UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 
FORM 8-K/A
 
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of report (Date of earliest event reported): October 28, 2005
 
MOHAWK INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Charter)

Delaware	 	01-19826	 	52-1604305	
(State or Other Jurisdiction
of Incorporation)	 	(Commission File Number)	 	(I.R.S. Employer
Identification No.)	
 
160 South Industrial Blvd., Calhoun, Georgia 30701
(Address of Principal Executive Offices) (Zip Code)
 
(706) 629-7721
(Registrant’s telephone number, including area code)
 
N/A
(Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

Item 2.01	Completion of Acquisition or Disposition of Assets.	
 
On October 31, 2005, an indirect subsidiary of Mohawk Industries, Inc. completed the acquisition of all of the outstanding shares of Unilin Holding NV, or Unilin, from Cigales SAK. We previously reported the closing of the Unilin acquisition on a Current Report on Form 8-K filed on November 2, 2005. This Form 8-K/A amends that Current Report on Form 8-K to include the consolidated financial statements and pro forma financial information required by Items 9.01(a) and (b) of Form 8-K.
 
Audited consolidated financial statements of Unilin are attached hereto as Exhibit 99.1. Unaudited pro forma condensed combined financial statements, derived from the historical consolidated financial statements of Mohawk Industries, Inc. and Unilin and adjusted to reflect the material effects directly attributable to our acquisition of Unilin and related financings, are attached hereto as Exhibit 99.2. Each of these exhibits is incorporated herein by reference.
 
Item 8.01	Other Events.	
 
Unilin Results Discussion
 
Unilin sales for the ten months ended October 2005 were favorably impacted by higher laminate sales volume in the United States offset by slightly declining laminate selling prices in both the United States and Europe. Additionally, Unilin received royalty settlements during 2005 that were related to activity of prior years. Operating margins were favorably impacted by higher United States laminate sales volume and the royalty settlement. Declining laminate selling prices, higher wood and energy costs, plant startup costs and transaction costs negatively impacted margins. In addition, the United States laminate business incurred higher marketing costs to support growth in the United States market. Unilin’s operating margins are expected to be slightly less than in the ten-month period ended October 2005 in future periods due to these factors.
 
Amortization & Inventory Revaluation
 
Amortization of intangible assets established in purchase accounting for the Unilin acquisition is expected to be approximately 58 to 61 million euros for 2006 and a pro rata amount will be recorded in the results for the two month period ended December 31, 2005, when Unilin is consolidated with Mohawk. There will be a one-time non-cash charge of approximately 29 million euros in the fourth quarter of 2005 related to purchase accounting adjustments for inventory.
 
Item 9.01	Financial Statements, Pro Forma Financial Information and Exhibits.	
 
(a) Financial statements of businesses acquired:
 
The following financial statements of Unilin Holding NV are included as Exhibit 99.1 to this report.
 
(i) Report of BDO Atrio Bedrijfsrevisoren Burg. CVBA, an independent registered public accounting firm;
 
(ii) Audited consolidated balance sheet, statement of operations and statement of cash flows as of and for the year ended December 30, 2004; and

(iii) Audited consolidated balance sheet, statement of operations and statement of cash flows as of and for the ten-month period ending October 30, 2005.
 
(b) Pro Forma Financial Information:
 
The following pro forma financial information is included as Exhibit 99.2 to this report.
 
(i) Unaudited pro forma condensed combined consolidated financial information.
 
(c) Exhibits:

Exhibit No.

	  	Description

	
23.1	  	Consent of BDO Atrio Bedrijfsrevisoren Burg. CVBA, an independent registered public accounting firm.	
 	 	
99.1	  	Report of BDO Atrio Bedrijfsrevisoren Burg. CVBA and audited consolidated balance sheet, statement of operations and statement of cash flows of Unilin as of and for the periods ending December 30, 2004, and October 30, 2005.	
 	 	
99.2	  	Unaudited pro forma condensed combined consolidated financial information.	

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MOHAWK INDUSTRIES, INC.	
 	 	
By:	 	/s/ Michel S. Vermette	
 	 	Michel S. Vermette	
 	 	Vice President and Corporate Controller	
 
Dated: January 6, 2006

INDEX TO EXHIBITS

Exhibit No.

	  	Description

	
23.1	  	Consent of BDO Atrio Bedrijfsrevisoren Burg. CVBA, an independent registered public accounting firm.	
 	 	
99.1	  	Report of BDO Atrio Bedrijfsrevisoren Burg. CVBA and audited consolidated balance sheet, statement of operations and statement of cash flows of Unilin as of and for the periods ending December 30, 2004, and October 30, 2005.	
 	 	
99.2	  	Unaudited pro forma condensed combined consolidated financial information.	

Exhibit 23.1
 
Consent of Independent Registered Public Accounting Firm
 
The Board of Directors
Mohawk Industries Inc.:
 
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-52070, No. 33-52544, No. 33-67282, No. 33-87998, No. 333-23577 No. 333-74806 and 333-91908) of Mohawk Industries, Inc. of our report dated December 21, 2005, relating to the consolidated financial statements of Unilin Holding NV and subsidiaries as of December 30, 2004 and October 30, 2005, which appears in this Form 8-K/A.
 
BDO Atrio Bedrijfsrevisoren Burg CVBA
Represented by

 	 	 	 	 	
/s/ Veerle Catry	  	/s/ Lieven Van Brussel	  	 	
Veerle Catry	  	Lieven Van Brussel	  	 	

Merelbeke, Belgium
 
January 6, 2006

Exhibit 99.1

 	  	 	  	Guldensporenpark 14 (blok B)
B-9820 Merelbeke (Gent)
Tel: 09 / 210 54 10 - Fax: 09 / 232 43 40	
 
Report of Independent Registered Public Accounting Firm
 
The Board of Directors
Unilin Holding NV
Ooigem, Belgium
 
We have audited the accompanying consolidated financial statements of Unilin Holding NV and its subsidiaries as of October 30, 2005 and December 30, 2004 and the related consolidated statements of earnings, stockholders’ equity and comprehensive income, and cash flows for the respectively ten month period and year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Unilin Holding NV and its subsidiaries at October 30, 2005 and December 30, 2004 and the results of its operations and its cash flows for the respectively ten month period and year then ended in conformity with accounting principles generally accepted in the United States of America.
 
December 21, 2005
 
BDO Atrio Bedrijfsrevisoren Burg. CVBA
Represented by

 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Koen De Brabander	 	 	 	Veerle Catry	 	 	 	Lieven Van Brussel	

 	 	BDO Atrio Bedrijfsrevisoren
Burg. Ven. CVBA
BTW BE 0431 088 289 RPR Brussel	 	L. Annick, V. Catry, P. Celen, G. Claes,
K. De Brabander, J. De Cooman, B. Dubois,
F. Fank, M. Grignard, W. Herijgers, A. Kilesse,
P. Pauwels, M. Tefnin, P. Van Cauler, I. Vanderhoeght,
J. Vercauteren, R. Vos, H. Wilmots	

UNILIN HOLDING NV AND SUBSIDIARIES
 
Consolidated Financial Statements as of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
2

UNILIN HOLDING NV AND SUBSIDIARIES
 
Consolidated Balance Sheets
As of October 30, 2005 and December 30, 2004
 
(In thousands except per share data)

 	  	October 30,
2005

	 	 	October 30,
2005

	 	 	December 30,
2004

	 	 	December 30,
2004

	 	
ASSETS	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	  	€	137,324	 	 	$	165,709	 	 	€	170,732	 	 	$	206,022	 	
Receivables, net	  	 	157,104	 	 	 	189,577	 	 	 	120,756	 	 	 	145,716	 	
Inventories, net	  	 	85,970	 	 	 	103,740	 	 	 	77,041	 	 	 	92,966	 	
Deferred income taxes	  	 	5,169	 	 	 	6,237	 	 	 	3,357	 	 	 	4,051	 	
Other current assets	  	 	31,839	 	 	 	38,421	 	 	 	26,257	 	 	 	31,684	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Total current assets	  	 	417,406	 	 	 	503,684	 	 	 	398,143	 	 	 	480,439	 	
Property, plant and equipment, net	  	 	490,719	 	 	 	592,151	 	 	 	423,760	 	 	 	511,351	 	
Goodwill, net	  	 	15,439	 	 	 	18,630	 	 	 	10,992	 	 	 	13,264	 	
Other intangible assets, net	  	 	13,604	 	 	 	16,416	 	 	 	9,103	 	 	 	10,985	 	
Deferred income taxes	  	 	659	 	 	 	795	 	 	 	1,153	 	 	 	1,391	 	
Other non current assets	  	 	79	 	 	 	95	 	 	 	198	 	 	 	239	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	€	937,906	 	 	$	1,131,771	 	 	€	843,349	 	 	$	1,017,669	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	 	 	 	 	
LIABILITIES AND STOCKHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Current portion of long-term debt	  	€	30,202	 	 	$	36,445	 	 	€	42,270	 	 	$	51,007	 	
Short term financial debt	  	 	13,000	 	 	 	15,687	 	 	 	—  	 	 	 	—  	 	
Accounts payable	  	 	68,678	 	 	 	82,874	 	 	 	60,450	 	 	 	72,945	 	
Accrued expenses and other current liabilities	  	 	113,973	 	 	 	137,531	 	 	 	83,417	 	 	 	100,659	 	
Deferred income taxes	  	 	4,210	 	 	 	5,080	 	 	 	3,588	 	 	 	4,330	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Total current liabilities	  	 	230,063	 	 	 	277,617	 	 	 	189,725	 	 	 	228,941	 	
Long-term debt, less current portion	  	 	26,541	 	 	 	32,027	 	 	 	91,714	 	 	 	110,671	 	
Deferred income taxes	  	 	97,685	 	 	 	117,876	 	 	 	95,117	 	 	 	114,778	 	
Provisions and other liabilities	  	 	4,615	 	 	 	5,569	 	 	 	1,811	 	 	 	2,185	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Total liabilities	  	 	358,904	 	 	 	433,089	 	 	 	378,367	 	 	 	456,575	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Commitments and contingencies (see notes)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stockholders’ equity	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Common stock, €1.24 par value; 737,920 shares authorized and issued	  	 	915	 	 	 	1,104	 	 	 	915	 	 	 	1,104	 	
Additional paid-in capital	  	 	3,891	 	 	 	4,695	 	 	 	3,891	 	 	 	4,695	 	
Retained earnings	  	 	575,946	 	 	 	694,994	 	 	 	466,639	 	 	 	563,093	 	
Accumulated other comprehensive loss	  	 	(1,750	)	 	 	(2,111	)	 	 	(6,463	)	 	 	(7,798	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Total stockholders’ equity	  	 	579,002	 	 	 	698,682	 	 	 	464,982	 	 	 	561,094	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
 	  	€	937,906	 	 	$	1,131,771	 	 	€	843,349	 	 	$	1,017,669	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	

 
See accompanying notes to consolidated financial statements.
 
3

UNILIN HOLDING NV AND SUBSIDIARIES
 
Consolidated Statements of Earnings
For the ten month period ended October 30, 2005 and for the year ended December 30, 2004
 
(In thousands)

 	  	For the ten
month period
ended
October 30,
2005

	 	 	For the ten
month period
ended
October 30,
2005

	 	 	For the year
ended
December 30,
2004

	 	 	For the year
ended
December 30,
2004

	 	
Net sales	  	€	773,520	 	 	$	933,407	 	 	€	823,308	 	 	$	993,486	 	
Cost of sales	  	 	505,906	 	 	 	610,477	 	 	 	516,698	 	 	 	623,500	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Gross profit	  	 	267,614	 	 	 	322,930	 	 	 	306,610	 	 	 	369,986	 	
Selling, general and administrative expenses	  	 	93,200	 	 	 	112,464	 	 	 	109,511	 	 	 	132,147	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Operating income	  	 	174,414	 	 	 	210,466	 	 	 	197,099	 	 	 	237,839	 	
Interest income	  	 	3,032	 	 	 	3,659	 	 	 	2,408	 	 	 	2,906	 	
Interest expense	  	 	(2,578	)	 	 	(3,111	)	 	 	(5,248	)	 	 	(6,333	)	
Other income – net	  	 	15,928	 	 	 	19,220	 	 	 	1,798	 	 	 	2,170	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Earnings before income taxes	  	 	190,796	 	 	 	230,234	 	 	 	196,057	 	 	 	236,582	 	
Income taxes	  	 	69,682	 	 	 	84,086	 	 	 	74,809	 	 	 	90,272	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net earnings	  	€	121,114	 	 	$	146,148	 	 	€	121,248	 	 	$	146,310	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	

 

See accompanying notes to consolidated financial statements.
 
4

UNILIN HOLDING NV AND SUBSIDIARIES
 
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
For the ten month period ended October 30, 2005 and for the year ended December 30, 2004
 
(In thousands except per share data)

 	  	Common stock

	  	Additional
paid-in
capital

	  	Retained
earnings

	 	 	Accumulated
other
comprehensive
loss

	 	 	Total
shareholders’
equity

	 	 	
 	  	Shares

	  	Amount

	  	 	  	 	 	 	 	 	 	 	 	 	 	
Balances at January 1, 2004	  	737,920	  	€	915	  	€	3,891	  	€	357,198	 	 	€	(3,846	)	 	€	358,158	 	 	 	
Comprehensive Income	  	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency translation adjustment	  	—  	  	 	—  	  	 	—  	  	 	—  	 	 	 	(2,617	)	 	 	(2,617	)	 	 	
Net earnings	  	—  	  	 	—  	  	 	—  	  	 	121,248	 	 	 	—  	 	 	 	121,248	 	 	 	

	

	

	 	 	
Total comprehensive income	  	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	118,631	 	 	 	
Dividends to shareholders	  	—  	  	 	—  	  	 	—  	  	 	(11,807	)	 	 	—  	 	 	 	(11,807	)	 	 	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	 	
Balances at December 30, 2004	  	737,920	  	€	915	  	€	3,891	  	€	466,639	 	 	€	(6,463	)	 	€	464,982	 	 	 	
Comprehensive Income	  	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Foreign currency translation adjustment	  	—  	  	 	—  	  	 	—  	  	 	—  	 	 	 	4,713	 	 	 	4,713	 	 	 	
Net earnings	  	—  	  	 	—  	  	 	—  	  	 	121,114	 	 	 	—  	 	 	 	121,114	 	 	 	

	

	

	 	 	
Total comprehensive income	  	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	125,827	 	 	 	
Dividends to shareholders	  	—  	  	 	—  	  	 	—  	  	 	(11,807	)	 	 	—  	 	 	 	(11,807	)	 	 	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	 	
Balances at October 30, 2005	  	737,920	  	€	915	  	€	3,891	  	€	575,946	 	 	€	(1,750	)	 	€	579,002	 	 	 	

	  	

	

	  	

	

	  	

	

	

	 	

	

	

	 	

	

	

	 	 	

See accompanying notes to consolidated financial statements.
 
5

UNILIN HOLDING NV AND SUBSIDIARIES
 
Consolidated Statements of Cash Flow
For the ten month period ended October 30, 2005 and for the year ended December 30, 2004
 
(In thousands)

 	  	For the ten
month period
ended
October 30,
2005

	 	 	For the ten
month period
ended
October 30,
2005

	 	 	For the year
ended
December 30,
2004

	 	 	For the year
ended
December 30,
2004

	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	  	€	121,114	 	 	$	146,148	 	 	€	121,248	 	 	$	146,310	 	
Adjustments to reconcile net earnings to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization	  	 	39,300	 	 	 	47,423	 	 	 	45,111	 	 	 	54,435	 	
Deferred income taxes	  	 	(3,296	)	 	 	(3,977	)	 	 	5,776	 	 	 	6,970	 	
Other	  	 	1,621	 	 	 	1,956	 	 	 	2,296	 	 	 	2,771	 	
Changes in assets and liabilities, net of effects of acquisitions:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Receivables	  	 	(31,876	)	 	 	(38,465	)	 	 	1,482	 	 	 	1,788	 	
Inventories	  	 	245	 	 	 	295	 	 	 	(10,494	)	 	 	(12,663	)	
Other assets	  	 	(2,943	)	 	 	(3,551	)	 	 	(2,534	)	 	 	(3,058	)	
Accounts payable	  	 	6,090	 	 	 	7,349	 	 	 	(7,564	)	 	 	(9,127	)	
Accrued expenses	  	 	33,167	 	 	 	40,023	 	 	 	20,738	 	 	 	25,025	 	
Other liabilities	  	 	(3,585	)	 	 	(4,326	)	 	 	272	 	 	 	328	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash provided by operating activities	  	 	159,836	 	 	 	192,875	 	 	 	176,331	 	 	 	212,779	 	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Additions to property, plant and equipment	  	 	(72,152	)	 	 	(87,066	)	 	 	(30,973	)	 	 	(37,375	)	
Acquisitions, net of cash acquired	  	 	(22,989	)	 	 	(27,741	)	 	 	—  	 	 	 	—  	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash used in investing activities	  	 	(95,141	)	 	 	(114,807	)	 	 	(30,973	)	 	 	(37,375	)	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net change in revolving line of credit	  	 	(6,584	)	 	 	(7,945	)	 	 	(89,289	)	 	 	(107,745	)	
Proceeds from long term borrowings	  	 	—  	 	 	 	—  	 	 	 	73,416	 	 	 	88,591	 	
Repayments of long term borrowings	  	 	(65,873	)	 	 	(79,488	)	 	 	(42,925	)	 	 	(51,798	)	
Dividends to shareholders	  	 	(11,807	)	 	 	(14,248	)	 	 	(11,807	)	 	 	(14,247	)	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net cash used in financing activities	  	 	(84,264	)	 	 	(101,681	)	 	 	(70,605	)	 	 	(85,199	)	
Effect of exchange rate changes	  	 	(13,841	)	 	 	(16,700	)	 	 	7,767	 	 	 	9,372	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Net change in cash	  	 	(33,409	)	 	 	(40,313	)	 	 	82,520	 	 	 	99,577	 	
Cash, beginning of year	  	 	170,732	 	 	 	206,022	 	 	 	88,212	 	 	 	106,445	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Cash, end of year	  	€	137,324	 	 	$	165,709	 	 	€	170,732	 	 	$	206,022	 	

	

	

	 	

	

	

	 	

	

	

	 	

	

	

	
Supplemental disclosure of cash transactions:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest paid	  	 	3,354	 	 	 	4,047	 	 	 	5,216	 	 	 	6,294	 	
Income taxes paid	  	 	40,168	 	 	 	48,471	 	 	 	49,141	 	 	 	59,298	 	
Supplemental schedule of non-cash investing and financing activities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Acquisitions of property and equipment utilizing capital leases	  	 	—  	 	 	 	—  	 	 	 	1,227	 	 	 	1,481	 	
 
See accompanying notes to consolidated financial statements.
 
6

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
The euro is the Group’s reporting currency. The translations of the euro amounts into U.S. dollar (USD) amounts are included solely for the convenience of readers and have been made, unless otherwise noted, at the rate of exchange of EUR 1 = USD 1.2067, the approximate rate of exchange on October 30, 2005. Such translations should not be construed as representations that the euro amounts could be converted into U.S. dollars at that or any other rate. For more information on foreign currency translation and presentation in this report, see note (2) (m) to the consolidated financial statements.
 
(1) Nature of Operations
 
Unilin Holding NV and its subsidiaries (the “Company” or “Unilin”) manufacture, distribute and sell laminate flooring and related high density fiberboard products, insulated roofing and other wood based panels primarily in Europe and the United States of America.
 
During the second quarter of 2005, Cigales SAK, the shareholder of 100% of Unilin, entered into a definitive agreement to sell its interest in Unilin to Mohawk Industries, Inc. for approximately €2.2 billion. The consolidated financial statements include the ten month period ending October 30, 2005, the date the sale of Unilin to Mohawk Industries, Inc. was completed, and the year ended December 30, 2004.
 
(2) Summary of Significant Accounting Policies
 
(a) Basis of Presentation
 
The consolidated financial statements include the accounts of Unilin Holding NV and its subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.
 
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
(b) Cash and Cash Equivalents
 
The Company considers investments with an original maturity of three months or less when purchased to be cash equivalents.
 
(c) Accounts Receivable and Revenue Recognition
 
Revenues are recognized when the legal title passes to the customer or when risks and rewards of economic ownership have been transferred.
 
The Company provides allowances for expected cash discounts, returns, and doubtful accounts based upon historical bad debt and periodic evaluations of specific customer accounts.
 
The Company warrants certain qualitative attributes of its laminate flooring products for up to 20 years. The company has recorded a provision for estimated warranty and related costs, based on historical experience and periodically adjusts these provisions to reflect actual experience.
 
7

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
The Company grants credit terms to customers, most of whom are distributors and commercial end users, under credit terms that are customary in the industry.
 
The Company receives royalties from third parties on patents. These revenues are recognized based on contractual agreements.
 
(d) Inventories
 
Inventories are stated at the lower of cost or market (net realizable value). Cost is determined using the first-in, first-out (FIFO) method.
 
(e) Property, Plant and Equipment
 
Property, plant and equipment are stated at cost, including capitalized interest. Depreciation is calculated on a straight-line basis over the estimated remaining useful lives, which are 25-35 years for buildings and improvements, 5-15 years for machinery and equipment, the shorter of the estimated useful life or life of the lease for leasehold improvements and 3-7 years for furniture and fixtures.
 
(f) Goodwill and Other Intangible Assets
 
In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” the Company tests goodwill and other intangible assets with indefinite lives for impairment on an annual basis (or on an interim basis if an event occurs that might reduce the fair value of the reporting unit below its carrying value). Amortization of goodwill and intangible assets with indefinite lives, including such assets recorded in past business combinations, ceased upon adoption of SFAS No. 142. Thus, no amortization for such goodwill and indefinite-lived intangibles was recognized in the accompanying consolidated statement of earnings. The Company conducts testing for impairment during the fourth quarter of calendar years 2005 and 2004 and concluded that goodwill and intangible assets were not impaired. Intangible assets that do not have indefinite lives are amortized based on average lives (5-20 years).
 
(g) Pension benefits
 
The Company has a defined contribution plan that covers certain employees in the United States of America. Eligible employees may elect to contribute a portion of their annual salary subject to a certain maximum each year. The Company’s matching of employee contributions is discretionary and is set each year by the Company. The Company also has various pension plans covering most of its employees in Belgium, France and the Netherlands, which qualify as defined benefit plans. The defined benefit plans are funded through third party insurance policies. Benefits under those plans depend on the compensation and years of service. The Company does not provide other postretirement benefits. The pension plans are funded in accordance with local regulations. In the Netherlands, some plans participate in multi-employer pension plans which have been treated as defined contribution plans.
 
(h) Income Taxes
 
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
 
8

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
(i) Fair values of Financial Instruments
 
The carrying amount of cash, accounts and other receivables, and accounts and other payables approximates fair value because of the short maturity of those instruments. The carrying amount of the Company’s floating rate debt approximates its fair value and the Company does not have any material amounts of long term debt with fixed interest rates.
 
(j) Derivative Instruments
 
Accounting for derivative instruments and hedging activities requires the Company to recognize all derivatives on the consolidated balance sheet at fair value. Derivatives that do not qualify for hedge accounting must be adjusted to fair value through the consolidated statement of earnings. The Company engages in activities that expose it to market risks, specifically the effects of changes in exchange rates. Financial exposures are managed as an integral part of the Company’s risk management program, which seeks to reduce the potentially adverse effect that the volatility exchange rates may have on its operating results. Although the aforementioned derivatives do not qualify for hedge accounting, the Company does not regularly engage in speculative transactions, nor does it regularly hold or issue financial instruments for trading purposes.
 
(k) Advertising Costs and Vendor Consideration
 
Advertising and promotion expenses are charged to earnings during the period in which they are incurred. Advertising and promotion expenses included in selling, administrative, and general expenses were €28,323 for the ten month period ended October 30, 2005 and €24,391 for the year ended December 30, 2004.
 
Vendor considerations offered by the Company, generally cash, are classified as a reduction of net sales, unless specific criteria are met regarding goods or services that the vendor may receive in return for this consideration. The Company makes various payments to customers, including advertising allowances and buy-downs. All of these payments reduce gross sales.
 
(l) Impairment of Long-Lived Assets
 
Long-lived assets and intangibles subject to amortization are reviewed for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted cash flows of the asset, an impairment charge is recognized equal to the amount by which the carrying amount exceeds the expected undiscounted cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value less estimated costs of disposal and are no longer depreciated.
 
(m) Foreign Currency Translation and Transactions
 
The functional currency for the Company’s foreign subsidiaries is the local currency. The translation of foreign currencies into Euros is performed for balance sheet accounts using exchange rates in effect at the
 
9

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
balance sheet date and for the statement of earnings accounts using the weighted average rates during the period. The gains and losses resulting from the translation are included in other comprehensive loss in the Company’s consolidated statements of stockholders’ equity and comprehensive income and are excluded from net income. Gains or losses resulting from transactions denominated in foreign currencies are included in other income or expense, within the consolidated statement of earnings.
 
(n) Effect of New Accounting Pronouncements
 
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3”  (“SFAS 154”). This Statement replaces Accounting Principles Board (“APB”) Opinion No. 20,  “Accounting Changes,”  and SFAS No. 3,  “Reporting Accounting Changes in Interim Financial Statements.”  SFAS 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company believes that adoption of the provisions of SFAS No. 154 will not have a material impact on the Company’s consolidated financial statements.
 
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs-An Amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends the guidance in ARB No. 43, Chapter 4,  “Inventory Pricing”  to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and re-handling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005.
 
The Company is currently evaluating SFAS 151 and does not expect it to have a material impact on the Company’s consolidated financial statements.
 
(3) Acquisition of Opstalan Holding BV
 
On March 31, 2005, the Company acquired all of the capital stock of Opstalan Holding BV for €22,989 in cash (net of cash acquired). The acquisition was accounted for by the purchase method of accounting. The primary reason for the acquisition was to expand the Company’s presence within the specified roofing market. The purchase price was allocated to the assets and liabilities acquired based on their estimated fair values as follows:

Current assets, net of cash acquired	  	€	10,843	 	
Fixed assets	  	 	22,307	 	
Intangible assets	  	 	3,396	 	
Liabilities assumed	  	 	(18,004	)	
Goodwill	  	 	4,447	 	

	

	

	
 	  	€	22,989	 	

	

	

	
 
10

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
(4) Receivables, net
 
Receivables are as follows:

 	  	October 30,
2005

	 	 	December 30,
2004

	 	
Customers, trade	  	€	129,744	 	 	€	98,442	 	
Other	  	 	29,046	 	 	 	23,967	 	

	

	

	 	

	

	

	
Gross receivables	  	 	158,790	 	 	 	122,409	 	
Allowance for cash discounts and doubtful accounts	  	 	(1,687	)	 	 	(1,653	)	

	

	

	 	

	

	

	
Receivables, net	  	€	157,104	 	 	€	120,756	 	

	

	

	 	

	

	

	
 
(5) Inventories
 
The components of inventories are as follows:

 	  	October 30,
2005

	  	December 30,
2004

	
Finished goods	  	€	49,579	  	€	40,975	
Work in process	  	 	6,240	  	 	4,741	
Raw materials	  	 	30,151	  	 	31,325	

	

	  	

	

	
Inventories	  	€	85,970	  	€	77,041	

	

	  	

	

	
 
(6) Property, Plant and Equipment, net
 
Following is a summary of property, plant and equipment:

 	  	October 30,
2005

	 	 	December 30,
2004

	 	
Land	  	€	35,950	 	 	€	23,655	 	
Buildings and improvements	  	 	177,571	 	 	 	129,211	 	
Machinery and equipment	  	 	607,520	 	 	 	538,057	 	
Furniture and fixtures	  	 	6,182	 	 	 	24,770	 	
Construction in progress	  	 	2,683	 	 	 	12,778	 	

	

	

	 	

	

	

	
 	  	 	829,906	 	 	 	728,471	 	
Less accumulated depreciation	  	 	(339,187	)	 	 	(304,711	)	

	

	

	 	

	

	

	
Property, plant and equipment, net	  	€	490,719	 	 	€	423,760	 	

	

	

	 	

	

	

	
 
Depreciation expense, including the amortization of capital leases, was €39,300 for ten month period ended October 30, 2005 and €45,111 for the year ended December 30, 2004. Included in property, plant and equipment are the following capitalized leases:

 	  	October 30,
2005

	 	 	December 30,
2004

	 	
Land	  	€	3,009	 	 	€	3,009	 	
Buildings	  	 	30,106	 	 	 	30,106	 	
Machinery and equipment	  	 	131,156	 	 	 	130,318	 	

	

	

	 	

	

	

	
 	  	 	164,271	 	 	 	163,433	 	
Less accumulated depreciation and amortization	  	 	(44,688	)	 	 	(39,017	)	

	

	

	 	

	

	

	
Property, plant and equipment under capital leases, net	  	€	119,583	 	 	€	124,416	 	

	

	

	 	

	

	

	
 
11

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
(7) Debt
 
Debt consists of the following:

 	  	October 30,
2005

	  	December 30,
2004

	
4.19% (US LIBOR 3 months + 0.35%) Roll-over Credit Facility (USD), payable in quarterly principal installments beginning in 2004, due December 30, 2008, interest payable monthly	  	€	8,287	  	 	—  	
 	 	 	
3.38% (EURIBOR 3 months + 1.2%) Investment Credit (EUR) payable in quarterly principal installments, beginning in February 1998, due February 2008, interest payable quarterly	  	 	1,134	  	 	—  	
 	 	 	
2.55% (EURIBOR 3 months + 0.40%) Roll-over Credit Facility (EUR), payable in quarterly principal installments beginning in 2000, due September 9, 2007, interest payable quarterly	  	 	—  	  	€	9,702	
 	 	 	
2.55% (EURIBOR 3 months + 0.40%) Roll-over Credit Facility (EUR), payable in quarterly principal installments beginning in 2000, due April 6, 2006, interest payable quarterly	  	 	—  	  	 	3,390	
 	 	 	
3.20% (US LIBOR 3 months + 0.40%) Roll-over Credit Facility (USD), payable in quarterly principal installments beginning in 2004, due December 30, 2008, interest payable per quarter (*)	  	 	—  	  	 	58,733	
 	 	 	
Debt assumed under capital lease	  	 	46,052	  	 	61,878	
Other long-term debt	  	 	1,270	  	 	281	

	

	  	

	

	
Total long-term debt	  	 	56,743	  	 	133,984	
Less current portion	  	 	30,202	  	 	42,270	

	

	  	

	

	
Long-term debt, excluding current portion	  	€	26,541	  	€	91,714	
2.47% (EURIBOR 3 months + 0.35%) Short term Credit (EUR), beginning in 2005, due November 18, 2005, interest payable monthly	  	€	10,000	  	 	 	
3.29% Overdraft facility (EUR)	  	 	3,000	  	 	 	

	

	  	 	 	
Short term financial debts	  	 	13,000	  	 	 	

*	The roll-over loan in USD is not secured.	
 
The aggregate maturities of long-term debt (excluding capital leases) as of October 30, 2005 are as follows:

2006	  	€	10,011	
2007	  	 	454	
2008	  	 	226	

	

	
 	  	€	10,691	

	

	
 
12

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
For the credit lines, investment loans and roll-over loans in EUR, the Company has granted the following guarantees:
 
 	•	 	Commitment not to sell, nor to pledge the current company assets to third parties;	
 
 	•	 	Commitment not to sell, nor to mortgage the immovable property to third parties;	
 
 	•	 	Commitment to grant a pledge on the current company assets at first request	
 
 	•	 	Notary commitment to grant a mortgage on the immovable property at first request	
 
 	•	 	Revolving mortgage to an amount of €9,360 on each of the Company’s real estate in Oisterwijk (The Netherlands)	
 
The Company has outstanding unused lines of credit with commercial banks totaling €51,234 at prevailing market interest rates at the time of each draw down.
 
(8) Accrued Expenses
 
Accrued expenses consist of the following:

 	  	October 30,
2005

	  	December 30,
2004

	
Accrued expenses	  	€	82,452	  	€	59,181	
Income taxes payable	  	 	14,472	  	 	11,886	
Accrued compensation	  	 	17,049	  	 	12,350	

	

	  	

	

	
Total accrued expenses	  	€	113,973	  	€	83,417	

	

	  	

	

	
 
(9) Derivative Financial Instruments
 
The Company uses foreign exchange forward contracts and currency options to manage its exposure to fluctuations in foreign exchange rates. The future revenue in British Pound, Canadian Dollar and US Dollar resulting from its foreign subsidiaries operations are hedged against unfavorable foreign exchange fluctuations. The term of derivative contracts is less than 1 year.
 
As of October 30, 2005, the Company had forward foreign exchange contracts with a notional amount of approximately €19,169 to sell British Pounds, Canadian Dollar and U.S. Dollars with a fair value of (€111). The Company also had currency option contracts at October 30, 2005 with a notional amount of approximately €8,684 to sell and buy British Pounds with an aggregate fair value of (€64). As of December 30, 2004, the Company had forward foreign exchange contracts with a notional amount of approximately €14,500 to sell British Pounds, Canadian Dollar and U.S. Dollars with a fair value of €323. The Company also had currency option contracts at December 30, 2004 with a notional amount of approximately €15,664 to sell and buy British Pounds with an aggregate fair value of €30. The contracts are marked to market and are recorded in the consolidated statement of earnings, within the other income expense caption, as the contracts did not qualify for hedge accounting treatment.
 
13

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
(10) Employee Benefit Plans
 
Unilin has various pension plans covering most of its employees in Belgium, France and The Netherlands. Benefits under those plans typically depend on the compensation and years of service. Unilin does not provide other postretirement benefits. The pension plans are funded in accordance with local regulations. In the Netherlands, some plans participate in multi-employer pension plans which have been treated as defined contribution plans. The Company uses a December 30 measurement date for its plans.
 
The following provides a summary of the benefit obligations, plan assets and funded status of the plans:

 	  	October 30,
2005

	 	 	December 30,
2004

	 	
Plan Status:	  	 	 	 	 	 	 	 	
Benefit Obligation	  	€	(15,290	)	 	€	(4,735	)	
Fair Value of Plan Assets at End of Year	  	 	10,721	 	 	 	2,855	 	

	

	

	 	

	

	

	
Funded Status of the Plan	  	€	(4,569	)	 	€	(1,880	)	

	

	

	 	

	

	

	
 	 	 	
Amounts recognized in financial statements:	  	 	 	 	 	 	 	 	
Accrued benefit liability	  	€	(3,915	)	 	€	(1,810	)	
Prepaid benefit cost	  	 	135	 	 	 	359	 	

	

	

	 	

	

	

	
Net amount accrued	  	€	(3,780	)	 	€	(1,451	)	

	

	

	 	

	

	

	
 	 	 	
Plan Activity:	  	 	 	 	 	 	 	 	
Company Contributions	  	€	690	 	 	€	648	 	
Plan Participants Contributions	  	 	279	 	 	 	192	 	
Benefits Paid	  	 	219	 	 	 	307	 	
Net Periodic Benefit Cost	  	 	1,444	 	 	 	1,269	 	
 	 	 	
Weighted-average assumptions used to determine benefit obligations:	  	 	 	 	 	 	 	 	
Discount rate	  	 	4.06	%	 	 	4.30	%	
Rate of compensation increase	  	 	4.20	%	 	 	5.74	%	
 	 	 	
Weighted-average assumptions used to determine net periodic pension expense:	  	 	 	 	 	 	 	 	
Discount rate	  	 	4.30	%	 	 	4.79	%	
Rate of compensation increase	  	 	5.74	%	 	 	5.62	%	
Expected return on plan assets	  	 	4.67	%	 	 	5.09	%	
 
The plan assets for the defined benefit plans are invested 100% in insurance contracts. Since the insurance companies primarily invest in bonds, the long term expected rate of return reflects the yield of bonds. Discount rates have been established by reference to the return on AA corporate bonds, expected rates of return have been set equal to the discount rate, and rate of compensation increase assumptions are based on company experience.
 
The accumulated benefit obligation for all defined benefit plans was €12,432 at October 30, 2005 and €2,708 at December 30, 2004. The assets, projected benefit obligation and accumulated benefit obligation for the pension plans with accumulated benefit obligations in excess of plan assets, were €10,721, €15,290 and €10,515 respectively, as of October 30, 2005 and were €1,122, €3,124 and €1,536, respectively, as of December 30, 2004.
 
14

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
The Company expects to contribute €1,115 to the defined benefit plans in 2006. The following benefit payments are expected to be paid:

 	  	2005

	
Expected benefit payments:	  	 	 	
2006	  	€	77	
2007	  	 	288	
2008	  	 	1,184	
2009	  	 	274	
2010	  	 	273	
Years 2011-2015	  	 	1,625	

	

	
Total	  	€	3,721	

	

	
 
The Company also has a defined contribution plan that covers certain employees in the United States of America. Eligible employees may elect to contribute a portion of their annual salary subject to a certain maximum each year. The Company’s matching of employee contributions is discretionary and is set each year by the Company. The Company’s match was approximately 5% for the ten month period ended October 30, 2005 which equals the percentage for the year ended December 30, 2004. The Company made no contributions to this for the ten month period ended October 30, 2005 and of €122 for the year ended December 30, 2004.
 
(11) Income Taxes
 
Income tax expense consists of the following:

 	  	For the ten
month period
ended
October 30,
2005

	 	 	For the year
ended
December 30,
2004

	 	
Current:	  	 	 	 	 	 	 	 	
Belgian companies	  	€	57,103	 	 	€	57,346	 	
Foreign companies	  	 	16,039	 	 	 	11,687	 	

	

	

	 	

	

	

	
Total current	  	 	73,142	 	 	 	69,033	 	
Deferred:	  	 	 	 	 	 	 	 	
Belgian companies	  	 	(6,453	)	 	 	(545	)	
Foreign companies	  	 	2,993	 	 	 	6,321	 	

	

	

	 	

	

	

	
Total deferred	  	 	(3,460	)	 	 	5,776	 	

	

	

	 	

	

	

	
Total income taxes	  	€	69,682	 	 	€	74,809	 	

	

	

	 	

	

	

	
 
15

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
The net deferred tax liability in the accompanying consolidated balance sheet includes the following components at October 30, 2005 and at December 30, 2004:

 	  	2005

	 	 	2004

	 	
Deferred tax assets	  	€	11,367	 	 	€	9,607	 	
Deferred tax asset valuation allowance	  	 	(5,539	)	 	 	(5,097	)	
Deferred tax liabilities	  	 	(101,895	)	 	 	(98,705	)	

	

	

	 	

	

	

	
Net deferred tax liability	  	€	(96,067	)	 	€	(94,195	)	

	

	

	 	

	

	

	
 
Deferred tax assets primarily arise from the recognition of future tax benefits resulting from available operating loss carry forwards and provisions and reserves deducted earlier for book than for tax purposes. The net deferred tax assets include valuation allowances of €5,539 for the period ended October 30, 2005 compared to €5,097 as of December 30, 2004 relating to certain local tax attributes associated with the company’s United States operations.
 
The company has United States federal net operating losses of €11,572 and state net operating losses of €9,717 that begin expiring in 2023 and 2018 respectively. Deferred tax liabilities primarily arise from temporary differences between the tax bases of certain assets and liabilities, primarily fixed assets, inventories, and deferred charges, and their financial reporting amounts. Based upon the expected reversal of deferred tax liabilities and the level of historical and projected taxable income over periods in which the deferred tax assets are deductible, the Company’s management believes it is more likely than not the Company will realize the benefits of these remaining net deductible differences.
 
The net deferred tax liability at October 30, 2005 as well as at December 30, 2004 mainly relates to non-current deferred tax assets and liabilities. The Company’s reported tax expense for the period ending October 30, 2005 as well as December 30, 2004 differs from the amount of income tax expense that would result from applying the Belgium statutory rate to the pretax income from continuing operations. This difference occurs primarily as a result of income tax rate differences for foreign operations.
 
Under Belgium tax law, 95% of dividends from subsidiaries’ are ordinarily exempt from taxation. The Company does not provide for income taxes on the remaining 5% of the cumulative undistributed earnings of its foreign subsidiaries because such earnings are reinvested and will continue to be reinvested indefinitely. At October 30, 2005, this 5% of undistributed earnings amounted to €22,199 and at December 30, 2004, this 5% of undistributed earnings amounted to €18,037. Should these earnings be distributed in the form of dividends or otherwise, the Company’s withholding and income tax liability is estimated to be €7,545 at October 30, 2005 and estimated to be €6,131 at December 30, 2004.
 
(12) Leases
 
The Unilin group has entered into various agreements for leased machinery used in the manufacturing process. Often, the lessor requires that the primary Belgian operational companies become jointly liable parties to the leasing agreement. The Company has also entered into one leasing agreement for land and buildings.
 
16

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
The Company is obligated under various operating leases for vehicles, equipment, office, warehouse space and housing. Future minimum lease payments under non-cancelable operating and capital leases (with initial or remaining lease terms in excess of one year) as of October 30, 2005 are:

 	  	Operating

	  	Capital

	 	
2006 (*)	  	€	634	  	€	21,418	 	
2007	  	 	232	  	 	12,146	 	
2008	  	 	66	  	 	9,856	 	
2009	  	 	—  	  	 	3,883	 	
2010	  	 	—  	  	 	1,033	 	
Thereafter	  	 	—  	  	 	1,425	 	

	

	  	

	

	

	
Total minimum lease payments	  	€	932	  	€	49,761	 	

	

	  	 	 	 	
Less interest on capital leases	  	 	 	  	 	(3,709	)	

	

	

	
Present value of minimum lease payments	  	 	 	  	€	46,052	 	

	

	

	

(*)	Includes the period from October 31, 2005 until December 31, 2006	
 
Rental expense under operating leases approximated to €5,226 for the ten month period ended October 30, 2005 and €1,502 for the year ended December 30, 2004.
 
(13) Commitments and Contingencies
 
The Company has renewed the sponsoring contract with Esperanza relating to the cycling team for a period of 4 years starting January 2005 and ending December 2008, whereby it is agreed that the Company will contribute annually a minimum of €5,000 and up to a maximum of €8,000, depending on the co-sponsors it can attract. Management is convinced that for 2005 and 2006 the budget will remain at the level of €6,000 because sufficient co-sponsors can be found to balance the budget.
 
As a result of the above sponsoring, the Company has given a bank guarantee of €1,600 in favor of the Union Cycliste Internationale (UCI).
 
At October 30, 2005, the Company has construction commitments related to the new manufacturing facility in North Carolina of approximately €1,808 and has outstanding purchase commitments related to the construction and installation of machinery for this new facility amounting to approximately €1,391.
 
At October 30, 2005, the Company granted following securities:
 
 	•	 	Guarantee of €15,000 in favor of Direction Générate Des Impôts de Sédan	
 
 	•	 	Guarantee of €45,845 in favor of Locindus (leasing company)	
 
In the normal course of business, the Company and its subsidiaries enter into various supply agreements for raw materials as required. None of these are material in nature.
 
In the normal course of business, the Company and its subsidiaries are parties to various legal claims, actions and complaints, including matters involving patent infringement and other intellectual property claims
 
17

UNILIN HOLDING NV AND SUBSIDIARIES
 
Notes to Consolidated Financial Statements (continued)
As of and for the ten month period ended October 30, 2005
and as of and for the year ended December 30, 2004
 
(In thousands except per share data)
 
and various other risks. Although it is not possible to predict the outcome of these matters, the Company’s management does not expect that the results in any of these legal proceedings will have a material adverse effect on the Company’s results of operations, financial position or cash flows.
 
The Company’s operations are subject to comprehensive laws and regulations, including those governing air emissions, wastewater discharges, the use, storage, treatment and disposal of solid and hazardous materials, and the cleanup of contamination associated therewith. Permits and environmental controls are required for certain of the Company’s operations to limit air and water pollution, and these permits are subject to modification, renewal, and revocation by issuing authorities. On an ongoing basis, the Company incurs capital and operating costs relating to compliance with such laws, regulations and operating permits.
 
With the oversight of local environmental agencies, the Company is currently preparing, has under review, or is implementing environmental investigations at various manufacturing sites. Although a loss is reasonably possible, it is not possible at this time to reasonably estimate the amount of any obligation for remediation at these sites that would be material to the Company’s financial statements as the Company has not performed the base investigations necessary to determine the extent of environmental impact and remediation alternatives, if any are required. These investigations are expected to be completed by 2006. The Company does not believe that the resolution of this matter will have a material adverse effect on the Company’s consolidated financial position or results of operations.
 
In the normal course of business, the Company has entered into various European collective bargaining agreements with its workforce, either locally or within its industry sector. Historically, the Company and its industry have maintained favorable relationships with its workforce and expect to do so in the future.
 
18

Exhibit 99.2
 
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
 
The following unaudited pro forma condensed consolidated balance sheet as of October 1, 2005 is based on the assumption that the acquisition of Unilin had occurred as of that date. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2004 and the unaudited pro forma condensed consolidated statement of operations for the nine months ended October 1, 2005 are based on the consolidated financial statements of Mohawk and Unilin as if the acquisition of Unilin had occurred on January 1, 2004, after giving effect to the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial data.
 
The unaudited pro forma condensed consolidated balance sheet as of October 1, 2005 has been derived from Mohawk’s unaudited consolidated balance sheet as of October 1, 2005 and Unilin’s audited consolidated balance sheet as of October 30, 2005. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2004 has been derived from Mohawk’s audited consolidated statement of operations for the year ended December 31, 2004, and Unilin’s audited consolidated statement of operations for the year ended December 31, 2004. The unaudited pro forma condensed consolidated statement of operations for the nine months ended October 1, 2005 has been derived from Mohawk’s unaudited consolidated statement of operations for the nine months ended October 1, 2005, and Unilin’s audited consolidated statement of operations for the ten months ended October 30, 2005. Unilin’s unaudited results for January 2005 have been excluded from its ten-month results to present an unaudited nine month comparative period. As Unilin’s results are affected by seasonality, Unilin’s unaudited results for the nine-month period ended October 30, 2005 included in the unaudited pro forma condensed consolidated statements of operations are different than those for the nine-month period ended October 1, 2005. The unaudited pro forma condensed consolidated statements of operations exclude non-recurring items in the period subsequent to the transactions, which are directly attributable to the Unilin acquisition.
 
The unaudited pro forma condensed consolidated financial data are based on preliminary estimates and assumptions set forth in the notes to such information. Pro forma adjustments are necessary to reflect the estimated purchase price, the new debt structure and purchase accounting adjustments based on preliminary estimates of the fair values of Unilin’s assets and liabilities. Pro forma adjustments are also necessary to reflect amortization expense, interest expense and the income tax effect related to the pro forma adjustments.
 
The allocation of purchase price is preliminary and is based on management’s estimates of the fair value of the net assets acquired and liabilities assumed. The final purchase price allocation will be completed after asset and liability valuations are finalized. Any final adjustments may change the allocation of purchase price which could affect the fair value assigned to the assets and liabilities and could result in a change to the unaudited pro forma condensed consolidated financial data.
 
The unaudited pro forma condensed consolidated financial data has been derived from, and should be read in conjunction with the consolidated historical financial statements of Mohawk and Unilin, including the notes thereto. The pro forma adjustments, as described in the notes to the unaudited pro forma condensed consolidated financial data, are based on currently available information and certain adjustments that we believe are reasonable. They are not necessarily indicative of our consolidated financial position or results of operations that would have occurred had the transactions taken place on the dates indicated, nor are they necessarily indicative of future consolidated financial position or results of operations.

Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of October 1, 2005
(In thousands)

 	  	Mohawk (a)
Industries

	  	Unilin (b)
Holdings NV

	  	Pro Forma (c)
Adjustments

	 	 	Mohawk &
Unilin Pro
Forma
Combined

	
ASSETS	  	 	 	  	 	 	  	 	 	 	 	 	 	
Current assets:	  	 	 	  	 	 	  	 	 	 	 	 	 	
Cash and cash equivalents	  	$	—  	  	$	165,709	  	$	—  	 	 	$	165,710	
Receivables	  	 	811,628	  	 	189,577	  	 	—  	 	 	 	1,001,205	
Inventories	  	 	1,089,970	  	 	103,740	  	 	34,305	(d)	 	 	1,228,015	
Other current assets	  	 	44,160	  	 	38,421	  	 	—  	 	 	 	82,580	
Deferred income taxes	  	 	55,311	  	 	6,237	  	 	—  	 	 	 	61,548	

	

	  	

	

	  	

	

	

	 	

	

	
Total current assets	  	 	2,001,069	  	 	503,684	  	 	34,305	 	 	 	2,539,058	
Property, plant and equipment, net	  	 	995,205	  	 	592,151	  	 	180,727	(e)	 	 	1,768,082	
Goodwill	  	 	1,378,849	  	 	18,630	  	 	1,242,323	(f)	 	 	2,639,802	
Other intangible assets	  	 	319,644	  	 	16,416	  	 	866,467	(g)	 	 	1,202,528	
Other assets	  	 	13,007	  	 	890	  	 	—  	 	 	 	13,897	

	

	  	

	

	  	

	

	

	 	

	

	
 	  	$	4,707,774	  	$	1,131,771	  	$	2,323,822	 	 	$	8,163,367	

	

	  	

	

	  	

	

	

	 	

	

	
LIABILITIES AND STOCKHOLDERS’ EQUITY	  	 	 	  	 	 	  	 	 	 	 	 	 	
Current liabilities:	  	 	 	  	 	 	  	 	 	 	 	 	 	
Current portion of long-term debt	  	$	68,679	  	$	52,132	  	$	1,500,000	(h)	 	$	1,620,811	
Accounts payable and accrued expenses	  	 	776,199	  	 	225,485	  	 	36,113	(i)(j)	 	 	1,037,797	

	

	  	

	

	  	

	

	

	 	

	

	
Total current liabilities	  	 	844,878	  	 	277,617	  	 	1,536,113	 	 	 	2,658,608	
Deferred income taxes	  	 	191,761	  	 	117,876	  	 	298,467	(j)	 	 	608,104	
Long-term debt, less current portion	  	 	700,000	  	 	32,027	  	 	1,187,924	(h)	 	 	1,919,951	
Other long-term liabilities	  	 	29,373	  	 	5,569	  	 	—  	 	 	 	34,942	

	

	  	

	

	  	

	

	

	 	

	

	
Total liabilities	  	 	1,766,012	  	 	433,089	  	 	3,022,504	 	 	 	5,221,605	

	

	  	

	

	  	

	

	

	 	

	

	
Total stockholders’ equity	  	 	2,941,762	  	 	698,682	  	 	(698,682	)(k)	 	 	2,941,762	

	

	  	

	

	  	

	

	

	 	

	

	
 	  	$	4,707,774	  	$	1,131,771	  	$	2,323,822	 	 	$	8,163,367	

	

	  	

	

	  	

	

	

	 	

	

	
 
See accompanying notes to Unaudited Pro Forma
Condensed Consolidated Balance Sheet.

Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
 
(a)	Unaudited Condensed Consolidated Balance Sheet for Mohawk, as reported in the Company’s quarterly report on Form 10-Q for the period ended October 1, 2005.	
 
(b)	Derived from Unilin’s audited balance sheet as of October 30, 2005. Amounts converted at a convenience exchange rate of 1.207 USD to 1 EURO, the approximate rate of exchange on October 30, 2005.	
 
(c)	The total estimated consideration as shown in the table below is allocated to the assets and liabilities of Unilin as if the transactions had occurred on October 1, 2005. The allocation set forth below is preliminary. The unaudited pro forma condensed combined financial information assumes that the historical values of Unilin’s current assets, current liabilities and property plant and equipment approximate fair value, except as adjusted, pending the final valuations and other financial information.	
 
The allocation of the purchase price to acquired intangible assets is subject to the finalization of independent appraisals. The actual amounts recorded when the independent appraisals are completed may differ materially from the preliminary amounts presented below.

Total purchase price:	  	 	 	 	
Cash consideration (€2,227,500 converted using an exchange rate of 1.207)	  	$	2,687,924	 	
Assumption of Unilin debt	  	 	84,159	 	
Acquisition related costs	  	 	24,134	 	

	

	

	
 	  	$	2,796,217	 	
Preliminary allocation of purchase price reflecting the transaction:	  	 	 	 	
Estimated adjustments to reflect assets and liabilities at fair value:	  	 	 	 	
Historical value of assets acquired, excluding $18.6 million of pre-acquisition goodwill, as of October 30, 2005	  	$	1,113,141	 	
Historical value of liabilities assumed	  	 	(433,089	)	
Inventory valuation	  	 	34,305	 	
Current deferred tax recognized on inventory valuation	  	 	(11,979	)	
Incremental deferred tax liability on identified fixed assets	  	 	(51,655	)	
Incremental value of property plant and equipment	  	 	180,727	 	
Incremental identified intangible assets	  	 	866,467	 	
Incremental deferred tax liability on identified intangible assets	  	 	(246,812	)	
Assumption of Unilin debt	  	 	84,159	 	
Goodwill acquired (including $18.6 million of pre-acquisition goodwill)	  	 	1,260,953	 	

	

	

	
 	  	$	2,796,217	 	
 
(d)	Estimated valuation adjustment related to acquired profit in inventory.	
 
(e)	Preliminary value of incremental property, plant and equipment with the associated transaction.	
 
(f)	Preliminary value of incremental goodwill associated with the transaction.	
 
(g)	Preliminary value of incremental intangible assets acquired in the transaction.	
 
(h)	Additional debt incurred related to the transaction.	
 
(i)	Preliminary adjustment to the purchase price for additional acquisition costs.	
 
(j)	Preliminary value of incremental deferred income taxes.	
 
(k)	Elimination of Unilin Holdings NV’s equity.	

Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2004
(In thousands, except share and per share data)

 	  	Mohawk (a)
Industries

	    	Unilin (b)
Holdings NV

	 	  	Pro Forma
Adjustments

	 	 	Mohawk &
Unilin Pro
Forma
Combined

	
Net sales	  	$	5,880,372	    	$	993,486	 	  	$	—  	 	 	$	6,873,858	
Cost of sales	  	 	4,259,531	    	 	623,500	 	  	 	1,403	(c)(d)	 	 	4,884,434	

	

	    	

	

	

	  	

	

	

	 	

	

	
Gross profit	  	 	1,620,841	    	 	369,986	 	  	 	(1,403	)	 	 	1,989,424	
Selling, general and administrative expenses	  	 	985,251	    	 	132,147	 	  	 	73,428	(d)(e)	 	 	1,190,826	

	

	    	

	

	

	  	

	

	

	 	

	

	
Operating income	  	 	635,590	    	 	237,839	 	  	 	(74,830	)	 	 	798,599	

	

	    	

	

	

	  	

	

	

	 	

	

	
Interest expense	  	 	53,392	    	 	3,427	 	  	 	120,669	(g)	 	 	177,488	
Other expense (income)	  	 	4,809	    	 	(2,170	)	  	 	—  	 	 	 	2,639	

	

	    	

	

	

	  	

	

	

	 	

	

	
 	  	 	58,201	    	 	1,257	 	  	 	120,669	 	 	 	180,127	

	

	    	

	

	

	  	

	

	

	 	

	

	
Earnings before income taxes	  	 	577,389	    	 	236,582	 	  	 	(195,499	)	 	 	618,472	
Income taxes	  	 	208,767	    	 	90,272	 	  	 	(61,507	)(h)	 	 	237,532	

	

	    	

	

	

	  	

	

	

	 	

	

	
Net earnings	  	$	368,622	    	$	146,310	 	  	$	(133,992	)	 	$	380,940	

	

	    	

	

	

	  	

	

	

	 	

	

	
Basic earnings per share	  	$	5.53	    	 	 	 	  	 	 	 	 	$	5.71	

	

	    	 	 	 	  	 	 	 	 	

	

	
Weighted-average common shares outstanding	  	 	66,682	    	 	 	 	  	 	 	 	 	 	66,682	

	

	    	 	 	 	  	 	 	 	 	

	

	
Diluted earnings per share	  	$	5.46	    	 	 	 	  	 	 	 	 	$	5.64	

	

	    	 	 	 	  	 	 	 	 	

	

	
Weighted-average common and dilutive potential common shares outstanding	  	 	67,557	    	 	 	 	  	 	 	 	 	 	67,557	

	

	    	 	 	 	  	 	 	 	 	

	

	
 
See accompanying notes to Unaudited Pro Forma
Condensed Consolidated Statement of Operations.

Unaudited Pro Forma Condensed Consolidated Statement of Operations
Nine Months Ended October 1, 2005
(In thousands, except share and per share data)

 	  	Mohawk (a)
Industries

	  	Unilin (b)
Holdings NV

	 	  	Pro Forma
Adjustments

	 	 	Mohawk &
Unilin Pro
Forma
Combined

	 	
Net sales	  	$	4,815,548	  	$	858,118	 	  	$	—  	 	 	$	5,673,666	 	
Cost of sales	  	 	3,547,469	  	 	559,763	 	  	 	—  	(c)	 	 	4,107,232	 	

	

	  	

	

	

	  	

	

	

	 	

	

	

	
Gross profit	  	 	1,268,079	  	 	298,355	 	  	 	—  	 	 	 	1,566,434	 	
Selling, general and administrative expenses	  	 	806,144	  	 	105,300	 	  	 	54,578	(e)(f)	 	 	966,022	 	

	

	  	

	

	

	  	

	

	

	 	

	

	

	
Operating income	  	 	461,935	  	 	193,055	 	  	 	(54,578	)	 	 	600,412	 	

	

	  	

	

	

	  	

	

	

	 	

	

	

	
Interest expense	  	 	35,166	  	 	(609	)	  	 	90,502	(g)	 	 	125,059	 	
Other expense (income)	  	 	2,526	  	 	(19,722	)	  	 	—  	 	 	 	(17,196	)	

	

	  	

	

	

	  	

	

	

	 	

	

	

	
 	  	 	37,692	  	 	(20,331	)	  	 	90,502	 	 	 	107,863	 	

	

	  	

	

	

	  	

	

	

	 	

	

	

	
Earnings before income taxes	  	 	424,243	  	 	213,386	 	  	 	(145,079	)	 	 	492,550	 	
Income taxes	  	 	151,760	  	 	77,932	 	  	 	(45,778	)(h)	 	 	183,914	 	

	

	  	

	

	

	  	

	

	

	 	

	

	

	
Net earnings	  	$	272,483	  	$	135,454	 	  	$	(99,301	)	 	$	308,636	 	

	

	  	

	

	

	  	

	

	

	 	

	

	

	
Basic earnings per share	  	$	4.08	  	 	 	 	  	 	 	 	 	$	4.62	 	

	

	  	 	 	 	  	 	 	 	 	

	

	

	
Weighted-average common shares outstanding	  	 	66,827	  	 	 	 	  	 	 	 	 	 	66,827	 	

	

	  	 	 	 	  	 	 	 	 	

	

	

	
Diluted earnings per share	  	$	4.03	  	 	 	 	  	 	 	 	 	$	4.57	 	

	

	  	 	 	 	  	 	 	 	 	

	

	

	
Weighted-average common and dilutive potential common shares outstanding	  	 	67,572	  	 	 	 	  	 	 	 	 	 	67,572	 	

	

	  	 	 	 	  	 	 	 	 	

	

	

	
 
See accompanying notes to Unaudited Pro Forma
Condensed Consolidated Statement of Operations.

Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
 
a.	Consolidated statement of operations for Mohawk, as reported in the Company’s Annual report on Form 10-K for the year ended December 31, 2004 and the Form 10-Q report for the nine months ended October 1, 2005.	
 
b.	Audited consolidated statement of operations for Unilin for the year ended December 30, 2004 and the unaudited 9 month period ended October 30, 2005. Amounts are shown in U.S. Dollars based on a convenience conversion rate of 1.207 USD to 1 EURO. The results for January 2005 have been excluded to present an unaudited nine month comparative period.	
 
c.	Excludes a nonrecurring $34.3 million fair value adjustment applied to Unilin’s acquired inventory.	
 
d.	Represents an adjustment to record incremental depreciation, of $1.7 million for the year ended December 31, 2004, related to property plant and equipment based on the fair values. There was no pro forma depreciation adjustment for the 9 month period ended October 1, 2005. Such property plant and equipment is being depreciated using the straight line method over varying periods, the average of which is 10 years.	
 
e.	Includes an increase in amortization expense, of $73.1 million and $54.6 million for the year ended December 31, 2004 and the nine month period ended October 1, 2005, to present projected amortization of identified intangibles. Intangible assets acquired included trade names, patents and customer relationships. Trade names have been assigned indefinite lives. Customer relationships have been assigned a 7 year life and patents have been assigned lives of between 12 and 16 years.	
 
f.	Excludes a $6.0 million adjustment related to non-recurring transaction costs incurred in Unilin’s historical financial statements.	
 
g.	Represents increased interest expense associated with the borrowings incurred in connection with the transaction. The annual effect of a 0.125 percent change in the expected interest rate on the approximately $2.7 billion of variable rate debt to be refinanced in connection with the transactions is approximately $3.2 million.	
 
h.	Represents the income tax benefit associated with the adjustments described herein.