Mohawk(MHK) - 2023 Q4 - Annual Report

Part I Business Mohawk Industries is the world's largest flooring company, operating through three segments: Global Ceramic (39% of 2023 net sales), Flooring North America (34%), and Flooring Rest of the World (27%), manufacturing and distributing a wide range of flooring products globally | Segment | 2023 Net Sales % | Key Products | Primary Markets | | :--- | :--- | :--- | :--- | | Global Ceramic | 39% | Ceramic, porcelain, natural stone tile, countertops | North America, Europe, Latin America | | Flooring NA | 34% | Carpet, rugs, laminate, LVT, wood flooring | North America | | Flooring ROW | 27% | Laminate, LVT, wood, carpet, insulation boards | Europe, Australasia | - The company's business strategy is built on five key points: being the preferred provider, retaining the best employees, driving innovation, taking calculated risks for growth, and enhancing communities[15][17] - Mohawk has expanded its global presence through strategic acquisitions, including Elizabeth Revestimentos in Brazil and Vitromex in Mexico in 2023, solidifying its market position in Latin America[16] - As of December 31, 2023, the company employed approximately 43,300 people worldwide, with about 17,100 in the US and Canada, 14,900 in Europe, and 11,300 in other countries[54] Risk Factors The company identifies several key risks to its business, including sensitivity to general economic conditions, intense industry competition, various international risks, operational challenges, litigation, intellectual property, cybersecurity threats, asset impairment, and financial risks - The flooring industry is highly sensitive to economic downturns, which reduce consumer spending on remodeling and new home construction, the primary drivers of the company's sales[59][60] - The ongoing military conflict between Russia and Ukraine poses risks of supply chain disruption, increased energy and raw material costs, and potential adverse effects on the company's Russian operations, which accounted for approximately 4% of net sales in 2023[69][70] - The company faces risks from rising costs for raw materials, labor, and energy, with its ability to pass these increases to customers limited by competitive pressures and market conditions[73][74] - Cybersecurity threats to the company's information systems pose a significant risk, potentially leading to operational disruptions, data breaches, and financial losses, prompting increased investment to mitigate these sophisticated threats[100] - Declines in business conditions or market capitalization could lead to impairment of goodwill and other assets, resulting in material non-cash charges, as experienced in the past[107] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[114] Cybersecurity The company has a comprehensive cybersecurity program led by a Senior Director of Cybersecurity (CISO), with governance provided by the Audit Committee and Board of Directors, and has not experienced any material incidents to date - The cybersecurity program is managed by a CISO and includes an Incident Response Plan and Team to handle potential incidents[115][116] - Oversight is provided by the Audit Committee and the Board of Directors, with the CIO reporting quarterly on the cybersecurity landscape and risk management[120] - The company has not experienced any cybersecurity incidents that have had a material effect on its business, strategy, or financial condition[119] Properties As of December 31, 2023, the company owns and leases 77 manufacturing facilities and 71 distribution/warehouse facilities across North America, Europe, Russia, and other regions, with its corporate headquarters in Calhoun, Georgia | Facility Type | North America | Europe and Russia | Other | Total | | :--- | :--- | :--- | :--- | :--- | | Manufacturing | 34 | 32 | 11 | 77 | | Distribution / Warehouse | 32 | 32 | 7 | 71 | Legal Proceedings The company is involved in various legal matters in the ordinary course of business, with no material proceedings pending, and further details provided in Note 16 - For a detailed discussion of legal proceedings, refer to Note 16, Commitments and Contingencies, and Note 15, Income Taxes[126] Mine Safety Disclosures Information regarding mine safety violations and other regulatory matters is included in Exhibit 95.1 of this Form 10-K - Mine safety disclosures are provided in Exhibit 95.1 to this annual report[127] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Mohawk's common stock trades on the NYSE under the symbol "MHK", the company has not paid cash dividends since its IPO, and a $500 million share repurchase program had $229.2 million remaining as of December 31, 2023, with no shares repurchased in Q4 2023 - The company's common stock is listed on the New York Stock Exchange under the symbol "MHK"[128] - The company has not paid any cash dividends on its common stock since its initial public offering[129] - As of December 31, 2023, $229.2 million remained authorized for repurchase under the 2022 Share Repurchase Program, with no shares purchased during the fourth quarter of 2023[130][132] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, Mohawk faced challenging macroeconomic conditions, resulting in a 5.1% decrease in net sales to $11.1 billion and a net loss of $439.5 million, primarily due to lower volumes and significant goodwill impairment charges, despite an increase in cash from operations to $1.33 billion and ongoing cost reduction initiatives | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $11,135.1 M | $11,737.1 M | (5.1)% | | Gross Profit | $2,709.7 M | $2,943.4 M | (8.0)% | | Operating Income (Loss) | ($287.8 M) | $244.2 M | (217.8)% | | Net Earnings (Loss) | ($439.5 M) | $25.2 M | (1840.8)% | - The decrease in 2023 net sales was primarily due to lower legacy sales volume (approx. $743 million), unfavorable price/mix (approx. $143 million), and unfavorable foreign exchange rates (approx. $72 million), partially offset by sales from acquisitions (approx. $389 million)[146] - The company recorded goodwill and indefinite-lived intangible impairment charges of $877.7 million in 2023, compared to $695.8 million in 2022, driven by a decrease in market capitalization and macroeconomic conditions[153] - Cash from operating activities increased to $1,329.2 million in 2023 from $669.2 million in 2022, mainly due to better management of inventory and accounts receivable[162] - The company is implementing global restructuring actions, including facility and product rationalizations, which are expected to deliver annual savings of approximately $150 million at an estimated cost of $215 million[138] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from changes in interest rates, foreign currency exchange rates, and commodity prices, with a one-percentage-point change in interest rates impacting annual interest expense by approximately $10 million and a hypothetical 10% change in the U.S. dollar against foreign currencies resulting in a translational adjustment of about $4 million - A one-percentage point change in interest rates on the company's variable-rate debt would result in an approximate $10 million annual impact on interest expense[185] - A hypothetical 10% change in the U.S. dollar against all foreign currencies would lead to a translational adjustment of approximately $4 million on operating income[189] Consolidated Financial Statements and Supplementary Data This section contains audited consolidated financial statements for 2021-2023, including a net loss of $439.5 million in 2023, total assets of $13.56 billion, and total liabilities of $5.93 billion, with detailed notes on accounting policies, acquisitions, segment performance, debt, and significant goodwill impairment charges Consolidated Statement of Operations Highlights (in millions) | (In millions) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net sales | $11,135.1 | $11,737.1 | $11,200.6 | | Operating income (loss) | $(287.8) | $244.2 | $1,335.0 | | Net earnings (loss) attributable to Mohawk | $(439.5) | $25.2 | $1,033.2 | | Diluted EPS | $(6.90) | $0.39 | $14.94 | Consolidated Balance Sheet Highlights (in millions) | (In millions) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $5,604.2 | $5,895.1 | | Total assets | $13,559.9 | $14,120.4 | | Total current liabilities | $3,145.9 | $3,070.3 | | Total liabilities | $5,930.7 | $6,102.5 | | Total stockholders' equity | $7,629.1 | $8,017.9 | - In Q1 2023, the company acquired two ceramic tile businesses in Brazil and Mexico for $515.5 million, resulting in $87.5 million of goodwill[278] - The company recorded pre-tax, non-cash goodwill impairment charges of $870.8 million in 2023 across all three reporting units, following a $688.5 million charge in 2022 for the Global Ceramic unit[304] - As a subsequent event, the company prepaid its entire Term Loan Facility in January and February 2024, totaling $675 million and €220 million[401] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - Not applicable[403] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2023, with no material changes during the year - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year 2023[404] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[407] Other Information The company reports no other information - None[411] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[412] Part III Directors, Executive Officers and Corporate Governance Information required for this item, including details on directors, executive officers, the audit committee, and corporate governance policies, is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - All required information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[8][414] Executive Compensation Information regarding executive and director compensation, including the Compensation Discussion and Analysis, is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - All required information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[8][415] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management, as well as details on equity compensation plans, is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - All required information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[8][416] Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - All required information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[8][416] Principal Accounting Fees and Services Information regarding fees paid to and services provided by the principal independent registered public accounting firm, KPMG LLP, is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting of Stockholders - All required information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[8][417] Part IV Exhibits, Financial Statement Schedules This section lists the consolidated financial statements, which are included in Item 8, and all exhibits filed with the Form 10-K, noting that omitted schedules are either not applicable or the required information is included elsewhere in the report - The Consolidated Financial Statements are incorporated by reference from Part II, Item 8 of this Form 10-K[419] - A comprehensive list of exhibits filed with the report is provided, including governance documents, debt agreements, and executive compensation plans[421][422] Form 10-K Summary The company provides no Form 10-K summary - None[425]