Good morning. My name is Sara, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mohawk Industries First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Friday, May 6, 2011. I would now like to introduce Mr. Jeff Lorberbaum, Chairman and CEO of Mohawk Industries. Mr. Lorberbaum, you may begin your conference.

Good morning, and thank you for joining our first quarter 2011 conference call. With me on the call is Frank Boykin, our CFO, who will review the Safe Harbor statement and, later, the financial results.

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 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 at the Investor Information section of our website for a reconciliation of any non-GAAP to GAAP amounts.

Thank you, Frank. Our first quarter earnings per share were $0.34 as reported, or $0.42 excluding restructuring charges. Sales reported during the period were flat with last year. Unilin and Dal-Tile segment revenues grew as Mohawk segments continue to be impacted by the challenging industry conditions. We grew our operating margins to 4.7%, excluding restructuring charges, an improvement of 40 basis points over first quarter last year by driving cost reduction, manufacturing improvements and efficiency gains throughout the enterprise. Cash was $256 million at the end of the quarter, and our "net debt to adjusted EBITDA" ratio stands at 2.2x, giving us flexibility to pursue strategic opportunity. The consensus outlook for 2011 maintains the recovery will strengthen and GDP will improve through the balance of the year. In the U.S., both remodeling and home sales are expected to improve over last year, and non-residential investment is estimated to increase over 8% in 2011. Continued reductions in the U.S. unemployment rate are forecast through the end of the year. European sentiment remains above its historical average, and the economy is expected to continue to grow. Frank, would you give our financial report, please?

Thank you, Jeff. Good morning, everyone. Net sales for the quarter were $1,344,000,000, flat with last year. Residential saw some weakness, which was offset by commercial growth in the U.S. Our European business growth trend continued in the quarter. The gross margin for the quarter as reported was 25.4%. However, excluding restructuring charges, it was 25.9%, or 30 basis points better than the 25.6% margin last year. We were favorably impacted by price increases and cost savings, which were offset by higher raw materials and energy. Our SG&A was $286 million, or 21.3% of net sales. We held SG&A flat as we continued to control costs. We expect our full year SG&A to improve as a percent of net sales by the end of the year. Restructuring charges were $7 million during the quarter. These were related to a commercial carpet plant in the Mohawk segment that we're relocating to other facilities. Of the $7 million, $6.5 million was included in cost of goods sold, and half -- $500,000 was included in SG&A. Operating income was $63 million, excluding charges, or 4.7% of net sales. That compares favorably to 4.3% last year, showing an improvement of 40 basis points. We had favorable price and product mix, and productivity initiatives, which were partially offset by raw material increases. Interest expense was down for the quarter at $27 million. It was affected by -- positively affected by the repayment of our 2011 senior notes and lower interest rates from our renegotiated bank facility that we renegotiated last year. We are estimating $27 million of interest expense each quarter through the rest of the year. Income taxes -- the income tax rate was 17% for the quarter, and we expect the rate to be in the high teens for the remainder of the…

Thank you. The first quarter is seasonally the slowest period of the year. In the U.S., our revenues in both residential and commercial improved as the period progressed through the bad weather affecting the beginning of the year. Our first quarter gross margins improved by increasing productivity, improving quality and better yield, offsetting the negative effects of material inflation and harsh weather conditions. Our Mohawk segment sales declined 3.5%, with commercial showing improvement and the residential category still lagging. We expect continued improvement in this segment from new product introductions, additional customer commitments, higher pricing to cover material costs, and operational improvements. The residential order trends improved at the end of the first quarter and continued into April. The commercial business continued its recovery with marginal and carpet tile products growing significantly. The hospitality channel is rebounding after several years of reduced capital spending. We announced 2 carpet prices to offset dramatic material inflation, with the first in February and the second in April. The February increase should be fully implemented in the second quarter and both increases are progressing as expected. We're taking pricing actions as required to react to the volatile material costs. About 30% of our extrusion project this year is presently operating, and we anticipate completion of the first phase by the end of the second quarter. This fiber manufacturing expansion will support the growth of our SmartStrand Triexta and EverStrand polyester introductions, which have both won industry awards. During the quarter, we launched the new Wear-Dated Revive brand, which created the industry's first premium polyester category as the value alternative to nylon. Our Wear-Dated Revive program is one of the most successful collections we have launched, and merchandising systems are presently being installed around the country. In both the multi-family and commercial channels, we're introducing…

[Operator Instructions] Your first question comes from the line of Dennis McGill from Zelman & Associates.

I was wondering if you could talk about volumes in the first quarter across the 3 businesses and how that compares to the revenue numbers.

Well, as you saw in the first quarter, we started out with multiple things happening. We started with the weather in January, which impacted the start of the quarter. We had multiple price increases across many of the different pieces. We also had in a piece -- as we go through, there was de-mixing in the different product categories, as customers tried to switch from the higher-cost products to some of the lower-cost products. We had the biggest impact of this in the Mohawk segment, where you're seeing polyester impact the higher-value -- higher-cost nylon products. With all of this, we see -- the second quarter sales, we expect to be up. We expect it to be up both in dollars and units and all of these is included in our estimates as we're guessing out into the second quarter.

I was just asking specifically, about the first quarter. I don't know if you have the numbers in front of you, but for example, in the Mohawk business, I think revenue was down. How much were volumes up or down? And the same question for the other 2 segments.

If you look at our total business, Dennis, the volumes were down probably about 2% for the whole quarter. But Jeff's point was that it trended differently from the beginning of the quarter to the end. The Mohawk segment was down the most and, actually, the other 2 segments were up in volume.

Okay. Got it. And then when you think about the trend through the quarter and into April being positive, can you separate out how much of that is market versus, potentially, some pull forward of demand from the price increase announcements?

I don't think that we could actually tell the pieces. There's a lot of price increases were in the first quarter, but there is some lagging over into the second, so I can't give you a good estimate. But we think that we're going to be positive going forward for the year.

Okay. And then just quickly, Frank, could you give us some guidance on how the working capital will look as we get through the year? It looks like you might have pulled some forward in the first quarter, but just any thoughts around where that trends for the year?

To start out with -- let me start, and then he can give a little more detail. The inventories in the first quarter were up about $70 million. We think about 70% of that came from inflation and FX. On purpose, we increased some of our inventories with the higher raw material costs, and as we go through the second quarter, we expect the inventories to turn and get back more in line with where we'd like them to be.

And then, I think, Dennis, by the time we get busy through the year to the end of the year, we'll see an improvement overall in working capital, as it'll continue to trend down and we'll improve the position.

So for the full year, working capital is flattish or...

No. It should be down from where it was at the end of 2010.

Got it. Okay.

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

First question on -- trying to look at the margins a little bit, particularly the Mohawk segment. You're up a bit year-over-year, 1Q '11 over 1Q '10. Given the timing and you have the price increases as well as the raw materials -- I mean, is that a trend that you expect to continue? And as you kind of look at it in a bigger picture, you hit a 7% margin in the fourth quarter. I mean, is that something that you hope to attain as we get into the back half of the year?

I think when we look at our margins year-over-year, Dennis -- or I'm sorry, Mike, we're expecting the margins to improve from 2010 to 2011.

Okay. And that 7% that you hit in the fourth quarter, is that something that you think is attainable as you get into the back half of the year?

I'm not speaking to individual quarters, I'm just speaking to the full year. We're seeing an improvement year-over-year for the full year.

Okay. And second question, just on -- I believe you said in the beginning, and I might have caught this incorrectly, but you'll correct me. Is that -- you had mentioned acquisitions and, certainly, there's a lot of investments and partnerships in China and the investments in Mexico and Russia, but historically, over the last 10 years, you've also made some decent strategic acquisitions. Can you give us an update in terms of how you're thinking about that? And, with the net debt to cap pretty reasonable at this point, kind of a target or a pipeline in terms of how you're thinking about things and what small, medium, large -- how we're to think about what you might do in that area over the next year or 2?

Yes. Well, we're looking at additional acquisitions. We think we're well-positioned to consider other ones. As we look forward, we think there are a number of potential acquisitions in North America that would fit our direction and position. In addition, we continue to look at high-growth areas around the world. We have basis already in several countries to either expand the product categories we're in or add to them, and we're also looking at other high-growth markets. So I would expect that over the next couple of years, you will see us active.

But in North America specifically, given you have such large positions in most flooring categories, could you give us an idea, within the different categories, what you're thinking about?

I mean there would just be -- it's just, we're represented in all the categories. There would just be tie-on acquisitions within the various pieces.

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

This is Jamie Baskin on the line for Kathryn. With the margin improvement in the Mohawk segment, can you breakout how much was related to reducing cost structure, production efficiencies or price increases?

Probably the best way to handle that, Jamie, is that you and I talk offline after the calls. I don't have that number here in front of me.

Okay. And then can you provide the growth rate you're seeing as far as non-residential or repair-and-remodel trends during the quarter?

It's kind of single-digit range.

Okay. And that's the same for -- that the modular tile you're speaking of or is that...

The modular tile was growing dramatically. Last year, we went into the year and we had to make some changes in both our Mohawk business. We've put in more products in polyester to react to the market changes, but still we didn't anticipate it to move it as fast as it did, but because of the increasing material costs, it moved faster than we anticipated. So we made moves coming in to the second half with it. We also made other moves in our commercial carpet tile business to increase it. The commercial carpet tile business is growing in the teens at this point, but we're seeing some shrinkage in our broadloom business.

Your next question comes from the line of David Goldberg from UBS.

It's actually Susan on for David. Can you talk a little bit about -- you mentioned the fact that despite the price increases you've implemented, you still are basically behind relative to raw material prices are. Given that and the fact that you are confident that things can improve through the year, do you think you can still see that improvement if you need to implement, or if you decide to implement, further price increases as we go through?

Historically, our margins get squeezed as we do price increases, because we get hit with the cost increases before we can get the increases fully implemented so, historically, we'd lose some margin for a period of time. On the other hand, the industry has shown that it can pass them through, and when our margins get impacted by the raw material costs, we have to pass them through and we've done so in the past.

Okay. And then just kind of building on that a little, how do you think about the trade-off between consumers moving down to lower-margin, kind of, products relative to maybe not being as aggressive with the price increases and trying to shift the product mix a little bit?

I think we always try to find ways to add more value and sell higher value products. In a rising market, you almost have -- our products are driven by a retailer assisting a consumer in purchasing the product. And it tend to be the retailers are afraid of the value they create, and they tend to push the consumers down, thinking that holding price is a value-added proposition for them. So we have this compression that goes on through the whole stream. In the carpet side of the business, you have a phenomenon going on that as the raw materials for nylon increase, that the consumers are being sold lower-cost products, but they also have a different value proposition. So that whole trend is offsetting some of the top line growth that would normally show up with the revenue increases.

Your next question comes from the line of Dan Oppenheim from Crédit Suisse.

I was wondering if you can talk a little bit about the comps you made on increasing the presence at Home Centers. How do you look at that in thinking about margins you would achieve on that? Would you think there is enough volume from that, that it's healthier -- oh, leverage the overhead? How are you thinking about the sales from Home Centers?

I mean our goal is to plus -- fully participate in all the various marketplaces. The Home Center channels has a significant portion of each of the different categories. We need to participate in all those markets, and we're doing everything we can. In each of these segments, we try to bring added value as well as supply, based on price and service. And we think that we have resources to do that. I think that it's going to help our business long term, and we like all the business we can get.

Okay. And then in terms of the margins in the Mohawk business, we [indiscernible] saw in the first quarter -- I imagine much of that wasn't coming from price given the timing and how long it [ph] kicks in, comes through. Was there anything coming -- everything about the price and health in the second quarter exacerbate a full net positive? Is there anything -- any offset that we should be thinking about in the second quarter?

We have the offset from the second price increase, which won't be fully implemented, but the costs are fully being taken. But we -- that one won't be fully implemented through the peak, which will benefit the third quarter a little bit.

Your next question comes from the line of Bob Wettenhall from RBC.

Could you just touch on your view if you're gaining any market share in the Mohawk segment domestically?

I think that the actions we took last fall, that we did not aggressively move into the polyester business as fast as we could -- we didn't see it changing as fast because we didn't anticipate the changes in the product costs as much as they were. So I think what's happened is as we've come into the first quarter -- if we compare the first quarter to the fourth quarter, we're improving our position within the marketplace, but I think that the different steps we've took, we're getting benefit from in going forward.

Is that in both polyester and nylon?

Of course, it's addressing the total market, the total business.

Okay, whether we mean in [ph] -- we also have another category, which we have unique to ourselves, which is what we call our SmartStrand products. And they're made out of a fiber, which we are the only person, the only company selling it presently in anything. And we're actually creating a unique product category with unique advantages, and it continues to grow also. So we have 3 methods of participating.

Well, on that too as well, and this is my follow-up -- if you still experience raw material inflation and you're able -- not able to fully offset it through price increases, are there other levers you can pull on the cost-savings side to support margins in the Mohawk segment?

There are but we can't -- that's a part of our fundamental structure of doing it. We'll continue to invest in capital investments, as well as process changes to improve our cost structures as we go through. We're continuing to redesign the business so that we can take costs out in each of the businesses. Every business starts out the year with goals of cost takeouts across the business to improve productivity and cost structures. And, I mean, they drive those throughout the entire year in all businesses.

But our expectation is, if raw materials go up, we're going to pass those price increases through.

That's really helpful.

Your next question comes from the line of Stephen East with Ticonderoga Securities.

If we could look at the raw materials and the trends -- if you looked at year-over-year, the total basket for your company, how much would you say raw materials are up? And then, oil has started to come down. How quickly -- if raw materials or if oil derived raws start backing off, how quickly would we see that running through your income statement?

Well, I'm -- I don't have the total number in front of me. I mean the impact's huge, it's a -- I mean hundreds of millions of dollars between the cost of the different pieces in this. So we've had to change the business from the products and pass increases through to get these things through across all the different segments and categories. The prices -- in most cases, we will feel the ups and downs, because we're basically buying at market prices or contract prices, but we feel the increases almost immediately from the time they go through. From the oil piece, they do go up and down based on oil, but there's another phenomenon that's involved which is, as we went through the recession, the worldwide market for chemicals, nobody put the investments in. So as you have the world marketplace growing, that many of the chemicals produced in the U.S. are being shipped overseas. The impact of the exchange rates or the weaker dollar are making them higher-value to ship overseas, so not only do you have on one side of the oil prices affecting it, you have the high demand for limited resources, and they don't all -- one plus one won't equal 2.

Okay. All right. I appreciate that. And then the second part of my question's 2 different issues. One, could you talk about what you expect the foreign exchange impact on Unilin in the second quarter? Because fourth quarter it cost you nearly 14% of sales. First quarter it didn't cost you any. And then the second part of that, the second question, the Mohawk division. Is the fourth quarter result more what we should expect moving forward? Or is the one quarter result more reflective of what's going on in that unit?

Yes. We'll probably have to get you to repeat a little bit of that, but the on the FX question there, Stephen, I think the way to think about it -- you can come up with your own estimate, but as the exchange rate moves a $0.05, you could say that, that equates to about $1 million or so of operating income up or down. And then what was your second part?

And then the second part, your revenues were up a little bit in 1Q in the Mohawk segment, but your op margin was much lower than the fourth quarter. Is the fourth quarter more reflective of what we should expect moving forward? Or is the first quarter's operational results more reflective of what we should expect?

I think you have to look at it, again, on a full-year basis and our expectation is, for the full year, that the Mohawk margins are going to be up this year versus where they were in 2010. Traditionally, historically, the margins have always been lower in the first quarter and, generally, have been higher in the fourth quarter just because of timing of certain expenses.

Okay. That's helpful.

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

Just with respect to the guidance, I guess at this point, you have a pretty good sense of what you're going to achieve in the way of price increases. You're a FIFO cost company and based on your inventory turns, you have pretty much 100% certainty around your raw material costs, given that we're already 1/3 of the way through the quarter. So I guess the -- what remains uncertain is, "Over and above just your ability to continue cutting manufacturing costs, which I guess is somewhat linear, what are the volume and mix assumptions that you've got in your guidance?"

We don't give out specific pieces for each category of product. We blend those together. The assumptions are that the volume's going to improve as well as the pricing. There'll be some mix deterioration going on through the piece as we downgrade the cost product, again, from the nylon to the PET mixes as we change, and we would blend all that together. We will give you all the details, but I can tell you, when we get through, none of our assumptions will come out right. But the only thing that happens is we hope to get the average of all the mixes about in the middle.

Do you expect much of a disparity, in terms of your volume outlook ,for the second quarter across your 3 segments? Or is it going to be relatively close?

There will be some fluctuation there, David.

Okay. I wonder if -- just secondly, if we could talk a little bit about the commercial business. And specifically, if you could just talk about your strategy for reestablishing strength in carpet tile. You seem to be positioned at lower price points right now, or lower face weights. When do you begin to make a more pronounced push up-market to higher price points?

I'm not sure your assumptions are exactly right. We've participate at all the different price points today. We're not a lot different than the average of the industry. I guess we tend to talk about the lower-weight because we have the higher ones established prior to now. Our missteps from a year or so ago, that did impact our strategy. We're building back the confidence in the products. We have taken care of all the problems that occurred, and we think we're well positioned. Again, we're growing in the teens already, about like in the high teens we're growing already. What's happening to us is that the broadloom business, as the marketplace is moving up, we're not -- we're offsetting some of the growth we have with the loss of broadloom business, which is typical of the industry.

Wouldn't the B&D end market mix for your carpet tile right now -- I realized hospitality is pretty important. Can you just talk about some of the other end markets where you feel you're strong or you have the advantage?

We really participate in our commercial business across every category that's out there. I would guess in the hospitality business, we have some unique things because of Durkan print businesses. We have some unique positions within it. But all the rest of markets we are participating in and have significant shares in all of them.

How do you stand at education, I guess, since we're heading into a seasonally strong period in that end market?

I would say that we're one of the best-positioned companies in the country.

Your next question comes from the line of Laura Champine from Cowen and Company.

Could you talk about your share -- your market share trends outside of the Mohawk segment? So in Dal-Tile and in Unilin, do you feel like you're still gaining share? And also, could you discuss the -- I know those segments are more fragmented from a competitive standpoint. Can you talk about how that helps or challenges your ability to raise prices?

Well, all the different markets are all unique. I think that the ceramic business has been compressed significantly over the time. I think what happens is you have different kinds of adjustments during different parts of the years and timing, so that in the ceramic side of the business that -- since a lot of it is imported, you have major swings in inventory and it can affect years significantly as the imports go up and down, changing those inventory levels. We believe that we continue to have -- maintain and grow our market share within it. We continue to aggressively participate in all the different aspects of it. We continue to innovate in products. We keep talking about Reveal Imaging, which is a printing technology which we're leading the country in and the business here, which is allowing us to get better looks in the marketplace, and improve our positions within the marketplace. When you talk about the laminates business, our strategy is to participate in the entire market with limited participation in the opening price point, which is the lowest value-add in the market. And since we spend so much effort in creating differentiated looks -- the players that do that are the ones that have limited technology and differentiation. So as you look into that business, we participate -- we can participate. It depends on the share growth of the different qualities of merchandise in the laminate business, is it. I think we're well-positioned where we are. We don't want to be the commodity producer in the marketplace, because we bring much more to the marketplace than price.

And does that positioning -- and does your product innovation make it easier for you to push price increases through? Or how do your -- are your competitors going along with these increases? Because I'm sure they have the same cost pressures.

Because of -- the positioning in the marketplace is not as volatile, up or down, so as it compresses, ours doesn't go down as much. On the other hand, when it starts moving back up, ours probably doesn't move up as much, because we didn't move it down as much to begin with.

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

A couple of questions. Number one on the guidance, the residential trends you've been discussing in the call, are you assuming they stay? The trends in April, are you assuming they stay the same for the rest of the quarter, improve, decelerates? What's kind of the view there?

We're assuming that the trends stay about constant through the period.

Okay. And specifically within Unilin, you talked about pricing earlier. Will your pricing actions be fully implemented in Unilin by the end of the second quarter? Or is that going to drag over into the third?

The ones that we've initiated in the second quarter -- in the first quarter will be fully implemented. We have increases being put in into the second quarter and then depending upon the timing of when they go in.

But is the majority of the pricing work has been already done in the first?

The majority of it has been done, but there's more coming in the second.

Okay. And is that going to be on the core Unilin? Or is that just that ceiling stuff you were talking about earlier?

The European laminate was increased in the first quarter, with the roofings be going up in the second quarter, and some other board prices going up.

Okay. Final question. Frank, you had referred earlier to working capital being down for the year, and I know you basically think sales are going to be up for the rest of the year. What's going on in there? You -- normally, working capital would rise with sales.

Well, the plan is, and this -- it all depends on what happens with raw material inflation, but the plan is basically to improve our terms.

So the inventory would be the delta factor there?

Right.

Okay. And so as you look at inventory and production rates, are you moving up production in the second quarter or keeping it similar to what you saw in the prior year? How does that, for you, play out?

Q1 -- Q2 production versus Q2 last year?

Yes.

That's a good question. I'm not sure I've got that in front of me here, and I don't know if you [indiscernible].

As in -- obviously, it's ramping up since the first quarter, just seasonally.

Right. We don't have the estimates for the last year, in case you [ph] want production volume.

Well, let me ask you this way. With the inventory, we would just see the normal swing down, just as a greater rate in the second half of the year.

When we talked about -- remember that a major part of the increase, 70% of the increase came from raw material inflation or FX changes. We're only talking about $15 million, $20 million across the whole business.

Okay. All right.

Your next question comes from the line of Sam Darkatsh from Raymond James.

If you could -- I know we've been dancing around this a little bit. The Mohawk segment, what was residential down and what was commercial up, generally speaking?

We don't give out specific numbers. Not intentionally.

And generally speaking, if you could qualify, would they be low-single, mid-single digit kind of stuff?

We don't go down that route.

Okay. So then, I'll rephrase then. So versus the industry, are you maintaining share in either residential or commercial? Or is the effect that the industry statistics and your own differs, is that more a function of your mix versus the industry? Or if you could help, prefer some color on that?

Yes. I think that last year, as we kept saying, we lost some share in the first 3 quarters or so of the year, and I think if you look at it on a sequential basis, we're doing as well as the industry, which would be as you move from fourth quarter to first quarter.

We've held our position.

So then, do you anticipate then, gaining share going forward because of the recent trends? Or when would we start seeing that on a year-on-year basis?

Your question is, "Are we going to gain share as we go throughout the rest of the year?"

Yes.

That would be the plan, to improve our position.

So then -- at what point, then...

You have to go breakdown each of the comps from each of the quarters when the changes occur. That's how you do it.

From a sequential standpoint, as far as you're seeing, you began gaining share really in the fourth quarter.

In the fourth and first quarter.

Okay. And then last question, I'll defer. The incremental margins in Dal-Tile and Unilin, there's a lot of moving parts obviously, with pricing and raw materials and volumes and the such, but give us a sense of how we should look at that, generally speaking.

I don't have that in front of me right now, Sam. So rather than just venturing a guess, if you could call me back afterward, I can give those to you.

Your next question comes from the line of John Baugh from Stifel Nicolaus.

Jeff, Frank, I may have misheard it, but mix in the Mohawk division, was that a help or a hurt in the first quarter?

First, it's hard to pull off -- pull out mix and price and separate them. But basically, I think what we've been saying is mix has been going down as prices have been going up.

So and is -- when we talk about mix, I understand that the polyester product is less expensive than a nylon, so on a price basis, that would be a mix down. I'm wondering there, in terms of gross margin percentage, if there is a reduction when we use a polyester versus a nylon. And I guess, most importantly, whether in gross profit dollars, if there is no slippage, but there's still slippage in gross profit dollars because the gross sale dollar is lower.

I think the mix question is more related to price points and commoditization of the product. And it doesn't matter which raw material base you're using. The more commoditized it is, the lower the margin and the more differentiated it is, the higher the margin. So if you stay in similar things, they stay similar. If you move between them, they change.

Are you seeing, Jeff, any improvement -- I know Triexta's doing well, and that's a high-priced polyester. Are you seeing any improvement in the --- within any other line upwards? Or is there still sequential or year-over-year pressure?

First is, it's not polyester.

Yes. It's diff.

It's a different material according to the government. Second is that we started out with Triexta positioned as the premium product in the marketplace with differentiated features and values. So on average, we've had a higher mix in it due to the market positioning and product position. What we've said now is we're introducing it in some new categories to compete with the other product. So we're putting it in the multi-family product category as we speak. We're getting ready to put some in the commercial product categories, and these things, we'll put it in lower price points and we'll lower the margins more in line with more commoditized products.

And then my last question was a mix question related to Unilin, within laminates in Europe. You mentioned the European markets are strengthening. Is there any trend in mix in laminates, Europe?

The mix in laminate Europe, I guess, will be that the mixes there has declined, and what's happened is there's so much pressure on the commodity pieces, it has pulled down some of the premium pieces as well from a pricing standpoint.

Our next question comes from the line of Kalpesh Patel from Jefferies & Company.

Just a question on your Mexican plant there. That's now your second plant. Is that primarily going to be just for the domestic Mexican market and the U.S. market? Or do you see yourself also selling further south, into perhaps Brazil and Latin America?

The primary use is for the Mexican marketplace. The location is set in order to be where the majority of the people are in Mexico City to reduce freight costs. In the interim period, we'll take some of the capacity that we'll have in the north and shift it to the southern plant, which will open up some capacity for the North American marketplace, but the goal will be not to ship it out of that plant due to its geographic location if possible.

Okay. Now I'm just trying to follow up on a previous question that you were asked about other markets, globally. And so now that you have presence in Russia and China, are you also considering having assets on the ground in markets such as Brazil and India?

Yes, we would consider those.

Have you done more than consider, like some research, put some money into it or just still considering it?

Well we can't give you a list.

I can tell you over a period of years, we've talked to a lot of people in marketplaces and we continue to talk to them.

Okay. And then in terms of -- my follow-up question, in terms of the raw material inflation in the European business in Unilin, I think in your opening comments you said that the wood pressures have peaked. And so if you could just talk about actual percentages -- I know we've been talking a lot about price increases and commodity price inflation, but the actual percentage increases for the inflation and your prices to offset it, that would help.

I'm not sure. I don't have those with us. Just as some comments. As in the United States where we've taken corn and used it for energy, and we have changed the supply and demand nature for corn in this country, in Europe, the government has been subsidizing the burning of wood, so what you'll have is the energy use, which is subsidized, competing with the non-energy uses such as boards and material. And those things combined have been driving the material prices up in an environment where they should be going down because of the supply and demand of wood products in the marketplace. With that, there's also the -- as we went through the recession, wood is taken out of the forest and the infrastructure taking out of the forest declined, so all these things created significant pressure as the economy started improving. As we said in some of the comments, I believe, is that between last year and this year, some of our board product we've increased 25% to 30% over the past 12 months, which is a reflection of those increases. And the numbers are so large you can imagine they're impacting our costs.

And in what [ph] period of time?

You've increased your prices 25% to 30%?

In the board businesses.

Got you.

Yes. It is.

Okay. But do you possibly [ph]...

If you want to call Frank back, he'll get you a more specific on the exact wood prices in the marketplace, but...

Okay. And but the peak at this point, is where your outlook...

I can't guarantee it, but they appear to have peaked.

Your next question comes from the line of Alex Cook [ph] from Voyant Advisors [ph].

I was wondering if you could talk a little bit about your historical levels on inventory. You guys have mentioned this quarter and last quarter that you guys only had to bring the inventory levels down to that level, so I was wondering if you could tell me what those levels were.

A year ago and, well, the end of December 2010, is that what you're asking for? The end of 2010 December?

No. I guess more just in general, you guys have mentioned that you guys wanted to bring the inventory levels down, and then inventory increased. I know that you guys had a lot of cost inflation, but you guys also had some volume increases. So I wanted to know...

I mean, I think what it is, is that -- each of the individual businesses, our goal is to increase our returns and reduce our working capital by improving our processes and procedures everywhere, and planning strategies. And in doing so, as you manage it, can you give the same or higher levels of service with better utilization of the inventories? Now offsetting that is balancing the plants out, given individual periods, offsetting -- if, again, with rising raw materials where you tend to increase prices, increase inventories as raw materials are assumed to increase in the future, and balancing all that as we go through. Our goal is every year to improve our inventory turns and our use of working capital from the prior year. On average, throughout the year.

And your last question comes from the line of Joshua Pollard from Goldman Sachs.

This is Anto on for Josh. Could you talk to how much of the volume lost due to bad weather? You factored that as pent-up demand for the remainder of the year?

I think it's flowed through already.

Okay. And the second thing was on the tax rate. What is driving the lower tax rate? And also, the interest expenses as well were slightly light in the quarter. Can you talk to that as well, please?

Yes. The tax rate is driven by distribution of earnings between the U.S. and other countries. We have tax strategies in place outside of the U.S. that give us a lower overall effective rate. So as the income distribution changes back-and-forth, we see our tax rate impacted by that. And then on the interest improvement year-over-year, that's being driven by a reduction in principal, where we've paid down the 2011 bonds that we had a year ago, and then also, as I mentioned earlier, we renegotiated the rates on our bank facility 6 or 8 months ago, and that's also favorably impacted our interest.

And with no further questions in queue, I turn the call back over to the presenters for any closing remarks.

We appreciate you joining us. It looks like that we've passed the bottom of this. We are anticipating improving over the next year or 2. We think we have a lot of strategic opportunities, as well as maximizing our existing core businesses, and we're working hard to create the most value for our shareholders as we can. Have a good day.

And this concludes today's conference call. You may now disconnect.