莫霍克工業集團 (MHK) 2004 Q4 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Mohawk Industries fourth-quarter and fiscal year-end earnings conference call. (OPERATOR INSTRUCTIONS). I would now like to introduce Mr. Jeff Lorberbaum, Chairman and CEO of Mohawk Industries. Mr. Lorberbaum, you may begin your conference.

Thank you. Welcome to the Mohawk fourth-quarter conference call. With me I have Frank Boykin, our CFO, who is going to read the Safe Harbor statement.

Certain of the statements made during this conference call, particularly those anticipating future performance, business prospects, earnings and expense estimates, operating strategies, acquisitions, new products, the impact of military conflict and similar matters constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933. Estimates and forward-looking statements involve a number of risks and uncertainties. These or other uncertainties could prove inaccurate and, therefore, can be no assurance that the estimates or forward-looking statements will prove to be accurate. For those estimates and forward-looking statements, Mohawk claims the protection of the Safe Harbor for forward-looking statements as contained in the Private Securities Litigation Reform Act of 1995. Back to you, Jeff.

Thank you. The fourth quarter came in as we anticipated with earnings of $102 million and earnings per share of $1.52. The sales revenue improved 8 percent to 1,475,000,000. The fourth quarter was affected by our calendar change, which reduced sales by 7 percent and impacted our earnings even more. For the year, we had record sales of 5.9 billion, an 18 percent improvement, and earnings per share of $5.53, also an 18 percent improvement.

This year the industry sales were typical of those years rebounding from cyclical downturns. All product categories rebounded from pent-up demand with unit sales at historically high levels. I'm pleased by the way we have handled dramatic cost inflation by successfully increasing prices multiple times this year. Inflation during this year was greater than in any other period in history. All raw materials continued to increase in price along with energy and distribution costs throughout the year.

Even after our increase in October, the raw materials have continued to go up, and we are again raising prices in the carpet and hard surfaces in January and February. These price increases generally range from 3 to 8 percent. Given this environment of rising cost and our ability to recover these changes, I am exceptionally pleased with our financial results.

Frank, would you please give our financial report.

Sure, I would be glad to. As Jeff mentioned, our sales for the quarter came in at 1,475,000,000, which compares to 1,368,000,000 last year or an 8 percent improvement. All sales channels achieved positive growth for us with Lees impacting the quarter by about 2 percent -- the acquisition we did back at the end of 2003 -- and the fewer days in the quarter impacting the fourth quarter by 7 percent.

Our gross profit came in at $416 million or 28.2 percent compared to fourth quarter last year of 389 million or 28.4 percent. SG&A came in at 243 million compared to 215 million last year. That represents as a percent of sales in '04 16.5 percent versus last year of 15.7 percent. Operating income as a percent of sales came in at 11.7 percent compared to 12.7 percent last year.

I should mention the impact of the four fewer days in this year's fourth quarter compared to last year had an impact on the SG&A percent as a percent of sales. But if you looked at the SG&A percent for last year for the full quarter compared -- for the full year compared to this year, you get a more accurate picture of what really happened.

Operating income was also impacted by the fewer days. Interest came in at $12 million compared to $14 million last year in the same quarter, and our income tax rate was about 36.2 percent this year compared to about 36.5 percent last year. The improvement represents additional tax credits that we were able to take.

Net earnings came in at $102 million, which was about flat with last year and earnings per share came in at $1.52 compared to a $1.51 last year.

If you look at the segment information, the Mohawk segment sales came in at 1.1 billion, which was about a 7 percent increase with the Mohawk segment operating income at 11.2 percent this year in the fourth quarter compared to 12.5 percent last year in the fourth quarter. The Dal-Tile sales came in at 371 million compared to 335 or about 11 percent increase with operating income for Dal-Tile for the quarter this year at 13.9 percent compared to 14.7 percent.

If you look at last year -- full year this year compared to full year last year, net sales came in at 5.9 billion compared to 5 million last year, an 18 percent increase with margin coming in as a percent of sales at 27.6 percent versus 27.9 percent last year for the full year. And as I mentioned before, SG&A actually showed an improvement as a percent of sales this year at 16.8 versus 17 percent. And if you go down to operating income, it was flat 10.8 percent compared to 10.8 percent last year. Net earnings was 369 million this year versus 310 million or earnings per share of $5.46 compared to last year's $4.62, an 18 percent increase in earnings per share.

If you look at some of the accounts on the balance sheet, receivables 661 million this year versus 573 million last year with days down just a little bit in '04 compared to '03 and inventories came in at 1,018,000,000 versus 832 million last year with turns about flat or actually down just a little bit compared to last year. Long-term debt was 891 million at the end of this year, and that compares to 1,012,000,000 last year, which represents about a 25 percent debt to cap at the end of this year.

I will turn it -- I'm sorry one more thing I would like to mention briefly is just the results of our Sarbanes-Oxley 404 audit. Our assessment and the related audit of the Mohawk internal controls have been substantially completed at this point in time. The work is progressing as originally planned with no material problems identified, and all of the work that we have completed to date has been accepted by our auditors.

At this point, Jeff, I will turn it back over to you.

2004 was an excellent year for all our channels. The residential new construction business expanded from all-time highs, while the remodeling channel rebounded from the recession. As typical the commercial channel started expanding later in the cycle and continues to gain momentum.

The Mohawk segment continues to expand in all product areas. Even though oil prices seem to have peaked, the cross pressures have not subsided. The passing limitations are creating opportunities for margin expansion by our suppliers. The past year the carpet industry grew about 9 percent in dollars, of which about half was cost inflation and about half was unit growth. Both residential and commercial grew about the same rate for the industry.

Our Mohawk hard surface sales continue to grow at rates greater than the rest of our business. We continue to expand the product offerings to meet the needs of each market. We have completed our regional markets and find that our investments in local shows are improving our relationships and gaining commitment from our customers. At these markets, we introduced our latest Mohawk fiber brand called SmartStrand made with DuPont Sorona polymer. SmartStrand is a superior fiber with the resilience of nylon, engineered in stain resistance and an inherently soft feel. By offering the consumer this revolutionary product with the strength of the two most recognized brands in flooring, SmartStrand is being well accepted in the marketplace.

We continue to enhance our Mohawk retail selling systems, which include Mohawk color center, floor scapes and floors. Our customers are improving their business results using our complete consumer-focused marketing, merchandising, advertising and training. Our brand initiatives continue to improve the consumer's recognition of the Mohawk brand. Mohawk dealers have the industry's most comprehensive marketing tools available.

Our Mohawk commercial products are growing faster than our residential products in the fourth quarter. We believe this trend will continue into next year. Our carpet tile products continue to grow at a faster rate than our other product in commercial. The Lees business has been successfully incorporated into Mohawk and is in a growth mode focusing on differentiated value-added products.

To support our business this year, we are planning total capital expenditures of around $250 million. In the Mohawk segment, we are going to expand our fiber extrusion, yarn processing and warehousing. We recently completed the acquisition of Wayn-Tex, our carpet-backing manufacturer. The purchase of these assets enhances our position in the marketplace. Mohawk's requirements for these products exceeds the production of these facilities. We presently are implementing changes to improve the efficiencies and production of the plants.

The Dal-Tile sales continue their strong growth both in the residential and commercial channels. The growth is being driven by our new product introductions, investments in inventory availability, sales personnel, and renovated service centers. Our floor tile and stone products are growing the fastest within the Dal-Tile business. The Muskogee plant has been running at full capacity with an improving mix of higher value products.

To support our tile growth, we will have capital expenditures to increase our capacities in both the Muskogee and Mexican plants. Our balance sheet is strong with 25 percent debt to cap providing much flexibility for future investments. I'm proud to report that Forbes Magazine has recognized Mohawk as one of the 400 best companies in America. In addition, Sears and Home Expo have named Karastan vendor of the year ago, and Dal-Tile was voted "Best Experience" by the commercial designers.

The Company believes the economy will continue to expand, and the flooring industry should grow at historical rates this year. However, commodity prices remain uncertain, and the lag in passing them through to our customers will affect the short-term. After considering these factors, the first-quarter 2005 earnings forecast is from $1.03 to $1.12 earnings per share. I remain optimistic since we have demonstrated the ability to pass through cost changes to the consumers. We have a strong team managing our company that is focused on driving the business with profitable growth, and I am happy with our results this year.

With that, I will be glad to take questions.

(OPERATOR INSTRUCTIONS). John Baugh, Legg Mason.

Balance sheet -- if I calculated right for the year, your use of working capital was something close to 260 million. I sort of understand the receivables and inventory. I certainly don't understand why payables were down. Could you comment on that, and then maybe give us some help on what you would expect? You gave us the CapEx for '05, but what you would expect on working capital going forward?

John, the thing that impacted the accruals and payables was the timing of certain tax payments, the methodology that is used. Based on that, we ended up with timing being a little bit earlier this year on the tax payments.

Okay and then a comment about where you see inventories and receivables. If I told you that revenues were going to be up 10 percent this coming year, which would be about what, a 500 million, 600 million increase, what would your expectation be in terms of the use of working capital?

It would probably be similar. It might be down slightly. What's happened is we had been investing in inventories to support the increase in our different businesses. The Lees business, for instance, the inventory when we purchased it last year had been drained almost very low where it really could not operate the business. We have invested in more of our service inventories to help the growth of those businesses at the moment.

What else? As well as even some of the pieces at this time, the timing of new introductions. We are introducing products a little earlier than we have, so there is some inventories associated with those today as we go through. So I would think it might be slightly less than the dollars as those things even out through the year.

So when you say similar to slightly less, I mean you're comparing 260 million per unit. What kind of -- 200 million of the use of working capital? That would be a third of sales growth, which would be pretty high if it were up 10 percent.

We would not see it going up that much in '05.

Okay and lastly just on LIFO, what is your LIFO reserve? I assume that has been building. And what kind of P&L impact did that have in both the fourth quarter and calendar year '04?

It was immaterial, John. It did not have a material impact for us on the P&L.

In either the fourth quarter or the year?

That is correct.

You are on FIFO on ceramic, but LIFO on carpet?

Yes, on ceramic and hard surfaces we are on FIFO and then LIFO for everything else.

And even with escalation you had no issues on the carpet side on the LIFO?

No. Again, it did not have a material impact on the P&L this year.

Keith Hughes, Robinson-Humphrey.

Your comment on the new introduction with the DuPont fiber, does it have the better stain resistance of even polyester, is that the appeal of the product?

It has stain resistance. It is actually slightly better. It actually -- bleach in other things impact it differently. It has slightly different soiling characteristics, and if you would like, you are more than welcome. We will put you with our group to show you the various tests versus other fibers in the industry.

Okay, great. As follow-up, can you give us -- in the Mohawk segment, I know that shows your Mohawk Hardwood and laminate sales. Can you give us any kind of feel what is for 2004 you saw on that hard surface in the Mohawk segment?

The Mohawk segment has been growing at the hard surface at a faster rate than the rest of the business. For competitive reasons, we really don't break out individual products and specifics. And if you know we don't specify specific products in any other category, so we are going to refrain from doing it.

Okay. And just finally, you talked earlier in the year about price increases on ceramics tile at various points in the year. How did those go?

Those have been put through, and as I have stated, we have more increases going through as we speak in the ceramic also. It is affected by import costs in the Euro and different pieces, as well as by most -- a large part of the ceramic and other hard surfaces are sold FOB local destination. So you have to pass through freight changes through that mechanism also, as well as raising cost of energy and oil.

Margaret Whelan, UBS.

It is actually Steve Chunan (ph) on her behalf. The first question is --

Why don't you just put on a dress?

Let me ask this question first. Well, the first question is assuming spot raw materials prices going forward, do you have any visibility into when you expect your sales price increases, both the ones that pass through in '04 and early '05, to catch up with the higher raw materials prices?

Normally there is about a three-month lag plus or minus a little bit as you go through. So we are raising prices now. There is going to be another three months.

Okay, fair enough. The second question would be, the residential end market, what percentage now is going to homebuilders at the end of '04 and what is your goal for 2005?

If you look at the entire flooring industry, it is just under 20 percent if I remember the numbers right. I think it's a little less, 17 is the industry numbers. Mohawk average over the various product categories would be similar.

Okay. Is that a growth end channel that you're really focusing on during this year?

We continue to try to enhance our relationships with the builders in various channels, as well as other areas of opportunity in all the channels. We have individual groups focusing on every marketplace there is.

Okay. Thanks.

Aaron Robinson, Wachovia Securities.

First, I have a question about your leverage targets. What is your debt to cap target?

We are actually lower than what we would like to have on an ongoing basis. We don't have a specific number that we look at. We typically run it up-and-down. If you look at us over a period of years, it has run from the mid-40s down to the -- where we are today, and it tends to go bounce up-and-down as we do acquisitions.

Okay. So you're not really targeting here. You're just looking to stay within some range?

We are and then also we keep in mind potential future acquisitions and our desire to make acquisitions, and depending upon that, we save the cash for those opportunities at more or less different times depending upon what we see in the future.

Okay. So we should not expect the balance sheet to remain this conservative on an ongoing basis perhaps?

That is not the goal.

Okay. And second, we see that returns were up in 2004, but still below 2002 levels. We are particularly concerned here about the ROAC at Dal-Tile. It does not seem to be above the cost of capital at that unit. What is your plan to get that ROAC up above its cost of capital?

Anytime you do an acquisition and you pay a reasonable price for it, you will not meet the return on capital if you buy a good business, and the return on capital has improved every year since we have purchased them. The top line continues to grow. And we have chosen to continue investing heavily in the entire business to keep the growth rate up, which we think is the best thing for the business. And with that, we continue to invest in capital in order to increase the production capacity, increase the distribution system and the sales and marketing efforts to keep the business growing.

I mean it grew this year almost to 18 percent, most of it internal, and we think they are good investments. If we ever slow down the growth rate, we can push the return up significantly in a given year by doing that. But the plans show that over time it will continue increasing.

So you expect the IRR on that acquisition to exceed the cost of the capital employed?

It will over time.

Eventually we will get there, yes.

Thank you very much.

Sam Darkatsh, Raymond James.

This is actually Chris Thornsberry on behalf of Sam. I have got a couple of quick questions here. The first one is with respect to demand. I was wondering you mentioned in your comments and also in the release that your outlook for the flooring industry is to grow at historical rates. Could you kind of go into a little bit more depth as to what you mean there? Is that what we have seen over the last six to eight months or the last year? How does that pan how?

If you look at the industry, the industry does have cyclicality to it. And what you tend to see is that when the industry goes into -- when the economy goes into a recessionary period, consumers tend to slow down their purchases and postpone purchases, and in those times, the growth rate in the industry traditionally slows down several points. The same thing happened this year in the last cycle.

As typical of historical cycles as you come out of those, you tend to have increasing demand to make up for those pent-up demands. The same thing occurred this year with the new construction, different in other cycles, held at -- continued at high levels, but it also increased this year. And then you had a rebound in the remodeling business, and then you have seen also a rebound in the commercial business.

Now those things typically happen for a limited period of time. I don't know the exact moment. But they typically happen for a limited period of time of a year or so, and then it does not all fit in the calendar pieces. And then after that, it typically goes back to more historical rates, which if you look back over the last 10 years, the carpet has been growing about GDP level and hard surface has been growing in the 7 to 8 percent range. So we would expect more historical growth rates as we go forward.

Okay. That is helpful. Also, I'm curious as to what you have seen at Mohawk and your outlook going forward in terms of that demand picture with what we have seen in some of the industry data where we have seen units, especially in the last three months or so flat to down and dollars up. I mean do you think some of that stems from the price increases, and how does that factor into that picture?

We think it is not atypical. We think that the rate of growth is slowing in the carpet industry, which is typical of moving through the cycle. We think that the unit growth has been impacted somewhat by our calendar, because our numbers are in the industry's numbers. So because of the days that we moved to the first quarter, the industry numbers were probably overstated slightly in the first of the year, and they are understated slightly now based on Mohawk's calendar.

Then you have to be careful with those industry numbers. They are a reference point. There are differences in calendars and accounting policies and estimates that are done as they put those together, and they are a reasonable estimate over time but not in any given one moment.

Okay. All right. I guess moving on to in your guidance you do mentioned that the raw materials prices are uncertain. I just kind of want to get a feel for what your expectation is going forward into Q1? I know you're not forecasting that out, but are you forecasting -- is there a outlook for stabilizing raw materials prices? I know we still continue to see it in Q1 escalate, but what is your kind of outlook for the raw material prices for Q1 and going into '05?

My crystal ball does not work any better than yours. I can tell you that since the last price increase we have announced price increases in almost every raw material we use from fiber to resin to backings to latexes to chemicals, and they have all announced increases that we are paying. And what the future brings, I have given up guessing because I have been wrong.

Okay and just one final very quick question, more of a housekeeping issue. Could you tell us how much was in the reclassification, what you had this quarter? I know we have the restatements or the reclasses going back, but what would that amount have been just to kind of see what the change was, the delta was this quarter in terms of reclassifying in terms of revenues, SG&A and cost of sales?

I don't have that right here with me. Can I get back with you off-line?

That is all I have. Thank you.

David MacGregor, Longbow Research.

Can you quantify the higher raw materials and energy costs for 2005?

We're putting through price increases that range from 3 to 8 percent based on individual product categories, and they are not -- different products are going up different amounts. That should cover the differences in the prices of the carpet businesses.

On the other hand, we are also getting price increases and cost increases in our hard surface businesses, and depending upon which products, those also range in similar ranges from 3 to 8 percent. And those would include ceramic products, wood products, laminate products, as well as vinyl products.

So as we are modeling out our 2005 numbers, I'm just trying to think of how we should be modeling out the COGS line. Are you saying we should be taking our COGS line up from 3 to 8 percent?

The numbers should go up an average of those, which I don't -- to tell you the truth, I don't know exactly what it is going to be, because there is also, which we have talked about in prior discussions, that there tends to also be a change in product mix as prices go up. So some of the price increase is offset by it. If you look at the industry as a whole, the average prices have moved up somewhere about 6, 7 percent I believe for the total year, of which all the increases weren't implemented within the year. So there is a limited percent of increase as you overlap last year, plus the new increases that we are putting through. So all (inaudible) flowed through this year, offset by product mix changes.

Okay. Frank, maybe I can follow up with you off-line on this.

The second question had to do with cost pressures, and I was just wondering in your 2004 cost pressure if you could give us some insight on the extent to which that was distribution, logistics versus manufacturing? And also maybe to the extent you could provide us with some perspective on what you would expect in 2005? That would be helpful as well.

We don't normally give out the details, the pieces you're asking for, so we don't have them with us. The distribution costs in carpet are passed through to the customer in a selling -- in a cost of transportation that is put on each shipment. So it moves up and down with a different cost of oil and gas. On the hard surfaces side, a significant portion of it is put in the cost of goods, so as we price the items, those items are raised to offset those costs.

So in other words, would it be fair to say that the efficiency of the pass-through on the higher distribution and logistics costs is much greater than on the manufacturing side?

One more time on that.

I think --

Is it more efficient because you are just billing the distribution and logistics cost to the customer? Is that a more efficient pass-through of the cost than say on the manufacturing side where maybe you are more subject to market forces?

We have done the same thing as the rest of the transportation industry, which is we build in a cost that moves based on gasoline prices and goes up-and-down to offset those. And so that is more efficient than putting it through on the other one where it takes a longer period of time to implement them through the structure.

Okay. My final question was really with respect to the commercial business. I was just wondering if you could review for us some of the end markets -- retail, health care, education, hospitality -- some of those end markets and just give us a sense of maybe where you have seen a little more strength versus some of the others?

Different than the past. Almost all of the categories are improving, and we see them improving similarly with that. I think as we have said before, the hospitality and some of the other areas have started picking up a little earlier than the corporate segment. It was a tail, but they all seem to be growing to get together.

Vignon Krishnon (ph), Morgan Keegan.

Good morning. Can you comment on the health of your fiber suppliers, and do you see a need for taking our fiber suppliers in house to ensure supply in the long run?

Over the past years, the fiber suppliers' margins have been depressed. That depressed margin has limited their investments in the business. It has caused consolidation of those suppliers, and that consolidation has increased the tightness of supply in the industry.

With that, what is also happening in the industry is there is a mix change as various fiber categories become more or less value. Polyester has not increased as much as nylon, so polyester is growing in market share today as it has a better value than it has historically.

There is this new fiber type coming in which will also add some capacity to the industry. I believe ourselves and some of our competitors are adding new extrusion capacity to the industry to make sure that we have enough to support our sales levels. Each of the present owners of the business will have to make decisions what they want to do with the business or not as they go through.

Do you see any acquisition opportunities in this consolidated fiber supplier industry?

There is a potential for us to do a larger share of our extrusion than we do today. We can accomplish that through either adding capacity or purchasing existing capacity, and we would consider any or both if it gives us the returns that we think we expect.

Dennis Rosenberg, DSR Consulting.

Good morning. Are there any quarters that you would have more or fewer gains than a year ago?

If you look at the calendar, what happens is just about every year we lose a day in the first quarter -- we lose a day in the first quarter and gain it in the fourth quarter. And then over a period of time, we get so many days moved that you then have to reset the calendar. So this is not an abnormal event. It happens to us every I don't know six or seven years, that we move so many days, and we have to get the calendar straightened out or you have too many days in each quarter. But normally the one day is not enough to affect anything year-to-year on an ongoing basis.

Okay. But the fact that you had, was it four extra days in last year's fourth quarter and first quarter and four fewer in last year's fourth quarter, does that cause an aberration in this year's comparisons?

No. This year's comparison will be similar with the one day. There will be one different day, and next year there will be one different day and every other year there will be another day different until we restructure it again.

Rosemary Sasson (ph), BNT (ph).

I'm sorry. I had my mute button on. I apologize. On your acquisition of Wayn-Tex, I was curious in terms of whether you were going to disclose the cost of the acquisition and how much you might expect in savings over the course of the next couple of years from basically bringing that business in house?

We perceive Wayn-Tex as another opportunity to add additional backward integration, the size we are at that we can efficiently operate it. By operating it as an integrated business we can improve the cost structure of the business. We expect to utilize all of the capacity internally as we go through. When we look at it, we treat it like a capital expenditure rather than as a business acquisition, and it was looked at as either a purchase of existing assets versus greenfield and what are the return we expect off of capital expenditures. It is not a material expenditure to the business, and we feel that disclosing the specifics of it would not be good for competitive reasons.

Okay. Would you envision more acquisitions extending yourself vertically into this part of the business?

If it met our criteria for return on investment, we would consider acquisitions of this type as we do on an ongoing basis. This is not unusual. Historically we have bought extrusion plants from other people.

Now we don't typically don't talk about them as acquisitions. The reason that I guess we announced this one is we felt that there was some information flowing around the marketplace. And so in order not to have the marketplace confused, we announced it. But normally things like this we don't even announced.

But this is your first acquisition into this carpet-backing business?

This is the first one of this type.

Okay. Well, thank you very much.

(OPERATOR INSTRUCTIONS). Jessica Thom (ph), Goldman Sachs Asset Management.

Good morning. Following up on Rosemary's most recent question, I was wondering if you could provide a little more background on how you came upon the Wayn-Tex assets? Was it a case of the assets being really inexpensive, or were you actively looking into carpet-backing?

Wayn-Tex was owned by a fund, and the fund had been in their investment for a period of years. The fund was closing out. And in order to do so, they had to clean up their portfolio, and I think this might have been the last asset in it, so they were looking for a buyer.

In addition, the business prior to that, they had put investment in it, and Mohawk was a significant buyer of the total production. And over a period of years, e have had multiple conversations and they just concluded because everyone was ready.

Okay, great. Thank you.

Linda Newman, Post Advisory Group.

I have another Wayn-Tex question. Sorry to lob some many questions about this at you. But you said that you think you could -- it sounds like you think you can increase capacity there. I was wondering if you could tell us what kind of capacity utilization the asset was running at before, and how much expansion of capacity you think you could achieve with whatever investment you're planning?

We're not planning to invest any more capital at this point. We are planning to run the assets as efficiently as we can run them. We are looking at methods of trying to increase the capacity, which includes things like reducing the complexity within the plant by aligning them with our own assets to simplify the planning and scheduling, which will have positive improvement in the productivity and efficiencies of the plants, as well as just reducing the SKUs Mohawk uses since we now own those assets. It is beneficial to us to look at the product structure that we have within our own business. The combination of all those things will allow us to improve the business.

And in terms of the capacity utilization that it was running at before and what you think just operating better and more efficiently could gain you, my understanding is that carpet-backing in general is running in the mid-80s. Does that apply to this asset as well?

I cannot speak for the whole industry. There is potential for increasing the throughput of the business by running more hours on the equipment. Some of the equipment was running seven days a week and other equipment was running five days a week. At the moment, we are just trying to implement a structure between the two businesses to keep it operating well and not impact the business as we take over the management of it and to put in all those various efficiency changes that we have.

When we get beyond this, we will come up with new questions about, do we want to invest in more equipment to make it even more efficient? Do we want to invest in more equipment to expand the business? Those questions haven't answered, but the investment was not made based on those things.

Okay. And then in terms of just the benefits of reducing complexity, reducing SKUs and optimization of scheduling, I mean is that a sort of 0 to 5 percent gain that you think you would anticipate in terms of output or a 10 percent gain?

I don't have those numbers in front of me. Our people are working through those dynamics as we speak, and they really have not concluded how much they can simplify yet. But they have a plan for the first step, and that plan is being implemented as we speak. And then as we get to understand the business better with the employees within that business, we are putting together plans to take it to another level.

Okay, thank you very much.

Any more questions?

One moment please for your next question. At this time, sir, please proceed with your closing remarks.

We thank you very much. We are excited about our future. We hope potentially toward the end of this massive inflation that we have had for the past year. We don't believe it can go on forever, and we are excited about our position in the marketplace. Thank you very much for joining us.

Ladies and gentlemen, this concludes today's Mohawk Industries fourth-quarter and fiscal year-end earnings conference call. You may now disconnect.