Frank Boykin – Chief Financial Officer Jeff Lorberbaum – Chief Executive Officer.

Bob Wetenhall – RBC Capital Markets John Baugh – Stifel Keith Hughes – SunTrust Sam Eisner – Goldman Sachs Mike Dahl – Barclays Scott Rednor – Zelman & Associates David MacGregor – Longbow Research John Lovallo – Bank of America Kathryn Thompson – Thompson Research Group Stephen East – Wells Fargo Sam Darkatsh – Raymond James Eric Bosshard – Cleveland Research Company Laura Champine – Roe Equity Research Stephen Kim – Evercore ISI.

Good morning. My name is Sally and I will be your conference operator today. At this time, I would like to welcome everyone to the Mohawk Industries Fourth Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period.

[Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Friday, February 10, 2017. Thank you. I would now like to introduce Mr. Frank Boykin. Mr. Boykin, you may begin your conference..

Thank you, Sally. Good morning, everyone, and welcome to Mohawk Industries quarterly investor conference call. Today, we’ll update you on the Company’s results for the fourth quarter and full year of 2016 and provide guidance for the first quarter of 2017.

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

This call may include discussion of non-GAAP numbers. You can refer to our Form 8-K and press release in the Investor Information section of our website for a reconciliation of any non-GAAP to GAAP amounts. I’ll now turn the call over to Jeff Lorberbaum, Mohawk’s Chairman and Chief Executive Officer.

Jeff?.

Thank you, Frank. Mohawk delivered record results in 2016. For the full year, our revenues rose to an all-time high of $9 billion, an 11% increase. We generated adjusted operating income of $1.3 billion, up 24%. And our EBITDA for the year rose to $1.7 billion, both the highest in our history.

Mohawk’s performance in 2016 is the result of an aggressive growth strategy we began in 2013. From 2013 to 2015, Mohawk invested $4.8 billion in capital expenditures and acquisitions, growing our sales and operating income at a compounded rate of 12% and 38%, respectively, over that period.

Of the $4.8 billion, $1.4 billion was invested in capital expenditures to expand sales, introduce innovative products, and increase productivity across the enterprise by $300 million in that three year period. While making these capital investments, we also acquired nine companies for $3.4 billion.

The acquisitions expanded our ceramic sales in the U.S., Mexico, Europe, and Russia; our laminate and wood sales in U.S., Europe, and the South Pacific; our vinyl and LVT sales in the U.S. and Europe; our insulation and wood panel sales in Europe. During this period our adjusted EBITDA increased by $720 million.

In 2016, our capital investments were the highest ever at $670 million. This year we will escalate the capital investments further to $750 million, yielding a combined 2016 and 2017 investment of over $1.4 billion, approximately the same amount we invested in the previous three years.

The largest part of these new investments is dedicated to expanding our manufacturing, adding the equivalent of $1.4 billion of product sales, which is a standalone company would rank among the largest flooring producers in the world.

We are also adding unique capabilities to bring out more differentiated products and further enhance our productivity. In 2016 alone, process improvements from new methods; product re-engineering and equipment upgrades increased our productivity by $140 million. We anticipate even higher productivity improvements in the coming year.

In December, with the election behind us, U.S. consumer confidence rose to its highest level in 15 years setting a positive tone for 2017. U.S.

housing starts in 2016 rose to their highest level since 2007 and the National Association of Homebuilders has projected another year of steady improvement in the housing market as wage growth and rising home values lead consumers to commit, to larger home improvement projects.

Harvard University, likewise, cites higher home values as a driver of strong and stable growth in home remodeling and repair spending. The LIRA Index is projected to rise during 2017 on par with last year. The AIA reported that the last three months of 2016 posted growth in design billings.

The Architectural Billing Index recorded its strongest gains of the year in December. The strong close to the year should support commercial growth in 2017. In Europe, job creation and low interest rates improved GDP growth to 1.8%. The Russian economy is projected to improve in 2017 as oil prices increase and the ruble strengthens.

In the fourth quarter, our sales grew 9% with an adjusted operating margin of 14.7%, an 80 basis points improvement over the prior year. Our sales and operating margin represent the highest fourth-quarter results in the Company’s history. Business improved sequentially as we went through the period with the completion of the U.S.

elections and rising consumer confidence. I will now review our fourth quarter results by segment. During the quarter, sales in our global ceramic increased 5% with adjusted margins rising to 14%, an 80 basis point improvement over the prior year.

Sales in our northern American ceramic business improved with new construction, commercial and home center channels outperforming. During the period, our margins expanded due to productivity, volume, and improved mix from new product introductions.

In our regional sales centers, merchandising investments that highlight our new collections expanded our sales. We are simplifying our interactions with our distributors by merging the salesforce of Marazzi and American Olean brands.

In geographies where we don’t distribution partners, we are investing in combined American Olean and Marazzi service centers. We are adding new slabs centers to expand our countertop business. Our larger sizes, contemporary shapes, and proprietary Reveal Imaging are driving our sales growth.

Our design and service leadership has expanded our new home construction, national accounts and home center programs. To meet growing demand in North America, we are using both our global assets and international sourcing to supplement our domestic production.

Our Greenfield ceramic plant in Tennessee became fully operational during the period and should reach planned efficiency levels in the first quarter. We’re introducing higher-value products at the facility to improve the product mix in the plant.

During the period our productivity benefited from process innovations, improved yield, and product reformulations. In the period, we successfully replaced our U.S. information system with SAP. Our new system is operating well, improving reporting and productivity.

To offset inflation in labor, energy, and materials, we have announced price increases on selected products. In Mexico, our sales grew significantly, but we were constrained by our existing capacity. Our expanded product offering is driving sales and margin improvement, as well as expanding our participation in the commercial channel.

Our Salamanca plant expansion will double the site’s capacity and should be operational by late 2017. In anticipation of higher volume, we are increasing our sales organization to expand our Mexican sales and exports to Central and South American markets.

We have implemented price increases to cover labor and energy inflation as well as currency changes. Our European ceramics sales and margins improved, despite market softness in the beginning of the quarter. We have completed the transformation of our European product offering and become a leader in style in the marketplace.

We have increased commercial tile inventories in the fourth quarter so we can stop production and replace high-cost equipment during the first quarter. The plant will resume operations in the second quarter and should be operating at expected levels by the end of July.

We are expanding our sales and specification organization to increase our penetration in the commercial channel. We are installing new technology to manufacture large porcelain slabs for countertops, furniture, floors, and wall. Our unique Reveal Imaging technology will allow us to replicate natural stone, wood, and other visuals on these slabs.

Our Eastern European operations continue to grow their sales and expand margins. Our new introductions with higher fashion and larger sizes should improve our mix and productivity improvements should increase our manufacturing capacity in 2017.

To enhance our process and controls, we anticipate implementing our Italian ERP system in Bulgaria in the second quarter. In Russia, we continue to outperform the market as we bring leading global design to the region. We have expanded our branded retail stores and consumer advertising to enhance our offering.

We are upgrading our assets to bring larger and smaller sizes to the marketplace. We continue to strengthen our organization and specialize our sales, marketing, and manufacturing to optimize our penetration in all channels. We are installing additional capacity to support the expected improvement in the Russian economy.

During the period, sales in our North American flooring business segment increased 10%, with hard surface product sales substantially increasing and carpet and rug products performing well. The segment’s adjusted operating margins expanded to 15%, a 90 basis point improvement over the prior year.

Fourth-quarter sales began slowly and improved as we progressed through the period. Our results benefited from volume, process enhancements, and capital investments. Residential carpet sales improved despite decreased selling prices that reflected channel mix and growth in polyester.

Our price increase of 3% to 5% that we announced last quarter to cover rising costs is being implemented in the first quarter. Most of our 2017 markets have been completed and retail expectations for the year are the strongest since the industry peaked. Timing of shows and price increases improved our sales in our sales in the period.

We introduced the next generation of super soft carpet called SmartStrand Silk Reserve, which elevates carpet softness to an unprecedented level. Sophisticated new fabric designs are expanding our Karastan offering as we increase the distribution of our premium brand.

We are introducing Aero, a patented recycled polyester technology that produces a unique, more luxurious soft flooring product with a built-in cushion that installs in half the time. Our new carpet pad plant in Mexicali has started and we will increase our cushion sales on the West Coast.

During the period, our commercial business grew faster than residential. The investments we made last year expanding our products and sales organization are increasing our market share.

In November, interior designers voted our new Topography carpet tile collection as the best modular carpet of the year for versatile looks made possible with a combination of sizes, shapes, and textures.

To improve efficiency, we have consolidated two of our commercial manufacturing operations and we are enhancing our productivity and service through ongoing process improvements. We opened a new commercial carpet and hard surface design center that highlights our style and sustainability leadership and promotes innovative uses of our products.

Our hard surface sales, which include LVT, laminate, wood, and vinyl, continued their dramatic expansion. Our Dalton LVT plant made significant improvements during the period and we are installing another LVT production line that will double our U.S. capacity by the end of this year.

We are introducing SolidTech, a rigid product to complement our existing LVT collections. Our premium laminate products, with realistic visuals and proprietary water resistance, are outperforming the market. Our laminate sales will be constrained until our new production line is operational in the second half of this year.

We’re introducing more refined visuals and longer engineered planks that replicate solid wood at our newly- commissioned plant. We are enhancing our shape vinyl offering as we expand our residential and commercial distribution and increase our share in the home center channel.

This year we will continue elevating capital investments in this segment to enhance our product innovation, capacity, and productivity. We anticipate increased sales and marketing investments to utilize the capacity we are building in LVT, laminate, and engineered wood.

During the quarter, sales in our flooring rest of the world segment increased 14% with adjusted operating margins rising to 17%, an 80 basis point improvement over the prior year, excluding restructuring costs. Our sales growth was led by LVT laminate and insulation products.

Both our sheet vinyl and wood sales were hampered by prior manufacturing disruptions, which we have overcome. Our segment margins increased due to higher volume and productivity, the success of our new introductions, and price increases, which offset inflation and currency.

Our LVT sales growth remains constrained by capacity limitations to maximize production, we’ve implemented numerous operational improvements that increased our throughput and reduced our manufacturing costs. In the short term we are expanding the sales of source products to meet the increasing demand for our brand.

Increased production capacity and reduced shipments to the U.S. will support our European growth this year. We continue to invest in sales and marketing to expand the distribution of our LVT products in anticipation of our new plant. In laminate, we continue to grow our sales and margins through design and performance innovation.

We have the most realistic visuals, the greatest durability, and unique water resistance that differentiate our products. We are introducing new wood collections with unique surfaces and longer, wider planks. We are improving our wood manufacturing and we have begun production of wood veneers to improve our cost position.

In vinyl, all of our production is running at capacity and we are replenishing our inventory levels to improve our ongoing sales after the plant disruptions. We are introducing more realistic sheet vinyl designs with sharper detail, brighter colors, and enhanced textures, as well as introducing vinyl rugs.

We are initiating the sale of carpet tile products in Europe, which is a market of about €500 million. We are building a plant in Belgium and it should be operational by the end of this year. We are adding sales personnel to specify our LVT, sheet vinyl, and carpet tile to grow our commercial participation in Europe.

In addition to the expansion of laminate in Europe and Russia and our new European carpet tile facility, we have approved the construction of a sheet vinyl plant in Russia adjacent to our ceramic facility that will be operational in the middle of 2018.

Sheet vinyl is one of the largest flooring categories in Russia and we will leverage our relationships in ceramic and laminate to build our sheet vinyl distribution. During the period, the sales of our insulation products increased significantly and we realigned our management and sales strategies.

We are integrating the information systems of our Irish acquisition and increasing prices to offset inflation and currency changes. We continue to enhance our board manufacturing processes and equipment to improve our costs and sales. I will now turn the call over to Frank to review our financial performance for the period and the year..

Thank you, Jeff. Net sales for the quarter were $2.2 billion, up 7% on a constant days and FX basis for our legacy business. For the full year, legacy sales were $9 billion, which was up 5.5% on a constant basis. All segments increased in the fourth quarter with the strongest performance in our flooring North American segment.

In the fourth quarter of 2016 we had one more day compared to 2015. In 2017 we have different days in the U.S. and Europe due to holidays. The overall impact is we will have one half-day less in both the first quarter and the second quarter compared to 2016, and the third and fourth quarters of 2017 will be the same between the years.

The legacy gross margin, excluding unusual items, was 32.4%, up 50 basis points. Volume of $33 million and productivity of $24 million where the biggest drivers of that improvement.

SG&A was 17.5% of net sales, excluding unusual items, which was a 50 basis point improvement over last year and that is even with sales and marketing investments of $8 million. We expect the SG&A percentage in 2017 to be flat to slightly lower versus 2016 as we continue to invest back into the business.

Unusual charges for the quarter were $16 million and primarily came from plant consolidation in the flooring North American segment and acquisition integration activities in the rest of world segment. Operating income, excluding charges, was $321 million, with a margin of 14.7%.

The income is up 16% versus last year, even with FX pressure of $5 million and SG&A investments of $8 million. We had total productivity in the quarter of $29 million at operating income level.

Interest expense was $8 million and decreased from last year due to the redemption of higher-rate bonds in January 2016 and the introduction of our lower-rate commercial paper program. We expect interest expense to range from $33 million to $36 million in 2017. Other income was $2 million and was favorably impacted by FX.

Both 2016 and 2015 include the unwinding of an indemnification receivable recorded in the IBC purchase accounting of $3 million and $11 million, respectively. The income tax rate was 23.6% for the quarter versus 18.7% last year.

The tax rate for 2017 for the full year is estimated to be between 26% and 27% and for the first quarter is estimated to be 26% to 26.5%. Earnings per share, excluding charges, was $3.26, an increase of 16%.

Turning to the segments; in the global ceramic segment sales of $749 million were up 5% using constant days and FX, as new products and sales and marketing investments drove growth. Our operating income, excluding charges, was $130 million and improved 12% over last year.

We had productivity of $10 million, volume of $8 million, and price mix of $5 million that all favorably impacted our results. This was partially offset by inflation of $8 million and SG&A investments of $3 million.

In the flooring North American segment, sales are $970 million, up 8.5% using constant days, with all products categories performing well. Operating income, excluding charges of $148 million, improved 17% over last year.

Earnings increased from volume of $17 million and productivity of $11 million with price mix of $7 million and SG&A investments of $4 million as headwinds. In the flooring rest of world segment, sales were $463 million. That’s up 7% using constant days in FX for our legacy business, with LVT growth outpacing all of our other categories.

Operating income margin excluding charge – operating income, excluding charges, was $80 million, which is up 20% as both volume of $9 million and productivity of $8 million added to our earnings.

IP income in this segment for the quarter was flat year-over-year and the full-year income came in at $148 million as we received some delinquent payments from prior years. As a reminder, IP income will drop to $65 million to $70 million in 2017 with a $35 million run rate, annual run rate beginning in June.

If we go to the balance sheet, receivables ended up at $1.4 billion with our days sales outstanding increasing up to 58 days, due primarily to changes in channel mix. Inventories ended the quarter at $1.7 billion with our inventory days improving by two days to 110 days as we continue to drive inventory management.

Fixed assets were $3.4 billion and included fourth quarter capital expenditures of $211 million and depreciation and amortization of $104 million. For the full year, capital expenditures were $672 million and depreciation and amortization of $409 million.

For the year, we had very strong operating cash flow of $1.3 billion and, even with our elevated capital expenditures, we had free cash flow of $655 million. Capital expenditures for 2017 are estimated to be approximately $750 million with D&A at $450 million.

We had total long-term debt of $2.5 billion as we continue to improve the balance sheet with our strong cash flow. Moody’s upgraded our rating to Baa1 in January as our credit position continues to improve. Our strong balance sheet and liquidity position us well for future growth. Jeff, I’ll turn it back over to you..

Thank you, Frank. Today Mohawk is in the best position in the Company’s history. Mohawk delivered record results in 2016 as our investment strategy to enhance our product innovation, brands, and service continue to benefit our customers and provide the returns we expected.

We remain optimistic about 2017 and we made greater internal investments than any time in our history to expand capacity and enter new markets. I would like to clarify the earnings release from last night which has caused some confusion. Excluding acquisitions and intellectual property, our 2017 sales will grow similarly to last year.

Including the expected intellectual property decline in 2017, our operating margin for the year will increase slightly. This increase in operating margin includes the impact of $105 million to $110 million of incremental startup expenses and the reduction in intellectual property income.

Across the enterprise we are making investments to increase our sales growth. Our ceramic manufacturing is being expanded in all markets. We are broadening our countertop sales in the U.S. and Europe. We are significantly increasing our LVT capacity in the U.S. and Europe and introducing rigid LVT products.

We’ve entered the outdoor rug and utility mat business and we’ll produce carpet tile in Europe. We are expanding laminate production in the U.S., Europe, and Russia. We are adding engineered wood capacity in the U.S. and constructing a sheet vinyl plant in Russia.

Some of these projects will require several years to fully develop our distribution and optimize our efficiencies. Over a five-year period, these internal expansions typically provide a greater return on investment than the acquisitions we execute.

In January, we entered into an agreement to acquire a ceramic company in Italy located near our existing facilities. It is expected to close in the second quarter and will expand our presence in the European market. The business had 2016 sales of approximately $160 million and an EBITDA margin of about 19%.

Product sales and manufacturing synergies will enhance our cost position and strengthen our combined brand and distribution. We believe there is further opportunity consolidate the European ceramic market and grow our market position.

Even with the considerable investments we have made since 2013, our financial leverage is historically low at 1.4 times EBITDA. We believe there are potential acquisitions in our current market and product categories, as well as opportunities in new geographies and complementary products.

As we increase the international scope of our business, volatility and foreign exchange markets could impact the translation of our future results. Taking all this into account, our EPS guidance for the first quarter of 2017 is $2.64 to $2.73. This represents an 11% to 15% increase over our first quarter 2016.

Mohawk’s organization creates an environment that allows us to respond rapidly to market changes and execute multiple investments at the same time. Presently, about 70% of our business is in the United States, where one out of every four flooring purchases is a Mohawk product.

This year we are investing more than any time in our history to internally grow our business with much of the benefit coming in future years. Today our organization and balance sheet can support significant additional investments to expand our business and enhance shareholder value. We will now be glad to take any questions..

[Operator Instructions] Your first question comes from the line of Bob Wetenhall with RBC Capital Markets. Your line is open..

Hey, good morning and nice finish to a very strong year. I was hoping you could shed a little bit of light. I know there was some confusion around the press release.

If you are saying about 2017 revenue growth and I understand correctly, if you adjust up on a constant exchange rate basis and strip out the acquisitions, are you talking full-year revenue growth in the range of 5% to 6%? Is that the right kind of target?.

Yes, that is a reasonable estimate..

Okay. And, Jeff, you had said that total headwinds between startup costs for the new plants that are coming online and the loss of income from the IP will kind of be in the range of $100 million to $110 million. And that’s a lot of headwind in terms of lost operating income to incur.

You also said that you anticipate that operating margins are going to rise. I was hoping you could step me through how, even though you are facing a pretty big $100 million headwind, how you are still going to grow operating income..

Listen, it all starts with the growth rate which you started out with of the business, which is going to help the top line. We have a huge number of new projects; at the same time we’re going to get some incremental improvements in all our businesses from the $670 million we invested last year.

It will start giving us more productivity, as well as improving the top line, as well as giving us some product differentiation and other features to help. All of these things combined are helping us overcome the $100 million to $110 million of operating income that we are losing..

Could you dig in a little bit deeper on the specifics of that? Is it just productivity improvements from what you’ve already spent in the business or is it operating leverage given mid single-digit sales growth or is it price versus commodity management? What are the levers specifically that you see giving you operating margin expansion to overcome this headwind in 2017?.

Bob, it’s a lot of different moving parts. It’s going to be the higher volume allowing us to better leverage our fixed cost. It’s going to the productivity that Jeff talked about that is going to be even greater in 2017 than in 2016. And if you look in different parts of our business, you get different factors driving it.

For example, we are continuing to see margin improvement in our European ceramic business as they are completing the last phase of their equipment upgrade. And so if you look across all the different parts of the business where we are adding and upgrading equipment, we are going to continue to see margin improvement as a result of that..

And just one final, then I will turn it over. If we had to think about the magnitude of margin improvement, would somewhere between zero and 50 basis points be the right way to think about the size of margin improvement? You had 150 basis point uptick this year, which is fantastic. That’s a very tough pace to sustain going forward.

Is the right level of growth in operating margin somewhere between zero and 50 basis points in 2017?.

Listen, you sort of need to think about that. Take the incremental costs we talked about of over $100 million, that’s more than 1% by itself, and then we said we would have a slightly improvement over that. So if you strip that out its somewhere over 1%. The question of how much more, you will have to make your own estimate..

Good, congratulations on a very good year. Good luck..

Thank you..

Your next question comes from the line of John Baugh with Stifel. Your line is open..

Thank you for taking my questions and congrats on a great year. Quickly on LVT, could you discuss pricing trends there? I’m interested in the rigid movement we see, the rigid cores.

Is that something that hurts the competition, helps Mohawk? How are you positioned to manufacture that product, number one? Number two, is that not a commodity product where you could maybe hope to get a little more margin or is there a lot of competition already there as well? Thank you..

LVT is progressing as we had anticipated two years ago as we starting to getting ready to get in this stuff. As you put – as the market matures you expect it to get more competitive – and it is – and the pricing are getting more competitive, as expected. And while that’s going on, our manufacturing costs are improving as we do it.

At the same time, we are putting in strategies to improve our plant and what we do and bring more product innovation to the marketplace. The rigid product has been in the market for a while and it has ended up at the premium end of the marketplace. The biggest reason for it is the rigid product will cover up more subfloor irregularities.

So you don’t have to fix the floors underneath as well, but you have to pay a premium for it. Presently, we are introducing those products as sourced products in the marketplace, along with everybody else.

And when we get more capacity at the end of this year going into next year, we will be able to produce that and bring more product innovation and use our brands in marketing and distribution to optimize our position in it..

Thanks. Then if I could pivot to your carpet tile announcement in Europe. Any timing there as to when we see that production? What is sort of the initial capacity plan for that plant? Thank you..

It’s going to take most of this year to get the plant up and operating, so it will be next year. We are introducing products into the marketplace out of the United States; shipping over there, paving the way for it.

We are putting in salespeople in Europe to sell it, but one of the reasons for doing it now, with the sheet vinyl we have going into the commercial, we have LVT that can go into commercial, the carpet tile now fits into a broader strategy of becoming a much bigger commercial player in the European market as we go through.

We also think that we can bring to the marketplace in carpet tile technology, fiber, and innovation that we think we have in the United States that we can bring over there. And we think that we can offer new options and choices to the marketplace.

In addition, the management team that we got in IVC, there is knowledge from prior days of running in both the business in Europe in the carpet business. So we have a management team that knows, that understands the local marketplace and we’re going to supplement it by adding people as well as from our U.S.

knowledge, so we think we are well-positioned to get into it. It will take a while to push the distribution, because when you get into more specified parts of the marketplace it takes a while to develop the relationships and people. We think it’s a good thing to do.

In addition, just as a directional strategy, we think, like this, there are more places where we can bring in knowledge and technology in greenfield plants and put them in like we said before in sheet vinyl. And we are looking for other opportunities to do that on a continuous basis..

Thank you for that color and good luck..

Thank you..

Your next question comes from the line of Keith Hughes with SunTrust. Your line is open..

Thank you. Just question on Europe in general. If you could just talk about the market climate heading into the year in Western Europe and contrast that with what you are seeing in Russia as you begin the year..

It’s hard to talk about Europe as one thing, but I will attempt it. It feels a little better in general. The GDP is increasing a little more. It feels better and we see some opportunities of it improving, but again you have to take each region by where it is.

On the other side, Russia has been in a huge recession for about two years now I think, could be more, and we believe it’s hitting a bottom. The GDP looks like it’s going to be flat and start turning up by most people’s estimates. In that environment, we have a significant position in ceramic and in laminate with our manufacturing base there.

All of those businesses are sold up completely. We are putting expansions in both this year in order – as the marketplace turns up, which it will, we have to have more capacity to participate in it and we are in a stronger position coming out of the recession than we were going in..

Okay. Second question was in carpet. There’s been some more noise of raw material, potential raw material inflation coming in the spring here or late winter.

Can you give any comments on that; if you will be facing more inflation in carpet inputs?.

We started out using the best knowledge we had in the fourth quarter deciding what it would take to cover the raw materials. We put in a 3% to 5% increase, which is going in now. There is increases that look like they are going up more. We are not sure if they are temporary or permanent.

We will have to evaluate what is going to happen and if we need more price increases we will announce them..

Thank you..

Your next question comes from the line of Michael Rehaut with JPMorgan. Your line is open..

Good morning. It’s Jason in for Mike. First question on the $45 million in startup costs that you highlighted. Just wanted to get a sense as to what the quarterly progression of those costs will look like, if it’s weighted any more heavily to any particular quarter.

And then as you look into 2018 as we think about startup costs, should they come down from the type of level that you are seeing this year or should it stay pretty similar? Then I guess more broadly, as these plants ramp up, how much additional revenue would you expect to be driven by the plants where you are currently getting – incurring these costs..

Okay. Yes, let me address the first part of that and I will give it to Jeff for the hard part.

In terms of the $45 million of startup costs that we said we think we are going to incur this year, the first thing I would say is it’s an estimate and that it can move around from month-to-month, quarter-to-quarter, depending on how quickly or how slowly some of these plants come up.

But right now, our best guess is that we are going to see – it’s going to be more heavily weighted towards the second half of the year than the first half. We will have costs in every one of the quarters, but just looking at it overall for the full year we see more of it in the second half..

Just as an instance of that in my review to begin with, we are taking an entire plant that makes high-end commercial through-body tile in Europe and we are shutting it down to replace all the equipment in the first quarter. So all those costs are going to show up in the first quarter; as we start it up, it’s going to hit the second quarter.

All these investments are going to come through at different times and the costs are going to be there as we come out of it. The best returns we get on anything we do are these investments when they come up and work as we expect, but they’re different than acquisitions.

You’re not paying for the people and the existing cash flows that are in the business, so it gives us the best returns of anything we can do. However, you do have these startup costs at the front end, which are negative. But if you look at it over a five-year period, which is once they get up and operating, it’s a really much better investment.

Looking forward to next year, some of this stuff will still have startup costs going into next year because, as you heard, there’s a lot of it that won’t be coming up until late in the year. And so there will be more coming into next year. The question next year is the total cost of this $45 million.

Now next year depends on our perception of the marketplace and do we keep putting more in. If we stopped all of it, the $45 million would disappear, but I’m hoping to keep growing more..

Okay, great. And then next question, just going back to cost inflation. I think you’ve highlighted several price increases across the business to offset this and higher energy costs as well.

So wanted to get a sense as you look across the business for 2017 overall if you have an estimate as to what you expect total cost inflation to be relative to 2016..

I would have to be a soothsayer to give that one. We are raising prices where we have seen it. There’s raw material inflation, there’s labor inflation, there’s currency changes between things moving between different currencies and we’re doing the right things to cover it. We just have to adjust as it changes and we will see how it goes..

Okay, great..

Your next question comes from the line of Sam Eisner with Goldman Sachs. Your line is open..

Yes. Thanks very much and good morning, everyone..

Good morning..

Good morning..

So I just wanted to discuss ceramic was a little bit lighter than our expectations. For the print, obviously we recognize there is a bunch of things going on in that segment.

Can you maybe discuss mix as it relates to that segment? Where there any trends that you saw that might have constrained the profitability there? And then, ultimately, how are you thinking about mix looking out to 2017?.

Let me say that some of the pricing differences in the North American market [indiscernible] others. There’s channel mix that changes and right now the new construction builder markets are increasing faster than the remodeling, which tends to have higher margins and more differentiation in them. So the channel mix is impacting it.

From our standpoint though, I have to tell you, we are in line with where we thought we would be. We continue to bring out new product and innovation, and we continue to find ways to improve our costs. We’re bringing up new plants, the new plant in Tennessee.

I mean we put up a brand-new plant in a new geography with nobody who knew anything and it’s up and running. And we think in less than six months from zero, we will be operating almost at the same efficiency level as plants we’ve had for 20 years. So I mean we are really doing a lot of good things in it.

We are investing in everywhere we are to put in new capacity and we think we are going along as we would like..

That’s helpful.

Then, Jeff, maybe given your commentary about similar levels of organic growth into 2017, if you can perhaps maybe walk around the world or talk about it on a segment basis how you are thinking about those respective businesses to kind of get to your blended, let’s say, roughly 5%, 6%-ish type organic growth?.

Listen, there’s so many parts and pieces it’s really hard because each one is different and different – you have the geographies, which the U.S. economy is doing the best of all of them.

In Mexico, the Mexican ceramic flooring business has been growing dramatically the last two or three years so it’s actually been growing at a higher rate than the rest of the world. Each of the product categories you have – so LVT in all marketplaces is in the infancy and is growing.

It’s probably, if I had to guess, in about the third or fourth inning of what’s going on. So we expect to see multiple years going ahead and we’ve been investing heavily.

When we get through putting in all the capacity that we have going on and get it operating, we will have over $1 billion of capacity in LVT in what we believe to be the most modern and the largest plants in the world as we go through. So we are well-positioned in the new product category within it.

In ceramic, we have been limited by most of the marketplaces. We are selling almost all the capacity, so most of the improvements are coming through improvements in pieces, but also putting in new capacity.

We continue to try to drive up the style and design and differentiation in all the product categories and we think that we are – in each of the categories we are bringing a lot of innovation to all the markets, which is helping us. We’re in good position everywhere we are.

The really – the most – from a business position, being at the size we are at, is growing at the rates I’m trying to grow the earnings over time, which is really forcing me to continue to look for these opportunities and finance all of these new things we’re doing internally, as well as continue to look for new acquisitions that meet our long-term goals.

We are staying disciplined and there’s always new opportunities and we want to use the money to optimize the long-term profitability and shareholder return. We think we’re doing the right things for the right reason and we’re not going to let the money drive our decisions..

That’s helpful. Maybe if I could just sneak one more here. Frank, the impact of the plant shutdown in Europe in the ceramic segment, is there a way to quantify how much that will be a drag on the first-quarter results? Thanks..

Yes, there is a way to quantify it, but that’s not something we are prepared to disclose. We have built that all into our forward-looking estimates..

Got it, understood. Thanks so much, guys..

Your next question comes from the line of Mike Dahl with Barclays. Your line is open..

Hi, thanks for taking my questions. Wanted to start with a question around the ceramic acquisition and so it sounds like mill ceramic has relatively similar margin profile as your existing business, but I was curious if you could just give us a little more color on the strategic rationale and what made this a good fit.

What do they do differently than you and where can you kind of leverage your expertise to help drive additional business or margin opportunity for them?.

First of all, the business is focused on the mid to higher segments of the marketplace, similar to ours. The location of the business is like an almost across the street, so there’s a lot of opportunities to utilize the knowledge between the businesses as we go through.

Their distribution is much more limited than ours and their product offering is much more limited than ours. We think that we can improve both and give them a broader product line and increase the distribution of it through the marketplace.

They have relationships that we don’t have, which will allow us to push products into those groups that we haven’t done before. We think that there is opportunities to utilize the assets over time and reduce the complexity of individual assets across the business by specializing them more, making them part of a bigger piece as we go through.

Every acquisition that we buy we learn something from. They have good style and design in the business. We think we can add their capabilities to ours and improve it. And like everything else, we are prepared to invest in their assets and their business to improve it.

So it’s the same thing we’ve done about, I think, 35 times and we’re going to do it another 35 times..

Great, thanks. And then sticking with ceramic, but shifting over to Mexico and the capacity there; I think you made a comment that part of the reason for expanding the capacity and staffing up sales a bit more is to start exporting to Central and South America.

Can you provide us any sort of color on sizing up that market opportunity and how you see that playing out over the next couple of years?.

I think it’s two separate pieces. One is we are putting in a significant amount of capacity to Mexico. Within that one, we are going to first try to utilize it in the Mexican marketplace. At the same time, we’re going to put salespeople into the South American market to start developing new accounts and new business down there.

And then long-term, the question is, is there a way to enter the marketplace and build a larger presence in Central and South America than we have? I think that would be a good thing over time..

Got it. Thank you..

Your next question comes from the line of Scott Rednor with Zelman & Associates. Your line is open..

Hi, good morning, thanks for squeezing me in. Jeff, if you look at any of the flooring stats this year, growth is going be around 2% to 3%, plus or minus. And you guys are growing 6% or double that and you are guiding to a similar level next year.

So can you maybe just give us some color on why you think you are growing faster than the market and how long that can continue?.

Sure. I think that our growth rate is probably close to 4% for this year, but I’m not sure exactly – 3% to 4% we think, for the market is it. Listen, I mean I don’t know anybody in the industry that’s investing like we are. And we are investing in product – in equipment to increase the piece. We are investing in ways of differentiating the products.

We are investing in differentiation and new products. We are investing in sales and marketing to help our customers sell them through better. We have an infrastructure second to none and I think that all that’s helping us. At the same time, there are growth areas and growth areas like LVT.

We put money in to grow our LVT business and the acquisition that we bought a couple years ago put us in a different spot that everybody else. And then we are investing in it at really high rates to expand everything. In the U.S. and Europe we are building new plants.

We’re putting a new sheet vinyl plant in Russia; just using that as a foundation to step off of. So I don’t believe there is a more aggressive company. I don’t believe that any other companies have the organization and infrastructure that we have to drive it.

It’s basically repeating the same thing – we’ve learned the lessons over the last 20 years – and driving it. Then the balance sheet we have to allow us to do that at the costs we are doing; our average interest costs today are somewhere around 1.5%. So not only do we have the ability to get it, we have low cost of credit which are also helping us.

I wouldn’t trade my position with anybody in the world today..

Fair enough. And then one other one. Recognizing there’s a lot of variability, but just – obviously there’s discussion about border tax and if there were to be some kind of adjustment. Maybe you guys could just frame how investors could think about that. Do you view it as a risk? I’m sure you guys are thinking about it internally as well..

Listen, everything is a risk. But when you look at it, if there are tariffs on imports, we primarily manufacture our U.S. products in the United States and we have the largest capacity in all the categories of anybody. So if it’s going to be advantaged to being a local producer, we are in a position to take advantage of it better than anybody else.

We have the capability of expanding our businesses and capacity, if it makes sense; if the market changes and imports are less advantageous to be here. And we have the people in order to execute it. So if it’s advantageous to do more here, we are first in line to do it..

Thank you..

Your next question comes from the line of David MacGregor with Longbow Research. Your line is open..

Yes. Congratulations on all the progress.

Can you talk about your labor situation in the U.S.? With an expanding manufacturing footprint, are you feeling a tightness in labor availability? And if so, to what extent will that be potential margin headwind over the next couple years? I realize you are investing pretty aggressively in kind of advanced manufacturing technologies.

Is that what saves you here or – can you just talk about potential risk to the margin story on labor?.

The increase in labor – presently labor rates is somewhere approximately 3% a year and I don’t know whether it’s going to increase or not. It was a little less during the downturn, but it has remained somewhere around there. As labor gets tighter, you have more turnover in the workforce so there’s more training costs and things going in.

We think that we have built the organization so we become one of the preferred people that – companies that people want to work for as we go through. On the other hand, we are investing in automation every place that we can find it to minimize the requirement for labor as we go through. And we think we are well-positioned to handle whatever comes up..

Your next question comes from the line of John Lovallo with Bank of America. Your line is open..

Hey, guys thanks for fitting me in here.

I guess the first question is what were the startup costs in 2016, if any? In other words, the $45 million that you guys are expecting in 2017, how much of that is incremental? And then how should we think about that in terms of the segments, the mix in the segments?.

It was $21 million in 2016 and I have to get back to you on how it is allocated among the three segments..

The incremental piece will be the difference between that and the $45 million. The $45 million is not an exact number, gentlemen. There’s a huge number of variables and pieces, but it’s our best guess and some of that is being spent on increasing the sales and marketing to drive the volume to fill up those plants.

All that expense comes in front of the sales and revenues..

Got it.

Then when we think about these, just the raw material basket for carpet, how much of the raw materials are influenced by the price of oil? What percentage?.

We use different raw materials; there’s different influences in them. The higher-end raw materials, the higher-end products tend to have more up-and-down related to oil.

In ours we are using recycled soda bottles in the polyester pieces on the other and so – but even with that, when the alternatives go up and down, the bottles tend to follow the prices up and down. So even though they are not directly, it’s got to do with the relationships between them.

But in addition to oil, there’s also gas and then you also have the intermediate capacity between it is as much influence in the short term. So you get tightness of capacity in some of the chemical processes and the prices can go up dramatically.

But then the question is how long they stay or not is dependent upon the supply and demand of it and we have to manage within those things..

Okay, great.

Then quickly, Frank, did you give – I may have missed this, but – a corporate expense estimate for 2017?.

It should be in line with the number that we had for 2016..

Thank you..

Your next question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is open..

Hi. Thanks for taking my questions today. For the North American carpet business, just a follow-up from earlier question. You noted some drag from mix in the quarter.

Could you give us a better sense of how much of that breakout is from poly versus gaining share in big box in 2016?.

We don’t break it out those details, but there is a mix change and there is the move to polyester.

And then you still have left – you still have the industry passed through the declining raw materials during last year and so as the materials declined, the average prices in the industry went down, which lowered the average prices, which also necessitating the increase in prices that we are doing now. If we were smarter, we wouldn’t have done that..

Understood, understood. Not to beat the dead horse with the estimated $45 million for startup in 2017, but maybe thinking about it differently in terms of just the physical plant versus all the other.

Are you able to break out in rough percentages how much of that $45 million is just physical plant in your estimation versus all the other type of startup?.

We do have it, not here in front of me, but there are estimates of everything. What the startup costs are – we start with the physical building of the plant and the machinery. Now all those costs get capitalized until you turn the machine on and turn it over to the manufacturing group to utilize it.

So all the costs related to building it go into – get capitalized in the equipment.

Now once you give it to the manufacturing group and say produce product on it, all the expenses of underutilization of the equipment, product yields that aren’t what you want, fixing things that happened, training labor as you go through, all those costs are in startup.

As well as some of the things we put in, is also is we put on salespeople to sell it. We have to start selling it before the sales come up so we have sales and investments in samples that all go into the piece and orders so that you can utilize the thing as quickly as possible.

Now once it ramps up to a certain point, all those disappear and you breakeven. Then when you move it on up you start making significant returns on your investment..

Understood. I will follow-up on that after the call. Final question for your European carpet tile expansion. I assume as you are approaching to enter that market, just your softening the bottom.

Are you already selling some product as you soften the market in advance of opening that plant?.

We are starting right now introducing carpet tile manufactured in the United States and selling it over there in order to get prepared for the plant being up and running maybe the end of this year, so for next year. Then switching those sales into locally produced products..

Okay, perfect. Thank you so much..

Your next question comes from the line of Stephen East with Wells Fargo. Your line is open..

Thank you. Good morning, Jeff and Frank. Jeff, early on in your prepared remarks you talk about how much CapEx you are spending and it will drive about $1.4 billion in revenues or so over the next several years.

That’s a huge number, but then when I look at where you are starting from, if you do it over the next three or four years, it’s about a 15% increase from where you are today. So it almost – it’s almost as if you are keeping pace with the market.

And I know that is distinctly not in your DNA to keep pace with the market, so am I thinking about this incorrectly or? Can you help me out here that?.

You start out with first you have to assume there’s some excess capacity in what I have, so that’s in addition to it..

Okay..

Then you have to add that. And then the question is how long does it take to fill it up? My goal is to fill it up as soon as possible and we will have to see how long it takes..

All right, fair enough..

Then one more, you’re also assuming that it stops. You’re taking it and saying this is all we are going to do. If the industry and the world looks good, we’re going to keep adding more capacity going forward. So it’s not the end, it’s just the intermediate step..

And that was my follow-on question.

As you look at $670 million, $750 million, is this sort of the new world order for you all on CapEx?.

That depends how much growth we can create and how many ideas we can come up with and how much the market will allow us to sustain. And then it’s also going to be dependent on what alternatives we find for acquisitions and how those work..

Fair enough..

But listen, this amount of investment is not to maintain the business as it is..

Yes, got you, okay. Then as you looked at your North American sales you made the comment that commercial was stronger than residential.

And as I think about the mix more broadly, with new construction up 10% to 12% or so and R&R seeming to be up mid single-digits, I guess it surprised me a little bit that commercial continues to run ahead of residential.

Could you just talk about what you think is going on with you all there and why commercial continues to run like it is?.

Remember in our commercial business you also have – LVT is also being sold in commercial, so that’s helping. My ceramic business is there, so I think we’re doing better than the market is on an average. At the same time, we’ve been driving carpet innovation in carpet tiles. Our carpet tile we think we are doing better than everyone else.

Listen, my goal isn’t to do what everyone else does..

All right. And then one last quick one. You said productivity improvements above 216.

Are we talking just minimally above? Are we talking significant changes? How should we think about it?.

Listen, the reason we are giving you as much information – given the drop off in IP, we are really giving you a much more forward view than we have and I think people look at the productivity and they say that was last year and it’s going to go down.

What you’re telling you is all these investments in equipment, process innovation, and methodology our expectation is for next year to continue up. I mean these are high rates that we are doing and we think they’re going to continue this year, even better..

Thank you, I appreciate it..

Your next question comes from line of Sam Darkatsh with Raymond James. Your line is open..

Hey, Jeff, Frank, how are you? Hope you well. Just a couple of clarification questions, if I could, piggybacking a little bit on Stephen East’s topic there around productivity. I think, Frank, if my math is right, I think you all spent of the $670 million in CapEx in 2016, I think you spent about $180 million to $200 million specific to productivity.

What does that number look like, ballpark, within the $750 million in CapEx in 2017? And are you still looking at a three- to five-year payback on productivity efforts as it stands right now?.

Yes. I don’t have that number in front of me, Sam..

Listen, we give you a few more numbers, they won’t need you..

Fair point. Although, arguably, they already don’t need me, but that’s okay.

Then the last question, if I could, are you anticipating that price increase efforts or price hike efforts are going to fully offset raw material inflation or is there some sort of a negative/positive ARB that is expected here in 2017?.

Our goal is to try to offset them, but depending on the volatility and what happens – we see what happens, but that’s our goal..

Okay, very good. Have a terrific weekend, thank you..

Thank you..

Your next question comes from line of Eric Bosshard with Cleveland Research Company. Your line is open..

Good morning. A clarification and then a question.

The clarification is the acquisition which looks likes it’s maybe $25 million of EBIT, that’s not in the guidance; that’s correct?.

You have that correct..

Okay. And then, on the business, the two things I’m curious on. One is the price and mix trends you are seeing – specifically in carpet and in tile, what you are seeing going on with price receptivity on price increases in mix. And then, secondly, the 7% growth.

It sounds like you didn’t have a great start to the quarter and so if you could just give us some thoughts about the strength of the quarter and what was driving that and then the sustainability of that..

Let’s I will start with the last one and we will work our way back. I don’t know if it’s right or not; I think that the election when it started and all the attention on it, what was going on, I think it impacted people’s confidence in what was happening.

Once the election was over it appeared that people started spending a little more and the confidence improved. The mix in carpet is – as the raw materials declined starting about the year before in 2015, the industry started reducing prices and passing it through. And that continued all the way through the year.

Then the same thing happened with – as that was happening, you still had the continuous increase in polyester, which was substituting for higher-value nylon products and so that also impacted the mix. Then the channel mix between the builder business being better than the remodeling business, all those things influence the mix.

Now at the same time, we are taking actions to try to improve our position through improved product innovation, introducing new products that are different, to upgrade our sales with it, which is helping.

We talked about new introductions to continue it going through the year, of introducing newer softer carpets, of introducing newer type of carpets and backing, of expanding our Karastan higher end.

So we are trying to have a better mix in the industry as a whole in all the product categories and it’s coming from significant investments, both in equipment as well as people and innovative ideas. We are doing things and taking some risks.

When you do new things on the outer edge, they don’t all pay off, but you have to do a number of them to find ones that really work well and I think that we are spending more money in doing those things and bringing more to the marketplace than anybody else..

Okay, that’s helpful. Thank you..

Your next question comes from the line of Laura Champine with Roe Equity Research. Your line is open..

Good afternoon. Wondering just quickly approximately what percentage of Mohawk sales are – come from products that are made in Mexico and sold in the U.S. and how is that changing..

It’s a small percentage. Basically, what’s coming from Mexico is we are sending some ceramic from Mexico into the United States. As our Mexican business has grown, we have used the capacity down in Mexico.

The new plant that came up in the United States that provided more supply here and we’ve even put more of it down there, so it’s getting to be a smaller and smaller portion as we go through. The Mexican market has been growing rapidly, so it’s a limited portion of the whole business. Now just to remind you, almost 50% of the U.S.

ceramic comes from somewhere else in the world. We have, by far, the most capacity in the United States. And any changes it may hurt us a little bit, but it’s going to hurt the rest of the industry dramatically more than we are and create great opportunities for us..

Got it. And then you’ve obviously been spending an elevated level of CapEx this year and last year.

Where do you think long-term CapEx spending should be approximately as a percentage of sales?.

It depends on our ability to keep growing. When I look at my use of capital, if I could find ideas to spend all my capital on new projects and new businesses internally done, I would spend it because – You guys tend to focus short term.

And in the first year to two years I may have a negative impact on my earnings in those years from all these startups and pieces you go through, but in years two, three, four, five the impact is dramatically much better.

So anything that my organization can come up with to grow the business to go into new markets to try new things internally, I’m supporting them and I will continue to..

Got it, thank you..

Your next question comes form the line of Stephen Kim with Evercore ISI. Your line is open..

Okay. Thanks very much, guys. Obviously strong quarter. I wanted to drill a little bit more into this – the growth CapEx driving potentially $1.4 billion in product sales and what’s sort of in that.

I guess basically as we think about the sales, eventual sales ramp up for those assets, I’m trying to get a sense for – by the time you, let’s say, exit 2018 would it be a reasonable assumption that maybe two-thirds or so of that $1.4 billion we might be actually witnessing that on the sales line.

Is there – can you give us a sense for like how that might be spread by segment? Will it be pretty evenly across the segment or is one sticking out in your mind as getting a bigger share of that increase?.

I can’t answer the question you have. If you think through the list of things I gave you that we were doing and that’s only the really big ones. There’s a bunch more underneath those that are smaller as you go through. Now each one of them is different. Where we go into I will take extremes. We are going to go into the sheet vinyl business in Russia.

That’s going to ramp up slower because we don’t have a big base and we’re going to have to ramp it up over time versus if I put a ceramic piece in Mexico, where the market is growing rapidly my market share is growing rapidly, that one will ramp up very quickly. And there is everywhere between those two extremes..

Got it. Then just to clarify the amount. I know that when you were talking earlier you were – we were talking about the opportunities for growth beyond the $1.4 billion, because obviously you’ve got capacity and things like that that you’ve already got still to load. I will was also thinking about price.

I know that price mix and just price in general is something that also is happening in the business and sort of mix shift to higher-priced products, particularly in ceramic, we’ve seen.

Is there any price growth assumed in that $1.4 billion? Should we generally be thinking that price and positive price mix should be incremental to that $1.4 billion?.

We just took in the $1.4 billion we just assumed that we would utilize the capacity at approximately the same mix that we are running today. It’s a rough estimate of what that would be. There is a million variables that will impact it before you get there and use it. You take things like LVT.

As the LVT market matures, we have built in our assumptions a decreasing price over time. Now it may decrease more than we think or it may decrease less.

Who knows?.

Yes. Then shifting gears here in the North American flooring business, one of the things you’ve talked a little bit about was your recycling program. My understanding is that is something that has been going very well for you and, if anything, you’ve been expanding that.

But you are already recycling a pretty large share of the bottles in this country and I was curious as to whether you think there’s any risk to your ability to expand this program as you go forward..

Well, let’s see. We are installing now another increment to increase and we believe that we can get the material to supply it. So we are putting an increment in and it will be operating by the second quarter, I believe is it. At all points in time, in that piece just like others, there is users that are being added and there’s also users that fall out.

People don’t have economic ways of using it as they go through. It’s not all one way. There are people whose economics are bad. They come in and out. There’s also parts of it that are shipped overseas. There’s also different grades of bottles that can come through and use.

The bottles have to trade over longer periods of time at some economic value that doesn’t cost more than virgin or else you’re better off doing something else without the investments. Now they tend to trade up and down, and as the market changes over time, I still think they are only gathering about 35%, 40% of all the bottles used in the country.

So the question is as the demand increases you think there’s ways to get some portion of the rest?.

Okay. Then you made a comment there about the comparability of the raw material that you get from your recycled program versus virgin. One of the things that I had heard and I was curious as whether you could confirm or deny it, but the product – the raw material embedded in the plastic bottles as technology has changed has actually improved.

So the quality is actually today from a recycled bottle, the polyethylene that comes out of that, is actually a higher quality than what you would get in virgin. That perhaps there are ways to utilize that.

Is that – am I my thinking about that correctly?.

They have to use more expensive raw materials to make bottles than you do to make carpet fibers. So when we start with that we are starting with a higher quality resin than is typically used in it, but there’s all kinds of other variables in it. We think that we bring to the marketplace a recycled story.

We think that we bring innovation in the products and we think that the marketing avenue of being able to say that you are helping the environment, consumers like that. So we think it’s a good thing to do..

There are no further questions at this time. Mr. Lorberbaum, I’ll turn the call back over to you..

We appreciate everyone joining us. We had an excellent year and we’re going to try to duplicate it again. Have a good day..

Thank you, ladies and gentlemen. This concludes today’s conference call. You may now disconnect..