Question-and-Answer Session
Operator
(Operator Instructions) We’ll take our first question today from John Baugh of Stifel Nicolaus.
John Baugh - Stifel Nicolaus
Thank you. Commendable results in this environment. My question first of all would be on the wood flooring side, could you discuss some of the competitive dynamics that have changed in China and how that may be impacting your business here in the U.S.?
Michael D. Lockhart
Well, there’s a couple of factors that have changed in China. One is, depending how far back you want to go, China got a big surge a couple of years ago when red oak prices in the United States reached peak levels and you began to see a ton of solid wood imports from China of Chinese white oak. And the first thing that happened is when red oak prices receded, those solid white oak, the Chinese white oak began to go away because Americans have a preference for red oak.
The other thing that you see out of China is that China is in fact a low-cost source of slice faced engineered product, which is very labor intensive. When you make an engineered product, you put a veneer on top of a piece of plywood and if you peel the veneer, you can do big sheets of it, so you can do a four by eight sheet in one easy motion. If you are putting slices on top and kind of stitching them together, it’s very labor intensive and China is much more competitive in that than any domestic or even Mexican facility and that’s why we built our facility in China, which came online at the end of the year. So China has made great in-roads in slice-based engineered products.
The other thing that -- the thing that’s hurt China recently is things like wood and laminate, the Chinese used to have essentially an export subsidy equivalent to about 8% of sales. It was in the form of a tax rebate that occurred to people and they eliminated that. That’s really the -- the subsidy was 16%. They eliminated half of that. That’s hurt the cost competitiveness of Chinese wood suppliers. It’s also hurt the cost competitiveness of Chinese laminate suppliers and one of the things that we expect to see some benefits of next year, or this year, 2008, is that we are moving a fair amount of our laminate sourcing from China to the United States because the U.S. producers are more cost-effective today.
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