Mohawk Industr ies, Inc.

1999 Annual Report

what will tomorrow bring?what will tomorrow bring?

No one knows for sure what tomorrow will br ing. At the threshold of our

third century in business, we do know it will be full of

opportunity

1997 1998 1999

$2,429

$2,745

$2,000

$3,083

1997 1998 1999

$84

$130

$80

$157

1997 1998 1999

$1.40

$2.13

$1.35

$2.61

Mohawk Industries is the second-largest carpet mill in the United States, and the leading producer of area rugs and mats. Headquartered in Calhoun, Georgia, Mohawk designs, manufactures and markets woven and tuftedbroadloom carpet, carpet tile, home textiles, bath mats, and area and accent rugs.The Company also markets hardsurface flooring including laminate, wood and ceramic tile. Mohawk supplies products for all significant markets, distribution channels and price points through a family of popular and prestigious brands that includeAladdin, Alexander Smith, American Rug Craftsmen, American Weavers, Bigelow, CustomWeave, Durkan,Galaxy, Harbinger, Helios, Horizon, Image, Karastan, Mohawk, Newmark Rug, World and WundaWeve.Mohawk Industries’ shares are traded on the New York Stock Exchange under the symbol MHK.

1997 1998 1999(In thousands, except per share amounts)

Net sales $2,429,085 2,744,620 3,083,264

Gross profit $ 559,864 681,287 776,859

Operating income before

nonrecurring items $ 176,341 249,096 294,797

Net earnings before

nonrecurring items $ 84,464 130,494 157,239

Earnings per share before

nonrecurring items $ 1.40 2.13 2.61

financial highlights

Net Earnings

Before nonrecurring items (In millions)

Earnings Per Share

Before nonrecurring items

Net Sales

(In millions)

During 1999,Mohawk continued to outpace the industry in top-lineand bottom-line growth.We achieved these excellent results by offeringthe widest array of products and price points in our industry. We serveour customers in innovative ways,continuously improve our infrastruc-ture and adhere to time-tested strategies for delivering stockholdervalue.If Mohawk’s past is any indication,our future will be full ofnew opportunities.

Strength in Numbers A 12% increase in net sales to $3.1 billion in 1999 contributed to the highest diluted earnings per share in Mohawk’shistory—$2.61 per share, or $157.2 million in net earnings.This repre-sents a 23% increase over 1998’s diluted earnings per share of $2.13before nonrecurring items, or $130.5 million in net earnings. Grossprofit as a percentage of net sales improved from 1998’s 24.8% to 25.2%in 1999. Operating income before nonrecurring items as a percentage of net sales improved from 9.1% in 1998 to 9.6% in 1999. Our return on equity before nonrecurring items increased from 23.6% in 1998 to24.1% in 1999.

We accomplished our continued strong revenue growth through a combination of internal growth and acquisitions, and far exceeded theindustry’s 3% increase. As a result, Mohawk again gained market share.

This impressive performance failed to boost the Company’s shareprice, as the stock market appears to favor some industry sectors over others. Given our share price attractiveness, the Board of Directorsauthorized the repurchase of up to 10 million shares of Mohawk com-mon stock.This share repurchase program demonstrates our belief in the Company’s future and our expectations for continued growth andearnings.We anticipate an increase in share price when investors return to the value sector of the market.

Although many investors failed to recognize our financial accom-plishments in 1999, the financial press did. In February 2000, Fortunenamed Mohawk as one of “America’s Most Admired Companies.” In January 2000, Forbes placed us on its “Platinum 400” list of exceptional big corporations. In 1999, The Atlanta Journal ranked Mohawk the fifth-best Georgia corporation.

Strategies that Work Our basic strategies for growth remain unchanged:(1) to grow internally through strong marketing, merchandising and edu-cational support coupled with product line expansion and (2) to growexternally through acquisitions that leverage our powerful infrastructure.In 1999, we complemented our internal growth with two outstandingacquisitions—the assets of Image Industries, Inc. and Durkan PatternedCarpets, Inc. Image is a leading postconsumer bottle recycler and manu-facturer of polyester residential carpet. Image’s state-of-the-art recycling

dear stockholders

David L. Kolb, Chairman and Chief Executive Officer,

with one of our new Martha Stewart throws.

“We have uniquely positioned Mohawk Industries to recognizeand seize opportunities as they arise. Mohawk has the financialstrength, the infrastructure, the knowledge and the leadership toturn potential into profit.”

capacity, and we bought new dyeing equipment to further consolidate our residential manufacturing operations and improve costs.

An expanded warehouse system accommodates the higher volumeproduced by our acquisitions and our growth in the hard surfaces busi-ness. As we added space, trucks and people, we improved the automationof our distribution system to give us more accurate information faster.

In 1999, we began to tap the power of the Internet to assist our cus-tomers, and we will expand this effort in 2000. Mohawk tested programson our proprietary business-to-business (B2B) website to provide cus-tomers with key information about shipping, delivery, claims and credit.This resource also provides immediate information and feedback to oursales and marketing staffs.

Tomorrow’s Forecast In our business, there are many variables we cannotcontrol. Industry dynamics, however, appear to favor continued growth.Consolidation has increased the professionalism of our industry’s topcompanies, leading to improved stockholder value and a positive outlook.

Demographics remain favorable as baby boomers mature andprosper.The strong U.S. economy creates a large amount of discretion-ary income, offering tremendous potential for our industry. Retailersare moving from a focus on price to selling features and benefits.Thistranslates into increased demand for higher-quality products and bettermargins at all levels.

Mohawk has established the foundation for a successful future.Weprovide a high level of service to a large, strong customer base.We ownwell-integrated, state-of-the-art manufacturing facilities and a distributionsystem second to none. Our acquisitions have contributed to the strengthand depth of our management team and employees. Our new marketinginitiatives support a continually broadening product line.With all theseadvantages in place, we remain confident that we possess the people,the manufacturing capabilities, the marketing strategies, the distribu-tion network and the brand awareness to take advantage of the many opportunities that lie ahead.

David L. Kolb, Jeffrey S. Lorberbaum,Chairman and Chief Executive Officer President and Chief Operating Officer

Jeffrey S. Lorberbaum,

President and Chief

Operating Officer,

with one of our Karastan

tea-washed rugs.

and production technologies enhance Mohawk’s low-cost producer position in staple yarn products and give us a market leadership positionin the polyester product category.

Durkan is a leading supplier of custom commercial carpet to thehospitality market. Acquiring Durkan strengthens our commercial prod-uct offerings and adds the latest design and printing technology toMohawk’s manufacturing strengths.

These acquisitions exemplify our market strategy—to enter seg-ments or niches with growth and synergy potential that complements or expands our product line.Two recently added hard surface products,Mohawk Laminate flooring and Mohawk Ceramic tile, fit this strategy.Their significant growth has led us to offer new styles and SKUs.We arealso excited about our newly introduced Mohawk Hardwood flooringproducts. Both carpet padding and Mohawk Commercial carpet tilesposted substantial gains.

Last year, we focused on getting the maximum value from ourbrands.We strengthened Karastan’s position at the high end of the market,and then heavily promoted the Mohawk brand to the mass market. Ourgoal is to make Mohawk the overall brand of choice among our dealersand consumers.

We also realigned the Company into five product categories dedicated to marketing and retail channels: rug and textile, residential,specified commercial, hospitality and Karastan.This enables us to focusmore effectively on the needs of each of our customers.

Structural Integrity At Mohawk, continually improving our infrastructureenhances our low-cost position and strengthens relationships with ourcustomers.The design and implementation of our leading-edge, real-timeinformation system unified our operations. Our processes for integratingacquisitions have allowed us to take immediate advantage of synergies and cost savings.

During 1999, we significantly expanded our fiber extrusion capa-bilities to support new and existing product categories. New facilities andequipment increase the Company’s filament and staple yarn processing

As we begin the 21st century,Mohawk Industries is positionedto make a grand entrance into whatwe believe will be an era of creativemarketing for the floor coveringand home textiles industry.

Mohawk’s marketing plan cen-ters on the value associated withour brands.To provide increasedvalue to our dealers and helpthem attract more customers, wehave significantly expanded theadvertising, marketing and mer-chandising of the Mohawk andKarastan brands. We will promotethe popular Mohawk brandname to all market segments andall product categories, includingresidential and commercial carpet,rugs, home textiles and hard sur-face flooring.The time-honoredKarastan name will be promotedin conjunction with high-endresidential and commercial carpetand rugs.

Surveys show that Mohawk andKarastan are the most recognizedbrands in floor covering. Ourincreased print advertising and

cable television commercials buildon that name recognition withconsumers. Our advertising cam-paign emphasizes style, beautyand fashion.

Working in concert with ouradvertising is a three-tiered mer-chandising program: MohawkFloorscapes, a total store concept;Mohawk Color Center, whichprovides a boutique for a store-within-a-store presentation; andMohawk Family of Brands, whichoffers product packages tailored tothe particular needs of each retailer.

In 1999, we launched theMohawk Floorscapes concept inlimited test markets.Today, inde-pendent retailers have installedthe concept in approximately 100stores, and we plan to continuethis rollout on a national basis.Mohawk Color Center, the indus-try’s longest-running and mostsuccessful merchandising program,features nearly 2,000 participatingdealers. More than 20,000 dealersbuy products under the MohawkFamily of Brands.

Mohawk’s commitment to its retailers includes not only mar-keting and sales programs, but alsoeducation and training. Last year,thousands of dealer representativesfrom across the country partici-pated in Mohawk University, theindustry’s most in-depth programdesigned to improve sales tech-niques and consumer satisfaction.Our technological investments now extend to e-commerce. Wehave tested and introduced a B2Bproprietary Internet site.The sitewill provide our dealers with easyaccess to customer service, shippingand delivery status, and claims andcredit data as well as marketing andsales information. Internally, the site will give our sales force immediatefeedback and will improve the level of service.

With this comprehensiveapproach to marketing, we’repoised to make a truly grandentrance in the new millennium.

In 1999, we strengthened the Karastan brand at the highend of the market, and promoted the Mohawk brand tothe mass market.These are now the most recognizedbrands in floor covering.

a grand entrance

endless possibilities

Mohawk is uniquely positioned to take advantage of market possibilities. Our recent acquisi-tions create exciting new synergiesin manufacturing and design.Mohawk has always recognized the value in sharing technologyand ideas among its divisions.This results in product innova-tions that have increased sales and improved efficiencies.

The Durkan, Image and American Weavers acquisitions,for instance, have produced rippleeffects throughout many areas of our business. Durkan diversi-fied our position in commercialcarpeting through its hospitality line, but Durkan’s state-of-the-artSpectronics printing equipmentand cutting-edge design also havebeen used to create bath mats,printed rugs and residential broadloom products.

Similarly, Image’s polyesterextrusion capabilities have allowed

us to introduce a variety of prod-ucts in all residential brands. Andwe have introduced AmericanWeavers’ home textile designs intoour printed rug and mat business.In fact, our recently realigned Rug & Textiles division has sharedmanufacturing technologies andstrategies in sales and marketing to further enhance an already successful business.

With an eye toward both envi-ronmental responsibility and costreduction, we reclaim waste ininnovative and productive ways. Werecycle material from our residen-tial carpet business into nonwovenpadding, creating a value-addedproduct from manufacturing waste by-product.

Mohawk’s ability to transformpossibilities into reality continues to earn awards from a number of influential organizations. Ourcommercial carpet brands cap-tured two prestigious awards at

Neocon ’99, the nation’s most distinguished commercial flooringexposition. A new woven prod-uct, Whipstitch, and a new carpettile product,Tangents, received Silver Best of Neocon awards.Mohawk’s commercial designs won Solutia’s 1999 Doc Award for best-of-show, and our LagoCollection of patterned loop carpets received the 1999 DesignJournal Award for Design Excel-lence.The Heirloom Collectionfrom Mohawk Residential earnedthe Company its second consec-utive Dealer’s Choice Award at Surfaces ’99.

Winning awards is gratifying,but winning consumer loyalty ismore rewarding. Mohawk’s com-mitment to bolstering our businessthrough shared technology, shareddesign, shared manufacturing andshared information has solidifiedour reputation for innovation and efficiency.

Our acquisitions historically produce immediate synergies and arequickly accretive to earnings.Then we leverage the strengths ofthese purchases throughout our organization to create additional stockholder value.

Mohawk’s manufacturing and marketing strengths offer a distinctadvantage to retailers and con-sumers alike. We offer superiorservice, product innovations andthe ability to respond quickly andflexibly to retailer challenges. Wecombine the strength of an indus-try titan with the attention to detail of a specialty manufacturer.

In addition to our own prod-uct advances, we have extendedMohawk’s market presence byentering into licensing agreementswith major brands in Americanfashion. Our home textiles busi-ness, for example, proudly suppliesMartha Stewart products toK-Mart. Most recently, Karastanand Ralph Lauren signed an exclu-sive licensing agreement to createa new series of area rug and broad-loom designs for the Ralph LaurenHome Collection label. In addition,Karastan and the Rug & Textilesdivision have collaborated on anexciting new venture to create aunique line of washable bath rugs.This collection features the

Karastan brand and introducesthe classic look of woven Orientalrugs to the bath market. In 1999,we added an accent pillow collec-tion to complement our profitablemass-market home textile line.Toleverage our commercial productlines and enhance our presence inthe corporate office market, we’veadded a new manufacturing lineand launched a carpet tile productunder the Mohawk name.

We seek to offer our customersevery possible advantage throughproduct innovations. Last year,we launched the SmartBackProtective Backing System, a technologically advanced carpetbacking engineered to reduce overall weight and improve carpetperformance.This exclusive back-ing resists water damage, makes the carpet more flexible and is easier to install.

How do our customers respondto the advantages we offer? Theyconfirm our successful program of continuous innovation by hon-oring us with awards and, more

importantly, by providing us withbusiness opportunities that result in greater product placements andincreased sales.

Wal-Mart selected Mohawk to be a worldwide vendor becauseit recognized our customer com-mitment and the strength of ourmanufacturing and distributioncapabilities. We will now serveWal-Mart stores in the U.S.,Canada, Germany, the UnitedKingdom, Singapore and China.Mohawk was the only floor cover-ing manufacturer to receive HomeDepot’s Partner of the Year awardin 1999.We were also honoredwith a Partner in Progress awardfrom Sears, Roebuck & Co.—the first time in a decade a floorcovering manufacturer has been so honored.

Target recently presented our Rug & Textiles division withits 1999 Vendor of ExcellenceAward, citing our innovative lead-ership, superior execution andcommitment to enhancing theretailer’s performance.

Starting with the two most recognized brands in floorcovering, we expand our consumer presence by aligningwith other household names. Agreements with RalphLauren and Martha Stewart take advantage of our superior infrastructure.

clear advantages

knowledge is power

Mohawk has acquired 12 compa-nies in the past eight years. Alongwith adding substantial productsand sales, these acquisitions haveintroduced significant new ideasand technologies to our Company.Mohawk has retained key managersfrom each acquisition, adding theirexpertise to our knowledge base to help propel our Company for-ward. Currently, Mohawk’s Top 25management team includes repre-sentatives from most of theseorganizations.This diversity pro-duces multiple perspectives anddynamic insights, and has allowedus to create a multifaceted organi-zation whose synergies extendfrom manufacturing to marketing.

Today, we are an almost com-pletely vertically integrated organi-zation. Advanced technologiesallow us to produce more than halfof our own fiber, convert it intoyarn, dye it, tuft or weave it, store it, and ship it anywhere in thecountry using our large fleet of

company trucks. At each step in the process, the combination ofemployee expertise and cutting-edge technology yields increasedproductivity and reduced waste.Knowledge is not just power;knowledge is profit.

At Mohawk, we continuouslyrefine our information systems toprovide superlative customer ser-vice. Now we are able to quicklyrealign our manufacturing and distribution systems to bring ourproducts to customers faster. Real-time tracking of production, ordersand shipping allows our customersto stay better informed and enablesus to better control inventory atour network of regional and satel-lite warehouses. In many cases, ourResidential division can deliver a broadloom order within 24hours. Our Commercial division’sadvanced technology allows us totrack orders and project demand.

Shared knowledge improvesbusiness relationships. We have

made it easier to work withMohawk, and our customers have responded enthusiastically. Intoday’s technology-driven world,needs change constantly. We striveto anticipate those needs and con-stantly challenge ourselves to stayon the cutting edge.

At Mohawk, information leadsto innovation. By shifting manu-facturing tasks to more efficientlocations and revamping salesassignments, we ensure that ourproducts are manufactured in the most effective place and sold in the most appropriate manner.We provide faster, more coordi-nated responses to customerrequirements and empower cus-tomers to follow the flow oftheir orders, from placement todelivery. Mohawk’s integratedinformation systems and ouremployees’ experience are addi-tional reasons we feel confi-dent as we move into our third century of doing business.

As well as adding new products and manufacturingcapabilities, our external growth strengthens ourmanagement team, our knowledge base and ourability to adapt to changing customer needs.

Opportunity and risk go hand in hand. We feel an absolute obligation to our stockholders tominimize risk while maximizingopportunity. Historically, we haveexplored new markets with a delib-erate, measured approach beforecommitting to large investments.This strategy has proven successfultime after time.

Residential and commercial carpet remain the core business ofMohawk Industries. Broadloom is the primary source of our salesand our profits. Our goal is toincrease market share within that core business, while aug-menting this effort with strate-gic opportunities.

In 1999, the fruits of this strat-egy were clearly evident. Growth in home textiles, carpet tiles, carpetpadding and hard surface flooringadded value for our customers andmade Mohawk a more desirablebusiness partner. Our customersappreciate the diversity of productswe offer and have enthusiastically supported this expansion of ourproduct line.

As one example, our entry intothe home textile market beganwith limited exposure.The Ameri-can Weavers product line offered anew market segment to Mohawk,and we have capitalized on it bymanufacturing these items in concert with our mass-market

rugs. Our new accent pillow line is designed to complement theseproducts.To further expand ourrug and textile offerings, we importrugs from around the world.

Hard surface flooring representsthe fastest-growing segment of thefloor covering industry. We recog-nized that we had an opportunityto add value to our Company byfurther diversifying our productline in this market. We also discov-ered that our retailers wanted toassociate the respected Mohawkbrand with hard surface flooring.Our initial success with ceramic tile in the Florida region provedthat hard surfaces could add to our profitability. Expansion of theceramic tile program into otherregions, coupled with an initial dis-tribution of laminate flooring, isestablishing Mohawk as a supplierof choice for hard surface flooring.

We have previously stated thathardwood flooring is an area ofinterest to Mohawk. We believethis sector offers significant salesand profit opportunities. We have recently introduced a line of wood products.

The “think big, start small”strategy has already placed usamong the market leaders in arearugs, bath mats, throws, paddingand ceramic tile.

Customers appreciate our penetration into niche markets.Expanding our product offerings gives them more opportunities to single-source their needs.The industry’s most diverse product line offers smaller customers the choices to differentiate themselves.

think big start small

golden opportunityMohawk’s long history of growthand success is built upon our abilityto seize opportunities.Today, we arethe world’s second-largest carpetmanufacturer and the largest pro-ducer of rugs. With $3.1 billion insales last year, we hold an approxi-mately 26% market share in an over$11 billion carpet and rug industry.The industry continues to grow,and Mohawk continues to outpaceindustry growth. We are financiallyand organizationally prepared toseize opportunities as they arise.

Our brands represent a hugestrength because of their establishedname recognition.Through ourprint and television advertising, wewill bolster the Company’s estab-lished reputation for excellence and further associate our brandswith fashion, style and design.

Similarly, the breadth and depthof our product line offers manyopportunities. We have the abilityto expand product placements withexisting customers and to attractnew customers as they appear onthe retail horizon.

Our industry leadership ininformation technology createsopportunities to do business at alower cost and with greater ease.We constantly seek new avenues to provide our customers with

information. We also offer theindustry’s most in-depth trainingsystem, Mohawk University, whichhelps retailers produce greater salesand profits.We grow as our cus-tomers grow, so their success is vitalto our future. We are developingnew tools like Floorscapes andexpanding time-tested tools likeColor Center.

The basic structure of our Com-pany provides additional opportu-nities. Our whole truly is strongerthan the sum of its parts.The tech-nology, expertise, information,manufacturing and marketing

shared among our five divisionssupports the entire Company.Meeting business opportunities inone group often pays dividends inothers. We have assembled a diversegroup of people and technologies,and the synergies the two assetsafford us are truly exciting.

The proven success of our busi-ness strategies shows that we cancreate many golden opportunities.As we expand and excel in design,marketing, merchandising, manu-facturing and distribution, webelieve that the opportunities are almost limitless.

Our strategies position Mohawk to capture tomorrow’sopportunities: opportunities for strategic acquisitions atreasonable valuations. And for internal growth throughmarketing, product line extension and maintenance of our low-cost position.

At Mohawk Industries, we havebuilt an organization that handleschange quickly and efficiently.Our Company seizes opportuni-ties that offer growth, synergies andstockholder value. We approachthese opportunities in a measuredmanner to minimize risk whilemaximizing reward.

We have a very strong customerbase; top consumer brands; andexciting merchandising, marketingand training. We offer a wide arrayof products. We have creative,innovative product developmentdepartments to keep new productsflowing. We feature state-of-the-artfacilities and leading-edge informa-tion systems. Our network of

regional and satellite warehouses,along with our extensive truckingfleet, promote high levels of cus-tomer service. Our organization is ablend of talented people, enhancedby our acquisitions, with hundredsof years of combined knowledgeand skill. And our financial positionis powerful, supporting our growthand acquisitions.

The challenge for Mohawk is toleverage these tremendous strengthsand talents to grow our Companysuccessfully and profitably. Webelieve that no one in our industryis in a better strategic position thanMohawk Industries, and we lookforward with great anticipation to the opportunities ahead.

looking ahead

Our broad management expertise and continual infrastructureimprovements enable us to quickly see and adapt to changes in the marketplace. We welcome change, as it provides us withmore opportunities to demonstrate our superior capabilities.

Board of Directors

DAV I D L . KO L B

Chairman and Chief Executive OfficerMohawk Industries, Inc.

J E F F R E Y S. L O R B E R BAU M

President and Chief Operating OfficerMohawk Industries, Inc.

L E O B E N ATA R†

Associated Consultant,A.T. Kearney, and former Chairman, Engraph, Inc.,a subsidiary of Sonoco ProductsCompany (an international manufacturer of industrial and consumer packaging products)

David Kolb Jeffrey Lorberbaum Leo Benatar Bruce Bruckmann

B RU C E C. B RU C K M A N N *

Managing DirectorBruckmann, Rosser,Sherrill & Co., Inc.(a venture capital firm)

L A R RY W. M C C U R DY *

PresidentDana Corporation’sAutomotive Aftermarket Group(a worldwide manufacturer of motor vehicle parts)

RO B E RT N. P O K E LWA L D T *†

Former Chairman andChief Executive OfficerYork International Corporation(a manufacturer of air conditioningand cooling systems)

S. H . “ JAC K ” S H A R P E

Executive Vice PresidentMohawk Residential Business

*Audit Committee† Compensation Committee

Larry McCurdy Robert Pokelwaldt Jack Sharpe