising and promotion expenses are charged to earnings during the period in which they are incurred. Advertising and promotion expenses included in selling, general, and administrative expenses were $139,538 in 2021, $105,974 in 2020 and $130,207 in 2019.
Vendor consideration, generally cash, is classified as a reduction of net sales, unless specific criteria are met regarding goods or services that the Company may receive in return for this consideration. The Company makes various payments to customers, including rebates, slotting fees, advertising allowances, buy-downs and co-op advertising. All of these payments reduce gross sales with the exception of co-op advertising. Co-op advertising expenses, classified as a selling, general and administrative expense, were $22,092 in 2021, $16,087 in 2020 and $11,418 in 2019.
(o) Product Warranties
The Company warrants certain qualitative attributes of its flooring products. The Company has recorded a provision for estimated warranty and related costs, based on historical experience and periodically adjusts these provisions to reflect actual experience.
(p) Impairment of Long-Lived Assets
The Company reviews its long-lived asset groups, which include intangible assets such as patents and customer relationships subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of such asset groups may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of long-lived assets to future undiscounted net cash flows expected to be generated by these asset groups. If such asset groups are considered to be impaired, the impairment recognized is the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Assets held for sale are reported at the lower of the carrying amount or fair value less estimated costs of disposal and are no longer depreciated.
(q) Foreign Currency Translation
The Company’s subsidiaries that operate outside the United States generally use their local currency as the functional currency. The functional currency is translated into U.S. Dollars for balance sheet accounts using the month end rates in effect as of the balance sheet date and average exchange rate for revenue and expense accounts for each respective period. The translation adjustments are deferred as a separate component of stockholders’ equity, within accumulated other comprehensive income (loss). Gains or losses resulting from transactions denominated in foreign currencies are included in other income or expense, within the consolidated statements of operations.
(r) 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. 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. 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 million 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 period January 1, 2021 through October 19, 2021, the change in the U.S. dollar value of the Company’s euro denominated debt was a decrease of $35,363 ($26,928 net of taxes). For the years ended December 31, 2020 and December 31, 2019, the change in the U.S. dollar value of the Company’s euro denominated debt was an increase of $54,907 ($41,708 net of taxes) and a decrease of $12,049 ($9,153 net of taxes), respectively. 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 (loss).
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(s) Earnings per Share (“EPS”)
Basic net earnings per share (“EPS”) is calculated using net earnings available to common stockholders divided by the weighted-average number of shares of common stock outstanding during the year. Diluted EPS is similar to basic EPS except that the weighted-average number of shares is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.
Dilutive common stock options and unvested restricted shares (units) are included in the diluted EPS calculation using the treasury stock method. There were no common stock options and unvested restricted shares (units) that were excluded from the diluted EPS computation because the price was greater than the average market price of the common shares for the periods presented for 2021, 2020 and 2019.
Computations of basic and diluted earnings per share are presented in the following table:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| | | | | |
| | | | | |
Net earnings available to common stockholders | $ | 1,033,159 | | | 515,595 | | | 744,211 | |
| | | | | |
Weighted-average common shares outstanding-basic and diluted: | | | | | |
Weighted-average common shares outstanding—basic | 68,852 | | | 71,214 | | | 71,986 | |
Add weighted-average dilutive potential common shares—options to purchase common shares and RSUs, net | 293 | | | 187 | | | 278 | |
Weighted-average common shares outstanding-diluted | 69,145 | | | 71,401 | | | 72,264 | |
| | | | | |
Earnings per share attributable to Mohawk Industries, Inc. | | | | | |
Basic | $ | 15.01 | | | 7.24 | | | 10.34 | |
Diluted | $ | 14.94 | | | 7.22 | | | 10.30 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(t) Stock-Based Compensation
The Company recognizes compensation expense for all share-based payments granted based on the grant-date fair value estimated in accordance with ASC 718-10, “Stock Compensation”. Compensation expense is generally recognized on a straight-line basis over the awards’ estimated lives for fixed awards with ratable vesting provisions.
(u) Employee Benefit Plans
The Company has 401(k) retirement savings plans (the “Mohawk Plan”) open to substantially all U.S. and Puerto Rico based employees who have completed 60 days of eligible service. The Company contributes $.50 for every $1.00 of employee contributions up to a maximum of 6% of the employee’s salary based upon each individual participants election. Employee and employer contributions to the Mohawk Plan were $67,044 and $23,884 in 2021, $56,241 and $13,509 in 2020 and $57,354 and $23,008 in 2019, respectively.
The Company also has various pension plans covering employees in Belgium, France, and the Netherlands (the “Non-U.S. Plans”) within the Flooring ROW Segment. Benefits under the Non-U.S. Plans depend on compensation and years of service. The Non-U.S. Plans are funded in accordance with local regulations. The Company uses December 31 as the measurement date for its Non-U.S. Plans. The Company’s projected benefit obligation and plan assets as of December 31, 2021 were $80,324 and $65,118, respectively. The Company’s projected benefit obligation and plan assets as of December 31, 2020 were $86,722 and $68,413, respectively. As of December 31, 2021, the funded status of the Non-U.S. Plans was a liability of $15,206 of which $8,866 was recorded in accumulated other comprehensive income, for a net liability of $6,340 recorded in other long-term liabilities within the consolidated balance sheets. As of December 31, 2020, the funded status of the Non-U.S. Plans was a liability of $18,309 of which $11,304 was recorded in accumulated other comprehensive income, for a net liability of $7,005 recorded in other long-term liabilities within the consolidated balance sheets.
(v) Comprehensive Income (Loss)
Comprehensive income (loss) includes foreign currency translation of assets and liabilities of foreign subsidiaries, effects of exchange rate changes on intercompany balances of a long-term nature, pension and post-retirement benefit service cost. The Company does not provide income taxes on currency translation adjustments, as earnings from foreign subsidiaries are considered to be indefinitely reinvested. The Company presents currency translation adjustments on noncontrolling interests separately from currency translation adjustments on controlling interests in accumulated other comprehensive income (loss) within stockholders’ equity.
The changes in accumulated other comprehensive income (loss) by component, net of tax, for years ended December 31, 2021, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | | Prior pension and post-retirement benefit service cost and actuarial gain (loss) | | Total |
Balance as of December 31, 2018 | $ | (782,102) | | | (9,506) | | | (791,608) | |
Current period other comprehensive income (loss) before reclassifications | 28,994 | | | (3,210) | | | 25,784 | |
| | | | | |
Balance as of December 31, 2019 | (753,108) | | | (12,716) | | | (765,824) | |
Current period other comprehensive income (loss) before reclassifications | 72,853 | | | (2,174) | | | 70,679 | |
| | | | | |
Balance as of December 31, 2020 | (680,255) | | | (14,890) | | | (695,145) | |
Current period other comprehensive income (loss) before reclassifications | (278,944) | | | 7,137 | | | (271,807) | |
| | | | | |
Balance as of December 31, 2021 | $ | (959,199) | | | (7,753) | | | (966,952) | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(w) Self-Insurance Reserves
The Company is self-insured in the U.S. for various levels of general liability, automobile liability, workers’ compensation and employee medical coverage. Insurance reserves are calculated on an undiscounted basis based on actual claim data and estimates of incurred but not reported claims developed utilizing historical claim trends. Projected settlements and incurred but not reported claims are estimated based on pending claims and historical trends and data. Though the Company does not expect them to do so, actual settlements and claims could differ materially from those estimated. Material differences in actual settlements and claims could have an adverse effect on the Company’s results of operations and financial condition.
The Company has a wholly-owned captive insurance company, Mohawk Assurance Services, Inc. (“MAS”). MAS insures the retained portion of the Company’s U.S. general liability, automobile liability, workers’ compensation exposures, pandemic, terrorism and medical coverage to MAS.
(x) Fiscal Year
The Company ends its fiscal year on December 31. Each of the first three quarters in the fiscal year ends on the Saturday nearest the calendar quarter end with a thirteen week fiscal quarter.
(y) Recent Accounting Pronouncements
- Recently Adopted
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.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was further amended by additional accounting standards updates issued by the FASB. The new standard replaced the incurred loss impairment methodology for recognizing credit losses with a new methodology that requires recognition of lifetime expected credit losses when a financial asset is originated or purchased, even if the risk of loss is remote. The new methodology (referred to as the current expected credit losses model, or "CECL") applies to most financial assets measured at amortized cost, including trade receivables, and requires consideration of a broader range of reasonable and supportable information to estimate expected credit losses. The Company adopted the new standard on January 1, 2020 using a modified retrospective transition approach, with the cumulative impact being immaterial to the financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and other (Topic 350): Simplifying the test for goodwill impairment. The amendments remove the second step of the current goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The Company adopted the new standard in the fourth quarter of 2019. The effect of adopting the new standard was not material.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
In February 2016, the FASB issued a new standard ASU 2016-02, Leases, and subsequently issued additional ASUs amending this ASU (collectively ASC 842, Leases). ASC 842 was issued to increase transparency and comparability among organizations by requiring the recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted the provisions of ASC 842 on January 1, 2019 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption in line with the new transition method allowed under ASU 2018-11. ASC 842 provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients” which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight and elected the practical expedient pertaining to land easements. The new standard also provides practical expedients for an entity’s ongoing accounting for leases. The Company elected the short-term lease exemption for all leases that qualify, meaning the Company will not recognize ROU assets or lease liabilities for leases with terms shorter than twelve months. The Company also elected the practical expedient to not separate lease and non-lease components for a majority of its asset classes, including real estate and most equipment.
The adoption of ASC 842 had a material impact on the Company’s condensed consolidated balance sheets, but did not have a material impact on the Company’s condensed consolidated statements of operations or cashflow. The most significant impact was the recognition of ROU assets of $328,169 and lease liabilities for operating leases of $332,286 at January 1, 2019, based on the present value of the future minimum rental payments for existing operating leases. The difference in the balances is due to deferred rent, tenant incentive allowances and prepaid amounts taken into account for adoption. The Company’s accounting for finance leases remained substantially unchanged. See Note 12, Leases.
On January 1, 2019, the Company adopted the new accounting standard, ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The standard permits entities to reclassify, to retained earnings, the one-time income tax effects stranded in accumulated other comprehensive income arising from the change in the U.S. federal corporate tax rate as a result of the Tax Cuts and Jobs Act of 2017. The effect of adopting the new standard was not material.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(2) Acquisitions
2021 Acquisitions
During 2021, the Company made acquisitions in the Flooring ROW Segment totaling $123,969, including the acquisition of an insulation manufacturer, on September 7, 2021 for $67,285 and the acquisition of a MDF production plant on November 2, 2021 for $46,348. The Company’s acquisitions resulted in a preliminary goodwill allocation of $55,258 and intangible assets subject to amortization of $19,946. The goodwill is not expected to be deductible for tax purposes. The remaining acquisitions resulted in preliminary goodwill of $1,672 and intangible assets subject to amortization of $5,596.
2019 Acquisitions
During 2019, the Company acquired two hard surface flooring distribution companies based in the Netherlands and the Czech Republic for $76,237, which resulted in allocations of goodwill of $38,366 and intangible assets subject to amortization of $12,789. The results have been included in the Flooring ROW Segment and are not material to the Company’s consolidated results of operations.
(3) Revenue from Contracts with Customers
Contract liabilities
The Company historically 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 $65,744 and $39,466 as of December 31, 2021 and December 31, 2020, 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 years ended December 31, 2021, 2020, and 2019 was immaterial.
Costs to obtain a contract
The Company historically 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 $49,644 and $59,847 as of December 31, 2021 and December 31, 2020, respectively. Straight-line amortization expense recognized during 2021 and 2020 related to these capitalized costs were $61,681 and $68,201, respectively.
Revenue disaggregation
The following table presents the Company’s segment revenues disaggregated by the geographical market location of customer sales and product categories during the years ended December 31, 2021, 2020 and 2019, respectively:
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | Global Ceramic Segment | | Flooring NA Segment | | Flooring ROW Segment | | | | Total |
Geographical Markets | | | | | | | | | |
United States | $ | 2,193,234 | | | 3,978,146 | | | 10,248 | | | | | 6,181,628 | |
Europe | 849,247 | | | 2,731 | | | 2,265,914 | | | | | 3,117,892 | |
Russia | 299,621 | | | 94 | | | 150,295 | | | | | 450,010 | |
Other | 575,217 | | | 135,434 | | | 740,432 | | | | | 1,451,083 | |
Total | $ | 3,917,319 | | | 4,116,405 | | | 3,166,889 | | | | | 11,200,613 | |
| | | | | | | | | |
Product Categories | | | | | | | | | |
Ceramic & Stone | $ | 3,903,597 | | | 35,057 | | | — | | | | | 3,938,654 | |
Carpet & Resilient | 13,722 | | | 3,287,533 | | | 992,787 | | | | | 4,294,042 | |
Laminate & Wood | — | | | 793,815 | | | 1,058,951 | | | | | 1,852,766 | |
Other(1) | — | | | — | | | 1,115,151 | | | | | 1,115,151 | |
Total | $ | 3,917,319 | | | 4,116,405 | | | 3,166,889 | | | | | 11,200,613 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2020 | Global Ceramic Segment | | Flooring NA Segment | | Flooring ROW Segment | | | | | | Total |
Geographical Markets | | | | | | | | | | | |
United States | $ | 2,050,470 | | | 3,477,556 | | | 2,381 | | | | | | | 5,530,407 | |
Europe | 699,715 | | | 1,506 | | | 1,785,549 | | | | | | | 2,486,770 | |
Russia | 262,846 | | | 50 | | | 122,934 | | | | | | | 385,830 | |
Other | 419,725 | | | 114,963 | | | 614,502 | | | | | | | 1,149,190 | |
Total | $ | 3,432,756 | | | 3,594,075 | | | 2,525,366 | | | | | | | 9,552,197 | |
| | | | | | | | | | | |
Product Categories | | | | | | | | | | | |
Ceramic & Stone | $ | 3,425,672 | | | 31,531 | | | — | | | | | | | 3,457,203 | |
Carpet & Resilient | 7,084 | | | 2,871,050 | | | 857,754 | | | | | | | 3,735,888 | |
Laminate & Wood | — | | | 691,494 | | | 847,473 | | | | | | | 1,538,967 | |
Other(1) | — | | | — | | | 820,139 | | | | | | | 820,139 | |
Total | $ | 3,432,756 | | | 3,594,075 | | | 2,525,366 | | | | | | | 9,552,197 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 | Global Ceramic Segment | | Flooring NA Segment | | Flooring ROW Segment | | | | Total |
Geographical Markets | | | | | | | | | |
United States | $ | 2,131,029 | | | 3,688,691 | | | 2,873 | | | | | 5,822,593 | |
Europe | 711,762 | | | 6,922 | | | 1,813,555 | | | | | 2,532,239 | |
Russia | 269,142 | | | 66 | | | 116,187 | | | | | 385,395 | |
Other | 519,209 | | | 148,035 | | | 563,201 | | | | | 1,230,445 | |
Total | $ | 3,631,142 | | | 3,843,714 | | | 2,495,816 | | | | | 9,970,672 | |
| | | | | | | | | |
Product Categories | | | | | | | | | |
Ceramic & Stone | $ | 3,631,142 | | | 55,503 | | | — | | | | | 3,686,645 | |
Carpet & Resilient | — | | | 3,136,474 | | | 785,295 | | | | | 3,921,769 | |
Laminate & Wood | — | | | 651,737 | | | 849,340 | | | | | 1,501,077 | |
Other(1) | — | | | — | | | 861,181 | | | | | 861,181 | |
Total | $ | 3,631,142 | | | 3,843,714 | | | 2,495,816 | | | | | 9,970,672 | |
(1) Other includes roofing elements, insulation boards, chipboards and IP contracts.
(4) Restructuring, Acquisition Transaction 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 year ended December 31, 2021, 2020 and 2019, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Cost of sales | | | | | | |
Restructuring costs | | $ | 17,899 | | | 101,230 | | | 84,844 | |
| | | | | | |
Acquisition integration-related costs | | 497 | | | 1,153 | | | 3,458 | |
Restructuring and acquisition integration-related costs | | $ | 18,396 | | | 102,383 | | | 88,302 | |
| | | | | | |
Selling, general and administrative expenses | | | | | | |
Restructuring costs | | $ | 1,301 | | | 24,127 | | | 5,497 | |
Acquisition transaction-related costs | | 2,372 | | | 213 | | | 1,502 | |
Acquisition integration-related costs | | 1,568 | | | 2,127 | | | 5,871 | |
Restructuring, acquisition transaction and integration-related costs | | $ | 5,241 | | | 26,467 | | | 12,870 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The restructuring activity for the years ended December 31, 2021 and 2020, respectively is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lease impairments | | Asset write-downs (gains on disposals) | | Severance | | Other restructuring costs | | Total | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance as of December 31, 2019 | $ | 21 | | | — | | | 4,122 | | | 116 | | | 4,259 | | | |
Restructuring costs | | | | | | | | | | | |
Global Ceramic Segment | 2,239 | | | 19,963 | | | 13,987 | | | 6,927 | | | 43,116 | | | |
Flooring NA Segment | 227 | | | 32,902 | | | 4,660 | | | 13,809 | | | 51,598 | | | |
Flooring ROW Segment | — | | | 12,913 | | | 5,746 | | | 6,391 | | | 25,050 | | | |
Corporate | — | | | 3,685 | | | 1,908 | | | — | | | 5,593 | | | |
Total restructuring costs for 2020 | 2,466 | | | 69,463 | | | 26,301 | | | 27,127 | | | 125,357 | | | |
Cash payments | (21) | | | — | | | (20,001) | | | (18,425) | | | (38,447) | | | |
Non-cash items | (2,466) | | | (69,463) | | | 1,154 | | | (8,089) | | | (78,864) | | | |
Balance as of December 31, 2020 | — | | | — | | | 11,576 | | | 729 | | | 12,305 | | | |
Restructuring costs | | | | | | | | | | | |
Global Ceramic Segment | 226 | | | 1,458 | | | 134 | | | 808 | | | 2,626 | | | |
Flooring NA Segment | (37) | | | 7,595 | | | (284) | | | 9,614 | | | 16,888 | | | |
Flooring ROW Segment | — | | | (1,968) | | | (1,096) | | | 1,538 | | | (1,526) | | | |
Corporate | — | | | 1,017 | | | 195 | | | — | | | 1,212 | | | |
Total restructuring costs for 2021 | 189 | | | 8,102 | | | (1,051) | | | 11,960 | | | 19,200 | | | |
Cash payments | — | | | — | | | (8,507) | | | (10,822) | | | (19,329) | | | |
Non-cash items | (189) | | | (8,102) | | | (384) | | | (872) | | | (9,547) | | | |
Balance as of December 31, 2021 | $ | — | | | — | | | 1,634 | | | 995 | | | 2,629 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
2020 restructuring costs recorded in: | | | | | | | | | | | |
Cost of sales | $ | — | | | 64,415 | | | 13,949 | | | 22,866 | | | 101,230 | | | |
Selling, general and administrative expenses | 2,466 | | | 5,048 | | | 12,352 | | | 4,261 | | | 24,127 | | | |
Total restructuring costs for 2020 | $ | 2,466 | | | 69,463 | | | 26,301 | | | 27,127 | | | 125,357 | | | |
| | | | | | | | | | | |
2021 restructuring costs recorded in: | | | | | | | | | | | |
Cost of sales | $ | — | | | 6,721 | | | (370) | | | 11,548 | | | 17,899 | | | |
Selling, general and administrative expenses | 189 | | | 1,381 | | | (681) | | | 412 | | | 1,301 | | | |
Total restructuring costs for 2021 | $ | 189 | | | 8,102 | | | (1,051) | | | 11,960 | | | 19,200 | | | |
| | | | | | | | | | | |
The Company generally expects the remaining severance and other restructuring costs to be paid over the next year.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(5) Fair Value
For publicly-traded investment securities, which consisted of the Company’s money market, short-duration bond funds and managed income funds, fair value was determined on the basis of quoted market prices and, accordingly, such investments were classified as Level 1. The Company’s wholly-owned captive insurance company may also 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 December 31, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | |
| | Fair Value |
| | December 31, 2021 | | December 31, 2020 | |
Cash and cash equivalents: | | | | | |
Money market fund (Level 1) | | $ | — | | | 197,835 | | |
Short-term investments: | | | | | |
Short-term investments (Level 1) (1) | | — | | | 571,741 | | |
Commercial Paper (Level 2) | | 323,000 | | | — | | |
(1) The Company’s short-term investments at December 31, 2020 consisted of short-duration bond funds and managed income funds that were designed to deliver current income consistent with the preservation of capital through investing in high- and medium grade fixed income securities. The investments were readily convertible into cash.
The fair values and carrying values of the Company’s debt are disclosed in Note 10 - Long-Term Debt.
(6) Receivables, net
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Customers, trade | $ | 1,721,584 | | | 1,591,503 | |
Income tax receivable | 73,727 | | | 112,580 | |
Other | 117,823 | | | 89,092 | |
| 1,913,134 | | | 1,793,175 | |
Less: allowance for discounts, returns, claims and doubtful accounts(1) | 73,149 | | | 83,682 | |
Receivables, net | $ | 1,839,985 | | | 1,709,493 | |
(1) The Company adopted the new standard, ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on January 1, 2020 using a modified retrospective transition approach, with the cumulative impact being immaterial to the financial statements.
The following table reflects the activity of allowances for discounts, returns, claims and doubtful accounts for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at beginning of year | | Acquisitions | | Additions charged to net sales or costs and expenses | | Deductions(1) | | Balance at end of year |
2019 | $ | 74,718 | | | 382 | | | 387,253 | | | 400,432 | | | 61,921 | |
2020 | 61,921 | | | — | | | 384,403 | | | 362,642 | | | 83,682 | |
2021 | 83,682 | | | 644 | | | 357,635 | | | 368,812 | | | 73,149 | |
(1) Represents charge-offs, net of recoveries.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(7) Inventories
The components of inventories are as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Finished goods | $ | 1,677,707 | | | 1,372,234 | |
Work in process | 144,004 | | | 126,231 | |
Raw materials | 569,961 | | | 414,555 | |
Total inventories | $ | 2,391,672 | | | 1,913,020 | |
(8) Goodwill and Other Intangible Assets
The Company conducted its annual impairment assessment on the first day of the fourth quarter of 2021 and determined the fair values of its reporting units and trademarks exceeded their carrying values. As a result, no impairment was indicated.
The following table summarizes the components of intangible assets:
Goodwill:
| | | | | | | | | | | | | | | | | | | | | | | |
| Global Ceramic Segment | | Flooring NA Segment | | Flooring ROW Segment | | Total |
Balances as of December 31, 2019 | | | | | | | |
Goodwill | $ | 1,583,576 | | | 874,198 | | | 1,439,678 | | | 3,897,452 | |
Accumulated impairment losses | (531,930) | | | (343,054) | | | (452,441) | | | (1,327,425) | |
| 1,051,646 | | | 531,144 | | | 987,237 | | | 2,570,027 | |
Goodwill recognized during the period | — | | | — | | | (9,642) | | | (9,642) | |
Currency translation during the period | (4,085) | | | — | | | 94,531 | | | 90,446 | |
Balances as of December 31, 2020 | | | | | | | |
Goodwill | 1,579,491 | | | 874,198 | | | 1,524,567 | | | 3,978,256 | |
Accumulated impairment losses | (531,930) | | | (343,054) | | | (452,441) | | | (1,327,425) | |
| 1,047,561 | | | 531,144 | | | 1,072,126 | | | 2,650,831 | |
Goodwill recognized during the period | — | | | — | | | 56,930 | | | 56,930 | |
Currency translation during the period | (16,224) | | | — | | | (83,628) | | | (99,852) | |
Balances 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 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Intangible assets:
| | | | | |
| Tradenames |
Indefinite life assets not subject to amortization: | |
Balance as of December 31, 2019 | $ | 702,732 | |
| |
| |
Currency translation during the year | 24,536 | |
Balance as of December 31, 2020 | 727,268 | |
Intangible assets acquired during the year | 2,725 | |
| |
Currency translation during the year | (35,088) | |
Balance as of December 31, 2021 | $ | 694,905 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Customer relationships | | Patents | | Other | | Total |
Intangible assets subject to amortization: | | | | | | | |
Balances as of December 31, 2019 | $ | 218,441 | | | 2,228 | | | 5,478 | | | 226,147 | |
Intangible assets acquired during the year | 12,789 | | | — | | | — | | | 12,789 | |
Amortization during the year | (26,612) | | | (2,195) | | | (84) | | | (28,891) | |
Currency translation during the year | 13,921 | | | 111 | | | 262 | | | 14,294 | |
Balances as of December 31, 2020 | 218,539 | | | 144 | | | 5,656 | | | 224,339 | |
Intangible assets acquired during the year | 18,189 | | | 4,628 | | | — | | | 22,817 | |
Amortization during the year | (27,820) | | | (639) | | | (821) | | | (29,280) | |
Currency translation during the year | (12,479) | | | (211) | | | (111) | | | (12,801) | |
Balances as of December 31, 2021 | $ | 196,429 | | | 3,922 | | | 4,724 | | | 205,075 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Cost | Acquisitions | Currency translation | Accumulated amortization | Net Value |
Customer Relationships | $ | 699,795 | | 18,189 | | (37,807) | | 483,748 | | 196,429 | |
Patents | 273,570 | | 4,628 | | (21,862) | | 252,414 | | 3,922 | |
Other | 6,945 | | — | | (159) | | 2,062 | | 4,724 | |
Total | $ | 980,310 | | 22,817 | | (59,828) | | 738,224 | | 205,075 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Cost | Acquisitions | Currency translation | Accumulated amortization | Net Value |
Customer Relationships | $ | 645,206 | | 12,789 | | 41,800 | | 481,256 | | 218,539 | |
Patents | 249,100 | | — | | 24,470 | | 273,426 | | 144 | |
Other | 6,631 | | — | | 314 | | 1,289 | | 5,656 | |
Total | $ | 900,937 | | 12,789 | | 66,584 | | 755,971 | | 224,339 | |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
Amortization expense | $ | 29,280 | | | 28,891 | | | 27,613 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Estimated amortization expense for the years ending December 31 are as follows:
| | | | | |
2022 | $ | 28,747 | |
2023 | 27,113 | |
2024 | 26,390 | |
2025 | 26,195 | |
2026 | 26,048 | |
(9) Property, Plant and Equipment
Following is a summary of property, plant and equipment:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Land | $ | 465,240 | | | 484,450 | |
Buildings and improvements | 1,862,463 | | | 1,856,859 | |
Machinery and equipment | 6,023,087 | | | 5,987,272 | |
Furniture and fixtures | 158,315 | | | 164,027 | |
Leasehold improvements | 102,766 | | | 103,172 | |
Construction in progress | 638,716 | | | 309,486 | |
| 9,250,587 | | | 8,905,266 | |
Less: accumulated depreciation | 4,613,722 | | | 4,314,037 | |
Net property, plant and equipment | $ | 4,636,865 | | | 4,591,229 | |
Additions to property, plant and equipment included capitalized interest of $9,082, $6,362 and $7,214 in 2021, 2020 and 2019, respectively. Depreciation expense was $558,818, $574,095 and $544,733 for 2021, 2020 and 2019, respectively. Included in property, plant and equipment are finance leases with a cost of $67,984 and $58,170 and accumulated depreciation of $19,902 and $12,498 as of December 31, 2021 and 2020, respectively.
(10) Long-Term Debt
Senior Credit Facility
On October 18, 2019, the Company amended and restated its $1,800,000 senior credit facility, extending the maturity from March 26, 2022 to October 18, 2024 (as amended and restated, the “Senior Credit Facility”). The Senior Credit Facility marginally reduced the commitment fee and modified certain negative covenants to provide the Company with additional flexibility, including flexibility to make acquisitions and incur additional indebtedness. The restatement also renewed the Company’s option to extend the maturity of the Senior Credit Facility up to two times for an additional one-year period each.
At the Company’s election, revolving loans under the Senior Credit Facility bear interest at annual rates equal to either (a) LIBOR for 1, 3 or 6 month periods, as selected by the Company, plus an applicable margin ranging between 1.00% and 1.75% (1.00% as of December 31, 2021), or (b) the higher of the Wells Fargo Bank, National Association prime rate, the Federal Funds rate plus 0.5%, or the Eurocurrency Rate (as defined in the Senior Credit Facility) rate plus 1.0%, plus an applicable margin ranging between 0.00% and 0.75% (0.00% as of December 31, 2021). The Company also pays a commitment fee to the lenders under the Senior Credit Facility on the average amount by which the aggregate commitments of the lenders exceed utilization of the Senior Credit Facility ranging from 0.09% to 0.20% per annum (0.09% as of December 31, 2021). The applicable margins and the commitment fee are determined based on whichever of the Company’s Consolidated Net Leverage Ratio or its senior unsecured debt rating (or if not available, corporate family rating) results in the lower applicable margins and commitment fee (with applicable margins and the commitment fee increasing as that ratio increases or those ratings decline, as applicable). On October 28, 2021, the Company further amended the Senior Credit Facility to replace LIBOR for euros with the EURIBOR benchmark rate.
The obligations of the Company and its subsidiaries in respect of the Senior Credit Facility are unsecured.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The Senior Credit Facility includes certain affirmative and negative covenants that impose restrictions on the Company’s financial and business operations, including limitations on liens, subsidiary indebtedness, fundamental changes, asset dispositions, dividends and other similar restricted payments, transactions with affiliates, future negative pledges, and changes in the nature of the Company’s business. The limitations contain customary exceptions or, in certain cases, do not apply as long as the Company is in compliance with the financial ratio requirements and is not otherwise in default. The Senior Credit Facility originally required the Company to maintain a Consolidated Interest Coverage Ratio of at least 3.00 to 1.00 and a Consolidated Net Leverage Ratio of no more than 3.75 to 1.00, each as of the last day of any fiscal quarter. However, on May 7, 2020 the Company amended the Senior Credit Facility to temporarily increase the minimum Consolidated Net Leverage Ratio to 4.75 to 1.00 and to increase the amount of certain adjustments to Net Income that are permitted to calculate the ratio. The relief provided by the amendment is in effect for the fiscal quarters ending on September 26, 2020 through (and including) the fiscal quarter ending December 31, 2021.
The Senior Credit Facility also contains customary representations and warranties and events of default, subject to customary grace periods.
In 2019, the Company paid financing costs of $2,264 in connection with the amendment and restatement of its Senior Credit Facility. These costs were deferred and, along with previously unamortized costs of $3,405 are being amortized over the term of the Senior Credit Facility.
As of December 31, 2021, amounts utilized under the Senior Credit Facility included zero borrowings and $1,432 of standby letters of credit related to various insurance contracts and foreign vendor commitments. Any outstanding borrowings under the Company’s U.S. and European commercial paper programs reduce the availability of the Senior Credit Facility. Including commercial paper borrowings, the Company has utilized $615,291 under the Senior Credit Facility resulting in a total of $1,184,709 available as of December 31, 2021.
Commercial Paper
On February 28, 2014 and July 31, 2015, the Company established programs for the issuance of unsecured commercial paper in the United States and Eurozone capital markets, respectively. Commercial paper issued under the U.S. and European programs will have maturities ranging up to 397 and 183 days, respectively. None of the commercial paper notes may be voluntarily prepaid or redeemed by the Company and all rank pari passu with all of the Company’s other unsecured and unsubordinated indebtedness. To the extent that the Company issues European commercial paper notes through a subsidiary of the Company, the notes will be fully and unconditionally guaranteed by the Company.
The Company uses its Senior Credit Facility as a liquidity backstop for its commercial paper programs. Accordingly, the total amount outstanding under all of the Company’s commercial paper programs may not exceed $1,800,000 (less any amounts drawn on the Senior Credit Facility) at any time.
The proceeds from the issuance of commercial paper notes will be available for general corporate purposes. As of December 31, 2021, there was $598,000 outstanding under the U.S. commercial paper program, and the euro equivalent of $15,859 under the European program. The weighted-average interest rate and maturity period for the U.S. program were 0.37% and 20.5 days, respectively. The weighted-average interest rate and maturity period for the European program were (0.43)% and 25.1 days, respectively.
Senior Notes
On June 12, 2020, Mohawk Capital Finance S.A. (“Mohawk Finance”), an indirect wholly-owned finance subsidiary of the Company, completed the issuance and sale of €500,000 aggregate principal amount of 1.750% Senior Notes (“1.750% Senior Notes”) due June 12, 2027. The 1.750% Senior Notes are senior unsecured obligations of Mohawk Finance and rank pari passu with all of Mohawk Finance’s other existing and future senior unsecured indebtedness. The 1.750% Senior Notes are fully, unconditionally and irrevocably guaranteed by the Company on a senior unsecured basis. Interest on the 1.750% Senior Notes is payable annually in cash on June 12 of each year, commencing on June 12, 2021. The Company paid financing costs of $4,400 in connection with the 1.750% Senior Notes. These costs were deferred and are being amortized over the term of the 1.750% Senior Notes.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
On May 14, 2020, the Company completed the issuance and sale of $500,000 aggregate principal amount of 3.625% Senior Notes (“3.625% Senior Notes”) due May 15, 2030. The 3.625% Senior Notes are senior unsecured obligations of the Company and rank pari passu with all of the Company’s existing and future unsecured indebtedness. Interest on the 3.625% Senior Notes is payable semi-annually in cash on May 15 and November 15 of each year, commencing on November 15, 2020. The Company paid financing costs of $5,476 in connection with the 3.625% Senior Notes. These costs were deferred and are being amortized over the term of the 3.625% Senior Notes.
On September 4, 2019, Mohawk Finance completed the issuance and sale of €300,000 aggregate principal amount of its Floating Rate Notes due September 4, 2021 (“2021 Floating Rate Notes”). The 2021 Floating Rate Notes were senior unsecured obligations of Mohawk Finance and ranked pari passu with all of Mohawk Finance’s other existing and future senior unsecured indebtedness. The 2021 Floating Rate Notes were fully, unconditionally and irrevocably guaranteed by the Company on a senior unsecured basis. These notes bore interest at a rate per annum, reset quarterly, equal to three-month EURIBOR plus 0.2% (but in no event would the interest rate be less than zero). Interest on the 2021 Floating Rate Notes was payable quarterly on December 4, March 4, June 4, and September 4 of each year. Mohawk Finance received an issuance premium of €744 and paid financing cost of $754 in connection with the 2021 Floating Rate Notes. The issuance premium and financing costs were deferred and amortized over the term of the 2021 Floating Rate Notes. On September 7, 2021, the Company paid the remaining €300,000 outstanding principal of the 2021 Floating Rate Notes utilizing cash on hand.
On May 18, 2018, Mohawk Finance completed the issuance and sale of €300,000 aggregate principal amount of its Floating Rate Notes due May 18, 2020 (“2020 Floating Rate Notes”). The 2020 Floating Rate Notes were senior unsecured obligations of Mohawk Finance and ranked pari passu with all of Mohawk Finance’s other existing and future senior unsecured indebtedness. The 2020 Floating Rate Notes were fully, unconditionally and irrevocably guaranteed by the Company on a senior unsecured basis. These notes bore interest at a rate per annum, reset quarterly, equal to three-month EURIBOR plus 0.3% (but in no event would the interest rate be less than zero). Interest on the 2020 Floating Rate Notes was payable quarterly on August 18, November 18, February 18, and May 18 of each year. Mohawk Finance paid financing costs of $890 in connection with the 2020 Floating Rate Notes. These costs were deferred and amortized over the term of the 2020 Floating Rate Notes. On May 18, 2020, the Company paid the remaining €300,000 outstanding principal of the 2020 Floating Rate Notes utilizing cash on hand and borrowings under its commercial paper programs.
On June 9, 2015, the Company issued €500,000 aggregate principal amount of 2.00% Senior Notes (“2.00% Senior Notes”) due January 14, 2022. The 2.00% Senior Notes were senior unsecured obligations of the Company and ranked pari passu with all of the Company’s existing and future unsecured indebtedness. Interest on the 2.00% Senior Notes was payable annually in cash on January 14 of each year, commencing on January 14, 2016. The Company paid financing costs of $4,218 in connection with the 2.00% Senior Notes. These costs were deferred and were being amortized over the term of the 2.00% Senior Notes. On October 19, 2021, the Company redeemed at the par the remaining €500,000 outstanding principal of the 2.00% Senior Notes plus any unpaid interest, utilizing cash on hand.
On January 31, 2013, the Company issued $600,000 aggregate principal amount of 3.85% Senior Notes (“3.85% Senior Notes”) due February 1, 2023. The 3.85% Senior Notes are senior unsecured obligations of the Company and rank pari passu with all of the Company’s existing and future unsecured indebtedness. Interest on the 3.85% Senior Notes is payable semi-annually in cash on February 1 and August 1 of each year. The Company paid financing costs of $6,000 in connection with the 3.85% Senior Notes. These costs were deferred and are being amortized over the term of the 3.85% Senior Notes.
As defined in the related agreements, the Company’s senior notes contain covenants, representations and warranties and events of default, subject to exceptions, and restrictions on the Company’s financial and business operations, including limitations on liens, restrictions on entering into sale and leaseback transactions, fundamental changes, and a provision allowing the holder of the notes to require repayment upon a change of control triggering event.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Term Loan
On April 7, 2020, the Company entered into a credit agreement that provided for a $500,000 delayed draw term loan facility (the “Term Loan Facility”). On April 15, 2020, the Company borrowed the full amount on the Term Loan Facility, the proceeds of which could be used for funding working capital and general corporate purposes of the Company. The principal amount of the Term Loan Facility was to be repaid in a single installment on April 6, 2021. The Company could prepay all or a portion of the Term Loan Facility from time to time, plus accrued and unpaid interest. The obligations of the Company and its subsidiaries in respect of the Term Loan Facility were unsecured. The Term Loan Facility was subject to the same affirmative and negative covenants that are applicable to the Senior Credit Facility. The Company recorded financing costs of $1,088 in connection with the Term Loan Facility. On May 15, 2020, the Company prepaid the entire outstanding balance on the Term Loan Facility utilizing cash on hand and proceeds from the 3.625% Senior Notes and associated financing costs were written off in the quarter ending June 27, 2020.
The fair values and carrying values of the Company’s debt instruments are detailed as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2021 | | At December 31, 2020 |
| Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
1.750% Senior Notes, payable June 12, 2027; interest payable annually | $ | 601,037 | | | 566,380 | | | 635,664 | | | 615,006 | |
3.625% Senior Notes, payable May 15, 2030; interest payable semi-annually | 538,545 | | | 500,000 | | | 561,890 | | | 500,000 | |
3.85% Senior Notes, payable February 1, 2023; interest payable semi-annually | 615,630 | | | 600,000 | | | 638,844 | | | 600,000 | |
2.00% Senior Notes, payable January 14, 2022; interest payable annually | — | | | — | | | 624,680 | | | 615,006 | |
| | | | | | | |
| | | | | | | |
2021 Floating Rate Notes, payable September 04, 2021; interest payable quarterly | — | | | — | | | 368,738 | | | 369,004 | |
U.S. commercial paper | 598,000 | | | 598,000 | | | — | | | — | |
European commercial paper | 15,859 | | | 15,859 | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Finance leases and other | 53,163 | | | 53,163 | | | 46,302 | | | 46,302 | |
Unamortized debt issuance costs | (8,617) | | | (8,617) | | | (11,176) | | | (11,176) | |
Total debt | 2,413,617 | | | 2,324,785 | | | 2,864,942 | | | 2,734,142 | |
Less current portion of long term-debt and commercial paper | 624,503 | | | 624,503 | | | 376,989 | | | 377,255 | |
Long-term debt, less current portion | $ | 1,789,114 | | | 1,700,282 | | | 2,487,953 | | | 2,356,887 | |
The fair values of the Company’s debt instruments were estimated using market observable inputs, including quoted prices in active markets, market indices and interest rate measurements. Within the hierarchy of fair value measurements, these are Level 2 fair values.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The aggregate maturities of total debt as of December 31, 2021 are as follows(1):
| | | | | |
2022 | $ | 624,503 | |
2023 | 609,994 | |
2024 | 8,447 | |
2025 | 7,062 | |
2026 | 4,790 | |
Thereafter | 1,078,606 | |
| $ | 2,333,402 | |
| |
(1) Debt maturity table excludes deferred loan costs.
(11) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are as follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Outstanding checks in excess of cash | $ | 3,005 | | | 5,672 | |
Accounts payable, trade | 1,228,621 | | | 1,016,897 | |
Accrued expenses | 666,209 | | | 566,052 | |
Product warranties | 45,215 | | | 54,692 | |
Accrued interest | 17,940 | | | 30,403 | |
| | | |
| | | |
Accrued compensation and benefits | 256,428 | | | 222,235 | |
Total accounts payable and accrued expenses | $ | 2,217,418 | | | 1,895,951 | |
| | | |
(12) Leases
Effective January 1, 2019 the Company adopted ASC 842, which requires recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet, based on the present value of the future minimum rental payments for existing operating leases. The Company adopted the provisions of ASC 842 on January 1, 2019 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption in line with the new transition method allowed under ASU 2018-11.
Certain of the Company’s leases include rental payments that will adjust periodically for inflation or certain adjustments based on step increases. An insignificant number of the Company’s leases contain residual value guarantees and none of the Company’s agreements contain material restrictive covenants. Variable rent expenses consist primarily of maintenance, property taxes and charges based on usage.
The Company rents or subleases certain real estate to third parties. The Company’s sublease portfolio consists mainly of operating leases.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The components of lease costs for the twelve months ended December 31, 2021, 2020 and 2019, respectively, are as follows:
| | | | | | | | | | | | | | | | | |
December 31, 2021 | Cost of Goods Sold | | Selling, General and Administrative | | Total |
Operating lease costs | | | | | |
Fixed | $ | 20,130 | | | 104,651 | | | 124,781 | |
Short-term | 13,415 | | | 18,434 | | | 31,849 | |
Variable | 7,949 | | | 30,127 | | | 38,076 | |
Sub-leases | (529) | | | (1,113) | | | (1,642) | |
| $ | 40,965 | | | 152,099 | | | 193,064 | |
| | | | | |
| Depreciation and Amortization | | Interest | | Total |
Finance lease costs | | | | | |
Amortization of leased assets | $ | 9,193 | | | — | | | 9,193 | |
Interest on lease liabilities | — | | | 772 | | | 772 | |
| $ | 9,193 | | | 772 | | | 9,965 | |
Net lease costs | | | | | $ | 203,029 | |
| | | | | | | | | | | | | | | | | |
December 31, 2020 | Cost of Goods Sold | | Selling, General and Administrative | | Total |
Operating lease costs | | | | | |
Fixed | $ | 25,067 | | | 102,504 | | | 127,571 | |
Short-term | 11,633 | | | 16,021 | | | 27,654 | |
Variable | 8,285 | | | 30,036 | | | 38,321 | |
Sub-leases | (411) | | | (741) | | | (1,152) | |
| $ | 44,574 | | | 147,820 | | | 192,394 | |
| | | | | |
| Depreciation and Amortization | | Interest | | Total |
Finance lease costs | | | | | |
Amortization of leased assets | $ | 6,423 | | | — | | | 6,423 | |
Interest on lease liabilities | — | | | 690 | | | 690 | |
| $ | 6,423 | | | 690 | | | 7,113 | |
Net lease costs | | | | | $ | 199,507 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | |
December 31, 2019 | Cost of Goods Sold | | Selling, General and Administrative | | Total |
Operating lease costs | | | | | |
Fixed | $ | 30,002 | | | 97,988 | | | 127,990 | |
Short-term | 9,725 | | | 13,933 | | | 23,658 | |
Variable | 8,123 | | | 29,852 | | | 37,975 | |
Sub-leases | (311) | | | (537) | | | (848) | |
| $ | 47,539 | | | 141,236 | | | 188,775 | |
| | | | | |
| Depreciation and Amortization | | Interest | | Total |
Finance lease costs | | | | | |
Amortization of leased assets | $ | 4,015 | | | — | | | 4,015 | |
Interest on lease liabilities | — | | | 491 | | | 491 | |
| $ | 4,015 | | | 491 | | | 4,506 | |
Net lease costs | | | | | $ | 193,281 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Supplemental balance sheet information related to leases is as follows:
| | | | | | | | | | | | | | | | | | | |
| Classification | | At December 31, 2021 | | At December 31, 2020 | | |
Assets | | | | | | | |
Operating Leases | | | | | | | |
Right of use operating lease assets | Right of use operating lease assets | | $ | 389,967 | | | 323,138 | | | |
Finance Leases | | | | | | | |
Property, plant and equipment, gross | Property, plant and equipment | | 67,984 | | | 58,170 | | | |
Accumulated depreciation | Accumulated depreciation | | (19,902) | | | (12,498) | | | |
Property, plant and equipment, net | Property, plant and equipment, net | | 48,082 | | | 45,672 | | | |
Total lease assets | | | $ | 438,049 | | | 368,810 | | | |
| | | | | | | |
Liabilities | | | | | | | |
Operating Leases | | | | | | | |
Other current | Current operating lease liabilities | | $ | 104,434 | | | 98,042 | | | |
Non-current | Non-current operating lease liabilities | | 297,390 | | | 234,726 | | | |
Total operating liabilities | | | 401,824 | | | 332,768 | | | |
Finance Leases | | | | | | | |
Short-term debt | Short-term debt and current portion of long-term debt | | 9,560 | | | 8,025 | | | |
Long-term debt | Long-term debt, less current portion | | 38,390 | | | 38,098 | | | |
Total finance liabilities | | | 47,950 | | | 46,123 | | | |
Total lease liabilities | | | $ | 449,774 | | | 378,891 | | | |
| | | | | | | |
Maturities of lease liabilities as of December 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | |
Year ending December 31, | Finance Leases | | Operating Leases | | Total |
2022 | $ | 10,223 | | | 120,754 | | | 130,977 | |
2023 | 9,393 | | | 98,769 | | | 108,162 | |
2024 | 7,696 | | | 73,884 | | | 81,580 | |
2025 | 6,210 | | | 56,853 | | | 63,063 | |
2026 | 4,624 | | | 40,452 | | | 45,076 | |
Thereafter | 13,112 | | | 36,489 | | | 49,601 | |
Total lease payments | 51,258 | | | 427,201 | | | 478,459 | |
Less imputed interest | 3,308 | | | 25,377 | | | |
Present value, Total | $ | 47,950 | | | 401,824 | | | |
The Company had approximately $10,969 of leases that commenced after December 31, 2021 that created rights and obligations to the Company. These leases are not included in the above maturity schedule.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Lease term and discount rate are as follows:
| | | | | | | | | | | | | |
| At December 31, 2021 | | At December 31, 2020 | | |
Weighted Average Remaining Lease Term | | | | | |
Operating Leases | 4.7 years | | 4.5 years | | |
Finance Leases | 7.2 years | | 7.7 years | | |
| | | | | |
Weighted Average Discount Rate | | | | | |
Operating Leases | 2.4 | % | | 2.8 | % | | |
Finance Leases | 1.3 | % | | 1.4 | % | | |
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended | | |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 | | | | |
Cash paid for amounts included in measurement of lease liabilities: | | | | | | | | | |
Operating cash flows from operating leases | $ | 122,886 | | | 124,708 | | | 127,213 | | | | | |
Operating cash flows from finance leases | 772 | | | 690 | | | 349 | | | | |
Financing cash flows from finance leases | 9,289 | | | 6,386 | | | 3,975 | | | | | |
Right of use assets obtained in exchange for lease obligations: | | | | | | | | | |
Operating leases | 186,605 | | | 110,036 | | | 133,959 | | | | | |
Finance leases | 13,395 | | | 18,248 | | | 20,464 | | | | | |
Amortization: | | | | | | | | | |
Amortization of right of use operating lease assets(1) | 115,650 | | | 113,898 | | | 109,884 | | | | | |
(1) Amortization of Right of use operating lease assets during the period is reflected in Other assets and prepaid expenses on the Consolidated Statements of Cash Flows.
(13) Stock-Based Compensation
The Company recognized compensation expense for all share-based payments granted for the years ended December 31, 2021, 2020 and 2019 based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10. Compensation expense is recognized on a straight-line basis over the options’ or other awards’ estimated lives for fixed awards with ratable vesting provisions.
Under the Company’s 2012 Incentive Plan (“2012 Plan”), the Company reserved up to a maximum of 3,200 shares of common stock for issuance upon the grant or exercise of stock options, restricted stock, restricted stock units (“RSUs”) and other types of awards, to directors and key employees through December 31, 2022. Option awards are granted with an exercise price equal to the market price of the Company’s common stock on the date of the grant and generally vest between three and five years with a 10-year contractual term. The grant date fair value of restricted stock and RSUs is equal to the market price of the Company’s common stock on the date of the grant and generally vest between three and five years.
On May 19, 2017, the Company’s stockholders approved the 2017 Long-Term Incentive Plan (“2017 Plan”), which allows the Company to reserve up to a maximum of 3,000 shares of common stock for issuance upon the grant or exercise of awards under the 2017 Plan. No additional awards may be granted under the 2012 Plan after May 19, 2017.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Restricted Stock Plans
A summary of the Company’s RSUs under the Company’s long-term incentive plans as of December 31, 2021, and changes during the year then ended is presented as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares | | Weighted average grant date fair value | | Weighted average remaining contractual term (years) | | Aggregate intrinsic value |
Restricted Stock Units outstanding, December 31, 2020 | 375 | | | $ | 122.84 | | | | | |
Granted | 194 | | | 176.73 | | | | | |
Released | (105) | | | 192.78 | | | | | |
Forfeited | (25) | | | 145.76 | | | | | |
Restricted Stock Units outstanding, December 31, 2021 | 439 | | | $ | 128.62 | | | 1.3 | | $ | 79,950 | |
Expected to vest as of December 31, 2021 | 418 | | | | | 1.3 | | $ | 76,235 | |
The Company recognized stock-based compensation costs related to the issuance of RSUs of $25,651 ($18,982, net of taxes), $19,697 ($14,576, net of taxes) and $23,620 ($17,479, net of taxes) for the years ended December 31, 2021, 2020 and 2019, respectively, which has been allocated to selling, general and administrative expenses and cost of goods sold. Pre-tax unrecognized compensation expense for unvested RSUs granted to employees, net of estimated forfeitures, was $20,086 as of December 31, 2021, and will be recognized as expense over a weighted-average period of approximately 1.61 years.
Additional information relating to the Company’s RSUs under the Company’s long-term incentive plans are as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Restricted Stock Units outstanding, January 1 | 375 | | | 362 | | | 446 | |
Granted | 194 | | | 192 | | | 187 | |
Released | (105) | | | (146) | | | (230) | |
Forfeited | (25) | | | (33) | | | (41) | |
Restricted Stock Units outstanding, December 31 | 439 | | | 375 | | | 362 | |
Expected to vest as of December 31 | 418 | | | 361 | | | 356 | |
During 2021, 2020 and 2019, shares were awarded each year to certain non-employee directors in lieu of cash for their annual retainers. The total number of shares were 3, 2, and 1, respectively.
The Company has not granted stock options since the year ended December 31, 2012. At December 31, 2021, there were no options to acquire shares outstanding.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(14) Other Expense (Income)
Following is a summary of other expense (income):
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Foreign currency losses (gains), net | $ | 6,298 | | | 7,815 | | | (7,190) | |
Release of indemnification asset | — | | | — | | | (304) | |
Impairment of joint venture in Brazil | — | | | 3,599 | | | — | |
| | | | | |
Impairment of net investment in a manufacturer and distributor of Ceramic tile in China(1) | — | | | — | | | 59,906 | |
Resolution of foreign non-income tax contingencies | (6,211) | | | — | | | — | |
All other, net | (12,321) | | | (12,165) | | | (16,005) | |
Total other expense (income), net | $ | (12,234) | | | (751) | | | 36,407 | |
(1) During 2019, the Company determined that its net investment in a manufacturer and distributor of ceramic tile in China was impaired and therefore recorded a net impairment charge of $59,906.
(15) Income Taxes
Following is a summary of earnings before income taxes for United States and foreign operations:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
United States | $ | 380,632 | | | 94,829 | | | 163,764 | |
Foreign | 909,361 | | | 489,545 | | | 585,781 | |
Earnings before income taxes | $ | 1,289,993 | | | 584,374 | | | 749,545 | |
Income tax expense (benefit) for the years ended December 31, 2021, 2020 and 2019 consists of the following:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Current income taxes: | | | | | |
U.S. federal | $ | 93,085 | | | (33,821) | | | 19,936 | |
State and local | 24,904 | | | 7,794 | | | 12,659 | |
Foreign | 143,385 | | | 72,350 | | | 80,221 | |
Total current | 261,374 | | | 46,323 | | | 112,816 | |
Deferred income taxes: | | | | | |
U.S. federal | (2,655) | | | 14,533 | | | 11,993 | |
State and local | 13,306 | | | 112 | | | 15,371 | |
Foreign | (15,580) | | | 7,679 | | | (135,206) | |
Total deferred | (4,929) | | | 22,324 | | | (107,842) | |
Total income tax expense | $ | 256,445 | | | 68,647 | | | 4,974 | |
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The geographic dispersion of earnings and losses contributes to the annual changes in the Company’s effective tax rates. Approximately 30% of the Company’s current year earnings before income taxes was generated in the United States. The Company is also subject to taxation in other jurisdictions where it has operations, including Australia, Belgium, Brazil, Bulgaria, France, Ireland, Italy, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Poland, Russia, Spain and the United Kingdom. The effective tax rates that the Company accrues in these jurisdictions vary widely, but they are generally lower than the Company’s overall effective tax rate. The Company’s domestic effective tax rates for the years ended December 31, 2021, 2020 and 2019 were 33.8%, (12.0)%, and 36.6%, respectively, and its non-U.S. effective tax rates for the years ended December 31, 2021, 2020 and 2019 were 14.1%, 16.3%, and (9.4)%, respectively. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, historical loss carry-forwards, financing arrangements, and other factors. The Company’s effective tax rate has been and will continue to be impacted by the geographical dispersion of the Company’s earnings and losses. To the extent that domestic earnings increase while the foreign earnings remain flat or decrease, or increase at a lower rate, the Company’s effective tax rate will increase.
Income tax expense (benefit) attributable to earnings before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to earnings before income taxes as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Income taxes at statutory rate | $ | 270,898 | | | 122,719 | | | 157,404 | |
State and local income taxes, net of federal income tax benefit | 25,658 | | | 8,081 | | | 22,185 | |
Foreign income taxes(a) | (34,981) | | | (57,898) | | | (17,276) | |
Change in valuation allowance | 5,947 | | | 35,381 | | | (21,975) | |
European Restructuring(b) | — | | | — | | | (136,194) | |
Loss on previously taxed earnings | — | | | (10,346) | | | — | |
Carryback rate differential(c) | (15,743) | | | (33,739) | | | — | |
| | | | | |
| | | | | |
Global intangible low-taxed income | 34,400 | | | 2,500 | | | 6,000 | |
Italy Step-up Adjustment(d) | (22,163) | | | — | | | — | |
Tax contingencies and audit settlements, net | 12,505 | | | 6,779 | | | 6,686 | |
| | | | | |
| | | | | |
Other, net | (20,076) | | | (4,830) | | | (11,856) | |
| $ | 256,445 | | | 68,647 | | | 4,974 | |
(a) Foreign income taxes include statutory rate differences, financing arrangements, withholding taxes, local income taxes, notional deductions, and other miscellaneous items.
(b) The Company implemented select operational, administrative and financial restructurings that centralized certain business processes and intangible assets in various European jurisdictions into a new entity.
(c) The CARES Act permits the Company to carry back its 2020 U.S. taxable loss to a tax year before the corporate income tax rate was lowered by the Tax Cuts and Jobs Act.
(d) The company realized a one-time Italian step-up benefit allowing for the realignment of tax asset values.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2021 and 2020 are presented below:
| | | | | | | | | | | |
| 2021 | | 2020 |
Deferred tax assets: | | | |
Accounts receivable | $ | 16,550 | | | 14,384 | |
Inventories | 38,388 | | | 44,597 | |
Employee benefits | 54,865 | | | 39,526 | |
Accrued expenses and other | 73,983 | | | 103,892 | |
Deductible state tax and interest benefit | 7,206 | | | 4,042 | |
Intangibles | 135,777 | | | 152,499 | |
Lease liabilities | 106,753 | | | 91,359 | |
Federal, foreign and state net operating losses and credits | 408,434 | | | 433,822 | |
Gross deferred tax assets | 841,956 | | | 884,121 | |
Valuation allowance | (236,357) | | | (267,838) | |
Net deferred tax assets | 605,599 | | | 616,283 | |
Deferred tax liabilities: | | | |
Inventories | (23,484) | | | (17,403) | |
Plant and equipment | (467,451) | | | (489,240) | |
Intangibles | (188,417) | | | (197,009) | |
Right of use assets | (101,935) | | | (87,351) | |
Prepaids | (45,077) | | | (56,140) | |
Other liabilities | (67,914) | | | (46,121) | |
Gross deferred tax liabilities | (894,278) | | | (893,264) | |
Net deferred tax liability | $ | (288,679) | | | (276,981) | |
The Company evaluates its ability to realize the tax benefits associated with deferred tax assets by analyzing its forecasted taxable income using both historic and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry-back years (if permitted) and the availability of tax planning strategies. The valuation allowance as of December 31, 2021, and 2020 is $236,357 and $267,838, respectively. The valuation allowance as of December 31, 2021 relates to the net deferred tax assets of certain of the Company’s foreign subsidiaries as well as certain state net operating losses and tax credits. The total change in the 2021 valuation allowance was a decrease of $31,481 related to tax rate changes, foreign currency translation, and other activities. The total change in the 2020 valuation allowance was an increase of $35,642 related to tax rate changes, foreign currency translation, and other activities.
Management believes it is more likely than not that the Company will realize the benefits of its deferred tax assets, net of valuation allowances, based upon the expected reversal of deferred tax liabilities and the level of historic and forecasted taxable income over periods in which the deferred tax assets are deductible.
As of December 31, 2021, the Company has state net operating loss carry forwards and state tax credits with potential tax benefits of $44,186, net of federal income tax benefit; these carry forwards expire over various periods based on taxing jurisdiction. A valuation allowance totaling $22,851 has been recorded against these state deferred tax assets as of December 31, 2021. In addition, as of December 31, 2021, the Company has credits and net operating loss carry forwards in the U.S. with potential tax benefits of $6,173 and in various foreign jurisdictions with potential tax benefits of $1,596,351. A valuation allowance of $5,882 and $207,624, respectively, has been recorded against these deferred tax assets as of December 31, 2021.
As a result of the redemption of hybrid instruments in response to changes in global tax regimes, the Company has an ASC 740-10 liability of $1,238,277 for the full tax effected loss on the hybrid instrument in the Tax Uncertainties section below. This ASC 740-10-45 liability is recorded as a reduction to the related deferred tax asset in the financial statements as a result of management’s determination that it is not more likely than not that the benefit will be realized.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The Company has no intentions or plans to repatriate foreign earnings and continues to assert that historical earnings of its foreign subsidiaries as of December 31, 2021 are permanently reinvested. Should the remaining earnings be distributed in the form of dividends in the future, the Company might be subject to withholding taxes (possibly offset by U.S. foreign tax credits) in various foreign jurisdictions, but the Company would not expect incremental U.S. federal or state taxes to be accrued on these previously taxed earnings.
Tax Uncertainties
In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these taxing jurisdictions. Accordingly, the Company accrues liabilities when it believes that it is not more likely than not that it will realize the benefits of tax positions that it has taken in its tax returns or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with ASC 740-10. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax expense (benefit). Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s consolidated financial position but could possibly be material to the Company’s consolidated results of operations or cash flow in any given quarter or annual period.
As of December 31, 2021, the Company’s gross amount of unrecognized tax benefits is $1,296,523, excluding interest and penalties. If the Company were to prevail on all uncertain tax positions, $45,147 of the unrecognized tax benefits would affect the Company’s effective tax rate, exclusive of any benefits related to interest and penalties.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
Balance as of January 1 | $ | 1,388,391 | | | 1,260,970 | |
Additions based on tax positions related to the current year | 458 | | | 1,694 | |
Additions for tax positions of acquired companies | — | | | — | |
Additions for tax positions of prior years | 18,001 | | | 7,663 | |
Transition tax planning initiatives | — | | | — | |
Reductions resulting from the lapse of the statute of limitations | (3,336) | | | (1,239) | |
Reductions due to Luxembourg tax rate change | — | | | — | |
Settlements with taxing authorities | — | | | (497) | |
Effects of foreign currency translation | (106,991) | | | 119,800 | |
Balance as of December 31 | $ | 1,296,523 | | | 1,388,391 | |
As a result of the redemption of hybrid instruments in response to changes in global tax regimes, the Company has an ASC 740-10 liability for the full tax effected loss on hybrid instruments. This ASC 740-10-45 liability is recorded as a reduction to the related deferred tax asset in the financial statements as a result of management’s determination that it is not more likely than not that the benefit will be realized. The tax effected loss was adjusted for foreign currency translation changes in 2021, resulting in an updated balance of $1,238,277 as of December 31, 2021.
As of December 31, 2021 and 2020, the Company has $14,494 and $11,485, respectively, accrued for the payment of interest and penalties, excluding the federal tax benefit of interest deductions where applicable. During the years ended December 31, 2021, 2020 and 2019, the Company accrued interest and penalties through income tax expense of $3,236, $(695) and $5,368, respectively.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
The Company believes that its unrecognized tax benefits could decrease by $19,510 within the next twelve months. The Internal Revenue Service has initiated its audit of the Company’s 2019 and 2020 tax years. As permitted by the CARES Act, the company carried back its 2020 taxable losses to tax years before the corporate income tax rate was lowered by the Tax Cut and Jobs Act. Federal income tax matters related to years prior to 2014 have been effectively settled. Various other state and foreign income tax returns are open to examination for various years.
Belgian Tax Matter
The Company has been in a dispute with the Belgian Tax Authority (the “BTA”) regarding the proper tax treatment of the royalty income arising from intellectual property (“IP”) owned by a Luxembourg subsidiary, Flooring Industries Limited Sarl (“FIL”). The BTA had assessed Unilin BV for the calendar years ending December 2005 through 2010 in an amount totaling €223,321 (including penalties but excluding interest), alleging that Unilin BV inappropriately transferred valuable IP to FIL and income associated with that IP should be taxed in Belgium. Unilin BV challenged all of these assessments and prevailed both in the Court of First Appeal in Bruges and in the Ghent Court of Appeal. In 2021, the BTA indicated it will not appeal these cases to the Supreme Court and has withdrawn all of the assessments for 2005 through 2010. Consequently, all of those tax years are now closed.
Having lost under its original theory, the BTA is in the process of initiating new assessments for later years against FIL rather than Unilin BV. The BTA now alleges that FIL had a taxable presence in Belgium and should be taxed on royalties received in respect of its IP. The BTA issued initial assessments in December 2020 and June 2021 that totaled €371,696 (including penalties but excluding interest) for calendar years ending December 2013 through 2018. However, in November and December of 2021, the BTA cancelled these assessments and issued a new notice of change that totals €182,594 (including penalties but excluding interest) for those years using different calculations. The Company expects an additional assessment for 2019. Under the statute of limitations, the BTA may not assess FIL for any years prior to 2013, and the Company believes that FIL’s statute of limitations is closed for 2013 through 2016, although this will be a point of contention with the BTA. These assessments would involve the same underlying facts at issue in the above referenced cases where Unilin BV prevailed at two different levels. Consequently, the Company believes that its tax position in Belgium was correct and will persist with its vigorous defense.
When the BTA issues tax assessments, Belgian tax law requires assurances that the taxes can be paid even while they are being disputed. Consequently, the BTA has placed liens on various properties of Unilin BV to support the original assessments discussed above. Since those assessments have been nullified by the courts, the accompanying liens will be withdrawn. Since FIL does not have property in Belgium, the BTA may require assurances from FIL to support the new assessments for 2013 through 2019. These assurances may take the form of a bond or bank guarantees.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(16) Commitments and Contingencies
The Company had approximately $1,432 and $787 in standby letters of credit for various insurance contracts and commitments to foreign vendors as of December 31, 2021 and 2020, respectively that expire within two years.
The Company is involved in various lawsuits, claims, investigations and other legal matters from time to time in the regular course of its business. Except as noted below and in Note 15, Income Taxes Belgian Tax Matter, there are no material legal proceedings pending or known by the Company to be contemplated to which the Company is a party or to which any of its property is subject.
Perfluorinated Compounds (“PFCs”) Litigation
In September 2016, the Water Works and Sewer Board of the City of Gadsden, Alabama (the “Gadsden Water Board”) filed an individual complaint in the Circuit Court of Etowah County, Alabama against certain manufacturers, suppliers, and users of chemicals containing specific PFCs, including the Company. In May 2017, the Water Works and Sewer Board of the Town of Centre, Alabama (the “Centre Water Board”) filed a similar complaint in the Circuit Court of Cherokee County, Alabama. The Gadsden Water Board and the Centre Water Board both seek monetary damages and injunctive relief claiming that their water supplies contain excessive amounts of PFCs. Certain defendants, including the Company, filed dispositive motions in each case arguing that the Alabama state courts lack personal jurisdiction over them. These motions were denied. In June and September 2018, certain defendants, including the Company, petitioned the Alabama Supreme Court for Writs of Mandamus directing each lower court to enter an order granting the defendants’ dispositive motions on personal jurisdiction grounds. The Alabama Supreme Court denied the petitions on December 20, 2019. Certain defendants, including the Company, filed an Application for Rehearing with the Alabama Supreme Court asking the court to reconsider its December 2019 decision. The Alabama Supreme Court denied the application for rehearing. On August 21, 2020, certain defendants, including the Company, petitioned the Supreme Court of the United States for review of the matter. On January 19, 2021, the Supreme Court denied the defendants’ petition for review.
In December 2019, the City of Rome, Georgia (“Rome”) filed a complaint in the Superior Court of Floyd County, Georgia that is similar to the Gadsden Water Board and Centre Water Board complaints, again seeking monetary damages and injunctive relief related to PFCs. Also in December 2019, Jarrod Johnson filed a putative class action in the Superior Court of Floyd County, Georgia purporting to represent all water subscribers with the Rome (Georgia) Water and Sewer Division and/or the Floyd County (Georgia) Water Department and seeking to recover, among other things, damages in the form of alleged increased rates and surcharges incurred by ratepayers for the costs associated with eliminating certain PFCs from their drinking water. In January 2020, defendant 3M Company removed the class action to federal court. The Company filed motions to dismiss in both of these cases. On December 17, 2020, the Superior Court of Floyd County denied the Company’s motion to dismiss in the Rome case. On September 20, 2021, the Northern District of Georgia denied the Company’s motion to dismiss in the class action.
The Company denies all liability in these matters and intends to defend them vigorously.
Putative Securities Class Action
On January 3, 2020, the Company and certain of its executive officers were named as defendants in a putative shareholder class action lawsuit filed in the United States District Court for the Northern District of Georgia (the “Securities Class Action”). The complaint alleges that defendants violated the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making materially false and misleading statements and that the officers are control persons under Section 20(a) of the Securities Exchange Act of 1934. The complaint is filed on behalf of shareholders who purchased shares of the Company’s common stock between April 28, 2017 and July 25, 2019 (“Class Period”). On June 29, 2020, an amended complaint was filed in the Securities Class Action against Mohawk and its CEO Jeff Lorberbaum, based on the same claims and the same Class Period. The amended complaint alleges that the Company (1) engaged in fabricating revenues by attempting delivery to customers that were closed and recognizing these attempts as sales; (2) overproduced product to report higher operating margins and maintained significant inventory that was not salable; and (3) valued certain inventory improperly or improperly delivered inventory with knowledge that it was defective and customers would return it. On October 27, 2020, defendants filed a motion to dismiss the amended complaint. On September 29, 2021, the court issued an order granting in part and denying the defendants’ motion to dismiss the amended complaint. Defendants filed an answer to the amended complaint on November 12, 2021, and fact discovery is ongoing. On January 26, 2022, Lead Plaintiff moved for class certification, to
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
appoint itself as class representative, and for appointment of class counsel. The Company intends to vigorously defend against the claims.
Government Subpoenas
As previously disclosed, on June 25, 2020, the Company received subpoenas issued by the U.S. Attorney’s Office for the Northern District of Georgia (the “USAO”) and the U.S. Securities and Exchange Commission (the “SEC”) relating to matters similar to the allegations of wrongdoing raised by the Securities Class Action. The Company’s Audit Committee, with the assistance of outside legal counsel, conducted a thorough internal investigation into these allegations. The Audit Committee has completed the investigation and concluded that the allegations of wrongdoing are without merit. The USAO and SEC investigations are ongoing, and the Company is cooperating fully with those authorities. The Company will continue to vigorously defend against the allegations of wrongdoing in the Securities Class Action and does not believe they have merit.
Delaware State Court Action
The Company and certain of its present and former executive officers were named as defendants in a putative state securities class action lawsuit filed in the Superior Court of the State of Delaware on January 30, 2020. The complaint alleges that defendants violated Sections 11 and 12 of the Securities Act of 1933. The complaint is filed on behalf of shareholders who purchased shares of the Company’s common stock in Mohawk Industries Retirement Plan 1 and Mohawk Industries Retirement Plan 2 between April 27, 2017 and July 25, 2019. On March 27, 2020, the court granted a temporary stay of the litigation. The stay may be lifted at the close of fact discovery in the related Securities Class Action pending in the United States District Court for the Northern District of Georgia according to the terms set forth in the court’s order to stay litigation. The Company intends to vigorously defend against the claims.
Georgia State Court Investor Actions
The Company and certain of its present and former executive officers were named as defendants in certain investor actions, filed in the State Court of Fulton County of the State of Georgia on April 22, 2021 and April 23, 2021. Four complaints brought on behalf of purported former Mohawk stockholders each allege that defendants defrauded the respective plaintiffs through false or misleading statements and thereby induced plaintiffs to purchase Company stock at artificially inflated prices. The allegations are similar to those of the Securities Class Action pending in the United States District Court for the Northern District of Georgia. The claims alleged include fraud, negligent misrepresentation, violations of the Georgia Securities Act, and violations of the Georgia Racketeering and Corrupt Organizations statute. Plaintiffs in the investor actions seek compensatory and punitive damages. On June 28, 2021, defendants filed motions to dismiss each of the four complaints and answers to the same. On October 5, 2021, all four investor actions were transferred by the State Court of Fulton County to the Metro Atlanta Business Case Division, where fact discovery is ongoing. On January 28, 2022, the Court granted in part and denied in part the motions to dismiss, dismissing the Georgia Securities Act claims as to all defendants, and the negligent misrepresentation claim as to the Company. The Company intends to vigorously defend against the claims.
Separate Federal Action
The Company and certain of its present and former executive officers were named as defendants in an additional non-class action lawsuit filed in the United States District Court for the Northern District of Georgia on June 22, 2021. The complaint is brought on behalf of a group of purported former Mohawk stockholders and alleges that defendants defrauded the plaintiffs through false or misleading statements and thereby induced plaintiffs to purchase Company stock at artificially inflated prices. The allegations are similar to those of the Securities Class Action. The federal law claims alleged include violations of Sections 10(b) and 18 of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making materially false and misleading statements and that the officers are control persons under Section 20(a) of the Securities Exchange Act of 1934. The state law claims alleged include fraud, negligent misrepresentation, violations of the Georgia Securities Act, and violations of the Georgia Racketeering and Corrupt Organizations statute. Plaintiffs in the lawsuit seek compensatory and punitive damages and attorneys’ fees. On December 13, 2021, defendants filed motions to dismiss the complaint, which remain pending. The Company intends to vigorously defend against the claims.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Derivative Actions
The Company and certain of its executive officers and directors were named as defendants in certain derivative actions filed in the United States District Court for the Northern District of Georgia on May 18, 2020 and August 6, 2020, respectively (the “NDGA Derivative Actions”), and in the Superior Court of Gordon County of the State of Georgia on March 3, 2021 and July 12, 2021 (the “Georgia Derivative Actions”). The complaints allege that defendants breached their fiduciary duties to the Company by causing the Company to issue materially false and misleading statements. The complaints are filed on behalf of the Company and seek to remedy fiduciary duty breaches occurring from April 28, 2017 – July 25, 2019. On July 20, 2020, the court in the NDGA Derivative Actions granted a temporary stay of the litigation. On October 21, 2020, the court entered an order consolidating the NDGA Derivative Actions and appointing Lead Counsel. Other shareholders of record jointly moved to intervene in the derivative actions to stay the proceedings. On September 28, 2021, the court in the NDGA Derivative Actions issued an order granting the request to intervene. On April 8, 2021, the court in the first-filed of the Georgia Derivative Actions granted a temporary stay of the litigation. On January 18, 2022, the Court in the NDGA Derivative Actions lifted the temporary stay of the litigation. On January 20, 2022, the court in the second-filed of the Georgia Derivative Actions entered an order on scheduling requiring defendants to file and serve their response to the complaint on February 21, 2022. The Company intends to vigorously defend against the claims.
General
The Company believes that adequate provisions for resolution of all contingencies, claims and pending litigation have been made for probable losses that are reasonably estimable. These contingencies are subject to significant uncertainties and the Company is unable to estimate the amount or range of loss, if any, in excess of amounts accrued. The Company does not believe that the ultimate outcome of these actions will have a material adverse effect on its financial condition but could have a material adverse effect on its results of operations, cash flows or liquidity in a given quarter or year.
The Company is subject to various federal, state, local and foreign environmental health and safety laws and regulations, including those governing air emissions, wastewater discharges, the use, storage, treatment, recycling and disposal of solid and hazardous materials and finished product, and the cleanup of contamination associated therewith. Because of the nature of the Company’s business, the Company has incurred, and will continue to incur, costs relating to compliance with such laws and regulations. The Company is involved in various proceedings relating to environmental matters and is currently engaged in environmental investigation, remediation and post-closure care programs at certain sites. The Company has provided accruals for such activities that it has determined to be both probable and reasonably estimable. The Company does not expect that the ultimate liability with respect to such activities will have a material adverse effect on its financial condition but could have a material adverse effect on its results of operations, cash flows or liquidity in a given quarter or year.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
(17) Consolidated Statements of Cash Flows Information
Supplemental disclosures of cash flow information are as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Net cash paid during the years for: | | | | | |
Interest | $ | 75,514 | | | 44,584 | | | 45,241 | |
Income taxes | $ | 323,718 | | | 106,891 | | | 123,974 | |
| | | | | |
Supplemental schedule of non-cash investing and financing activities: | | | | | |
Unpaid property plant and equipment in accounts payable and accrued expenses | $ | 117,084 | | | 90,767 | | | 104,823 | |
| | | | | |
Fair value of net assets acquired in acquisition | $ | 176,924 | | | — | | | 107,290 | |
| | | | | |
Liabilities assumed in acquisition | (52,955) | | | — | | | (31,053) | |
| | | | | |
| $ | 123,969 | | | — | | | 76,237 | |
(18) Segment Reporting
The Company has three reporting segments: the Global Ceramic Segment, the Flooring NA Segment and the Flooring ROW Segment. The Global Ceramic Segment designs, manufactures, sources and markets a broad line of ceramic tile, porcelain tile, natural stone, porcelain slabs, quartz countertops and other products, which it distributes primarily in North America, Europe, South America and Russia through its network of regional distribution centers and Company-operated service centers using company-operated trucks, common carriers or rail transportation. The segment’s product lines are sold through Company-operated service centers, independent distributors, home center retailers, tile and flooring retailers and contractors. The Flooring NA Segment designs, manufactures, sources and markets its floor covering product lines, including carpets, rugs, carpet pad, laminate, resilient (includes sheet vinyl and LVT) and wood flooring, which it distributes through its network of regional distribution centers and satellite warehouses using company-operated trucks, common carriers or rail transportation. The segment’s product lines are sold through various selling channels, including independent floor covering retailers, distributors, home centers, mass merchandisers, department stores, shop at home, buying groups, commercial contractors and commercial end users. The Flooring ROW Segment designs, manufactures, sources, licenses and markets laminate, sheet vinyl, LVT, wood flooring, roofing elements, insulation boards, medium-density fiberboard (“MDF”), chipboards other wood products, which it distributes primarily in Europe, Australia, New Zealand and Russia through various selling channels, which include retailers, company-operated distributors, independent distributors and home centers.
The accounting policies for each operating segment are consistent with the Company’s policies for the consolidated financial statements. Amounts disclosed for each segment are prior to any elimination or consolidation entries. Corporate general and administrative expenses attributable to each segment are estimated and allocated accordingly. Segment performance is evaluated based on operating income. No single customer accounted for more than 10% of net sales for the years ended December 31, 2021, 2020 or 2019.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
Segment information is as follows:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Assets: | | | | | |
Global Ceramic Segment | $ | 5,160,776 | | | 5,250,069 | | | 5,419,896 | |
Flooring NA Segment | 4,125,960 | | | 3,594,976 | | | 3,823,654 | |
Flooring ROW Segment | 4,361,741 | | | 4,194,447 | | | 3,925,246 | |
Corporate and intersegment eliminations | 576,040 | | | 1,288,259 | | | 217,884 | |
Total | $ | 14,224,517 | | | 14,327,751 | | | 13,386,680 | |
| | | | | |
Geographic net sales: | | | | | |
United States | $ | 6,181,628 | | | 5,530,407 | | | 5,822,593 | |
Europe | 3,117,892 | | | 2,486,770 | | | 2,532,239 | |
Russia | 450,010 | | | 385,830 | | | 385,395 | |
Other | 1,451,083 | | | 1,149,190 | | | 1,230,445 | |
Total | $ | 11,200,613 | | | 9,552,197 | | | 9,970,672 | |
| | | | | |
Long-lived assets: (1) | | | | | |
United States | $ | 3,334,256 | | | 3,303,197 | | | 3,391,676 | |
Belgium | 1,783,259 | | | 1,808,571 | | | 1,645,104 | |
Other | 2,127,259 | | | 2,130,292 | | | 2,232,164 | |
Total | $ | 7,244,774 | | | 7,242,060 | | | 7,268,944 | |
| | | | | |
Net sales by product categories: | | | | | |
Ceramic & Stone | $ | 3,938,654 | | | 3,457,203 | | | 3,686,645 | |
Carpet & Resilient | 4,294,042 | | | 3,735,888 | | | 3,921,769 | |
Laminate & Wood | 1,852,766 | | | 1,538,967 | | | 1,501,077 | |
Other (2) | 1,115,151 | | | 820,139 | | | 861,181 | |
Total | $ | 11,200,613 | | | 9,552,197 | | | 9,970,672 | |
| | | | | |
Net sales: | | | | | |
Global Ceramic Segment | $ | 3,917,319 | | | 3,432,756 | | | 3,631,142 | |
Flooring NA Segment | 4,116,405 | | | 3,594,075 | | | 3,843,714 | |
Flooring ROW Segment | 3,166,889 | | | 2,525,366 | | | 2,495,816 | |
| | | | | |
Total | $ | 11,200,613 | | | 9,552,197 | | | 9,970,672 | |
(1)Long-lived assets are composed of property, plant and equipment - net, and goodwill.
(2)Other includes roofing elements, insulation boards, chipboards and IP contracts.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Operating income (loss): | | | | | |
Global Ceramic Segment | $ | 403,135 | | | 167,731 | | | 335,639 | |
Flooring NA Segment | 407,577 | | | 147,442 | | | 177,566 | |
Flooring ROW Segment | 571,126 | | | 366,934 | | | 353,666 | |
Corporate and intersegment eliminations | (46,827) | | | (46,105) | | | (39,647) | |
Total | $ | 1,335,011 | | | 636,002 | | | 827,224 | |
| | | | | |
Depreciation and amortization: | | | | | |
Global Ceramic Segment | $ | 210,634 | | | 215,488 | | | 211,679 | |
Flooring NA Segment | 211,872 | | | 214,599 | | | 204,689 | |
Flooring ROW Segment | 156,700 | | | 164,701 | | | 145,417 | |
Corporate | 12,505 | | | 12,719 | | | 14,667 | |
Total | $ | 591,711 | | | 607,507 | | | 576,452 | |
| | | | | |
Capital expenditures (excluding acquisitions): | | | | | |
Global Ceramic Segment | $ | 167,224 | | | 121,418 | | | 244,026 | |
Flooring NA Segment | 327,691 | | | 186,179 | | | 148,820 | |
Flooring ROW Segment | 164,318 | | | 113,378 | | | 147,118 | |
Corporate | 16,887 | | | 4,582 | | | 5,498 | |
Total | $ | 676,120 | | | 425,557 | | | 545,462 | |
(19) Subsequent Event
On February 10, 2022, the Company's Board of Directors approved a new share repurchase program, authorizing the Company to repurchase up to $500 million of its common stock (the "2022 Share Repurchase Program"). As of February 10, 2022, there remained zero authorized under the 2021 Share Repurchase Program.