Good morning. My name is Amy and I will be your conference operator today. At this time, I would like to welcome everyone to the Mohawk Industries Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions]. As a reminder ladies and gentlemen, this conference is being recorded today, Friday, February 21, 2014. I would now like to introduce Frank Boykin, Chief Financial Officer. You may begin.

Thank you. Good morning everyone and welcome to the Mohawk Industries' quarterly investor conference call. We will update you on the company's progress during the fourth quarter of 2013, review our performance during the last year, and provide guidance for the first quarter of 2014. 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 is the world's largest flooring manufacturer and 2013 was a pivotal year in the company's history. We used our strong balance sheet to support a shift from a conservative approach to a more aggressive growth mode. By investing $1.8 billion in acquisitions, with significant synergies to our business, we strengthened our U.S. market position and further diversified our exposure to international markets. About 30% of our sales are now generated outside of the United States, primarily in Russia and in Europe, which is in a cyclical mode. Our revenue mix also changed significantly, with our sales now roughly 40% carpet, 40% ceramic and 20% wooden laminate. Our CapEx was $367 million for 2013, including major investments in carpet, fiber and yarn, ceramic tile capacity, and an installation board plant in Europe, as well as the first phase of a new LVT plant. In 2014, our capital plan is to invest $500 million more in additional capacity and productivity improvements. These investments will position us for continued growth from pent-up demand from new housing and remodeling in the U.S., as well as from European improvement and participation in new markets. Today, Mohawk is better positioned for the future than ever before. Each of our businesses has the strongest management ever, and all the teams are driving long term strategies to expand margins, introduce innovative products, and improve productivity, quality and service. 2013 was a milestone in our history and reflects how growth through acquisitions have been a core component of the company's strategy during the past two decades, and will continue to be in the future. As Mohawk went public in 1992 as a niche carpet company, who has successfully integrated almost 30 acquisitions. Our initial focus in the carpet and rug acquisitions expanded our production and…

Thank you, Jeff. Net sales for the quarter were $1.924 billion, which represents an increase of 34%. 28% of the growth came from our three acquisitions that were completed in the first half of 2013. Our legacy business during the quarter grew over 6%, as U.S. residential showed strong growth, with commercial remaining positive and Europe flat. Our gross profit margin as reported was 26.7%, excluding restructuring, the margin was 27.5%, up 140 basis points with higher volumes, better mix and productivity improvements driving profitability. SG&A was $362 million or 18.8% of sales. Excluding restructuring, SG&A was 17.8% of sales, this is a 120 basis point improvement over last year. In our legacy business, our full year SG&A dollars were actually down compared to last year, as we continue to exercise strong control over spending. Restructuring, that was included in operating income was $36 million. This includes $6 million, another $17 million and then $13 million into carpet, ceramic and laminate segments respectively. We are currently estimating $30 million in additional restructuring charges in 2014 as we continue to integrate our acquisitions. Operating income excluding charges was $187 million, with a margin of 9.7%. The margin grew 260 basis points, as a result of volume and mix improvement, plus good cost control. Interest expense was $22 million. Additional debt of $1.2 million to finance the acquisitions, increased interest expense over last year, which was partially offset by a $1 million retroactive interest rate step down, after Moody's upgraded us to investment grade in the fourth quarter of last year. S&P upgraded us to investment grade earlier in the year. With these upgrades, we are currently exploring opportunities to participate in the commercial paper market, which will further reduce our interest rates. We are estimating interest in 2014 of about $86…

Thank you, Frank. Through investments and acquisitions and capital expenditures, productivity improvements and product innovation, we have positioned Mohawk for growth and improved profitability in all segments during 2014. We made excellent progress with integrating our acquisitions to maximize the market positions, and improve their cost structures. At this point, we believe the U.S. market, which is 70% of our business, represents our greatest opportunity. In Europe, we continue to lower our cost structure, enhance our productivity and improve our product offerings, to position us for future growth, as the industry improves from its cyclical bottom. In the U.S., we are the largest flooring provider, with leading brands and more than 40% of the nation's ceramic and laminate markets, and significant shares of the carpet, wood, stone, rug and carpet underlay markets. This year, the U.S. economy is projected to grow at a pace, on-par with three recession levels; and the flooring industry is expected to outpace GDP growth. We are well positioned to improve our results, as new construction and remodeling expand in both residential and commercial categories. This year, we anticipate growing both our sales and margins in our legacy business and recent acquisitions. We continue to assess additional acquisition opportunities in flooring products around the world, to further expand our business. With these factors, our guidance for the first quarter earning is $1.13 to $11.9 per share, excluding any restructuring charges. Our first quarter results are seasonally our lowest, and the past four years, it represented one-seventh of our total annual earnings. While the weather in the first half of this quarter has impacted the timing of some of our U.S. shipments and orders, our first quarter results are anticipated to be in line with normal seasonal patterns. We anticipate orders improving and our backlog declining, limiting the impact on the quarter. We are optimistic about the future of the flooring industry and our participation in it. This year, we anticipate increasing capital investments in our businesses, to support additional growth, expand our product offerings, and reduce costs. We will continue driving all aspects of our business to improve profits and increase shareholder value. We will now be glad to take your questions.

(Operator Instructions). Your first question comes from the line of Dennis McGill. Your line is open. Dennis McGill - Zelman & Associates: I guess the first question, and I am not sure if this is for Jeff or Frank, but as you look across your domestic portfolio, all the different flooring options you have, and you think about some of the categories that may be have secular challenges and other secular headwinds or tailwinds? Do you think, as you look forward, that you would grow on-par with overall square footage growth for the flooring category, or would you be plus or minus that?

Our objective in all the business is to outperform the marketplace, and we think we are positioned to do that on any category. Dennis McGill - Zelman & Associates: Yeah, I understand as the market share with any category. But as you piece together all those categories, is your expectation, that that will be better than market growth for flooring as a whole?

Yes. Dennis McGill - Zelman & Associates: Okay. And then Frank, as far as the 1Q guidance, not knowing where the revenue and margin pieces shake out, it seems to imply that the year-over-year margin improvement would be lower than the first quarter and improve through the year. Is that the right message, as we model it out?

Well I'll say Dennis, that it will improve year-over-year in each of the four quarters, as we move through the year. But I am not prepared to address the margin improvement Q1 versus margin improvement any other quarter. But it will be up in Q1 versus a year ago. Dennis McGill - Zelman & Associates: Okay. All right. I will get back in queue. Thanks guys.

And your next question comes from the line of Eli Hackel of Goldman Sachs. Your line is open.

Thanks. Good morning. Can you just talk a little bit more about the Continuum, what percentage of your carpet sales does that make up now? Where do you think it could go, and I don't know if you are prepared to address may be the margin differential between that product and your overall carpet margins?

Well to start off, polyester is a growing part of the residential carpet business. The estimate is that polyester as a industry, represents somewhere around 50% of the residential carpet, to begin with. We believe that, we have a unique position with our Continuum technology. We have patented a group of different things between our recycling technology and our exclusion technology, to give this an advantage. The result of which, create a product that has higher values, with more bulk. It gives us the opportunity to market products with up to 100% recycled content. And we have lagged behind the industry in our participation in polyester, and in the fall, we started introducing products. We will introduce 40 new products between the fall and now, so we have a broader product offering at all price points, to maximize on sales in this category.

Okay. Thanks. And then one, just on M&A. I am not remitting too much into something, but you seemed to -- additional line in the release about looking at flooring opportunities, spent some time in the prepared remarks looking at M&A. Has anything changed there, are you closer to any other deals, or is that just sort of the standard view that you look to continue to do deals in this space?

I think the point we are trying to get across is that, we made three acquisitions of significance. We are well along with what we are doing. Our capital structure is improving significantly, and as always we are open in looking at all areas, that we can find synergies in.

Okay. Thank you very much.

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

Yes. Two questions, back to the polyester carpet. Into the year, how well rolled out is that new initiative, and when do you think you will start hitting your run rate on that, in terms of sales?

We started in the third quarter introducing some. We have been introducing them since then, and to get all the products in the marketplace, by the end of the first quarter, some time in mid second quarter, we will have rollouts in the marketplace and as we do it all for new products. I mean, does well into the market.

Okay. And on the $500 million of CapEx this year, you mentioned ceramic and carpet as being the extension, expanding capacity for those from that money. Can you give me some examples of where you are spending that, within those two segments?

In the carpet side, most of it has continued its investments through supports of growing polyester business, but large investments in the Continuum processes and to keep expanding those. On the ceramic side, is additional equipment going into expand our present facility is a future investment that we are planning through. In ceramic, it takes us about two years to get the plant up and it could take another year to get the plant up to full capacity as it starts up. So there is a plan and addition for another potential site, that hasn't been finalized yet to start.

We are spending in the ceramic side, both in the U.S. and in Europe. In Europe, we are upgrading several of their manufacturing plants as they get over there?

It should be in place by third quarter, I guess.

And final question on the first quarter guidance, I know you don't usually talk about revenues. But I know, if I am going to start, I will start with the year. Does your guidance assume that we see some revenue growth in the quarter, or can you directionally help us there?

There is revenue growth in the quarter, Keith.

Okay. Thank you.

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

Hi. Thanks for taking my questions today. The first is on pricing specifically and your carpet segment. At this time last year, there has already been an announced price increase in the market, and we don't currently have one, at least in the U.S. Will there be a soft flooring price increase this year, and digging a little bit further, could you distinguish by category, would you make a differentiation between, say your ultra soft versus your polyester lines? Thank you.

Historically, the carpet industry increases pricing as the raw materials change. The reason there hasn't been any announcement is, there hasn't been a significant change in the raw materials, forcing the industry could change prices, to recover the costs. Though at this moment, we don't have many. If the circumstances change that require it, we will announce the price increase and pass it through to the customers.

Tiding along that with rising costs, lot of focus on rise in natural gas and also NP [ph] derivatives, how much have rise in natural gas and other NP derivatives, impacted your overall cost structure, really in all segments, but particularly in the U.S. and where do you see that as we progress through the year?

The costs will go up proportionate with the prices we don't hedge. Our natural gas, we buy it at the current prices. We have built into all our estimates in future, an estimate of what happens in the marketplaces. Our ceramic business has probably a higher portion of energy costs in it per unit, and if the costs go up significantly enough, we will have the change the pricing structures.

Okay. Great. Finally, on non-res demand, you touched on growth with a [indiscernible] is this driven by new construction or remodel?

Is it in non-residential Kathryn?

Yes it is.

Its non-residential supported by new growth or remodel. Most of it is coming through remodel right now.

Okay, great. Thank you so much.

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

Good morning. Great quarter.

Thank you. Good morning.

I wanted to ask a little bit of a theoretical question and kind of following up on the prior question on price. But what I am trying to understand is, do you think in this cycle, as we kind of looked out at consumer base, is it consumer globally? Do you think if something has changed, maybe in the U.S. or may be globally and the consumers ability to absorb price increases. Just given that, you know, there has been a deleveraging cycle, home prices may not be going up specifically in this cycle. DO you think the consumers are going to be able to absorb price increases, the same way as you guys look forward in the model business?

The consumers ability to absorb price increases, typically what happens is that, as price increases go up, if the consumer can't afford it, they trade down to a lower value product to lower price point; and typically, as you increase prices, you do see a deterioration and some of the mix, as you go through. However, as the market improves and the remodeling business, which is a very large part of our business. The consumer, not only desires to have the best products they can afford, and to have their homes look as beautiful as possible. So as their incomes better, and as they gain more confidence in the marketplace that housing prices rise, they anticipate that the customers who can afford it, will actually trade up more than they have in the past few years.

That's really helpful. And then just, [indiscernible] in the opportunity M&A side and I really appreciate guys, the health in kind of this ceramic tile market and the size of the market globally, versus where you guys are as a percent. But can you help us understand, how that would kind of break out between current footprint versus new geographies, and what do you think the addressable market is, when you look at the tile business? I mean, its presumably not the full amount of the numbers you quoted. So can you just kind of talk about where do you think the addressable market is for you, and kind of, maybe given the current geographic footprint of what you think the addressable market is going to be, and then given the potential for M&A, where you'd like to see it? And I understand its kind of a general question, but just trying to understand, where you could be going?

Let me try to give you a philosophy rather than exact thesis. The philosophy is that, in areas where we have an existing business with strong management, we are open to looking at any business that's in the area, because we have the management and order to take existing businesses to fully performing or operating well and integrate them into an existing structure. So in areas where we exist today, it is open to anything. When we go outside existing markets, we look for businesses, because we are buying as much the management, as we are the company. And we typically will not have businesses under stress, where we don't have existing management to do that; and that applies to all our segments. We have a philosophy that we will go into different marketplaces, we don't try to overlay a single strategy that we use around the world. We try to make sure, that each market's addressable work thought is important, how they go to market, and we think its very important to have local knowledge in doing that. And that's why, when you see us going to new geographies, tending to buy the best companies in the industry, we will do that.

That's very helpful. Thank you.

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

Yes good morning. Good quarter Jeff.

Thank you.

I am wondering if you just look across your portfolio again across carpet ceramics, wood lam and the categories. Just talk about what you are expecting in terms of industry revenue growth in 2014?

I think that the industry in flooring is close to be up about 4% to 5%, I am giving you off the top of my head, I don't remember it. I think the industry is around 4% to 5%. I think the carpet is slightly lower, around 4%. The ceramic business is higher, I think its 6%, 7%, might be higher, I don't have the numbers in front of me, and laminate is probably on the lower end.

Okay. Is that in U.S. or is that global?

That's the U.S. Each market is unique.

Guess it's harder to put numbers around the global, it sure is?

Each one is in unique. In Europe the business is flat to up a little bit, wouldn't surprise me. Hopefully, it's going to turn and be up a little. If you go to Russia; Russia, the economy has slowed down, and the ceramic industry could be up a little bit or down a little bit, I don't know exactly as an industry.

Okay. Second question, just with respect to the carpet segment, typically in the fourth quarter, you see your strongest margins of the year. This year, you were down sequentially from 3Q. I am just wondering is that -- what was the --

Its just the timing and different cases and we have expenses yet [ph]. We tend to look at it, or the margin increasing over time, when you compare it to last year. I think we made a huge amount of progress.

Was there any pressure early in the quarter, from the whole government shutdown thing, that might have adversely impacted those numbers?

No. There wasn't though.

Okay. Then finally, from time to time, you update us on contribution margins by segment. I was just wondering if I could trouble you for that?

I would say Dave, the long term margins haven't really changed. Obviously they are going to vary quarter-to-quarter. But we are sure, for the fourth quarter, its probably around 20% and tile was around 25% and laminate is up around 30.

Thanks very much.

And your next question comes from the line of Ken Zener of Key. Your line is open.

Good morning gentlemen. [Indiscernible] the last comment on the lam, given the new plants in Europe, that you are going to be bringing on. It sounded like that was going to be at the end of 2014, it would be completed, so that would be coming online in 2015 and then, the merge operations in the U.S. for Pergo. Could you kind of talk about the initiatives that you have in place today in that segments, given the plants that you are bringing online, and how that might impact the operating leverage that you just talked about?

There might be some confusion. In Europe we purchased Pergo, which had two manufacturing plants in Sweden, which were antiquated. At the same time, about a year or so ago, we built a plant in Russia, so we took capacity out of our plant, which created excess available capacity in the other ones [ph]. Pergo had not invested in their plant in almost 20 years of significance. So we shut the plant down and moved it in. Those are the savings and those are all built into our estimates that we have given you. In addition, the new plant we talked about is going into a new product category which is called luxury vinyl tile. That new plant will come out of the ground and should be operational towards the end of this year. We are building sales in the U.S. and Europe to support that plant, as we take -- physically take the plant site to come up, it takes a year to get the volume up to where you are and the pieces going together to work, as you go through, will start out with shipping some of it to the U.S. marketplace, and the goal is to build another one in the U.S. to support the U.S. marketplace, when we get the [indiscernible] worked out at the first one. On the U.S. side, the capacity in the U.S. side and laminate woods -- in laminates, the investments are basically in adjusting the product categories based in areas that we have changed, and just putting those in, that won't significantly change the overall capacity. We talk about the board business in the U.S., that with the addition of Pergo, we are fully utilizing more than the plant's capacity, that we have put in some investment already to speed it up, at the right time, we have other investments to speed it up further. It won't change the overall laminate business, but the support of the board business.

Appreciate that. If we look at the carpet, I mean, going back here because of the success you have been having. If you were to look at the, kind of the margin expansion that we had, obviously part of it is going to be the volume, in terms of the contribution. Pricing seems pretty neutral. Can you talk about the volume impact, the mix impact, if there is, somewhere, going up to triexta or nylon. As well as I think in the poly side, certainly with your Continuum, its more about the costs that gives you leverage. So could you kind of help us understand how those three components led to the driving up of margins and or EBIT dollars? Thank you.

In order to get the margin to improve, we had to [indiscernible] letter in the book, and it was a combination of everything you talked about. It came from margins improving from the product mix, which in the last year or two, we have been focused on maximizing our position in the premium ultra-soft categories that we did three different options -- three different raw materials into it, and a multiple of options within each one. So that paid dividend. We have been going through the plants and improving productivity and cost savings through every piece, and then this year, our SG&A actually decreased, including inflation and including significant investments, so we have really focused on controlling the SG&A and spending it up, spending the money that we have on the proper [ph] things. The organization has been executing much better than it ever has in a piece. The Continuum is that, the polyester business has grown much faster than we thought it would, three years ago; and so we got a little behind our participation in the polyester business, as it was growing much faster than we thought, and we didn't have the raw material structure to support growing faster than we were. Over a year ago, we made a decision to put the assets in to do it, and those assets have been going on all through this year, and will continue going in through 2014, which is allowing us to have the share we believe that we deserve in that marketplace. In addition, the technology that we put in, has given us advantages in the end product as well as in the marketing of them, which should help us participate further, so we think we are well positioned in all the places.

And I will just kind of attack on to the end of that, with the Continuum polyester margins, regarding how that compares to other products. The margins in all of our products, differ depending upon the uniqueness of the individual products, and like the rest of our product lines, we have a mix in polyester of high and low margin, high-end, low-end products, and we anticipate the margins here, with this PET Continuum to be similar to the rest of our business.

Thank you.

Your next question comes from the line of Steven Kim of Barclays. Your line is open.

Thanks very much guys. Strong quarter. Wanted to ask you about the American Olean expansion. We had heard you talk about an experiment you were undertaking out in Las Vegas, with the combined distribution of American Olean and Marazzi. I was curious, on the scale of one to five, how would you say your assessment of how that has gone -- where would you rank that? And then also, as you try to expand that out, are there any costs that we should be thinking about, that would be relevant in that segment, if maybe some of that hitting in the first quarter to drive somewhat lower guidance? Thanks.

I am glad you asked. Both the American Olean and Marazzi brands are basically sold through independent distributors. So first thing we did, by putting them together and bringing together, is that we offered a product offering to the distributors that support us, and we are getting increased commitments from those existing distributors to sell both brands. Second is, when we lacked independent distributors, we put the product together and we did a test in Las Vegas I believe it was, with both brands. Presently, we have that one operating. We have three more under construction at this moment, and we have plans for putting in 10 more to cover the other areas that we are not in. And that's the start of where we are for this year's plan

It was not really any kind of significant costs included in the first quarter, the way it would start up any of that.

Okay. That's very helpful. Great. So it sounds like you are very enthusiastic about that opportunity. I want to follow-up on a question that you had gotten earlier about acquisitions, and I think it was Dave Goldberg, you'd answered in sort of an approach; a general approach that you take towards acquisitions, where I think you said that if you had got established management in geography, you are more willing to look to expansion, but you wouldn't do any kind of turnaround type opportunity in your new geography. So I guess the one thing that I am wanting to hear you articulate is, you have just done two pretty large and important and successful so far acquisitions. Is it your view that you have the bandwidth and the ability to expand the role that your existing management is doing or undertaking, or is it that you think that you are more likely to look into these new geographies, with strong management teams, as we look forward over the next 12 months? Because you talked about your balance sheet being very strong; but I was curious as to, what you though about the human capital element of the company, where that stands?

The existing businesses have the strongest management groups that we have ever had. In the last 12 months, they have shown how they can take diverse businesses, integrate them together, reorganize them and quickly in a short period of time, go through what many companies have difficulty doing. At the moment, we've had anywhere from nine months to 12 months with the business units we have, the basic building blocks are all in piece, and they are continuing to refine that. I would say that most of them would be capable of taking on additional integration things, sometime in the mid to end time of this year, we will have most of the stuff clearly laid out, and they will be able to take on additional challenges, as you go through. And the new geography just, we want to have the businesses being local. We want them to understand the local needs, and so when we go into new geographies, we want to hire local talent, among the best in the industry to start as a core basis that we can grow from, as you have seen us do in the other businesses.

And I would just add to that Steve that, we had, I guess, may be six different management teams between U.S. and Europe in laminate and ceramic and boards working on each of these three acquisitions in different regions. So we had a number of very experienced management teams out there.

But really what happened is, there was a U.S. ceramic team. There was a U.S. laminate team. There was a European board team. There was a European laminate team. There was a European ceramic team, and then we used the existing management in the Russian business to manage it. So I mean, these things were broken out and there were lot of pieces, otherwise, it couldn't have happened.

Yeah. That's really interesting and very important. Thanks very much guys. Really appreciate it.

You're welcome.

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

Jason Marcus in for Mike. My first question has to do with the hardwood line piece of the laminate and wood business. Can you just talk a little bit about the pricing versus the lumber cost inflation that you saw in North America during the quarter, and how that might have impacted the wood margin? And also, can you remind us what percentage of the overall laminate and wood segment is hardwood?

The wood prices have still been rising. The wood prices have impacted margins. We are passing through the pricing. We have not caught up with it. Whatever pricing we put in, is still lagging. We are catching up with it. The wood business is positively contributing to our results, both in the U.S. and abroad, as we speak, and then what was the last part of your question?

I think your question was how large is the wood business, compared to the total segment, and it’s a small piece of the total segment. We do not disclose that number separately.

Okay. And then, just in terms of helping us model the first quarter. Are you looking to [Indiscernible] with Marazzi and Spano sales were in the first quarter of 2013?

I don't think that's our intent at this point in time.

Some of the historical one, in these business integrations, we have gone into some of the businesses and walk away from pieces that were there completely, and others, we put them in new businesses; and part of the Pergo business, they used to sell outside people certain things. We exited their sales with some of the numbers are not exactly comparable. Operator, any other questions?

The next question comes from the line of Stephen East of ISI Group. Your line is open.

Thank you. Good quarter guys. If I can just try one other way on the guidance? If I look at Marazzi and Spano that you have in your first quarter, you didn't have last year, just using round numbers, say $300 million or so of revenues. In the past you have said Marazzi is running at a 10% margin. If I run through that and also penalize that for added interest etcetera, I am looking at may be $0.25 give or take in the quarter, and if I back that out of your guidance, it implies to me somewhat of a flattish year-over-year for the rest of your business that you had in the first quarter of 2013. Is that an accurate way to think of that?

Stephen, I'd kind of try to go through this again. The first comment I'd make is that the margins that we have given from these acquisitions are annual margins, and so those differ, depending upon which quarter you are in. As we have said several times, basically, the consensus just modeled the seasonality incorrectly. I know its difficult, lot of moving parts, hard to do, but we have tried to help to divide it by giving full year -- our view of the full year annualization on that. The consensus is kind of right in the middle of what I view our range is, and nothing has really changed in terms of our business, how its going. Our expectations for the year or the quarter.

If you go back and historically look at any one of the segments, you will see significant margin differences between the first quarter and other ones. You back to those estimates and not apply the same number to every quarter.

Fair enough. Does weather -- as you look at that guidance, does weather -- is this, you think, amount have been -- $0.10, $0.20 impact. I am just trying to get an understanding of what you all have seen so far coming through because of weather?

It had kind of an impact in the first half. Our assumptions are, by the time we get to the end, that we will pick up a large part of the sales, that the backlog will come down, and it will have an impact, but it would be limited. On the other hand, there still is Europe, we have had a warmer weather in Europe. This summer, the European counts were a little higher, offset the pieces because, just because [indiscernible].

Okay. I appreciate that. Then Jeff, when you look at -- when you get to, call it the end of the road in integrating your ceramic.

There is no end of the road.

I knew that was a bad phrase to use. When you get through this initial stage of integration on ceramic, is this going to be a business? When I go back and look at what Dal-Tile did both before and after you all acquired it, the margins that you generated. Is this going to be a business that is similar to that higher, lower margins? I just don't know how much the business has changed over the years, and has changed because of the Marazzi acquisition?

Our assumption at the moment is, that the combined businesses will be similar to the historical business.

But we are going to continue to try to drive margins higher.

But it's not high enough to historical ones.

Right. Okay. And if you looked at, between U.S. and Europe, would there be, meaningful differences there?

Europe, a huge difference. Europe, the whole market screwed were. We were -- four or five years ago, and the depth of the thing, the volume in Europe of the ceramic industry could be up 40% to 60% from the peak. So there is huge problems with the marketplace, with the capacity, and getting everything worked out. We are working through them and changing them. I think we can do well in it. But all I have to -- the economy has to pick up. We have already cut. Before we bought the business, they already cut the capacity to get it in line. We are adding more money, to get the capacity to be more efficient and to improve the product mix, which will help us whether the business picks up or not, and then with a little help, we help to get it back to a reasonable number.

In laminate, the Russian margins are very strong.

Okay. All right. Thank you.

(Operator Instructions). Your next question comes from the line of Mike Wood of Macquarie. Your line is open.

Just a quick question on the legacy ceramic business, you saw some nice growth in 4Q. Can you talk about, if there are any kind of pull-ins or demand for promotional timing? And also, which specific markets within the U.S. did you see as the strongest?

The ceramic business -- first is, we didn't do anything unusual in the period. The ceramic business, as you go through each of the different product categories, each one has different end use characteristics. So the ceramic business has a larger percent of it in new construction. So as the new construction business picks up, its going to grow fast. One of the reasons you look at the different products, they grow differently based on the participation in different parts of the business, which is why ceramic is going to grow faster than the average of the industry. So that was there, then I don't think there was anything unusual in the period.

All of the end markets in ceramic grew. New residential, new model residential and commercial.

Again, our position in the U.S. market, we have the strongest brands, we have the best distribution, we have a broad product line to take it through the marketplace, and we have lot of advantages. We lead the marketplace and the new printing technology, which we call Reveal. We lead the market. There is a new category called long wood [indiscernible] planks, that the older equipment can't make without investments in significant ones. We have product coming in, from our Mexican marketplace, from our Chinese manufacturing as well as from our European [indiscernible], which are where the imports are coming in from. We have manufacturing -- all of them are helping us. I mean, our position of the marketplace is really strong.

Great. Thanks guys.

The next question comes from the line of Robert Wettenhall of RBC Capital Markets. Your line is open.

This is actually [indiscernible] filling in for Bob. Talking about the growth trajectory of carpet going forward, the shift towards hard surfaces has been going for quite a while now. But it still seems that consumers prefer carpets in their bedrooms. How do you think the shift towards hard surfaces will play out going forward? Do you think that trend is pretty mature at this point?

I think the trends -- I don't see anything that's going to change them in the near term. So I believe that as you look forward to see carpet growing, but at a lower rate than the industry.

All right.

They see carpet growing at a slower rate than the flooring industry, which means it's still losing some share. But is still growing, relative to itself.

All right. We've heard from some other companies, they saw slowdown in new residential construction volumes towards the end of the quarter, given the decline in housing starts over the summer. It strangely slowed down as well, or if not, that's something you would expect in the first quarter?

You could see at our ceramic business --

If we think about starts, the floors go in, and you work from six to nine months after the starts. So it's that aspect [indiscernible].

All right. Thank you.

Your next question comes from the line of Michael Dahl of Credit Suisse. Your line is open

Hi thanks. I wanted to ask about LVT, and just given the square footage growth we are seeing in that part of the industry, I would have thought that or would think that, that's an area that you may look to bulk up on, even more quickly than the planned roll out of the new plant by the year end. Can you talk us through -- kind of, will you continue to source some product, as well as that plant opens, or are you planning to shift all production in-house, and may be what the M&A pipeline looks like, if there are any attractive players that you don't look at?

The LVT business is growing. We are participating in already through importing products. We are participating in it, in the U.S. and Europe. In the U.S., we are participating in both the residential business, as well as the commercial business. We have product lines. We have implemented products in Europe, mostly in residential at this point, and we are continuing to extend our product line to participate in it. The plant we are putting up, is a plant with new technology, that has never been done before. We think its going to give us some advantages within the marketplace, and so we have to get it up and running, and work through all the things you do to get out new technology going, and once we get it up and working, we are ready to build new ones. But I am not going to build them out, till the first one is proven, and between, we will use that one to support it, as well as keep importing products, to balance out the [indiscernible].

Okay. Thanks. And then, second question on Marazzi. It seems like some of the new products coming out, or at least some that are being showcased are being produced in the legacy Marazzi plants, but under the Dal-Tile brand. Can you talk about just some of those roll-outs, how you are thinking about leveraging Marazzi's technologies, and what portion of its capacity is going towards your legacy brands?

Let me answer the question a little different than you ask it. The plants are going to be set up to manufacture products. They are going to be set up to manufacture products by type, and whichever plant manufactures those products, the most efficiently and best way, that's where the product will be manufactured. We will use all the assets to manufacture all the requirements that we had. Second from that, we have a brand product and marketing strategy, which is taking whatever products we make in those plants, designing products that fit different needs. We are positioning Marazzi at the mid to higher end of the marketplace. We are positioning American Olean from the low to upper mid, and each of those will have products that combine, will cover the entire spectrum of the business. In addition of which, Marazzi had a limited position in the commercial business, so that combined line will enhance the commercial option going into it, as we go through. And in addition, Marazzi did not have a significant part of the wall tile business, which we are a large player in. So as we look through on the marketing side, we are going to expand our offering to the marketplace, so that American Olean and Marazzi are a combined offering, as strong as the Dal-Tile offering in the marketplace, from high to low, and they were going to utilize all the assets, all the technology and all the innovation, that make sure that we have the best products in every category.

Okay. That's helpful. Thanks and good luck.

Thank you.

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

On Russia you talked about the moderation of the end market growth or the economy from [indiscernible] fiber tend to flat, and you are talking about the category being flattish in 2014. And then your profits also being flat in local currency in 2014. Can you just give us an update on, how quickly you are growing the stores over there via company controlled or company owned stores over there? How you think you should grow, relative to the market as a result of that, and then at the flat profits. How that works if that's a function of sourcing issues, and if that's a 2014 or sustainable flatter profit profile out of that market as long as the economy is flatter?

First is, that the economy has slowed down and the ceramic industry has slowed. And I don't know whether it's going to grow at all, a little bit or be down some in 2014. Either way, we are going to grow our business. Now in order to grow our business, we are investing in new products and new organizations and new sales forces. In addition to which, we are going to expand the Marazzi stores at a market that's probably going to be about flat, the Marazzi franchise structure by about 10% this year, in a market that's going to be flat, and then within that one, our preference is to put most of that in franchise stores rather than in own stores.

When you think about the flat profits out of the business this year, is that reflecting what the profits would look like in a normal year of investment, in this type of an end market? Or is this is an incremental year of investment? So in other words, if Russia is flat again in 2015, would you be in a position that you could grow profits?

Its two things, one is that the -- we are investing more heavily this year, at the same time, when the business slows to flat, we are anticipating some pressure in pricing in the marketplace, in addition to it. so what we are doing is, investing heavily, growing our business, in a market that's going to be flat, and well that is more pressure on pricing, because the other competitors are going to have to do something with their capacities. And so, we think that we are doing the right thing by investing now, as the business gets better, we think that our margins will expand and will have a bigger base and larger share.

Okay great. Thank you.

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

Thank you. Great year Jeff. I am sure the executive team and employees will appreciate the larger bonuses you're handing out. I have two questions, one on carpet and one on ceramic. The question on carpet would be, as we look at 2014, you have been in great position, a leadership position in soft, that's obviously expanded your margins. You know competition is trying to catch up. I am wondering whether you see any closing of the gap there, and any pressure in as well, all the development on the low end of polyester, whether there's any pressure there, or the things you've got going on with Continuum and continuing hammering on SG&A or whatever is going to allow margins there to expand, and a pretty good margin here in carpet?

The soft brand has been going on for probably four years. I don't know exactly how far back. What's happening is every year or so, the technology keeps getting softer, and the products better. So its not a new trend that has been happening. Whether in each one of those trends, we have been the leader in it, and have brought it to market first. We have also gone and all the product, all the raw material things from triexta, nylon and polyester, and the last one, polyester in middle of last year, with the first introduction of really soft, and for polyester. So that's moving. The good news is, that as economy improves and as people's home prices go up and people get more confidence in, more of them are going to trade up. So yes, there is more competition as it goes along, but the market should be growing much better, which is a good thing. I think that's the second part of your question.

Has it been at the low end or is --?

The low end piece, again, prior to this year. We had capacity limitations on it. So one is, we are focusing on it, the second is, it didn't allow us to do both at the same time. So we put our efforts more in the [indiscernible] ahead, less than total participation in the polyester piece. Last year, we agreed to put in, while the year before, we started putting in capacity to do it. In doing so, we liked to come to market not only with the same products, but with different technology. So not only did we do it, we brought technology to give us advantages in how the products looked and how the customer perceives, and an environmental story. And this year we took that, and put it and combined with a broad product offering from low price points, to as high as they go. We think we are really well positioned in the marketplace. With that, we are going to get a mix of things in my old product, that had high annual margin thing. We think the average mix of this we get through, is not going to be significantly different than the average mix of the other. At the same time, we get the benefit this year, which are going to help the margin, which is that, we are expecting to grow faster than the market, with all the investments that we have made. That would give us some overhead absorption positives. We are still improving our productivities and cost structures within the business, and we have done a lot of things to improve our cost position and the SG&A as well as in the manufacturing pieces, and combined, we believe we are going to still be able to grow our margins, while we are doing all of this.

Great. Thanks for that color. Then on ceramic -- your 2% global market share, as we think out in 20 years, because I am sure you are going to be working at least that long, if not longer. What is the addressable market to you? What I mean by that is, I know ceramic is huge in China, I don't think China has gone really well for you. I am thinking, what is the addressable market of good markets that have good margin opportunity, that you could expand into or acquire into?

I think the way you have to think about it is, we have to be able to go in and compete in the local marketplaces. What happens is, we have certain ethics in the way we run the business, that in some parts of the country, they don't use the same ones. So if they don't, [indiscernible] participate in those, until something changes in how the politics and laws work within the country. As we don't want to compete, and not be able to [indiscernible] on the same level. So that limits some of the places we can go, but there is a lot of places left in this world.

Great. Thank you. Good luck.

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

Hello Jeff, Frank, how are you?

Perfect. How are you?

I am doing well, thank you. Most of my questions have been asked and answered, just a couple of follow-ups. At what point do you anticipate on your commercial carpet business for you to begin to maintain or improve upon your market share, versus that of the industry, once the fiber transition is complete?

I expect it to occur this year.

Some time during this year?

Right.

Okay. Second question. You mentioned potentially looking at beachhead acquisitions in markets that you are not in, as long as you could find a good management team that's there. Are you a little bit more hesitant, based on what we are seeing in the emerging markets over the last month, month and a half or so? Are you a little bit more hesitant in doing it in some of those markets?

It comes down to price and value. But what happens is, it all depends on what you pay for them, and relative to what's going on, which is the hard part about putting acquisitions together. When businesses aren't doing well, they don't want to lower their expectations, and we, the buyers, don't want to pay for it. So, it just to work its way out through the process. Some come together, and some don't.

Last question if I might. You are saying that Q1 is going to be, normal seasonality from a historical basis. I know there are some moving parts moving around frank, but does that suggest them that you are not anticipating accelerating demand trends, as the year progresses, because the Q1 is looking to be a normal historical seasonal pattern?

I think that it's already built into. Our expectation of growing the business already assumes that things are going to get better. But to get to first quarter, we are assuming from all you've heard me talk about the last hour, as the economy is getting better, our industry is getting better, our participation is getting better, and so its built into our expectations.

Okay. I was trying to reconcile that with the earlier commentary that your nine to 12 month lag to housing and housing obviously, in the tail end of 2013, moderated a bit. And so, I am trying reconcile that Jeff, with your expectations that things continue to get better. So that's the more prevailing thought is, things will accelerate in your guidance, as the year progresses?

But Sam remember, housing, the largest part of our market here in the U.S. is remodel, that's over 50%. Commercial is 25%. So housing is [indiscernible] to the other piece, as well as with the small part.

Okay. I got it. Thank you very much, appreciate it. Have a nice weekend.

Thank you.

I would now turn the call back over to the presenters.

We appreciate everyone being on the call. We are enthusiastic about the market and our position in it, and have a good year.