MHK-2012.6.30-10Q Q2

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 ¨



	June 30, 2012		December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	319,463	311,945
Receivables, net	782,122		686,165
Inventories	1,161,073		1,113,630
Prepaid expenses	127,505		112,779
Deferred income taxes	126,613		150,910
Other current assets	17,410		22,735
Total current assets	2,534,186		2,398,164
Property, plant and equipment, net	1,652,444		1,712,154
Goodwill	1,363,356		1,375,175
Tradenames	444,536		450,432
Other intangible assets, net	120,412		154,668
Deferred income taxes and other non-current assets	149,843		115,635
	$	6,264,777	6,206,228



	June 30, 2012		December 31, 2011
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	57,158	386,255
Accounts payable and accrued expenses	733,411		715,091
Total current liabilities	790,569		1,101,346
Deferred income taxes	334,070		355,653
Long-term debt, less current portion	1,570,530		1,200,184
Other long-term liabilities	93,290		99,537
Total liabilities	2,788,459		2,756,720
Commitments and contingencies (Notes 6 and 11)
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; 80,027 and 79,815 shares issued in 2012 and 2011, respectively	800		798
Additional paid-in capital	1,260,186		1,248,131
Retained earnings	2,468,330		2,354,765
Accumulated other comprehensive income, net	70,464		135,639
	3,799,780		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	3,476,318		3,415,785
	$	6,264,777	6,206,228



	Three Months Ended
	June 30, 2012		July 2, 2011
Net sales	$	1,469,793	1,477,854
Cost of sales	1,081,329		1,095,607
Gross profit	388,464		382,247
Selling, general and administrative expenses	280,746		280,547
Operating income	107,718		101,700
Interest expense	18,844		25,760
Other expense	440		396
Earnings before income taxes	88,434		75,544
Income tax expense	15,246		13,450
Net earnings	73,188		62,094
Less: Net earnings attributable to noncontrolling interest	—		1,191
Net earnings attributable to Mohawk Industries, Inc.	$	73,188	60,903
Basic earnings per share attributable to Mohawk Industries, Inc.	$	1.06	0.89
Weighted-average common shares outstanding—basic	68,984		68,744
Diluted earnings per share attributable to Mohawk Industries, Inc.	$	1.06	0.88
Weighted-average common shares outstanding—diluted	69,259		68,981



	Six Months Ended
	June 30, 2012			July 2, 2011
Net sales	$	2,878,828		2,821,449
Cost of sales	2,130,938			2,097,610
Gross profit	747,890			723,839
Selling, general and administrative expenses	568,196			566,055
Operating income	179,694			157,784
Interest expense	41,342			52,355
Other expense (income)	(1,385		)	381
Earnings before income taxes	139,737			105,048
Income tax expense	25,537			18,416
Net earnings	114,200			86,632
Less: Net earnings attributable to noncontrolling interest	635			2,287
Net earnings attributable to Mohawk Industries, Inc.	$	113,565		84,345
Basic earnings per share attributable to Mohawk Industries, Inc.	$	1.65		1.23
Weighted-average common shares outstanding—basic	68,923			68,709
Diluted earnings per share attributable to Mohawk Industries, Inc.	$	1.64		1.22
Weighted-average common shares outstanding—diluted	69,204			68,942



	Three Months Ended				Six Months Ended
	June 30, 2012			July 2, 2011	June 30, 2012		July 2, 2011
Net earnings	$	73,188		62,094	114,200		86,632
Other comprehensive income (loss):
Foreign currency translation adjustments	(120,116		)	38,711	(65,155	)	153,370
Pension prior service cost and actuarial gain (loss)	(37		)	19	(20	)	91
Other comprehensive income (loss)	(120,153		)	38,730	(65,175	)	153,461
Comprehensive income (loss)	(46,965		)	100,824	49,025		240,093
Less: comprehensive income attributable to the noncontrolling interest	—			1,191	635		2,287
Comprehensive income (loss) attributable to Mohawk Industries, Inc.	$	(46,965	)	99,633	48,390		237,806



	Six Months Ended
	June 30, 2012			July 2, 2011
Cash flows from operating activities:
Net earnings	$	114,200		86,632
Adjustments to reconcile net earnings to net cash provided by operating activities:
Restructuring	8,226			13,327
Depreciation and amortization	145,117			148,597
Deferred income taxes	1,717			331
(Gain) loss on disposal of property, plant and equipment	(7		)	485
Stock-based compensation expense	8,399			6,038
Changes in operating assets and liabilities:
Receivables, net	(99,903		)	(172,003	)
Tax deposits	(31,820		)	—
Inventories	(52,486		)	(84,776	)
Accounts payable and accrued expenses	16,000			38,418
Other assets and prepaid expenses	(6,313		)	(7,193	)
Other liabilities	(7,554		)	(1,266	)
Net cash provided by operating activities	95,576			28,590
Cash flows from investing activities:
Additions to property, plant and equipment	(87,687		)	(112,519	)
Investment in joint venture	(7,007		)	—
Net cash used in investing activities	(94,694		)	(112,519	)
Cash flows from financing activities:
Payments on Senior Credit Facility	(653,675		)	(637,430	)
Proceeds from Senior Credit Facility	1,031,800			890,430
Repayment of senior notes	(336,270		)	(298,248	)
Payments on term loan and other debt	(582		)	(125	)
Debt issuance costs	(1,018		)	—
Purchase of non-controlling interest	(35,000		)	—
Distribution to non-controlling interest	(423		)	(5,428	)
Change in restricted cash	—			27,954
Change in outstanding checks in excess of cash	1,739			16,788
Proceeds from stock transactions	6,612			2,646
Net cash provided by (used in) financing activities	13,183			(3,413	)
Effect of exchange rate changes on cash and cash equivalents	(6,547		)	18,547
Net change in cash and cash equivalents	7,518			(68,795	)
Cash and cash equivalents, beginning of period	311,945			354,217
Cash and cash equivalents, end of period	$	319,463		285,422

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto, and the Company’s description of critical accounting policies, included in the Company’s 2011 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income” (“ASU 2011-05”) requires comprehensive income to 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’ equity was eliminated. The Company adopted ASU 2011-05 in the first quarter of 2012 and chose to present comprehensive income (loss) as two separate but consecutive statements.

Foreign Currency Translation: Prior to the second quarter of 2012, operations carried out in Mexico used the U.S. dollar as the functional currency. Effective April 1, 2012, the Company changed the functional currency of its Mexico operations to the Mexican peso. The Company believes that the completion of a second plant in Mexico and growth in sales to the local Mexican market indicated a significant change in the economic facts and circumstances that justified the change in the functional currency. Consistent with the Company's policy on foreign currency translation disclosed in the Company's 2011 Annual Report filed on Form 10-K, the new functional currency will be 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 other comprehensive income. The effects of the change in functional currency were not significant to the Company's condensed consolidated financial statements.



	Mohawk			Dal-Tile		Unilin		Total
Balances as of December 31, 2011
Goodwill	$	199,132		1,186,913		1,316,555		2,702,600
Accumulated impairment losses	(199,132		)	(531,930	)	(596,363	)	(1,327,425	)
	$	—		654,983		720,192		1,375,175

Currency translation during the period	$	—		—		(11,819	)	(11,819	)

Balances as of June 30, 2012
Goodwill	$	199,132		1,186,913		1,304,736		2,690,781
Accumulated impairment losses	(199,132		)	(531,930	)	(596,363	)	(1,327,425	)
	$	—		654,983		708,373		1,363,356



	June 30, 2012		December 31, 2011
Outstanding checks in excess of cash	$	19,329	17,590
Accounts payable, trade	381,503		372,616
Accrued expenses	169,554		154,560
Product warranties	34,867		30,144
Accrued interest	26,900		34,235
Deferred tax liability	7,320		8,760
Accrued compensation and benefits	93,938		97,186
Total accounts payable and accrued expenses	$	733,411	715,091



	Three Months Ended					Six Months Ended
	June 30, 2012			July 2, 2011		June 30, 2012		July 2, 2011
Balance at beginning of period	$	32,680		36,437		30,144		37,265
Warranty claims paid during the period	(14,866		)	(17,012	)	(28,786	)	(30,747	)
Pre-existing warranty accrual adjustment during the period	—			489		—		3,484
Warranty expense during the period	17,053			12,138		33,509		22,050
Balance at end of period	$	34,867		32,052		34,867		32,052

The Company recognizes compensation expense for all share-based payments granted based on the grant-date fair value estimated in accordance with the provisions of the Financial Accounting Standards Board Accounting Standards Codification topic (“ASC”) 718-10. Compensation expense is recognized on a straight-line basis over the options’ or other awards’ estimated lives for fixed awards with ratable vesting provisions.

Under the Company’s 2007 Incentive Plan (“2007 Plan”), the Company's principal stock compensation plan prior to May 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 (“RSUs”) and other types of awards, to directors and key employees through 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-year contractual term. Restricted stock and RSUs 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 June 30, 2012, there have been no awards granted under the 2012 Plan.

Under the 2007 Plan, the Company granted 83 and 76 options to employees at a weighted-average grant-date fair value of $28.71 and $25.39 per share for the six months ended June 30, 2012 and July 2, 2011, respectively. There were no options granted during the three months ended June 30, 2012 and July 2, 2011. The Company recognized stock-based compensation costs related to stock options of $518 ($328 net of taxes) and $450 ($285 net of taxes) for the three months ended June 30, 2012 and July 2, 2011, respectively, and $1,132 ($717 net of taxes) and $1,009 ($639 net of taxes) for the six months ended June 30, 2012 and July 2, 2011, respectively, which has been allocated to selling, general and administrative expenses. Pre-tax unrecognized compensation expense for stock options granted to employees and outside directors, net of estimated forfeitures,

Under the 2007 Plan, the Company granted 261 and 196 RSUs at a weighted-average grant-date fair value of $65.98 and $57.34 per unit for the six months ended June 30, 2012 and July 2, 2011, respectively. There were no RSUs granted during the three months ended June 30, 2012 and July 2, 2011. The Company recognized stock-based compensation costs related to the issuance of RSUs of $2,311 ($1,464 net of taxes) and $1,708 ($1,082 net of taxes) for the three months ended June 30, 2012 and July 2, 2011, respectively, and $7,248 ($4,592 net of taxes) and $4,979 ($3,154 net of taxes) for the six months ended June 30, 2012 and July 2, 2011, respectively, which has been allocated to selling, general and administrative expenses. Pre-tax unrecognized compensation expense for unvested RSUs granted to employees, net of estimated forfeitures, was $20,072 as of June 30, 2012, and will be recognized as expense over a weighted-average period of approximately 3.4 years.

Basic net earnings per share (“EPS”) is calculated using net earnings available to common stockholders divided by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS is similar to basic EPS except that the weighted-average number of shares is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

Dilutive common stock options are included in the diluted EPS calculation using the treasury stock method. Common stock options and unvested restricted shares (units) that were not included in the diluted EPS computation because the price was greater than the average market price of the common shares for the six months ended June 30, 2012 and July 2, 2011 were 987 and 1,125, respectively.



	Three Months Ended			Six Months Ended
	June 30, 2012		July 2, 2011	June 30, 2012	July 2, 2011
Net earnings available to common stockholders	$	73,188	60,903	113,565	84,345
Weighted-average common shares outstanding-basic and diluted:
Weighted-average common shares outstanding—basic	68,984		68,744	68,923	68,709
Add weighted-average dilutive potential common shares—options and RSUs to purchase common shares, net	275		237	281	233
Weighted-average common shares outstanding-diluted	69,259		68,981	69,204	68,942
Basic earnings per share attributable to Mohawk Industries, Inc.	$	1.06	0.89	1.65	1.23
Diluted earnings per share attributable to Mohawk Industries, Inc.	$	1.06	0.88	1.64	1.22

The Company has three reporting segments: the Mohawk segment, the Dal-Tile segment and the Unilin segment. The Mohawk segment designs, manufactures, sources, distributes and markets its floor covering product lines, which include carpets, ceramic tile, laminate, rugs, carpet pad, hardwood and resilient, primarily in North America through its network of regional distribution centers and satellite warehouses using Company-operated trucks, common carrier or rail transportation. The segment’s product lines are sold through various selling channels, which include independent floor covering retailers, home centers, mass merchandisers, department stores, commercial dealers and commercial end users. The Dal-Tile segment designs, manufactures, sources, distributes and markets a broad line of ceramic tile, porcelain tile, natural stone and other products, primarily in North America and Mexico through its network of regional distribution centers and Company-operated service centers using Company-operated trucks, common carriers or rail transportation. The segment’s product lines are sold through independent distributors, home center retailers, tile and flooring retailers and contractors. The Unilin segment designs, manufactures, sources, licenses, distributes and markets laminate and hardwood flooring, roofing systems, insulation panels and other wood products, primarily in North America and Europe through various selling channels, which include retailers, independent distributors and home centers.

The accounting policies for each operating segment are consistent with the Company’s policies for the consolidated financial statements. Amounts disclosed for each segment are prior to any elimination or consolidation entries. Corporate general and administrative expenses attributable to each segment are estimated and allocated accordingly. Segment performance is evaluated based on operating income.



	Three Months Ended					Six Months Ended
	June 30, 2012			July 2, 2011		June 30, 2012		July 2, 2011
Net sales:
Mohawk	$	734,493		758,064		1,434,373		1,449,229
Dal-Tile	404,288			379,469		797,213		723,884
Unilin	354,374			363,097		691,798		688,929
Intersegment sales	(23,362		)	(22,776	)	(44,556	)	(40,593	)
	$	1,469,793		1,477,854		2,878,828		2,821,449
Operating income (loss):
Mohawk	$	37,136		31,201		62,418		48,241
Dal-Tile	36,432			32,138		62,460		49,838
Unilin	40,575			46,209		67,721		72,459
Corporate and intersegment eliminations	(6,425		)	(7,848	)	(12,905	)	(12,754	)
	$	107,718		101,700		179,694		157,784

Beginning in August 2010, a series of civil lawsuits were initiated in several U.S. federal courts alleging that certain manufacturers of polyurethane foam products and competitors of the Company’s carpet underlay division had engaged in price fixing in violation of U.S. antitrust laws. Mohawk has been named as a defendant in a number of the individual cases (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 name In re: Polyurethane Foam Antitrust Litigation, Case No. 1:10-MDL-02196.

In these actions, the plaintiffs, on behalf of themselves and/or a class of purchasers, seek three times the amount of unspecified damages allegedly suffered as a result of alleged overcharges in the price of polyurethane foam products from at least 1999 to the present. Each plaintiff also seeks attorney fees, pre-judgment and post-judgment interest, court costs, and injunctive relief against future violations. In 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., filed in the Superior Court of Justice of Ontario, Canada and 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 the Company as raised in the U.S. actions and seek unspecified damages and punitive damages. The Company denies all of the allegations in these actions and will vigorously defend itself.

In January 2012, the Company received a €24,000 assessment from the Belgian tax authority related to the year ended December 31, 2008. 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 filed a formal protest in the first quarter of 2012, contesting the Belgian tax authority’s conclusions. In order to eliminate the accrual of additional interest on the assessed amount, the Company remitted payment of the entire assessment, plus interest to date of approximately €2,500, in the first quarter of 2012. If the Company is successful in its defense of this matter, such deposit earns 7% interest per year. In addition, during the fourth quarter of 2011, the Company received notification from the Belgian tax authority of its intent to increase the Company’s tax base related to the year ended December 31, 2009. The Belgian tax authority investigation is ongoing. 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 in a given quarter or year.

The Company recorded pre-tax business restructuring charges of $8,226 for the three and six months ended June 30, 2012, of which $6,636 was recorded as cost of sales and $1,590 was recorded as selling, general and administrative expenses for the same periods, respectively. For the three and six months ended July 2, 2011, the Company recorded pre-tax business restructuring charges of $6,514 and $13,327 respectively, of which $5,532 and $11,879 was recorded as cost of sales and $982 and $1,448 was recorded as selling, general and administrative expenses for the same periods, respectively. The charges for 2012 and 2011 primarily relate to the Company’s actions taken to lower its cost structure and improve the efficiency of its manufacturing and distribution operations as the Company adjusts to current economic conditions.



	Lease impairments			Asset write-downs		Severance		Other restructuring costs		Total
Balance as of December 31, 2011	$	10,956		—		2,378		1,511		14,845
Provision - Unilin Segment	—			138		668		38		844
Provision - Mohawk Segment	—			4,328		2,650		404		7,382
Cash payments	(1,743		)	—		(3,497	)	(425	)	(5,665	)
Non-cash items	—			(4,466	)	—		—		(4,466	)
Balance as of June 30, 2012	$	9,213		—		2,199		1,528		12,940

On July 8, 2011, the Company entered into a five-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 swingline loans. The Company paid financing costs of $8,218 in connection with its Senior Credit Facility. These costs were deferred and, along with unamortized costs of $12,277 related to the Company’s prior senior, secured revolving credit facility, are being amortized over the term of the Senior Credit Facility.

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 $150,000. The Company paid financing costs of $1,018 in connection with the amendment to its Senior Credit Facility. These costs were deferred and are being amortized over the remaining term of the 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.

At the Company’s election, revolving loans under the Senior Credit Facility bear 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 1.25% and 2.0%, or (b) the higher of the Bank of America, N.A. prime rate, the Federal Funds rate plus 0.5%, and a monthly LIBOR rate plus 1.0%, plus an applicable margin ranging between 0.25% and 1.0%. The Company also pays a commitment fee to the lenders under the Senior Credit Facility on the average amount by which the aggregate commitments of the lenders exceed utilization of the Senior Credit Facility ranging from 0.25% 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).

Due to the rating agency upgrade announced on March 14, 2012 by Standard & Poor’s Financial Services, LLC (“S&P”), the security interests 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 securing obligations under the Senior Credit Facility were released. The Company will be required to reinstate such security interests if there is a ratings downgrade such that: (a) both (i) the Moody’s Investors 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.

The Senior Credit Facility includes certain affirmative and negative covenants that impose restrictions on the Company’s financial and business operations, including limitations on liens, 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, 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.

On January 17, 2006, the Company issued $900,000 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 $63 per quarter per $100,000 of outstanding notes. In 2009, interest rates increased by an aggregate amount of 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 and Moody’s. Any future downgrades in the Company’s credit ratings could increase the cost of its existing credit and adversely affect the cost of and ability to obtain additional credit in the future.

In 2002, the Company issued $400,000 aggregate principal amount of its senior 7.20% notes due April 15, 2012. During 2011, the Company repurchased $63,730 of its senior 7.20% notes, at an average price equal to 102.72% of the principal amount. 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.



	June 30, 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	989,100		900,000	963,900	900,000
Five-year senior secured credit facility, due July 8, 2016	676,125		676,125	298,000	298,000
Industrial revenue bonds, capital leases and other	51,563		51,563	52,169	52,169
Total long-term debt	1,716,788		1,627,688	1,650,675	1,586,439
Less current portion	57,158		57,158	386,591	386,255
Long-term debt, less current portion	$	1,659,630	1,570,530	1,264,084	1,200,184

The Company is a leading producer of floor covering products for residential and commercial applications in the United States 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. The Company is expanding its international presence through investments in Australia, Brazil, China, Mexico and Russia. The Company had annual net sales in 2011 of $5.6 billion.

In 2010, the primary categories of the U.S. floor covering industry, based on sales dollars, were carpet and rug (55%), resilient and rubber (13%), ceramic tile (12%), hardwood (9%), 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.

For the three months ended June 30, 2012, net earnings attributable to the Company were $73.2 million, or diluted earnings per share (“EPS”) of $1.06, compared to the net earnings attributable to the Company of $60.9 million, or diluted EPS of $0.88, for the three months ended July 2, 2011. The increase in EPS was primarily attributable to operations productivity, the favorable net impact of price and product mix and lower interest costs, partially offset by the unfavorable impact of raw materials inflation.

For the six months ended June 30, 2012, net earnings attributable to the Company were $113.6 million, or diluted EPS of $1.64, compared to the net earnings attributable to the Company of $84.3 million, or diluted EPS of $1.22 for the six months ended July 2, 2011. The increase in EPS was primarily attributable to the favorable net impact of price and product mix, operations productivity, lower interest costs and higher sales volume, partially offset by the unfavorable impact of raw materials inflation.

Net sales for the three months ended June 30, 2012 were $1,469.8 million, reflecting a decrease of $8.1 million, or 0.5%, from the $1,477.9 million reported for the three months ended July 2, 2011. The decrease was primarily driven by the impact of unfavorable foreign exchange rates of approximately $36 million and lower volume of approximately $16 million, which was partially offset by the favorable net impact of price and product mix of approximately $44 million.

Mohawk Segment—Net sales decreased $23.6 million, or 3.1%, to $734.5 million for the three months ended June 30, 2012, compared to $758.1 million for the three months ended July 2, 2011. The decrease was primarily driven by lower volume of approximately $61 million, which was partially offset by the favorable net impact of price and product mix of approximately $37 million. The lower volume reflected carpet industry trends with commercial and residential sales slowing. Also contributing to the volume decline were lower retail rug sales, as well as retailers deferring promotional activities and further inventory reductions in the channel.

Dal-Tile Segment—Net sales increased $24.8 million, or 6.5%, to $404.3 million for the three months ended June 30, 2012, compared to $379.5 million for the three months ended July 2, 2011. The increase was primarily driven by volume increases of approximately $24 million and the favorable net impact of price and product mix of approximately $5 million, partially offset by the impact of unfavorable foreign exchange rates of approximately $4 million. The volume increases were attributable to improvement in the commercial and residential channel, as well as, growth in the Mexican market.

Unilin Segment—Net sales decreased $8.7 million, or 2.4%, to $354.4 million for the three months ended June 30, 2012, compared to $363.1 million for the three months ended July 2, 2011. The decrease was primarily driven by the impact of unfavorable foreign exchange rates of approximately $33 million, which was partially offset by volume increases of approximately $22 million and the favorable net impact of price and product mix of approximately $2 million. The volume increases were primarily attributable to panels and U.S. laminate flooring.

Gross profit for the three months ended June 30, 2012 was $388.5 million (26.4% of net sales) and increased by $6.2 million or 1.6% compared to gross profit of $382.2 million (25.9% of net sales) for the three months ended July 2, 2011. The increase in gross profit dollars was primarily attributable to operations productivity of approximately $18 million and the favorable net impact of price and product mix of approximately $15 million, partially offset by higher inflationary costs of approximately $18 million and the impact of unfavorable foreign exchange rates of approximately $7 million.

Selling, general and administrative expenses for the three months ended June 30, 2012 were $280.7 million (19.1% of net sales), compared to $280.5 million (19.0% of net sales) for the three months ended July 2, 2011. Changes in selling, general and administrative expenses were primarily driven by approximately $6 million in costs associated with sales channel and geographic expansion and the related volume increases, offset by approximately $6 million in favorable foreign exchange rates.

Operating income for the three months ended June 30, 2012 was $107.7 million (7.3% of net sales) reflecting an increase of $6.0 million, or 5.9%, compared to operating income of $101.7 million (6.9% of net sales) for the three months ended July 2, 2011. The increase was primarily driven by operations productivity of approximately $18 million and the favorable net impact of price and product mix of approximately $15 million, partially offset by higher inflationary costs of approximately $18 million and approximately $6 million of costs associated with sales channel and geographic expansion and the related volume increases.

Mohawk Segment—Operating income was $37.1 million (5.1% of segment net sales) for the three months ended June 30, 2012 reflecting an increase of $5.9 million compared to operating income of $31.2 million (4.1% of segment net sales) for the three months ended July 2, 2011. The increase was primarily driven by the favorable net impact of price and product mix of approximately $21 million and operations productivity of approximately $9 million, partially offset by lower volume of approximately $16 million and higher inflationary costs of approximately $8 million.

Dal-Tile Segment—Operating income was $36.4 million (9.0% of segment net sales) for the three months ended June 30, 2012 reflecting an increase of $4.3 million compared to operating income of $32.1 million (8.5% of segment net sales) for the three months ended July 2, 2011. The increase was primarily driven by volume increases of approximately $8 million, operations productivity of approximately $4 million and the impact of favorable foreign exchange rates of approximately $3 million, partially offset by approximately $4 million of costs associated with sales channel expansion and the related volume increases, the unfavorable net impact of price and product mix of approximately $3 million and higher inflationary costs of approximately $3 million.

Unilin Segment—Operating income was $40.6 million (11.4% of segment net sales) for the three months ended June 30, 2012 reflecting a decrease of $5.6 million compared to operating income of $46.2 million (12.7% of segment net sales) for the three months ended July 2, 2011. The decrease was primarily driven by higher inflationary costs of approximately $7 million, the impact of unfavorable foreign exchange rates of approximately $4 million, approximately $3 million of costs primarily associated with geographic expansion and the unfavorable net impact of price and product mix of approximately $3 million, partially offset by higher volume of approximately $8 million and operations productivity of approximately $6 million.

Interest expense was $18.8 million for the three months ended June 30, 2012, reflecting a decrease of $6.9 million compared to interest expense of $25.8 million for the three months ended July 2, 2011. The decrease in interest expense in 2012 was due to lower interest rates on the Company’s outstanding debt. The lower interest rates were primarily attributable to the shift from higher interest rate senior notes to the Senior Credit Facility and the rating agency upgrades discussed in Liquidity and Capital Resources.

For the three months ended June 30, 2012, the Company recorded income tax expense of $15.2 million on earnings before income taxes of $88.4 million for an effective tax rate of 17.2%, as compared to an income tax expense of $13.5 million on earnings before income taxes of $75.5 million, resulting in an effective tax rate of 17.8% for the three months ended July 2, 2011. The difference in the effective tax rate for the comparative period is primarily due to the geographic dispersion of earnings and losses for the current period compared to the prior period.

Net sales for the six months ended June 30, 2012 were $2,878.8 million, reflecting an increase of $57.4 million, or 2.0%, from the $2,821.4 million reported for the six months ended July 2, 2011. The increase was primarily driven by the favorable net impact of price and product mix of approximately $82 million and higher volume of approximately $25 million, partially offset by the impact of unfavorable foreign exchange rates of approximately $50 million.

Mohawk Segment—Net sales decreased $14.9 million, or 1.0%, to $1,434.4 million for the six months ended June 30, 2012, compared to $1,449.2 million for the six months ended July 2, 2011. The decrease was primarily driven by lower volume of approximately $87 million, partially offset by the favorable net impact of price and product mix of approximately $72 million. The lower volume reflected carpet industry trends with commercial and residential sales slowing. Also contributing to the volume decline were lower retail rug sales, as well as retailers deferring promotional activities and further inventory reductions in the channel.

Dal-Tile Segment—Net sales increased $73.3 million, or 10.1%, to $797.2 million for the six months ended June 30, 2012, compared to $723.9 million for the six months ended July 2, 2011. The increase was primarily driven by volume increases of approximately $75 million due to improvement in the commercial and residential channel, as well as, growth in the Mexican market.

Unilin Segment—Net sales increased $2.9 million, or 0.4%, to $691.8 million for the six months ended June 30, 2012, compared to $688.9 million for the six months ended July 2, 2011. The increase was primarily driven by volume increases of approximately $41 million and the favorable net impact of price and product mix of approximately $7 million, partially offset by the impact of unfavorable foreign exchange rates of approximately $45 million. The volume increase was primarily attributable to panels and laminate flooring.

Gross profit for the six months ended June 30, 2012 was $747.9 million (26.0% of net sales) and increased by $24.1 million or 3.3% compared to gross profit of $723.8 million (25.7% of net sales) for the six months ended July 2, 2011. The increase in gross profit dollars was primarily attributable to the favorable net impact of price and product mix of approximately $40 million, operations productivity of approximately $24 million, volume increases of approximately $10 million and lower restructuring charges of approximately $5 million. Partially offsetting these favorable items were higher inflationary costs of approximately $46 million primarily related to raw materials and the impact of unfavorable foreign exchange rates of approximately $9 million.

Selling, general and administrative expenses for the six months ended June 30, 2012 were $568.2 million (19.7% of net sales), compared to $566.1 million (20.1% of net sales) for the six months ended July 2, 2011. Changes in selling, general and administrative expenses were primarily driven by approximately $10 million in costs associated with sales channel expansion and the related volume increases, partially offset by approximately $8 million in favorable foreign exchange rates.

Operating income for the six months ended June 30, 2012 was $179.7 million (6.2% of net sales) reflecting an increase of $21.9 million, or 13.9%, compared to operating income of $157.8 million (5.6% of net sales) for the six months ended July 2, 2011. The increase was primarily driven by the favorable net impact of price and product mix of approximately $40 million, operations productivity of approximately $24 million, higher volume of approximately $10 million and lower restructuring charges of approximately $5 million, partially offset by higher inflationary costs of approximately $46 million primarily related to raw materials and approximately $10 million of costs associated with sales channel expansion and the related volume increases.

Mohawk Segment—Operating income was $62.4 million (4.4% of segment net sales) for the six months ended June 30, 2012 reflecting an increase of $14.2 million compared to operating income of $48.2 million (3.3% of segment net sales) for the six months ended July 2, 2011. The increase was primarily driven by the favorable net impact of price and product mix of approximately $43 million, operations productivity of approximately $12 million, lower selling, general and administrative costs of approximately $7 million and lower restructuring charges of approximately $6 million, partially offset by higher inflationary costs of approximately $31 million primarily related to raw materials and lower volume of $22 million.

Dal-Tile Segment—Operating income was $62.5 million (7.8% of segment net sales) for the six months ended June 30, 2012 reflecting an increase of $12.6 million compared to operating income of $49.8 million (6.9% of segment net sales) for the six months ended July 2, 2011. The increase was primarily driven by volume increases of approximately $22 million, operations productivity of approximately $7 million and the impact of favorable foreign exchange rates of approximately $5 million, partially offset by approximately $9 million of costs associated with sales channel expansion and the related volume increases, inflationary costs of approximately $5 million and the unfavorable net impact of price and product mix of approximately $3 million.

Unilin Segment—Operating income was $67.7 million (9.8% of segment net sales) for the six months ended June 30, 2012 reflecting a decrease of $4.7 million compared to operating income of $72.5 million (10.5% of segment net sales) for the six months ended July 2, 2011. The decrease was primarily driven by higher inflationary costs of approximately $10 million, unfavorable foreign exchange rates of approximately $5 million and approximately $4 million of costs primarily associated with geographic expansion, partially offset by volume increases of approximately $10 million and operations productivity of approximately $6 million.

Interest expense was $41.3 million for the six months ended June 30, 2012, reflecting a decrease of $11.0 million compared to interest expense of $52.4 million for the six months ended July 2, 2011. The decrease in interest expense in 2012 was due to lower interest rates on the Company’s outstanding debt. The lower interest rates were primarily attributable to the shift from higher interest rate senior notes to the Senior Credit Facility and the rating agency upgrades discussed in Liquidity and Capital Resources.

For the six months ended June 30, 2012, the Company recorded income tax expense of $25.5 million on earnings before income taxes of $139.7 million for an effective tax rate of 18.3%, as compared to an income tax expense of $18.4 million on earnings before income taxes of $105.0 million, resulting in an effective tax rate of 17.5% for the six months ended July 2, 2011. The difference in the effective tax rate for the comparative period is primarily due to the geographic dispersion of earnings and losses for the current period compared to the prior period.

Net cash provided by operating activities in the first six months of 2012 increased $67.0 million to $95.6 million, compared to $28.6 million in the first six months of 2011. The favorable change in operating activities is primarily attributable to improved earnings and changes in net working capital, partially offset by a tax deposit of €26.5 million paid to the Belgian tax authority as discussed in Note 11 in the notes to the condensed consolidated financial statements. For the six months ended June 30, 2012, the $99.9 million increase in receivables is primarily related to timing and the $52.5 million increase in inventory is primarily related to seasonal demand and plant start-ups.

Net cash used in investing activities in the first six months of 2012 was $94.7 million compared to $112.5 million in the first six months of 2011. Cash used in investing activities primarily relates to various geographic capacity expansions. Capital spending during the remainder of 2012, excluding acquisition expenditures, is expected to range from approximately $115 million to $135 million and is intended to be used primarily to purchase equipment, add geographic capacity and to streamline manufacturing capabilities. During the second quarter of 2012, the Company's Unilin segment made a $7.0 million equity investment in a laminate flooring facility in Brazil.

Net cash provided by financing activities in the first six months of 2012 was $13.2 million compared to net cash used in financing activities of $3.4 million in the first six months of 2011. The proceeds from the incremental term loan facility of $150.0 million discussed below were used to pay down the revolving portion of the Senior Credit Facility. The increase in total borrowings on the Senior Credit Facility was primarily used to pay down its senior 7.20% notes due April 15, 2012, as well as, the purchase of the non-controlling interest within the Dal-Tile segment for $35.0 million and funding of working capital.

On July 8, 2011, the Company entered into a five-year, senior, secured revolving credit facility (the “Senior Credit Facility”). The Senior Credit Facility provides for a maximum of $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 $8.2 million in connection with its Senior Credit Facility. These costs were deferred and, along with unamortized costs of $12.3 million related to the Company’s prior senior, secured revolving credit facility, are being amortized over the term of the Senior Credit Facility.

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. The Company paid financing costs of $1.0 million in connection with the amendment to its Senior Credit Facility. These costs were deferred and are being amortized over the remaining term of the Senior Credit Facility. 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 remaining quarterly principal payments of $5.625 million prior to maturity.

At the Company’s election, revolving loans under the Senior Credit Facility bear 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 1.25% and 2.0%, or (b) the higher of the Bank of America, N.A. prime rate, the Federal Funds rate plus 0.5%, and a monthly LIBOR rate plus 1.0%, plus an applicable margin ranging between 0.25% and 1.0%. The Company also pays a commitment fee to the lenders under the Senior Credit Facility on the average amount by which the aggregate commitments of the lenders’ exceed utilization of the Senior Credit Facility ranging from 0.25% 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

Due to the rating agency upgrade announced on March 14, 2012 by Standard & Poor’s Financial Services, LLC (“S&P”), the security interests 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 securing obligations under the Senior Credit Facility were released. The Company will be required to reinstate such security interests 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.

The Senior Credit Facility includes certain affirmative and negative covenants that impose restrictions on the Company’s financial and business operations, including limitations on liens, 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 3.00 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.

As of June 30, 2012, the amount utilized under the Senior Credit Facility including the term loan was $773.5 million, resulting in a total of $274.7 million available under the Senior Credit Facility. The amount utilized included $676.1 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 17, 2006, the Company issued $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 million per quarter per $100.0 million of outstanding notes. In 2009, interest rates increased by an aggregate amount of 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 and Moody’s. Any future downgrades in the Company’s credit ratings could increase the cost of its existing credit and adversely affect the cost of and ability to obtain additional credit in the future.

In 2002, the Company issued $400.0 million aggregate principal amount of its senior 7.20% notes due April 15, 2012. During 2011, the Company repurchased $63.7 million of its senior 7.20% notes, at an average price equal to 102.72% of the principal amount. On April 16, 2012, the Company repaid 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 under its Senior Credit Facility.

As of June 30, 2012, the Company had invested cash of $267.1 million, of which $261.1 million was held in investment grade money market cash investments 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 million. The Company believes that its cash and cash equivalents on hand, cash generated from operations and availability under its Senior Credit Facility will be sufficient to meet its capital expenditure, working capital and debt servicing requirements over the next twelve months.

Inflation affects the Company’s manufacturing costs, distribution costs and operating expenses. The Company expects raw material prices, many of which are petroleum based, to fluctuate based upon worldwide supply and demand of commodities utilized in the Company’s production processes. Although the Company 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 fully recovered. In the past, the Company has often been able to enhance productivity and develop new product innovations to help offset increases in costs resulting from inflation in its operations.

The Company is a calendar year-end company. With respect to its Mohawk and Dal-Tile segments, its results of operations for the first quarter tend to be the weakest. The second, third and fourth quarters typically produce higher net sales and operating income in these segments. These results are primarily due to consumer residential spending patterns for floor covering, which historically have decreased during the first two months of each year following the holiday season. The Unilin segment’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.

Certain of the statements in this Form 10-Q, particularly those anticipating future performance, business prospects, growth and operating strategies, and similar matters, and those that include the words “could,” “should,” “believes,” “anticipates,” “expects” and “estimates” or similar expressions constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For those statements, Mohawk claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. There can be no assurance that the forward-looking statements will be accurate because they are based on many assumptions, which involve risks and uncertainties. The following important factors could cause future results to differ: changes in economic or industry conditions; competition; inflation in raw material prices and other input costs; energy costs and supply; timing and level of capital expenditures; timing and implementation of price increases for the Company’s products; impairment charges; integration of acquisitions; international operations; introduction of new products; rationalization of operations; tax, product and other claims; litigation; and other risks identified in Mohawk’s SEC reports and public announcements.

As of June 30, 2012, approximately 55% of the Company's debt portfolio was comprised of fixed-rate debt and 45% 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. There have been no other significant changes to the Company’s exposure to market risk as disclosed in the Company’s 2011 Annual Report filed on Form 10-K.

Based on an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), which have been designed to provide reasonable assurance that such controls and procedures will meet their objectives, as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures were effective at a reasonable assurance level for the period covered by this report.

The floor covering industry is sensitive to changes in general economic conditions, such as consumer confidence and income, corporate and government spending, interest rate levels, availability of credit and demand for housing. The downturn in the U.S. and global economies 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 when economic conditions will improve or whether they will 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.

The floor covering industry in which the Company participates is highly dependent on general economic conditions, such as consumer confidence and income, corporate and government spending, interest rate levels, availability of credit and demand for housing. The Company derives a majority of its sales from the replacement segment of the market. Therefore, economic changes that result in a significant or prolonged decline in spending for remodeling and replacement activities could have a material adverse effect on the Company’s business and results of operations.

The floor covering industry is highly dependent on construction activity, including new construction, which is cyclical in nature and currently in a downturn. The current downturn in the U.S. and global economies, along with the housing 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

The prices of raw materials and fuel-related costs 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.

The floor covering industry is highly competitive. The Company faces competition from a number of manufacturers and independent distributors. Some of the Company’s competitors are larger and have greater resources and access to capital than the Company does. Maintaining the Company’s competitive position may require substantial investments in the Company’s product development efforts, manufacturing facilities, distribution network and sales and marketing activities. Competitive pressures may also result in decreased 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.

Uncertainty in the credit markets could affect the overall availability and cost of credit. Despite recent improvement in overall economic conditions, the impact of the economic downturn on the Company’s ability to obtain financing, 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 periodic credit ratings assessment by either or both Moody’s Investors Service, Inc. and Standard & Poor’s Financial Services, LLC. 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. Any future downgrades in the Company’s credit ratings would increase the cost of its existing credit and could adversely affect the cost of and ability to obtain additional credit in the future. A downgrade of the Company’s credit rating would increase interest expense on the Company’s senior unsecured notes by 25 basis points per downgrade. The Company can provide no assurances that downgrades will not occur.

If the Company were unable to meet certain covenants contained in the Senior Credit Facility, it may be required to repay borrowings under the Senior Credit Facility prior to their maturity and may lose access to the Senior Credit Facility for additional borrowings that may be necessary to fund its operations, which could have a material adverse effect on the Company’s business.

On July 8, 2011, the Company entered into a $900.0 million five-year, senior, secured revolving credit facility (the “Senior Credit Facility”). 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. As of June 30, 2012, the amount utilized under the Senior Credit Facility including the term loan was $773.5 million resulting in a total of $274.7 million available under the Senior Credit Facility. The amount utilized included $676.1 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.

During the term of the Senior Credit Facility, if the Company’s cash flow is worse 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.

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, each as of the last day of any fiscal quarter and as defined in the Senior Credit Facility.

The principal raw materials used in the Company’s manufacturing operations include nylon, polypropylene, triexta and polyester resins and fibers, which are used primarily in the Company’s carpet and rugs business; clay, talc, nepheline syenite and glazes, including frit (ground glass), zircon and stains, which are used exclusively in the Company’s ceramic tile business; and wood, paper, and resins which are used primarily in the Company’s laminate flooring business. In addition, the Company sources finished goods as well. For certain of such raw materials and sourced products, the Company is dependent on one or a small number of suppliers. An adverse change in the Company’s relationship with such a supplier, the financial condition of such a supplier or such supplier’s ability to manufacture or deliver such raw materials or sourced products to the Company could lead to an interruption of supply or require the Company to purchase more expensive alternatives. An extended interruption in the supply of these or other raw materials or sourced products used in the Company’s business or in the supply of suitable substitute materials or products would disrupt the Company’s operations, which could have a material adverse effect on the Company’s business.

The results of the Company’s foreign subsidiaries reported in the local currency are translated into U.S. dollars for balance sheet accounts using exchange rates in effect as of the balance sheet date and for the statement of operations accounts using, principally, the Company’s average rates during the period. The exchange rates between some of these currencies and the U.S. dollar in recent years have fluctuated significantly and may continue to do so in the future. The Company may not be able to manage effectively the Company’s currency translation risks and volatility in currency exchange rates may have a material adverse effect on the Company’s consolidated financial statements and affect comparability of the Company’s results between financial periods.

The Company has typically grown its business through acquisitions. Growth through acquisitions involves risks, many of which may continue to affect the Company after the acquisition. The Company cannot give assurance that an acquired company will achieve the levels of revenue, profitability and production that the Company expects. The combination of an acquired company’s business with the Company’s existing businesses involves risks. The Company cannot be assured that reported earnings will meet expectations because of goodwill and intangible asset impairment, other asset impairments, increased interest costs and issuance of additional securities or incurrence of debt. The Company may also face challenges in consolidating functions, integrating the Company’s organizations, procedures, operations and product lines in a timely and efficient manner and retaining key personnel. These challenges may result in:

Failure to successfully manage and integrate an acquisition with the Company’s existing operations could lead to the potential loss of customers of the acquired business, the potential loss of employees who may be vital to the new operations, the potential loss of business opportunities or other adverse consequences that could have a material adverse effect on the Company’s business, financial condition and results of operations. Even if integration occurs successfully, failure of the acquisition to

In addition, we have made certain investments, including through joint ventures, in which we have a minority equity interest and lack management and operational control. The controlling joint venture partner in a joint venture investment may have business interests, strategies or goals that are inconsistent with ours, and business decisions or other actions or omissions of the controlling joint venture partner or the joint venture company may result in harm to our reputation or adversely affect the value of our investment in the joint venture.

As part of the Company’s business strategy, the Company intends to continue to pursue a wide array of potential strategic transactions, including acquisitions of complementary businesses, as well as strategic investments and joint ventures. Although the Company regularly evaluates such opportunities, the Company may not be able to successfully 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.

The Company and its customers and suppliers are subject to various federal, state and local laws, regulations and licensing requirements. The Company faces risks and uncertainties related to compliance with and enforcement of increasingly numerous and complex federal, state and local laws and regulations. In addition, new laws and regulations may be enacted in the U.S. or abroad that may require the Company to incur additional personnel-related, environmental, or other costs on an ongoing basis, such as recently enacted healthcare legislation in the United States.

Further, the Company’s operations are subject to various environmental, health and safety laws and regulations, including those governing air emissions, wastewater discharges, and the use, storage, treatment, recycling and disposal of materials and finished product. The applicable requirements under these laws are subject to amendment, to the imposition of new or additional requirements and to changing interpretations of agencies or courts. The Company could incur material expenditures to comply with new or existing regulations, including fines and penalties and increased costs of its operations. For example, enactment of climate control legislation or other regulatory initiatives by the U.S. Congress or various states, or the adoption of regulations by the Environmental Protection Agency and analogous state or foreign governmental agencies that restrict emissions of greenhouse gases in areas in which the Company conducts business could have an adverse effect on its operations and demand for its products. The Company’s manufacturing processes use a significant amount of energy, especially natural gas. Increased regulation of energy use to address the possible emission of greenhouse gases and climate change could have a material adverse effect on the Company’s business.

Many of the Company’s business activities involve substantial investments in manufacturing facilities and many products are produced at a limited number of locations. These facilities could be materially damaged by natural 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.

In the ordinary course of business, the Company is subject to a variety of product-related claims, lawsuits and legal proceedings, including those relating to product liability, product warranty, product recall, personal injury, and other matters that are inherently subject to many uncertainties regarding the possibility of a loss to the Company. Such matters could have a

against the Company or settlements relating to these matters. Although the Company has product liability insurance, the policies may not provide coverage for certain claims against the Company or may not be sufficient to cover all possible liabilities. Further, the Company may not be able to maintain insurance at commercially acceptable premium levels. Moreover, adverse publicity arising from claims made against the Company, even if the claims are not successful, could adversely affect the Company’s reputation or the reputation and sales of its products.

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 locations 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:

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 future success and competitive position of certain of the Company’s businesses, particularly the Company’s laminate flooring business, depend in part upon the Company’s ability to obtain, maintain and license proprietary technology used in the Company’s principal product families. The Company relies, in part, on the patent, trade secret and trademark laws of the U.S. and countries in Europe, as well as confidentiality agreements with some of the Company’s employees, to protect that technology.

The Company has obtained a number of patents relating to the Company’s products and associated methods and has filed applications for additional patents, including the UNICLIC family of patents, which protects Unilin’s interlocking laminate flooring panel technology. The Company cannot assure investors that any patents owned by or issued to it will provide the Company with competitive advantages, that third parties will not challenge these patents, or that the Company’s pending patent applications will be approved. In addition, patent filings by third parties, whether made before or after the date of the Company’s filings, could render the Company’s intellectual property less valuable.

Company’s technology or similar technology by others could reduce or eliminate any competitive advantage the Company has developed, cause the Company to lose sales or otherwise harm the Company’s business. In addition, if the Company does not obtain sufficient protection for the Company’s intellectual property, the Company’s competitiveness in the markets it serves could be significantly impaired, which could have a material effect on the Company’s business.

The Company has obtained and applied for numerous U.S. and Foreign Service marks and trademark registrations and will continue to evaluate the registration of additional service marks and trademarks, as appropriate. The Company cannot guarantee that any of the Company’s pending or future applications will be approved by the applicable governmental authorities. Moreover, even if such applications are approved, third parties may seek to oppose or otherwise challenge the registrations. A failure to obtain trademark registrations in the U.S. and in other countries could limit the Company’s ability to protect the Company’s trademarks and impede the Company’s marketing efforts in those jurisdictions and could have a material effect on the Company’s business.

The Company generally requires third parties with access to the Company’s trade secrets to agree to keep such information confidential. While such measures are intended to protect the Company’s trade secrets, there can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any breach or that the Company’s confidential and proprietary information and technology will not be independently developed by or become otherwise known to third parties. In any of these circumstances, the Company’s competitiveness could be significantly impaired, which would limit the Company’s growth and future revenue.

In the past, companies have claimed that certain technologies incorporated in the Company’s products infringe their patent rights. There can be no assurance that the Company will not receive notices in the future from parties asserting that the Company’s products infringe, or may infringe, those parties’ intellectual property rights. The Company cannot be certain that the Company’s products do not and will not infringe issued patents or other intellectual property rights of others. Historically, patent applications in the U.S. and some foreign countries have not been publicly disclosed until the patent is issued (or, in some recent cases, until 18 months following submission), and the Company may not be aware of currently filed patent applications that relate to the Company’s products or processes. If patents are later issued on these applications, the Company may be liable for infringement.

Furthermore, the Company may initiate claims or litigation against parties for infringement of the Company’s proprietary rights or to establish the invalidity, noninfringement, or unenforceability of the proprietary rights of others. Likewise, the Company may have similar claims brought against it by competitors. Litigation, either as plaintiff or defendant, could result in significant expense to the Company and divert the efforts of the Company’s technical and management personnel from operations, whether or not such litigation is resolved in the Company’s favor. In the event of an adverse ruling in any such litigation, the Company might be required to pay substantial damages (including punitive damages and attorney’s fees), discontinue the use and sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses to infringing technology. There can be no assurance that licenses to disputed technology or intellectual property rights would be available on reasonable commercial terms, if at all. In the event of a successful claim against the Company along with failure to develop or license a substitute technology, the Company’s business, financial condition and results of operations would be materially and adversely affected.

To be successful, the Company must attract, develop and retain qualified and talented personnel in management, sales, marketing, product design and innovation and operations, and as it considers entering new international markets, skilled personnel familiar with those markets. The Company competes with multinational firms for these employees and invests resources in recruiting, developing, motivating and retaining them. The failure to attract, develop, motivate and retain key employees could negatively affect the Company’s competitive position and its operating results.

The Company’s stock is publicly traded. As a result, the Company is subject to the rules and regulations of federal and state agencies and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the Securities and Exchange Commission and the New York Stock Exchange, frequently issue new requirements and regulations. The Company’s efforts to comply with the regulations and interpretations have resulted in, and are likely to continue to result in, increased general and administrative costs and diversion of management’s time and attention from revenue generating activities to compliance activities.



No.		Description
10.1*		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).

10.2		Mohawk Industries, Inc. 2012 Non-Employee Director Compensation Plan.

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.



Delaware		52-1604305
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

160 S. Industrial Blvd., Calhoun, Georgia		30701
(Address of principal executive offices)		(Zip Code)



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨



		Page No
Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	3

	Condensed Consolidated Statements of Operations for the three months ended June 30, 2012 and July 2, 2011	5

	Condensed Consolidated Statements of Operations for the six months ended June 30, 2012 and July 2, 2011	6

	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2012 and July 2, 2011	7

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and July 2, 2011	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	31



	June 30, 2012		December 31, 2011
Customers, trade	$	794,691	696,856
Income tax receivable	613		1,703
Other	29,477		31,311
	824,781		729,870
Less allowance for discounts, returns, claims and doubtful accounts	42,659		43,705
Receivables, net	$	782,122	686,165



	June 30, 2012		December 31, 2011
Finished goods	$	719,102	670,877
Work in process	106,004		113,311
Raw materials	335,967		329,442
Total inventories	$	1,161,073	1,113,630



x	QUARTERLY 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



Indefinite life assets not subject to amortization:	Tradenames
Balance as of December 31, 2011	$	450,432
Currency translation during the period	(5,896		)
Balance as of June 30, 2012	$	444,536



Intangible assets subject to amortization:	Customer relationships			Patents		Other		Total
Balances as of December 31, 2011	$	64,958		88,544		1,166		154,668
Amortization during the period	(22,791		)	(9,408	)	(60	)	(32,259	)
Currency translation during the period	(191		)	(1,809	)	3		(1,997	)
Balances as of June 30, 2012	$	41,976		77,327		1,109		120,412



	June 30, 2012		December 31, 2011
Assets:
Mohawk	$	1,791,376	1,769,065
Dal-Tile	1,742,563		1,732,818
Unilin	2,539,997		2,533,070
Corporate and intersegment eliminations	190,841		171,275
	$	6,264,777	6,206,228


•	manufacturing and selling different types of products through different distribution channels;


•	maintaining different operating systems and software on different computer hardware; and


•	providing different employment and compensation arrangements for employees.


•	differing business practices associated with foreign operations;


•	various import/export restrictions and the availability of required import/export licenses;


1.	Interim reporting


8.	Other Expense (Income)


12.	Debt


•	foreign country tax rules, regulations and other requirements, such as changes in tax rates and statutory and judicial interpretations in tax laws;


•	work stoppages and disruptions in the shipping of imported and exported products;


•	extended payment terms and the inability to collect accounts receivable; and


•	tax inefficiencies and currency exchange controls that may adversely impact its ability to repatriate cash from non-U.S. subsidiaries.



			MOHAWK INDUSTRIES, INC.
			(Registrant)

Dated:	August 3, 2012	By:	/s/ Jeffrey S. Lorberbaum
			JEFFREY S. LORBERBAUM
			Chairman and Chief Executive Officer
			(principal executive officer)

Dated:	August 3, 2012	By:	/s/ Frank H. Boykin
			FRANK H. BOYKIN
			Chief Financial Officer
			(principal financial officer)