Good morning. My name is Crystal, and I will be yourconference operator today. At this time, I would like to welcome everyone tothe Mohawk Industries Third Quarter Earnings Call. All lines have been placedon mute to prevent any background noise. And after the speakers' remarks therewill be a question-and-answer period. (Operator Instructions). As a reminderladies and gentleman, this conference call is being recorded today, October 19,2007. Thank you. I would now like to introduce Mr.Jeff Lorberbaum, Chairman and CEO. Mr. Lorberbaum, you may begin yourconference.

Welcome to Mohawk's third quarterconference call. With me I have Frank Boykin, our CFO, who is going to give youthe Safe Harbor statement.

I would like to remind everyonethat our press release and statements we make on this call may includeforward-looking statements as defined in the Private Securities LitigationReform Act of 1995, which is subject to various risks and uncertainties,including, but not limited to, those set forth in our press release and ourperiodic filings with the Securities and Exchange Commission.

Thank you. Mohawk's third quarterresults were better than we anticipated in a difficult environment. The netearnings for the quarter were $122 million, and the earnings per share were$1.78, both above 5% below last year. Net earnings and earnings per shareincluded charge of $14.2 million before tax by $0.13 per share related to plantclosing cost in both Mohawk and Dal-Tile segments. Excluding these closing coststhis year's earnings exceeded last years third quarter net earnings andearnings per share which were $128 million and $1.88 per share, respectively. Andincluded a $0.08 per share benefit from a U.S. Customs refund. Net sales for the period were$1.9 billion, a decrease of about 4%. The company in the third quartergenerated cash flow from operation of $287 million. In addition, debt of $53million was paid down after the purchase of four wood manufacturing plants. Mohawk's total results have beenpositively impacted by the broadening of our product portfolio and our expandedgeographic participation which offset the cyclical contraction in the U.S.flooring markets. Our management team remainsflexible and adjusting to the changing market. An environment which isimpacting demand, raw materials, energy and transportation cost. The U.S. flooring industry was negativelyaffected by the slowing economy, tightening credit markets, falling housingprices and low consumer confidence. The combination of these factors furtherreduced the sales of flooring in the residential channel. The U.S. commercial channel isoperating at a higher level and leading indicators point toward continuingbusiness investments. We made changes in our operationslevels, controllable costs and plant capacity to adapt to the slowingenvironment. The European business is performing well overall with fastergrowth in the Eastern European and Russian markets. Frank, could you give ourfinancial report please.

Sure, as Jeff has mentioned oursales for the quarter finished at $1,938 million down about 4% from the quarterlast year. This reflects our continuing growth in our European operations aswell as our growing U.S.commercial business, somewhat offset the declining U.S. residential business. Ourgross profit for the quarter ended up at 28.1% flat with last year’s grossprofit as a percentage of net sales. SG&A expenses were $345million or 17.8% compared to 17.1% last year. Dollars were flat with theslightly higher percentage of net sales as we were impacted in this ratio bylower sales this year. Operating income as a percent ofnet sales came in at 10.4%, our margin would have actually been higher at 11%which would have been even with last year without the $14 million charge forplant closing as Jeff had mentioned. Interest and other expense was$37 million. Interest was down $7 million for the quarter compared to lastyear. In addition, last year’s third quarter included a benefit of $9 millionfrom customs refunds. We received no benefits in 2007.Our income tax expense for the quarter was $42 million, this reflects a tax ratefor the quarter of 25.6% compared to last year’s tax rate of 31.7%. The taxeswere lower this year due to the implementation of a couple of European taxstrategies. We expect that our future tax rate will be around 26% in both thefourth quarter and future periods, however, it will be impacted by the mix ofour business in both Europe and the U.S. Earnings per share came in at$1.78 which was down 5% from last year. Earnings per share were impactednegatively $0.13 a share from the plant closings as Jeff had discussed and thenin addition the customs impact last year benefited earnings by $0.08 a share.As we move into 2008, I would like to remind everyone that we would…

Thank you. The U.S economy isslowing but most economists do not anticipate a recession. The housing andflooring industries are in a significant downturn and has deteriorated ascredit market tightened with more conservative lending standards and higherinterest rates for greater risk profiles. We believe all major flooringcategories of carpet, ceramic and wood are down in volume 15% to 25% from theirpeaks and we do not see any indication of near-term improvement. The 50 basispoint interest rate cut by the Federal Reserve has historically been a leadingindicator of future improvement in flooring. In past cycles, the remodelingcategory has led the industry out for these downturns. The Mohawk segment continues toadjust to a challenging environment with industry units running off about 20%from the peak. We are completing the implementation of a carpet increase thatwas indicated initiated in June. There is a higher level of promotions andpressure on commodity products in the industry. Our raw material cost stabilizedin the third quarter and remain difficult to predict. This year we took severalsteps to contain cost in SG&A in manufacturing while aggressively pursuingSKU reductions and pricing discipline. We are rightsizing themanufacturing capacity, permanently closing some facilities. We have managedthe margin side well. We are addressing volume by accelerating introductions inkey categories focusing sales efforts on areas which will better perform in thenear-term, such as multi-family, higher-end replacement and commercial andutilizing promotions to fuel market opportunities. This quarter, we began shippingbio-based carpets made from corn from our SmartStrand products using DuPontSorona polymer. This additional feature will add value to the alreadysuccessful premium collection. We are shutting down assets for the cost of $6.5million before taxes because of shift in demand and cost reductions. Theseshutdowns includes a staple yarn plant and a tufting plant. We’ve also exitedthe flat weaving business which was primarily used for manufacturing pillows.These changes…

(Operator Instructions). Yourfirst question comes from the line of David MacGregor with Longbow Research.

Yes, good morning, guys.

Good morning

Good morning, David.

Jeff, you need to give Frank abig bonus, this tax rate you were down 10% in the last 11 quarters. I guess Iam trying to understand how much further this could go and how sustainable itis?

Well, as I said in my comments,David, the tax rate we expect going forward to be 26% in that range with thecaveat that the mix between our European operations earnings in Europe andearnings in the U.S. could impact it up or down. So I will say it's sustainablefor some period of time to come and we'll continue to look for otheropportunities.

So what is your all-in Europeantax rate just so as we see movement in these two segments?

Yeah, I don’t have that at thetop of my head, David, but I will get it for you later.

And when you say it'ssustainable, are we talking about years to come or quarters to come?

Years.

Okay. Well, congratulations onthat progress.

Thank you.

And thank you for the plus.

Yeah, you need that big bonus. Iwant to talk a little bit about the production levels in the fourth quarter.You have indicated that you saw lower production levels for in-store, is thatacross all businesses, is it more concentrated on the Mohawk segment orDal-Tile?

We think it would be in both theMohawk and the Dal-Tile segments.

And can you give us some sense ofmagnitude?

It's all built into the estimateand I don't really have the numbers in front of me of each one.

Okay.

But we are planning on reducingthe production levels and at the same time we are assuming that the saleslevels will be soft.

Okay. And last question, can youtalk a little bit about the difference in sort of the range of guidance you haveprovided between the high end of the range and the low end of the range, what’sthe difference with some of the key assumptions?

You have to start with the first piecethat, the revenue side of the business is very difficult to predict. But wehave a very limited forward view of revenues. We didn’t have that we have alimited view of our energy costs and raw material costs for the same reason, sobasically those things are moving almost daily with market and so we don’treally have a clear view of the revenue side and the cost side is very volatileand we don’t have it. So, there is a lot of guess work in these numbers and weare trying to give reasonable estimates of what could be a rational range.

Okay. Thanks very much guys.

You’re welcome.

Your next question comes from theline of Keith Hughes with SunTrust.

Thank you. And a couple ofquestions. I guess number one, Jeff, in your prepared comments regarding thecompetitive business in the carpet industry, you have been saying that for awhile now that it appears as though your revenue numbers were below what theindustry put up for the quarter. Has this gotten worse is the spread out? Isthere one specific competitor you are dealing with, just any kind of color onthat will be great?

First you have to start off withwhat the industry number meant. And so the industry was down about 8% indollars and I think about 11% in units. Within that the residential categories aremuch more than the rest of the business so it’s off significantly and then thecompany that have builder which are not all of them the ones going to havebuilder pieces, the builder pieces are significantly more. We then have thesame thing on the commercial side on the other mix, that the commercial sidesare actually up in dollars, so if you have a change going on in the modularbusiness, the modular business is growing much more, the higher participationyou have in the modular business, the more the modular has a higher unit price,so the unit selling prices are also impacted with that. On our side we’ve takena very aggressive standing cutting cost this year, dropping SKUs to maximizeour margins and I think it did negatively impact our share in the revenue side becausewe were so aggressive and we are taking steps to make sure we keep our sharegoing forward.

You are going to maintain thatstands in the near term.

Stands of?

The aggressive SKUs and not goingdown in margin and chasing the low margin business.

No. I think that was got in througha lot of the SKU, pieces we have introduced new products, we’ve taken outredundancy in it and that’s impacted the business and it transition a littlebit and I think we are through a lot of that and we are trying to prepare toget our business well inline going forward and back in balance.

Try building on that on thecommercial side, we obviously know what’s going on the residential, any changein commercial in the last three-six months in terms of the tone of positivebusiness?

I mean I think that the rate ofgrowth we are expecting to continue to slowdown, we still think from all theforward indications we are getting that businesses are still spending money andwe don’t see any change in it growing, but the growth rate could moderate overthe next year.

Okay and finally just to clarify inyour comments on Unilin, the U.S.business of Unilin was up in the quarter, is that correct?

Correct.

And that would most likely to beshare gain given where residential is right now, do you agree with that?

I don’t have any numbers to baseit on. I think we are doing better than the industry. I think that we bringmore innovation to the marketplace and I think because of that we tend to getpaid for it and (passing it).

Alright. Thank you, Jeff.

Your next question comes from theline of Michael Rehaut with JP Morgan.

Hi. Thanks. Good morning.

Good morning.

The first question on the Unilinmargins. I was wondering if you could hit on perhaps why even ex-currency theywere lower versus 2Q despite higher revenue and as this has been the story ofreal upside surprise over the last few quarters what are you thinking about interms of '08 if it can sustain the high teens number or do you think maybe we woulddrift down from the 19%-ish average that it's on-track for '07. There are twoparts there.

Yes a lot of question. First isthis business doesn’t run in a straight line that we have raw materials, energycosts and different pieces changing from quarter-to-quarter. We have differentgeographies doing differently. We have product introductions going in it differentpoints of time and all of these things are going to keep the business fromhaving an exactly the same results from period-to-period. There is a holiday inthe third quarter where Europe goes on holidayand we shutdown things. Our business was a little better than we expected thisyear. So, we had to use a lot of overtime and other things in it. Every quarterthere's unique opportunities within it. We tried to pass through the price andcost relations there and depending how they fall affects each quarter. So weare going to have variations as we go through. What was the other part of thequestion?

Just looking at '08, obviously in'07 you had margins even for '06 for that matter coming well aboveexpectations. As you look down the pipe over the next couple of years andtypical product adoption cycle you'd see, perhaps some price competition asyou're going up the adoption curve, what are your thoughts about margins in '08and beyond? Do you still look to see that in a kind of drift down a little bitas you capitalize on the top-line?

We believe, I mean what'shappened recently is the revenue growth that we've had has dramaticallyexceeded our own expectations; that the investments we've put in, in the U.S. marketplaceare operating more efficiently. Those all helped the margins and we continue toput in new innovations in the marketplace that we get paid for and so that'spositively helped it. Longer-term we are going to try to continue doing allthose things but we said as we continue expanding our share in the variousmarketplaces that we participate in a broader portion of the market, and insome cases, we are going to participate in lower margin products that stillincrease our dollars of profits. And so on an ongoing basis, we think over aperiod of years you'll see continuous deterioration of the margin even thoughwe increase our bottom-line, which is what we are looking for since we can'tspend margins.

Okay. And one last question onthe Mohawk Carpet segment, obviously sales have come down decently. Is thedownturn, certainly the housing downturn is greater than in the last 20 year's.Are you surprised by the pullback in sales in residential and how much furtherdo you think over the next couple of quarter, perhaps looking at backlogs anddemand are you looking for, you had mentioned like, there’s already been sortof a 20% drop from the peak.

One is that we don’t really seethe carpet industry drop significantly different than the other categories. Wethink that if you look at the drops our best guesses are that the wood businesshas dropped more severely because it has a greater portion in the newconstruction business and the ceramic has dropped less. So, we don’t see thecarpets any different than the other categories. Going forward as we keep sayingis that we have a very limited forward view of our revenues. We ship things almostnext day from the time our customers order it, so basically our forward view istake the recent past on what we are hearing from our customers and guests, andwith that we are making the assumption that for the near-term we are going tosee softer revenues rather than growing revenues and we are anticipating thatthey will get better as we go through next year. And we don’t have any moredetail, I mean we are so close to the purchase; we don’t have any more forwardview than you do.

Your next question comes from theline of Dan Oppenheim with Banc of America Securities.

Thanks very much. I was wonderingif you can just talk about what…

Just speak a little louderplease?

I was wondering what your thoughtis in terms of pricing strategy going forward, in fact you have talked a lotabout how you are not going to sacrifice placing your margins in essence tocapture volume. I was wondering if you would in this environment where you seeorders coming down and certainly look at what’s happening in the market today.If it doesn’t improve for a while, do you think -- what you think about motionand what activity in order to jump on the volume decline?

I think what we have always saidis our goal is try to act disciplined in the marketplace and to react to marketconditions. When you get in markets where the volume is off as much, thepressure always goes to the commodity areas and those prices always getimpacted, the same things is happening now. Those margins in those areas areless than we would like to see. We are going to react to those things andcontinue reacting to them in the marketplace. We hope our competitors reactrationally, so far for the most part we’ve act reasonably rationally as anindustry and we’ll continue to react to those.

Got it. So you are seeing moreflexibility to (improve the past) in terms of has been willing to match. What elseare you doing within region?

I am not sure we ever said wewouldn’t do that. I think what we say is that we hope our competition in themarketplace acts rationally because we intend to, but we have to react to acompetitive market.

Okay perfect, thanks very much.

Your next question comes from theline of Eric Bosshard with Cleveland Research.

Hi. Good morning.

Good morning, Eric.

Just close that last question,have you seen a change in rational promotion and price competition in the last90 days?

I think that we didn’t increasethe prices on the commodities as much as we had intended to as an industry andI think the industry reacted to lower volume as typical and people are tryingto run some assets and you typically go there and the rational thing to do on amarket, though we have seen more-less we didn't accomplish as much in a pricecategory and those categories we would hope to.

Secondly, I guess or my firstquestion is, you commented at the outset obviously that the quarter was betterthan expected can you just explain specifically where and why you saw upsideversus expectations it appears to be Unilin, but can you just say where and whyyou saw upside within the quarter?

I mean backing away from thebusiness as a whole the Unilin business the sales were higher than we hadanticipated the margins were better than we had anticipated and almost allmarkets and all product categories. The Dal-Tile business was actually betterthan we had anticipated I mean the ceramic industry we are getting it off inthe mid teens and units. So all of the investments that we have been putting inthe Unilin business over the last few years I mean in the Dal-Tile businesscontinue to pay dividends at the same time we have a higher portion of thecommercial market which is tending to do better, we got positive surprisesthere and we didn't quite do as well I'd like to do in the Mohawk side. We are takingsteps we think to get it where we like it to be.

And the upside in Unilin whichhas been a consistent theme is this function of true out performance or justcontinued conservative expectations on your part?

It's difficult and we are in twomarket places in Europe and here they are both very mature markets, Unilin hasa strategy in Europe that is towards the mid to high end its very focused onthat piece and to have double-digit growth in mature markets over there andthen the US all of this business goes into the residential replacement businessover here which is under significant pressure in today's marketplace to havemid-teen growth rate. It's difficult to sit back and predict that and we areglad to have it.

Your next question comes from theline of Arnold Brief with Goldsmith & Harris. Arnold Brief - Goldsmith & Harris.: Two short ones, one could yougive us some idea, what you anticipate your inventory direction will be in thefourth quarter ended December versus the third quarter ending September 30, isyour drawdown coming cash generation?

Yes, we are going to be takingour inventories down to try to max demand levels.

But we are anticipating demand togo down too. Arnold Brief - Goldsmith & Harris.: Yeah.

Hopefully we could be surprised. Arnold Brief - Goldsmith & Harris.: Could you give us some guidancemaybe 4%, 5% down from September?

I don’t have that number righthere in front of me. Arnold Brief - Goldsmith & Harris.: Okay, could you give us some ideawhat your position in terms of a stock buyback at this point.

We have authorization to buybackstock we can afford, we continually watch it based on where the stock pricegoes, we have the debt ratios are down where we are comfortable with multiple options,we continue to look at potential acquisitions that are out there in themarketplace and that the balance between leading flexibility for investments, leadingflexibility for unknown in the future of the economy of what's going on andbuying back stock. So, its one of things we have available to us and weconstantly look at it and we will determine as we are going to invest one dayat a time. Arnold Brief - Goldsmith & Harris.: On a longer-term basis, could yougive us some direction in terms of Columbia'soutput? How much you intent to use internally? Will there be any externalsales?

Yes, we believe that Columbia will continuelike we have both in the Unilin business and the Dal-Tile business which isthat all of them have different brands that are sold in different ways. Weexpect to continue with the Columbiabrand and support those customers a little while, we like it, we expect tobroaden the product line for them and expand it. At the same time we expect touse the Mohawk brand and increase our sales in the marketplace with it and wealso in our Dal-Tile business we supplement unique products from around theworld and we’ll continue to supplement the product line is what we think isneeded with products around the world where we think it’s appropriate. We think there is a lot of excesscapacity in the plants run properly those gives us a lot of upside and growthand we are preparing for that by getting our cost down, improving the qualityand we think that we’ll have a dramatically different product line over thenext year or two from where it started.

Your next question comes from theline of Sam Darkatsh with Raymond James.

This is actually Jeff calling infor Sam. Sam was unable to make the call. Good morning Jeff and Frank.

Good morning, how are you?

Doing well. My only questionrelates to tax and it sounds like the way you described your tax strategy itsounds like there is more going on in just the obvious mix shift towardsEuropean business, whether presumably is a lower tax rate. Can you describe allthe strategies for us, hopefully specifically but even in broad terms if that’swhere you are willing to do?

Well I can tell you, you’reright. It’s not the improvement in the tax rate is not mixed, but it’s newstrategies we put in place in Europe, and they are rather complicated, it’smore than one strategy. I’d be glad to try to talk you through off line at a highlevel what we have done, but it be a little bit time consuming and difficult totry to explain it right now I think. But they are ongoing and we’re expectingthis 26% or so tax rate, Q4 and into future periods as we go forward.

Okay that will be great. Thankyou.

Your next question comes from theline of John Baugh with Stifel.

Good morning.

Hey John.

How do like the way we pronounceyou name?

It was close enough that I knewthey were referring to me. I have got one question, is going to be like five orsix points of round the pencil.

I would like kind of two at oneat a time then.

Okay. CapEx '07 and '08 what arethe budgets?

'07 we think we are going to end upsomewhere around 200. It depends some point how much gets initiated in thefourth quarter which we haven’t got exactly nailed down yet. We have notcompleted the budgets and had them approved for next year yet.

Okay. The amortization is comingdown, I think you mentioned 20 million Frank, is that coming out of the Unilindivision

It is John. It's all related tothe intangibles that we had set up when we purchased Unilin.

So the gross there will drop fromX to Y. What is X and Y 35 to 55.

Yeah, I think if you go back inour footnotes in the K, it shows an estimate of about 89, 88 million -- 89million for '07 and 69 million for '08.

Okay.

In total, that’s totalamortization.

He is not reading the numbers lookingat the K and give you the exact numbers.

Footnote 5. It's pretty close tothose numbers.

Did I hear you earlier, did yousay that your current mid volumes were up 20% in the quarter is it this yearthen?

What I said was that theindustries volume from the peak looks like its running about 20% off in units.

Okay, industry from the peak?

So the peak would have been in2005.

And that's not a residentialcomment that's just a whole industry?

That's the whole industry andagain I have said I thought that the wood business was running higher than thatand the ceramic running lower than that.

Okay. Are there any customs comingFrank in the future?

Yeah, as we've said in the pastwe've received about $30 million between first quarter this year and last year.So far we haven’t received any after the first quarter of this year. In totalwe are expecting to receive some number over 40 million which would include the30 we have received so far but as you know we are working with the governmentand there is no certainty in terms of the amounts or the timing. So, we arestill working on it and counting on it.

Okay. And a last one, you toucheda little bit on it Jeff, but going into this downturn. Dal-Tile have where myestimation is about 30% of its business tied to the residential builder marketand you are running flat revenues with building off like 40% from a peak. Howdid you do this? Is the residential replacement momentum you had that's strong.I know you got the commercial helping but maybe a little more color on how youare achieving flat revenues and as you said a mid-teens kind of decline for theindustry.

I think that the residentialbusiness we are performing better than the industry. All of the investments wehave put in are people, capital, distribution are giving us better results inthe residential business. In addition, we have a significant share of ourbusiness in commercial. I think the number is somewhere in the 40% range of ourbusiness is in commercial and we have a very high share of commercial to theindustry and that business is doing well and so between the two that's helpingus, I think we are outperforming in both commercial and residential and has givingus better results in the industry.

Where is that plant being closedin the ceramic side?

Conroe, Texas

Texas. Great. Thank you.

Thanks.

I appreciate it. Good luck.

Your next question comes from theline of Bob Thompson with [Atlantis] Capital.

Good morning.

Good morning.

Good morning.

In terms of acquisitions, are youlooking at small acquisitions in the wood products area or would you entertainlarger acquisitions?

We think that with the debt levelwe've today that we could do a very large purchase if we found one that weliked. We have said that we are looking in area of add-on acquisitions in theU.S. where we have significant market shares in most of the categories today,we are looking in around the world in some high growth areas where the economiesare doing well as well as to other things that would fit in with our Europeanbusiness, which is doing well.

Okay.

And we are constantly looking atall of those.

Okay. In terms of the Unilin inthe European side, are you seeing any moderation in any of the areas overthere?

It does appear that economy isgoing to slowdown, some of the input we're getting back from some of ourcustomers, I would perceive its going to be but I have to tell you its stillgrowing, I don’t know, its still growing. The question is can it grow at therate it's been growing at, and again as I said before to take a business thatis herein stabilized and grow at the rates we are growing in the business. Ithink we are doing quite well. It’s difficult to keep that up.

Okay. Thank you very much, greatquarter.

Thank you.

Your next question comes from theline of Laura Champine with Morgan Keegan.

Good morning, Jeff and Frank.

Good morning.

There are obviously lots of putsintake in the Unilin business. It sounds like you got Columbia in those results as well and you areseeing some currency fluctuation. But can you give us any kind of ballpark forthe next 12 months in terms of the EBIT margins?

I think that I always said so faris that the EBIT margins we expect to be slightly lower than they are this yearand they continue all the time to be lower. Again as we broaden up thebusiness, as we go forward and that we said it’s going to be difficult to keepgrowing at the growth rates we had this year. I mean if we get lucky we’d liketo do it again, but…

With lower still imply to midteens future, Jeff, you would start to see a low double-digit operating marginor is that something we got to be prepared for?

I mean, I think it's going to godown moderately all of the time, not to jump down 5% increments.

Your next question comes from theline of Andy Shaffer with Farley Capital.

Good morning.

Good morning.

Hi Andy.

I was wondering I’ve seen somenumbers saying an estimated 2 million homes in the U.S. maybe for closed upon in thenext couple of years. And I was wondering if perhaps there could be anopportunity for you guys for instance, do you know what happens to the homesonce they are foreclosed upon and sold by the bank at auction. I think typicallyremodeled before they are put on the market or if any anecdotal evidence.

I can’t say that we have anyspecific data. A large portion of homes when they are purchased, yes, it is twoquestions there, one is what happens before they are sold, or what happensafter they are sold.

Right.

Before they are sold I don’t havea lot of data on it, I would guess a lot of them have limited amounts of workdone to them, to make them salable in the marketplace where you tend to getmore of the work is where the new purchaser comes in and say I like this housebut I want to make it fit my lifestyle or my perception and you get more of thework done afterwards and then typically they start out with limited projectsand they continue them overtime, so usually existing home sales are good forremodeling business overtime. And it should be here too.

Okay, thanks and also in Europe the Unilin business is the distribution there isthat mainly through distributors?

It is in most of the areas isthrough distributors and some areas they are close to our factory, wedistribute directly, but most of it is through distribution.

We also get variations betweendifferent countries too.

Your next question comes from theline of Steven East with Pali Capital.

Good morning guys.

Good morning.

Jeff could you talk a little bitI know the trends obviously declined throughout the quarter a bit, could youput a little magnitude you know what July, August, September and maybe even inthe October sort of the relative strengths in those?

Well its difficult to answerbecause in this environment you have week-to-week the sales don’t go on astraight line and it bounce up and down because in poor condition, I mean thereis a lot of escalation going on which makes it difficult for us to predict ourown production levels and everything else. In general, I would say it softeneda little bit going through it. You have the price increases that impacted. Youhave the interest changes or the availability of credit going on and every timethe news changes it impacts it's. So I think it might have been a little weakersomewhere in the middle and helped a little bit towards the end but in generalI think it's softened as we have gone through and we are anticipating softermore from instinctive things than actual evidence.

Okay, that’s fair, on the priceincreases you have talked about you didn't get them across the board, you didn'tget them in the commodity type product. If you looked across your sales for thequarter what would you say would probably be the blended increase that you wereable to get out of it?

Its hard to I would guess that weprobably got about 60%, 70% of where we had initially asked for we don't evergo all of what we asked for and any increase and here we got less of thecommodity increases than we had intended and it was basically due to reactionsin the marketplace and competition. Ready for next question.

Your next question comes from theline of Chris Benon with Wachovia.

Couple of questions, first off canyou just give us an idea of what the sales in MDF were to external customersduring the quarter or generally how those trended?

Sales of MDF, when you are tryingto get at and I'll try to help you get there?

Your medium density of fiber woodstuff that would go into your laminate?

I mean I have Europeanbusinesses, American businesses I mean all types of things that are going on.

Domestic.

U.S.?

Yes.

I mean we are running our plansbasically a capacity we have put in new production so what's happening we areusing a greater percent of the capacity than we were, so then sales to othershas to come down because we we're utilizing more of it internally.

Okay, and then could you give mean ideas what your current yarn mix is versus maybe a year ago?

What you would see is that thenylon filament and polyester categories are doing better and that thepolypropylene and staple nylon would be doing worse.

Okay, thanks guys.

Okay.

Your next question comes from theline of Jerry Rivera with SAC Capital.

Hi, Frank and Jeff.

Hi, Jerry

Couple questions on Columbia, would you said 7% of the sales growth came from Columbia in the quarterin Unilin. Did you tell us what the profit was?

It's running at a loss.

There is no profit.

No profit, okay.

We said that we expected to loosesomewhere between $7 million and $15 million in the first year that we have onlyowned it for a limited number of weeks in the period and that the question itsgoing to determine how much, as how fast we can make the changes, and whathappens to the market over the same period of time with prices and volumes. Sothose are the pieces that are moving.

Okay, and then there is anadditional $4 million of cost between this quarter and next?

No. I think what we are trying tosay there is some one-time charges related to -- you are talking about the $2million that we talked about. There is one-time charges related to acquisitionaccounting and a portion of that maybe half of it was in the third quarter andthen we expect the other half to be in the fourth quarter.

But that was $2 million total.

Yes, its not $4 million.

Which $4 million that you are referringto?

Jerry.

He is not in queue anymore.

Okay.

Your next question comes from theline of David MacGregor with Longbow Research

Just a follow-up, your pressrelease where you indicate that business is good in Eastern Europe and then Russia, just Europein general. With the weak dollar and low capacity utilizations in the United States, are you exporting to Europe,parts that you would have typically sold in the United States?

No, it still doesn’t make senseto export the products to Europe from here atthis point.

Okay. Is that free cost from theprincipal source of friction there or is it access to markets, or what is it?

It’s really, it’s mostly thefreight cost.

Yeah.

To move it there, I mean we havelow cost plants in Europe, so the question isyou have to be able to offset the freight and the cost from here.

Right.

And so.

For each one up everyday.

For each going up daily.

Okay. And then of the productthat you are bringing into the United States is supplemental as you refer to itearlier. Was that up or down in the quarter?

Okay, what I was trying to say inthat one is that we use in our business suppliers to give us product that shiftniches that either we don’t make or we want to supplement our capacity in it.

Right.

And we do that in various places,we do it in our ceramic business, we do it in our wood business in here andsometimes other products as we go through. So, we use that to supplement eitherwhat we don’t make or what are unique products or could be unique woods species.

Right. So were they up or down inthe quarter?

I would assume I don’t have thenumbers but I would assume everything is down. What’s happened is we havebrought internally products that we could produce as the industry slowed downand we put in more capacity, we have internalized products, with the Columbia acquisition wehave moved products, wood products that we were importing. We are moving intothe business and with the increased capacity that we've put in the US in the laminate business were bringing lessin from Europe from our own facilities overthere. So I am sure it's down substantially.

Okay good thanks guys, you have donea nice job in a tough environment.

Thank you.

Your next question comes from theline of Steven East with Pali Capital.

Thanks, she is quick on thebutton. So I am going to ask several questions and you all can answer them if Iget cut of here.

Alright.

First you laid out pretty well,how you think about what you do with your cash flow but is there a level thaton your debt-to-total cap that you say enough is enough we don't need to go anylower on that that’s the first thing. The second thing…

So that’s one at the time. We haven'tfound a level when we got there that we didn't pick one of the choices eitherbuying something or buying back stock historically. One of the two happens.

At what level, I am sorry?

I said one of the two has alwayshappened historically I am going to assume we are going to do one of the twoagain.

Oh, I got it.

(Mortgage count is very low).

But there is no magic number

Okay.

Before we bought Unilin I thinkit had gotten down to in the mid 20 and then what we did is leveraged it up tothe mid 50.

Right, okay, fair enough. I wasthinking more along the lines of not necessarily acquisition per se thatswitching over to share repurchase particularly these lower levels after itsbacked off so much?

It's really a balancing of howmuch flexibility we want to maintain for future unknown acquisition.

Okay, that’s fair. And then youall have talked lot about trying to forecast Unilin all of that and I know inthe past you said you just haven't felt that comfortable and really having yourhands around being able to forecast this business very well because theyhaven't done much of that etcetera and do you feel any better yet or is it stilla case of -- some of this positive surprise is just because you don’t have thatgut feel like you do at Mohawk and Dal-Tile etcetera?

I think we have improvedsubstantially. I believe that we have very strong systems in the place today.We have upgraded the financial systems dramatically. The people are gettingused to creating forecast and working towards the business. I mean I would haveto commend them greatly. The real question is when you have increases at thelevel you are how comfortable are you at in predicting in mature marketplace isgrowing like this. You don’t normally expect it to happen on a continuousbasis.

Right. Okay. And then just twoquick questions on Unilin. Is the non-flooring business lower margin than theflooring business and I know you haven’t given out actual royalty numbers inthe past. But can you give us some type of idea what magnitude since becausethat's virtually 100% margin coming through etcetera?

Yes, the non-flooring business isour lower margin than the flooring business. And one thing is the income is notall go to the bottom line. I don't know if you read the things we have put outabout winning legal suits IPC because we have spent a tremendous amount ofmoney getting the marketplace to accept the validity of the packings andforcing people to do things. So, we have a very high level of legal expensestaking different propositions to courts in both Europe and the U.S. and otherplaces. We have spend a lot of SG&A creating the value in the packings orelse there wouldn’t be any.

Okay. Any type of magnitude doyou want to put around the royalties?

I don’t think we're prepared todo that today.

Okay, thanks.

Your next question comes from theline of Jerry Rivera with SAC Capital.

Good morning.

Hi, one more time. I just wantedto ask also about what growth did you see in laminate either on POS, I thinklast quarter you said POS and laminate was were in roughly high-singlelow-double and then if also you could say what your POS on a hardwood or Columbiais?

I am sorry, you want to know thesales rate to our customers -- I am not sure what the question is.

Or just the point-of-sales growthrate for laminate and hardwood during the quarter?

The growth rate of the Unilinbusiness was 15%, the flooring is growing at least that rate, we wouldn’t havethe margins that we have.

Okay.

The flooring is growing indouble-digits.

The U.S. flooring is it?

The total flooring.

Okay, do you know what the U.S.laminate?

I don’t know what the breakdownis between is two but I can tell you that flooring business is growing at leastequal with the whole business.

Okay, and then what about Columbia?

Columbia we have owned for say few weeks.

Six weeks.

I am not sure, we haven't doneit. Our focus is at this point is just to get the class quality andinfrastructure underneath it and I have no idea what's going on in the growthrate. It may even be shrinking a little at this minute, I don’t know.

The wood business is solid.

The wood business I think intotal is close to 25% at a run rate from its peak for the industry.

Okay, versus down 20 for carpet.

And down mid-teens for theceramic.

Okay, and then last question onthe debt capacity. Is it fair to say I mean you paid off $1 billion, is it fairto say I guess you have about $1 billion to use between either acquisitions orshare buyback?

I don’t have the numbers, but Iguess we would have more because the equity is greater than it was two yearsago.

So, I mean I guess given that youhave more than a billion, you have the capability of doing a number of things.I mean you could do acquisitions and buyback. You don’t have to necessarilychoose between the two?

No doubt. It’s been the size of eitherone or how the mix is, but you are right we can do more…

We have a lot of flexibility todo what we want to at this point.

Okay. And then the urgency to usethat $1 billion plus of debt?

I would say that we would like touse it, I don’t think the urgency is to do the right things for the long-term notto get rid of it.

Yeah. Okay

Thank you.

Okay.

Ladies and gentlemen we havereached the allotted time for questions and answers. Mr. Lorberbaum are thereany closing remarks?

Thank you for joining us. Wethink we had a good quarter, and we think we are well positioned for theenvironment that we are in and will be in for the next year. Have a nice day.

This concludes today's conferencecall. You may now disconnect.