SecProbe.io

CORRESP
1
filename1.htm

corresp

Alston&Bird llp

One Atlantic Center

1201 West Peachtree Street

Atlanta, GA 30309-3424

404-881-7000

Fax:404-881-7777

www.alston.com

    R. David Patton

    Direct Dial: 404-881-7951

    E-mail: dave.patton@alston.com

April 7, 2010

Mr. H. Christopher Owings

Assistant Director

Securities and Exchange Commission

100 F Street, NE

Washington, D.C. 20549

    Re:

    Mohawk Industries, Inc.

Form 10-K for Fiscal Year Ended December 31, 2009, Filed February 26, 2010

File No. 001-13697

Dear Mr. Owings:

     In connection with the review by the Securities and Exchange Commission of the above
referenced filing of Mohawk Industries, Inc. (the “Company”), set forth below are the Company’s
responses to the Staff’s comments contained in the letter dated March 25, 2010 to Jeffrey S.
Lorberbaum, Chairman and Chief Executive Officer of the Company.

Form 10-K for the Fiscal Year Ended December 31, 2009

Item 1. Business, page 3

    1.

    If material to the business of any of your segments, please revise to provide the disclosure
required by Item 101(c)(1)(vi) and (viii) of Regulation S-K.

Response:

     The Company notes the Staff’s comment and respectfully submits that the disclosure required by
Item 101(c)(1)(vi) and (viii) of Regulation S-K is not material to the business of any of the
Company’s segments and therefore not required.

Item 7. Management’s Discussion and Analysis of Financial Condition and ..., page 19

Overview, page 19

    2.

    In the fourth paragraph under this heading, please revise to describe in more detail the
identified “trend of incidents related to the use of new technology in certain commercial
tiles.”

Response:

     The Company notes the Staff’s comment and proposes to revise the disclosure in future filings
as follows:

“During 2009, the Company recognized an increased number of warranty claims related to the
performance of commercial carpet tiles that used a newer carpet backing technology. The
Company discontinued sales of carpet tiles using this backing technology in 2009 and
recorded a $121.2 million allowance and $12.4 million inventory write-off. The amounts
recorded reflect the Company’s best estimate but the actual amount of total claims and
related costs could vary from such estimate. The Company now manufactures these types of
commercial carpet tiles with a different backing technology that has been used for many
years by the Company.”

Year Ended December 31, 2009, as Compared with Year Ended ..., page 20

Net sales, page 20

    3.

    Please revise your net sales disclosure to describe in more detail the “unfavorable price and
product mix” you experienced. For example, please clarify whether your decline in net sales
resulted from price decreases, the sale of lower priced products, the sale of lower margin
products and/or other factors. Similarly, please also describe in more detail the benefit “due
to the net effect of price increases and product mix” reflected in your comparison of 2008 and
2007 net sales discussion.

Response:

     The Company’s product portfolio consists of hundreds of thousands of differentiated products.
As a result, the Company tracks the aggregate net effect of its price and product mix because
management believes tracking such information on a product by product basis or by product group is
not practical without undue expense and effort. Therefore, the Company’s disclosure is designed to
give the reader insight into the same trends and causes, in the aggregate, that are used by
management in the operation of the business.

Selling, general and administrative expenses, page 21

    4.

    Please revise your disclosure under this heading, or in another appropriate place, to discuss
in more detail the “various cost savings initiatives implemented by the Company” and the
status of these initiatives. In this regard, we note for example that your latest earnings
release filed with your Form 8-K on February 25, 2010 references the “implementation of cost
savings efforts, personnel reductions and plant consolidations” and notes that all of your
“segments have reduced infrastructure and capacity and improved productivity.”

Response:

     The Company notes the Staff’s comment and proposes to revise the disclosure in future filings
as follows:

“Selling, general and administrative expenses for 2009 were $1,188.5 million (22.3% of net
sales), reflecting a decrease of $130.0 million, or 9.9%, compared to $1,318.5 million
(19.3% of net sales) for the prior year. The decrease in selling,

general and administrative expenses is primarily driven by lower sales and various cost
savings initiatives implemented by the Company in 2009, including distribution facility
consolidations, workforce reductions and productivity improvements, intended to align the
fixed cost component to current sales demand. The lower selling, general and
administrative expenses were partially offset by approximately $8 million of unfavorable
foreign exchange rates and approximately $4 million for restructuring charges. The increase
in selling, general and administrative expenses as a percentage of net sales is primarily a
result of a higher mix of fixed costs as compared to variable costs on lower net sales, and
restructuring costs.”

Critical Accounting Policies, page 28

    5.

    Please revise the discussion of your critical accounting policies to focus on the assumptions
and uncertainties that underlie your critical accounting estimates. Please also quantify,
where material, and provide an analysis of the impact of critical accounting estimates on your
financial position and results of operations for the periods presented, including the effects
of changes in critical accounting estimates between periods. In addition, please include a
qualitative and quantitative analysis of the sensitivity of reported results to changes in
your assumptions, judgments, and estimates, including the likelihood of obtaining materially
different results if different reasonably likely assumptions were applied. For example, if
reasonably likely changes in an assumption used in testing your goodwill or other long-lived
assets for impairment or used in your valuation allowance on your deferred tax assets would
have a material effect on your financial condition or results of operations, the impact that
could result given the range of reasonable outcomes should be disclosed and quantified. Refer
to Section V of our Release No. 33-8350.

Response:

     The Company notes the Staff’s comment and proposes to revise the disclosure as follows.
First, by adding the following sentence to the first paragraph in the critical accounting policy
disclosure: “A 10% change in the Company’s allowance for discounts, returns, claims and doubtful
accounts would have affected net earnings by approximately $4 million for the year ended December
31, 2009.” Second, by adding the following sentence to the second paragraph in the critical
accounting policy disclosure: “A 10% change in the Company’s reserve for excess or obsolete
inventory would have affected net earnings by approximately $7 million for the year ended December
31, 2009.” Third, by adding the following sentence to the eighth paragraph in the critical
accounting policy disclosure: “For further information regarding the Company’s valuation
allowances, see Note 13 to the consolidated financial statements.” Fourth, by adding the following
sentence to the ninth paragraph in the critical accounting policy disclosure: “For further
information regarding the Company’s uncertain tax positions, see Note 13 to the consolidated
financial statements.”

Notes to Consolidated Financial Statements, page 41

(5) Goodwill and Other Intangible Assets, page 48

    6.

    We note that during 2008 the company recorded a $1.5 billion impairment charge. It appears
that this charge was recorded predominantly in the third quarter of 2008 as the result of an
interim impairment test. Please explain to us in more detail the indicators that led you to
perform this interim impairment test for goodwill and indefinite lived assets. Please also
explain to us whether you performed any interim impairment testing prior to your
next annual required testing. In addition, please explain whether the significant decline
in your stock price that occurred in the latter part of calendar 2008 and the first quarter
of 2009 was indicative of any of the events identified in ASC 350-20-35-30.

Response:

     In
accordance with ASC 350, “Intangibles — Goodwill and Other” (formerly SFAS No. 142), the
Company tests goodwill for impairment on an annual basis in the fourth quarter, and between annual
tests if events occur or circumstances change that would more likely than not reduce the fair value
of a reporting unit below its carrying amount as discussed in ASC 350-20-35. The Company monitors
its long-term expectations regarding its industry, its operating performance, its stock price and
other matters contemplated by ASC 350-20-35-30. Through the second quarter of 2008, the state of
the flooring industry was consistent with the Company’s prior expectations. Further, the Company’s
actual operating results through the second quarter of 2008 were generally consistent with
management’s expectations. As a result, the Company did not believe that events had occurred or
circumstances had changed since its 2007 annual impairment test that would more likely than not
reduce the fair value of any of its reporting units below their respective carrying amounts.
Therefore, the Company did not perform an interim impairment test until the third quarter of 2008,
when the deterioration in the Company’s operating and industry metrics accelerated and the
Company’s stock price experienced a sustained decline.

     No additional interim impairment testing was performed by the Company prior to its next annual
required testing in October 2008. However, in November 2008, the Company concluded that the
weakness in the U.S. residential housing market was likely to persist based on its review of, among
other things, sequential quarterly housing starts, recent turmoil surrounding the nation’s largest
mortgage lenders, the potential negative impact on the availability of mortgage financing and
housing start forecasts published by national home builder associations pushing recovery in the
U.S. residential housing market beyond 2009. Based on this outlook, the Company determined that an
indicator of impairment was present and conducted a Step 1 analysis as required by ASC 350-20-35.
The outcome of this analysis supported that the fair value of each reporting unit exceeded its
carrying value, indicating no goodwill impairment.

     Additionally, in the first quarter of 2009, the Company evaluated whether the temporary
decline in its stock price was indicative of any of the events identified in ASC 350-20-35-30 and
determined that it was not.

(7) Long-term Debt, page 50

    7.

    Please explain to us why you omitted disclosing any of the major terms of the debt included
in the category Industrial revenue bonds, capital leases and other.

Response:

     The Company respectfully submits that this category includes multiple debt instruments, none
of which is material to the Company, individually or in the aggregate.

(9) Derivative Financial Instruments, page 53

    8.

    Please explain to us the purpose for which you enter into long-term supply agreements for
natural gas and your use of natural gas in your operations.
Please consider clarifying this matter to your readers in future filings to the extent
material.

Response:

     The Company uses natural gas as a source of energy in the ordinary course of its operations.
The Company has in the past entered into long-term supply agreements for natural gas in order to
reduce volatility in the price the Company pays for natural gas. Although the Company is not
currently a party to any such arrangement, the Company may enter into such arrangements in the
future if it believes such arrangements are appropriate.

(12) Employee Benefit Plans, page 57

    9.

    We note the chart on page 59 that breaks down your projected benefit obligation, accumulated
benefit obligation and fair value of plan assets into plans with accumulated benefit
obligation in excess of plan assets and plans with plan assets in excess of accumulated
benefit obligations. The projected benefit obligation and fair value of plan assets do not
appear to reconcile to the total projected benefit obligation and fair value of plan assets in
the chart on page 58. The totals for projected benefit obligation and fair value of plan
assets for plans with plan assets in excess of accumulated benefit obligations equal the
totals shown on page 58. Please advise us if this was in error. If so, please supplementally
provide us the correct amounts for each of the affected items. We may have further comment.

Response:

     The Company notes the Staff’s comment and confirms that the amounts shown for plans with plan
assets in excess of accumulated benefit obligations on page 59 for 2009 should be changed as
follows: the projected benefit obligation should be changed from $25,468 to $15,217; the
accumulated benefit obligation should be changed from $21,827 to $13,242; and the fair value of
plan assets should be changed from $21,841 to $13,934. Since the above information represents a
portion of a supplemental table in the pension footnote, the Company has concluded that this
correction is not material and will revise the disclosure in its next annual report on Form 10-K.

Item 15. Exhibits and Financial Statement Schedules, page 70

    10.

    Please ensure that the material agreements incorporated by reference to other filings contain
complete copies of these agreements, including all exhibits, schedules and attachments. Refer
to Item 601(b)(10) of Regulation S-K. For example, we note that all of the exhibits and
schedules were omitted from Exhibit 10.1 to your Current Report on Form 8-K filed September 2,
2009, which is a material agreement in your 10-K listed as Exhibit 10.4. Please review your
material agreements, and re-file complete agreements with your next current or periodic
report.

Response:

     The Company notes the Staff’s comment and will file the complete exhibit noted in the comment
above with its Form 10-Q for the Quarter ended April 3, 2010.

     In connection with these responses to the Staff’s comments, the Company acknowledges that:

    •

    the Company is responsible for the adequacy and accuracy of the disclosure in
the filings;

    •

    staff comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the filings; and

    •

    the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws of the
United States.

     Thank you for your consideration of the Company’s responses to the Staff’s comments and we
appreciate your review and assistance. If you have any questions regarding these responses, please
do not hesitate to call the undersigned (404-881-7951) or James T. Lucke, General Counsel of Mohawk
(706) 624-2660.

    Very truly yours,

    /s/ R. David Patton

    R. David Patton

    cc:

    Catherine Brown

Jeffrey S. Lorberbaum

Frank H. Boykin

James T. Lucke

James F. Brunk