This philosophy has served Mohawk Industries and its shareholders well for more than two decades. It’s a fundamental approach that can be applied consistently across different business segments, geographic markets and business models to spur both sales and profitability — all of which we did in 2014.
Jeff Lorberbaum
Chairman and
Chief Executive Officer
Our focus during the year centered on successfully integrating nearly $1.8 billion of major acquisitions completed in 2013 and investing the most in Company history in our existing businesses. We are pleased to report that, once again, this strong commitment to investment resulted in strong growth. Adjusted net earnings climbed 26 percent to $598 million, or $8.15 per share. This level of profitable growth is especially notable given that our net sales increased only 6 percent to $7.8 billion, due to the slower than expected U.S. economic recovery, a sluggish European market and a significant slowdown in the Russian economy.
The ability to generate this level of earnings growth even in the face of challenging economic circumstances underscores the formidable business structure that we have built over the past 20 years. During this time, we’ve expanded the business across nearly every major flooring category and throughout many of the world’s most important flooring markets. The consistent execution of this strategy has resulted in a diversified enterprise with a product portfolio that is unmatched in breadth and depth, and businesses that enjoy leadership positions across their respective markets and distribution channels.
Today, we are leveraging the respective strengths of each of these businesses to create numerous growth paths. Product groups around the world, such as ceramic in the U.S., Mexico, Europe and Russia, are sharing innovations in style and design, as well as manufacturing best practices. Product groups within the same geographic market — for example, ceramic and laminate in Europe — are identifying synergies and leveraging sales relationships in various distribution channels. And all product groups are capitalizing on category expansion opportunities where potential exists within a given geographic market.
This multi-pronged approach to growth also helps us identify areas of strength within our existing businesses in order to guide investment decisions. To satisfy changing consumer preferences in carpet, for example, we’ve invested in innovative technologies to differentiate our products in an evolving marketplace. Today, our proprietary ContinuumTM manufacturing process is providing a portfolio of products with enhanced performance attributes and 100 percent recycled content in the fast-growing polyester category. Similarly, we have made the necessary investments to continuously evolve our exclusive SmartStrand® collection over the past decade, including the 2014 introduction of SmartStrand® Forever CleanTM with superior built-in stain protection. Other carpet investments have included upgrading our yarn-processing assets to improve quality and drive margin expansion.
The story is similar in our ceramic business, where we’ve aligned our investment dollars with the shift toward larger-size formats and ceramic planks in the U.S. market. To meet this increasing demand, we’ve installed a new production line at our Dallas ceramic manufacturing plant and begun construction on a new ceramic plant in Tennessee. These capacity expansions will support future growth in the U.S. market and free manufacturing capacity at our ceramic plants in Mexico. To more aggressively participate in the expanding Mexican market, we’re focusing investments on providing a more complete product assortment — from value-oriented, red-body tile to premium porcelain with market-leading designs influenced by our U.S. and Italian operations — to further improve our product mix, increase average selling prices and drive margin expansion.
This multi-pronged approach to growth also helps us identify areas of strength within our existing businesses in order to guide investment decisions.
During the past 12 months, we’ve completed the integration of Marazzi into our U.S. ceramic operations and aligned the business’ key brands for different price points and end-users.
As we have completed more than 30 acquisitions in the past 25 years, we’ve honed our capabilities to integrate and strengthen these new businesses, which most recently have included Marazzi®, Pergo® and Spano operations in seven countries. During the past 12 months, we’ve completed the integration of Marazzi into our U.S. ceramic operations and aligned the business’ key brands for different price points and end-users. In Europe, we’ve made substantial investments to enhance Marazzi by strengthening the management team, enhancing the product portfolio, redefining sales strategies and modernizing manufacturing assets.
We have deployed the same strategies to enhance the Pergo laminate brand as it has been integrated into our Laminate & Wood Segment in North America and Europe. Initiatives have included the consolidation of manufacturing into our state-of-the-art facility with a lower cost structure in Belgium. We also have enhanced the entire Pergo product line with upgraded styling and performance characteristics and extended the respected Pergo brand into wood flooring collections.
In addition, during 2014, we acquired a wood flooring plant in the Czech Republic, where we invested in new equipment to produce higher-value products to help grow our wood business across Europe and Russia. The Czech plant also frees capacity at our Malaysian wood operation to enable the expansion of our business in Australia and Asia as well as in New Zealand, where we acquired a wood and laminate distributor in late 2014.
Over the past two decades, our successful transformation of Mohawk from a North American carpet manufacturer into the world’s largest flooring company has been defined by consistent strategy execution and continuous investment. Accordingly, we begin 2015 with approximately $450 million committed to investments focused on product innovation, capacity expansion and productivity enhancements within our existing businesses. In addition, we have announced our intention to acquire IVC Group, a leading sheet vinyl, luxury vinyl tile (LVT) and laminate flooring manufacturer that will enhance our leadership and international presence across all major flooring categories. IVC meets our criteria for acquisitions that enhance our market position, extend our business into new product categories and provide the opportunity for significant returns.
As the fastest-growing LVT supplier in Europe, IVC’s manufacturing expertise will enhance our investment in a recently completed LVT manufacturing facility in Belgium, as well as support our expansion of LVT sales in North America and elsewhere through a new manufacturing facility in the U.S. Last year, the LVT flooring category grew globally around 18 percent. Since its introduction in 2006, LVT has grown to represent about 5 percent of the total U.S. flooring market and is projected to increase more than 15 percent annually through the end of the decade. We will leverage our expertise in laminate production to benefit our LVT design and operations. The product’s realistic reproduction of the graining and character of hardwood or textured stone provides a value-priced flooring option that gained quick traction in commercial applications and has since been adopted by consumers.
In addition to the acquisition of IVC, we also announced our intent in early 2015 to purchase a small Eastern European ceramic manufacturer. The company has the low-cost position in the Bulgarian and Romanian markets and, once the acquisition is integrated into our global ceramic business, we will have opportunities to enhance the product offering, upgrade the manufacturing technology and expand exports to other markets.
Along with carpet, rugs, ceramic and laminate, we will add sheet vinyl and LVT to the product categories where Mohawk is positioned to enjoy leading positions in flooring markets that are among the largest in the world. Though our business grows increasingly diversified in both geography and product categories, our success remains rooted in common themes:
The success of this philosophy is reflected in our history of generating shareholder return — a performance we are committed to build upon as we maintain our repeated cycle of investment and growth on behalf of our shareholders. Thank you for your continued support.
Jeff Lorberbaum
Chairman and Chief Executive Officer
Though our business grows increasingly diversified in both geography and product categories, our success remains rooted in common themes …
$7.8B
Worldwide Sales
$1,172M
Adjusted
EBITDA
30
Aquisitions
Since 1992
140+
Countries — Sales
12
Countries —
Manufacturing
25,000+
Customers
Worldwide
30,000+
Employees
Worldwide
Mohawk carpet tile planks combine many of the best attributes of carpet and tile for commercial customers. The introduction of new 12- by 36-inch planks is made for designer flexibility, as the size works seamlessly with standard 24-by-24 inch tiles. The result is great design and endless possibilities.
Retailers voted our new SmartStrand® Forever Clean™ the most innovative product across all categories at the largest U.S. flooring industry trade show. Using the most advanced fiber innovation, this carpet offers the highest level of beauty, comfort and performance available. New and exclusive Nanoloc™ spill protection technology makes for quick and easy cleanup.
Planks now comprise 20 percent of the U.S. ceramic tile market. We helped to create that market shift with our Reveal Imaging® technology, which reproduces the look of natural wood planks. We’ve added texture and increased the lengths of the tiles to 36" and 48" to more closely re-create the look of wood planks.
This collection of extra solid, deeply textured and hard-wearing laminate floors looks and feels exceptionally natural. The planks’ authentic wood grains, for example, extend onto the floor joints. This collection includes a unique water-repellent coating that makes Quick-Step® Impressive™ the most water-resistant laminate flooring ever produced.
Investments in industry-leading innovation yield products and technologies that differentiate our brands and provide additional value in the marketplace.
Regardless of the business cycle, we are committed to investing in R&D activities that lead to breakthrough products that can create new value for years. SmartStrand® carpet fiber, ContinuumTM polyester carpet fiber, Reveal Imaging® printing on ceramic tile and the Uniclic® installation system for laminate and wood products are just a few examples of the leading-edge technologies that we have introduced to the flooring industry. Today, as we seek to push innova- tion even further, we’re increasing the level of collaboration among our brands in order to leverage our most advanced technologies and best thinking in order to create even more compelling innovation that drives sales and margins.
By definition, operational efficiency implies minimal waste — that’s the idea behind our corporate zero-waste initiative. To date, 25 manufacturing facilities have eliminated or up-cycled the entire waste stream associated with manufacturing operations. We will certify additional plants by the end of 2015 as we expand the program across the enterprise.
A world-class manufacturing company demands world-class safety. Keeping people safe reduces costs, but, more importantly, it reduces pain and suffering. Thanks in part to investments in safety training and equipment, the Company has sustained a global Lost Time Incident Rate below 1.0, even while integrating multiple acquisitions. Currently, four of our U.S. facilities have achieved Occupational Health and Safety Assessment Specification (OHSAS) 18001 certification, a health and safety standard against which organizations can assess and manage their performance, and almost 80 of our U.S. locations were recognized by our insurance carrier for safety records at least 50 percent above industry averages.
The acquisition of Marazzi® further solidified Mohawk as the global leader in a highly fragmented ceramic market. We are driving a new pan-European strategy for Marazzi, replacing approximately 50 percent of existing Italian manufacturing assets with modernized equipment and technology. Already, better planning and manufacturing strategies have enabled us to improve inventory turns by more than 25 percent, while more than a third of sales today in Europe are from products introduced since we completed the acquisition.
One of Mohawk's priorities is the development of managerial bench strength to ensure a seamless succession of experienced executives. The leaders of our Carpet Segment, Laminate & Wood segment and Ceramic North America business all were promoted from within the organization. Mohawk's focus on the development of its people from the plant floor to the C-Suite has earned the company multiple top 10 rankings in Training magazine's annual list of leading learning organizations. As we drive excellence in operations, logistics and product development, we continue to invest in training that promotes innovation, superior service and sustainable practices.
“We’re halfway there.” It’s a Mohawk credo that speaks to our ongoing commitment to the operational excellence that drives our performance.
We continually make capital investments in our business — close to $1 billion in the past two years alone — to drive high-asset utilization and competitive price structures. Investments in excellence, however, go far beyond state-of-the-art manufacturing technologies; they also encompass training for our people, industry-leading systems and processes and sustainable business practices.
In early 2014, we completed the purchase of a small engineered wood flooring manufacturer in the Czech Republic. Throughout the year, we invested in new equipment to produce higher-end products featuring our patented Uniclic® Multifit® technology under the Pergo® and Quick-Step® brands. The new product collections from this facility increase our competitiveness in the European and Russian wood flooring markets, with strong consumer awareness of our laminate brands adding value and the plant’s central location improving service levels.
Our new leading-edge ceramic tile plant in Tennessee will manufacture higher-value technical porcelain products that we have historically imported to meet U.S. market demand. Domestic production will provide us with increased quality control, enable us to lower shipping costs and improve service to our customers with faster delivery than comparable imported products. Construction of the facility is on schedule, and initial production runs are expected to come online in 2016.
Luxury Vinyl Tile (LVT) is among the fastest-growing flooring categories in the world due to the product’s realistic visuals, exceptional cushion, simple installation and easy cleaning. Our new plant in Belgium represents our entry into LVT manufacturing after sourcing the product for residential and commercial applications for a number of years. Our expertise in laminate production will translate well into LVT manufacturing, and our patented Uniclic® technology can be leveraged into LVT for value-added easier installation. Our acquisition of the IVC Group, announced in January 2015, will give us the leading LVT position in Europe with many opportunities to leverage IVC’s technical expertise to benefit our new LVT facility in Belgium. IVC also is completing the construction of an LVT manufacturing facility in Georgia, which will provide us with a platform for expanding U.S. sales of this rapidly growing product category.
Since launching production at our new ceramic plant in Salamanca in 2012, we have leveraged our expanded manufacturing capacity to increase our participation in the growing Mexican market. Through aggressive participation in all channels and at all price points through a comprehensive product range, we have become one of the fastest-growing suppliers in Mexico with momentum to build on our market position.
A combination of acquisitions and internal investment enables Mohawk to expand into both new geographic markets and flooring categories.
Just 15 years ago, our business was limited to the North American carpet and rug category. Today, our business spans five continents and enjoys market-leading positions across almost all major flooring categories. Our decision-making criteria for both external and internal investments not only considers how well the investment enhances our position in a geography or flooring category, but also whether or not it can complement an existing business, further strengthen our management expertise and generate a superior return for shareholders.
Jeffrey S. Lorberbaum
Chairman and
Chief Executive Officer
Karen A. Smith Bogart (2)(3) President of Smith Bogart Consulting
Bruce C. Bruckmann (1)(3) Managing Director of Bruckmann, Rosser, Sherrill & Co., Inc.
Frans De Cock Former President of Unilin
John F. Fiedler (2)
Former Chairman and
Chief Executive Officer of
Borg-Warner Automotive Inc.
Richard C. III (1)(3) Chairman of Triumph Group, Inc.
Joseph A. Onorato (1)(2)
Former Chief Financial Officer
of Echlin, Inc.
William H. Runge III(2)
Managing Director of
Alvarez & Marsal
W. Christopher Wellborn
President and
Chief Operating Officer
(1) Audit Committee
(2) Compensation Committee
(3) Nominating and Corporate Governance Committee
Jeffrey S. Lorberbaum
Chairman and
Chief Executive Officer
W. Christopher Wellborn
President and
Chief Operating Officer
Frank H. Boykin Chief Financial Officer
John Turner, Jr. President, Ceramic North America
Brian Carson President, Carpet
Bernard Thiers President, Laminate & Wood
R. David Patton
Vice President — Business
Strategy and General Counsel
Phil Brown
Senior Vice President of
Human Resources
Jana Kanyadan Chief Information Officer
Excluding Unusual Items
*See Non-GAAP Reconciliation
Corporate Headquarters
P.O. Box 12069
160 South Industrial Boulevard
Calhoun, Georgia 30703
(706) 624-2246
Independent Registered Public
Accounting Firm
KPMG LLP
Atlanta, Georgia
Corporate Counsel
Alston & Bird LLP
Atlanta, Georgia
Transfer Agent and Registrar
American Stock Transfer
and Trust Company
Corporate Trust Client Services
16633 N. Dallas Parkway, Suite 600
Addison, Texas 75001
(972) 588-1889
Publications The Company’s Annual Report, Proxy Statement, Form 8-K, 10-K and 10-Q reports are available without charge and can be ordered via our stockholder communications service at (800) 625-7721 or via the Internet at www.mohawkind.com under Investor Information. Written requests should be sent to Deby Forbus at the Company’s headquarters address above.
Product Inquiries
For more information about Mohawk’s products, visit our websites:
www.mohawkflooring.com
www.daltile.com
www.marazzi.it/en
www.pergo.com
www.unilin.com
Investor/Analyst Contact For additional information about Mohawk, please contact Frank H. Boykin at (706) 624-2695 or at the Company’s headquarters address above.
Annual Meeting of Stockholders The Annual Meeting of Stockholders of Mohawk Industries, Inc. will be held at the time and location specified in our Notice of Annual Meeting of Stockholders for 2015.
Common Stock Price Range Mohawk’s common stock is traded on the New York Stock Exchange under the symbol MHK. The table below sets forth the high and low sales prices per share of the common stock as reported by the exchange, for each period indicated.
Mohawk Common Stock
| 2014 | High | Low |
|---|---|---|
| First Quarter | $155.48 | $132.87 |
| Second Quarter | 143.50 | 128.54 |
| Third Quarter | 149.84 | 123.81 |
| Fourth Quarter | 158.58 | 120.37 |
| 2013 | High | Low |
| First Quarter | $115.32 | $91.30 |
| Second Quarter | 120.70 | 103.74 |
| Third Quarter | 134.75 | 108.89 |
| Fourth Quarter | 149.01 | 122.74 |
Sustainability Mohawk is recognized as a leader in sustainability and environmental stewardship, with a determined focus on responsible use of raw materials, recycling, waste management and water and energy conservation throughout its business and operations. To learn more, visit www.mohawksustainability.com.
Equal Opportunity Mohawk is an Equal Opportunity/Affirmative Action employer committed to attracting a diverse pool of applicants and sustaining an inclusive workforce.
NYSE Affirmation Certifications As a listed Company with the New York Stock Exchange (“NYSE”), Mohawk is subject to certain Corporate Governance standards as required by the NYSE and/or the Securities and Exchange Commission (“SEC”). Among other requirements, Mohawk’s CEO, as required by Section 303A.12(a) of the NYSE Listing Company Manual, must certify to the NYSE each year whether or not he is aware of any violations by the Company of NYSE Corporate Governance listing standards as of the date of the certification. On June 15, 2014, Mohawk’s CEO Jeffrey S. Lorberbaum submitted such a certification to the NYSE which stated that he was not aware of any violation by Mohawk of the NYSE Corporate Governance listing standards.
The Company has filed the certifications of its Chief Executive Officer and Chief Financial Officer required by Section 302 of Sarbanes-Oxley Act of 2002 as an exhibit to the Company’s Form 10-K for the year ended December 31, 2014.
Stock Performance Graph
The following is a line graph comparing the yearly percentage change in the Company’s cumulative total stockholder returns to those of the Standard & Poor’s 500 Index and a group of peer issuers beginning on December 31, 2009 and ending on December 31, 2014.
The peer group includes the following companies: Armstrong World Industries, Inc.; Dixie Group, Inc.; Interface, Inc.; Leggett & Platt, Inc.; MASCO Corporation; and Stanley Black & Decker, Inc. Total return values were calculated based on cumulative total return, assuming the value of the investment in the Company’s Common Stock and in each index on December 31, 2009 was $100 and that all dividends were reinvested. The Company is not included in the peer group because management believes that, by excluding the Company, investors will have a more accurate view of the Company’s performance relative to peer companies.
Mohawk Industries is a leading global flooring manufacturer that creates products to enhance residential and commercial spaces around the world. Mohawk’s vertically integrated manufacturing and distribution processes provide competitive advantages in the production of carpet, rugs, ceramic tile, laminate, wood, stone, luxury vinyl tile and sheet vinyl. Our industry-leading innovation has yielded products and technologies that differentiate our brands in the marketplace and satisfy all flooring related remodeling and new construction requirements. Our brands are among the most recognized in the industry and include American Olean, Bigelow, Daltile, Durkan, Karastan, Kerama Marazzi, Lees, Marazzi, Mohawk, Pergo, Quick-Step and Unilin. During the past decade, Mohawk has transformed its business from an American carpet manufacturer into the world’s largest flooring company with operations in Australia, Brazil, Canada, China, Europe, India, Malaysia, Mexico, New Zealand, Russia and the United States.