1. The Effects of the Economy on Ceramic Tile Distribution November 10, 2011 Presented By: Donato Grosser D. Grosser & Associates, ltd 11 Broadway New York, NY 10004 Phone: (212) 661-0422 0

2.  The recession has strongly affected the ceramic tile market  We will examine what happened to the system of distribution of ceramic tile Introduction D. GROSSER & ASSOCIATES, LTD. 1

3.  The recession has been deeper than what the government originally suggested D. GROSSER & ASSOCIATES, LTD. The Recession 2 9.1%

4.  Housing Starts have been flat for almost three years Housing Starts 3 D. GROSSER & ASSOCIATES, LTD.

5. Source: U.S. Dept. of Commerce data Housing Starts (Jan 2006-Sep 2011) D. GROSSER & ASSOCIATES, LTD. 4 658K 233K 425K Thousand of units

6. Sector % Quantity 2006 % Quantity 2010 New Residential Construction 40%20% Residential Improvement 29%38% Non Residential Construction/Improvement 31%42% Source: D.Grosser & Associates, Ltd. 5 D. GROSSER & ASSOCIATES, LTD. Ceramic Tile Consumption by Sector

7.  The fact that mortgage rates are lower than ever has not helped 6 30 Year Fixed Mortgage Rates D. GROSSER & ASSOCIATES, LTD. Effective Mortgage Rate 10 Year Treasury Yield Source: Freddie Mac and U.S. Department of the Treasury Percentage

8. D. GROSSER & ASSOCIATES, LTD.  Housing Starts jumped 17.1 percent in September from the prior month to a 658,000 annual rate, the most since April 2010  Multifamily Housing Starts jumped 51.3 percent in September to an annual rate of 233,000; the most since October 2008 Some Good News 7

9. D. GROSSER & ASSOCIATES, LTD. Housing Starts (Sep 2010-Sep 2011) 8 658K 425K 233K Thousand of units Source: U.S. Dept. of Commerce data 150K 597K

10.  Existing Single Family home sales are well below 5 million units D. GROSSER & ASSOCIATES, LTD. 9 Single Family

11. D. GROSSER & ASSOCIATES, LTD. 10 Single Family: Existing Sales vs Newly Built 4.33M Existing Single Family Sales Newly Built Single Family Sales Source: U.S. Dept. of Commerce data Million of units 313K

12.  Remodeling activity until now has been up D. GROSSER & ASSOCIATES, LTD. 11 Remodeling (Quarterly Data) Source: Joint Center for Housing Studies of Harvard University Billion Dollars

13.  Ceramic tile shipments by U.S. manufactures are flat  Imports are flat  Ceramic tile consumption is flat D. GROSSER & ASSOCIATES, LTD. Ceramic Tile Consumption 12

14. D. GROSSER & ASSOCIATES, LTD. Ceramic Tile Consumption 1993–2010 13 Source: U.S. Dept. of Commerce data Million Sq. Ft.

15. U.S. Ceramic Tile Shipments 14 D. GROSSER & ASSOCIATES, LTD. Million Sq. Ft. Source: D.Grosser & Associates, Ltd.

16. U.S. Ceramic Tile Imports 15 D. GROSSER & ASSOCIATES, LTD. Million Sq. Ft. Source: D.Grosser & Associates, Ltd.

17. U.S. Tile Manufactures  U.S. manufacturers benefited from the weak dollar 16 D. GROSSER & ASSOCIATES, LTD.

18. Eur-Usd (Jan 2002-Aug 2011) 17 D. GROSSER & ASSOCIATES, LTD.

19. Landed Price of Italian Ceramic Tiles 18 D. GROSSER & ASSOCIATES, LTD. $ per Sq. Ft. Source: D.Grosser & Associates, Ltd.

20. U.S. Ceramic Tile Manufactures  Market share of U.S. tile manufacturers in 2010 was 30%  In 2006 was 17.6% 19 D. GROSSER & ASSOCIATES, LTD.

21. U.S. Tile Manufactures  There are six Italian tile manufacturing facilities in the U.S., their total shipments are 310 million sq. ft. (about 50% of total) 20 D. GROSSER & ASSOCIATES, LTD.

22. The recession affected D. GROSSER & ASSOCIATES, LTD. Contractors, Dealers and Distributors 21 Contractors & Dealers Contractors & Dealers Distributors

23. D. GROSSER & ASSOCIATES, LTD. Ceramic Tile Contractors and Dealers in the U.S. 22 Source: D.Grosser & Associates, Ltd. - 22.6% Number in 2008 Number in 2010

24. D. GROSSER & ASSOCIATES, LTD. Ceramic Tile Distributors in the U.S. 23 Source: D.Grosser & Associates, Ltd. -19.3% 1,713 Number in 2008 Number in 2010

25. D. GROSSER & ASSOCIATES, LTD. Let’s Look at some Selected States 24

26. D. GROSSER & ASSOCIATES, LTD. Tile Contractors and Dealers in 2008 and 2010 25States20082010 % Change 2008-2010California3,2052,525-21.2% Florida2,4591,881-23.5% Texas1,5531,212-21.9% Arizona569397-30.2% New York 874735-15.2% New Jersey 628536-15.3% Other States 12,4379,519-23.5% Source: D.Grosser & Associates, Ltd.

27. D. GROSSER & ASSOCIATES, LTD. Ceramic Tile Distributors in the U.S. 2008 and 2010 26States20082010 % Change 2008-2010California307253-17.6% Florida213148-19.3% Texas136106-22.0% Arizona6244-29.0% New York 9281-12.0% New Jersey 7762-19.5% Other States 826688-16.7% Source: D.Grosser & Associates, Ltd.

28. 27 Home Centers in the U.S. D. GROSSER & ASSOCIATES, LTD. Source: D.Grosser & Associates, Ltd. Home Centers 20082010 % Change 2008-2010 Home Depot 2,0521,944-5.3% Lowe’s1,6471,817+10.3% Menards261256-1.9%

29. D. GROSSER & ASSOCIATES, LTD. Home Centers, Retailers and Distributors 28 20082010 % Change 2008-2010 Home Centers 6,9866,802-2.6% Tile Retailers and Contractors 21,72516,805-22.6% Tile Distributors 1,7131,382-19.3% Source: D.Grosser & Associates, Ltd.

30. Carpet & Rug Retailers and Distributors 29 D. GROSSER & ASSOCIATES, LTD. 20082010 % Change 2008-2010 Carpet Rug Retailers 25,72020,452-20.5% Carpet Rug Distributors 1,5401,264-17.9% Source: D.Grosser & Associates, Ltd.

31.  U.S. manufacturers gained market share  Home Centers gained market share  Tile retailers and distributors lost market share D. GROSSER & ASSOCIATES, LTD. Change in U.S. Tile Distribution 30

32. Ceramic Tiles Distribution in 2010 31 D. GROSSER & ASSOCIATES, LTD. Source: D.Grosser & Associates, Ltd. 31

33. 11 Broadway New York, NY 10004 (212)661-0435 d@grosserconsulting.com D. GROSSER & ASSOCIATES, LTD.