| ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Delaware | 52-1604305 | |
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| 30701 | |
| (Address of principal executive offices) | (Zip Code) | |
Title of Each Class | Name of Each Exchange on Which Registered | |
| Common Stock, $.01 par value | New York Stock Exchange | |
| Large accelerated filer | Accelerated filer | ¨ | ||||
| Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |||
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[Mark One]
For the fiscal year ended December 31, 2011
OR
For the transition period from to
Commission File Number
01-13697
MOHAWK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Registrant’s telephone number, including area code: (706) 629-7721
Securities Registered Pursuant to Section 12(b) of the Act:
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Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act Yes ¨ No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the Common Stock of the Registrant held by non-affiliates (excludes beneficial owners of more than 10% of the Common Stock) of the Registrant (49,820,561 shares) on July 2, 2011 (the last business day of the Registrant’s most recently completed fiscal second quarter) was $3,068,946,558. The aggregate market value was computed by reference to the closing price of the Common Stock on such date.
Number of shares of Common Stock outstanding as of February 20, 2012: 68,818,141 shares of Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 2012 Annual Meeting of Stockholders-Part III.
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| Item 1. | Business |
Mohawk Industries, Inc. (“Mohawk” or the “Company”), a term which includes the Company and its subsidiaries, including its primary operating subsidiaries, Mohawk Carpet, LLC, Dal-Tile Corporation and Unilin BVBA, is a leading producer of floor covering products for residential and commercial applications in the United States (“("U.S.”") and residential applications in Europe. The Company is the second largest carpet and rug manufacturer and one of the largest manufacturers, marketers and distributors of ceramic tile, natural stone and hardwood flooring in the U.S.,United States, as well as a leading producer of laminate flooring in the U.S. and Europe. The Company is expandinghas recently expanded its international presence through investments in Australia, Brazil,China, France, Mexico and Russia. The Company had annual net sales in 20112012 of $5.6 billion.$5.8 billion. Approximately 82%83% of this amount was generated by sales in North America and approximately 18%17% was generated by sales outside North America. The Company has three reporting segments: the Mohawk segment, the Dal-Tile segment and the Unilin segment. Selected financial information for the Mohawk, Dal-Tile and Unilin segments, geographic net sales and the location of long-lived assets is set forth in noteNote 16 to the consolidated financial statements.
In 2010,2011, the primary categories of the U.S. floor covering industry, based on sales dollars, were carpet and rug (55%(53%), resilient and rubber (13%(14%), ceramic tile (12%), hardwood (9%(10%), stone (6%) and laminate (5%). Each of these categories is influenced by the average selling price per square foot, the residential builder and homeowner remodeling markets, housing starts and housing resales, average house size and home ownership. In addition, the level of sales in the floor covering industry, both in the U.S. and Europe, is influenced by consumer confidence, spending for durable goods, interest rates and availability of credit, turnover in housing, the condition of the residential and commercial construction industries and the overall strength of the economy.
The U.S. floor covering industry experienced declining demand beginning in the fourth quarter of 2006 with sales declining from $25.7 billion in 2006 to $17.1 billion in 2010. Industry conditions have remained difficult due to many factors, including uncertainty caused by economic conditions in the U.S., the European debt crisis, material price volatility, unemployment and consumer confidence, all of which have created headwinds to industry growth.
segment markets and distributes ceramic tile, laminate, hardwood, resilient floor covering, carpet pad and flooring accessories. The Mohawk segment positions product lines in all price ranges and emphasizes quality, style, performance and service. The Mohawk segment markets and distributes its product lines to over 24,000 customers, which include independent floor covering retailers, home centers, mass merchandisers, department stores, commercial dealers and commercial end users. Some products are also marketed through private labeling programs. Sales to residential customers represent a significant portion of the total industry and the majority of the segments’segment's carpet and rug sales.
Mexico. The Company believes that its manufacturing organization offers competitive advantages due to its ability to manufacture a differentiated product line consisting of one of the industry’s broadest product offerings of colors, textures and finishes and its ability to utilize the industry’s newest technology, as well as the industry’s largest offering of trim and angle pieces. In addition, Dal-Tile also imports or sources a portion of its product to supplement its product offerings. The Dal-Tile segment continues to invest in capital expenditures, principally in state-of-the-art equipment, to increase manufacturing capacity, improve efficiency and develop new capabilities. The segment is expanding its international presence through investments in China and Mexico.
Mexico and through the pending acquisition of the Marazzi Group in Europe and Russia.
fresh round wood to several kinds of by-products of sawmills and used wood recycled specifically for chipboard production, giving the Company a cost-effective and secure supply of raw material. In the U.S., the Company has a long-term contract with a contiguously located lumber company that supplies most of its total needs for HDF board production. The supply of various species of hardwoods and hardwood veneers used in the production of solid wood and engineered flooring is both localized and global.
2017, protecting Unilin's interlocking laminate flooring technology. The recent acquisition of Pergo potentially enhances the intellectual property revenue stream with new “clicking” technology that could be licensed until 2021. Also, the marketability of the Company's furniture technology utilizing the “click” methodology continues to develop. The licensing and related furniture products are in the early stages of introduction into the European market. The Company believes these and other ongoing innovations will partially offset the impact of the future expiration of the UNICLIC family patents. The licensing revenue from patents included in the Unilin results was approximately €80 million in 2012. The licensing revenue from patents generated in the Unilin operations is partially offset by various expenses such as amortization, developing new technologies, filing new patents, supporting existing patents, defending patent lawsuits, collection and auditing of receivables, bad debt and other administrative activities. The Company continues to build upon these patents, trademarks and its proven innovation in pursuing growth opportunities.
As of December 31, 2011,2012, the Company employed approximately 26,20025,100 persons consisting of approximately 19,40018,200 in the U.S., approximately 3,600 in Mexico, approximately 2,200 in Europe, approximately 800 in Malaysia, approximately 100200 in Canada and approximately 100 in Russia. The majority of the Company’s European and Mexican manufacturing employees are members of unions. Most of the Company’s U.S. employees are not a party to any collective bargaining agreement. Additionally, the Company has not experienced any strikes or work stoppages in recent years. The Company believes that its relations with its employees are good.
annual reports on Form 10-K;
quarterly reports on Form 10-Q;
current reports on Form 8-K; and
amendments to the foregoing reports.
| Item 1A. | Risk Factors |
If any of the events described in these risks were to occur, it could have a material adverse effect on the Company’s business, financial condition and results of operations. demand for the Company’s products or force the Company to lower prices. Any of these factors or others may impact demand which could have a material adverse effect on the Company’s business. As of comply with the obligations contained in our current or future credit facilities or indentures relating to our outstanding public debt could result in an event of default or an acceleration of debt under other instruments that may contain cross-acceleration or cross-default provisions. We cannot be certain that we would have, or be able to obtain, sufficient funds to make these accelerated payments. manufacturing and selling different types of products through different distribution channels; conducting business from various locations; maintaining different operating systems and software on different computer hardware; and providing different employment and compensation arrangements for employees. material adverse effect on the Company’s business, financial condition and results of operations. Even if integration occurs successfully, failure of the acquisition to achieve levels of anticipated sales growth, profitability or productivity, or otherwise perform as expected, may have a material adverse effect on the Company’s business, financial condition and results of operations. disasters, such as floods, tornados, hurricanes and earthquakes, or by fire or other unexpected events. The Company could incur uninsured losses and liabilities arising from such events, including damage to its reputation, and/or suffer material losses in operational capacity, which could have a material adverse impact on its business, financial condition and results of operations.beginning in 2006, along with the residential and commercial markets in such economies, negatively impacted the floor covering industry and the Company’s business. It is not known whenAlthough these difficult economic conditions will improve or whether they willhave improved, there may be additional downturns that could cause the industry to deteriorate further. Further, significant or prolonged declines in such economies or in spending for replacement floor covering products or new construction activity could have a material adverse effect on the Company’s business.currently inrecently experienced a downturn. The current downturn in the U.S. and global economies, along with the housingresidential and commercial markets in such economies, has negatively impacted the floor covering industry and the Company’s business. Although the impact of a decline in new construction activity is typically accompanied by an increase in remodeling and replacement activity, these activities have also lagged during the current downturn. TheAlthough the difficult economic conditions have improved, there may continue orbe additional downturns that could cause the industry to deteriorate in the foreseeable future. A significant or prolonged decline in residential or commercial construction activity could have a material adverse effect on the Company’s business and results of operations. could vary significantly with market conditions. Although the Company generally attempts to pass on increases in raw material, energy and fuel-related costs to its customers, the Company’s ability to do so is dependent upon the rate and magnitude of any increase, competitive pressures and market conditions for the Company’s products. There have been in the past, and may be in the future, periods of time during which increases in these costs cannot be recovered. During such periods of time, the Company’s business may be materially adversely affected.whichthat could decrease demand for the Company’s products or force it to lower prices, which could have a material adverse effect on the Company’s business.Index to Financial Statementsthemarket conditions could impact of the economic downturn on the Company’s ability to obtain financing in the future, including any financing necessary to refinance existing indebtedness, in the future, and the cost and terms of it, remains uncertain. These and other economic factors could have a material adverse effect on demand for the Company’s products and on its financial condition and operating results. Further, these generally negative economic and business conditions may factor into the Company’s periodiceither or both Moody’s Investors Service, Inc. and("Moody's"), Standard & Poor’s Ratings Services.Financial Services, LLC ("S&P") and Fitch, Inc. A rating agency’s evaluation is based on a number of factors, which include scale and diversification, brand strength, profitability, leverage, liquidity and interest coverage. During 2009,Any future downgrades in the Company’s senior unsecured notes were downgraded bycredit ratings could increase the rating agencies, which increased the Company’s interest expense by approximately $0.2 million per quarter per $100.0 millioncost of outstanding notesits existing credit and could adversely affect the cost of and ability to obtain additional credit in the future. Additional downgrades inA downgrade of the Company’s credit ratings could furtherrating by Moody's or S&P would increase interest expense on the cost of its existing credit and adversely affect the cost of and ability to obtain additional credit in the future, and theCompany’s senior unsecured $900.0 million notes by 25 basis points per downgrade. The Company can provide no assurances that additional downgrades will not occur.the Senior Credit Facility,its existing credit facilities, it may be required to repay borrowings under the Senior Credit Facilitycredit facilities prior to their maturity and may lose access to the Senior Credit Facilitycredit facilities for additional borrowings that may be necessary to fund its operations, which could have a material adverse effect on the Company’s business. As of December 31, 2011, the amount utilized under the Senior Credit Facility was $395.3 million, resulting in a total of $504.7 million available under the Senior Credit Facility. The amount utilized included $298.0 million of borrowings, $46.8 million of standby letters of credit guaranteeing the Company’s industrial revenue bonds and $50.5 million of standby letters of credit related to various insurance contracts and foreign vendor commitments. On January 20, 2012, the Company entered into an amendment to the Senior Credit Facility that provides for an incremental term loan facility in the aggregate principal amount of $150.0 million.Senior Credit Facility,credit facilities, if the Company’s cash flow is worse than expected or the U.S. trade accounts receivables are lower than expected, the Company may need to refinance all or a portion of its indebtedness through a public and/or private debt offering or a new bank facility and may not be able to do so on terms acceptable to it, or at all. If the Company is unable to access debt markets at competitive rates or in sufficient amounts due to credit rating downgrades, market volatility, market disruption, or other factors, it could materially adversely affect the Company’s ability to repay its indebtedness and otherwise have a material adverse effect on the Company’s financial condition and results of operations.Senior Credit Facility includescredit facilities include certain affirmative and negative covenants that impose restrictions on the Company’s financial and business operations, including limitations on liens, indebtedness, investments, fundamental changes, asset dispositions, dividends and other similar restricted payments, transactions with affiliates, payments and modifications of certain existing debt, future negative pledges, and changes in the nature of the Company’s business. Many of these limitations are subject to numerous exceptions. The Company is also required to maintain a Consolidated Interest Coverage Ratio of at least 3.0 to 1.0 and a Consolidated Net Leverage Ratio of no more than 3.75 to 1.0 for the Senior Credit Facility, each as of the last day of any fiscal quarter and as defined in the Senior Credit Facility.Index A failure to Financial StatementsIndex to Financial Statements to identify suitable acquisition candidates or investment opportunities, to obtain sufficient financing on acceptable terms to fund such strategic transactions, to complete acquisitions and integrate acquired businesses with the Company’s existing businesses, or to manage profitably acquired businesses or strategic investments.Index to Financial Statementswereare not successful, could adversely affect the Company’s reputation or the reputation and sales of its products.The Company manufactures, sources and sells many products internationally and is exposed to risks associated with doing business globally.The Company’s manufacturing facilities in Mexico and Europe represent a significant portion of the Company’s capacity for ceramic tile and laminate flooring, respectively, and the Company’s European operations represent a significant source of the Company’s revenues and profits. The business, regulatory and political environments in these countries differ from those in the U.S. In addition, the Company increasingly sells products, operates plants and invests in companies in other parts of the world. The Company’s international sales, operations and investments are subject to risks and uncertainties, including:changes in foreign country regulatory requirements;differing business practices associated with foreign operations;various import/export restrictions and the availability of required import/export licenses;imposition of foreign tariffs and other trade barriers;political, legal and economic instability;foreign currency exchange rate fluctuations;foreign country tax rules, regulations and other requirements, such as changes in tax rates and statutory and judicial interpretations in tax laws;inflation;differing labor laws and changes in those laws;work stoppages and disruptions in the shipping of imported and exported products;government price controls;extended payment terms and the inability to collect accounts receivable; andtax inefficiencies and currency exchange controls that may adversely impact its ability to repatriate cash from non-U.S. subsidiaries.
The Company cannot assure investors that it will succeed in developing and implementing policies and strategies to counter the foregoing factors effectively in each location where the Company does business and therefore that the foregoing factors will not have a material adverse effect on the Company’s operations or upon its financial condition and results of operations.
The Company’s inability to protect its intellectual property rights or collect license revenues, particularly with respect to the Company’s patented laminate flooring technology and its registered trademarks, could have a material adverse effect on the Company’s business.
| Item 1B. | Unresolved Staff Comments |
| Item 2. | Properties |
| Mohawk Segment | Dal-Tile Segment | Unilin Segment | ||||||||||||||||||||||
Primary Purpose | Owned | Leased | Owned | Leased | Owned | Leased | ||||||||||||||||||
Manufacturing | 15.8 | 0.1 | 4.5 | 0.1 | 8.8 | — | ||||||||||||||||||
Selling and Distribution | 3.7 | 5.1 | 0.4 | 7.4 | 0.1 | 0.3 | ||||||||||||||||||
Other | 0.9 | 0.1 | 0.3 | 0.3 | 0.1 | — | ||||||||||||||||||
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Total | 20.4 | 5.3 | 5.2 | 7.8 | 9.0 | 0.3 | ||||||||||||||||||
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| Mohawk Segment | Dal-Tile Segment | Unilin Segment | |||||||||||||||
| Primary Purpose | Owned | Leased | Owned | Leased | Owned | Leased | |||||||||||
| Manufacturing | 17.7 | — | 4.6 | 0.1 | 8.7 | 0.4 | |||||||||||
| Selling and Distribution | 3.7 | 4.8 | 0.4 | 7.4 | 0.1 | 0.3 | |||||||||||
| Other | 0.9 | 0.1 | 0.2 | 0.3 | 0.1 | — | |||||||||||
| Total | 22.3 | 4.9 | 5.2 | 7.8 | 8.9 | 0.7 | |||||||||||
| Item 3. | Legal Proceedings |
a number of the 43individual cases filed (the first
| Item 4. | Mine Safety Disclosures |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
2010 First Quarter Second Quarter Third Quarter Fourth Quarter 2011 First Quarter Second Quarter Third Quarter Fourth Quarter Statement of operations data: Net sales (a) Cost of sales (a) Gross profit Selling, general and administrative expenses Impairment of goodwill and other intangibles (b) Operating income (loss) Interest expense Other expense (income), net (c) Earnings (loss) before income taxes Income tax expense (benefit) (d) Net earnings (loss) Less: Net earnings attributable to the noncontrolling interest Net earnings (loss) attributable to Mohawk Industries, Inc Basic earnings (loss) per share Diluted earnings (loss) per share Balance sheet data: Working capital (includes short-term debt) Total assets (b and d) Long-term debt (including current portion) Total stockholders’ equity Mohawk Common Stock High Low $ 55.52 41.33 66.93 43.58 54.94 42.61 61.28 51.55 63.12 54.42 68.86 57.43 61.47 39.93 61.30 40.19 Mohawk Common Stock High Low 2011 First Quarter $ 63.12 54.42 Second Quarter 68.86 57.43 Third Quarter 61.47 39.93 Fourth Quarter 61.30 40.19 2012 First Quarter 68.16 57.62 Second Quarter 75.44 60.21 Third Quarter 82.76 64.22 Fourth Quarter 93.95 77.67 2012,2013, there were approximately 318297 holders of record of Common Stock. The Company has not paid or declared any cash dividends on shares of its Common Stock since completing its initial public offering. The Company’s policy is to retain all net earnings for the development of its business, and presently, it does not anticipate paying cash dividends on the Common Stock in the foreseeable future. The payment of future cash dividends will be at the sole discretion of the Board of Directors and will depend upon the Company’s profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors.2011.2012.Index to Financial StatementsItem 6. Selected Financial Data As of or for the Years Ended December 31, 2011 2010 2009 2008 2007 (In thousands, except per share data) $ 5,642,258 5,319,072 5,344,024 6,826,348 7,586,018 4,225,379 3,916,472 4,111,794 5,088,584 5,471,234 1,416,879 1,402,600 1,232,230 1,737,764 2,114,784 1,101,337 1,088,431 1,188,500 1,318,501 1,364,678 — — — 1,543,397 — 315,542 314,169 43,730 (1,124,134 ) 750,106 101,617 133,151 127,031 127,050 154,469 14,051 (11,630 ) (5,588 ) 21,288 (16,079 ) 199,874 192,648 (77,713 ) (1,272,472 ) 611,716 21,649 2,713 (76,694 ) 180,062 (102,697 ) 178,225 189,935 (1,019 ) (1,452,534 ) 714,413 4,303 4,464 4,480 5,694 7,599 $ 173,922 185,471 (5,499 ) (1,458,228 ) 706,814 $ 2.53 2.66 (0.08 ) (21.32 ) 10.37 $ 2.52 2.65 (0.08 ) (21.32 ) 10.32 $ 1,296,818 1,199,699 1,474,978 1,369,333 1,238,220 6,206,228 6,098,926 6,391,446 6,446,175 8,680,050 1,586,439 1,653,582 1,854,479 1,954,786 2,281,834 3,415,785 3,271,556 3,200,823 3,153,803 4,707,357 As of or for the Years Ended December 31, 2012 2011 2010 2009 2008 (In thousands, except per share data) Statement of operations data: Net sales (a) $ 5,787,980 5,642,258 5,319,072 5,344,024 6,826,348 Cost of sales (a) 4,297,922 4,225,379 3,916,472 4,111,794 5,088,584 Gross profit 1,490,058 1,416,879 1,402,600 1,232,230 1,737,764 Selling, general and administrative expenses 1,110,550 1,101,337 1,088,431 1,188,500 1,318,501 Impairment of goodwill and other intangibles (b) — — — — 1,543,397 Operating income (loss) 379,508 315,542 314,169 43,730 (1,124,134 ) Interest expense 74,713 101,617 133,151 127,031 127,050 Other expense (income), net (c) 303 14,051 (11,630 ) (5,588 ) 21,288 Earnings (loss) before income taxes 304,492 199,874 192,648 (77,713 ) (1,272,472 ) Income tax expense (benefit) (d) 53,599 21,649 2,713 (76,694 ) 180,062 Net earnings (loss) 250,893 178,225 189,935 (1,019 ) (1,452,534 ) Less: Net earnings attributable to the noncontrolling interest 635 4,303 4,464 4,480 5,694 Net earnings (loss) attributable to Mohawk Industries, Inc. $ 250,258 173,922 185,471 (5,499 ) (1,458,228 ) Basic earnings (loss) per share $ 3.63 2.53 2.66 (0.08 ) (21.32 ) Diluted earnings (loss) per share $ 3.61 2.52 2.65 (0.08 ) (21.32 ) Balance sheet data: Working capital (includes short-term debt) $ 1,721,397 1,296,818 1,199,699 1,474,978 1,369,333 Total assets (b and d) 6,303,684 6,206,228 6,098,926 6,391,446 6,446,175 Long-term debt (including current portion) 1,382,942 1,586,439 1,653,582 1,854,479 1,954,786 Total stockholders’ equity 3,719,617 3,415,785 3,271,556 3,200,823 3,153,803 (a) 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. As a result, the Company recorded a $121,224 carpet sales allowance and a $12,268 inventory write-off. (b) In 2008, the Company recorded an impairment of goodwill and other intangibles which included $276,807 for the Mohawk segment, $531,930 for the Dal-Tile segment and $734,660 for the Unilin segment. (c) In 2010, and 2007, the Company received $7,730 and $9,154 in refunds from the U.S. government in reference to settlement of customs disputes dating back to 1986.(d) In 2007, the Company implemented a change in residency of one of its foreign subsidiaries. This tax restructuring resulted in a step up in the subsidiary’s taxable basis, which resulted in the recognition of a deferred tax asset of approximately $245,000 and a related income tax benefit of approximately $272,000. In 2008, the Company recorded a valuation allowance of approximately $253,000 against the deferred tax asset described above.recorded in 2007 as a result of a change in residency the Company implemented in one of its foreign subsidiaries.
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
In 2010,2011, the primary categories of the U.S. floor covering industry, based on sales dollars, were carpet and rug (55%(53%), resilient and rubber (13%(14%), ceramic tile (12%), hardwood (9%(10%), stone (6%) and laminate (5%). Each of these categories is influenced by the average selling price per square foot, the residential builder and homeowner remodeling markets, housing starts and housing resales, average house size and home ownership. In addition, the level of sales in the floor covering industry, both in the U.S. and Europe, is influenced by consumer confidence, spending for durable goods, interest rates and availability of credit, turnover in housing, the condition of the residential and commercial construction industries and the overall strength of the economy.
The U.S. floor covering industry experienced declining demand beginning in the fourth quarter of 2006 with sales declining from $25.7 billion in 2006 to $17.1 billion in 2010. Industry conditions have remained difficult due to many factors, including uncertainty caused by economic conditions in the U.S., the European debt crisis, material price volatility, unemployment and consumer confidence, all of which have created headwinds to industry growth.
earnings.
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2011 | 2010 | 2009 | ||||||||||||||||||||||
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Statement of operations data: | ||||||||||||||||||||||||
Net sales | $ | 5,642.3 | 100.0 | % | $ | 5,319.1 | 100.0 | % | $ | 5,344.0 | 100.0 | % | ||||||||||||
Cost of sales (1) | 4,225.4 | 74.9 | % | 3,916.5 | 73.6 | % | 4,111.8 | 76.9 | % | |||||||||||||||
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Gross profit | 1,416.9 | 25.1 | % | 1,402.6 | 26.4 | % | 1,232.2 | 23.1 | % | |||||||||||||||
Selling, general and administrative expenses (2) | 1,101.3 | 19.5 | % | 1,088.4 | 20.5 | % | 1,188.5 | 22.2 | % | |||||||||||||||
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Operating income | 315.6 | 5.6 | % | 314.2 | 5.9 | % | 43.7 | 0.8 | % | |||||||||||||||
Interest expense (3) | 101.6 | 1.8 | % | 133.2 | 2.5 | % | 127.0 | 2.4 | % | |||||||||||||||
Other expense (income) (4) | 14.1 | 0.2 | % | (11.6 | ) | (0.2 | )% | (5.6 | ) | (0.1 | )% | |||||||||||||
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Earnings (loss) before income taxes | 199.9 | 3.5 | % | 192.6 | 3.6 | % | (77.7 | ) | (1.5 | )% | ||||||||||||||
Income tax expense (benefit) | 21.7 | 0.4 | % | 2.7 | 0.1 | % | (76.7 | ) | (1.4 | )% | ||||||||||||||
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Net earnings (loss) | 178.2 | 3.2 | % | 189.9 | 3.6 | % | (1.0 | ) | (0.0 | )% | ||||||||||||||
Less: Net earnings attributable to the noncontrolling interest | 4.3 | 0.1 | % | 4.4 | 0.1 | % | 4.5 | 0.1 | % | |||||||||||||||
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Net earnings (loss) attributable to Mohawk Industries, Inc. | $ | 173.9 | 3.1 | % | $ | 185.5 | 3.5 | % | $ | (5.5 | ) | (0.1 | )% | |||||||||||
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(1) Cost of sales includes: | ||||||||||||||||||||||||
Restructuring charges | $ | 17.5 | 0.3 | % | $ | 12.4 | 0.2 | % | $ | 43.4 | 0.8 | % | ||||||||||||
(2) Selling, general and administrative expenses include: | ||||||||||||||||||||||||
Restructuring charges | $ | 5.7 | 0.1 | % | $ | 0.8 | 0.0 | % | $ | 18.3 | 0.3 | % | ||||||||||||
Lease charges | $ | 6.0 | 0.1 | % | — | — | — | — | ||||||||||||||||
(3) Interest expense includes: | ||||||||||||||||||||||||
Debt extinguishment costs | $ | 1.1 | 0.0 | % | $ | 7.5 | 0.1 | % | — | — | ||||||||||||||
(4) Other expense (income) includes: | ||||||||||||||||||||||||
Unrealized foreign currency losses | $ | 9.1 | 0.2 | % | — | — | — | — | ||||||||||||||||
U.S. customs refund | — | — | $ | (7.7 | ) | (0.1 | )% | — | — | |||||||||||||||
Acquisitions purchase accounting | — | — | $ | 1.7 | 0.0 | % | — | — | ||||||||||||||||
| For the Years Ended December 31, | ||||||||||||||||||
| 2012 | 2011 | 2010 | ||||||||||||||||
| (In millions) | ||||||||||||||||||
| Statement of operations data: | ||||||||||||||||||
| Net sales | $ | 5,788.0 | 100.0 | % | 5,642.3 | 100.0 | % | 5,319.1 | 100.0 | % | ||||||||
| Cost of sales (1) | 4,297.9 | 74.3 | % | 4,225.4 | 74.9 | % | 3,916.5 | 73.6 | % | |||||||||
| Gross profit | 1,490.1 | 25.7 | % | 1,416.9 | 25.1 | % | 1,402.6 | 26.4 | % | |||||||||
| Selling, general and administrative expenses (2) | 1,110.6 | 19.2 | % | 1,101.3 | 19.5 | % | 1,088.4 | 20.5 | % | |||||||||
| Operating income | 379.5 | 6.6 | % | 315.6 | 5.6 | % | 314.2 | 5.9 | % | |||||||||
| Interest expense (3) | 74.7 | 1.3 | % | 101.6 | 1.8 | % | 133.2 | 2.5 | % | |||||||||
| Other expense (income) (4) | 0.3 | 0.0 | % | 14.1 | 0.2 | % | (11.6 | ) | (0.2 | )% | ||||||||
| Earnings before income taxes | 304.5 | 5.3 | % | 199.9 | 3.5 | % | 192.6 | 3.6 | % | |||||||||
| Income tax expense | 53.6 | 0.9 | % | 21.7 | 0.4 | % | 2.7 | 0.1 | % | |||||||||
| Net earnings | 250.9 | 4.3 | % | 178.2 | 3.2 | % | 189.9 | 3.6 | % | |||||||||
| Less: Net earnings attributable to the noncontrolling interest | 0.6 | 0.0 | % | 4.3 | 0.1 | % | 4.4 | 0.1 | % | |||||||||
| Net earnings attributable to Mohawk Industries, Inc. | $ | 250.3 | 4.3 | % | 173.9 | 3.1 | % | 185.5 | 3.5 | % | ||||||||
| (1) Cost of sales includes: | ||||||||||||||||||
| Restructuring charges | $ | 14.8 | 0.3 | % | 17.5 | 0.3 | % | 12.4 | 0.2 | % | ||||||||
| (2) Selling, general and administrative expenses include: | ||||||||||||||||||
| Restructuring charges | 3.7 | 0.1 | % | 5.7 | 0.1 | % | 0.8 | — | % | |||||||||
| Lease charges | — | — | % | 6.0 | 0.1 | % | — | — | % | |||||||||
| (3) Interest expense includes: | ||||||||||||||||||
| Debt extinguishment costs | — | — | % | 1.1 | — | % | 7.5 | 0.1 | % | |||||||||
| (4) Other expense (income) includes: | ||||||||||||||||||
| Unrealized foreign currency losses | — | — | % | 9.1 | 0.2 | % | — | — | % | |||||||||
| U.S. customs refund | — | — | % | — | — | % | (7.7 | ) | (0.1 | )% | ||||||||
| Acquisitions purchase accounting | — | — | % | — | — | % | 1.7 | — | % | |||||||||
| 2012 | 2011 | Change | |||||||
| First quarter | $ | 1,409.0 | 1,343.6 | 4.9 | % | ||||
| Second quarter | 1,469.8 | 1,477.9 | (0.5 | )% | |||||
| Third quarter | 1,473.5 | 1,442.5 | 2.1 | % | |||||
| Fourth quarter | 1,435.7 | 1,378.3 | 4.2 | % | |||||
| Total year | $ | 5,788.0 | 5,642.3 | 2.6 | % | ||||
| 2011 | 2010 | Change | ||||||||||
First quarter | $ | 1,343.6 | 1,347.2 | (0.3 | )% | |||||||
Second quarter | 1,477.9 | 1,400.1 | 5.6 | |||||||||
Third quarter | 1,442.5 | 1,309.6 | 10.1 | |||||||||
Fourth quarter | 1,378.3 | 1,262.2 | 9.2 | |||||||||
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Total year | $ | 5,642.3 | 5,319.1 | 6.1 | % | |||||||
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| 2011 | 2010 | Change | |||||||
| First quarter | $ | 1,343.6 | 1,347.2 | (0.3 | )% | ||||
| Second quarter | 1,477.9 | 1,400.1 | 5.6 | % | |||||
| Third quarter | 1,442.5 | 1,309.6 | 10.1 | % | |||||
| Fourth quarter | 1,378.3 | 1,262.2 | 9.2 | % | |||||
| Total year | $ | 5,642.3 | 5,319.1 | 6.1 | % | ||||
Company’s outstanding debt and lower debt levels. In addition, the 2010 interest expense includes a $7.5 million premium paid to extinguish approximately $200 million aggregate principal amount of senior notes.
Year Ended December 31, 2010, as Compared with Year Ended December 31, 2009
Net sales
Net sales for 2010 were $5,319.1 million, reflecting a decrease of $25.0 million, or 0.5%, from the $5,344.0 million reported for 2009. Included in net sales for 2009 is a carpet sales allowance of $121.2 million. For 2010, net sales decreased primarily due to lower sales volume of approximately $81 million, primarily related to continued weakness in the residential, commercial and new construction markets, unfavorable foreign exchange impact of approximately $37 million and the net effect of price and product mix of approximately $28 million, driven by customers trading down to lower priced products and distribution channel mix.
Mohawk Segment—Net sales decreased $11.9 million, or 0.4%, to $2,844.9 million in 2010 compared to $2,856.7 million in 2009. Included in net sales for 2009 is a carpet sales allowance of $121.2 million. For 2010, net sales decreased primarily due to lower sales volume of approximately $183 million, primarily related to continued weakness in the soft surface product category, partially offset by approximately $50 million due to the net effect of price and product mix as a result of price increases to offset higher raw material costs.
Dal-Tile Segment—Net sales decreased $59.3 million, or 4.2%, to $1,367.4 million in 2010 compared to $1,426.8 million in 2009. The decrease in net sales was primarily driven by the net effect of price and product mix of approximately $51 million, primarily driven by customer mix, and lower sales volume of approximately $17 million, primarily related to continued weakness in the commercial, residential and new construction markets, partially offset by the impact of favorable foreign exchange rates of approximately $9 million.
Unilin Segment—Net sales increased $60.0 million, or 5.3%, to $1,188.3 million in 2010 compared to $1,128.3 million in 2009. The increase in net sales was primarily driven by higher sales volume of approximately
$132 million as a result of growth in developing markets, partially offset by the impact of unfavorable foreign exchange rates of approximately $46 million and the net effect of price and product mix of approximately $27 million, as customers traded down to lower priced products.
Quarterly net sales and the percentage changes in net sales by quarter for 2010 versus 2009 were as follows (dollars in millions):
| 2010 | 2009 | Change | ||||||||||
First quarter | $ | 1,347.2 | 1,208.3 | 11.5 | % | |||||||
Second quarter | 1,400.1 | 1,406.0 | (0.4 | ) | ||||||||
Third quarter | 1,309.6 | 1,382.6 | (5.3 | ) | ||||||||
Fourth quarter | 1,262.2 | 1,347.1 | (6.3 | ) | ||||||||
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Total year | $ | 5,319.1 | 5,344.0 | (0.5 | )% | |||||||
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Gross profit
Gross profit for 2010 was $1,402.6 million (26.4% of net sales) and represented an increase of $170.4 million, or 13.8%, compared to gross profit of $1,232.2 million (23.1% of net sales) for 2009. Gross profit for 2009 includes a carpet sales allowance of $121.2 million and inventory write-off of $12.4 million. For 2010, gross profit was favorably impacted by approximately $50 million as a result of various restructuring actions and cost savings initiatives implemented by the Company, including facility consolidations, workforce reductions and productivity improvements, lower restructuring charges of approximately $32 million and the net effect of price and product mix of approximately $27 million. These increases were partially offset by higher manufacturing costs, primarily raw materials, of approximately $58 million, lower sales volume of approximately $13 million and the impact of unfavorable foreign exchange rates of approximately $11 million.
Selling, general and administrative expenses
Selling, general and administrative expenses for 2010 were $1,088.4 million (20.5% of net sales), reflecting a decrease of $100.1 million, or 8.4%, compared to $1,188.5 million (22.2% of net sales) for 2009. The decrease in selling, general and administrative expenses is primarily driven by various restructuring actions and cost savings initiatives implemented by the Company, including distribution facility consolidations, workforce reductions and productivity improvements, to align such expenses with the Company’s sales volumes.
Operating income
Operating income for 2010 was $314.2 million (5.9% of net sales) reflecting a $270.4 million increase compared to an operating income of $43.7 million (0.8% of net sales) in 2009. Operating income for 2009 includes a carpet sales allowance and inventory write-off of $133.5 million. For 2010, operating income was favorably impacted by approximately $128 million as a result of lower selling, general and administrative expenses and various restructuring actions and cost savings initiatives implemented by the Company, lower restructuring charges of approximately $49 million and the net effect of price and product mix of approximately $27 million, partially offset by higher manufacturing costs, primarily raw materials, of approximately $58 million and lower sales volume of approximately $13 million.
Mohawk Segment—Operating income was $122.9 million (4.3% of segment net sales) in 2010 reflecting an increase of $248.9 million compared to operating loss of $126.0 million in 2009. Operating loss for 2009 includes a carpet sales allowance and inventory write-off of $133.5 million. For 2010, operating income was favorably impacted by approximately $101 million as a result of lower selling, general and administrative expenses and various restructuring actions and cost savings initiatives implemented by the Company, the net
effect of price and product mix of approximately $66 million and lower restructuring charges of approximately $19 million, partially offset by higher manufacturing costs, primarily raw materials, of approximately $25 million and lower sales volume of approximately $45 million.
Dal-Tile Segment—Operating income was $97.3 million (7.1% of segment net sales) in 2010 reflecting an increase of $13.2 million, or 15.7%, compared to operating income of $84.2 million (5.9% of segment net sales) for 2009. The increase was primarily driven by the favorable impact of approximately $20 million as a result of lower selling, general and administrative expenses and various restructuring actions and cost savings initiatives implemented by the Company, lower restructuring charges of approximately $16 million and lower manufacturing expenses of approximately $4 million, partially offset by the net effect of price and product mix of approximately $28 million.
Unilin Segment—Operating income was $114.3 million (9.6% of segment net sales) in 2010 reflecting an increase of $8.3 million, or 7.9%, compared to operating income of $106.0 million (9.4% of segment net sales) for 2009. The increase was primarily driven by higher sales volume of approximately $42 million, lower restructuring charges of approximately $14 million and lower selling, general and administrative expenses of approximately $5 million, offset by higher manufacturing costs, primarily raw materials, of approximately $36 million, the net effect of price and product mix of approximately $10 million and unfavorable foreign exchange rates of approximately $6 million.
Interest expense
Interest expense for 2010 was $133.2 million compared to $127.0 million in 2009. The increase in interest expense resulted from the $7.5 million premium and fees related to the extinguishment of approximately $200 million aggregate principal amount of the Company’s 5.75% senior notes due January 15, 2011, higher costs on the Company’s revolving credit facility and higher interest rates on the Company’s notes, partially offset by the impact of lower debt levels.
Other expense (income)
The Company has received partial refunds from the U.S. government in reference to settling customs disputes dating back to 1986. Accordingly, the Company realized a gain of $7.7 million in other expense (income) for 2010. The Company is pursuing additional recoveries for years subsequent to 1986 but there can be no assurances such recoveries will occur. Additional future recoveries, if any, will be recorded as realized.
Income tax expense (benefit)
For 2010, the Company recorded an income tax expense of $2.7 million on earnings before income taxes of $192.6 million compared to a benefit of $76.7 million on loss before income taxes of $77.7 million for 2009. The 2010 effective tax rate of 1.4% is primarily due to the favorable geographic dispersion of profits and losses resulting in a tax benefit of approximately $21 million, a tax benefit of approximately $30 million related to the settlement of certain income tax contingencies in Europe, and a decrease in valuation allowance of approximately $17 million related to European deferred tax assets. The 2009 effective tax rate of 98.7% was the result of the geographic dispersion of profits and losses resulting in a tax benefit of approximately $13 million, a permanent tax benefit in Europe on notional interest of approximately $56 million, offset by an increase to the Company’s valuation allowance and tax contingencies of approximately $19 million.
funding of working capital. The incremental term loan facility provides for eight scheduled quarterly principal payments of but not including, the special mandatory redemption date. Facility. Recorded Contractual Obligations: Long-term debt, including current maturities and capital leases Unrecorded Contractual Obligations: Interest payments on long-term debt and capital leases (1) Operating leases Purchase commitments (2) Expected pension contributions (3) Uncertain tax positions (4) Guarantees Total 2012. In the ordinary course of business there is inherent uncertainty in quantifying the Company’s income tax positions. The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon the Company’s evaluation of the facts, circumstances and information available as of the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information, as required by the provisions of the Financial Accounting Standards Board (“FASB”) FASB Accounting Standards Codification Topic residential spending patterns for floor covering, which historically have decreased during the first two months of each year following the holiday season. The Unilin Current assets: Cash and cash equivalents Restricted cash Receivables, net Inventories Prepaid expenses Deferred income taxes Other current assets Total current assets Property, plant and equipment, net Goodwill Tradenames Other intangible assets, net Deferred income taxes and other non-current assets Current liabilities: Current portion of long-term debt Accounts payable and accrued expenses Total current liabilities Deferred income taxes Long-term debt, less current portion Other long-term liabilities Total liabilities Commitments and contingencies (Notes 7 and 14) Redeemable noncontrolling interest Stockholders’ equity: Preferred stock, $.01 par value; 60 shares authorized; no shares issued Common stock, $.01 par value; 150,000 shares authorized; 79,815 and 79,666 shares issued in 2011 and 2010, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income, net Less treasury stock at cost; 11,034 and 11,037 shares in 2011 and 2010, respectively Total stockholders’ equity 2011 Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating income Interest expense Other expense (income) Earnings (loss) before income taxes Income tax expense (benefit) Net earnings (loss) Less: Net earnings attributable to noncontrolling interest Net earnings (loss) attributable to Mohawk Industries, Inc. Basic earnings (loss) per share attributable to Mohawk Industries, Inc. Diluted earnings (loss) per share attributable to Mohawk Industries, Inc. 2010 Balances at December 31, 2008 Shares issued under employee and director stock plans Stock-based compensation expense Tax deficit from stock-based compensation Distribution to noncontrolling interest Noncontrolling earnings Comprehensive income: Currency translation adjustment Unrealized loss on hedge instruments net of taxes Pension prior service cost and actuarial gain or loss Net loss Total comprehensive income Balances at December 31, 2009 Shares issued under employee and director stock plans Stock-based compensation expense Tax deficit from stock-based compensation Distribution to noncontrolling interest, net of adjustments Noncontrolling earnings Accretion of redeemable noncontrolling interest Comprehensive income: Currency translation adjustment Pension prior service cost and actuarial gain or loss Net income Total comprehensive income Balances at December 31, 2010 Shares issued under employee and director stock plans Stock-based compensation expense Tax deficit from stock-based compensation Distribution to noncontrolling interest, net of adjustments Retained distribution noncontrolling interest Noncontrolling earnings Comprehensive income: Currency translation adjustment Pension prior service cost and actuarial gain or loss Net income Total comprehensive income Balances at December 31, 2011 2010 Stockholders’ Equity Cash flows from operating activities: Net earnings (loss) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Restructuring Depreciation and amortization Deferred income taxes Loss on extinguishment of debt Loss (gain) on disposal of property, plant and equipment Tax deficit from stock-based compensation Stock-based compensation expense Other Changes in operating assets and liabilities, net of effects of acquisitions: Receivables, net Income tax receivable Inventories Accounts payable and accrued expenses Other assets and prepaid expenses Other liabilities Net cash provided by operating activities Cash flows from investing activities: Additions to property, plant and equipment Proceeds from insurance claim Acquisitions, net of cash acquired Net cash used in investing activities Cash flows from financing activities: Payments on revolving line of credit Proceeds from revolving line of credit Repayment of senior notes Net change in asset securitization borrowings Borrowings (payments) on term loan and other debt Debt issuance costs Debt extinguishment costs Distribution to noncontrolling interest Change in restricted cash Tax deficit from stock-based compensation Change in outstanding checks in excess of cash Proceeds from stock transactions Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year 2010 December 31, 2012, 2011 and 2010 2010 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. expense. Net earnings (loss) attributable to Mohawk Industries, Inc. Accretion of redeemable noncontrolling interest (1) Net earnings (loss) available to common stockholders Weighted-average common shares outstanding-basic and diluted: Weighted-average common shares outstanding - basic Add weighted-average dilutive potential common shares - options and RSU’s to purchase common shares, net Weighted-average common shares outstanding-diluted Basic earnings (loss) per share attributable to Mohawk Industries, Inc. Diluted earnings (loss) per share attributable to Mohawk Industries, Inc. December 31, 2009 2010 activity December 31, 2010 2011 activity December 31, 2011 $7,007 in 2012. The Company acquired an Australian distribution business in the Unilin segment for $24,097 in 2011. The Company acquired a 34% equity investment in a leading manufacturer and distributor of ceramic tile in China in the Dal-Tile segment for $79,917 in 2010. In June 2012, the Company increased its equity method ownership in the China joint venture to 49% through a restructuring transaction in which the majority equity owner acquired certain assets of the joint venture. Also in 2012, the Company purchased the non-controlling interest within the Dal-Tile segment for $35,000. the satisfaction of other closing conditions. Customers, trade Income tax receivable Other Less allowance for discounts, returns, claims and doubtful accounts Receivables, net 2009 2010 2011 Finished goods Work in process Raw materials Total inventories Balances as of December 31, 2009 Goodwill Accumulated impairments losses Goodwill recognized during the year Currency translation during the year Balances as of December 31, 2010 Goodwill Accumulated impairments losses Goodwill recognized during the year Currency translation during the year Balances as of December 31, 2011 Goodwill Accumulated impairments losses Indefinite life assets not subject to amortization: Balance as of December 31, 2009 Currency translation during the year Balance as of December 31, 2010 Currency translation during the year Balance as of December 31, 2011 Intangible assets subject to amortization: Balance as of December 31, 2009 Amortization during year Currency translation during the year Balance as of December 31, 2010 Intangible assets recognized during the year Amortization during the year Currency translation during the year Balance as of December 31, 2011 Amortization expense 2012 2013 2014 2015 2016 Land Buildings and improvements Machinery and equipment Furniture and fixtures Leasehold improvements Construction in progress Less accumulated depreciation and amortization Net property, plant and equipment Senior Credit Facility. The incremental term loan facility provides for eight scheduled quarterly principal payments of $1,875, with the first such payment due on June 30, 2012, followed by four scheduled quarterly principal payments of $3,750, with remaining quarterly principal payments of $5,625 prior to maturity. of any of the due 2023. In the event that the Company does not complete its acquisition of the Marazzi Group on or prior to January 25, 2014 or if, prior to that date, the Share Purchase Agreement with respect to the acquisition is terminated, the Company will be required to redeem all of the notes on the special mandatory redemption date at a redemption price equal to In 2002, the Company issued On April 16, 2012, the Company repaid the $336,270 principal amount of outstanding senior 7.20% notes, together with accrued interest of $12,106, at maturity using available borrowings under its Senior Credit Facility. 5.75% notes, payable January 15, 2011 interest payable semiannually 7.20% senior notes, payable April 15, 2012 interest payable semiannually 6.125% notes, payable January 15, 2016 interest payable semiannually Five-year senior secured credit facility, due July 8, 2016 Industrial revenue bonds, capital leases and other. Total long-term debt Less current portion Long-term debt, less current portion 2012 2013 2014 2015 2016 Thereafter Outstanding checks in excess of cash Accounts payable, trade Accrued expenses Product warranties Accrued interest Income taxes payable Deferred tax liability Accrued compensation and benefits Total accounts payable and accrued expenses. Balance at beginning of year Warranty claims paid during the year Pre-existing warranty accrual adjustment during the year (1) Warranty expense during the year Balance at end of year Options outstanding at beginning of year Options granted Options exercised Options forfeited and expired Options outstanding at end of year. Options exercisable at end of year Option prices per share: Options granted during the year Options exercised during the year Options forfeited and expired during the year Options outstanding at end of year Options exercisable at end of year Dividend yield Risk-free interest rate Volatility Expected life (years) Options outstanding, December 31, 2010 Granted Exercised Forfeited and expired Options outstanding, December 31, 2011 Vested and expected to vest as of December 31, 2011 Exercisable as of December 31, 2011 Exercise price range Under $57.34 $57.88-$73.45 $73.54-$81.90 $82.50-$88.00 $88.33-$88.33 $89.46-$93.65 Total 2012 A summary of the Company’s RSUs under the 2007 Plan as of December 31, Restricted Stock Units outstanding, December 31, 2010 Granted Released Forfeited Restricted Stock Units outstanding, December 31, 2011 Vested and expected to vest as of December 31, 2011 Restricted Stock Units outstanding, January 1 Granted Released Forfeited Restricted Stock Units outstanding, December 31 Vested and expected to vest as of December 31 Service cost of benefits earned Interest cost on projected benefit obligation Expected return on plan assets Amortization of actuarial gain Effect of curtailments and settlements Net pension expense Discount rate Expected rate of return on plan assets Rate of compensation increase Underlying inflation rate Change in benefit obligation: Projected benefit obligation at end of prior year Cumulative foreign exchange effect Service cost Interest cost Plan participants contributions Actuarial loss Benefits paid Projected benefit obligation at end of year Change in plan assets: Fair value of plan assets at end of prior year Cumulative foreign exchange effect Actual return on plan assets Employer contributions Benefits paid Plan participant contributions Fair value of plan assets at end of year Funded status of the plans: Ending funded status Net amount recognized in consolidated balance sheets: Accrued benefit liability (non-current liability) Accumulated other comprehensive income Net amount recognized The Company’s net amount recognized in other comprehensive income related to actuarial gains (losses) was 2011 2010 Discount rate Rate of compensation increase Underlying inflation rate Plans with accumulated benefit obligations in excess of plan assets: Projected benefit obligation Accumulated benefit obligation Fair value of plan assets Plans with plan assets in excess of accumulated benefit obligations: Projected benefit obligation Accumulated benefit obligation Fair value of plan assets as follows: Non-U.S. Plans: Insurance contracts Non-U.S. Plans: Insurance contracts Foreign currency losses (gains) U.S. customs refund All other, net Total other expense (income) United States Foreign Earnings (loss) before income taxes Current income taxes: U.S. federal State and local Foreign Total current Deferred income taxes: U.S. federal State and local Foreign Total deferred Total Income tax expense (benefit) attributable to earnings Income taxes at statutory rate State and local income taxes, net of federal income tax benefit Foreign income taxes Change in valuation allowance Notional interest Tax contingencies and audit settlements Acquisition related tax contingencies Change in statutory tax rate Other, net Deferred tax assets: Accounts receivable Inventories Accrued expenses and other Deductible state tax and interest benefit Intangibles Federal, foreign and state net operating losses and credits Gross deferred tax assets Valuation allowance Net deferred tax assets Deferred tax liabilities: Inventories Plant and equipment Intangibles Other liabilities Gross deferred tax liabilities Net deferred tax liability (1) 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, 2012, 2011 The total change in the 2010 valuation allowance was a decrease of $40,817, which includes $22,046 related to foreign currency translation. 2012 In January 2012, the Company received a Balance as of January 1 Additions based on tax positions related to the current year Additions for tax positions of prior years Reductions for tax positions of prior years Reductions resulting from the lapse of the statute of limitations Settlements with taxing authorities Effects of foreign currency translation Balance as of December 31 2012 2013 2014 2015 2016 Thereafter Total payments Less amount representing interest Present value of capitalized lease payments Company as raised in the U.S. actions and Consolidated Financial Statements—(Continued) year. employees are good. The Company recorded pre-tax business restructuring charges of Balance as of December 31, 2009 Provisions Mohawk segment Dal-Tile segment Unilin segment Cash payments Noncash items Balance as of December 31, 2010 Provisions: Mohawk segment Dal-Tile segment Unilin segment Cash payments Noncash items Balance as of December 31, 2011 Net cash paid (received) during the year for: Interest Income taxes Supplemental schedule of non-cash investing and financing activities: Fair value of assets acquired in acquisition Liabilities assumed in acquisition Net sales: Mohawk Dal-Tile Unilin Intersegment sales Operating income (loss): Mohawk Dal-Tile Unilin Corporate and eliminations Depreciation and amortization: Mohawk Dal-Tile Unilin Corporate Capital expenditures (excluding acquisitions): Mohawk Dal-Tile Unilin Corporate Assets: Mohawk Dal-Tile Unilin Corporate and intersegment eliminations Geographic net sales: North America Rest of world Long-lived assets (1): North America Rest of world Net sales by product categories (2): Soft surface Tile Wood Net sales Gross profit Net earnings Basic earnings per share Diluted earnings per share Net sales Gross profit Net earnings Basic earnings per share Diluted earnings per share Mohawk Description20112012 were $301.0$587.6 million compared to $319.7$301.0 millionprovided by operating activities for 2010.2011. The decreaseincrease in cash provided by operating activities for 20112012 as compared to 20102011 is primarily attributable to higher earnings, and improvements in working capital. As discussed in note 13 to the 2010consolidated financial statements, on December 28, 2012, the Company received the refund of the deposit related to the tax refunds,assessment by the timingBelgium taxing authority of receipts€23.8 million. On January 30, 2013, the Company received a refund of the interest deposit of €2.9 million and customer mix changes in receivables and timinginterest income of disbursements.€1.6 million earned on the deposit.20112012 was $299.7$215.3 million compared to $231.5$299.7 million for 2010.2011. The increasedecrease in investing activities primarily relates to higherlower capital expenditures related to additional carpet extrusion capacity and expanding the Company’s international manufacturing capabilities, partially offset by lower acquisition expenditures in 2011.2012. Capital spending during 2012,2013, excluding pending acquisition expenditures, is expected to range from approximately $225$275 million to $245$295 million and is intended to be used primarily to purchase equipment, add geographic capacity and to streamline manufacturing capabilities.20112012 was $33.1$216.8 million compared to $255.2$33.1 million for 2010.2011. The change in cash used in financing activities as compared to 20102011 is primarily attributable to lower debt repayments, netthe purchase of the non-controlling interest within the Dal-Tile segment for approximately $35.0 million, repayment of borrowings and restricted cash, and the change in outstanding checks. and terminated its four-year $600.0 million, senior, secured revolving credit facility (the “ABL Facility”), which was originally set to mature on September 2, 2013. No early termination penalties were incurred as a result of the termination.. The Senior Credit Facility provides for a maximum of $900.0$900.0 million of revolving credit, including limited amounts of credit in the form of letters of credit and swingline loans. The Company paid financing costs of $8.3$8.3 million in connection with its Senior Credit Facility. These costs were deferred and, along with unamortized costs of $12.3$12.3 million related to the Company’s ABL Facilityprior senior, secured revolving credit facility, are being amortized over the term of the Senior Credit Facility. In addition,expensed $1.1entered into an amendment to the Senior Credit Facility that provides for an incremental term loan facility in the aggregate principal amount of $150.0 million of deferred. The Company paid financing costs relatedof $1.0 million in connection with the amendment to its Senior Credit Facility. These costs were deferred and are being amortized over the terminationremaining term of its ABLthe Senior Credit Facility.Lenderslenders under the Senior Credit Facility on the average amount by which the aggregate commitments of the Lenders’ exceedslenders’ exceed utilization of the Senior Credit Facility ranging from 0.25% to 0.4% per annum. The applicable margin and the commitment fee are determined based on the Company’s Consolidated Net Leverage Ratio (with applicable margins and the commitment fee increasing as the ratio increases). All obligations underSenior Credit Facility, andrating agency upgrade announced on March 14, 2012 by Standard & Poor’s Financial Services, LLC (“S&P”), the guarantees of those obligations, are secured by a security interestinterests in domestic accounts receivable and inventories, certain shares of capital stock (or equivalent ownership interests) of the domestic borrowers’ and domestic guarantors’ subsidiaries, and proceeds of any of the foregoing. The amount of theforegoing securing obligations under the Senior Credit Facility secured by such shares of capital stock and equivalent ownership interests is limited to the lesser of (i) the aggregate amount permitted to be secured under the Company’s Indenture dated as of April 2, 2002 without requiring the notes issued under that Indenture to be secured equally and ratably by such shares of capital stock and equivalent ownership interests and (ii) the aggregate amount permitted to be secured under the Company’s Indenture dated as of January 9, 2006 (as supplemented by that first supplemental indenture dated as of January 17, 2006) without requiring the notes issued under that Indenture to be secured equally and ratably by such shares of capital stock and equivalent ownership interests.Index to Financial StatementsIf at any time (a) either (i) the Company’s corporate family rating or senior unsecured rating, whichever is in effect from Moody’s Investors Service, Inc. (“Moody’s”) is Baa3 or better (with a stable outlook or better) and the Company’s corporate rating from Standard & Poor’s Financial Services LLC (“S&P”) is BB+ or better (with a stable outlook or better) or (ii) the Moody’s rating is Ba1 or better (with a stable outlook or better) and the S&P rating is BBB- or better (with a stable outlook or better) and (b) no default or event of default has occurred and is continuing, then upon the Company’s request, the foregoing security interests will bewere released. The Company iswill be required to reinstate such security interests after release if:if there is a ratings downgrade such that: (a) both (i) the Moody’s Investor’s Service, Inc. (“Moody’s”) rating is Ba2 and (ii) the S&P rating is BB, (b) (i) the Moody’s rating is Ba3 or lower and (ii) the S&P rating is below BBB- (with a stable outlook or better) or (c) (i) the Moody’s rating is below Baa3 (with a stable outlook or better) and (ii) the S&P rating is BB- or lower. 3.02011,2012, the amount utilized under the Senior Credit Facility including the term loan was $395.3$251.2 million, resulting in a total of $504.7$793.1 million available under the Senior Credit Facility. The amount utilized included $298.0$153.9 million of borrowings, $46.8$46.8 million of standby letters of credit guaranteeing the Company’s industrial revenue bonds and $50.5$50.5 million of standby letters of credit related to various insurance contracts and foreign vendor commitments.January 20,December 19, 2012, the Company entered into a three-year on-balance sheet trade accounts receivable securitization agreement (the "Securitization Facility"). The Securitization Facility allows the Company to borrow up to $300 million based on available accounts receivable and is secured by the Company's U.S. trade accounts receivable. Borrowings under the Securitization Facility bear interest at commercial paper interest rates, in the case of lenders that are commercial paper conduits, or LIBOR, in the case of lenders that are not commercial paper conduits, in each case, plus an amendmentapplicable margin of 0.75% per annum. The Company also pays a commitment fee at a per annum rate of 0.30% on the unused amount of each lender's commitment. At December 31, 2012, the amount utilized under the Securitization Facility was $280.0 million.Senior Credit Facility that provides for an incremental term loan facility inacquisition is terminated, the Company will be required to redeem all of the notes on the special mandatory redemption date at a redemption price equal to 101% of the aggregate principal amount of $150.0 million. The incremental term loan facility provides for eight scheduled quarterly principal payments of $1.875 million, with the first such payment due on June 30, 2012, followed by four scheduled quarterly principal payments of $3.750 million, with all remaining quarterly principal payments of $5.625 million priornotes, plus accrued and unpaid interest thereon to, maturity.$900.0$900.0 million aggregate principal amount of 6.125% notes due January 15, 2016. Interest payable on these notes is subject to adjustment if either Moody’s or S&P, or both, upgrades or downgrades the rating assigned to the notes. Each rating agency downgrade results in a 0.25% increase in the interest rate, subject to a maximum increase of 1% per rating agency. If later the rating of these notes improves, then the interest rates would be reduced accordingly. Each 0.25% increase in the interest rate of these notes would increase the Company’s interest expense by approximately $0.1$0.1 million per quarter per $100$100.0 million of outstanding notes. Currently, theIn 2009, interest rates have been increased by an aggregate amount of 0.75%75 basis points as a result of downgrades by Moody’s and S&P. In the first quarter of 2012, interest rates decreased by 50 basis points as a result of the upgrades from S&P during 2009. Additionaland Moody’s. Any future downgrades in the Company’s credit ratings could further increase the cost of its existing credit and adversely affect the cost of and ability to obtain additional credit in the future.On April 12, 2010, the Company purchased for cash approximately $200 million aggregate principal amount of its outstanding 5.75% senior notes due January 15, 2011 at a price equal to 103.5% of the principal amount, which resulted in a premium to tendering noteholders of approximately $7 million. In connection with the extinguishment, the Company paid approximately $0.5 million in fees and accelerated the remaining deferred financing costs incurred in the original issuance of the notes that were purchased by the Company. The premium and fees associated with the cash tender are included in interest expense on the 2010 consolidated statement of operations. On October 14, 2010, the Company deposited $27.9 million of cash in a restricted account under theIndex to Financial Statementscontrol of the Administrative Agent and reserved $280.0 million on the ABL Facility to repay the remaining amount outstanding of the 5.75% senior notes due January 15, 2011, which actions were determined by the Administrative Agent to adequately reserve (for purposes of the ABL Facility) for the repayment of such notes. During the first quarter of 2011, the Company repaid the 5.75% senior notes due January 15, 2011 at maturity, using approximately $170 million of available cash and borrowings of approximately $138 million under the ABL Facility.$400.0$400.0 million aggregate principal amount of its senior 7.20% notes due April 15, 2012. During 2011, the Company repurchased $63.7$63.7 million of its senior 7.20% notes, at an average price equal to 102.72% of the principal amount. TheOn April 16, 2012, the Company believes it will have sufficient cash and cash equivalents and unutilizedrepaid the $336.3 million principal amount of outstanding senior 7.20% notes, together with accrued interest of $12.1 million, at maturity using available borrowings availability under theits Senior Credit Facility or through new public and/or private debt offerings to repay the senior notes, when due. However, there can be no assurances that the Company will be able to complete new public and/or private debt offerings, if necessary, to repay the senior notes prior to the April 15, 2012 maturity date.2011,2012, the Company had invested cash of $266.5$417.5 million, of which $415.9 million was invested in A-1/P-1 rated money market AAA rated cash investments of which $260.0 million was in Europe. While the Company’s plans are to permanently reinvest the cash held in Europe, the estimated cost of repatriation for the cash invested in Europe would be approximately $91.0 million.$145.6 million. The Company believes that its cash and cash equivalents on hand, cash generated from operations and availability under its Senior Credit Facilitycredit facilities will be sufficient to meet its capital expenditure, working capital and debt servicing requirements over the next twelve months.$334.7 million.$335.1 million. All of these repurchases have been financed through the Company’s operations and banking arrangements. No shares were repurchased during 2011, 20102012 or 2009.In the first quarter20112012 (in millions): Total 2012 2013 2014 2015 2016 Thereafter $ 1,586.5 386.3 0.8 0.6 0.3 1,198.2 0.3 298.6 78.3 71.1 71.0 71.0 7.2 — 325.1 90.4 71.2 60.3 46.5 24.6 32.1 200.5 77.0 66.7 32.3 24.5 — — 1.9 1.9 — — — — — 6.5 6.5 — — — — — 15.0 8.6 3.2 3.2 — — — 847.6 262.7 212.2 166.8 142.0 31.8 32.1 $ 2,434.1 649.0 213.0 167.4 142.3 1,230.0 32.4 Total 2013 2014 2015 2016 2017 Thereafter Recorded Contractual Obligations: Long-term debt, including current maturities and capital leases $ 1,382.9 55.2 13.7 300.9 1,012.9 0.2 — Unrecorded Contractual Obligations: Interest payments on long-term debt and capital leases (1) 234.5 67.1 66.9 66.6 33.8 0.1 — Operating leases 304.5 87.7 75.5 59.3 33.7 21.2 27.1 Purchase commitments (2) 145.4 80.3 37.9 26.0 1.2 — — Expected pension contributions (3) 1.9 1.9 — — — — — Uncertain tax positions (4) 1.2 1.2 — — — — — Guarantees 11.9 8.6 3.3 — — — — 699.4 246.8 183.6 151.9 68.7 21.3 27.1 Total $ 2,082.3 302.0 197.3 452.8 1,081.6 21.5 27.1 (1) 20112012 to these balances.(2) Includes commitments for natural gas, electricity and raw material purchases. (3) 20122013 only, as the Company is unable to estimate the pension contributions beyond 2012.2013. The Company’s projected benefit obligation and plan assets as of December 31, 20112012 were $29.2$37.6 million and $26.1$32.6 million, respectively. The projected benefit obligation liability has not been presented in the table above due to uncertainty as to amounts and timing regarding future payments.(4) $47.6$33.7 million of non-current accrued income tax liabilities and related interest and penalties for uncertain tax positions. These liabilities have not been presented in the table above due to uncertainty as to amounts and timing regarding future payments.Index to Financial Statements•Accounts receivable and revenue recognition. Revenues are recognized when there is persuasive evidence of an arrangement, delivery has occurred, the price has been fixed or is determinable, and collectability can be reasonably assured. The Company provides allowances for expected cash discounts, sales allowances, returns, claims and doubtful accounts based upon historical bad debt and claims experience and 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. A 10% change in the Company’s allowance for discounts, returns, claims and doubtful accounts would have affected net earnings by approximately $3 million for the year ended December 31, 2011.•Inventories are stated at the lower of cost or market (net realizable value). Cost has been determined using the first-in first-out method (“FIFO”). Costs included in inventory include raw materials, direct and indirect labor and employee benefits, depreciation, general manufacturing overhead and various other costs of manufacturing. Market, with respect to all inventories, is replacement cost or net realizable value. 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. Actual results could differ from assumptions used to value obsolete inventory, excessive inventory or inventory expected to be sold below cost and additional reserves may be required. A 10% change in the Company’s reserve for excess or obsolete inventory would have affected net earnings by approximately $4 million for the year ended December 31, 2011.•Goodwill and other intangibles. Goodwill is tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. 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 judgments and assumptions using the discounted cash flows and comparable company market valuation approaches. The Company has identified Mohawk, Dal-Tile, Unilin Flooring, Unilin Chipboard and Melamine, and Unilin Roofing 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 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. Generally, a decline in estimated after tax cash flows of more than 15% or a more than 10% increase in WACC or a significant or prolonged decline in market capitalization could result in an additional indication of impairment.Index to Financial Statements2011.•Income taxes.The Company’s effective tax rate is based on its income, statutory tax rates and tax planning opportunities available in the jurisdictions in which it operates. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining the Company’s tax expense and in evaluating the Company’s tax positions. Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in a future period. The Company evaluates the recoverability of these future tax benefits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely on estimates, including business forecasts and other projections of financial results over an extended period of time. In the event that the Company is not able to realize all or a portion of its deferred tax assets in the future, a valuation allowance is provided. The Company would recognize such amounts through a charge to income in the period in which that determination is made or when tax law changes are enacted. The Company had valuation allowances of $334.2 million in 2011, $325.1 million in 2010 and $365.9 million in 2009. For further information regarding the Company’s valuation allowances, see Note 13 to the consolidated financial statements.740 (“ASC 740-10”("ASC"). 740-10. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the consolidated financial statements. As of 2011,2012, the Company has $46.1$53.8 million accrued for uncertain tax positions. For further information regarding the Company’s uncertain tax positions, see Note 13 to the consolidated financial statements.IndexFinancial Statementsongoing environmental and legal proceedings, as disclosed in the Company’s consolidated financial statements. In determining whether a liability is probable and reasonably estimable, the Company consults with its internal experts. The Company believes that the amounts recorded in the accompanying financial statements are based on the best estimates and judgments available to it.•Environmental and legal accruals. Environmental and legal accruals are estimates based on judgments made by the Company relating to ongoing environmental and legal proceedings, as disclosed in the Company’s consolidated financial statements. In determining whether a liability is probable and reasonably estimable, the Company consults with its internal experts. The Company believes that the amounts recorded in the accompanying financial statements are based on the best estimates and judgments available to it.In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05,“Comprehensive Income (Topic 220)—Presentation-Presentation of Comprehensive Income”Income” (“ASU 2011-05”). This update requires that the components of net income, the components of other comprehensive income and the total of comprehensive incometo be presented as a single continuous financial statement or in two separate but consecutive statements. The option of presenting other comprehensive income in the statement of stockholders’stockholders' equity iswas eliminated. This update also requiresThe Company adopted ASU 2011-05 in the presentation on the facefirst quarter of the financial statements of reclassification adjustments for items that are reclassified from other2012 and chose to present comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. In November 2011, the FASB issued ASU 2011-12 that defers the effective date of the requirement to presentas two separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income. The deferral is temporary until the Board reconsiders the operational concerns and needs of financial statement users. The Board has not yet established a timetable for its reconsideration. The requirements to present other comprehensive income in a continuous statement or twobut consecutive statements and other requirements of ASU 2011-05, as amended by ASU 2011-12, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.statements.Index to Financial Statementssegmentsegment’s second and fourth quarters typically produce higher net sales and earnings followed by a moderate first quarter and a weaker third quarter. The third quarter is traditionally the weakest due to the European holiday in late summer.Item 7A. Quantitative and Qualitative Disclosures about Market Risk 20112012 and 2010.2011. As of December 31, 2011,2012, approximately 78%65% of the Company’s debt portfolio was comprised of fixed-rate debt and 22%35% was floating-rate debt. A 1.0 percentage point change in the interest rate of the floating-rate debt would not have a material impact on the Company’s results of operations.Index to Financial StatementsItem 8. Consolidated Financial Statements and Supplementary Data 20112012 and 2010,2011, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2011.2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.20112012 and 2010,2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011,2012, in conformity with U.S. generally accepted accounting principles.2011,2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 29, 201227, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting./s/ KPMG LLP 29, 201227, 2013
2011,2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Mohawk Industries, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, as set forth in Item 9A. of Mohawk Industries, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011.2012. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.2011,2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.20112012 and 2010,2011, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2011,2012, and our report dated February 29, 201227, 2013 expressed an unqualified opinion on those consolidated financial statements./s/ KPMG LLP 29, 201227, 2013
20112012 and 2010 2011 2010 (In thousands, except per share data) ASSETS $ 311,945 354,217 — 27,954 686,165 614,473 1,113,630 1,007,503 112,779 91,731 150,910 133,304 22,735 19,431 2,398,164 2,248,613 1,712,154 1,687,124 1,375,175 1,369,394 450,432 456,890 154,668 220,237 115,635 116,668 $ 6,206,228 6,098,926 LIABILITIES AND STOCKHOLDERS’ EQUITY $ 386,255 350,588 715,091 698,326 1,101,346 1,048,914 355,653 346,503 1,200,184 1,302,994 99,537 93,518 2,756,720 2,791,929 33,723 35,441 — — 798 797 1,248,131 1,235,445 2,354,765 2,180,843 135,639 178,097 3,739,333 3,595,182 323,548 323,626 3,415,785 3,271,556 $ 6,206,228 6,098,926 2012 2011 (In thousands, except per share data) ASSETS Current assets: Cash and cash equivalents $ 477,672 311,945 Receivables, net 679,473 686,165 Inventories 1,133,736 1,113,630 Prepaid expenses 138,117 112,779 Deferred income taxes 111,585 150,910 Other current assets 9,463 22,735 Total current assets 2,550,046 2,398,164 Property, plant and equipment, net 1,692,852 1,712,154 Goodwill 1,385,771 1,375,175 Tradenames 455,503 450,432 Other intangible assets, net 98,296 154,668 Deferred income taxes and other non-current assets 121,216 115,635 $ 6,303,684 6,206,228 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 55,213 386,255 Accounts payable and accrued expenses 773,436 715,091 Total current liabilities 828,649 1,101,346 Deferred income taxes 329,810 355,653 Long-term debt, less current portion 1,327,729 1,200,184 Other long-term liabilities 97,879 99,537 Total liabilities 2,584,067 2,756,720 Commitments and contingencies (Notes 7 and 14) Redeemable noncontrolling interest — 33,723 Stockholders’ equity: Preferred stock, $.01 par value; 60 shares authorized; no shares issued — — Common stock, $.01 par value; 150,000 shares authorized; 80,185 and 79,815 shares issued in 2012 and 2011, respectively 802 798 Additional paid-in capital 1,277,521 1,248,131 Retained earnings 2,605,023 2,354,765 Accumulated other comprehensive income, net 159,733 135,639 4,043,079 3,739,333 Less treasury stock at cost; 11,032 and 11,034 shares in 2012 and 2011, respectively 323,462 323,548 Total stockholders’ equity 3,719,617 3,415,785 $ 6,303,684 6,206,228 2010 and 2009 2011 2010 2009 (In thousands, except per share data) $ 5,642,258 5,319,072 5,344,024 4,225,379 3,916,472 4,111,794 1,416,879 1,402,600 1,232,230 1,101,337 1,088,431 1,188,500 315,542 314,169 43,730 101,617 133,151 127,031 14,051 (11,630 ) (5,588 ) 199,874 192,648 (77,713 ) 21,649 2,713 (76,694 ) 178,225 189,935 (1,019 ) 4,303 4,464 4,480 $ 173,922 185,471 (5,499 ) $ 2.53 2.66 (0.08 ) $ 2.52 2.65 (0.08 ) 2012 2011 2010 (In thousands, except per share data) Net sales $ 5,787,980 5,642,258 5,319,072 Cost of sales 4,297,922 4,225,379 3,916,472 Gross profit 1,490,058 1,416,879 1,402,600 Selling, general and administrative expenses 1,110,550 1,101,337 1,088,431 Operating income 379,508 315,542 314,169 Interest expense 74,713 101,617 133,151 Other expense (income) 303 14,051 (11,630 ) Earnings before income taxes 304,492 199,874 192,648 Income tax expense 53,599 21,649 2,713 Net earnings 250,893 178,225 189,935 Less: Net earnings attributable to noncontrolling interest 635 4,303 4,464 Net earnings attributable to Mohawk Industries, Inc. $ 250,258 173,922 185,471 Basic earnings per share attributable to Mohawk Industries, Inc. $ 3.63 2.53 2.66 Diluted earnings per share attributable to Mohawk Industries, Inc. $ 3.61 2.52 2.65 Stockholders’ Equity and Comprehensive Income 2010 and 2009 Total Stockholders’ Equity Redeemable
Noncontrolling
Interest Common Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income Treasury Stock Total
Stockholders’
Equity Shares Amount Shares Amount (In thousands) $ 31,130 79,461 $ 795 $ 1,217,903 $ 2,004,115 $ 254,535 (11,040 ) $ (323,545 ) $ 3,153,803 — 57 — 642 — — 6 184 826 — — — 9,653 — — — — 9,653 — — — (342 ) — — — — (342 ) (2,151 ) — — — — — — — — 4,480 — — — — — — — — — — — — — 36,089 — — 36,089 — — — — — 7,207 — — 7,207 — — — — — (914 ) — — (914 ) — — — — (5,499 ) — — — (5,499 ) 36,883 33,459 79,518 795 1,227,856 1,998,616 296,917 (11,034 ) (323,361 ) 3,200,823 — 148 2 1,685 — — (3 ) (265 ) 1,422 — — — 6,888 — — — — 6,888 — — — (984 ) — — — — (984 ) (5,726 ) — — — — — — — — 4,464 — — — — — — — — 3,244 — — — (3,244 ) — — — (3,244 ) — — — — — (119,200 ) — — (119,200 ) — — — — — 380 — — 380 — — — — 185,471 — — — 185,471 66,651 35,441 79,666 797 1,235,445 2,180,843 178,097 (11,037 ) (323,626 ) 3,271,556 — 149 1 2,543 — — 3 78 2,622 — — — 10,159 — — — — 10,159 — — — (16 ) — — — — (16 ) (4,764 ) — — — — — — — — (1,257 ) — — — — — — — 4,303 — — — — — — — — — — — — — (42,006 ) — — (42,006 ) — — — — — (452 ) — — (452 ) — — — — 173,922 — — — 173,922 131,464 $ 33,723 79,815 $ 798 $ 1,248,131 $ 2,354,765 $ 135,639 (11,034 ) $ (323,548 ) $ 3,415,785 2012 2011 2010 (in thousands) Net earnings $ 250,893 178,225 189,935 Other comprehensive income (loss): Foreign currency translation adjustments 25,685 (42,006 ) (119,200 ) Pension prior service cost and actuarial (loss) gain (1,591 ) (452 ) 380 Other comprehensive income (loss) 24,094 (42,458 ) (118,820 ) Comprehensive income 274,987 135,767 71,115 Less: comprehensive income attributable to the non-controlling interest 635 4,303 4,464 Comprehensive income attributable to Mohawk Industries, Inc. $ 274,352 131,464 66,651 Cash Flows 2010 and 2009 2011 2010 2009 (In thousands) $ 178,225 189,935 (1,019 ) 23,209 12,341 57,412 297,734 296,773 303,004 (4,616 ) (21,279 ) (20,579 ) 1,116 7,514 — (1,273 ) (4,975 ) 1,481 — — 342 10,159 6,888 9,653 (1,257 ) — — (85,391 ) (12,273 ) 102,799 1,631 68,740 (72,515 ) (100,205 ) (118,903 ) 276,169 (11,124 ) (86,947 ) 11,510 (12,434 ) (11,791 ) 17,320 5,219 (6,311 ) (13,372 ) 300,993 319,712 672,205 (275,573 ) (156,180 ) (108,925 ) — 4,615 — (24,097 ) (79,917 ) (5,924 ) (299,670 ) (231,482 ) (114,849 ) (1,431,349 ) — (412,666 ) 1,729,349 — 349,571 (368,478 ) (199,992 ) — — — (47,000 ) 2,806 (812 ) 6,537 (8,285 ) — (23,714 ) (1,734 ) (7,514 ) — (4,764 ) (3,472 ) (4,402 ) 27,954 (27,954 ) — — — (342 ) 17,590 (17,900 ) 5,288 3,787 2,445 884 (33,124 ) (255,199 ) (125,844 ) (10,471 ) (10,272 ) 6,427 (42,272 ) (177,241 ) 437,939 354,217 531,458 93,519 $ 311,945 354,217 531,458 Total Stockholders’ Equity Common Stock Treasury Stock Shares Amount Shares Amount (In thousands) Balances at December 31, 2009 $ 33,459 79,518 $ 795 $ 1,227,856 $ 1,998,616 $ 296,917 (11,034 ) $ (323,361 ) $ 3,200,823 Shares issued under employee and director stock plans — 148 2 1,685 — — (3 ) (265 ) 1,422 Stock-based compensation expense — — — 6,888 — — — — 6,888 Tax deficit from stock-based compensation — — — (984 ) — — — — (984 ) Distribution to noncontrolling interest, net of adjustments (5,726 ) — — — — — — — — Noncontrolling earnings 4,464 — — — — — — — — Accretion of redeemable noncontrolling interest 3,244 — — — (3,244 ) — — — (3,244 ) Currency translation adjustment — — — — — (119,200 ) — — (119,200 ) Pension prior service cost and actuarial gain or loss — — — — — 380 — — 380 Net income — — — — 185,471 — — — 185,471 Balances at December 31, 2010 35,441 79,666 797 1,235,445 2,180,843 178,097 (11,037 ) (323,626 ) 3,271,556 Shares issued under employee and director stock plans — 149 1 2,543 — — 3 78 2,622 Stock-based compensation expense — — — 10,159 — — — — 10,159 Tax deficit from stock-based compensation — — — (16 ) — — — — (16 ) Distribution to noncontrolling interest, net of adjustments (4,764 ) — — — — — — — — Retained distribution noncontrolling interest (1,257 ) — — — — — — — Noncontrolling earnings 4,303 — — — — — — — — Currency translation adjustment — — — — — (42,006 ) — — (42,006 ) Pension prior service cost and actuarial gain or loss — — — — — (452 ) — — (452 ) Net income — — — — 173,922 — — — 173,922 Balances at December 31, 2011 33,723 79,815 798 1,248,131 2,354,765 135,639 (11,034 ) (323,548 ) 3,415,785 Shares issued under employee and director stock plans 370 4 13,467 2 86 13,557 Stock-based compensation expense 14,082 14,082 Tax benefit from stock-based compensation 1,133 1,133 Distribution to noncontrolling interest, net of adjustments (423 ) — Noncontrolling earnings 635 — Purchase of noncontrolling interest (35,000 ) — Tax effect of purchase of noncontrolling interest 1,065 708 708 Currency translation adjustment 25,685 25,685 Pension prior service cost and actuarial gain or loss (1,591 ) (1,591 ) Net income 250,258 250,258 Balances at December 31, 2012 $ — 80,185 $ 802 $ 1,277,521 $ 2,605,023 $ 159,733 (11,032 ) $ (323,462 ) $ 3,719,617 2012 2011 2010 (In thousands) Cash flows from operating activities: Net earnings $ 250,893 178,225 189,935 Adjustments to reconcile net earnings to net cash provided by operating activities: Restructuring 18,564 23,209 12,341 Depreciation and amortization 280,293 297,734 296,773 Deferred income taxes 9,037 (4,616 ) (21,279 ) Loss on extinguishment of debt — 1,116 7,514 Loss (gain) on disposal of property, plant and equipment 4,782 (1,273 ) (4,975 ) Stock-based compensation expense 14,082 10,159 6,888 Other — (1,257 ) — Changes in operating assets and liabilities, net of effects of acquisitions: Receivables, net 10,888 (85,391 ) (12,273 ) Income tax receivable — 1,631 68,740 Inventories (17,079 ) (100,205 ) (118,903 ) Accounts payable and accrued expenses 39,181 (11,124 ) (86,947 ) Other assets and prepaid expenses (9,864 ) (12,434 ) (11,791 ) Other liabilities (13,187 ) 5,219 (6,311 ) Net cash provided by operating activities 587,590 300,993 319,712 Cash flows from investing activities: Additions to property, plant and equipment (208,294 ) (275,573 ) (156,180 ) Proceeds from insurance claim — — 4,615 Acquisitions, net of cash acquired — (24,097 ) — Investment in joint venture (7,007 ) — (79,917 ) Net cash used in investing activities (215,301 ) (299,670 ) (231,482 ) Cash flows from financing activities: Payments on revolving line of credit (1,711,425 ) (1,431,349 ) — Proceeds from revolving line of credit 1,567,300 1,729,349 — Repayment of senior notes (336,270 ) (368,478 ) (199,992 ) Proceeds from asset securitization borrowings 280,000 — — Borrowings (payments) on term loan and other debt (3,259 ) 2,806 (812 ) Debt issuance costs (1,797 ) (8,285 ) — Debt extinguishment costs — (1,734 ) (7,514 ) Purchase of non-controlling interest (35,000 ) — — Distribution to non-controlling interest (423 ) (4,764 ) (3,472 ) Change in restricted cash — 27,954 (27,954 ) Change in outstanding checks in excess of cash 7,890 17,590 (17,900 ) Proceeds from stock transactions 16,153 3,787 2,445 Net cash used in financing activities (216,831 ) (33,124 ) (255,199 ) Effect of exchange rate changes on cash and cash equivalents 10,269 (10,471 ) (10,272 ) Net change in cash and cash equivalents 165,727 (42,272 ) (177,241 ) Cash and cash equivalents, beginning of year 311,945 354,217 531,458 Cash and cash equivalents, end of year $ 477,672 311,945 354,217 2010 and 2009 including its primary operating subsidiaries, Mohawk Carpet, LLC, Dal-Tile Corporation and Unilin BVBA, is a leading producer of floor covering products for residential and commercial applications in the United States (“U.S.”) and residential applications in Europe. The Company is the second largest carpet and rug manufacturer and one of the largest manufacturers, marketers and distributors of ceramic tile, natural stone and hardwood flooring in the U.S., as well as a leading producer of laminate flooring in the U.S. and Europe. and Restricted Cash2011,2012, the Company had invested cash of $266,488$417,541 of which $415,877 was invested in A-1/P-1 rated money market AAA rated cash investments of which $6,497in Europe and $1,664 was in North America and Mexico and $259,991 was in Europe.Mexico. As of December 31, 2010,2011, the Company had restrictedinvested cash of $27,954.$266,488 of which $259,991 was invested in A-1/P-1 rated money market cash investments in Europe and $6,497 was in North America and Mexico.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued)25-3525-35 years for buildings and improvements, 5-155-15 years for3-73-7 years for furniture and fixtures.ASC 350, formerly Statement ofthe Financial Accounting Standards (“SFAS”Board ("FASB") No. 142,Accounting Standards Codification Topic ("ASC") 350, “GoodwillIntangibles-Goodwill and Other, Intangible Assets,” the Company tests goodwill and other intangible assets with indefinite lives for impairment on an annual basis in 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 Mohawk, Dal-Tile, Unilin Flooring, Unilin Chipboard and Melamine, and Unilin Roofing 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.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued)The impairment test for indefinite lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. 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 estimates of fair value of indefinite lived intangible assets are determined using a discounted cash flows valuation. Significant judgments inherent in this analysis include assumptions about appropriate sales growth rates, royalty rates, WACC and the amount of expected future cash flows. These judgments and assumptions are subject to the variability discussed above.7-167-16 years.interest and penalties in income tax expense (benefit).itstheir fair value because of the short-term maturity of such instruments. 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.$35,847$29,175 in 2011, $38,5532012, $35,847 in 20102011 and $43,752$38,553 in 2009.2010.$3,520$6,424 in 2011, $4,6602012, $3,520 in 20102011 and $3,809$4,660 in 2009.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIES2010Notes to Consolidated Financial Statements—(Continued).and Mexico, in which case the functional currency is the U.S. dollar. Other than Canada, and Mexico, 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. Gains or losses resulting from transactions denominated in foreign currencies are included in other income or expense, within the consolidated statements of operations. The assets and liabilities of the Company’s Canada and MexicoCanadian operations are re-measured using a month end rate, except for non-monetary assets and liabilities, which are re-measured using the historical exchange rate. Income and expense accounts are re-measured using an average monthly rate for the period, except for expenses related to those balance sheet accounts that are re-measured using historical exchange rates. The resulting re-measurement adjustment is reported in the consolidated statements of operations when incurred. 1,203 and 1,4131,203 for 2012, 2011 2010 and 2009,2010, respectively. For 2009, all outstanding common stock options to purchase common shares and unvested restricted shares (units) were excluded from the calculation of diluted loss per share because their effect on net loss per common share was anti-dilutive.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) (loss) per share are presented in the following table: 2011 2010 2009 $ 173,922 185,471 (5,499 ) — (3,244 ) — $ 173,922 182,227 (5,499 ) 68,736 68,578 68,452 228 206 — 68,964 68,784 68,452 $ 2.53 2.66 (0.08 ) $ 2.52 2.65 (0.08 ) 2012 2011 2010 Net earnings attributable to Mohawk Industries, Inc. $ 250,258 173,922 185,471 Accretion of redeemable noncontrolling interest (1) — — (3,244 ) Net earnings available to common stockholders $ 250,258 173,922 182,227 Weighted-average common shares outstanding-basic and diluted: Weighted-average common shares outstanding - basic 68,988 68,736 68,578 Add weighted-average dilutive potential common shares - options and RSU’s to purchase common shares, net 318 228 206 Weighted-average common shares outstanding-diluted 69,306 68,964 68,784 Basic earnings per share attributable to Mohawk Industries, Inc. $ 3.63 2.53 2.66 Diluted earnings per share attributable to Mohawk Industries, Inc. $ 3.61 2.52 2.65 (1) Amount represents the adjustment to fair value of a redeemable noncontrolling interest in a consolidated subsidiary of the Company. formerly SFAS No 123R, “Stock Compensation”. Compensation expense is generally recognized on a straight-line basis over the award’sawards' estimated lives for fixed awards with ratable vesting provisions.Consolidated Statementsconsolidated statements of Equity and Comprehensive Incomestockholders' equity for the years ended December 31, 2012, 2011 2010 and 20092010 are as follows: Foreign
translation
adjustment Pensions Total $ 296,182 735 296,917 (119,200 ) 380 (118,820 ) 176,982 1,115 178,097 (42,006 ) (452 ) (42,458 ) $ 134,976 663 135,639 The Company identified and corrected an immaterial error in its 2010 Consolidated Statement Pensions Total December 31, 2009 $ 296,182 735 296,917 2010 activity (119,200 ) 380 (118,820 ) December 31, 2010 176,982 1,115 178,097 2011 activity (42,006 ) (452 ) (42,458 ) December 31, 2011 134,976 663 135,639 2012 activity 25,685 (1,591 ) 24,094 December 31, 2012 $ 160,661 (928 ) 159,733 (p) Recent Accounting PronouncementsIn June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05,“Comprehensive Income (Topic 220)—Presentation-Presentation of Comprehensive Income”Income” (“ASU 2011-05”). This update requires that the components of net income, the components of other comprehensive income and the total of comprehensive incometo be presented asin a single continuous financial statement or in two separate but consecutive statements. The option of presenting other comprehensive income in the statement of stockholders’stockholders' equity iswas eliminated. This update also requires the presentation on the face of the financial statements of reclassification adjustments for items that are reclassified from other comprehensive income to net incomeThe Company adopted ASU 2011-05 in the statements where the componentsfirst quarter of net income2012 and the components of other comprehensive income are presented. In November 2011, the FASB issued ASU 2011-12 that defers the effective date of the requirementchose to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income. The deferral is temporary until the Board reconsiders the operational concerns and needs of financial statement users. The Board has not yet established a timetable for its reconsideration. The requirements to present other comprehensive income in a continuous statement or two separate but consecutive statements and other requirements of ASU 2011-05, as amended by ASU 2011-12, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.statements.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued)acquired Australian and United Kingdom distribution businessesexpects to complete the transaction in the Unilin segmentfirst half of 2013 pending customary governmental approvals and the satisfaction of other closing conditions.$24,097€125 million. The Company expects to complete the transaction in the second half of 2013 pending customary governmental approvals and $5,604 in 2011 and 2009, respectively. December 31, 2011 December 31, 2010 $ 696,856 621,539 1,703 11,027 31,311 27,662 729,870 660,228 43,705 45,755 $ 686,165 614,473 December 31,
2012 December 31,
2011Customers, trade $ 691,553 696,856 Income tax receivable — 1,703 Other 25,793 31,311 717,346 729,870 Less allowance for discounts, returns, claims and doubtful accounts 37,873 43,705 Receivables, net $ 679,473 686,165 Balance at
beginning
of year Additions
charged to
costs and
expenses Deductions(1) Balance
at end
of year $ 62,378 205,145 204,714 62,809 62,809 170,274 187,328 45,755 45,755 161,073 163,123 43,705 Deductions(1) 2010 $ 62,809 170,274 187,328 45,755 2011 45,755 161,073 163,123 43,705 2012 43,705 180,616 186,448 37,873 (1) Represents charge-offs, net of recoveries. December 31, 2011 December 31, 2010 $ 670,877 624,082 113,311 97,257 329,442 286,164 $ 1,113,630 1,007,503 December 31,
2012 December 31,
2011Finished goods $ 695,606 670,877 Work in process 103,685 113,311 Raw materials 334,445 329,442 Total inventories $ 1,133,736 1,113,630 20112012 and determined the fair values of its reporting units and trademarks exceeded their carrying values. As a result, no impairment was indicated.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) Mohawk Dal-Tile Unilin Total $ 199,132 1,186,913 1,352,508 2,738,553 (199,132 ) (531,930 ) (596,363 ) (1,327,425 ) — 654,983 756,145 1,411,128 — — 141 141 — — (41,875 ) (41,875 ) 199,132 1,186,913 1,310,774 2,696,819 (199,132 ) (531,930 ) (596,363 ) (1,327,425 ) — 654,983 714,411 1,369,394 — — 19,066 19,066 — — (13,285 ) (13,285 ) 199,132 1,186,913 1,316,555 2,702,600 (199,132 ) (531,930 ) (596,363 ) (1,327,425 ) $ — 654,983 720,192 1,375,175 Mohawk Dal-Tile Unilin Total Balances as of December 31, 2010 Goodwill $ 199,132 1,186,913 1,310,774 2,696,819 Accumulated impairments losses (199,132 ) (531,930 ) (596,363 ) (1,327,425 ) — 654,983 714,411 1,369,394 Goodwill recognized during the year — — 19,066 19,066 Currency translation during the year — — (13,285 ) (13,285 ) Balances as of December 31, 2011 Goodwill 199,132 1,186,913 1,316,555 2,702,600 Accumulated impairments losses (199,132 ) (531,930 ) (596,363 ) (1,327,425 ) — 654,983 720,192 1,375,175 Currency translation during the year — — 10,596 10,596 Balances as of December 31, 2012 Goodwill 199,132 1,186,913 1,327,151 2,713,196 Accumulated impairments losses (199,132 ) (531,930 ) (596,363 ) (1,327,425 ) $ — 654,983 730,788 1,385,771 and 2010,, the Company recorded additional goodwill of $19,066 and $141, respectively,$19,066 in the Unilin segment related to business acquisitions. Tradenames $ 477,607 (20,717 ) 456,890 (6,458 ) $ 450,432 Customer
relationships Patents Other Total $ 159,302 147,008 1,425 307,735 (45,679 ) (23,714 ) (120 ) (69,513 ) (7,191 ) (10,774 ) (20 ) (17,985 ) 106,432 112,520 1,285 220,237 5,181 — — 5,181 (47,460 ) (22,782 ) (122 ) (70,364 ) 805 (1,194 ) 3 (386 ) $ 64,958 88,544 1,166 154,668 Tradenames Indefinite life assets not subject to amortization: Balance as of December 31, 2010 $ 456,890 Currency translation during the year (6,458 ) Balance as of December 31, 2011 450,432 Currency translation during the year 5,071 Balance as of December 31, 2012 $ 455,503 Year Ended December 31, 2011 2010 2009 $ 70,364 69,513 74,055 Patents Other Total Intangible assets subject to amortization: Balance as of December 31, 2010 $ 106,432 112,520 1,285 220,237 Intangible assets recognized during the year 5,181 — — 5,181 Amortization during the year (47,460 ) (22,782 ) (122 ) (70,364 ) Currency translation during the year 805 (1,194 ) 3 (386 ) Balance as of December 31, 2011 64,958 88,544 1,166 154,668 Amortization during the year (38,595 ) (18,747 ) (121 ) (57,463 ) Currency translation during the year (153 ) 1,234 10 1,091 Balance as of December 31, 2012 $ 26,210 71,031 1,055 98,296 Years Ended December 31, 2012 2011 2010 Amortization expense $ 57,463 70,364 69,513 $ 57,898 22,397 20,391 18,137 15,599 2013 $ 22,715 2014 20,716 2015 18,421 2016 15,837 2017 14,207 December 31, 2011 December 31, 2010 $ 180,584 186,406 682,395 703,939 2,470,485 2,361,605 90,963 82,287 54,501 54,156 160,929 129,999 3,639,857 3,518,392 1,927,703 1,831,268 $ 1,712,154 1,687,124 December 31,
2012 December 31,
2011Land $ 178,110 180,584 Buildings and improvements 730,668 682,395 Machinery and equipment 2,550,779 2,470,485 Furniture and fixtures 98,519 90,963 Leasehold improvements 54,880 54,501 Construction in progress 145,368 160,929 3,758,324 3,639,857 Less accumulated depreciation and amortization 2,065,472 1,927,703 Net property, plant and equipment $ 1,692,852 1,712,154 $6,197, $4,240$4,577, $6,197 and $4,469$4,240 in 2012, 2011 2010 and 2009,2010, respectively. Depreciation expense was $220,580, $218,649$217,393, $220,580 and $223,453$218,649 for 2012, 2011 2010 and 2009,2010, respectively. Included in the property, plant and equipment are capital leases with a cost of $7,803$7,219 and $8,113$7,803 and accumulated depreciation of $5,881$5,581 and $5,420$5,881 as of December 31, 20112012 and 2010,2011, respectively.On September 2, 2009, the Company entered into a $600,000 four-year, senior, secured revolving credit facility (the “ABL Facility”). $900,000 five-year,5-year, senior, secured revolving credit facility (the “Senior Credit Facility”). The Senior Credit Facility provides for a maximum of $900,000 of revolving credit, including limited amounts of credit in the form of letters of credit and terminated the ABL Facility, which was originally set to mature on September 2, 2013.swingline loans. The Company paid financing costs of $8,285$8,285 in connection with its$12,277$12,277 related to the Company’s ABL Facility,prior senior, secured revolving credit facility, are being amortized over the term of the Senior Credit Facility. In addition, the Company expensed $1,116 of deferred financing costs related to the termination of its ABL Facility.$150,000.ABL FacilityThe ABL Facility provided for a maximum of $600,000 of revolving credit, subject to borrowing base availability, including limited amounts of credit in the form of letters of credit and swingline loans. TheIndex to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIES$150,000Notes to Consolidated Financial Statements—(Continued)borrowing base was equal to specified percentages of eligible accounts receivable and inventories of the borrowers under the ABL Facility, which were subject to seasonal variations, less reserves established in good faith by the Administrative Agent under the ABL Facility. All obligations under the ABL Facility, and the guarantees of those obligations, were secured by a security interest in certain accounts receivable, inventories, certain deposit and securities accounts, tax refunds and other personal property (excluding intellectual property) directly relating to, or arising from, and proceeds of any of the foregoing. On June 1, 2010, the Company amended the ABL Facility to, among other things, reduce the applicable interest rate margins on loans and reduce the commitment fees.At the Company’s election, revolving loans under the ABL Facility bore interest at annual rates equal to either (a) LIBOR for 1, 2, 3 or 6 month periods, as selected by the Company, plus an applicable margin ranging between 2.75% and 3.25%, or (b) the higher of the prime rate, the Federal Funds rate plus 0.5%, or a one-month LIBOR rate, plus an applicable margin ranging between 1.25% and 1.75%. The Company also paid a commitment feefinancing costs of $1,018 in connection with the amendment to its Senior Credit Facility. These costs were deferred and are being amortized over the lenders under the ABL Facility on the average amount by which the aggregate commitmentsremaining term of the lenders’ exceed utilization of the ABL Facility equal to 0.65% per annum during any quarter that this excess is 50% or more and 0.50% per annum during any quarter that this excess is less than 50%.The ABL Facility included certain affirmative and negative covenants that imposed restrictions on the Company’s financial and business operations, including limitations on debt, liens, investments, fundamental changes, asset dispositions, dividends and other similar restricted payments, transactions with affiliates, payments and modifications of certain existing debt, future negative pledges, and changes in the nature of the Company’s business. The Company was also required to maintain a fixed charge coverage ratio of 1.1 to 1.0 during any period that the unutilized amount available under the ABL Facility is less than 15% of the lenders’ aggregated commitments.Facility The Senior Credit Facility provides for a maximum of $900,000 of revolving credit, including limited amounts of credit in the form of letters of credit and swingline loans. The Company can terminate and prepay the Senior Credit Facility at any time without payment of any termination or prepayment penalty (other than customary breakage costs in respect of loans bearing interest at a rate based on LIBOR). All obligations underSenior Credit Facility, andrating agency upgrade announced on March 14, 2012 by Standard & Poor’s Financial Services, LLC (“S&P”), the guarantees of those obligations, are secured by a security interestinterests in domestic accounts receivable and inventories, certain shares of capital stock (or equivalent ownership interests) of the domestic borrowers’ and domestic guarantors’ subsidiaries, and proceedsIndex to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued)foregoing. The amount of theforegoing securing obligations under the Senior Credit Facility secured by such shares of capital stock and equivalent ownership interests is limited to the lesser of (i) the aggregate amount permitted to be secured under the Company’s Indenture dated as of April 2, 2002, without requiring the notes issued under that Indenture to be secured equally and ratably by such shares of capital stock and equivalent ownership interests and (ii) the aggregate amount permitted to be secured under the Company’s Indenture dated as of January 9, 2006 (as supplemented by that first supplemental indenture dated as of January 17, 2006) without requiring the notes issued under that Indenture to be secured equally and ratably by such shares of capital stock and equivalent ownership interests.If at any time (a) either (i) the Company’s corporate family rating or senior unsecured rating, whichever is in effect from Moody’s Investors Service, Inc. (“Moody’s”) is Baa3 or better (with a stable outlook or better) and the Company’s corporate rating from Standard & Poor’s Financial Services LLC (“S&P”) is BB+ or better (with a stable outlook or better) or (ii) the Moody’s rating is Ba1 or better (with a stable outlook or better) and the S&P rating is BBB- or better (with a stable outlook or better) and (b) no default or event of default has occurred and is continuing, then upon the Company’s request, the foregoing security interests will bewere released. The Company iswill be required to reinstate such security interests after release if:if there is a ratings downgrade such that: (a) both (i) the Moody’s Investor’s Service, Inc. (“Moody’s”) rating is Ba2 and (ii) the S&P rating is BB, (b) (i) the Moody’s rating is Ba3 or lower and (ii) the S&P rating is below BBB- (with a stable outlook or better) or (c) (i) the Moody’s rating is below Baa3 (with a stable outlook or better) and (ii) the S&P rating is BB- or lower.3.03.00 to 1.0 and a Consolidated Net Leverage Ratio of no more than 3.75 to 1.0, each as of the last day of any fiscal quarter, as defined in the Senior Credit Facility. The Senior Credit Facility also contains customary representations and warranties and events of default, subject to customary grace periods.2011,2012, the amount utilized under the Senior Credit Facility including the term loan was $395,336$251,238, resulting in a total of $504,664$793,137 available under the Senior Credit Facility. The amount utilized included $298,000$153,875 of borrowings, $46,796$46,823 of standby letters of credit guaranteeing the Company’s industrial revenue bonds and $50,540$50,540 of standby letters of credit related to various insurance contracts and foreign vendor commitments.$500,000$900,000 aggregate principal amount of 5.75% senior6.125% notes due January 15, 2011 and $900,000 aggregate principal amount of 6.125% notes due January 15, 2016.2016. Interest payable on these notes is subject to adjustment if either Moody’s or S&P, or both, upgrades or downgrades the rating assigned to the notes. Each rating agency downgrade results in a 0.25% increase in the interest rate, subject to a maximum increase of 1% per rating agency. If later the rating of these notes improves, then the interest rates would be reduced accordingly. Each 0.25% increase in the interest rate of these notes would increase the Company’s interest expense by approximately $63$0.1 million per quarter per $100,000$100.0 million of outstanding notes. InterestIn 2009, interest rates have been increased by an aggregate amount of 0.75%75 basis points as a result of downgrades by Moody’s and S&P. In the first quarter of 2012, interest rates decreased by 50 basis points as a result of the upgrades from S&P since 2008. Additionaland Moody’s. Any future downgrades in the Company’s credit ratings could further increase the cost of its existing credit and adversely affect the cost of and ability to obtain additional credit in the future.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued)On April 12, 2010, the Company purchased for cash approximately $200,000 aggregate principal amount of its outstanding 5.75% senior notes due January 15, 2011 at a price equal to 103.5% of the principal amount, which resulted in a premium to tendering noteholders of approximately $7,000. The premium and fees of $514 associated with the cash tender are included in interest expense on the 2010 consolidated statement of operations. On October 14, 2010, the Company deposited $27,942 of cash in a restricted account under the control of the Administrative Agent and reserved $280,000 on the ABL Facility to repay the remaining amount outstanding of the 5.75% senior notes due January 15, 2011, which actions were determined by the Administrative Agent to adequately reserve (for purposes of the ABL Facility) for the repayment of such notes. The Company repaid the 5.75% senior notes due January 15, 2011 at maturity, including accrued interest, using approximately $170,000 of available cash and borrowings of approximately $138,000 under the ABL Facility.$400,000$400,000 aggregate principal amount of its senior 7.20% notes due April 15, 2012.2012. During 2011, the Company repurchased $63,730$63,730 of its senior 7.20% notes, at aan average price equal to 102.72% of the principal amount. December 31, 2011 December 31, 2010 Fair Value Carrying Value Fair Value Carrying Value $ — — 296,459 298,248 336,606 336,270 422,400 400,000 963,900 900,000 963,000 900,000 298,000 298,000 — — 52,169 52,169 55,334 55,334 1,650,675 1,586,439 1,737,193 1,653,582 386,591 386,255 348,799 350,588 $ 1,264,084 1,200,184 1,388,394 1,302,994 December 31, 2012 December 31, 2011 Fair Value Carrying Value Fair Value Carrying Value 7.20% senior notes, payable April 15, 2012 interest payable semiannually $ — — 336,606 336,270 6.125% notes, payable January 15, 2016 interest payable semiannually 1,011,600 900,000 963,900 900,000 Five-year senior secured credit facility, due July 8, 2016 153,875 153,875 298,000 298,000 Securitization facility 280,000 280,000 — — Industrial revenue bonds, capital leases and other 49,067 49,067 52,169 52,169 Total long-term debt 1,494,542 1,382,942 1,650,675 1,586,439 Less current portion 55,213 55,213 386,591 386,255 Long-term debt, less current portion $ 1,439,329 1,327,729 1,264,084 1,200,184 20112012 are as follows: $ 386,255 849 571 262 1,198,245 257 $ 1,586,439 2013 $ 55,213 2014 13,653 2015 300,944 2016 1,012,864 2017 229 Thereafter 39 $ 1,382,942 December 31, 2011 December 31, 2010 $ 17,590 — 372,616 353,387 154,560 147,595 30,144 37,265 34,235 45,696 — 9,301 8,760 5,089 97,186 99,993 $ 715,091 698,326 December 31, 2012 December 31, 2011 Outstanding checks in excess of cash $ 25,480 17,590 Accounts payable, trade 387,871 372,616 Accrued expenses 180,039 154,560 Product warranties 32,930 30,144 Accrued interest 26,843 34,235 Deferred tax liability 6,309 8,760 Income taxes payable 2,074 — Accrued compensation and benefits 111,890 97,186 Total accounts payable and accrued expenses $ 773,436 715,091 2011 2010 2009 $ 37,265 66,545 56,460 (57,163 ) (77,017 ) (167,053 ) 4,473 2,261 125,124 45,569 45,476 52,014 $ 30,144 37,265 66,545 (1)The higher warranty expense in 2009 relates primarily to certain commercial carpet tiles that were discontinued in early 2009. 2012 2011 2010 Balance at beginning of year $ 30,144 37,265 66,545 Warranty claims paid during the year (55,314 ) (57,163 ) (77,017 ) Pre-existing warranty accrual adjustment during the year — 4,473 2,261 Warranty expense during the year 58,100 45,569 45,476 Balance at end of year $ 32,930 30,144 37,265 optionsoptions’ or other awards’ estimated lives for fixed awards with ratable vesting provisions.which was approved by the Company’s stockholders onCompany's principal stock compensation plan prior to May 16, 2007,9, 2012, 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 (“RSU’s”RSUs”) and other types of awards, to directors and key employees through 2017.2017. 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-year10-year contractual term. Restricted stock and RSU’sRSUs are granted with a 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. On May 9, 2012, the Company's stockholders approved the 2012 Long-Term Incentive Plan (“2012 Plan”), which allows the Company to reserve up to a maximum of
3,200 shares of common stock for issuance upon the grant or exercise of awards under the 2012 Plan. No additional awards may be granted under the 2007 Plan after May 9, 2012. As of December 31, 2012, there have been no awards granted under the 2012 Plan. 2011 2010 2009 1,371 1,481 1,506 76 40 76 (82 ) (74 ) (35 ) (60 ) (76 ) (66 ) 1,305 1,371 1,481 1,106 1,160 1,165 $ 57.34 46.80 28.37 $ 28.37-63.14 16.66-57.88 16.66-48.50 $ 28.37-93.65 22.63-93.65 19.94-93.65 $ 28.37-93.65 28.37-93.65 16.66-93.65 $ 28.37-93.65 28.37-93.65 16.66-93.65 2012 2011 2010 Options outstanding at beginning of year 1,305 1,371 1,481 Options granted 83 76 40 Options exercised (277 ) (82 ) (74 ) Options forfeited and expired (116 ) (60 ) (76 ) Options outstanding at end of year 995 1,305 1,371 Options exercisable at end of year 814 1,106 1,160 Option prices per share: Options granted during the year 66.14 57.34 46.80 Options exercised during the year 28.37-88.33 28.37-63.14 16.66-57.88 Options forfeited and expired during the year 46.80-93.65 28.37-93.65 22.63-93.65 Options outstanding at end of year 28.37-93.65 28.37-93.65 28.37-93.65 Options exercisable at end of year 28.37-93.65 28.37-93.65 28.37-93.65 2010 and 2009,2010, a total of 2, 3 4 and 34 shares, respectively, were awarded to the non-employee directors in lieu of cash for their annual retainers. 2010 or 2009.2010.yearyears ended December 31, 20112012 and December 31, 2009,2011, no shares of the Company’s common stock were purchased. For the year ended December 31, 2010, the Company repurchased approximately 6 shares at an average price of $56.94$56.94 in connection with the exercise of stock options under the Company’s 2007 Incentive Plan. Since the inception of the program, a total of approximately 11,518 shares have been repurchased at an aggregate cost of approximately $335,110.$335,110. All of these repurchases have been financed through the Company’s operations and banking arrangements. 2011 2010 2009 — — — 2.0 % 2.3 % 1.7 % 48.1 % 45.2 % 35.3 % 5 5 5 2012 2011 2010 Dividend yield — — — Risk-free interest rate 1.0 % 2.0 % 2.3 % Volatility 47.1 % 48.1 % 45.2 % Expected life (years) 5 5 5 2011,2012, and changes during the year then ended is presented as follows: Shares Weighted
average
exercise
price Weighted
average
remaining
contractual
term (years) Aggregate
intrinsic
value 1,371 $ 71.48 76 57.34 (82 ) 46.15 (60 ) 75.16 1,305 72.08 3.6 $ 3,610 1,297 $ 72.16 3.5 $ 3,565 1,106 $ 74.89 2.8 $ 1,968 Shares Options outstanding, December 31, 2011 1,305 $ 72.08 Granted 83 66.14 Exercised (277 ) 60.76 Forfeited and expired (116 ) 70.93 Options outstanding, December 31, 2012 995 74.87 3.9 $ 15,643 Vested and expected to vest as of December 31, 2012 989 $ 74.95 3.9 $ 15,453 Exercisable as of December 31, 2012 814 $ 77.78 3.0 $ 10,437 2010 and 20092010 was $25.39, $19.10$28.71, $25.39 and $9.17,$19.10, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 2010,, and 2009 was $1,148, $1,714$4,226, $1,148 and $809,$1,714, respectively. Total compensation expense recognized for the years ended December 31, 2012, 2011 2010 and 20092010 was $1,885 ($1,194,$2,176 ($1,378, net of tax), $2,436 ($1,543,$1,885 ($1,194, net of tax) and $4,552 ($2,884,$2,436 ($1,543, net of tax), respectively, which was allocated to selling, general and administrative expenses. The remaining unamortized expense for non-vested compensation expense as of December 31, 20112012 was $1,937$2,096 with a weighted average remaining life of 1.4 years.2011: Outstanding Exercisable Number of
shares Average
life Average
price Number of
shares Average
price 267 5.9 $ 46.40 127 $ 44.49 342 1.2 68.32 342 68.32 226 5.1 76.59 173 77.23 193 3.3 84.60 193 84.60 235 3.0 88.33 234 88.33 42 4.7 93.02 37 92.93 1,305 3.6 $ 72.08 1,106 $ 74.89 Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIES: Outstanding Exercisable Exercise price range Under $57.34 171 6.4 $ 47.90 98 $ 44.34 $57.88-$73.45 197 4.4 69.97 115 72.75 $73.54-$81.40 162 4.7 74.91 136 74.99 $81.90-$86.51 167 2.8 83.16 167 83.16 $87.87-$88.00 35 2.8 87.96 35 87.96 $88.33-$93.65 263 2.3 89.08 263 89.08 Total 995 3.9 $ 74.87 814 $ 77.78 Notes to Consolidated Financial Statements—(Continued)2011,2012, and changes during the year then ended is presented as follows: Shares Weighted
average price Weighted
average
remaining
contractual
term (years) Aggregate
intrinsic value 404 $ 47.42 196 57.34 (91 ) 49.32 (14 ) 56.30 495 50.76 2.8 $ 29,593 438 $ 50.76 2.4 $ 26,203 Shares Restricted Stock Units outstanding, December 31, 2011 495 $ 50.76 Granted 260 65.98 Released (140 ) 43.55 Forfeited (10 ) 59.07 Restricted Stock Units outstanding, December 31, 2012 605 57.87 2.3 $ 54,774 Expected to vest as of December 31, 2012 551 2.1 $ 49,872 $8,186 ($5,186,$11,887 ($7,530, net of taxes), $4,262 ($2,700,$8,186 ($5,186, net of taxes) and $5,009 ($3,173,$4,262 ($2,700, net of taxes) for the years ended December 31, 2012, 2011 2010 and 2009, 2010,$11,394$15,437 as of December 31, 2011,2012, and will be recognized as expense over a weighted-average period of approximately 3.42.9 years. 2011 2010 2009 404 359 187 196 149 204 (91 ) (95 ) (22 ) (14 ) (9 ) (10 ) 495 404 359 438 343 317 2012 2011 2010 Restricted Stock Units outstanding, January 1 495 404 359 Granted 260 196 149 Released (140 ) (91 ) (95 ) Forfeited (10 ) (14 ) (9 ) Restricted Stock Units outstanding, December 31 605 495 404 Expected to vest as of December 31 551 438 343 $.50$.50 for every $1.00$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 $34,595$35,986 and $14,541$15,046 in 2011, $33,0712012, $34,595 and $13,062$14,541 in 20102011 and $34,838$33,071 and $13,822$13,062 in 2009,2010, respectively. The Company also made a discretionary contribution to the Mohawk Plan of approximately $1,908 in 2009. The Company discontinued the discretionary match on January 1, 2010.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 2011 2010 2009 $ 1,708 1,506 1,315 1,400 1,219 1,352 (1,232 ) (1,025 ) (1,069 ) (26 ) 4 (322 ) — — (200 ) $ 1,850 1,704 1,076 2012 2011 2010 Service cost of benefits earned $ 1,870 1,708 1,506 Interest cost on projected benefit obligation 1,367 1,400 1,219 Expected return on plan assets (1,192 ) (1,232 ) (1,025 ) Amortization of actuarial gain (10 ) (26 ) 4 Net pension expense $ 2,035 1,850 1,704 2011 2010 4.75% 5.00% 4.00%-5.00% 4.00%-5.00% 0.00%-3.00% 0.00%-3.00% 2.00% 2.00% 2012 2011 Discount rate 4.50% 4.75% Expected rate of return on plan assets 2.50%-3.50% 4.00%-5.00% Rate of compensation increase 2.00%-4.00% 0.00%-3.00% Underlying inflation rate 2.00% 2.00% 2011 2010 $ 26,977 25,468 (876 ) (1,850 ) 1,708 1,506 1,400 1,219 763 720 455 863 (1,196 ) (949 ) $ 29,231 26,977 $ 24,108 21,841 (594 ) (1,599 ) 1,203 2,324 1,825 1,771 (1,196 ) (949 ) 763 720 $ 26,109 24,108 $ (3,122 ) (2,869 ) $ (3,122 ) (2,869 ) (663 ) (1,115 ) $ (3,785 ) (3,984 ) Index to Financial Statements 2012 2011 Change in benefit obligation: Projected benefit obligation at end of prior year $ 29,231 26,977 Cumulative foreign exchange effect 669 (876 ) Service cost 1,870 1,708 Interest cost 1,367 1,400 Plan participants contributions 827 763 Actuarial loss 5,179 455 Benefits paid (1,552 ) (1,196 ) Effect of curtailment and settlement (40 ) — Projected benefit obligation at end of year $ 37,551 29,231 Change in plan assets: Fair value of plan assets at end of prior year $ 26,109 24,108 Cumulative foreign exchange effect 515 (594 ) Actual return on plan assets 4,771 1,203 Employer contributions 1,888 1,825 Benefits paid (1,552 ) (1,196 ) Plan participant contributions 827 763 Fair value of plan assets at end of year $ 32,558 26,109 Funded status of the plans: Ending funded status $ (4,993 ) (3,122 ) Net amount recognized in consolidated balance sheets: Accrued benefit liability (non-current liability) $ (4,993 ) (3,122 ) Accumulated other comprehensive income 928 (663 ) Net amount recognized $ (4,065 ) (3,785 ) MOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued)$(452)$(1,591), $380$(452) and $(914)$380 for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively. 4.50% 4.75% 0.00%-3.00% 0.00%-3.00% 2.00% 2.00% 2012 2011 Discount rate 3.25% 4.50% Rate of compensation increase 2.00%-4.00% 0.00%-3.00% Underlying inflation rate 2.00% 2.00% Non-U.S. Plans December 31, 2011 December 31, 2010 $ 16,492 17,236 15,496 16,122 14,703 15,356 $ 12,739 9,741 10,687 8,132 11,406 8,752 Non-U.S. Plans December 31,
2012 December 31,
2011Plans with accumulated benefit obligations in excess of plan assets: Projected benefit obligation $ 15,067 16,492 Accumulated benefit obligation 12,396 15,496 Fair value of plan assets 11,702 14,703 Plans with plan assets in excess of accumulated benefit obligations: Projected benefit obligation $ 22,484 12,739 Accumulated benefit obligation 20,640 10,687 Fair value of plan assets 20,856 11,406 $967 in 2012, $909 in 2013, $1,080 in 2014, $1,582 in 2015, $1,476 in 2016 and $9,259 in total for 2017-2021.2013 976 2014 984 2015 1,071 2016 1,102 2017 1,606 Thereafter 10,241 $1,866$1,930 to the Non-U.S. Plans in 2012.2013.PlansPlans' investments were estimated using market observable data. Within the hierarchy of fair value measurements, these investments represent Level 2 fair values. The fair value and percentage of each asset category of the total investments held by the plans as of December 31, 20112012 and 20102011 were as follows: 2011 2010 $ 26,109 24,108 2011 2010 100.0 % 100.0 % 2012 2011 Non-U.S. Plans: Insurance contracts (100%) $ 32,558 26,109 Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 2011 2010 2009 $ 10,423 (2,270 ) (5,604 ) — (7,730 ) — 3,628 (1,630 ) 16 $ 14,051 (11,630 ) (5,588 ) 2012 2011 2010 Foreign currency losses (gains) $ (5,599 ) 10,423 (2,270 ) U.S. customs refund — — (7,730 ) All other, net 5,902 3,628 (1,630 ) Total other expense (income) $ 303 14,051 (11,630 ) (loss) from continuing operations before income taxes for United States and foreign operations: 2011 2010 2009 $ 78,224 39,332 (205,737 ) 121,650 153,316 128,024 $ 199,874 192,648 (77,713 ) 2012 2011 2010 United States $ 164,122 78,224 39,332 Foreign 140,370 121,650 153,316 Earnings before income taxes $ 304,492 199,874 192,648 2010 and 20092010 consists of the following: 2011 2010 2009 $ 13,957 14,052 (78,051 ) 5,118 1,514 1,139 7,190 8,426 20,797 26,265 23,992 (56,115 ) 8,994 (8,578 ) 18,082 (3,488 ) 18,562 (6,931 ) (10,122 ) (31,263 ) (31,730 ) (4,616 ) (21,279 ) (20,579 ) $ 21,649 2,713 (76,694 ) Index to Financial Statements 2012 2011 2010 Current income taxes: U.S. federal $ 26,204 13,957 14,052 State and local 4,583 5,118 1,514 Foreign 13,775 7,190 8,426 Total current 44,562 26,265 23,992 Deferred income taxes: U.S. federal 31,106 8,994 (8,578 ) State and local 4,704 (3,488 ) 18,562 Foreign (26,773 ) (10,122 ) (31,263 ) Total deferred 9,037 (4,616 ) (21,279 ) Total $ 53,599 21,649 2,713 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) (loss) before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to earnings (loss) before income taxes as follows: 2011 2010 2009 $ 69,956 67,427 (27,200 ) 2,821 2,358 (3,874 ) (45,112 ) (21,389 ) (12,840 ) (2,052 ) (17,139 ) 12,214 — — (55,956 ) (5,911 ) (3,447 ) 9,634 — (30,162 ) — — (49 ) 101 1,947 5,114 1,227 $ 21,649 2,713 (76,694 ) 2012 2011 2010 Income taxes at statutory rate $ 106,572 69,956 67,427 State and local income taxes, net of federal income tax benefit 6,004 2,821 2,358 Foreign income taxes (66,538 ) (45,112 ) (21,389 ) Change in valuation allowance 5,703 (2,052 ) (17,139 ) Tax contingencies and audit settlements (3,598 ) (5,911 ) (3,447 ) Acquisition related tax contingencies — — (30,162 ) Change in statutory tax rate — — (49 ) Other, net 5,456 1,947 5,114 $ 53,599 21,649 2,713 20112012 and 20102011 are presented below: 2011 2010 $ 10,031 12,808 39,227 46,981 90,171 89,549 17,224 15,441 136,891 164,945 273,509 201,337 567,053 531,061 (334,215 ) (325,127 ) 232,838 205,934 (5,270 ) (4,358 ) (294,960 ) (269,340 ) (137,888 ) (144,120 ) (6,401 ) (5,338 ) (444,519 ) (423,156 ) $ (211,681 ) (217,222 ) 2012 2011 Deferred tax assets: Accounts receivable $ 12,289 10,031 Inventories 38,801 39,227 Accrued expenses and other 97,808 90,171 Deductible state tax and interest benefit 13,119 17,224 Intangibles 113,282 136,891 Federal, foreign and state net operating losses and credits 247,786 273,509 Gross deferred tax assets 523,085 567,053 Valuation allowance (321,585 ) (334,215 ) Net deferred tax assets 201,500 232,838 Deferred tax liabilities: Inventories (8,106 ) (5,270 ) Plant and equipment (277,324 ) (294,960 ) Intangibles (128,433 ) (137,888 ) Other liabilities (7,854 ) (6,401 ) Gross deferred tax liabilities (421,717 ) (444,519 ) Net deferred tax liability (1) $ (220,217 ) (211,681 ) (1) $1,822$4,317 and $1,066$1,822 of non-current deferred tax assets which are in deferred income taxes and other non-current assets and $8,760$6,309 and $5,089$8,760 current deferred tax liabilities which are included in accounts payable and accrued expenses in the consolidated balance sheets as of December 31, 20112012 and 2010,2011, respectively.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 2010 and 20092010 is $334,215, $325,127$321,585, $334,215 and $365,944,$325,127, respectively. The valuation allowance as of December 31, 20112012 relates to the net deferred tax assets of one of the Company’s foreign subsidiaries as well as certain state net operating losses and tax credits. The total change in the 2012 valuation allowance was a decrease of $12,630 which includes $5,863 related to foreign currency translation. The total change in the 2011 valuation allowance was an increase of $9,088,$9,088, which includes $7,040$7,040 related to foreign currency translation.2011,2012, the Company has a federal net operating loss carry forward of $141,383. The Company also has state net operating loss carry forwards and state tax credits with potential tax benefits of $52,626,$49,081, net of federal income tax benefit; these carry forwards expire over various periods based on taxing jurisdiction. A valuation allowance totaling $38,498$39,461 has been recorded against these state deferred tax assets as of December 31, 2011.2012. In addition, as of December 31, 2011,2012, the Company has net operating loss carry forwards in various foreign jurisdictions with potential tax benefits of $584,850.$198,705. A valuation allowance totaling $160,511$170,394 has been recorded against these deferred tax assets as of December 31, 2011.2011 and 2010,2012, the Company had not provided federal income taxes on earnings of approximately $700,000 and $748,000, respectively,$786,000 from its foreign subsidiaries. Should these earnings be distributed in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes in various foreign jurisdictions. These taxes may be partially offset by U.S. foreign tax credits.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued)€24,000€23,789 assessment from the Belgian tax authority related to theits year ended December 31, 2008.2008, asserting that the Company had understated its Belgian taxable income for that year. The Company disagrees with the view and conclusions of the Belgian tax authority, believes it is unlikely that the Belgian tax authority would be able to successfully defend the proposed changes, and intends to vigorously contest the assessment. The Company intends to filefiled a formal protest in the first quarter of 2012 contestingrefuting the Belgian tax authority’s conclusions. Inauthority's position and in order to eliminate the accrual of additional interest on the assessed amount, the Company intends to remitremitted payment of the entiretax assessment, plus applicable interest to date of approximately €2,500 in€2,912 (collectively, the first quarter of 2012. If“Deposit”). In July 2012, the Company is successful in its defensereceived notification of this matter, such deposit earns 7% interest per year. In addition, during the fourth quarterBelgian tax authority's intention to extend the statute of 2011,limitations back to and including the tax year 2005. On September 10, 2012, the Company received notice from the Belgian tax authority setting aside the 2008 assessment and refunding the Deposit to the Company. On October 23, 2012, the Company received notification from the Belgian tax authority of its intent to increase the Company’sCompany's tax base for the 2008 tax year under a revised theory. On December 28, 2012, the Company received the refund of the Deposit of €23,789. On January 30, 2013, the Company received a refund of the interest Deposit of €2,912 and interest income of €1,583 earned on the Deposit.yearyears ended December 31, 2009.2005 and December 31, 2009, in the amounts of €46,135 and €35,567, respectively, excluding potential interest and penalties. The Company intends to file a formal protest during the first quarter of 2013 relating to the new assessments. The Company disagrees with the views of the Belgian tax authority on this matter and will continue to vigorously defend itself. Although there can be no assurances, the Company believes the ultimate outcome of these actions will not have a material adverse effect on its financial condition but could have a material adverse effect on its results of operations, liquidity or cash flows in a given quarter or year.2011,2012, the Company’s gross amount of unrecognized tax benefits is $46,087,$53,835, excluding interest and penalties. If the Company were to prevail on all uncertain tax positions, $36,566$36,902 of the unrecognized tax benefits would affect the Company’s effective tax rate, exclusive of any benefits related to interest and penalties. 2011 2010 $ 49,943 105,779 306 4,028 7,907 13,726 (926 ) (9,273 ) (1,391 ) (1,517 ) (9,752 ) (61,063 ) — (1,737 ) $ 46,087 49,943 2012 2011 Balance as of January 1 $ 46,087 49,943 Additions based on tax positions related to the current year 3,142 306 Additions for tax positions of prior years 17,006 7,907 Reductions for tax positions of prior years (3,571 ) (926 ) Reductions resulting from the lapse of the statute of limitations (1,764 ) (1,391 ) Settlements with taxing authorities (7,065 ) (9,752 ) Balance as of December 31 $ 53,835 46,087 20112012 and 2010,2011, the Company has $7,998$5,874 and $15,550,$7,998, respectively, accrued for the payment of interest and penalties, excluding the federal tax benefit of interest deductions where applicable. During the years ending December 31, 2012 , 2011 and 2010, the Company reversed interest and penalties through the consolidated statements of operations of $3,755$1,585, $3,755 and $9,852,$9,852, respectively. During the year ended December 31, 2009, the Company accrued $8,228 in interest and penalties through the consolidated statement$10,240$7,499 within the next twelve months. In addition, theThe Company has effectively settled all Federal income tax matters related to years prior to 2007.2009. Various other state and foreign income tax returns are open to examination for various years.Index The Internal Revenue Service ("IRS") recently concluded its examination of the Company's 2007-2009 federal income tax returns. The results of the federal income tax examination were submitted to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotesthe Congressional Joint Committee on Taxation for review. Subsequent to Consolidated Financial Statements—(Continued)the quarter ended December 31, 2012, the Company received notice that the Congressional Joint Committee on Taxation had completed its review and took no exception to the conclusions reached by the IRS. Capital Operating Total Future
Payments $ 698 90,434 91,132 921 71,207 72,128 622 60,255 60,877 293 46,496 46,789 265 24,617 24,882 269 32,138 32,407 3,068 325,147 328,215 265 $ 2,803 Capital Operating 2013 $ 795 87,741 88,536 2014 587 75,509 76,096 2015 354 59,252 59,606 2016 266 33,665 33,931 2017 255 21,160 21,415 Thereafter 16 27,068 27,084 Total payments 2,273 304,395 306,668 Less amount representing interest 228 Present value of capitalized lease payments $ 2,045 $103,416, $105,976$97,587, $103,416 and $130,227$105,976 in 2012, 2011 2010 and 2009,2010, respectively.$50,540 and $53,549$50,540 as of December 31, 20112012 and 2010, respectively,2011 in standby letters of credit for various insurance contracts and commitments to foreign vendors that expire within two years. In addition, as of December 31, 2010, the Company guaranteed approximately $824 for building leases, related to its operating facilities in France.sevena number of the 43individual cases filed (the first filed on August 26, 2010), as well as in two consolidated amended class action complaints, the first filed on February 28, 2011, on behalf of a class of all direct purchasers of polyurethane foam products, and the second filed on March 21, 2011, on behalf of a class of indirect purchasers. All pending cases in which the Company has been named as a defendant have been filed in or transferred to the U.S. District Court for the Northern District of Ohio for consolidated pre-trial proceedings under the nameIn re: Polyurethane Foam Antitrust Litigation, Case No. 1:10-MDL-02196.April 2011, the Company filed a motion to dismiss the class action claims brought by the direct purchasers, and in May 2011, the Company moved to dismiss the claims brought by the indirect purchasers. On July 19, 2011, the Court issued a written opinion denying all defendants’ motions to dismiss. In December 2011, the Company was named as a defendant in a Canadian Class action,Hi ! Neighbor Floor Covering Co. Limited v. Hickory Springs Manufacturing Company, et al.et.al., filed in the Superior Court of Justice of Ontario, Canada that allegesand Options Consommateures v. Vitafoam, Inc. et.al., filed in the Superior Court of Justice of Quebec, Montreal, Canada, both of which allege similar claims against theIndex to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued)seeksseek unspecified damages and punitive damages. The Company denies all of the allegations in these actions and will vigorously defend itself.In Shirley Williams et al. v. Mohawk Industries, Inc., four plaintiffs filed a putative class action lawsuit in January 2004 in the United States District Court for the Northern Districtsettle the litigation. In July 2010, the District Court approved the settlement. The Company accrued for its portion of the settlement in a prior year. The claims process was completed in the third quarter of 2010. not 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.$25,000.$25,000. The amount included approximately $20,000$20,000 to cover costs to repair and/or replace property and equipment and approximately $5,000$5,000 to recover lost margin from lost sales. The settlement with the insurance carrier is recorded in cost of sales in the Company’s 2010 consolidated statement of operations. As a result of the insurance settlement, the flooding did not have a material impact on the Company’s results of operations or financial position.$7,730$7,730 in other expense (income) in the Company’s 2010 consolidated statement of operations. The Company is pursuing additional recoveries for prior years but there can be no assurances such recoveries will occur. Additional future recoveries, if any, will be recorded as realized.operations,financial condition but maycould have ana material adverse effect on its results of operations, cash flows or liquidity in a given quarter or annual period.Historically, theThe Company has maintained favorable relationshipsbelieves that its relations with its workforce and expects to do so in the future.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued)$23,209$18,564 in 2011,2012, of which $17,546$14,816 was recorded as cost of sales and $5,663$3,748 was recorded as selling, general and administrative expenses. The Company recorded pre-tax business restructuring charges of $13,156$23,209 in 2010,2011, of which $12,392$17,546 was recorded as cost of sales and $764$5,663 was recorded as selling, general and administrative expenses. The Company recorded pre-tax business restructuring charges of $61,725$13,156 in 2009,2010, of which $43,436$12,392 was recorded as cost of sales and $18,289$764 was recorded as selling, general and administrative expenses. The charges primarily relate to the Company’s actions taken to lower its cost structure and improve the efficiency of its manufacturing and distribution operations as it adjusts to current economic conditions.20102011 and 20112012 is as follows: Asset write-
downs (1) Lease
impairments Severance Other
restructuring
costs Total $ — 21,073 7,824 3,001 31,898 3,989 (403 ) 305 6,452 10,343 — — 1,223 — 1,223 815 — 775 — 1,590 — (9,687 ) (8,019 ) (9,033 ) (26,739 ) (4,804 ) — — — (4,804 ) — 10,983 2,108 420 13,511 10,643 3,680 5,120 3,766 23,209 — — — — — — — — — — — (3,707 ) (4,850 ) (2,406 ) (10,963 ) (10,643 ) — — (269 ) (10,912 ) $ — 10,956 2,378 1,511 14,845 (1)Includes $815 in 2010 which was charged to depreciation. Asset write-downs Severance Total Balance as of December 31, 2010 $ 10,983 — 2,108 420 13,511 Provisions Mohawk segment 3,680 10,643 5,120 3,766 23,209 Cash payments (3,707 ) — (4,850 ) (2,406 ) (10,963 ) Noncash items — (10,643 ) — (269 ) (10,912 ) Balance as of December 31, 2011 10,956 — 2,378 1,511 14,845 Provisions: Mohawk segment — 6,687 4,069 (252 ) 10,504 Dal-Tile segment 373 3,727 2,009 — 6,109 Unilin segment — 138 1,775 38 1,951 Cash payments (3,872 ) — (7,333 ) (1,297 ) (12,502 ) Noncash items — (10,552 ) — — (10,552 ) Balance as of December 31, 2012 $ 7,457 — 2,898 — 10,355 2011 2010 2009 $ 119,463 139,358 127,623 $ 34,479 (5,862 ) (3,841 ) $ 37,486 — 17,911 (13,389 ) — (11,987 ) $ 24,097 — 5,924 2012 2011 2010 Net cash paid (received) during the years for: Interest $ 80,985 119,463 139,358 Income taxes $ 43,650 34,479 (5,862 ) Supplemental schedule of non-cash investing and financing activities: Fair value of assets acquired in acquisition $ — 37,486 — Liabilities assumed in acquisition — (13,389 ) — $ — 24,097 — Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued) 2010 or 2009.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIES2010Notes to Consolidated Financial Statements—(Continued). 2011 2010 2009 $ 2,927,674 2,844,876 2,856,741 1,454,316 1,367,442 1,426,757 1,344,764 1,188,274 1,128,315 (84,496 ) (81,520 ) (67,789 ) $ 5,642,258 5,319,072 5,344,024 $ 109,874 122,904 (125,965 ) 101,298 97,334 84,154 127,147 114,298 105,953 (22,777 ) (20,367 ) (20,412 ) $ 315,542 314,169 43,730 $ 90,463 91,930 94,134 42,723 45,578 47,934 151,884 145,941 151,450 12,664 13,324 9,486 $ 297,734 296,773 303,004 $ 125,630 84,013 35,149 66,419 37,344 17,683 78,615 29,439 45,966 4,909 5,384 10,127 $ 275,573 156,180 108,925 $ 1,769,065 1,637,319 1,582,652 1,732,818 1,644,448 1,546,393 2,533,070 2,475,049 2,598,182 171,275 342,110 664,219 $ 6,206,228 6,098,926 6,391,446 $ 4,619,771 4,447,965 4,516,784 1,022,487 871,107 827,240 $ 5,642,258 5,319,072 5,344,024 $ 1,996,517 1,971,612 2,000,522 1,090,812 1,084,906 1,202,018 $ 3,087,329 3,056,518 3,202,540 $ 2,722,113 2,645,952 2,650,452 1,513,210 1,428,571 1,491,846 1,406,935 1,244,549 1,201,726 $ 5,642,258 5,319,072 5,344,024 2012 2011 2010 Net sales: Mohawk $ 2,912,055 2,927,674 2,844,876 Dal-Tile 1,616,383 1,454,316 1,367,442 Unilin 1,350,349 1,344,764 1,188,274 Intersegment sales (90,807 ) (84,496 ) (81,520 ) $ 5,787,980 5,642,258 5,319,072 Operating income (loss): Mohawk $ 158,196 109,874 122,904 Dal-Tile 120,951 101,298 97,334 Unilin 126,409 127,147 114,298 Corporate and intersegment eliminations (26,048 ) (22,777 ) (20,367 ) $ 379,508 315,542 314,169 Depreciation and amortization: Mohawk $ 95,648 90,463 91,930 Dal-Tile 41,176 42,723 45,578 Unilin 132,183 151,884 145,941 Corporate 11,286 12,664 13,324 $ 280,293 297,734 296,773 Capital expenditures (excluding acquisitions): Mohawk $ 97,972 125,630 84,013 Dal-Tile 49,426 66,419 37,344 Unilin 56,605 78,615 29,439 Corporate 4,291 4,909 5,384 $ 208,294 275,573 156,180 Assets: Mohawk $ 1,721,214 1,769,065 1,637,319 Dal-Tile 1,731,258 1,732,818 1,644,448 Unilin 2,672,389 2,533,070 2,475,049 Corporate and intersegment eliminations 178,823 171,275 342,110 $ 6,303,684 6,206,228 6,098,926 Geographic net sales: North America $ 4,798,804 4,619,771 4,447,965 Rest of world 989,176 1,022,487 871,107 $ 5,787,980 5,642,258 5,319,072 Long-lived assets (1): North America $ 1,968,561 1,996,517 1,971,612 Rest of world 1,110,062 1,090,812 1,084,906 $ 3,078,623 3,087,329 3,056,518 Net sales by product categories (2): Soft surface $ 2,696,462 2,722,113 2,645,952 Tile 1,676,971 1,513,210 1,428,571 Wood 1,414,547 1,406,935 1,244,549 $ 5,787,980 5,642,258 5,319,072 (1) Long-lived assets are composed of net property, plant and equipment, net, and goodwill.Index to Financial StatementsMOHAWK INDUSTRIES, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements—(Continued)(2) The Soft surface product category includes carpets, rugs, carpet pad and resilient. The Tile product category includes ceramic tile, porcelain tile and natural stone. The Wood product category includes laminate, hardwood, roofing panels, wood-based panels and wood-based panels.licensing. Quarters Ended April 2,
2011 July 2,
2011 October 1,
2011 December 31,
2011(1) $ 1,343,595 1,477,854 1,442,512 1,378,297 341,592 382,247 357,623 335,417 23,442 60,903 46,646 42,931 0.34 0.89 0.68 0.62 0.34 0.88 0.68 0.62 Quarters Ended April 3,
2010 July 3,
2010 October 2,
2010 December 31,
2010 $ 1,347,236 1,400,086 1,309,552 1,262,198 341,246 374,756 344,932 341,666 20,538 68,081 51,094 45,758 0.30 0.95 0.74 0.67 0.30 0.95 0.74 0.66 Quarters Ended March 31,
2012 June 30,
2012 September 29,
2012 December 31,
2012Net sales $ 1,409,035 1,469,793 1,473,493 1,435,659 Gross profit 359,426 388,464 372,837 369,331 Net earnings 40,377 73,188 70,304 66,389 Basic earnings per share 0.59 1.06 1.02 0.96 Diluted earnings per share 0.58 1.06 1.01 0.96 Quarters Ended April 2,
2011 July 2,
2011 October 1,
2011 December 31, 2011 (1) Net sales $ 1,343,595 1,477,854 1,442,512 1,378,297 Gross profit 341,592 382,247 357,623 335,417 Net earnings 23,442 60,903 46,646 42,931 Basic earnings per share 0.34 0.89 0.68 0.62 Diluted earnings per share 0.34 0.88 0.68 0.62 (1) $6,035$6,035 resulted in an additional charge to selling, general and administrative expense in the Company’s 2011 fourth quarter consolidated statement of operations. The Company believes the correction of this error to be both quantitatively and qualitatively immaterial to its quarterly results for 2011 or to any of its previously issued consolidated financial statements. The correction had no impact on the Company’s cash flows as previously presented.Index to Financial StatementsItem 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and Procedures 2011.2012. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. The Company’s management has concluded that, as of December 31, 2011,2012, its internal control over financial reporting is effective based on these criteria. The Company’s independent registered public accounting firm, KPMG LLP, has issued an attestation report on the Company’s internal control over financial reporting, which is included herein.Item 9B. Other Information Item 10. Directors, Executive Officers and Corporate Governance 20122013 Annual Meeting of Stockholders under the following headings: “Election of Directors—Director, Director Nominee and Executive Officer Information,” “—Nominees for Director,” “—Continuing Directors,” “—Executive Officers,” “—Meetings and Committees of the Board of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Audit Committee” and “Corporate Governance.” The Company has adopted the Mohawk Industries, Inc. Standards of Conduct and Ethics, which applies to all of its directors, officers and employees. The standards of conduct and ethics are publicly available on the Company’s website athttp://www.mohawkind.comand will be made available in print to any stockholder who requests them without charge. If the Company makes any substantive amendments to the standards of conduct and ethics, or grants any waiver, including any implicit waiver, from a provision of the standards required by regulations of the Commission to apply to the Company’s chief executive officer, chief financial officer or chief accounting officer, the Company will disclose the nature of the amendment or waiver on its website. The Company may elect to also disclose the amendment or waiver in a report on Form 8-K filed with the SEC. The Company has adopted the Mohawk Industries, Inc. Board of Directors Corporate Governance Guidelines, which are publicly available on the Company’s website and will be made available to any stockholder who requests it.Item 11. Executive Compensation 20122013 Annual Meeting of Stockholders under the following headings: “Compensation, Discussion and Analysis,” “Executive Compensation and Other Information—Summary Compensation Table,” “—Grants of Plan Based Awards,” “—Outstanding Equity Awards at Fiscal Year End,” “—Option Exercises and Stock Vested,” “—Nonqualified Deferred Compensation,” “—Certain Relationships and Related Transactions,” “—Compensation Committee Interlocks and Insider Participation,” “—Compensation Committee Report” and “Director Compensation.”Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 20122013 Annual Meeting of Stockholders under the following headings: “Executive Compensation and Other Information—Equity Compensation Plan Information,” and “—Principal Stockholders of the Company.”Item 13. Certain Relationships and Related Transactions, and Director Independence 20122013 Annual Meeting of Stockholders under the following heading: “Election of Directors—Meetings and Committees of the Board of Directors,” and “Executive Compensation and Other Information—Certain Relationships and Related Transactions.”Item 14. Principal Accounting Fees and Services 20122013 Annual Meeting of Stockholders under the following heading: “Audit Committee—Principal Accountant Fees and Services” and “Election of Directors—Meetings and Committees of the Board of Directors.”Index to Financial StatementsItem 15. Exhibits, Financial Statement Schedules
Exhibit
Number *2.1*2.1 Agreement and Plan of Merger dated as of December 3, 1993 and amended as of January 17, 1994 among Mohawk, AMI Acquisition Corp., Aladdin and certain Shareholders of Aladdin. (Incorporated herein by reference to Exhibit 2.1(a) in Mohawk’sthe Company's Registration Statement on Form S-4, Registration No. 333-74220.)*2.2 Share Purchase Agreement, dated as of December 20, 2012, by and among LuxELIT S.a r.l., Finceramica S.p.A, Mohawk Industries, Inc. and Mohawk International Holdings (DE) Corporation (Incorporated herein by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K dated December 21, 2012.) *3.1*3.1 Restated Certificate of Incorporation of Mohawk, as amended. (Incorporated herein by reference to Exhibit 3.1 in Mohawk’sthe Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) *3.2*3.2 Restated Bylaws of Mohawk. (Incorporated herein by reference to Exhibit 3.2 in Mohawk’sthe Company's Report on Form 8-K dated December 4, 2007.) *4.1*4.1 See Article 4 of the Restated Certificate of Incorporation of Mohawk. (Incorporated herein by reference to Exhibit 3.1 in Mohawk’sthe Company's Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1998.) *4.2*4.2 See Articles 2, 6, and 9 of the Restated Bylaws of Mohawk. (Incorporated herein by reference to Exhibit 3.2 in Mohawk’sthe Company's Current Report on Form 8-K dated December 4, 2007.) *4.3Indenture, dated as of April 2, 2002 between Mohawk Industries, Inc. and Wachovia Bank, National Association, as Trustee (Incorporated herein by reference to Exhibit 4.1 in Mohawk’s Registration Statement on Form S-4, Registration No. 333-86734, as filed April 22, 2002.) *4.4*4.4 Indenture dated as of January 9, 2006, between Mohawk Industries, Inc. and SunTrust Bank, as trustee. (Incorporated herein by reference to Exhibit 4.4 in Mohawk’sthe Company's Registration Statement on Form S-3, Registration Statement No. 333-130910.) *4.5*4.5 First Supplemental Indenture, dated as of January 17, 2006, by and between Mohawk Industries, Inc., and SunTrust Bank, as trustee. (Incorporated by reference to Exhibit 4.1 in Mohawk’sthe Company's Current Report on form 8-K dated January 17, 2006.)*4.6 Indenture, dated as of January 31, 2013, by and between Mohawk Industries, Inc. and U.S. Bank National Association, as Trustee (Incorporated herein by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K dated January 31, 2013.) *4.7 First Supplemental Indenture, dated as of January 31, 2013, by and between Mohawk Industries, Inc. and U.S. Bank National Association, as Trustee (Incorporated herein by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K dated January 31, 2013.) *10.1 Registration Rights Agreement by and among Mohawk, Citicorp Investments, Inc., ML-Lee Acquisition Fund, L.P. and Certain Management Investors. (Incorporated herein by reference to Exhibit 10.14 of Mohawk’sthe Company's Registration Statement on Form S-1, Registration No. 33-45418.)MohawkExhibitNumberDescription*10.2 Voting Agreement, Consent of Stockholders and Amendment to 1992 Registration Rights Agreement dated December 3, 1993 by and among Aladdin, Mohawk, Citicorp Investments, Inc., ML-Lee Acquisition Fund, L.P., David L. Kolb, Donald G. Mercer, Frank A. Procopio and John D. Swift. (Incorporated herein by reference to Exhibit 10(b) of Mohawk’sthe Company's Registration Statement on Form S-4, Registration No. 33-74220.)*10.3 Registration Rights Agreement by and among Mohawk and the former shareholders of Aladdin. (Incorporated herein by reference to Exhibit 10.32 of Mohawk’sthe Company's Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1993.)*10.4 Waiver Agreement between Alan S. Lorberbaum and Mohawk dated as of March 23, 1994 to the Registration Rights Agreement dated as of February 25, 1994 between Mohawk and those other persons who are signatories thereto. (Incorporated herein by reference to Exhibit 10.3 of Mohawk’sthe Company's Quarterly Report on Form 10-Q (File No. 001-13697) for the quarter ended July 2, 1994.)*10.5 Credit Agreement by and among the Company and certain of its subsidiaries, as Borrowers, certain of its subsidiaries, as Guarantors, Bank of America, N.A. as administrative Agent, Swing Line Leader, and a L/C Issuer, the other lenders party thereto, and the other parties thereto. (Incorporated by reference to the Company’s Current Report on Form 8-K dated July 12, 2011.) *10.6 Amendment No. 1 to Credit Agreement dated as of January 20, 2012, by and among the Company and certain of its subsidiaries, as Borrowers, certain of its subsidiaries, as Guarantors, Bank of America, N.A. as administrative Agent, Swing Line Leader, and a L/C Issuer, the other lenders party thereto, and the other parties thereto. (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 20, 2012.) *10.7 Amendment No. 2 to Credit Agreement dated as of November 16, 2012 by and among the Company and certain of its subsidiaries, as Borrowers, certain of its subsidiaries, as Guarantors, Bank of America, N.A., as Administrative Agent, Swing Line Lender, and a L/C Issuer, the other lenders party thereto, and the other parties thereto (Incorporated herein by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated November 21, 2012.) *10.8 Amendment No. 3 to the Credit Agreement, dated January 28, 2013, by and among Mohawk Industries, Inc. and certain of its subsidiaries, as Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender and a L/C Issuer, the other lenders party thereto and the other parties thereto (Incorporated herein by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K dated January 30, 2013.) *10.9 Credit and Security Agreement, dated as of December 19, 2012, by and among Mohawk Factoring, LLC, as borrower, Mohawk Servicing, LLC, as servicer, the lenders from time to time party thereto, the liquidity banks from time to time party thereto, the co-agents from time to time party thereto and SunTrust Bank, as administrative agent (Incorporated herein by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K dated December 21, 2012.) 10.10 First Amendment to Credit and Security Agreement, dated as of January 22, 2013, by and among Mohawk Factoring, LLC, as borrower, Mohawk Servicing, LLC, as servicer, the lenders from time to time party thereto, the liquidity banks from time to time party thereto, the co-agents from time to time party thereto and SunTrust Bank, as administrative agent. *10.11 Receivables Purchase and Sale Agreement, dated December 19, 2012, by and among Mohawk Carpet Distribution, Inc., and Dal-Tile Distribution, Inc., as originators, and Mohawk Factoring, LLC, as buyer (Incorporated herein by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K dated December 21, 2012.) Exhibits Related to Executive Compensation Plans, Contracts and other Arrangements: * 10.710.12 Service Agreement dated February 24, 2009, by and between Unilin Industries BVBA and BVBA “F. De Cock Management” . (Incorporated by reference to the Company’s Current Report on Form 8-K dated February 24, 2009).2009.)* 10.810.13 Service Agreement dated February 9, 2009, by and between Unilin Industries BVBA and Comm. V. “Bernard Thiers” . (Incorporated herein by reference to Exhibit 10.7 in Mohawk’sthe Company's Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 2009.)* 10.910.14 Second Amended and Restated Employment Agreement, dated as of November 4, 2009, by and between the Company and W. Christopher Wellborn (Incorporated by reference to the Company’s Current Report on Form 8-K dated November 4, 2009).2009.)10.15 Amendment No. 1 to Second Amended and Restated Employment Agreement, dated as of December 20, 2012, by and between the Company and W. Christopher Wellborn. * 10.1010.16 Mohawk Carpet Corporation Supplemental Executive Retirement Plan, as amended. (Incorporated herein by reference to Exhibit 10.2 of Mohawk’sthe Company's Registration Statement on Form S-1, Registration No. 33-45418.)* 10.1110.17 Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.8 of Mohawk’sthe Company's Registration Statement on Form S-1, Registration No. 33-45418.)* 10.1210.18 Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.2 in Mohawk’sthe Company's quarterly report on Form 10-Q (File No. 001-13697) for the quarter ended July 3, 1993.)* 10.1310.19 Second Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.35 of Mohawk’sthe Company's Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1999.)Index to Financial StatementsMohawkExhibitNumber Description* 10.1410.20 Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.15 of Mohawk’sthe Company's Registration Statement on Form S-1, Registration Number 33-53932.)* 10.1510.21 Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.1 of Mohawk’sthe Company's quarterly report on Form 10-Q (File No. 001-13697) for the quarter ended July 3, 1993.)* 10.1610.22 Second Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.38 of Mohawk’sthe Company's Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1999.)* 10.1710.23 Mohawk Industries, Inc. 1993 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.39 of Mohawk’sthe Company's Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1992.)* 10.1810.24 First Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1993 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.40 of Mohawk’sthe Company's Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1999.)* 10.1910.25 The Mohawk Industries, Inc. Senior Management Deferred Compensation Plan (Incorporated herein by reference to Exhibit 10.21 of Mohawk’sthe Company's Annual Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 2010).2010.)* 10.2010.26 Mohawk Industries, Inc. 1997 Non-Employee Director Stock Compensation Plan (Amended and Restated as of January 1, 2009) (Incorporated herein by reference to Exhibit 10.32 in Mohawk’sthe Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.).* 10.2110.271997 Long-Term Incentive Plan.Mohawk Industries, Inc. 2012 Non-Employee Director Stock Compensation Plan (Incorporated herein by reference to Exhibit 10.8010.2 of Mohawk’s Annualthe Company's Quarterly Report on Form 10-K (File No. 001-13697) for the fiscal year ended December 31, 1996.10-Q dated August 3, 2012.)* 10.2210.28 2002 Long-Term Incentive Plan. (Incorporated herein by reference to Appendix A in the 2002 Mohawk Industries, Inc. Proxy Statement dated March 29, 2002.) * 10.2310.29 Mohawk Industries, Inc. 2007 Incentive Plan (Incorporated herein by reference to Appendix A of the Company’s Definitive Proxy Statement on Schedule 14A (File No. 001-13697) filed with the Securities and Exchange Commission on April 9, 2007)2007.) *10.30 Mohawk Industries, Inc. 2012 Incentive Plan (incorporated herein by reference to Appendix A of the Company’s Definitive Proxy Statement on Schedule 14A (File No. 001-13697) filed with the Securities and Exchange Commission on April 3, 2012.) 21 Subsidiaries of the Registrant. 23.1 Consent of Independent Registered Public Accounting Firm (KPMG LLP). 31.1 Certification Pursuant to Rule 13a-14(a). 31.2 Certification Pursuant to Rule 13a-14(a). 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Indicates exhibit incorporated by reference. Mohawk Industries, Inc. February 27, 2013 By: Dated: February 29, 2012 Jeffrey S. Lorberbaum, By:/s/ JEFFREY S. LORBERBAUM Jeffrey S. Lorberbaum,Chairman and Chief Executive Officer Dated: February 29, 201227, 2013Jeffrey S. Lorberbaum, Dated: February 29, 201227, 2013Frank H. Boykin, Dated: February 29, 201227, 2013James F. Brunk, Dated: February 29, 201227, 2013Dated: February 29, 201227, 2013Dated: February 29, 201227, 2013Dated: February 29, 201227, 2013February 27, 2013 John F. Fiedler,February 27, 2013 February 27, 2013 February 27, 2013 Dated: February 29, 201227, 2013/s/ RICHARD C. ILL Richard C. Ill,DirectorDated: February 29, 2012/s/ DAVID L. KOLB David L. Kolb,DirectorDated: February 29, 2012/s/ JOSEPH A. ONORATO Joseph A. Onorato,DirectorDated: February 29, 2012/s/ KAREN A. SMITH BOGART Karen A. Smith Bogart,DirectorDated: February 29, 201277