UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[Mark One]

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

OR

EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number

01-19826

MOHAWK INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

SECURITIES EXCHANGE ACT OF 1934

Registrant's telephone number, including area code: (706) 629-7721

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act Yes  ¨    No  x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [ x ]    No  [   ]¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    [   ]¨

Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x                                Accelerated filer  ¨                            Non-accelerated filer  ¨

Indicate by check whether the Registrant is a shell company (as defined in Exchange Actby Rule 12b-2)12b-2 of the Act).    Yes  [ x ]¨    No  [   ]x

The aggregate market value of the Common Stock of the Registrant held by non-affiliates (excludes beneficial owners of more than 10% of the Common Stock) of the Registrant (50,552,254(41,437,255 shares) on June 27, 2003 (TheJuly 1, 2006 (the last business day of the Registrant's most recently completed fiscal second quarter) was$2,859,235,486.was $2,915,110,889. The aggregate market value was computed by reference to the closing price of the Common Stock on such date.

Number of shares of Common Stock outstanding as of March 2, 2004: 66,638,900February 21, 2007: 67,976,792 shares of Common Stock, $.01 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the 20042007 Annual Meeting of Stockholders-Part III.

Table of Contents

PART I

PART I

Item 1. Business

General

Mohawk Industries, Inc. ("Mohawk", (“Mohawk” or the "Company"“Company”), a term which includes the Company and its subsidiaries, including its primary operating subsidiaries, Mohawk Carpet Corporation, Aladdin Manufacturing Corporation, and Dal-Tile International Inc. ("Dal-Tile"))and Unilin Flooring BVBA, Unilin Holding Inc., and their subsidiaries (the Unilin Group), is thea leading producer of floorcoveringfloor covering products for residential and commercial applications in the United States.States and Europe. The Company is the second largest carpet and rug manufacturer and a leading manufacturer, marketerone of the largest manufacturers, marketers and distributordistributors of ceramic tile and natural stone in the United States.States as well as a leading producer of laminate flooring in the United States and Europe. The Company had annual net sales in 20032006 in excess of $5.0$7.9 billion.

      The Company has two operating segments, the Mohawk segment Approximately 88% of this amount was generated by sales in North America and the Dal-Tile segment. The Mohawk segment sells and distributes its product lines, which include broadloom carpet, rugs, pad, ceramic tile, hardwood, vinyl and laminate through independent floor covering retailers, home centers, mass merchandisers, department stores, commercial dealers and commercial end users. The Dal-Tile segment product lines include ceramic tile, porcelain tile and stone products sold through company-operatedapproximately 12% was generated by sales service centers, independent distributors and home center retailers.outside North America. Selected financial information for the Mohawk, Dal-Tile, and Dal-TileUnilin segments is set forth in Note 1716 to the Consolidated Financial Statements.

      Through the Company'sThe Mohawk segment the Company designs, manufactures, sources, distributes and markets its floor covering product lines, which include carpets, ceramic tile, laminate, rugs, carpet pad, hardwood and rugsresilient, in a broad range of colors, textures and patterns and is a leading producer of woven and tufted broadloom carpet and rugs for residential and commercial applications.applications in both new construction and remodeling. The Company alsoMohawk segment markets and distributes hardwood, laminate, vinylits carpets and rugs under its soft surface floor covering brands and ceramic tile, laminate, hardwood and resilient under its hardsurface line.hard surface floor covering brands. The CompanyMohawk segment positions its products in all price ranges and emphasizes quality, style, performance and service. The CompanyMohawk segment is widely recognized through its premier brand names, which include "Mohawk," "Aladdin," "Mohawk Home," "Bigelow," "Custom Weave," "Durkan," "Goodwin Weavers," "Helios," "Horizon," "Karastan," "Lees," "Newmark Rug," "World"“Mohawk®,” “Aladdin®,” “Mohawk Home®,” “Bigelow®,” “Durkan®,” “Helios®,” “Horizon®,” “Karastan®,” “Lees®,” “Merit^TM,” and "WundaWeve."“Ralph Lauren®” . The CompanyMohawk segment markets and distributes its carpetsoft and rughard surface products through over 34,00039,000 customers, which include primarily independent carpetfloor covering retailers, home centers, mass merchandisers, department stores, commercial dealers and commercial end users. Some products are also marketed through private labeling programs. The Company's carpet and rugMohawk segment's soft surface operations are vertically integrated from the extrusion of resin and post-consumer plastics into fiber, to the conversion of fiber into yarn and to the manufacture and shipment of finished carpetcarpets and rugs.

      Through the Company'sThe Dal-Tile segment the Company designs, manufactures, sources, distributes and markets a broad line of wallceramic tile, porcelain tile, natural stone and floor tileother products used in the residential and commercial markets for both new construction and remodeling. Most of the Company'sDal-Tile segment's ceramic tile products are marketed under the "Dal-Tile"“Dal-Tile®” and "American Olean"“American Olean®” brand names. The Company's ceramic tile business is organized into three strategic business channels: company-operated sales service centers,names and sold through independent distributors, and home centers. The Company maintains over 240 sales service centers in the United States, Canada and Puerto Rico. The Company's independent distributor unit distributes the American Olean brand through approximately 200 independent distributor locations serving a variety of residential and commercial customers. The Company's home center retailer unit supplies productsretailers, tile and flooring retailers and contractors. The Dal-Tile segment operations are vertically integrated from the production of raw material for body and glaze preparation to more than 2,000 home center retail outlets operating in the do-it-yourselfmanufacturing and buy-it-yourself markets. Each business unit has a dedicated sales force supporting that unit.distribution of ceramic and porcelain tile.

On November 10, 2003,October 31, 2005, the Company acquired all the assets and assumed certain liabilitiesoutstanding shares of the commercial carpet divisionUnilin Holding NV (the “Unilin Acquisition”). The total purchase price for acquiring Unilin, net of Burlington Industries, Inc. known as Lees Carpet, from W.L. Ross & Company forcash, was approximately $350 million in cash.Euro 2.1 billion (approximately $2.5 billion). The results of operations of Lees Carpetfor the Unilin business have been included with the MohawkUnilin segment results and in the Company's consolidated financial statements since that date. The primary reason for the acquisition was to expand the Company's presence in the commercial carpetU.S. laminate flooring market.

      On March 20, 2002, the Company acquired all of the outstanding capital stock of Dal-Tile, The Unilin segment, which is headquartered in Belgium, is a leading manufacturer, distributor and distributormarketer of ceramic tilelaminate flooring in Europe and the United States. Unilin is one of the leaders in laminate flooring technology, having commercialized direct pressure laminate, or DPL, a technology used in a majority of laminates today, and has developed the patented UNICLIC® glueless installation system and a variety of other new technologies, such as beveled edges, multiple length planks and new surface technologies. Unilin is the largest vertically-integrated laminate flooring manufacturer in the United States for approximately $1,469 million, consisting of approximately 12.9 million shares of the Company's common stock, options to purchase approximately 2.1 million shares of the Company's common stockproducing both laminate flooring and $718 million in cash. The Company's common stockrelated high density fiberboard. Unilin sells its laminate flooring products brand through retailers, independent distributors private label and options were valued at $751 million based on the measurement date stock price of $55.04 per share ($710.4 million)home centers. Unilin also produces insulated roofing and the estimated fair value of options using the Black-Scholes option-pricing model ($40.3 million). The transaction has been accounted for using the purchase method of accounting and, accordingly, the results of operations of Dal-Tile have been included in the Company's consolidated financial statements from March 20, 2002. The purchase price was allocated to the assets acquired and liabilities assumed based upon estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net identifiable assets acquired of approximately $1,168.3 million was recorded as goodwill. The primary reason for the acquisition was to expand the Company's presence in the ceramic tile and stone markets.other wood-based panels.

Industry

The floorcoveringUnited States floor covering industry has grown from $12.4 billion in sales in 1992 to $20.3$24.1 billion in 2002.2005. In 2002,2005, the primary categories of the United States floorcoveringfloor covering industry were carpet and rugs (65%rug (62%), ceramic tile (12%(13%), vinylhardwood (11%), resilient and rubber (10%(8%), hardwood (9%) and laminate (4%(6%). Each of these categories has been positively impacted by:

• U.S. population growth, requiring new

  changes in average selling price per square foot;

  increases in the residential builder and renovated homeowner remodeling markets;

  housing starts and commercial space;

• increasinghousing resales;

  increases in average house size; and

• growth

  increases in housing starts and housing resales.

Compound average growth rates for units sold (measured by square yards) for each ofall categories, except the floorcovering categories aboveresilient and rubber category, for the period from 19922002 through 2002, with the exception of the vinyl and rubber category,2005 have met or exceeded the growth raterates (measured in sales dollars) for both the gross domestic product of the United States over the same period. Ceramic tile, laminate and hardwood continued to exceed the growth rate for housing starts over the same period. During this period, the compound average growth rate was 3.6%3.8% for carpetcarpets and rugs, 10.3%7.3% for ceramic tile, 1.3%6.6% for vinylresilient and rubber, 21.1% for laminate and 8.0% for hardwood. Laminate, which is a relatively new product, experienced a compound average growth rate of 41.5% from 1996 through 2002.

According to the most recent figures available from the United States Department of Commerce,Floor Covering Weekly, worldwide carpet and rug sales volume of American manufacturers and their domestic divisions was 1.9approximately 2.3 billion square yards in 2002.2005. This volume represents a market in excess of approximately $12$14.9 billion.

The overall level of sales in the carpetoverall floor covering industry is influenced by a number of factors, including consumer confidence, spending for durable goods, interest rates, turnover in housing, the condition of the residential and commercial construction industries and the overall strength of the economy.

Broadloom carpet is defined as carpet over six feet by nine feet in size represented 73% of the amounts shipped by the industry in 2002. Tufted broadloom carpet, a category that refers to the manner of construction in addition to size, represented 86.0% of the broadloom industry volume shipped in 2002. The broadloom carpet industryand has two primary markets, residential and commercial, withcommercial. In 2005, the residential market makingmade up approximately 75% of industry amounts shipped in 2002 and the commercial market comprisingcomprised approximately 25%. An estimated 50%49% of industry shipments are made in response to replacement demand, which usually involves exact yardage, or "cut“cut order,"” shipments that typically provide higher profit margins than sales of carpet sold in full rolls. Because the replacement business generally involves higher quality carpet cut to order by the manufacturer, rather than the dealer, this business tends to be more profitablehave higher margins for manufacturers than the new construction business.

The United States ceramic tile industry shipped 2.63.3 billion square feet, or $2.3$3.1 billion, in 2002. The compound average growth rate of dollar shipments was 8.0% from 1992 through 2002 for ceramic tile.2005. Sales in the ceramic tile industry are influenced by the same factors that influence the carpetoverall floor covering industry, including consumer confidence, spending for durable goods, interest rates, turnover in housing, the condition of the residential and commercial construction industries and the overall strength of the economy.

The ceramic tile industry'sindustry’s two primary markets, residential applications and commercial applications, represent 62.0%70.5% and 36.0%28.2% of the industry total, respectively. Of the total residential market, 67%60% of the dollar values of shipments are for new construction.

In 2005, the United States laminate industry shipped 1.3 billion square feet, representing a market of approximately $1.5 billion, and the European laminate industry shipped 5.2 billion square feet. In 2004, the laminate industry accounted for approximately 10% of the European floor covering market. Sales in the laminate industry are influenced by similar factors that influence the overall floor covering industry, including consumer confidence, spending for durable goods, interest rates, turnover in housing, and the overall strength of the economy. Sales of U.S. laminate flooring are primarily distributed through the residential replacement market. Sales to other end user markets are not significant.

Sales and Distribution

Mohawk Segment.

Through the Company'sits Mohawk segment, the Company designs, manufactures and markets hundreds of styles of carpet and rugs in a broad range of colors, textures and patterns. In addition, the Mohawk segment markets and distributes ceramic tile, laminate, carpet pad, hardwood and vinylresilient floor covering. The Mohawk segment positions its productsproduct lines in all price ranges and emphasizes quality, style, performance and service. The CompanyMohawk segment markets and distributes carpetits soft and rugs throughhard surface product lines to over 34,00039,000 customers, which include independent floor covering retailers, home centers, mass merchandisers, department stores, commercial dealers and commercial end users. Some products are also marketed through private labeling programs. Sales to residential customers represent a significant portion of the total industry and the majority of the Company'sCompany’s carpet and rug sales.

The Company has positioned its premier residential carpet and rug brand names across all price ranges. "Mohawk," "Custom Weave," "WundaWeve," "Galaxy," "Horizon," "Helios"“Mohawk®,” “Horizon®,” “Helios®” and "Karastan"“Karastan®” are positioned to sell primarily in the medium-to-high retail price rangechannels in the residential broadloom market, and these lines are also sold under private labels.market. These lines have substantial brand name recognition among carpet dealers and retailers, with the "Karastan,"“Karastan®” and "Mohawk"“Mohawk®” brands having the highest consumer recognition in the industry. "Karastan"“Karastan®” is the leader in the exclusive high-end market. The "Aladdin"“Aladdin®” and "World"“Mohawk Home®” brand names compete primarily in the low-to-mediumvalue retail price range.channel. The Company markets its hard surface product lines, which include “Mohawk Ceramic®”, “Mohawk Hardwood®”, “Congoleum®” and “Mohawk Laminate®” across all price ranges. In addition, the Company markets its decorative throws and pillows, woven bedspreads, textile wall hangings and blankets primarily through the retail channel.

The Company offers marketing and advertising support through dealer programs like Mohawk Floorscapes, Mohawk ColorCenter, Mohawk Floorz and Karastan Gallery, ColorCenter and Floorscapes.Gallery. These programs offer varying degrees of support to dealers in the form of sales and management training, merchandising systems, exclusive promotions and assistance in certain administrative functions such as consumer credit, advertising and insurance.

The Company'scommercial customer base is divided into several channels: corporate office space, educational institutions, hospitality facilities, retail space and health care facilities. Different purchase decision makers and decision-making processes exist for each channel. In addition, the Company produces and sells broadloom carpet and carpet tile under the brand names “Bigelow Commercial®”, Lees®”, “Durkan®”, Karastan Contract®”, and “Merit®”.

The Company’s sales forces are generally organized based on product type and sales channels in order to best serve each type of customer. A hub-and-spoke distribution network accomplishes the product distribution on a regional level. In this system, the Company's trucks generally deliver product from manufacturing and central distribution sitescenters to regional and satellite warehouses. From there, it is shipped to retailers or to local distribution warehouses, then to retailers.

      The commercial customer base is divided into several channels: educational institutions, corporate office space, hospitality facilities, retail space and health care facilities. In addition, the Company produces and sells carpet for the export market, the federal government and other niche businesses. Different purchase decision makers and decision-making processes exist for each channel.

      The Company's "Aladdin" commercial brand is sold primarily through retail dealers to customers in the retail space, corporate office and other channels. This sales channel is also commonly referred to as "Main Street." These customers are more price conscious in their purchase decisions. The "Bigelow Commercial" brand is sold primarily to commercial office and retail channels through commercial flooring contractors. The "Mohawk Commercial" brand is marketed to customers in the educational institutional and health care facility channels that are performance oriented. The "Lees" brand is positioned at the higher price points within each sales channel. The "Dura-Color" stain resistant technology and "Unibond" performance backing system enables the "Lees" brand to provide a differentiated product within each sales channel. Additionally, the Company markets its modular (carpet tile) product lines under the "Lees" brand. The "Karastan Contract" and "Durkan Commercial" brands are positioned primarily to service the medium to high-end fashion conscious customer in both the retail and corporate office channels. The "Durkan Hospitality" brand specializes in carpet sold through the hospitality channel to hotels, resorts and casinos.

      The Company believes its ability to make woven carpet under the "Mohawk Commercial" and "Karastan Contract" brand names in large volume for commercial applications differentiates it from other manufacturers, most of which produce tufted carpet almost exclusively. Woven carpet, and specifically the Company's woven interlock products, provides unique characteristics that delivers a better value to the customer and the Company. The Company believes that it is one of the largest producers of woven carpet in the United States and that it has several carpet weaving machines and processes that no other manufacturer has, thereby allowing it to create carpet to meet specifications that its competitors cannot duplicate.

      The Mohawk Home Division, markets its product lines under two major brand names, "Mohawk Home" and "Karastan." Mohawk Home's affordable price points strategy for the mainstream retailers and home centers is directed at the mid and lower retail price ranges, while the "Karastan" brand is directed at upscale retail and flooring stores. Product categories are diverse, including woven wool rugs, polypropylene woven and tufted rugs, printed and woven nylon rugs, doormats, washable bath rugs, decorative throws and pillows, woven bedspreads, textile wall hangings and blankets.

Dal-Tile Segment.

The Dal-Tile segment'ssegment designs, manufactures and markets a broad line of ceramic tile, porcelain tile and natural stone productsproducts. Products are distributed through three separate distribution channels consisting of company-operated sales service centers,retailers, contractors, commercial users, independent distributors and home centers. The business is organized to address the specific customer needs of each distribution channel. Achannel, and dedicated sales force supports each channel.forces support the various channels.

      The Company has four regional distribution centers strategically located in California, Maryland, Texas and Florida. These centers help the Company create high-quality customer service by focusing on shorter lead times, increased order fill rates and improved on-time deliveries to its customers. These distribution centers also enhance the Company's ability to plan and schedule production and manage inventory requirements.

      The Company's network of over 240 sales service centers located in the United States, Canada and Puerto Rico distributes primarily the Daltile brand product, serving customers in all 50 states and portions of Canada and Puerto Rico.

The Company serves as a "one-stop"“one-stop” source that provides customers with one of the ceramic tile industry'sindustry’s broadest product lines-alines—a complete selection of glazed floor tile, glazed wall tile, glazed and unglazed ceramic mosaic tile, porcelain tile, quarry tile and stone products, as well as allied products. In addition to products manufactured by the Company'sCompany’s ceramic tile business, the Company carries a selection ofalso purchases products purchased from other manufacturers to provide customers with a broaderenhance its product line.offering.

The independent distributor channel offers a uniquedistinct product line under the "American Olean"“American Olean®” brand. Currently, the "American Olean"“American Olean®” brand is distributed through approximately 200226 independent distributor locations that service a variety of residential and commercial customers. The Company is focused on increasing its presence in the independent distributor channel, particularly in tile products that are most commonly used in flooring applications.

The Company believes its Dal-Tile segment is one of the U.S. ceramic tile industry's largest suppliers to the do-it-yourself and buy-it-yourself markets through home center retailers, such as The Home Depot and Lowe's. The home center channel is expected to continue presenting important growth opportunities.

      The Company believes that it has two of the leading brand names in the U.S. ceramic tile industry-"Daltile"industry— “Dal-Tile®” and "American Olean."“American Olean®”. The roots of the "Daltile"“Dal-Tile®” and "American Olean"“American Olean®” brand names date back over fifty years and are well recognized in the industry.

The Company has six regional distribution centers in the Dal-Tile operations. These centers help deliver high-quality customer service by focusing on shorter lead times, increased order fill rates and improved on-time deliveries to customers.

A network of approximately fifty262 sales service centers distributes primarily the “Dal-Tile®” brand product, serving customers in the United States, Canada and seventy-five years, respectively.Puerto Rico. The service centers provide distribution points for customer pick-up, local delivery and showrooms to assist customers with product selection.

The Company'sCompany’s sales service centers primarily distribute the "Daltile"“Dal-Tile®” brand, with a fully integrated marketing program, emphasizing a focus on quality and fashion. The broad product offering satisfies the needs of its residential, commercial and builder customers. The "American Olean"“American Olean®” brand consists of a full product offering and is distributed primarily through independent distributors. Both of these brands are supported by a fully integrated marketing program, including public relations efforts, displays, merchandising (sample boards, chip chests), literature/catalogs and an Internet website.

Unilin Segment

The Unilin segment manufactures, licences, distributes and markets laminate flooring in Europe and the United States. It also produces insulated roofing and other wood based panels. Products are distributed through separate distribution channels consisting of retailers, independent distributors and home centers. Unilin U.S. operations also manufacture Mohawk branded laminate flooring which sells through the Mohawk channel. The majority of Unilin’s U.S. sales are for residential replacement. The business is organized to address the specific customer needs of each distribution channel.

In the United States, the Unilin operations have three regional distribution centers. These distribution centers help deliver high-quality customer service and also enhance the Company’s ability to plan and schedule production and manage inventory requirements.

In Europe, the Unilin operations distribute products directly from manufacturing facilities. This integration with manufacturing sites allows for quick responses to customer needs and high inventory turns.

The Unilin segment markets and sells laminate flooring products under the “Quick-Step®” and “Mohawk®” brands, which the Company believes are some of the leading brand names in the U.S. and European laminate industry.

Advertising and Promotion

The Company promotes its brands through national advertising in both television and print media as well as in the form of cooperative advertising, point-of-sale displays, advertising and sponsorship of a cycling team, and marketing literature provided to assist in marketing various carpet and ceramic tileflooring styles. The Company also continues to rely on the substantial brand name recognition of its product lines. The cost of producing display samples, a significant promotional expense, is partially offset by sales of samples and support from suppliers in the carpet and rug business.

Manufacturing and Operations

Carpet and Rugs Business.Mohawk Segment

The Company's manufacturing operations are vertically integrated and include the extrusion of resin and post-consumer plastics into polypropylene, polyester and nylon fiber, yarn processing, tufting, weaving, dyeing, coating and finishing. Capital expenditures are primarily focused on increasing capacity, improving productivity and reducing costs. Over the past three years, the Company has incurred capital expenditures that have helped increase manufacturing efficiency and capacity and improve overall cost competitiveness.

Dal-Tile Segment

Ceramic Tile Business.Over the past three years, the Dal-Tile segment has invested in capital expenditures, principally forin new plantsplant and state-of-the-art fast-fire equipment to increase manufacturing capacity, improve efficiency and develop new capabilities. In addition, the Company has added a porcelain tile manufacturing plant, which will significantly expand its production capacity in 2004.

      The ceramic tile business commenced operations in Mexico at the Company's Monterrey facility in 1955 and currently manufactures products at this facility primarily for U.S. consumption. The Monterrey location produces ceramic tile, frit (ground glass) and refractories.

The Company believes that its manufacturing organization offers competitive advantages due to its ability to manufacture a differentiated product line consisting of one of the industry's broadest product offerings of colors, textures and finishes, as well as the industry's largest offering of trim and angle pieces and its ability to utilize the industry's newest technology. In addition, Dal-Tile also imports or sources a portion of its product to supplement its product offerings.

Unilin Segment

The Company’s laminate flooring manufacturing operations are vertically integrated, both in the United States and in Europe, and include high-density fiberboard (“HDF”) production, paper impregnation, short-cycle pressing, cutting and milling. The European operations also include resin production. Unilin has state-of-the-art equipment that results in competitive manufacturing in terms of cost and flexibility. Most of the equipment for the production of laminate flooring in Belgium and North Carolina is relatively new. The Company’s laminate flooring plant in North Carolina is one of the largest in the United States. In addition, Unilin is the only fully integrated laminate manufacturer in the United States with its own HDF production facility.

The manufacturing facilities for other activities in the Unilin business (insulated roofing and other wood-based panels) are all configured for cost-efficient manufacturing and production flexibility and are competitive in the European market.

Raw Materials and Suppliers

Carpet and Rugs Business.Mohawk Segment

The principal raw materials the carpet and rug business uses are nylon, polypropylene, polyester and wool resins and fibers,fibers; synthetic backing materials, polyurethanematerials; latex and various dyes and chemicals. The Company obtains all of its majorMajor raw materials used in the Company's manufacturing process are available from independent sources and allthe Company obtains most of its externally purchased nylon fibers principally from threetwo major suppliers: Koch Industries, Inc., Solutia,Invista Inc., and Honeywell,Solutia, Inc. TheAlthough temporary disruptions of supply of carpet raw materials were experienced in 2005 as a result of hurricanes, the carpet and rug business has not experienced significant shortages of raw materials in recent years. The Company believes that there is an adequate supply of all grades of resin and fiber, and that allwhich are readily available from a number of independent sources.available.

Dal-Tile Segment

Ceramic Tile Business. In the Company's ceramic tile business, the Company manufactures tile primarily from clay, talc, claynepheline syenite and nepheline syenite.glazes. The Company has entered into a long-term supply agreement for most of its talc requirements with one supplier.requirements.

The Company owns long-term clay mining rights in Alabama, Kentucky and Mississippi that satisfy nearly all of its clay requirements for producing unglazed quarry tile. The Company purchases a number of different grades of clay for the manufacture of its non-quarry tile. The Company believes that there is an adequate supply of all grades of clay and that all are readily available from a number of independent sources.

The Company has a single source suppliertwo suppliers for its nepheline syenite requirements. If this supplierthese suppliers were unable to satisfy the Company's requirements, the Company believes that alternative supply arrangements would be available.

Glazes are used on a significant percentage of the Company's manufactured tile. Glazes consist of frit (ground glass), zircon, stains and other materials, with frit being the largest ingredient. The Company manufactures approximately 57%43% of its frit requirements.

Unilin Segment

The principal raw materials used in producing boards and laminate flooring are wood, paper and resin.

Wood supply is a very fragmented market in Europe. The Company has long-standing relationships with approximately 25 suppliers. These suppliers provide a wide variety of wood species, varying from fresh round wood to several kinds of by-products of sawmills and used wood recycled specifically for chipboard production, giving the Company a cost-effective and secure supply of raw material. In the United States, the Company has a long-term contract with a contiguously located lumber company that supplies most of its total needs for wood.

Major manufacturers supply the papers required in the laminate flooring business in both Europe and the United States. The Company manufactures most of the paper impregnation internally in its laminate flooring facilities in Europe and the United States. In Europe, the resins for paper impregnation are manufactured by the Company, which permits greater control over the laminate flooring manufacturing process, enabling the Company to produce higher-quality products.

The Company buys the balance of its resin requirements from a number of companies. The Company believes there are ample sources of supply located within a reasonable distance of Unilin’s facilities.

Competition

CarpetThe principal methods of competition within the floor covering industry generally are service, style, quality, price and, Rugs Business.    to a certain extent, product innovation and technology. In each of the markets price competition and market coverage are particularly important because there is limited differentiation among competing product lines. In the laminate flooring market, the Company believes it has a competitive advantage as a result of Unilin’s industry leading design and patented technologies, which allows the Company to distinguish its laminate flooring products in the areas of finish, quality, installation and assembly. In the Mohawk and Dal-Tile segments, the investments in advanced manufacturing, data processing, the extensive diversity of equipment, as well as the Company’s marketing strategy and distribution system contribute to its ability to compete primarily on the basis of performance, quality, style and service, rather than just price. The carpet and rugsrug industry has experienced substantial consolidation in recent years, and the Company is one of the largest carpet and rug manufacturers in the world. While the ceramic tile industry is more fragmented, the Company believes it is substantially larger than the next largest competitor and that it is the only significant manufacturer with its own North American distribution system. The Company faces competition in the laminate flooring market from a large number of domestic and foreign manufacturers.

Mohawk Segment

The carpet and rug industry is highly competitive. Based on industry publications, the top 20 North American carpet and rug manufacturers (including their American and foreign divisions) in 20022005 had worldwide sales in excess of $13.0$12.5 billion, and in 1998 the top 20 manufacturers in 1990 had sales in excess of $6$9.6 billion. In 2002, 2005,

the top five manufacturers had worldwide sales in excess of $10.2$10.0 billion. The Company believes it is the second largest producer of carpetcarpets and rugs (in terms of sales volume) in the world.world based on its 2005 sales.

Dal-Tile Segment

Ceramic Tile Business.    The Company estimates that over 100 tile manufacturers, more than half of which are based outside the United States, compete for sales of ceramic tile to customers located in the United States. Although the U.S. ceramic tile industry is highly fragmented at both the manufacturing and distribution levels, the Company believes it is one of the largest manufacturer, distributormanufacturers, distributors and marketermarketers of ceramic tile in the United States and the world.

Unilin Segment

Laminate flooring is the fastest growing product in the U.S. floor covering industry and is produced by more than 130 industrial manufacturers in 25 countries. The Company believes it is one of the largest manufacturers, distributors and marketers of laminate flooring in the world.world, with a focus on high-end products. The Company is also the largest vertically-integrated laminate flooring manufacturer in the United States producing both high density fiberboard and laminate flooring.

Patents and Trademarks

      The principal methods of competition withinIntellectual property is important to the carpetCompany’s business, and rugs and ceramic tile industries are price, style, quality and service. In each of the Company's markets, price competition and market coverage are particularly important because there is limited differentiation among competing product lines. The Company's recent investments in modernized, advanced manufacturing and data processing equipment, the extensive diversity of equipment in which the Company has invested,relies on a combination of patent, copyright, trademark and trade secret laws to protect its marketing strategy and its distribution system contribute to its ability to compete primarily on the basis of performance, quality, style and service, rather than just price.

      In each of the Company's carpet and rug and ceramic tile businesses, the Company faces competition from a large number of domestic and foreign manufacturers and independent distributors of floorcovering products. Some of the Company's existing and potential competitors may be larger and have greater resources and access to capital than the Company does. Maintaining the Company's competitive position may require it to make substantial investments in its product development efforts, manufacturing facilities, distribution network and sales and marketing activities. Competitive pressures may also result in decreased demand for the Company's products and in the loss of market share. In addition, the Company faces, and will continue to face, pressure on sales prices of its products from competitors, as well as from large customers. As a result of any of these factors, there could be a material adverse effect on the Company's sales and profitability.

Trademarksinterests.

The Company uses several trademarks that it considers important in the marketing of its products, including "Aladdin," "American Olean“Aladdin®,” “American Olean®,” “Bigelow®,” “Dal-Tile®,” “Durkan®,” “Helios®,” “Horizon®,” “Karastan®,” “Lees®,” “Mohawk®,” “Mohawk Home™,” “Portico®,” “Quick-Step®,” “UNILIN^®," "Bigelow," "Custom Weave" "Dal-Tile” and “UNICLIC^®," "Durkan," "Galaxy," "Goodwin Weavers," "Helios^®," "Home Source," "Horizon^®," "Karastan^®," "Lees^®," "Mohawk^®," "Mohawk Home," "Portico," "World^®".”

Unilin owns a number of important patent families, totaling approximately 150 patents and "WundaWeve^®."applications in Europe and the United States. The most important of these patent families is the UNICLIC® family, as well as the snap, pretension, clearance and beveled edge patent families, which protects Unilin’s interlocking laminate flooring panel technology. The patents in the UNICLIC® family are not expected to expire until 2017.

Sales Terms and Major Customers

The Company'sCompany’s sales terms are the same as those generally available throughout the industry. The Company generally permits its customers to return broadloom carpet, andrug, ceramic tile, wood, vinyl and laminate flooring purchased from it within 30 daysspecified time periods from the date of sale, if the customer is not satisfied with the quality of the product. This return policy is consistent with the Company's emphasis on quality, style and performance and promotes customer satisfaction without generating enough returns to affect materially its operating results or financial position.

During 2003,2006, no single customer accounted for more than 10% of Mohawk's total net sales, and the top ten customers accounted for less than 15% of the Company’s sales. The Company believes the loss of one or a few major customers would not have a material adverse effect on its business.

Employees

As of March 2, 2004,February 15, 2007, the Company employed approximately 33,30037,100 persons consisting of which approximately 635 of its employees30,600 in the United States, approximately 3,900 in Mexico, and approximately 3,1002,600 in Europe. The majority of itsthe Company’s European and Mexican manufacturing employees in Mexico are members of unions. Other than with respect to theseMost of the Company’s U.S. employees the Company isare not a party to any collective bargaining agreements. Additionally, the Company has not experienced any strikes or work stoppages in the United States or Mexico for over 20 years. The Company believes that its relations with its employees are good.

Available Information

The Company's Internet address is http://mohawkind.com. The Company makes the following reports filed by it available, free of charge, on its website under the heading "Investor“Investor Information:"”

• annual reports on Form 10-K;

• quarterly reports on Form 10-Q;

• current reports on Form 8-K; and

• amendments to the foregoing reports.

The foregoing reports are made available on the Company's website as soon as practicable after they are filed with, or furnished to, the Securities and Exchange Commission ("SEC"(“SEC”).

Item 1A. Risk Factors

Certain Factors affecting the Company's Performance

In addition to the other information provided in this Annual Report on Form 10-K, the following risk factors should be considered when evaluating an investment in shares of Common Stock.

If any of the events described in these risks were to occur, it could have a material adverse effect on the Company's business, financial condition and results of operations.

The floor covering industry is sensitive to changes in general economic conditions, such as consumer confidence and income, corporate and government spending, interest rate levels and demand for housing. A prolonged decline in spending for replacement floor covering products or new construction activity could have a material adverse effect on the Company’s business.

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

The floor covering industry is highly dependent on construction activity, including new construction, which is cyclical in nature. Although the impact of a decline in new construction activity is typically accompanied by an increase in remodeling and replacement activity, a prolonged decline in residential or commercial construction activity could have a material adverse effect on the Company’s business and results of operations.

The construction industry has experienced significant downturns in the past, which have adversely affected suppliers to the industry. The industry could experience similar downturns in the future, which could have a negative impact on the Company’s business.

The Company may be unable to pass increases in the costs of raw materials and fuel-related costs on to its customers, which could have a material adverse effect on the Company’s profitability.

The prices of raw materials and fuel-related costs vary with market conditions. The Company’s costs for carpet raw materials and fuel-related materials are currently higher than historical averages and may remain so indefinitely. Although the Company generally attempts to pass on increases in raw material and fuel-related costs to its customers, the Company’s ability to do so is dependent upon the rate and magnitude of any increase, competitive pressures and market conditions for the Company’s products. There have been in the past, and may be in the future, periods of time during which increases in these costs cannot be recovered. During such periods of time, the Company’s profitability may be materially adversely affected.

The Company faces intense competition in the industry, which could decrease demand for the Company’s products or force it to lower prices, which could have a material adverse effect on the Company’s profitability.

The floor covering industry is highly competitive. The Company faces competition from a number of manufacturers and independent distributors. Some of the Company’s competitors are larger and have greater resources and access to capital than the Company does. Maintaining the Company’s competitive position may require substantial investments in the Company’s product development efforts, manufacturing facilities, distribution network and sales and marketing activities. Competitive pressures may also result in decreased demand for the Company’s products or force the Company to lower prices. Any of these factors could have a material adverse effect on the Company’s business.

The Company may experience certain risks associated with acquisitions.

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

The diversion of management attention and any difficulties encountered in the transition and integration process could have a material adverse effect on the Company’s revenues, level of expenses and operating results.

Failure to successfully manage and integrate an acquisition with the Company’s existing operations could lead to the potential loss of customers of the acquired business, the potential loss of employees who may be vital to the new operations, the potential loss of business opportunities or other adverse consequences that could affect the Company’s financial condition and results of operations. Even if integration occurs successfully, failure of the acquisition to achieve levels of anticipated sales growth, profitability or productivity or otherwise not perform as expected, may adversely impact the Company’s financial condition and results of operations.

A failure to identify suitable acquisition candidates and to complete acquisitions could have a material adverse effect on the Company’s business.

As part of the Company’s business strategy, the Company intends to continue to pursue acquisitions of complementary businesses. Although the Company regularly evaluates acquisition opportunities, the Company may not be able successfully to identify suitable acquisition candidates; to obtain sufficient financing on acceptable terms to fund acquisitions; to complete acquisitions and integrate acquired businesses with the Company’s existing businesses; or to manage profitably acquired businesses.

The Company may be unable to obtain raw materials on a timely basis, which could have a material adverse effect on the Company’s business.

The principal raw materials used in the Company’s manufacturing operations include nylon and polyester and polypropylene resins and fibers, which are used primarily in the Company’s carpet and rugs business; talc,

clay, nepheline syenite and various glazes, including frit (ground glass), zircon and stains, which are used exclusively in the Company’s ceramic tile business; wood, paper, and resins which are used primarily in the Company’s laminate flooring business; and other materials. An extended interruption in the supply of these or other raw materials used in the Company’s business or in the supply of suitable substitute materials would disrupt the Company’s operations, which could have a material adverse effect on the Company’s business.

The Company has been, and in the future may be, subject to claims and liabilities under environmental, health and safety laws and regulations, which could be significant.

The Company’s operations are subject to various environmental, health and safety laws and regulations, including those governing air emissions, wastewater discharges, and the use, storage, treatment and disposal of hazardous materials. The applicable requirements under these laws are subject to amendment, to the imposition of new or additional requirements and to changing interpretations of agencies or courts. The Company could incur material expenditures to comply with new or existing regulations, including fines and penalties.

The nature of the Company’s operations, including the potential discovery of presently unknown environmental conditions, exposes it to the risk of claims under environmental, health and safety laws and regulations. The Company could incur material costs or liabilities in connection with such claims.

Changes in international trade laws and in the business, political and regulatory environment in Mexico and Europe could have a material adverse effect on the Company’s business.

The Company’s manufacturing facilities in Mexico and Europe represent a significant portion of the Company’s capacity for ceramic tile and laminate flooring, respectively. In addition, as a result of the Unilin Acquisition, the Company now has more significant general operations abroad, particularly in Europe. Accordingly, an event that has a material adverse impact on either operation could have a material adverse effect on the Company. The business, regulatory and political environments in Mexico and in Europe differ from those in the United States, and the Company’s Mexican and European operations are exposed to legal, currency, tax, political, and economic risks specific to the countries in which they occur, particularly with respect to labor regulations, which tend to be more stringent in Europe and, to a lesser extent, Mexico. The Company cannot assure investors that the Company will succeed in developing and implementing policies and strategies to counter the foregoing factors effectively in each location where the Company does business and therefore that the foregoing factors will not have a material adverse effect on the Company’s operations or upon the Company’s financial condition and results of operations.

The Company could face increased competition as a result of the agreements under World Trade Organization (“WTO”) and the North American Free Trade Agreement (“NAFTA”).

The Company is uncertain what effect reduced import duties pursuant to agreements under the WTO may have on the Company’s operations, although these reduced rates may stimulate additional competition from manufacturers that export ceramic tile to the United States.

Although NAFTA lowers the tariffs imposed on the Company’s ceramic tile manufactured in Mexico and sold in the United States and will eliminate such tariffs entirely on January 1, 2008, it may also stimulate competition in the United States and Canada from manufacturers located in Mexico.

Fluctuations in currency exchange rates may impact the Company’s financial condition and results of operations and may affect the comparability of results between the Company’s financial periods.

The results of the Company’s foreign subsidiaries reported in the local currency are translated into U.S. dollars for balance sheet accounts using exchange rates in effect at the balance sheet date and for the statement of earnings accounts using the Company’s weighted average rates during the period. The exchange rates between some of these currencies and the U.S. dollar in recent years have fluctuated significantly and may continue to do

so in the future. Although the Company has not yet experienced material losses due to foreign currency fluctuation, the Company may not be able to manage effectively the Company’s currency translation risks, and volatility in currency exchange rates may have a material adverse effect on the carrying value of the Company’s debt and results of operations and affect comparability of the Company’s results between financial periods.

If the Company is unable to protect the Company’s intellectual property rights, particularly with respect to the Company’s patented laminate flooring technology and the Company’s registered trademarks, the Company’s business and prospects could be harmed.

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

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

Furthermore, despite the Company’s efforts, the Company may be unable to prevent competitors and/or third parties from using the Company’s technology without the Company’s authorization, independently developing technology that is similar to that of the Company or designing around the Company’s patents. The use of the Company’s technology or similar technology by others could reduce or eliminate any competitive advantage the Company has developed, cause the Company to lose sales or otherwise harm the Company’s business. In addition, if the Company does not obtain sufficient protection for the Company’s intellectual property, the Company’s competitiveness in the markets it serves could be significantly impaired, which would limit the Company’s growth and future revenue.

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

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

Companies may claim that the Company infringed their intellectual property or proprietary rights, which could cause it to incur significant expenses or prevent it from selling the Company’s products.

In the past the Company has had companies claim that certain technologies incorporated in the Company’s products infringe their patent rights. There can be no assurance that the Company will not receive notices in the

future from parties asserting that the Company’s products infringe, or may infringe, those parties’ intellectual property rights. The Company cannot be certain that the Company’s products do not and will not infringe issued patents or other intellectual property rights of others. Historically, patent applications in the United States and some foreign countries have not been publicly disclosed until the patent is issued (or, in some recent cases, until 18 months following submission), and the Company may not be aware of currently filed patent applications that relate to the Company’s products or processes. If patents are later issued on these applications, the Company may be liable for infringement.

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

The Company is subject to changing regulation of corporate governance and public disclosure that have increased both costs and the risk of noncompliance.

The Company’s stock is publicly traded. As a result, the Company is subject to the rules and regulations of federal and state agencies and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and NYSE, have in recent years issued new requirements and regulations, most notably the Sarbanes-Oxley Act of 2002. From time to time since the adoption of the Sarbanes-Oxley Act of 2002, these authorities have continued to develop additional regulations or interpretations of existing regulations. The Company’s efforts to comply with the regulations and interpretations have resulted in, and are likely to continue to result in, increased general and administrative costs and diversion of management’s time and attention from revenue generating activities to compliance activities.

Forward-Looking Information

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

None

Item 2.

Properties

Item 2. Properties

The Company owns a 47,500 square foot headquarters office in Calhoun, Georgia on an eight-acre site. The Company also owns a 2,089,000 square foot manufacturing facility located in Dalton, Georgia, used by the Mohawk segment, a 1,744,072 and a 1,464,597974,900 square foot manufacturing facility located in Monterey, Mexico.Mexico and Muskogee, Oklahoma used by the Dal-Tile segment and a 1,128,535 square foot manufacturing facility located in Wielsbeke, Belgium used by the Unilin segment. The following table summarizes the Company's facilities both owned and leased for each segment in square feet: