Company Overview - Mohawk's Q2 2023 TTM net sales reached $11.3 billion[7] - The company's adjusted EBITDA for Q2 2023 TTM was $1.4 billion[7] - Adjusted EPS for Q2 2023 TTM was $9.16[7] - Cash flow from operations for Q2 2023 TTM amounted to $987 million[7] Q2 2023 Financial Results - Net sales were $3.0 billion, a decrease of 9.6% year-over-year on a constant basis[29] - Adjusted EBITDA was $390 million, down 24.1% year-over-year[30] - Adjusted diluted EPS was $2.76, a decrease of 37.4% year-over-year[30] - Net sales decreased by 6.4%, or 9.6% on a constant and legacy basis, from $3.153 billion in Q2 2022 to $2.950 billion in Q2 2023[31] - Adjusted EBITDA margin decreased from 16.3% in Q2 2022 to 13.2% in Q2 2023[31] Segment Performance - Global Ceramic segment sales decreased by 6.7% on a constant and legacy basis[37] - Flooring Rest of the World segment sales decreased by 10.2% on a constant and legacy basis[43] - Flooring North America segment sales decreased by 12.1% on a legacy basis[45]

Financial Data and Key Metrics - Q2 sales were $2.95 billion, down 6.4% as reported or 9.6% on a constant and legacy basis, primarily due to pressure on residential remodeling across all regions [95] - Gross margin for Q2 was 24.8% as reported and 25.9% excluding one-time items, down from 27.7% in the prior year due to softening volume, temporary plant shutdowns, unfavorable price mix, higher inflation, and FX impact [64] - Operating income as reported was 5.2%, with restructuring, integration, and other items totaling $91 million for the quarter [66] - Q2 adjusted EPS was $2.76, with free cash flow of over $145 million during the quarter [83] - Inventory decreased by $110 million sequentially from Q1 to Q2, with 60% due to volume and 40% due to lower costs [61] Business Line Data and Key Metrics - Global Ceramics segment sales were flat at $1.2 billion, with operating margin excluding charges at 8.6% [69][70] - Flooring North America sales decreased 8.9% to $1 billion, with operating margin excluding charges at 6% [71][72] - Flooring Rest of the World sales decreased 11.4% to $790 million, with operating margin excluding charges at 12.1% [73][74] Market Data and Key Metrics - In the U.S., new home starts increased to 1.45 million in Q2, showing the first quarterly increase since the beginning of last year [85] - The U.S. commercial sector has proven more resilient, with businesses continuing to invest in new construction and remodeling projects [52] - In Europe, residential remodeling remains slow, with competition intensifying due to low industry volume and declining energy costs [38] - Latin America is performing better in Mexico due to the economy and lower interest rates, while Brazil is more impacted by economic conditions [40][42] Company Strategy and Industry Competition - The company is focusing on managing short-term challenges while preparing for long-term growth, with investments in capacity expansions and recent acquisitions expected to enhance results [25] - Restructuring initiatives are expected to save $35 million annually, with half of the savings realized in the current year [96] - The company is introducing higher style products to improve mix and focusing on stronger sales channels to offset weakness in residential remodeling [36] - Competitive pressures are increasing globally, with declining industry volumes and input costs driving price competition [97] Management Commentary on Operating Environment and Future Outlook - Management anticipates commercial sector performance to weaken later in the year, with signs of weakening orders already emerging [3][13] - The company expects Q3 adjusted EPS to be between $2.62 and $2.72, with seasonal weakness due to summer holidays, lower consumer spending, and lower production in Europe [24] - Long-term prospects remain strong, with pent-up demand expected to drive growth as the economy recovers [30][32] - The company is optimistic about the long-term, with new investments and expansions expected to drive growth in high-demand categories [32] Other Important Information - The company has made progress in integrating acquisitions in Brazil and Mexico, with synergies partially offsetting weakening market conditions [35][40] - The U.S. Forced Labor Protection Act is impacting some shipments, particularly in the LVT segment [56] - The company has reduced inventory and working capital, with inventory days decreasing from 128 days in Q1 to 120 days in Q2 [75] Q&A Session Summary Question: How is the commercial sector performing, and what are the expectations for the rest of the year? - The commercial sector has been outperforming but is expected to weaken later in the year, with signs of weakening orders already emerging [3][13] Question: What is the impact of lower input costs on pricing and volumes? - Lower input costs are expected to align the company with competition, with pricing pressure likely to continue as costs decline [5][17] Question: How is the company managing inventory levels? - Inventory decreased by $110 million sequentially from Q1 to Q2, with further decreases expected this year depending on demand and inflation [61] Question: What are the expectations for Q3 and Q4 in terms of pricing and cost dynamics? - Sequentially, lower input costs are expected to offset price mix pressure in Q3 and Q4, with the gap between inflation and price mix closing significantly by Q4 [7][138] Question: How is the company addressing competitive pressures in the market? - The company is focusing on cost containment, productivity projects, and alternative formulations to manage competitive pressures [39][97] Question: What are the long-term growth prospects for the company? - The company is optimistic about long-term growth, with pent-up demand expected to drive growth as the economy recovers and new investments in capacity expansions and acquisitions expected to enhance results [25][32]

Company Participants Conference Call Participants Operator I would now like to turn the conference over to James Brunk. Please go ahead. Thank you, Dave. Good morning, everyone. Welcome to Mohawk Industries' quarterly investor call. Joining me on today's call are Jeff Lorberbaum, Chairman, Chief Executive Officer; and Chris Wellborn, President and Chief Operating Officer. Today, we'll update you on the company's first quarter performance and provide guidance for the second quarter of 2023. This call may inc ...

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Mohawk Industries is a leading global flooring manufacturer operating three segments, achieving **$11.7 billion** in net sales in 2022 - Mohawk is the world's largest flooring company, with operations in Australia, Brazil, Canada, Europe, India, Malaysia, Mexico, New Zealand, Russia, the United Kingdom, and the United States[12](index=12&type=chunk) Net Earnings Attributable to Mohawk Industries, Inc. | Metric | 2022 Value | | :----------------------- | :----------- | | Annual Net Sales | **$11.7 billion** | | Sales in United States | **~60%** | | Sales outside United States | **~40%** | | Global Ceramic Net Sales | **37%** of total | | Flooring NA Net Sales | **36%** of total | | Flooring ROW Net Sales | **27%** of total | [General](index=4&type=section&id=General) Mohawk Industries is a global leader in flooring manufacturing, producing carpet, rugs, ceramic tile, laminate, wood, stone, LVT, and sheet vinyl. The company's vertically integrated processes and strong brands (e.g., American Olean, Daltile, Mohawk, Pergo) provide competitive advantages[12](index=12&type=chunk) [Business Strategy](index=5&type=section&id=Business%20Strategy) Mohawk's business strategy focuses on five key priorities: optimizing customer value, fair employee treatment, driving innovation, taking calculated risks for growth, and enhancing communities[13](index=13&type=chunk)[15](index=15&type=chunk) [Strengths](index=5&type=section&id=Strengths) Mohawk holds market leadership positions in North America, Brazil, Europe, Russia, and Australasia, exporting to approximately **170** countries. Key strengths include fashionable and innovative products, participation in all sales channels, creative marketing, and extensive sales resources[14](index=14&type=chunk) - Strategic acquisitions, such as IVC (**2015**) for LVT, Godfrey Hirst (**2018**) for Australasian carpet, and Eliane (**2018**) for Brazilian ceramic tile, have strengthened Mohawk's market position and product offerings[14](index=14&type=chunk) [Product Innovation](index=6&type=section&id=Product%20Innovation) Mohawk drives performance through continuous product innovation, including proprietary ceramic printing (Reveal Imaging®), slip-resistant tile (StepWise™), antimicrobial treatments, and large-scale porcelain slabs[16](index=16&type=chunk) - In carpet, innovations include Air.o™ unified soft surface, Recover™ backing, and proprietary bio-based SmartStrand® fiber. Laminate and LVT innovations feature Uniclic® installation, HydroSeal™ water-resistance, GenuEdge® pressed bevel edges, and WetProtect™ waterproof technology[16](index=16&type=chunk) [Operational Excellence](index=6&type=section&id=Operational%20Excellence) Mohawk leverages efficient manufacturing and distribution assets, continuous process improvement, and automation to drive innovation, quality, and value. The company invests in capacity expansion, new product introduction, and efficiency improvements, with training programs recognized among the best[17](index=17&type=chunk) [Sustainability](index=6&type=section&id=Sustainability) Mohawk's sustainability strategy is built on three pillars: Better for People (employee engagement, health, community), Better for the Planet (climate-positive future, energy/water conservation, product circularity, recycled content), and Better for Performance (ESG governance, ethics, data security)[18](index=18&type=chunk) - The company utilizes extensive recycled content, transforming billions of plastic bottles into polyester carpet fiber and millions of pounds of tires into crumb rubber mats. It also generates energy from solar panels, windmills, and waste-to-energy programs[18](index=18&type=chunk) [Sales and Distribution](index=7&type=section&id=Sales%20and%20Distribution) Mohawk employs dedicated sales forces organized by product type and sales channels to serve diverse customer needs across its Global Ceramic, Flooring NA, and Flooring ROW segments. Distribution methods include regional distribution centers, service centers, direct shipping, and customer pick-up[19](index=19&type=chunk)[22](index=22&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk)[28](index=28&type=chunk) [Advertising and Promotion](index=8&type=section&id=Advertising%20and%20Promotion) Mohawk supports its brands through traditional advertising, trade publications, promotional events, social media, and educational websites. The company also engages in marketing partnerships with organizations like Susan G. Komen and Habitat for Humanity, and sponsors a European cycling team[29](index=29&type=chunk)[30](index=30&type=chunk) [Manufacturing and Operations](index=8&type=section&id=Manufacturing%20and%20Operations) Mohawk's manufacturing operations are highly vertically integrated across all segments, from raw material production to finished goods. This includes extrusion of resins into fiber for carpet, production of high-density fiberboard for laminate, and wool yarn production in Australasia[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - The company continuously invests in leading-edge technology and capital projects to increase manufacturing capacity, improve efficiency, and enhance cost competitiveness, particularly in LVT and premium laminate production[31](index=31&type=chunk)[33](index=33&type=chunk)[35](index=35&type=chunk) [Inputs and Suppliers](index=9&type=section&id=Inputs%20and%20Suppliers) Key raw materials include clay, talc, feldspar, industrial minerals, glazes for ceramic; polypropylene, polyester, triexta, nylon, caprolactam, recycled plastics, synthetic backing, latex, dyes, and chemicals for carpet/rugs; and wood, paper, resins, glass fiber, plasticizers, and PVC for laminate/wood/vinyl[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - Mohawk secures a portion of its clay requirements through long-term mining rights and sources other materials from independent suppliers, believing alternative arrangements are available if needed, despite market sensitivity to disruptions[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) [Industry and Competition](index=10&type=section&id=Industry%20and%20Competition) The U.S. floor covering industry reported **$33.7 billion** in sales in **2021**, with carpet and rugs (**38.5%**), resilient (**27.0%**), wood (**12.9%**), and ceramic tile (**12.4%**) as primary categories. The market is influenced by economic factors like consumer confidence, interest rates, and housing turnover[39](index=39&type=chunk) - Competition in the fragmented flooring industry is based on product innovation, style, quality, price, performance technology, and service. Mohawk differentiates its products through premium features and investments in manufacturing technology, computer systems, and distribution[40](index=40&type=chunk) - Mohawk is the largest flooring manufacturer globally and a leading producer in specific markets like U.S. ceramic tile, Europe/Russia ceramic tile, U.S. laminate, and Australasian carpet, leveraging scale, innovation, and brand recognition[39](index=39&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) [Patents and Trademarks](index=11&type=section&id=Patents%20and%20Trademarks) Mohawk protects its intellectual property through patents, copyrights, trademarks, and trade secret laws. Key trademarks include American Olean, Daltile, Mohawk, Pergo, Quick-Step, and Unilin, reflecting innovations in design, performance, and installation[44](index=44&type=chunk)[45](index=45&type=chunk) - The Flooring ROW segment owns patent families in Europe and the U.S., which it licenses to other manufacturers, generating revenue from its patent portfolio[46](index=46&type=chunk) [Major Customers](index=11&type=section&id=Major%20Customers) In **2022**, no single customer accounted for more than **10%** of Mohawk's total net sales, and the top **10** customers represented less than **20%** of total net sales, indicating a diversified customer base[47](index=47&type=chunk) [Human Capital](index=11&type=section&id=Human%20Capital) As of December 31, **2022**, Mohawk employed approximately **40,900** persons globally, with significant workforces in North America, Europe, and Russia. The company prioritizes recruitment, development, safety, engagement, and retention of its employees[48](index=48&type=chunk)[49](index=49&type=chunk) [Available Information](index=12&type=section&id=Available%20Information) Mohawk makes its annual, quarterly, and current reports (Form 10-K, 10-Q, 8-K) available free of charge on its investor relations website as soon as practicable after filing with the SEC[50](index=50&type=chunk)[55](index=55&type=chunk) [Item 1A. Risk Factors](index=12&type=page&id=Item%201A.%20Risk%20Factors) Mohawk faces economic, competitive, geopolitical, operational, and financial risks, including supply chain and IT vulnerabilities - The floor covering industry is sensitive to economic conditions, with downturns impacting remodeling and new construction, which constitute the majority of Mohawk's sales[52](index=52&type=chunk)[53](index=53&type=chunk) - Intense competition, including from foreign manufacturers with lower costs or state subsidies, could decrease demand or force price reductions, materially affecting the business[54](index=54&type=chunk) - The COVID-19 pandemic has caused fluctuating demand and supply chain disruptions, and its future impact on operations, results, and liquidity remains uncertain[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk) - The ongoing Russia-Ukraine conflict has led to supply chain disruptions (e.g., clay from Ukraine), increased costs for natural gas, oil, and chemicals, and potential adverse effects on Russian operations (**5%** of **2022** net sales) due to sanctions and geopolitical shifts[60](index=60&type=chunk)[61](index=61&type=chunk) - International operations expose Mohawk to risks such as regulatory changes, trade barriers, currency fluctuations, inflation, labor laws, and political instability in emerging markets[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[66](index=66&type=chunk) - Inability to accurately predict customer preferences or respond to technological developments, and failure to pass on rising raw material, labor, energy, and fuel costs, could materially affect the business[68](index=68&type=chunk)[69](index=69&type=chunk) - Significant capital investments (e.g., **$560 million** planned for **2023**) may not achieve intended results if growth forecasts are inaccurate. Acquisitions also carry risks related to integration, achieving expected profitability, and unidentified liabilities[71](index=71&type=chunk)[72](index=72&type=chunk) - Reliance on information systems makes the company vulnerable to system failures, cybersecurity risks, and data breaches, potentially leading to disruptions, financial losses, and reputational damage[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) - Financial risks include changes in credit availability and cost, potential inability to meet credit facility covenants (e.g., Consolidated Interest Coverage Ratio of **3.5 to 1.0**), and asset impairment charges due to market capitalization declines or negative performance outlook[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) [Item 1B. Unresolved Staff Comments](index=21&type=page&id=Item%201B.%20Unresolved%20Staff%20Comments) No unresolved staff comments are reported for the fiscal year ended December 31, 2022 - No unresolved staff comments[100](index=100&type=chunk) [Item 2. Properties](index=22&type=page&id=Item%202.%20Properties) Mohawk owns and leases global manufacturing and distribution facilities, including its Georgia headquarters, suitable for needs Segment and Property Use | Segment and Property Use | North America | Europe and Russia | Other | Total | | :----------------------- | :------------ | :---------------- | :---- | :---- | | **Global Ceramic** | | | | | | Manufacturing | 8 | 11 | 3 | 22 | | Distribution / Warehouse | 9 | 7 | 3 | 19 | | **Flooring North America** | | | | | | Manufacturing | 22 | — | — | 22 | | Distribution / Warehouse | 12 | — | — | 12 | | **Flooring Rest of the World** | | | | | | Manufacturing | — | 21 | 5 | 26 | | Distribution / Warehouse | — | 4 | — | 4 | | **Total** | | | | |\n| Manufacturing | 30 | 32 | 8 | 70 |\n| Distribution / Warehouse | 21 | 11 | 3 | 35 | - The Company owns its corporate headquarters in Calhoun, Georgia, and operates numerous service centers and stores in the United States and Russia[102](index=102&type=chunk) [Item 3. Legal Proceedings](index=22&type=page&id=Item%203.%20Legal%20Proceedings) Mohawk is involved in routine legal matters, with no material proceedings pending beyond those detailed in financial notes - The Company is involved in various lawsuits, claims, investigations, and other legal matters in the regular course of business[104](index=104&type=chunk) - No material legal proceedings are pending or contemplated, except as noted in the Consolidated Financial Statements[104](index=104&type=chunk) [Item 4. Mine Safety Disclosures](index=22&type=page&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures, as required by the Dodd-Frank Act, are provided in Exhibit 95.1 of this annual report - Mine safety disclosures are included in Exhibit **95.1** of the Form 10-K[106](index=106&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=23&type=page&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Mohawk's common stock trades on NYSE (MHK); no cash dividends paid since IPO, with **$229.2 million** remaining for share repurchases - Mohawk Industries' common stock (MHK) is listed on the New York Stock Exchange[107](index=107&type=chunk) - As of February 17, **2023**, there were **211** holders of record for Common Stock, with **63,540,310** shares outstanding[5](index=5&type=chunk)[108](index=108&type=chunk) - The Company has not paid or declared any cash dividends on its Common Stock since its initial public offering[108](index=108&type=chunk) - A new **$500 million** share repurchase program was approved on February 10, **2022**. As of December 31, **2022**, **$229.2 million** remained authorized under this program[109](index=109&type=chunk) [Item 6. Reserved](index=23&type=page&id=Item%206.%20Reserved) This item is reserved and contains no information for the fiscal year ended December 31, 2022 - Item **6** is reserved[112](index=112&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Mohawk's 2022 financial performance saw profitability decline due to inflation and lower spending, despite strategic investments - Mohawk's business is sensitive to macroeconomic events, including the COVID-19 pandemic and the Russia-Ukraine conflict, which caused supply chain disruptions and increased costs in **2022**[116](index=116&type=chunk) - In **2022**, rapid cost escalations in materials, energy, transportation, and labor, along with inflation and rising interest rates, negatively impacted profitability across all segments. Discretionary spending and flooring purchases declined, leading to reduced customer inventories[118](index=118&type=chunk) - Mohawk partially offset inflationary pressures through multiple pricing actions, improved product mix, productivity gains, and cost containment measures[118](index=118&type=chunk) - The company initiated facility and product rationalizations and workforce reductions in **2022**, anticipating annual savings of **$55-$60 million** at an estimated cost of **$125-$130 million**[118](index=118&type=chunk) - Mohawk completed five small, bolt-on acquisitions in **2022** and entered agreements to acquire Vitromex (Mexico) and Elizabeth Revestimentos (Brazil), expected to close in Q1 **2023**[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - Capital investments in **2022** totaled **$580.7 million**, primarily for LVT, premium waterproof laminate, quartz countertops, and porcelain slab expansions. An additional **$560 million** is planned for **2023**[123](index=123&type=chunk) Net Earnings Attributable to Mohawk Industries, Inc. | Year | Net Earnings (in millions) | | :--- | :------------------------- | | 2022 | **$25.2** | | 2021 | **$1,033.2** | - The significant decrease in net earnings in **2022** was primarily due to higher inflation costs, a goodwill and indefinite-lived intangibles impairment charge, lower sales volume, temporary plant shutdowns, higher restructuring costs, legal settlements, unfavorable foreign exchange rates, and increased product development/marketing costs. These were partially offset by favorable price/product mix, productivity gains, and lower taxes[124](index=124&type=chunk) Cash Flow from Operating Activities | Year | Cash from Operating Activities (in millions) | | :--- | :----------------------------------------- | | 2022 | **$669.2** | | 2021 | **$1,309.1** | [Overview](index=24&type=section&id=Overview) Mohawk, a global flooring manufacturer, faced macroeconomic challenges in 2022, impacting profitability despite strategic actions - Mohawk is a global flooring manufacturer with three reporting segments: Global Ceramic, Flooring NA, and Flooring ROW, operating in **19** nations with sales in approximately **170** countries[114](index=114&type=chunk)[115](index=115&type=chunk) - The company's business is sensitive to macroeconomic events, including the COVID-19 pandemic and the Russia-Ukraine conflict, which led to supply chain disruptions and increased costs in **2022**[116](index=116&type=chunk) - In **2022**, inflation, rising interest rates, and other macroeconomic factors impacted new home construction and residential remodeling, leading to decreased discretionary spending and reduced customer inventories[118](index=118&type=chunk) - Mohawk implemented pricing actions, improved product mix, productivity gains, and cost containment measures to offset inflationary pressures[118](index=118&type=chunk) - The company plans to invest approximately **$560 million** in capital projects in **2023**, focusing on LVT, premium waterproof laminate, quartz countertops, and porcelain slab expansion[123](index=123&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section details Mohawk's consolidated financial performance, including net sales, gross profit, and net earnings for 2022 vs 2021 Consolidated Statements of Operations Data (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | Change (%) | | :------------------------------------------ | :----------------- | :----------------- | :--------- | | Net sales | **$11,737.1** | **$11,200.6** | **4.8%** | | Cost of sales | **$8,793.6** | **$7,931.9** | **10.9%** | | Gross profit | **$2,943.4** | **$3,268.7** | (**10.0%**) | | Selling, general and administrative expenses | **$2,003.4** | **$1,933.7** | **3.6%** | | Impairment of goodwill and indefinite-lived intangibles | **$695.8** | — | N/A | | Operating income | **$244.2** | **$1,335.0** | (**81.7%**) | | Interest expense | **$51.9** | **$57.3** | (**9.4%**) | | Other expense (income) | **$8.4** | **$(12.2)** | N/A | | Earnings before income taxes | **$183.9** | **$1,290.0** | (**85.7%**) | | Income tax expense | **$158.1** | **$256.4** | (**38.4%**) | | Net earnings attributable to Mohawk Industries, Inc. | **$25.2** | **$1,033.2** | (**97.6%**) | [Net Sales](index=27&type=section&id=Net%20Sales) Mohawk's net sales increased by **4.8%** in 2022, driven by price/mix, but offset by lower volume and unfavorable foreign exchange Net Sales Performance (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | Change (%) | | :---------------- | :----------------- | :----------------- | :--------- | | Total Net Sales | **$11,737.1** | **$11,200.6** | **4.8%** | | Global Ceramic | **$4,307.7** | **$3,917.3** | **10.0%** | | Flooring NA | **$4,207.0** | **$4,116.4** | **2.2%** | | Flooring ROW | **$3,222.3** | **$3,166.9** | **1.7%** | - The overall increase in net sales was primarily driven by a favorable net impact of price and product mix (approx. **$1,564 million**), partially offset by lower sales volume (approx. **$580 million**), unfavorable foreign exchange rates (approx. **$412 million**), and one less shipping day (approx. **$40 million**)[128](index=128&type=chunk) Quarterly Net Sales (2022 vs. 2021) | Quarter | 2022 (in millions) | 2021 (in millions) | Change (%) | | :-------- | :----------------- | :----------------- | :--------- | | First | **$3,015.7** | **$2,669.0** | **13.0%** | | Second | **$3,153.2** | **$2,953.8** | **6.8%** | | Third | **$2,917.5** | **$2,817.0** | **3.6%** | | Fourth | **$2,650.7** | **$2,760.7** | (**4.0%**) | | Full Year | **$11,737.1** | **$11,200.6** | **4.8%** | [Gross Profit](index=27&type=section&id=Gross%20Profit) Gross profit decreased by **10.0%** in 2022 due to higher inflation and lower volume, partially offset by price/mix and productivity Gross Profit (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | Change ($) | Change (%) | Change (basis points) | | :--------- | :----------------- | :----------------- | :--------- | :--------- | :-------------------- | | Gross Profit | **$2,943.4** | **$3,268.7** | **$(325.3)** | (**10.0%**) | (**410**) | | % of Net Sales | **25.1%** | **29.2%** | | | | - The decrease in gross profit was primarily due to higher inflation costs (approx. **$1,365 million**), lower sales volume (approx. **$204 million**), temporary plant shutdowns (approx. **$138 million**), unfavorable foreign exchange rates (approx. **$67 million**), and higher restructuring costs (approx. **$54 million**). These were partially offset by favorable price/product mix (approx. **$1,420 million**) and productivity gains (approx. **$78 million**)[133](index=133&type=chunk) [Selling, General and Administrative Expenses](index=27&type=section&id=Selling%20General%20and%20Administrative%20Expenses) SG&A expenses increased by **3.6%** in 2022, primarily due to legal settlements, inflation, and new product costs Selling, General and Administrative Expenses (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | Change ($) | Change (%) | Change (basis points) | | :------------------------------------------ | :----------------- | :----------------- | :--------- | :--------- | :-------------------- | | SG&A Expenses | **$2,003.4** | **$1,933.7** | **$69.7** | **3.6%** | (**20**) | | % of Net Sales | **17.1%** | **17.3%** | | | | - The increase in SG&A expenses was mainly due to legal settlements, reserves and fees (approx. **$54 million**), unfavorable price and product mix (approx. **$52 million**), higher inflation costs (approx. **$32 million**), increased restructuring costs (approx. **$10 million**), and higher new product development and marketing costs (approx. **$8 million**). These were partially offset by favorable foreign exchange rates (approx. **$56 million**) and productivity gains (approx. **$33 million**)[134](index=134&type=chunk) [Impairment of Goodwill and Indefinite-lived Intangibles](index=28&type=section&id=Impairment%20of%20Goodwill%20and%20Indefinite-lived%20Intangibles) Mohawk recorded a **$695.8 million** impairment charge in Q3 2022 for goodwill and intangibles, mainly in Global Ceramic - During Q3 **2022**, Mohawk recorded a **$695.8 million** (**$685.6 million** net of tax) impairment charge for goodwill and indefinite-lived intangible assets, primarily affecting the Global Ceramic reporting unit[135](index=135&type=chunk) - The impairment was triggered by a higher weighted average cost of capital (WACC), deteriorating macroeconomic conditions, and a reduction in the company's market capitalization[135](index=135&type=chunk) [Operating Income (Loss)](index=28&type=section&id=Operating%20Income%20(Loss)) Total operating income decreased significantly by **81.7%** in 2022, primarily due to inflation and the goodwill impairment charge Operating Income (Loss) (2022 vs. 2021) | Segment | 2022 (in millions) | 2021 (in millions) | Change ($) | Change (%) | | :-------------- | :----------------- | :----------------- | :--------- | :--------- | | Total Operating Income | **$244.2** | **$1,335.0** | **$(1,090.8)** | (**81.7%**) | | Global Ceramic | **$(236.1)** | **$403.1** | **$(639.2)** | (**158.6%**) | | Flooring NA | **$231.1** | **$407.6** | **$(176.5)** | (**43.3%**) | | Flooring ROW | **$340.2** | **$571.1** | **$(230.9)** | (**40.4%**) | - The substantial decrease in total operating income was primarily due to higher inflation costs (approx. **$1,397 million**), the goodwill impairment charge (approx. **$696 million**), lower sales volume (approx. **$208 million**), and temporary plant shutdowns (approx. **$138 million**)[136](index=136&type=chunk) [Interest Expense](index=28&type=section&id=Interest%20Expense) Interest expense decreased by **$5.4 million** in 2022 due to senior note redemptions, partially offset by increased borrowings Interest Expense (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | Change ($) | | :------------- | :----------------- | :----------------- | :--------- | | Interest Expense | **$51.9** | **$57.3** | **$(5.4)** | - The decrease in interest expense was mainly due to the redemption of **$600 million** 3.85% Senior Notes in November **2022** and **€500 million** 2.00% Senior Notes in October **2021**, partially offset by increased commercial paper borrowings and Term Loan Facility utilization in Q4 **2022**[140](index=140&type=chunk) [Other Expense (Income)](index=29&type=section&id=Other%20Expense%20(Income)) Other expense shifted to a net expense in 2022, primarily due to foreign currency losses and an indemnification asset release Other Expense (Income) (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | Change ($) | | :-------------------- | :----------------- | :----------------- | :--------- | | Other Expense (Income) | **$8.4** | **$(12.2)** | **$20.6** | - The unfavorable change was primarily due to the absence of a **$6 million** benefit from foreign non-income tax contingencies resolution in **2021**, an unfavorable net impact of foreign exchange rates (approx. **$9 million**), and the release of a **$7 million** indemnification receivable[141](index=141&type=chunk) [Income Tax Expense](index=29&type=section&id=Income%20Tax%20Expense) The effective tax rate significantly increased to **86.0%** in 2022 due to lower pre-tax income and non-deductible impairment charges Income Tax Expense and Effective Tax Rate (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | Effective Tax Rate (2022) | Effective Tax Rate (2021) | | :-------------------- | :----------------- | :----------------- | :------------------------ | :------------------------ | | Earnings before income taxes | **$183.9** | **$1,290.0** | | | | Income Tax Expense | **$158.1** | **$256.4** | **86.0%** | **19.9%** | - The significantly higher effective tax rate in **2022** (**86.0%**) was due to lower income before taxes and the non-deductible goodwill impairment charge. In **2021**, the rate (**19.9%**) benefited from a one-time Italian tax step-up and a U.S. loss carryback tax rate differential[142](index=142&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) Mohawk meets capital needs through internal funds and debt, with operating cash flow decreasing in 2022 due to lower earnings - Mohawk's capital requirements for working capital, capital expenditures, and acquisitions are met through internally generated funds, commercial paper, bank credit lines, term/senior notes, and supplier credit[143](index=143&type=chunk) Cash and Liquidity (as of December 31, 2022) | Metric | Amount (in millions) | | :-------------------------------- | :------------------- | | Cash and cash equivalents | **$509.6** | | Short-term investments | **$158.0** | | Available under Senior Credit Facility | **$1,101.6** | Cash Flow Activities (2022 vs. 2021) | Activity | 2022 (in millions) | 2021 (in millions) | Change ($) | | :-------------------------------- | :----------------- | :----------------- | :--------- | | Net cash provided by operating activities | **$669.2** | **$1,309.1** | **$(640.0)** | | Net cash used in investing activities | **$(625.3)** | **$(556.8)** | **$(68.5)** | | Net cash provided by (used in) financing activities | **$194.3** | **$(1,232.2)** | **$1,426.5** | - The decrease in operating cash flow was due to lower accounts payable and net earnings, partially offset by higher accounts receivable[144](index=144&type=chunk)[145](index=145&type=chunk) - Financing cash flow shifted from a net use to a net provide, driven by proceeds from the Term Loan Facility, lower share repurchases, and reduced Senior Notes payments, partially offset by decreased net commercial paper borrowings[146](index=146&type=chunk) [Contractual Obligations and Commitments](index=30&type=section&id=Contractual%20Obligations%20and%20Commitments) This section details Mohawk's contractual obligations and commitments as of December 31, 2022, including debt and leases Contractual Obligations and Commitments (as of December 31, 2022, in millions) | Obligation | Total | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | | :-------------------------- | :--------- | :------- | :------- | :----- | :----- | :----- | :--------- | | Long-term debt, including current maturities | **$2,826.4** | **$840.6** | **$920.7** | **$9.0** | **$7.0** | **$539.3** | **$509.8** | | Interest payments on long-term debt and finance leases | **$317.9** | **$108.9** | **$52.4** | **$28.0** | **$27.8** | **$22.3** | **$78.5** | | Operating leases | **$435.2** | **$125.1** | **$103.2** | **$82.8** | **$61.8** | **$34.8** | **$27.4** | | Purchase commitments | **$428.3** | **$192.3** | **$66.4** | **$28.2** | **$27.9** | **$26.3** | **$87.2** | | Expected pension contributions | **$4.5** | **$4.5** | — | — | — | — | — | | Uncertain tax positions | **$8.1** | **$8.1** | — | — | — | — | — | | Guarantees | **$15.9** | **$15.9** | — | — | — | — | — | | **Total** | **$4,036.3** | **$1,295.4** | **$1,142.7** | **$148.0** | **$124.5** | **$622.7** | **$702.9** | [Critical Accounting Policies](index=30&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant management judgments, particularly for acquisitions, impairment testing, and income taxes - Critical accounting policies involve significant management judgments and estimates, particularly in acquisition accounting (fair value of assets/liabilities, useful lives), goodwill and indefinite-lived intangibles impairment testing, long-lived assets impairment, and income taxes[151](index=151&type=chunk)[152](index=152&type=chunk)[154](index=154&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk)[163](index=163&type=chunk) - Goodwill and indefinite-lived intangibles are tested annually for impairment, or earlier if triggering events occur. The tests involve qualitative assessments or quantitative fair value estimations using discounted cash flows and market valuations, which are sensitive to assumptions like sales growth, operating margins, and WACC[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk) - In Q3 **2022**, a **$688.5 million** goodwill impairment charge was recorded for the Global Ceramic unit, and **$7.3 million** for indefinite-lived intangibles in Flooring ROW and Flooring NA, due to decreased market capitalization, market multiples, projected cash flows, and increased WACC[160](index=160&type=chunk) - Income tax accounting requires judgment in determining tax expense, evaluating tax positions, and assessing the recoverability of deferred tax assets, which relies on estimates of future taxable income and tax planning strategies[163](index=163&type=chunk) [Recent Accounting Pronouncements](index=33&type=section&id=Recent%20Accounting%20Pronouncements) Mohawk adopted ASU 2019-12 and ASU 2016-13 with immaterial effects on its financial statements - Mohawk adopted ASU **2019-12** (Simplifying the Accounting for Income Taxes) on January 1, **2021**, with an immaterial effect. It also adopted ASU **2016-13** (Financial Instruments – Credit Losses, CECL model) on January 1, **2020**, with an immaterial cumulative impact[260](index=260&type=chunk)[261](index=261&type=chunk) [Impact of Inflation](index=33&type=section&id=Impact%20of%20Inflation) Inflation impacts Mohawk's costs, with the company attempting to pass on increases and using productivity to offset them - Inflation impacts Mohawk's manufacturing, distribution, and operating expenses, particularly raw material prices (many petroleum-based). The company attempts to pass on cost increases to customers, but this ability depends on market conditions and competitive pressures[166](index=166&type=chunk) - Historically, Mohawk has used productivity enhancements and new product innovations to offset inflationary cost increases[166](index=166&type=chunk) [Seasonality](index=33&type=section&id=Seasonality) Global Ceramic and Flooring NA typically experience higher net sales in the second and third quarters, while Flooring ROW sees higher sales in the second and fourth quarters. Economic downturns can affect these seasonal patterns[167](index=167&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Mohawk manages market risks from foreign currency, interest rates, and commodity prices through a non-speculative risk management program - Mohawk's market risk is influenced by foreign currency exchange rates, interest rates, and commodity prices. The company monitors these risks to reduce adverse effects on operating results and does not engage in speculative transactions[169](index=169&type=chunk) [Interest Rate Risk](index=34&type=section&id=Interest%20Rate%20Risk) Mohawk's debt is **62%** variable-rate, with a **1%** interest rate change impacting annual interest expense by **$3 million** - As of December 31, **2022**, **38%** of Mohawk's debt was fixed-rate and **62%** was variable-rate. A one-percentage point change in interest rates on variable-rate debt would impact annual interest expense by approximately **$3 million**, or **$0.04** to diluted EPS[170](index=170&type=chunk) [Foreign Exchange Risk](index=34&type=section&id=Foreign%20Exchange%20Risk) Mohawk is exposed to foreign currency risks, primarily the euro, ruble, and peso, aiming for natural hedges - Mohawk is exposed to foreign currency exchange rate risks, primarily involving the euro, Russian ruble, Mexican peso, Australian dollar, Brazilian real, New Zealand dollar, and Canadian dollar[171](index=171&type=chunk) - The company aims to balance non-functional currency assets and liabilities to create a natural hedge and minimize foreign exchange impacts, avoiding speculative derivative positions[172](index=172&type=chunk)[173](index=173&type=chunk) - A hypothetical **10%** change in the U.S. dollar against the euro would have resulted in a translational adjustment of approximately **$28 million** for the year ended December 31, **2022**[173](index=173&type=chunk) [Item 8. Consolidated Financial Statements and Supplementary Data](index=35&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Mohawk's audited consolidated financial statements and detailed notes for 2020-2022, including auditor reports [Reports of Independent Registered Public Accounting Firm](index=36&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP issued unqualified opinions on Mohawk's financial statements and internal controls, noting goodwill assessment as a critical audit matter - KPMG LLP audited Mohawk Industries' consolidated financial statements for the three-year period ended December 31, **2022**, expressing an unqualified opinion on their fair presentation in conformity with U.S. GAAP[178](index=178&type=chunk) - KPMG also issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, **2022**[179](index=179&type=chunk)[189](index=189&type=chunk) - A critical audit matter identified was the assessment of goodwill carrying value in the Global Ceramic and Flooring North America reporting units, due to the subjective nature of assumptions like sales growth, operating margins, discount rates, and comparable company market multiples[183](index=183&type=chunk)[184](index=184&type=chunk) [Consolidated Balance Sheets](index=39&type=section&id=Consolidated%20Balance%20Sheets) Mohawk's balance sheet shows a significant decrease in goodwill in 2022 due to an impairment charge Consolidated Balance Sheet Highlights (as of December 31, in thousands) | Metric | 2022 | 2021 | | :------------------------------------------ | :---------- | :---------- | | **ASSETS** | | | | Total current assets | **$5,895,099** | **$5,238,357** | | Property, plant and equipment, net | **$4,661,178** | **$4,636,865** | | Goodwill | **$1,927,759** | **$2,607,909** | | Tradenames | **$668,328** | **$694,905** | | Total assets | **$14,120,432** | **$14,224,517** | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | **$3,070,285** | **$2,946,355** | | Long-term debt, less current portion | **$1,978,563** | **$1,700,282** | | Total liabilities | **$6,102,518** | **$5,796,301** | | Total Mohawk Industries, Inc. stockholders' equity | **$8,011,509** | **$8,421,425** | | Total liabilities and stockholders' equity | **$14,120,432** | **$14,224,517** | - Goodwill decreased significantly from **$2,607,909 thousand** in **2021** to **$1,927,759 thousand** in **2022**, reflecting the impairment charge[197](index=197&type=chunk) [Consolidated Statements of Operations](index=40&type=section&id=Consolidated%20Statements%20of%20Operations) Net earnings attributable to Mohawk Industries, Inc. significantly decreased in 2022 due to impairment and higher costs Consolidated Statements of Operations (Years Ended December 31, in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------ | :----------- | :----------- | :---------- | | Net sales | **$11,737,065** | **$11,200,613** | **$9,552,197** | | Gross profit | **$2,943,426** | **$3,268,734** | **$2,430,690** | | Selling, general and administrative expenses | **$2,003,438** | **$1,933,723** | **$1,794,688** | | Impairment of goodwill and indefinite-lived intangibles | **$695,771** | — | — | | Operating income | **$244,217** | **$1,335,011** | **$636,002** | | Earnings before income taxes | **$183,893** | **$1,289,993** | **$584,374** | | Net earnings attributable to Mohawk Industries, Inc. | **$25,247** | **$1,033,159** | **$515,595** | | Basic earnings per share | **$0.40** | **$15.01** | **$7.24** | | Diluted earnings per share | **$0.39** | **$14.94** | **$7.22** | - Net earnings attributable to Mohawk Industries, Inc. decreased significantly from **$1,033,159 thousand** in **2021** to **$25,247 thousand** in **2022**, primarily due to the goodwill impairment charge and higher costs[199](index=199&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=41&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Mohawk reported a comprehensive loss in 2022, a significant decline from 2021, largely due to foreign currency adjustments Consolidated Statements of Comprehensive Income (Loss) (Years Ended December 31, in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------ | :----------- | :----------- | :---------- | | Net earnings including noncontrolling interests | **$25,783** | **$1,033,548** | **$515,727** | | Other comprehensive (loss) income | **$(147,300)** | **$(272,247)** | **$70,782** | | Comprehensive (loss) income | **$(121,517)** | **$761,301** | **$586,509** | | Comprehensive (loss) income attributable to Mohawk Industries, Inc. | **$(122,058)** | **$761,352** | **$586,274** | - Mohawk reported a comprehensive loss of **$(121,517) thousand** in **2022**, a significant decline from comprehensive income of **$761,301 thousand** in **2021**, largely due to foreign currency translation adjustments[202](index=202&type=chunk) [Consolidated Statements of Stockholders' Equity](index=42&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity decreased in 2022 due to common stock repurchases and accumulated other comprehensive loss Consolidated Statements of Stockholders' Equity Highlights (as of December 31, in thousands) | Metric | 2022 | 2021 | | :------------------------------------------ | :----------- | :----------- | | Total Mohawk Industries, Inc. stockholders' equity | **$8,011,509** | **$8,421,425** | | Retained earnings | **$7,409,760** | **$7,692,064** | | Accumulated other comprehensive loss | **$(1,114,258)** | **$(966,952)** | | Repurchases of common stock | **$(307,572)** | **$(900,334)** | - Total stockholders' equity decreased from **$8,428,216 thousand** in **2021** to **$8,017,914 thousand** in **2022**, primarily due to common stock repurchases and accumulated other comprehensive loss[205](index=205&type=chunk) [Consolidated Statements of Cash Flows](index=43&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased in 2022, while financing cash flow improved due to term loan proceeds and lower share repurchases Consolidated Statements of Cash Flows (Years Ended December 31, in thousands) | Activity | 2022 | 2021 | 2020 | | :------------------------------------------ | :----------- | :----------- | :---------- | | Net cash provided by operating activities | **$669,153** | **$1,309,119** | **$1,769,839** | | Net cash used in investing activities | **$(625,344)** | **$(556,754)** | **$(954,798)** | | Net cash provided by (used in) financing activities | **$194,348** | **$(1,232,225)** | **$(188,185)** | | Net change in cash and cash equivalents | **$240,728** | **$(499,730)** | **$633,840** | | Cash and cash equivalents, end of year | **$509,623** | **$268,895** | **$768,625** | - Net cash provided by operating activities decreased by **$640 million** in **2022** compared to **2021**, primarily due to decreases in accounts payable and net earnings[144](index=144&type=chunk)[207](index=207&type=chunk) - Net cash used in investing activities increased by **$68.5 million** in **2022**, driven by higher acquisitions and lower redemptions of short-term investments, partially offset by decreased capital expenditures[145](index=145&type=chunk)[207](index=207&type=chunk) - Net cash from financing activities significantly improved, moving from a net use of **$1,232,225 thousand** in **2021** to a net provide of **$194,348 thousand** in **2022**, largely due to proceeds from the Term Loan Facility and lower share repurchases[146](index=146&type=chunk)[207](index=207&type=chunk) [Notes to the Consolidated Financial Statements](index=44&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Detailed notes cover Mohawk's significant accounting policies, acquisitions, revenue recognition, and other financial statement components [(1) Summary of Significant Accounting Policies](index=44&type=section&id=(1)%20Summary%20of%20Significant%20Accounting%20Policies) Mohawk's financial statements conform to U.S. GAAP, relying on management estimates for areas like revenue recognition and impairment testing - Mohawk's consolidated financial statements include the accounts of the Company and its subsidiaries, prepared in conformity with U.S. GAAP, requiring management estimates and assumptions[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk) - Cash equivalents are investments with original maturities of three months or less. As of December 31, **2022**, **$210,368 thousand** of cash and cash equivalents were held outside the United States[212](index=212&type=chunk) - Revenue is recognized when control of promised goods (flooring products) is transferred to customers, with adjustments for expected discounts, allowances, returns, and claims based on historical experience[218](index=218&type=chunk) - Inventories are accounted for using the FIFO method and stated at the lower of cost or net realizable value, including raw materials, labor, benefits, depreciation, and manufacturing overhead[220](index=220&type=chunk) - Goodwill and indefinite-lived intangibles (tradenames) are tested annually for impairment in the fourth quarter, or earlier if triggering events occur, using qualitative or quantitative assessments based on fair value estimates[223](index=223&type=chunk)[226](index=226&type=chunk)[228](index=228&type=chunk) - The company recognizes ROU assets and lease liabilities for operating and finance leases, measuring them at the present value of future minimum lease payments using an estimated incremental borrowing rate[231](index=231&type=chunk)[233](index=233&type=chunk) - Income taxes are accounted for under the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences. The company accrues liabilities for uncertain tax positions when it's not more likely than not that a tax benefit will be sustained[236](index=236&type=chunk) - Comprehensive income (loss) includes foreign currency translation adjustments and pension/post-retirement benefit service costs. Income taxes are not provided on currency translation adjustments as foreign earnings are considered indefinitely reinvested[254](index=254&type=chunk) [(2) Acquisitions](index=52&type=section&id=(2)%20Acquisitions) Mohawk completed several acquisitions in 2022 and 2021, adding goodwill and intangible assets to its Flooring NA and ROW segments - In **2022**, Mohawk completed acquisitions in Flooring NA for **$164,579 thousand**, resulting in **$60,842 thousand** in preliminary goodwill and **$19,900 thousand** in intangible assets. Acquisitions in Flooring ROW totaled **$47,964 thousand**, with **$11,542 thousand** in preliminary goodwill and **$3,376 thousand** in intangible assets[262](index=262&type=chunk) - In **2021**, acquisitions in Flooring ROW totaled **$121,027 thousand**, including an Irish insulation manufacturer and a French MDF production plant, resulting in **$52,536 thousand** in goodwill and **$19,910 thousand** in intangible assets[263](index=263&type=chunk) [(3) Revenue from Contracts with Customers](index=52&type=section&id=(3)%20Revenue%20from%20Contracts%20with%20Customers) Mohawk recognizes revenue upon transfer of product control, with contract liabilities and capitalized costs detailed - Mohawk recognizes contract liabilities when payments are received before performance obligations are fulfilled. Contract liabilities were **$72,572 thousand** in **2022** and **$65,744 thousand** in **2021**[264](index=264&type=chunk) - Substantially all revenue is recognized at the point of transfer of product control (shipment or receipt). Capitalized costs to obtain contracts were **$59,015 thousand** in **2022**, with amortization expense of **$55,520 thousand**[265](index=265&type=chunk)[267](index=267&type=chunk) Revenue Disaggregation by Geographical Markets (2022, in thousands) | Geographical Markets | Global Ceramic | Flooring NA | Flooring ROW | Total | | :------------------- | :------------- | :---------- | :----------- | :---------- | | United States | **$2,403,292** | **$4,072,952** | **$13,835** | **$6,490,079** | | Europe | **$875,414** | **$6,322** | **$2,270,315** | **$3,152,051** | | Russia | **$374,539** | **$23** | **$175,035** | **$549,597** | | Other | **$654,436** | **$127,744** | **$763,158** | **$1,545,338** | | **Total** | **$4,307,681** | **$4,207,041** | **$3,222,343** | **$11,737,065** | Revenue Disaggregation by Product Categories (2022, in thousands) | Product Categories | Global Ceramic | Flooring NA | Flooring ROW | Total | | :----------------- | :------------- | :---------- | :----------- | :---------- | | Ceramic & Stone | **$4,282,887** | **$37,536** | — | **$4,320,423** | | Carpet & Resilient | **$24,794** | **$3,296,152** | **$914,869** | **$4,235,815** | | Laminate & Wood | — | **$873,353** | **$1,091,133** | **$1,964,486** | | Other | — | — | **$1,216,341** | **$1,216,341** | | **Total** | **$4,307,681** | **$4,207,041** | **$3,222,343** | **$11,737,065** | [(4) Restructuring, Acquisition and Integration-Related Costs](index=54&type=section&id=(4)%20Restructuring%2C%20Acquisition%20and%20Integration-Related%20Costs) Restructuring costs in 2022 totaled **$76.7 million**, primarily from asset write-downs and severance in Flooring NA and ROW Restructuring, Acquisition and Integration-Related Costs (in thousands) | Category | 2022 | 2021 | 2020 | | :------------------------------------------ | :------ | :----- | :------ | | Cost of sales | **$68,017** | **$18,396** | **$102,383** | | Selling, general and administrative expenses | **$13,740** | **$5,241** | **$26,467** | | **Total** | **$81,757** | **$23,637** | **$128,850** | - Restructuring costs in **2022** totaled **$76,715 thousand**, primarily driven by asset write-downs (**$38,698 thousand**) and severance (**$16,783 thousand**), with significant costs in Flooring NA (**$44,474 thousand**) and Flooring ROW (**$28,876 thousand**)[273](index=273&type=chunk) [(5) Fair Value](index=56&type=section&id=(5)%20Fair%20Value) Mohawk's short-term investments, commercial paper, are measured at fair value using Level 2 inputs - Mohawk's short-term investments, consisting of commercial paper held by its captive insurance company, are classified as trading securities and carried at fair value using Level **2** fair value hierarchy inputs[276](index=276&type=chunk) Items Measured at Fair Value (as of December 31, in thousands) | Item | 2022 | 2021 | | :-------------------- | :-------- | :-------- | | Commercial paper (Level 2) | **$158,000** | **$323,000** | [(6) Receivables, net](index=56&type=section&id=(6)%20Receivables%2C%20net) Mohawk's net receivables increased slightly in 2022, with a minor increase in the allowance for doubtful accounts Receivables, net (as of December 31, in thousands) | Component | 2022 | 2021 | | :------------------------------------------ | :---------- | :---------- | | Customers, trade | **$1,699,130** | **$1,721,584** | | Income tax receivable | **$60,080** | **$73,727** | | Other | **$219,355** | **$117,823** | | Less: allowance for discounts, returns, claims and doubtful accounts | **$73,779** | **$73,149** | | **Receivables, net** | **$1,904,786** | **$1,839,985** | - The allowance for discounts, returns, claims, and doubtful accounts increased slightly from **$73,149 thousand** in **2021** to **$73,779 thousand** in **2022**[278](index=278&type=chunk) [(7) Inventories](index=56&type=section&id=(7)%20Inventories) Total inventories increased by **$402.1 million** in 2022, primarily driven by an increase in finished goods Inventories (as of December 31, in thousands) | Component | 2022 | 2021 | | :-------------- | :---------- | :---------- | | Finished goods | **$1,986,005** | **$1,677,707** | | Work in process | **$160,757** | **$144,004** | | Raw materials | **$647,003** | **$569,961** | | **Total inventories** | **$2,793,765** | **$2,391,672** | - Total inventories increased by **$402,093 thousand** from **2021** to **2022**, primarily driven by an increase in finished goods[279](index=279&type=chunk) [(8) Goodwill and Other Intangible Assets](index=57&type=section&id=(8)%20Goodwill%20and%20Other%20Intangible%20Assets) Mohawk recorded a **$688.5 million** goodwill impairment charge in 2022 for Global Ceramic due to triggering events - Mohawk performs annual impairment tests for goodwill and indefinite-lived intangibles (tradenames) in Q4, or earlier if triggering events occur, considering market capitalization, market multiples, and macroeconomic conditions[281](index=281&type=chunk)[282](index=282&type=chunk) - As of October 1, **2022**, a triggering event led to a pre-tax, non-cash goodwill impairment charge of **$688,514 thousand** for the Global Ceramic reporting unit and **$7,257 thousand** for indefinite-lived intangibles in Flooring ROW and Flooring NA[283](index=283&type=chunk) Goodwill Balances by Segment (as of December 31, in thousands) | Segment | 2022 | 2021 | | :--------------- | :---------- | :---------- | | Global Ceramic | **$339,834** | **$1,031,337** | | Flooring NA | **$591,985** | **$531,144** | | Flooring ROW | **$995,940** | **$1,045,428** | | **Total Goodwill** | **$1,927,759** | **$2,607,909** | Intangible Assets (as of December 31, in thousands) | Category | 2022 | 2021 | | :------------------------------------------ | :---------- | :---------- | | Tradenames (indefinite life) | **$668,328** | **$694,905** | | Net intangible assets subject to amortization | **$189,620** | **$205,075** | [(9) Property, Plant and Equipment](index=59&type=section&id=(9)%20Property%2C%20Plant%20and%20Equipment) Net property, plant and equipment increased slightly in 2022, with depreciation expense totaling **$564.3 million** Property, Plant and Equipment (as of December 31, in thousands) | Component | 2022 | 2021 | | :---------------------- | :---------- | :---------- | | Land | **$466,820** | **$465,240** | | Buildings and improvements | **$1,851,390** | **$1,862,463** | | Machinery and equipment | **$6,310,442** | **$6,023,087** | | Construction in progress | **$749,184** | **$638,716** | | Less: accumulated depreciation | **$4,986,601** | **$4,613,722** | | **Net property, plant and equipment** | **$4,661,178** | **$4,636,865** | - Net property, plant and equipment increased slightly from **$4,636,865 thousand** in **2021** to **$4,661,178 thousand** in **2022**. Depreciation expense was **$564,255 thousand** in **2022**[292](index=292&type=chunk) [(10) Long-Term Debt](index=59&type=section&id=(10)%20Long-Term%20Debt) Mohawk amended its Senior Credit Facility in 2022, redeemed senior notes, and established a Term Loan Facility - Mohawk amended its Senior Credit Facility on August 12, **2022**, extending maturity to August 12, **2027**, increasing the Consolidated Interest Coverage Ratio covenant to **3.50:1.00**, and increasing available credit to **$1,950,000 thousand** until October **2024**[293](index=293&type=chunk) - As of December 31, **2022**, **$1,101,580 thousand** was available under the Senior Credit Facility, after accounting for **$848,420 thousand** utilized, including commercial paper borrowings[299](index=299&type=chunk) - The company operates U.S. and European commercial paper programs, with **$785,998 thousand** and **$42,808 thousand** (euro equivalent) outstanding, respectively, as of December 31, **2022**[303](index=303&type=chunk) - Mohawk redeemed its **$600,000 thousand** 3.85% Senior Notes on November 1, **2022**. Outstanding Senior Notes include **$500,000 thousand** 3.625% Senior Notes due **2030** and **€500,000** (approx. **$535,103 thousand**) 1.750% Senior Notes due **2027**[304](index=304&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk) - A Term Loan Facility was established on August 12, **2022**, for up to **$575,000 thousand** and **€220,000**, with draws made in October and December **2022**. The facility matures on August 12, **2024**, and requires a Consolidated Interest Coverage Ratio of at least **3.5 to 1.0**[308](index=308&type=chunk)[313](index=313&type=chunk) Aggregate Maturities of Total Debt (as of December 31, 2022, in thousands) | Year | Amount | | :--- | :---------- | | 2023 | **$840,571** | | 2024 | **$920,725** | | 2025 | **$9,012** | | 2026 | **$6,990** | | 2027 | **$539,284** | | Thereafter | **$509,822** | | **Total** | **$2,826,404** | [(11) Accounts Payable and Accrued Expenses](index=64&type=section&id=(11)%20Accounts%20Payable%20and%20Accrued%20Expenses) Total accounts payable and accrued expenses decreased in 2022, mainly due to a reduction in trade accounts payable Accounts Payable and Accrued Expenses (as of December 31, in thousands) | Component | 2022 | 2021 | | :------------------------------ | :---------- | :---------- | | Accounts payable, trade | **$1,094,038** | **$1,228,621** | | Accrued expenses | **$742,099** | **$666,209** | | Product warranties | **$38,425** | **$45,215** | | Accrued compensation and benefits | **$238,347** | **$256,428** | | **Total** | **$2,124,448** | **$2,217,418** | - Total accounts payable and accrued expenses decreased by **$92,970 thousand** from **2021** to **2022**, primarily due to a reduction in trade accounts payable[322](index=322&type=chunk) [(12) Leases](index=64&type=section&id=(12)%20Leases) Mohawk has operating and finance leases with varying terms, and lease costs include fixed, short-term, and variable components - Mohawk has operating and finance leases for various assets, with lease terms ranging from **1** to **60** years. Lease costs include fixed, short-term, and variable components, as well as amortization for finance leases[323](index=323&type=chunk)[324](index=324&type=chunk) Net Lease Costs (Years Ended December 31, in thousands) | Year | Net Lease Costs | | :--- | :-------------- | | 2022 | **$221,451** | | 2021 | **$203,029** | | 2020 | **$199,507** | Lease Liabilities (as of December 31, in thousands) | Category | 2022 | 2021 | | :-------------------- | :---------- | :---------- | | Total operating liabilities | **$401,402** | **$401,824** | | Total finance liabilities | **$52,050** | **$47,950** | | **Total lease liabilities** | **$453,452** | **$449,774** | Weighted Average Lease Term and Discount Rate (as of December 31) | Metric | 2022 | 2021 | | :-------------------------- | :-------- | :-------- | | Operating Leases (Term) | **4.5** years | **4.7** years | | Finance Leases (Term) | **6.2** years | **7.2** years | | Operating Leases (Discount Rate) | **3.8%** | **2.4%** | | Finance Leases (Discount Rate) | **1.5%** | **1.3%** | [(13) Stock-Based Compensation](index=67&type=section&id=(13)%20Stock-Based%20Compensation) Mohawk recognizes stock-based compensation for RSUs, with **$22.4 million** in costs in 2022 and **$19.3 million** unrecognized expense - Mohawk recognizes stock-based compensation expense for share-based payments based on grant-date fair value, generally on a straight-line basis over the awards' estimated lives[250](index=250&type=chunk)[331](index=331&type=chunk) - The company's **2017** Long-Term Incentive Plan allows for the issuance of up to **3,000 thousand** shares of common stock for awards like stock options and Restricted Stock Units (RSUs)[333](index=333&type=chunk) RSUs Outstanding (as of December 31, in thousands) | Metric | 2022 | 2021 | 2020 | | :------------------------ | :--- | :--- | :--- | | RSUs outstanding, December 31 | 454 | 439 | 375 | | Expected to vest | 437 | 418 | 361 | - Stock-based compensation costs related to RSUs were **$22,409 thousand** in **2022**. Unrecognized compensation expense for unvested RSUs was **$19,321 thousand** as of December 31, **2022**, to be recognized over approximately **1.45 years**[335](index=335&type=chunk) [(14) Other Expense (Income)](index=68&type=section&id=(14)%20Other%20Expense%20(Income)) Other expense shifted to a net expense in 2022 due to increased foreign currency losses and an indemnification asset release Other Expense (Income), net (Years Ended December 31, in thousands) | Component | 2022 | 2021 | 2020 | | :------------------------------------------ | :------ | :------- | :------ | | Foreign currency losses (gains), net | **$15,429** | **$6,298** | **$7,815** | | Release of indemnification asset | **$7,324** | — | — | | Resolution of foreign non-income tax contingencies | — | **$(6,211)** | — | | **Total other expense (income), net** | **$8,38

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