Good morning. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mohawk Industries Second Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded Friday, August 7, 2020. Thank you. I would now like to introduce Mr. Frank Boykin. Mr. Boykin, you may begin your conference.

Thank you, Erica. Good morning, everyone, and welcome to Mohawk Industries quarterly investor conference call. Today, we'll update you on the company's second quarter results. 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 risks 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. For a reconciliation of any non-GAAP to GAAP amounts, please refer to our Form 8-K and press release in the Investors section of our website. With regards to our recent litigation and related investigations, our audit committee with assistance from outside legal counsel and forensic accountants has substantially completed its internal investigation. The company has appropriately filed its Form 10-Q for the second quarter. The company continues to cooperate fully with the government inquiries. Beyond that, we refer you to the disclosure in the 10-Q and remind you we cannot comment further. I will now turn the call over to Jeff for his opening remarks. Jeff?

Thank you, Frank. For the second quarter, at the heights of the COVID disruption, our sales were down 21% as reported or 19% on a constant currency basis. Adjusted operating income for the period was $36 million or 2% of sales, and our adjusted EPS was $0.37. During the period, our cost production initiatives, working capital reductions and lower capital spending generated free cash flow of almost $500 million. Those sales trends have improved significantly since government restrictions were lifted. The current environment is the most unpredictable in the history of our business as the pandemic has affected our markets and operations around the world. During the quarter, all of our businesses were dramatically impacted with most of our customers and facilities operating either in a limited capacity or completely shut down for some time. Residential remodeling was impacted by retail shops closing and consumers staying at home. Commercial has declined as business have postponed their projects due to economic uncertainty. U.S. housing starts and home builder competence improved sharply in June as the market rebounded. In the period, our operations were curtailed or stopped by government mandates, employee concerns and lack of demand. We responded to these challenges by keeping our workforce safe, cutting expenses in investments and furloughing employees. In the U.S., government programs provided tax credits to our business. Federal unemployment supplements have made attracting workers more difficult. Outside the U.S., many government subsidized businesses to keep workers employed and others required companies to continue paying employees that were not working in full. After the company sales bottomed in April, our May and June results appreciably improved across the segments as stay at home restrictions were gradually lifted, consumers initiated remodeling projects, stores reopened and construction increase. Through the period, our markets improved more than we expected…

Thank you, Jeff. Sales for the quarter were $2.50 billion, down 21% as reported, but decreased 19% on a constant basis as the pandemic and related recession significantly impacted our business. Our gross margin was 18% as reported or 21.4% excluding charges compared to 28.8% last year. The year-over-year decrease was driven primarily by lower volume, shutdown costs, negative price mix and unfavorable productivity, offset by deflation. The actual amounts of all of these items is included in the 10-Q that was filed yesterday. SG&A as reported was $431 million or 21% of sales, and 19.7% compared to 18.1%, both of which exclude charges. It was down $63 million or 13% excluding charges, primarily from savings and furloughs, layoffs and government support. Other unusual charges were $97 million, of which $29 million was cash, primarily related to the $170 million cost reduction initiative that Jeff just mentioned. We are adjusting our capacity by closing inefficient operations, as well as consolidating some others, reducing the workforce and streamlining our SKUs. We estimate annual savings of approximately $110 million to $120 million when complete. Our operating margin excluding charges was 1.7% compared to 10.7% last year. The decline was driven by weaker volume, shut down costs and unfavorable price mix, partially offset by productivity and deflation. Our detrimental margin was 45% for the quarter and resulted from sales dropping faster than cost. Our third quarter operating margin is expected to improve sequentially from the second quarter, but will be lower than last year with pressure on pricing and product mix, along with higher manufacturing cost. Looking at income taxes. On a non-GAAP basis, we had no tax expense in the second quarter. Going forward, the rate could vary significantly in the next two quarters between 16% and 22% due to changes in…

Thank you, Frank. In the Global Ceramic Segment all of our businesses around the world were impacted by government reactions to the pandemic. Within the segment, Southern Europe and Mexico implemented the most dramatic regulations, suspending commerce and our operations for extended periods of time. To improve our performance, we're reducing our cost and complexity and aligning production with demand, while all of our businesses have improved, future demand is uncertain and we will respond as conditions change. In the U.S. Ceramic market, any of our retail customers were closed for some time, while construction continued in most markets, the Northeast and Midwest regions were most impacted during the period due to greater state restrictions. For example, our ceramic manufacturing in Pennsylvania was closed for an extended time along with most of our customers in that region. To manage the situation, we reduced cost across the business, including furloughs to decrease our overhead, cutting marketing activity, differing product introductions and controlling manufacturing and distribution costs. Demand increased faster than we anticipated and our inventories declined as we ramped up production. Presently, all of our U.S. plants are operating and our service level is improving. Our new click ceramic tile is being delivered to our customers and sales should increase throughout the year. Our new countertop facility in Tennessee has become profitable and will improve with higher volume and mix. We have begun producing higher value products with more stylized colors and veining. Our new B2B systems are making product selection, ordering and picking up faster and safer for our customers and employees. We have implemented measures that exceed CDC guidelines to keep our workforce safe. Given pressures on the U.S. ceramic industry, we are consolidating manufacturing into our most advanced facilities and closing our least efficient assets. We are combining…

Thanks Chris. Since April, we've seen substantial improvement in all of our segments and markets. The residential remodeling and new construction channels have recovered more than commercial, where businesses are maintaining a cautious approach to investment. Some areas, particularly in the U.S., Brazil and Russia are experiencing an increasing level of COVID cases, which are impacting our operational costs and production levels. Across the business, we’re decreasing costs by rationalizing asset, minimizing SG&A, reducing our workforce and managing our product offering and working capital. Much uncertainty remains around all of our markets regarding government policies, business confidence and consumer spending. Our sales in July were approximately flat compared to the prior year, but we cannot predict how the sales will evolve going-forward. Given this we're unable to provide guidance for the third quarter, though we anticipate a significant improvement in our results from the second quarter. We managed through the challenging second quarter while generating significant cash flow, strengthening our balance sheet and issuing over $1 billion in bonds. We're taking substantial actions to navigate the changing environment and position Mohawk for the future. We’ll now be glad to take your questions.

[Operator Instructions] Your first question comes from Keith Hughes with Truist Securities. Mr. Hughes, your line is open.

Yes. Thank you. In the second quarter, the reduced capacity was a big hit, obviously, in the number, second largest. What do capacities look like for the third given what you've seen in July? You can do that in dollar to year-over-year, whatever the best way to describe it.

Sorry. The question was what's the capacity?

Yes. I mean, what kind of capacity rate, I mean, are you running at? You cut a lot in the second quarter to get inventory down. What's it going to look like in the third compared to second?

The third quarter, we're running the business at a much higher rate than we were. We're actually trying to increase the inventories because they decrease too much, but we're having difficulties getting them up given the labor issues, vacations in Europe and other things. So they're going to run at much higher rates.

Will you equal the rates in the third quarter of last year?

It depends on business sector pieces. They're all over the place.

One of the end markets, Keith, is not performing as well as you know was commercial. So to the extent, we've got commercial capacities to be running at lower rates than the others.

And I guess final question, can you talk on the intro about margins being up in the third from the second, but down year-over-year? Is capacity curtailment the major driver? Or why it's going to be down year-over-year or is it something else?

We've got several things that we think are going to be impacting us. We'll have pressure on pricing and we're going to have pressure on product mix. Volumes are also going to be an issue for us. And I think like Jeff mentioned, even as we're trying to get our inventories up now, we are going to have higher manufacturing costs due to COVID labor issues and shorter product runs as we try to rebalance our inventories.

Okay. Thank you.

Your next question is from Justin Speer with Zelman Associates.

Thanks, guys. Just one quick question on the trends, you mentioned flattish trends in the July. Are there any major distinctions by the segments? Or are they all kind of trending similarly into July?

Yes. We said July was basically flat compared to last year and improved more than we had anticipated. And overall Rest of the World did better than the other two categories – other two segments.

And then the other thing, and just in terms of the phasing of the benefits to profits from the restructuring efforts that you've already taken, how should we think about that phasing in the back half? And then as we think about, I know that you mentioned annualizing it in 2021, but in the back half that should be an offset, we would – I would assume to some of the other headwinds that you're seeing, but you're saying that the other headwinds will be more than that?

Sorry, your question is on the savings, how are they going to phase in? Was that your question?

Right. And so – I’m just kind of following on Keith's question about the year-over-year change in margins. They may be pressured from some of the actions, labor issues, shorter productivity runs. I guess those will not – those will more than offset any kind of benefit from the phasing to restructuring. I was just curious if you could quantify some of the tailwinds from just the restructuring efforts that you announced and took – the $100 million charge that you took in the second quarter.

Yes. What happened, we started out with basically on our experience from 2008 and 2009, we decided that if the business was going to slow down, we're going to take more aggressive actions earlier to improve our position. With that, we’re cutting SG&A, reducing the workforce, we’re streamlining our product offering, we’re closing less efficient plants and investing more in efficient assets, which we got to the $110 million to $120 million of savings. It will take through next year to complete those and capture the full benefit. The manufacturing savings, don't forget, will have to flow through inventory, which will be three to five months later depending upon what it is and where it is. We estimate just at a really high level that the savings will range from about $15 million to $25 million per quarter until we achieve the results that we expect. And then just as a comment, remember that the margins for everything are really dependent on the future sales, and in the short-term COVID affecting it and we're really not sure where they're going to be.

Well, that makes sense. And If I could sneak one more in on this subject, just thinking about the broader trends, thinking about the actions that you're taking in terms of capacity rationalization, I guess how much of your non-LVT businesses are going to be rationalized from these efforts? And are these adjustments just reconciling for the relative share loss to LVT that's already taking place? Or are these accommodating for maybe potential further erosion to LVT in the future?

We are setting the business up at a level we think that it will be – needed to be at for the future. We've made the adjustments in the ceramic capacities. We’ve consolidated some of the higher cost assets in the Flooring Rest of the World, I mean, in the Flooring North America. And then we've taken costs down in every part of the business in every segment, anticipating that it's not going to be a V straight up and stay there.

Thank you very much, guys.

Okay. Thank you.

Your next question is from Mike Dahl with RBC Capital Markets.

Hey, thanks for taking my questions. A question – the first question is really around from a channel standpoint in the U.S. Can you remind us how much of your business goes into specialty and – both in Flooring North America and Global Ceramic? And then given the relative restrictions on specialty versus home centers in the quarter, how do you think about the share shift dynamic and whether or not that's just kind of accelerated share shift towards home centers over the medium-term, or whether your specialty channel can kind of play catch up to that?

You asked a lot of different questions. The specialty channel, the home center channel in most of the markets stayed open through this piece. So what happened is as the specialty stores were shutdown and the only place for customers to buy our products were in the home centers in many markets. Over the period, that changed. So that's a temporary change in the business. In total over the past 15, 20 years, the home centers have continued to expand their participation in the market and take share, and it's different by product categories, the larger the category is and do it yourself and/or some other different contracting businesses depends on where it ends up and which channel it’s in. So I don't see this being a significant change in the short-term, but just a same continuation they had been on.

Okay. Got it. Thanks, Jeff. And second question, just back on the restructuring. I understand there's been spare capacity and then probably some underperforming SKUs in terms of things that are getting either consolidated or rationalized. Is there any sales impact we should be thinking about though, when you take out this much capacity and you take out some of the SKUs? Do you think there is a corresponding sales impact? Or is this really – you're going to be able to replace any lost sales with other kind of productivity measures?

We're being more aggressive in getting rid of low volume SKUs. We have alternatives to the products to offer the customers, but there's always risks of trying to transition one to the other. The goal is to end up with more businesses with a more consolidated offering.

Okay. Thanks.

Your next question is from Eric Bosshard with Cleveland Research.

Two questions. First of all, throughout the segment you talked about price and mix pressure. Curious if you could just expand on that a little bit, where you're seeing that and what is driving that, and then also the kind of ongoing outlook for price and mix?

It's occurring in all of the different categories. First is that, commercial businesses tend to be higher margin than the residential businesses. The commercial businesses have taken a bigger hit and are coming back slower, and we're not sure how they're going to evolve over time. Within the other pieces in the more promotional products are tending to sell more than the other during downturn, some because the higher end shops and stores that sell them, the people that had it pulled back in the market more, we're going to have to see how that evolves going forward. It's a little early to tell what the – if it's going to be a permanent change or not, we're just assuming that the market's going to be more difficult and we're going to have to respond to competitive positions all around the world.

And then going forward, I mean, as we've said numerous times, we have a really hard time looking out beyond just a few weeks in this environment, but we would anticipate that we will continue to see price mix pressure going forward through the rest of this year.

And then a follow-up on restructuring. It sounds like you've outlined a good program. I'm just curious when considering, what's taken place in the industry, especially in the U.S. for the last number of years and the contraction and operating profit of the company in total, if you had considered a larger program aimed at generating more cost out, more cost savings? Or is that just unreasonable with how the business is set up or how you view the market? Just curious if there was a program that could have netted $200 million or $300 million of savings, or if that's just not reasonable?

It all starts with how you perceive the market's going to be in the future and what you need to satisfy it. At the moment, we believe that the changes we made are set up for how we believe the best guess that the business is going to be for the next few years, but we'll have to see what happens.

Okay. Fair enough. Thank you.

Your next question is from Matthew Bouley with Barclays.

Hey, thanks for taking the question. There’s a lot of discussion around the costs that are being cut, but I think, Jeff, you mentioned in the opening remarks that $1 billion in bonds that there were some intention around strategic investments there. I guess just if you could outline some of the areas that are sort of top of mind for investment?

We're always looking at acquisitions to go through. At this point, it's a little hard to aggressively do acquisitions given that you don't know the environment in cases, but we're always talking to different people on acquisitions. On the business, we're trying to minimize the capital investments for the moment, but we believe there will be greater visibility in the not distant future and we'll start changing it. If you go back a month and a half ago, the directive was stop everything that you could stop. And we really haven't moved from that at this moment, but we're trying to decide what it should be. And every week we get a better view of the market and what we should do.

Okay. Got it. And then just as my follow-up, in U.S. Ceramic, I think you mentioned something about refocusing on new construction. Could you talk about what the exposure is now and what you want to get that to? And kind of the implications on price mix there?

Well, what we're seeing in the U.S. Ceramic, just like the others, commercial is slowing. We are – they are finishing existing projects, but we anticipate that slowing, but we also think there's a significant opportunity in remodeling and new construction. So we're taking advantage and moving our sales and assets in that direction.

Okay. Thank you.

Your next question is from Michael Rehaut with JPMorgan.

All right. Thanks. Good morning, and it's Mike Rehaut. Thanks for taking my questions. So I just wanted to circle back for a moment to the cost savings. And I believe, Jeff, you had said or Frank that you were kind of looking at a $15 million to $20 million a quarter. I wasn't sure if that was something that you would expect would kick-in in the third quarter. Obviously, you talked about there being a lag in terms of the manufacturing benefit that we might not see that impact until, let's say, the first quarter of 2021. I was just really hoping to get a sense of, of the $110 million or $120 million of overall annualized savings, how much is expected to be realized in 2020 and specifically 3Q and 4Q? Thanks.

We're expecting, like Jeff said, to average between $15 million and $25 million of savings a quarter. We're expecting to start realizing savings in the third quarter. But we're also saying that, as we go forward, we expect that margins are going to be impacted by volumes still. And that's a big question mark, right, in terms of how the volume returns or not. As well as short-term labor impact from the COVID virus, how that might impact the workforce and productivity as we continue to rebuild our inventory and get it back to where it needs to be.

And the $15 million to $25 million, that would be kind of proportional along the lines of the restructuring cost or charge breakdown that you had said before the $80 million for ceramic, et cetera?

No, not necessarily.

How should we think about the breakdown by segment then?

Yes. We weren’t going to disclose that one.

All right. Maybe just kind of shifting gears a second to the sales side. Obviously, kind of a strong decline across the board, it's been a pretty tight range in the second quarter. Frank, you mentioned that for July Rest of the World did a little better than the other two segments. Obviously, if you're flat, that would kind of imply a little bit of growth, let's say, for the Rest of the World and maybe a little bit of a decline for the other two segments. Any type of directional thoughts around the degree of magnitude for each would be helpful. And if you're seeing a better ramp, let's say, in one segment versus the other in terms of what you've seen throughout 2Q emerge, would also be very helpful.

No, it's – Mike, it's hard, like we've said, to give a lot of guidance on how things are developing over a very long period of time. And we – right now what we're seeing is Rest of the World is coming back more quickly. I think, as I mentioned, they went down more quickly, but have come back more quickly as well in the second quarter. Also in Rest of the World, they have more of their business in residential as opposed to commercial. Commercial, as Jeff had mentioned, was being impacted more by this, and has not come back as much as residential. They – in addition, they have more of their business in both laminate and LVT, and those two categories have also performed well.

The business has really obscured because right now, in the Europe business and the rest of the world, we can't tell whether the orders we're seeing now are filling the pipeline and the channel. And they're trying to get ahead due to the – what they didn't pick up, that they normally do going into the vacation season or whether this is a view of ongoing business. And that same question we have in everything we're doing. The business has improved, the orders are improving, but we can't tell what is projects that were started in April and May that are postponed to now, and are they going to continue at that rate or is there a bubble, we can't tell what's going to happen with businesses investing in the business and all through the piece we can create dramatic scenarios in either direction and the reason we're not giving guidance is we don't know which one's going to probable.

[Operator Instructions] Your next question is from Stephen Kim with Evercore ISI.

Thanks very much guys. Just wanted to ask a question longer-term about Flooring North America, I guess that's a start, I was a little surprised that you mentioned that the improvement you did generally better than you expected, mostly it sounded like in Flooring Rest of the World not Flooring North America. So I just wanted to clarify, did the USA operations in general exceed your expectations as well? But a more longer-term question about margins in Flooring North America, one thing that investors are concerned about is the idea that FNA margins are maybe artificially high a few years ago as inventories were rising. And maybe there's a fear that some of these lower margins that we're dealing with more recently are more reflective of the margins going forward, but obviously there's a lot of near term things that are weighing down the market. And so I'm wondering what you think the longer-term margin structure in Flooring North America looks like? Is it reasonable to think we can get back to where we were a few years ago, mid-to-high teens or once these discreet challenges are behind you, or do you think that the longer-term margin structure is maybe a little lower than it was at that time?

Well, let's start with the first question, which was what's different in our projection. Everything, I mean we were projecting the market to be much more difficult and not to rebound as much as it has to. On our pieces, we were preparing for a much longer slower recovery than we've seen at this point. Now, how it's going to go on from here is anybody's guess isn't it. So that's the first one. The Flooring North America, we changed management a little over a year ago, we're continuing to put different processes in place to improve our operations and run them better, improve our margins and profitability in the business. And we have a huge amount of activities going on to do that, we expect the margins to improve. We'll see how far we can get them.

Okay. Thanks a lot guys.

Your next question is from Sam Darkatsh with Raymond James.

Good morning, Jeff. Good morning, Frank. How are you?

Good morning.

Good.

Two questions., I'd hope they're quick. So I'll be allowed to ask them. In light of your being under inventoried at the end of the second quarter, I'm guessing that included stock-outs. So your July sales results being flat, I'm wondering how much of a benefit July saw from shipping unfilled orders from Q2 and how much of it really is truly current demand. I'm trying to get a sense of the sustainability of that July trend?

The order backlogs are still simply – we haven't been able to push the backlog down because the sales have been going up. So we still need to get the inventories up and we haven't gotten them up high enough to achieve the service levels we want on one side, but going back to the prior comments we're not sure how much of this is a bubble from before and how much is inventory in the channels. So to answer your question, we need both of those and we don't have it.

And my last one would be, given FIFO should we expect input cost benefits to accelerate going forward in the P&L?

I'm not sure they're going to accelerate. We're going to continue – when you say input cost, you mean depletion materials.

Yes. The benefits from input costs, yes.

Yes. I think we will continue to see benefits going-forward, but I wouldn't say they're going to move – benefits is going to increase sequentially. And some of the businesses are – in different businesses the price mix is offsetting the decrease in raw materials in many cases.

Very helpful. Thank you.

Your next question is from Phil Ng with Jefferies.

Hey, good afternoon, everyone. I'm just curious where are you if your journey optimizing your LVT facilities in North America, in terms of breaking even? It looks like the exemptions on imports are at least going away for now. Do you have that ability to kind of meet that demand as your capacity ramps up this back half, is that a nice windfall for you guys?

Let's start. What he's talking about is, there were duties on click LVT that were withdrawn a year ago for a year. I think it was yesterday, the government has reinstated the duties on those products. With that, what we think is going to happen is, the reverse of what happened last year is that the industry will have to increase prices to cover the tariffs which would increase the value of our manufacturing as we go through. With the businesses, the European operations are ahead of our U.S. operations in their improvements. The European operation is profitable today and it's going to continue to improve as we continue to enhance the operations and tech costs out. The U.S. improvements are following, but again I think we said it before, we are expected to have multiple engineers over here all through the second quarter helping the group do the same thing we've already done. I don't know if you know that you can't travel between the two, so all of that's been postponed, but we are with or without increasing the production speeds and processes and all of them, and at the same time, we're introducing new products and styling to help the businesses we go through. So I think it should help us. I think we're getting better at it and we're turning the corner.

Okay. Thanks a lot.

Your next question is from Tim Wojs with Baird.

Hey guys. Good morning. I just had one question on ceramic. Is there a way just with the restructuring that you could frame for us in maybe percentage terms, the structural capacity that you’re reducing within the ceramic business?

Yes. We're only a reducing capacity in the U.S. We're taking out our least efficient assets which is about 10% to 15% of the total and that'll improve our costs, but yet support our future needs.

Okay, great. Thank you.

Your next question is from Laura Champine with Loop Capital.

Thanks for taking my question. It's about a disclosure in your 10-Q, that says that earlier this week your audit committee completed an investigation of certain allegations. Is it fair to say that if material restatements were deemed necessary, those would have been taken in this quarter or is that the wrong read?

You know, like we've said earlier in my intro, we outlined basically what we could say and talk about with regards to that. You're asking if the financial statements are correct. Yes, the financial statements are correct. But beyond that, with regards to the investigation like I said, we really can't comment.

Understood. Then if I can get a quick follow-on onto a previous question, have you disclosed the utilization rate in your LVT plants in the U.S. right now, just give us a sense of how much volume you can serve as hopefully demand picks up there?

We haven't, but what's happening is, the capacity is increasing as the productivity and efficiencies are going up. So we can service business significantly greater than we have.

Understood. Thank you.

Your next question is from Susan Maklari with Goldman Sachs.

Thank you. Good morning. My question is around the mix shift. You commented that you're seeing that as an ongoing pressure in the business. But in the U.S., as we have seen that consumers are perhaps shifting some of their spend more to home improvement. How are you seeing that, that's driving any benefit in terms of the mix? And then I guess when you kind of think about the mix shift that you are seeing there, how does that compare to past recessions? And how much of that is due to maybe underlying shifts in the industry as we've gotten this growth in LVT and some of these newer product categories that have come through?

Each different product category is different from each other. And carpet is an ongoing trend of polyester selling more. You also have a mix in channels, so the home builder channel, the new home construction channel is a lower mix than our retail channel. So as retail didn't do as well as the new home construction that also impacted that you go through. So there's channel mix as well as customer mix going on. In the different businesses – they're all different, in my ceramic business and my laminate business, we basically participate in the mid-to-high end of the business, and it's growing in its use as alternatives to other hard surfaces, it's being used in both the retail and the new construction business much more so and our products are outperforming in those creases. The ceramic business, the mix has decreased somewhat because some of the product categories are impacted by LVT using some of the higher-end stuff. And then you have the commercial mix, which is much higher than all the businesses in it. So there's product changes, consumer changes and channel changes all at the same time.

Okay. Thank you.

Your next question is from Kathryn Thompson with Thompson Research.

Hi, thank you for taking my questions today. Just on revisiting the news from yesterday on the tariffs. If you could give a little bit more clarity in terms of, are there any timeframes? So in other words there's certain tariffs that have a certain end date to them, is this – as we know indefinites and then what does this mean more specifically for your operations, not just in the U.S. but also in terms of global sourcing? Thank you.

The tariff that – there were tariffs put on originally 25% on all products. A year ago, they took the tariffs off clip LVT only and they did it for a one year period and it came back for renewal. The renewal was turned down, so the 25% starts, I don't have the date in front of me, I don't know if it's today, yesterday, it may start today. I'm not sure and so we all have to start paying it and then we're going to have to get the prices up in order to cover it. I'm not sure I've got the whole question.

It really is a stair stepping in terms of, you answered one part, but then the second is, what's the real impact? And you have some good precedents from previous tariffs in terms of your expectations and how it will impact that particular product category and profitability.

Well, when the tariffs went down, the industry dropped prices somewhere in the 15% to 20% range. So I'm assuming that the prices are going to go up in the 15% to 20% range. And anytime, anything that we're manufacturing outside of China will be better off than it was before.

Okay, great. Thank you very much.

Your final question comes from Truman Patterson with Wells Fargo.

Hi, good morning guys. Thanks for taking my question. So your CapEx you guided toward $400 million which you said you're evaluating, I think a portion of this, you have capacity projects that are probably partially unfinished in your pipeline. Just how much additional capacity you think you're going to bring online in the back half of the year and into 2021. And can you just remind us, what products those are in possibly geographies?

We stopped all increases in capacity when this thing started. So whatever was already started, we continue. The biggest one that I remember off the top of my head is, we are expanding our laminate production in the United States with a new production line, with new capabilities that will be in next year. We're running all of the capacity that we have now and we're looking at importing some from our overseas businesses to support the business in the short-term. As we had some capacity increased this year in the Russian business and I think there was a Russian ceramic business, and I think there was some in the Eastern European ceramic business, both of which are running at fairly high rates and we expect to use them all in limited ways. The bigger pieces were new businesses, so we said that the sheet vinyl business would put a new line in Russia, it turned profitable. And the LVT lines in Europe have turned profitable. The carpet tile lines in Europe, we are investing all the cash we have and we're investing back and expanding our sales force to expand the distribution of it as we speak. And then going forward, we're going through a strategic planning process now to determine what the right level is and where to invest in. I'm assuming most of its going to be in enhancing the product mix and enhancing the product offerings with new features and benefits versus large capacity expansions at this point.

Okay. So just for clarity, the only line or product that you might be bringing online over the next year, year and a half is really just a laminate line in the U.S.? Everything else has already been opened?

Yes. At this minute.

Okay. Thank you.

Thank you for your questions. I'll now turn the call back over to Mr. Lorberbaum for closing comments

The business in the environment has gotten much better than we expected. We're taking the actions to manage through the changing environment. We're continuing to manage our cost structures and we'll continue adjusting as needed. Thank you for your time and joining us today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.