The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto, and the Company’s description of critical accounting policies, included in the Company’s 2018 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. Results for interim periods are not necessarily indicative of the results for the year.

The Company has numerous investments outside the United States. The net assets of these subsidiaries are exposed to changes and volatility in currency exchange rates. The Company uses foreign currency denominated debt to hedge its non-U.S. net investments against adverse movements in exchange rates. The gains and losses on the Company’s net investments in its non-U.S. operations are economically offset by losses and gains on its foreign currency borrowings. The Company designated its €500,000 2.00% Senior Notes borrowing as a net investment hedge of a portion of its European operations. For the threenine months ended March 30,September 28, 2019 and March 31,September 29, 2018, the change in the U.S. dollar value of the Company’s euro denominated debt was a decrease of $11,233$25,102 ($8,53219,067 net of taxes) and an increasea decrease of $16,047$19,848 ($13,04314,223 net of taxes), respectively, which is recorded in the foreign currency translation adjustment component of accumulated other comprehensive income or (loss). The change in the U.S. dollar value of the Company’s debt partially offsets the euro-to-dollar translation of the Company’s net investment in its European operations.

The adoption of ASC 842 had a material impact on the Company’s condensed consolidated balance sheets, but did not have a material impact on our condensed consolidated statements of operations or cashflow. The most significant impact was the recognition of ROU assets of $328,169 and lease liabilities for operating leases of $332,286 at January 1, 2019, based on the present value of the future minimum rental payments for existing operating leases. The difference in the balances is due to deferred rent, tenant incentive allowances and prepaid amounts taken into account for adoption. Our accounting for finance leases remained substantially unchanged, See Note 10 - Leases.

    

On January 31, 2019, the Company acquired a hard surface flooring distribution company based in the Netherlands for $72,001, resulting in a preliminary goodwill allocation of $45,931. The results have been included in the Flooring Rest of the World (“Flooring ROW”) segment and are not material to the Company’s consolidated results of operations.

On November 16, 2018, the Company completed its purchase of Eliane S/A Revestimentos Ceramicos (“Eliane”), one of the largest ceramic tile companies in Brazil. Pursuant to the purchase agreement, the Company (i) acquired the entire issued share capital of Eliane and (ii) acquired $99,037 of net indebtedness of Eliane, with total cash consideration paid of $148,741. The Company’s acquisition of Eliane resulted in preliminary allocations of goodwill of $16,932,$18,062, indefinite-lived tradename intangible assets of $32,238 and intangible assets subject to amortization of $5,818. The goodwill is expected to be deductible for tax purposes. The purchase price allocation is preliminary until the Company obtains final information regarding these fair values. Eliane’s results of operations have been included in the consolidated financial statements since the date of acquisition in the Global Ceramic reporting segment.

On July 2, 2018, the Company completed its acquisition of Godfrey Hirst Group, the leading flooring company in Australia and New Zealand, further extending Mohawk’s global position. The total value of the acquisition was $400,894. The Company’s acquisition of Godfrey Hirst Group resulted in allocations of goodwill of $87,043,$88,655, indefinite-lived tradename intangible assets of $58,671 and intangible assets subject to amortization of $43,635. The goodwill is not expected to be deductible for tax purposes. The factors contributing to the recognition of the amount of goodwill include product, sales and manufacturing synergies. The Godfrey Hirst Group’s results have been included in the condensed consolidated financial statements since the date of acquisition in the Flooring NA and Flooring ROW segments.

During the first quarter of 2018, the Company completed the acquisition of three3 businesses in the Flooring ROW segment for $24,610, resulting in a goodwill allocation of $12,874 and intangibles subject to amortization of $7.

On April 4, 2017, the Company completed its purchase of Emilceramica S.r.l (“Emil”), a ceramic company in Italy. The total value of the acquisition was $186,099. The Emil acquisition will enhance the Company’s cost position and strengthen its combined brand and distribution in Europe. The acquisition’s results and purchase price allocation have been included in the condensed consolidated financial statements since the date of the acquisition. The Company’s acquisition of Emil resulted in a goodwill allocation of $59,491, indefinite-lived tradename intangible asset of $16,196 and an intangible asset subject to amortization of $2,348. The goodwill iswas not expected to bedirectly deductible for tax purposes. The Emil results are reflected in the Global Ceramic segment and the results of Emil’s operations are not material to the Company’s consolidated results of operations.

During the second quarter of 2017, the Company completed the acquisition of two2 businesses in the Global Ceramic segment for $37,250, resulting in a goodwill allocation of $1,002. The Company also completed the acquisition of a business in the Flooring NA segment for $26,623.

During the first quarter of 2017, the Company acquired certain assets of a distribution business in the Flooring ROW segment for $1,407, resulting in intangible assets subject to amortization of $827.

The Company historically records contract liabilities when it receives payment prior to fulfilling a performance obligation. Contract liabilities related to revenues are recorded in accounts payable and accrued expenses on the accompanying condensed consolidating balance sheets. The Company had contract liabilities of $34,665$39,284 and $34,486 as of March 30,September 28, 2019 and January 1, 2019, respectively.

Substantially all of the Company’s revenue is recognized at a point in time when the product is either shipped or received from the Company’s facilities and control of the product is transferred to the customer.  Accordingly, in any period, the Company does not recognize a significant amount of revenue from performance obligations satisfied or partially satisfied in prior periods and the amount of such revenue recognized during the three and nine months ended March 30,September 28, 2019 was immaterial.

The following table presents the Company’s segment revenues disaggregated by the geographical market location of customer sales and product categories for the three months ended March 30,September 28, 2019 and March 31,September 29, 2018:

The Company incurs costs in connection with acquiring, integrating and restructuring acquisitions and in connection with its global cost-reduction/productivity initiatives. For example:

Restructuring, acquisition transaction and integration-related costs consisted of the following during the three and nine months ended March 30,September 28, 2019 and March 31,September 29, 2018:

The components of goodwill and other intangible assets are as follows:

Effective January 1, 2019 the Company adopted ASC 842, which requires recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet, based on the present value of the future minimum rental payments for existing operating leases. The Company adopted the provisions of ASC 842 on January 1, 2019 using a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption in line with the new transition method allowed under ASU 2018-11. ASC 842 provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients” which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight and elected the practical expedient pertaining to land easements. The new standard also provides practical expedients for an entity’s ongoing accounting for leases. The Company elected the short-term lease exemption for all leases that qualify, meaning the Company will not recognize ROU assets or lease liabilities for leases with terms shorter than twelve months. The Company also elected the practical expedient to not separate lease and non-lease components for a majority of its asset classes, including real estate and most equipment.

The Company measures the ROU assets and liabilities based on the present value of the future minimum lease payments over the lease term at the commencement date. Minimum lease payments include the fixed lease and non-lease components of the agreement, as well as any variable rent payments that depend on an index, initially measured using the index at the lease commencement date. The ROU assets are adjusted for any initial direct costs incurred less any lease incentives received, in addition to payments made on or before the commencement date of the lease. The Company recognizes lease expense for leases on a straight-line basis over the lease term.

As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These discount rates for leases are calculated using the Company’s credit spread adjusted for current market factors and foreign currency rates. The Company also made a policy election to determine its incremental borrowing rate, at the initial application date, using the total lease term and the total minimum rental payments, as the Company believes this rate is more indicative of the implied financing cost.

The Company determines if a contract is or contains a lease at inception. The Company has operating and finance leases for service centers, warehouses, showrooms, and machinery and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company enters into lease contracts ranging from 1 to 60 years with a majority of the Company’s lease terms ranging from 1 to 8 years.

Some leases include one or more options to renew, with renewal terms that can extend the lease term from 3 to 10 years or more. The exercise of these lease renewal options is at the Company’s sole discretion. An insignificant number of our leases include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term.

Certain of our leases include rental payments that will adjust periodically for inflation or certain adjustments based on step increases. An insignificant number of our leases contain residual value guarantees and none of our agreements contain material restrictive covenants. Variable rent expenses consist primarily of maintenance, property taxes and charges based on usage.

We rent or sublease certain real estate to third parties. Our sublease portfolio consists mainly of operating leases.

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

The Company granted 1690 restricted stock units (“RSUs”) for the three months ended September 28, 2019. The Company granted 187 RSUs at a weighted average grant-date fair value of $137.71$137.30 per unit for the threenine months ended March 30,September 28, 2019. The Company granted 1233 RSUs at a weighted average grant-date fair value of $239.04$189.39 per unit for the three months ended March 31,September 29, 2018. The Company granted 130 at a weighted average grant-date fair value of $236.82 per unit for the nine months ended September 29, 2018. The Company recognized stock-based compensation costs related to the issuance of RSUs of $5,789$5,651 ($4,2834,182 net of taxes) and $7,948$5,104 ($5,8823,777 net of taxes) for the three months ended March 30,September 28, 2019 and March 31,September 29, 2018, respectively, which has been allocated to cost of sales and selling, general and administrative expenses. The Company recognized stock-based compensation costs related to the issuance of RSUs of $17,228 ($12,749 net of taxes) and $26,697 ($19,756 net of taxes) for the nine months ended September 28, 2019 and September 29, 2018, respectively, which has been allocated to cost of sales and selling, general and administrative expenses. Pre-tax unrecognized compensation expense for unvested RSUs granted to employees, net of estimated forfeitures, was $18,759$20,598 as of March 30,September 28, 2019, and will be recognized as expense over a weighted-average period of approximately 1.851.46 years. The Company did not recognize any stock-based compensation costs related to stock options for the threenine months ended March 30,September 28, 2019 and March 31,September 29, 2018, respectively.

For the quarter ended March 30,September 28, 2019, the Company recorded income tax expense of $37,018$22,522 on earnings before income taxes of $158,593$178,191 for an effective tax rate of 23.3%12.6%, as compared to an income tax expense of $47,632$49,487 on earnings before income taxes of $256,873,$277,513, for an effective tax rate of 18.5%17.8% for the quarter ended March 31,September 29, 2018. For the nine months ended September 28, 2019, the Company recorded income tax expense of $116,273 on earnings before income taxes of $596,171 for an effective tax rate of 19.5%, as compared to an income tax expense of $215,928 on earnings before income taxes of $850,740, for an effective tax rate of 25.4% for the nine months ended September 29, 2018. The difference in the effective tax rates for the comparative periods was caused by the geographicgeographical dispersion of profits and losses, for the respective periods; the elimination of an annual taxa discrete one-time benefit in Italy;Q3 of 2019 related to the impairment of the Company's net investment in a manufacturer and a discrete stock expense.distributor of ceramic tile in China, and the issuance of IRS Notice 2018-26 which caused the Company to record $54,674 of additional net tax expense in Q2 of 2018.