莫霍克工業集團 (MHK) 2006 Q1 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the Mohawk Industries first quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS] I will now like to turn the conference over to Mr. Jeff Lorberbaum, Chairman and CEO. Sir, you may begin.

Thank you. Welcome to Mohawk's first quarter conference call. With me I have Frank Boykin, our CFO, who will read the Safe Harbor act.

I would like to remind everyone that our press release and statements we make on this call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which are subject to various risks and uncertainties, including but not limited to those set forth in our press release and our filings with the Securities and Exchange Commission. Jeff?

Thank you. Mohawk's first quarter net sales were about 1.9 billion in 2006, an increase of 29%. The net sales growth was primarily attributable to the Unilin acquisition, internal growth, and price increases. Adjusted net earnings for the quarter were about 72.9 million, 4% above last year, and $1.07 diluted earnings per share, 3% above last year. The adjusted net earnings excluded $3 million stock compensation charge which was not required in 2005. During the first quarter of 2006, a noncash LIFO charge impacted earnings by $14 million, or $0.13 per share, compared to 6 million or $0.06 earnings per share in the first quarter of 2005. Our GAAP earnings for the first quarter 2006 were 71.1 million and earnings per share were $1.04. The first quarter of 2005 were 70 million or $1.03 earnings per share. The earnings were impacted by the Mohawk segment which had higher than expected LIFO charges and lower growth in sales and margins for the period than we anticipated.

In the quarter the Mohawk segment experienced some moderation of our petroleum-based materials and energy costs from the prior period, which was affected by the hurricane. We continued to implement price increases in the Mohawk segment, which were initiated at the end of last year. We had anticipated better results and believe we'll see improvement in the second quarter. Frank, you want to give -- ?

Sure. Net sales, as Jeff had mentioned, for the first quarter of 2006 were $1.925 billion, or 29% over last year's net sales of $1.493 billion. Our growth for the quarter was impacted significantly by Unilin. The sales increase without Unilin would have been about 9% improvement. Gross profit for the quarter was $503 million or 26.1%, compared to last year's $385 million or 25.8%. We were favorably impacted in gross profit by the improved mix of traditionally higher gross margins with the Unilin and Dal-Tile businesses compared to the Mohawk business. This was offset by a $14 million LIFO charge in 2006, compared to a $6 million charge for LIFO in '05. LIFO impacted our gross margin by about 1% in 2006. SG&A expense was $352 million or18.3% of net sales compared to 17.5% of net sales in 2005. SG&A is higher this year due to option expenses, which were began for the first time in 2006. And in mix change with typically higher SG&A at Dal-Tile, where the Dal-Tile growth was very strong this quarter.

Our operating income came in at $151 million or 7.8% of net sales, comparing to last year's first quarter at 8.3% of net sales. Interest and other expenses were $43.1 million, up from $14 million in the prior year. Interest is up due to the Unilin acquisition debt as well as other expenses up due to higher ceramic joint venture minority interest charge, as well as Unilin Income taxes were $36 million compared to $40 million last year. We experienced a step change with an improved income tax rate, improving from 36.2% in 2005 to 33.8% in 2006. This was due primarily to acquisition tax planning that we were able to implement in the first quarter. We believe the Unilin tax rate will run somewhere between 16 to 20% over time. Our GAAP net earnings came in at $71 million or about a 2% improvement, with GAAP earnings per share coming in at $1.04 for about a 1% improvement. Adjusted net earnings before stock option expense came in at about $73 million or a 4% improvement and adjusted earnings per share at $1.07 or a 3% improvement.

If we look at the individual segments, the Mohawk segment sales came in at $1.151 billion or 5% over the prior year, primarily impacted by slower residential replacement business offset partially by price increases. Operating income for the Mohawk segment came in at $52 million or 4.5% of net sales compared to 2005 at 6% of net sales. Energy and raw material increases negatively impacted our margins and in addition we were impacted by the LIFO charge. The Dal-Tile segment sales came in at $474 million or an 18% improvement over last year, with all products and all channels experiencing positive revenue growth. Operating income for the Dal-Tile segment was $70 million or 14.7% of net sales, showing an improvement over last year's 14.5% of net sales. The Unilin segment sales were at $303 million with operating income at $40 million or 13.2% of sales. On the corporate segment, operating income, operating expense was $11 million compared to last year of about $500,000.

We traditionally average about $3 million a quarter for operating income for the corporate segment. This year the increase was due primarily to the expensing of options as well as intercompany eliminations and in some differences in timing of expenses when they're paid. Return to the balance sheet, receivables came in at $948 million, representing 45 days of sales outstanding, which was the same DSO that we had last year at the end of the first quarter. Inventories came in at $1.187 billion, representing turns of 4.8 times in 2006, that compares to 3.9 times in 2005. Accounts payable and accrued expenses came in at $1.033 billion, representing 66 days outstanding versus 63 days in 2005. Our total long-term debt was $3.2 billion, representing a debt to capitalization ratio of about 51%, improving from the 52% ratio we had at the end of the fourth quarter. We paid down approximate $60 million of debt during the quarter. Jeff?

Thank you. As we indicated on our last conference call, we expected a greater improvement in our sales and margins in our Mohawk segment than we achieved. The lower growth rate was primarily related to softer retail replacement business, which is our largest channel. The industry data for the first quarter indicated unit sales for the period were down almost 4%. We believe the commercial and new construction business was better than the replacement business for the industry. With slower sales, we saw more pressure on some opening price points and more aggressive promotional activity. The timing of price increases in January, as well as April of last year, is making comparisons more difficult to interpret. During the period, we managed our inventory levels and increased our turns versus the prior year. The cost trends during the quarter moderated slightly from the fourth quarter and natural gas prices declined as we progressed through the period.

The $14 million LIFO impact in the first quarter is a noncash charge that reduces inventory values based on an inflation factor from a group of external indexes. This charge reduces inventory value by increasing our cost of goods sold, which results in a lower profit in the period. We're presently assuming the charges in the second quarter will be limited, reflecting a more stable carpet and raw material pricing of the last few months. We do not have a basis for predicting the inflation rate of an outside index we use. During the quarter, we started up new manufacturing facility to increase our fiber extrusion and yarn manufacturing in South Carolina. A carpet padding plant in the northwest and two distribution centers began operations during the period. We completed the purchase of a carpet vacuum plant early in the second quarter. The carpet tile products continue to grow in our commercial offering. By the end of the year, we will have a new carpet tile production line installed to support this expanding market.

The carpet management team is implementing training programs using Six Sigma techniques to enhance the skills of our people and process improvement and lean manufacturing. We expect improving residential replacement carpet demand this year, which historically follows gains in the employment level and consumer confidence. In addition, homeowners usually replace their flooring at a greater rate, as people move less when interest rates go up. Our Dal-Tile segments results included strong sales and operating profit growth. All product categories performed well as this business unit continues to gain market share. Residential sales growth is outpacing our commercial growth as a result of increased penetration and a broader residential product offering. In the first quarter, Dal-Tile implemented a price increase to offset higher energy and transportation costs. The Oklahoma ceramic expansion is progressing as planned, while the Mexican plant expansion was completed at the end of last year.

We opened two additional service centers during the period. The management of Dal-Tile has transitioned smoothly to Harold Turk from Chris Wellborn, who was promoted to Chief Operating Officer last year. Unilin results included growing sales in both the U.S. and Europe, growing approximately 8% from 2005. The first quarter sales results were affected by some reduction at distributor's inventory levels due to shorter delivery times of as much as 4-6 weeks from the U.S. facility rather than from Europe. We believe our customer sales remain good in the quarter. We continue to expect limited growth in the second quarter due to continued distributor inventory adjustments. Our U.S. laminate plant expansion was completed during the period to support additional growth in the U.S. Our U.S. management team is in place, operating out of Dal-Tile headquarters in Dallas and we expect to see a benefit from broadening our strategy in the second half of 2006.

New products are being introduced under the Mohawk brand to increase our laminate distribution, and more will follow later in the year. The Unilin operating margin is lower in the first quarter due to seasonally lower sales, distributor inventory adjustments, higher wood and energy costs, and slightly lower laminate pricing. Price increases on board products are being implemented to reflect the higher wood, energy, and chemical costs. Due to these events, we expect margins to gradually improve to about 14.5% over the next few quarters. The Unilin tax rate is significantly below the rest of the business. Many capital projects were initiated in the first quarter by all segments, resulting in startup costs of approximately $11 million. In the second quarter that should fall to 3 to 4 million, primarily attributable to the startup of the new Muskogee ceramic production and the relocation of an additional distribution center.

We're continuing to aggressively flight a class action suit which was filed two years ago. The suit alleges, in violation of the RICO Act, that Mohawk and third party employment recruiters hired illegal immigrants to depress the wages of our employees. This week the Supreme Court heard our appeal to determine if the RICO statute should apply to this case. The allegations are unfounded and we are confident in our position if the case goes forward. During the period, we began expensing stock options resulting in a $3 million charge that was not required in 2005. Our balance sheet continues to improve as the debt to capitalization ratio was further reduced to 51%. Our inventory turnover improved to 4.8 times, from about 3.9 times in the prior year, due to better inventory management and the Unilin acquisition, which has higher turns in the balance of the business. We will continue to focus on debt reduction in the future.

The strong economy, along with improving consumer confidence, should positively affect our business in future periods. We anticipate growth in the commercial and an improvement in the replacement category with some slowing of the residential construction business later in the year. The recent change in oil prices has not presently impacted our raw materials. We cannot predict the affect on our cost or customer's demand in the future. After considering all of these factors, we estimate the earnings forecast for the second quarter to be in the range of $1.51 to $1.60. With that I'll be glad to take questions.

[OPERATOR INSTRUCTIONS] Your first question comes from David McGregor with Longbow Research.

Yes, good morning.

Good morning, David.

First of all, on Unilin, I wondered if you could just give us some commentary on the competitive conditions today in that market? And also the profitability on the quarter from Unilin, how much of that was from the quick-step versus the other building materials?

We don't break out by product category the different profitability of each piece as we go through. But we're seeing in the flooring business the same competitive things that we've seen before. The category we believe continues to grow. Our participation in the U.S. market, we have not seen any effect from the Mohawk purchase of the business. We're just getting sampling to our sales people to start showing our customers. It won't be until the second half until we see any impact from those and we will introduce more products as we go through. We don't see any significant change in the competitive nature of the business, at this juncture of that business.

Are you seeing weaker competitors at all that might be irrational in their behavior making it difficult for you?

We haven't seen anything different than we have in the past.

Okay. My second question, really is a higher level question. And I know in the past, there had been an interest in Armstrong. I guess the expectation at this point is that they'll be emerging from Chapter 11 some point later this year. It seems as though you may have your plate full right now, but I just wanted to get your sense of what kind of capacity you think you might have at this point for such an acquisition, be it management bandwidth or financial capacity?

When we made a decision to purchase the Unilin business, that is going to keep us from making any large investments for a period of time until we can get the debt down in the future. Our basic, we would expect to do smaller acquisitions and if there was anything of significance, we would have to do it with stock, if we chose to do anything at all.

Thanks very much.

You're welcome.

Your next question comes from Eric Bosshard with Midwest Research.

Good morning.

Good morning, Eric.

Two things for you. First of all, you made a comment in your prepared remarks, I believe, on Mohawk that the first quarter was a little worse than expected and you thought the second quarter would be better. If I'm interpreting your comments right, can you give us some sense of why you think 2Q gets a little bit better?

Several reasons. One is that we have the normal seasonal improvement in the business, which always occurs as we go through. We have the raw material cost up into this point fairly been stable. We don't see them changing over night. We think that the pass through of the price increases will be implemented much more substantially than they were in the prior period. And we have reduced our inventories to increase higher turns in the first quarter, and so we think that some of the plants will be running a little more positive volume variances as we have focussed on reducing inventories in the first quarter from the prior year. We think all those things will have a benefit to our business.

Have you see reorder activity in the last 30 or 45 days that gives you confidence in this taking place? Is that a portion of why you're bullish on better performance in 2Q volume wise?

Given the information we have, we think that in our internal estimates that the sales levels and margins are reasonable given everything we see now. And we are not forecasting dramatic changes to reach the levels of our internal forecast.

Okay. Secondly, you talked about Unilin at a 14.5% margin. I guess the questions that I have. First of all, is that the run rate we should think about for 2006 or is that the number we should get to by year-end? And secondly, as we look forward in that business, is that the number we ought to think about that sustaining or how should that margin potentially deviate from that in the next couple of years and why?

Answer to the first question is we think it will get to that by the end of the year. Gradually improve to that. We think that for those same reasons we talked about, the seasonality, the adjustments in the inventory, the higher raw materials are affecting the prices at this point. We will continue to invest over the year in order to improve the sales volume of the business. And it's not out of the range that we had given originally. The range we said, we expect the business to be in the 14.5 to 15% range was the information that we had given out prior to this. So what's happened is, it is a little lower now, we think it will take a little time to get it back up to where we expect.. We expect it to improve.

As we think about the next year or two, is there anything you can do to enhance that margin? Or should we think about you sustaining a 14.5 or 15% margin and driving the top-line?

Difficult to say at this moment because of the -- as we grow the business, we're going to have to increase the product mix and depending upon how the product mix shifts, lower margin items -- we'll sell a higher portion of lower margin items in the growth area as we go on, as we expand into all categories. So that will have a downward trend on it. Near term, we expect them to come up. If you look over the long-term trend, though, we would expect the spend in the market to lose some. On the other hand we expect to improve some efficiencies and productivities as we go through.

And then we'll see margin dollars growing too, Eric.

Okay. And then just one last question. The tax rate, should we think about this 33.8 as the tax rate going forward for a while?

Yes, I would say, it's, from a consolidated standpoint, going to be in the mid 33 to 34% range.

Thank you very much.

You're welcome.

Your next question comes from Michael [Rehart] with JP Morgan.

Hey, guys, this is Ray Klonon for Mike. Just wondering if you guys could provide a little bit more granularity between the residential new construction and the replacement business. I know you said there was lower sales growth in replacements but was that growth negative?

Going back to the industry unit numbers, the industry was off 4% in units. With that, the new construction business and the commercial business were better, so that the replacement business, we believe, was off more than more than the 4%, approximately 4%.

Okay. And then for Dal-Tile, you're continuing to see like strong top-line growth. Wondering if you could break that out by channel? And given the recent trends, what do you expect for '06?

I don't have it. I can give you the same high level view that the residential business is growing faster than the commercial business, the commercial business is continuing to grow. Our internal expectations as we go through the year is that towards the end of the year that the new construction piece will slow down and it will be difficult to maintain these high levels of growth in a business that is as large as ours is even under the best of circumstances over time. We're pleasantly surprised with the growth we've been able to achieve the last few quarters.

And then finally, if you could breakout by price and volume by your different segments your top-line growth?

We just break it out by the segments, which are in the data.

Yes, we don't handle that level of detail on the segments.

Okay. Thank you.

Your next question comes from Margaret Whelan with UBS.

Good morning, guys.

Good morning, Margaret.

A couple of kind of housekeeping questions, because you've touched on a lot of the stuff already. The 14.5% margin [INAUDIBLE] run rate by the end of the year, does that imply that you won't be there until the fourth quarter?

Yes.

And is that then your goal for sustainable margin or is that just because if the inflation in commodities this year?

Ask the question again, I missed part of it, I'm sorry.

the 14.5 just seems low relative to the price that you paid and the margin that we were expecting. I'm just wondering, is it lower because of higher commodities in '06 that so you weren't expecting?

You start out with it the first half of the year, you have the cost pressures that we described. You have a reduction in sales from significant inventory differences due to the number of weeks it takes. We can deliver products to our customers in the United States in days now where it used to take weeks. In the first half of the year, we're going to have a substantial reduction in the pieces. In going through and growing the business, we're going to have investments in SG&A and sampling and pieces to put out new products in the business. Those are all normal things you do to grow a business.

I just thought it was more established.

The direction that we had given back, I think in January?

Yep.

Was 14.5 to 15 based on the information that we gave you. If you went through the calculation, it came out 14.5 to 15, so we're at the lower end of it given the circumstances.

Okay. And the second question I have is about your margins in the carpet group at 4.5. Have you rethought the opportunity to hedge some of your commodities given the level and velocity of inflation over the last couple of years? Chance for it to increase again.

In our specific industry, there are no direct hedges that you could do. The only way to hedge it would be to go to a family of different product categories and do those and assume that they relate similar to ours. We have not considered that as a good option.

In the past, but given where oil is now, would it not make more sense to relook at it?

We would have a hard time getting the accounting treatment we need for hedges, too, Margaret.

The other side of the question is there are as many people expecting oil to go down as going up. And if you hedge them and it goes down, you have a new problem.

But at 4.5% you're barely covering your cost of capital.

We expect the margins to increase as we go through the year. As you look at the period, it's always the lowest period. You have about 1% that's in LIFO and for all practice purposes LIFO has nothing to do with our business.

No, I understand that. It's hurting you. But where do you think your margin will be? You gave us the details for Unilin, where do you think it will be for carpet for the year?

We only give out -- the reason we gave out the Unilin, you don't have any historical numbers by the quarter end piece and the rest of our businesses, you have years worth of data to look at.

Yep.

So we were trying to give some indication since there was none to use for Unilin. As we have in the past, we give out the next quarter's estimate, which has all of the things built into it that we're aware of.

The other way to look at it, Margaret, is last year's margin '05 was about 8%, which is about 200 basis points less than what it had been the years before that. About half of that decline was related to LIFO and the other half was raw material and the lag situation we've got.

I understand that, but the commodities have jumped again, so can we expect that it's another 200 basis points down?

At this point, we haven't seen the commodities jump that we're purchasing.

Okay.

So it's too early in the cycle and we don't know, I mean -- I don't know what oil is going to be next week. I have no way of giving you a rational answer. If you know, I would like to know.

No, but I'm not the one running the business. It just seems like maybe you could stay on top of it a bit better. Second question I have is about your corporate elimination. Should we be modeling in about $11 million a quarter, Frank -- ?.

No, I think a lot of that is timing. So if you said last year we averaged about $3 million a quarter, Margaret. Even though it showed 0.5 million for the first quarter, if you go back and average it you get a 3. The you add in the stock options and you add in some amount in there for the eliminations, you're probably going to average something 6, 7 in that range, something like that.

On a quarterly basis for the rest of the year?

Yes, that's an average.

And just lastly, I'm just trying to figure out what your free cash might be for the year. Is your D&A going to be about -- ?

I meant to mention that in my presentation. CapEx is running at 300 for the year. D&A we're expecting to run about 285.

Thank you, guys.

Your next question comes from Laura Champine with Morgan Keegan.

Good morning.

Good morning. I'm trying to reconcile what we're seeing in some other places with your expectation for residential replacement demand to improve. Can you give us what your best guess is, the reason for the weakness over the last few quarters in residential replacement demand?

They are just going to be observations, which I mean you're aware of. Which is at [INAUDIBLE] the consumer confidence was lower, the consumer confidence has been improving. The discretionary incomes, we think, have been squeezed somewhat. As we look forward, what we expect is that we're in the normal part of a cycle and historically as we've gone through the cycles, you've had interest rates increase in every other cycle and our business continued to grow through the cycle - continued on with the cycle. We are seeing improved consumer confidence, we see the wages continuing to improve and the economy. So our expectations are that some of the postponement that's been going on in the purchasing of our products will ease as we go through. But it's assumptions that we're making.

And Jeff, historically, has there been a better correlation between carpet sales and consumer confidence and employment than there has been with interest rate. What I'm trying to get it is the weakness that we're seeing because about 6 months ago ReFi's and home equity loans hit a wall? Or is it true that consumer confidence and employment are a stronger driver over time?

Historically, we've said that interest rates were more a driver of the new construction piece and that consumer confidence, the economy, and income growth were more driver of the replacement part of the business.

And could you just remind me how much of you business right now is new construction, residential?

It's about 15%. Somewhere around there.

If you look across the whole business it would probably be in the 15% range.

That compares to the residential replacement driven part of your business, what percent is that?

55 - 60.

Thank you.

Your next question comes from Keith Hughes with Robinson Humphrey.

Yes, thank you. Just really quickly back on this hedging issue. Has it not occurred, otherwise five or six years we've seen periods where crude oil, which would be the obvious one you could hedge with, has gone up and your prices have been flat or gone down. Similar to what we have seen the last couple of months. Has that not happened at times?

I'm not sure what you're asking me.

I guess my point is that you've seen, you've seen crude move up substantially in the last couple of years. But in the last sort of ten years, your prices have not always matched the incremental tick up and down of crude prices. Is that not fair to say?

That is correct.

So it would make it very difficult to hedge even on a basket of future contract or something along those lines. And that's the reason you don't do it, is that correct?

From an accounting standpoint, you can't find anything that correlates closely enough with our raw materials.

Okay.

But then the other question is that there's also supply and demand at the intermediate chemicals and you can have the two of them going in opposite direction.

That's my point, exactly.

And the same piece is that, if you choose to use the hedges and call them wrong, it hurts as bad going down as it does going up.

Good point. On the Unilin business, is your initiatives -- since you bought the business, as you talked about earlier, is it fair to say that really '07 is the year we'll see the impact of those on the income statement if they're successful?

It will take us through most of '06 to implement and execute opportunities from the Mohawk side that they wouldn't have had. And so most of it will go in -- we're expecting to see some sales impact in the second half, but we're just now starting to get some new products to the street on the Mohawk side, just to show them. They're not in the stores yet.

Right.

There will be more coming a few months later. And then to get them to use them, there's a process to do that. So we will see some benefit in the third quarter, but you won't see significant until the fourth quarter and beyond.

Okay. And part of the story here Unilin is continuing to ramp up at the new facility in North Carolina. What kind of capacity rates are you running out there in the first quarter?

Probably in the 70% range.

And I guess the margin move up is part of -- the margin ramp up you talked about earlier in the call is part of that filling up capacity because it's a fairly low utilization rate?

The probability of running it at 100% continuously is not -- the goal won't be to run the thing at 100 wide open all of the time, you have to have some fluctuation in it as you're bringing them up and putting new products on and getting it work. And what we do is we're going to use the capacity in Europe to supplement the U.S. marketplace.

Okay. All right. Thank you very much.

You're welcome.

Your next question comes from Alex Mitchell with Scopus.

Good morning.

Good morning.

I just want to follow-up. I guess the initial --

Could you speak a little louder, please.

Sorry, sorry. The initial year guidance actually was 36 and now it's basically 33.5?

No, we didn't really give any guidance for the year.

Okay. So it's 33.5 and the -- .

Yes, it's been running in the 35 to 36% range and now we're saying that the guidance is going to be, for the year, in the 33.5-34% range.

Okay. And is that what you're using for the guidance that you've given for the last quarter?

Correct.

We should use somewhere between 33.5 and 34 for the next few quarters? And just on the laminate business, do you have any idea how much North American capacity has been start up this year or how much you anticipate?

the total industry?

Yes.

I do not have that number at my fingertips.

Okay, does 10% increase in capacity sound about right?

Are you including ours as new this year or new last year?

Oh, well -- I've just seen a number that said 10% so far this year. I'm not sure what went into that so --

Okay. Mohawk's -- the Mohawk Unilin group, we've added recently like 100 million square feet ourselves. And then there's other capacity beside us being added, so it could be in the 15%-20% range.

Okay. And, I guess that figures into your lower margin guidance in Unilin.

We believes going to happen in the laminate business is there's going to be a higher proportion of laminate manufactured in North America versus a large portion of it coming from Europe. And over time what we believe is, there'll be several large vertical producers producing large shares of it where significant portions have been being imported the last five years.

Okay. Now, Shaw is a licensee of Unilin technology?

Yes.

And have they indicated at all whether they're going to stop being a licensee and adopt other technology?

You'd have to ask them.

Okay. Okay. That's all I have, thanks.

You're welcome.

[OPERATOR INSTRUCTIONS] Your next question comes from John Vall with Stifel Nicolaus.

Morning.

Good morning, John.

A few Unilin questions. I think you said revenues are up 8%? Is that correct?

Correct.

Okay, could you give some color U.S. growth versus Europe, dollars versus units, and just some kind of flavor for how the European laminate business is doing as well as the European building products business?

the European business did better in the first quarter than the U.S. business. The U.S. business is having this reduction of inventory that's going on between the businesses. So the European business is actually at a greater rate than the U.S. business. There is some exchange rate differences that the exchange rate is a little weaker, so the actual unit growth is a little greater than the dollar growth due to exchange rates. What else can I tell you? What else did you want to know?

The laminate piece in Europe, was that up a lot more than the building products or about the same? Get that?

Yes, I'm trying to -- it was up, it was up more than the building products. The laminate business was up more than the other board business.

Okay. And then, Frank, on interest expense, could you walk through the components of the debt, the 3.2 million, and give us a little help on modeling interest expense going forward?

Well, we're probably for the quarter we were probably at an average rate of about 550 or 560.

And will that stay there with short rates having risen or?

Yes, if short rates go up, then we'll go up.

Our bank debt we are at LIBOR plus 75.

And what's that piece again?

I don't have that off the top of my head, I'll have to get back with you on that, John.

Thank you, good luck.

Thank you.

[OPERATOR INSTRUCTIONS] At this time, there are no further questions, I would like to turn the conference back over to management for any closing remarks.

Thank you very much for being here. We appreciate your support. I will continue trying to operate the business well. Have a nice day.

Ladies and gentlemen, this concludes today's Mohawk Industries first quarter 2006 earnings conference call. You may now disconnect.