Armstrong World Industries Inc (AWI) 2009 Q2 法說會逐字稿

Good morning, everybody, and welcome to the Second Annual Armstrong Investor Day. I have set up in a lot of rooms and I am trying to figure out how to set up a room without a first row so that we can get people to sit in the front, but I don't think that's going to work.

We of course have the Safe Harbor statement so as you folks know you're going to be hearing a lot of information that deals with the future and we have the normal reservations of responsibilities with respect to that. So I am sure you are all familiar with this, but we would like to remind you of that.

The purpose of the day is to familiarize you with Armstrong businesses, its strategies and to give you a chance to hear from the people who really run the businesses every day. With us today is Frank Ready who runs our North American Floor business, Nick Grasberger, who is our former CFO who now runs the Global Building Products business, Bill Rodruan, who is our acting CFO who is doing a great job for us. You all know Beth Riley, who is our Vice President Investors Relations who really handles most of your questions.

We also have some other people with us who is Jeff Nickel who is in the front who is our General Counsel, Tom Waters, who is our Treasurer, Steve McNamara, who is our Controller who is in the back. And then we have some people who really know about the products and markets that we deal with.

We have Joann Davis-Breaman, who is the Head of Marketing for our North American Ceilings business and is extremely knowledgeable about all aspects of the business. But Joann has a critical role in architectural specialists which is one of our real growth vehicles in the North American Floor business. And she's probably been the biggest champion of environmental products and strategies.

We have Alan Cobell, who is responsible for our vinyl products, Daniel Call, who is responsible for Wood Flooring Products and Melvin Goodwin, who is responsible for the Laminate business.

So, okay, in addition to talking about the business we reported our second quarter financial results earlier this morning. And Bill and I will give you an overview of the course performance before we move on to the bigger picture for Armstrong.

The pervasive theme in the second quarter is the same as it was in the first quarter and that is the declining volume as we have seen declines in the global, commercial and residential markets has hurt profitability. I have spoken in the past of sales volume having three important determinates. One is market size, the second is share change and the third is the affect of changes in channel inventory.

In nearly every geography we've seen a smaller market this quarter than last quarter. And in nearly every business we believe our market share is equal to or better to than it was last year. And in the second quarter of 2009 channel inventory adjustments did not have a material impact on our results. Our distributors and retailers continue to manage their inventories very, very carefully but we have not seen significant declines.

AWI has reported sales decline of 24% for the quarter. Excluding the impact of foreign exchange, sales were down 20%. The primary reason for the sales decline was lower volume which reduced operating income from approximately 50%. Second quarter cash flow was $86 million, 10% better than in 2008. Compared to last year lower working capitol offset lower earnings.

Our equity and balance sheet it remains strong and the margin impact of the 20% volume decline accounted for significantly lower than the overall decline in operating income. Operating income benefited from lower flooring raw material costs, reduced manufacturing and SG&A expenses and some modest price realization.

Let me turn now to the segment results. Worldwide building products, our ceilings business remains solidly profitable despite volume declines in excess of 20%. In the quarter US Commercial volume was down about 20%. Asian markets were down about 20% while in Western and Eastern Europe markets dropped nearly 35%.

Manufacturing and SG&A expenses were reduced and the combination of price and mix was modestly positive. As we expected Waves income declined nearly 45% on lower volume. Now let me just remind everybody about Wave. Wave is the joint venture that we have with Worthington Industries that manufactures the grid from which our ceilings are suspended. The decline in Waves earnings has a negative impact on segment margin because we do not consolidate Wave sales.

Our Global Resilient Flooring business operating income declined about 45% as higher North American profits were offset by the expected increases in European losses. North American resilient sales declined about 18% in the second quarter, residential volume fell about 8% significantly better than the market and commercial volume declined about 16%. North American resilient increased operating income despite the sales decline since lower raw materials and reduced manufacturing and SG&A costs more than offset the adverse affect of lower volume.

In constant dollars European Resilient sales declined 16% for the quarter due to lower volume. The lower sales volume accounted for all of the increase in the operating loss. Then in wood flooring we had 24% lower sales as the domestic residential housing market continued to decline. The margin affect of reduced volume more than offset lower SG&A and raw material costs.

And then finally cabinet sales declined approximately 20%. The margin impact of reduced volume more than offset lower manufacturing expenses to result in the operating loss.

We continue to manage AWI for cash and profitability and Frank and Nick will illustrate that we are maintaining our group per share and to continuing to aggressively reduce operating cost to align with demand. We retain strict parameters for cash utilization, but we are also investing in innovation to support our objectives which have been to emerge from the global downturn better position then when we went into it and to remain solidly profitable throughout the downturn. But that is the introduction and I am going to turn the podium over the Bill who will take you through the numbers.

Thank you, Mike, and good morning. As is our standard practice for discussions like today. We adjusted the financials for certain items including currency to allow for better operating comparability. Reconciliations of the adjustments to GAAP can be found in the attached appendix or in the press release.

The slide here shows our key metrics for the second quarter. And Mike talked a lot about the highlights. Note that the performance in the quarter follows a similar pattern to that of the first quarter. That is lower sales, favorable and quick costs, good cost control and strong cash flow.

As Mike mentioned net sales declined almost 20%. Market driven volume declines accounted for the drop. Combined, price gains and product mix were favorable, but less than 1%.

Operating income declined 47%. Comparing the change in operating income to the change in sales yields a fall through ratio of 22%, an improvement over 28% in the first quarter, and well below our variable manufacturing margin, which is approximately 40% of sales. Please note in calculating the fall through we exclude the impact from Wave.

As Mike noted we had strong free cash flow in the quarter exceeding last year. This slide bridges adjusted operating income from the second quarter from 2008 to the second quarter of 2009. The margin impact from volume declines clearly dominants the year-over-year comparison. The decline in Waves earnings is also volume driven.

As with sales the net contribution to margin from price gains and product mix was negligible from the quarter. Modest price gains primarily in ceilings and from prior year actions were offset by weaker product mix which occurred primarily in our North America Flooring businesses.

We continue to experience input cost deflation, especially in our resilient and wood segments. This includes lower freight costs which has both volume and cost components. Manufacturing costs were favorable despite being adversely impacted by less fixed cost absorption cause by lower production and inventory levels. Finally, most of our businesses reduced their SG&A costs.

Next, sales and operating income performance by segment. All businesses experienced double-digit sales declines due to the weaker markets. Favorable cost performance could not offset this decline. This slide bridges free cash flow to the prior year quarter. In the second quarter we generated $86 million of free cash flow, $8 million more than last year.

As you can see the drop in cash earnings was more than offset by favorable changes in working capital. The largest individual item in working capital was inventories. We reduced inventories in the quarter by $32 million which was $23 million more of a reduction than was made in the second quarter of last year. All segments reduced their inventory levels.

So here are the key metrics for the first six months. And what are some of the key highlights? First, the fall-through ratio ex-Wave is 25%. Also notable is that free cash flow improved $56 million year-over-year with working capital offsetting the lower cash earnings. Now later on in the presentation I will comment on our financial outlook. For now I will turn it back to Mike.

Thanks, Bill. Most of you have a general idea who Armstrong is and what we do. For those new to this story this slide gives you kind of an overview of what Armstrong looked like in 2008. But of course things have changed and in certain instances changed significantly. In 2008 sales of $3.4 billion were roughly equal to what they were in 2007. In 2009 those sales will be down significantly in the range of 15% to 20%.

So far this year we have idled three plants taking us from 40 to 37. And I mean idled as opposed to shut down. And we reduced our head count to reduce the number of employees from 12,700 to 11,200. Unfortunately our market capitalization is roughly half of what it was. On the other hand it is substantially better than it was a few weeks ago, which is good.

On the positive side our average daily trading volume is about 350,000 shares which is up 40% and is just under 2% of the public float in the business, or the publics' owning the stock. We have seen very few structural changes in our market.

Volume declines are what drives reduced operating income. We have reduced our cost structure while maintaining investments innovation to position our diversified portfolio to remain profitable throughout the downturn and to ensure that we out perform as market recover.

Frank and Nick will discuss in greater detail how each of these three factors diversified opportunity, innovative focus and efficient cost structure drive performance in their businesses.

First a brief history and in the interest of time we are going to skip the first 137 years. Our business have evolved, over the past few years our business evolved through acquisition and market evolution from being primarily a domestic residential Floor business to a Global Ceilings and Hard Surface Flooring business with the Smaller Cabinets business.

During our time in chapter 11 we made significant improvements to the business. Ceilings continued their very successful strategy of introducing great new products and they made substantial strides in improving their grid products allowing Wave to gain share. Floor North America made substantial improvements in product quality and visual quality in their vinyl products. And we implemented a wood strategy that offered the broadest selection of attractive high quality wood products.

The Cabinet business had a very uneven performance in the early part of the decade, but today cabinets are doing a nice job in a terrible environment. They are creating value by focusing on the business fundamentals, product innovation, quality, productivity and customer service.

With our global markets universally declining we are now focused on improving our relative market position and remaining profitable. Our industry structure and competitive position varies from very good building products in North America to extremely difficult floors in Europe. Cabinets and European floors are problematic but for different reasons.

You know, Cabinets is a business which has been hurt by profit by volume declines. When the market recovers we expect for cabinets to become both profitable and an attractive return. While in European floor we need not just a market recovery but substantial capital investment in order to improve the cost position which will then combine with volume increases will allow us to be profitable.

The primary change since last year is an accelerated decline in the commercial markets and you will hear that as a theme in our businesses. This represents one of the many forecasts for housing starts in 2010, nearly all of which are more bullish than our expectations.

When you look at our strategic plan we have for single family starts a 2012 number of about 780,000 units, so we are not terribly bullish on the housing market. And we anticipate remodelling activity to decline again in 2010 before recovering somewhat.

Yesterday or the day before the Case-Shiller numbers were announced and showed some improvement and that caused some articles in the media to suggest that the housing decline was over. We think that declaration of victory is premature.

Now when we look at the foreclosures in the pipeline and their likely affect we expect to see some continued pressure on prices and we think the rise in interest rates will also put pressure on the housing prices.

In our Commercial businesses really worldwide, GDP is the strongest sort of predictor of demand. And nobody knows exactly what the GDP growth is going to be. This is the outlook we are using for our forecast.

When we look at Europe there are the two biggest markets for us are the UK which is the key source of profitability in the building products ceiling, the Building Products business. And you can see they expect to have a very tough year this year with a modest recovery.

And in Germany which is the biggest market for our Floor business which has it even tougher this year because of the weakness in exports but where we're already seeing some improvement in the market. Now again we wouldn't want to declare victory in that case, but in the month of July our sales in Germany in flooring will be about flat against the prior year.

But I will tell you that the marketing guys over there don't expect it to last even though it is built on small order improvement which is generally related to the economic environment.

As you folks know the European economies, there is no Europe when it comes to economic growth. There are huge differences among the countries, and where you are is terribly important. And we have some good in Germany, and I think that we'll do okay and some bad in the sense that we have a strong position in Russia which has suffered dramatically.

This chart I think is very useful for you to use in terms of modeling or thinking about the future of Armstrong because it splits out by business the mix of commercial versus residential, new versus renovation.

So you can see that on the right-hand chart, pipe which is sort of the total for the company, total commercial. Commercial represents 60% of our sales. And renovation represents 65% of our sales. So you kind of take your view of where the market goes, apply it to this mix and have a sense of where you think our company will go.

When you look at us we're about 40% ceilings, a little more than 50% floors and we have a Small Cabinet business. The majority of our 2008 profitability came from ceilings which includes our interest in the WAVE group joint venture.

Remember that the Resilient segment when you look at the segment reporting is a combination of a profitable business in the US with a European business that lost about $20 million in 2008. Overall 80% of our sales come from products in our end-markets which were number one. The exceptions are cabinets and the European floors.

Just a couple of words on the European Floor business, the composition of the business hasn't changed significantly since last year. We are expecting a small increase in the loss as a result of increased volume. We are achieving our overhead cost reductions and we're showing good manufacturing cost productivity. And we're seeing raw material, some benefits with raw materials. You know, we remain committed to eliminating the loss of this business by 2011.

And with that I'll turn it over to Frank.

Thanks, Mike. Good morning. I'm going to provide an overview of the North American Floor and Cabinets business. Here's a summary of what you're going to hear this morning.

First, market conditions remain difficult. This is year four of the housing collapse. Commercial began declining last September and has gotten worse in 2009. We've reacted by doing the things you would expect. We've closed plants and reduced SG&A to manage fixed expense in the face of declining volumes. But what we haven't stopped is investment in the things that drive our success, our brand, innovation and market presence.

Lastly, the structural changes made in the business will help us weather the storm in the short term as well as make us a better business when the market recovers.

The North American Floor business had revenue of $1.4 billion in 2008. This was a 12.7% decrease versus 2007. The Resilient segment represented 55% of the $1.4 billion and Hardwood represented the other 45%.

The Resilient segment was 51%; residential and 49% commercial. Within Resilient Sheet Vinyl is the largest residential category followed by laminate and vinyl tile. Vinyl composition tile is the dominant commercial category followed by sheet vinyl.

The Resilient business earns $19 million or 2.5% of sales in 2008. Return on capital was 5.7%. Hardwood is 95% residential. The largest product category is solids which is 61% of the total business. Engineered represents 30% and the remainder is trims and mouldings.

There are regional differences based on product structure. Solid is three-quarter-inch thick boards. Solid wood is not recommended for installation over concrete. As a result solids are less prevalent and west regions of the country where homes are built on concrete slabs.

The product of choice in these regions is engineered hardwood. Engineered floors are made of three to ten plies of a low-cost species topped with a hardwood veneer. More dimensionally stable engineered floors can be installed over wood, concrete or an existing floor.

The margins are slightly better for solids. Operating income for hardwood was $23 million in 2008 which is 3.7% of sales. Return on capital was 3%.

This is a view of our 2008 business from a segment and channel perspective. The Resilient business is dominated by renovation and remodel. Forty percent is commercial renovation, 41% is residential remodel. Only 9% is commercial new. The remaining 10% is residential new construction.

Half the hardware business is new construction. As a result this segment is hardest hit by the current housing crisis. 45% is residential remodel, and the balance of 5% is commercial.

From a channel perspective the majority of sales in Hardwood and Resilient flooring go through distribution. Armstrong has over 40 distributors with 400 sales people that sell and service the independent retailer, the contractor as well as the designer. Home Depot and Lowes represent 26% of Resilient sales and 36% of Hardwood sales.

Armstrong is a market leader in both channels. This is the result of strong brands, great products and consistent customer service. Our margins are larger in the distributive channel.

This is an updated view of the residential market. In 2008 industry shipments were 11.2 billion feet which was down 15% versus 2007. New construction was down 31% and remodel was down 9%.

The market has continued to decline in 2009. We estimate new construction is down 48%. Cumulatively new construction is down 75% since 2006. In addition, the rate of decline in the remodel segment has intensified as the economy has continued to worsen. We estimate the remodel segment is down 16% in 2009.

[Hardwood] remains the largest flooring category representing 60% of total volume. Vinyl is the largest hard surface segment with 1.7 billion feet of demand in 2008.

Now this may surprise some as it's been rightly reported that residential vinyl was dead. This is simply not true. While vinyl as well as carpet (inaudible) laminate, hardwood and ceramic during the new housing boom there is evidence that sheet vinyl share has actually stabilized and may even grow slightly.

Builders trying to keep the price of homes down have reintroduced vinyl. Budget-conscious consumers remodeling their home are choosing less-expensive vinyl over other hard surface options. While certainly not seismic shift the vinyl category in terms of share has at least stabilized.

Despite of our challenging market in both vinyl and hardwood Armstrong is the clear leader. Our residential vinyl sheet share is over 40%. We're nearly twice as big as our closest competitor.

In hardwood we have greater than 33% share. And we're nearly five times bigger than our closest competitor. In laminate we compete primarily in the distributor channel. We source 100% of what we sell in laminate.

This is the right strategic decision given current industry over capacity. North American laminate production is estimated to be 1.4 billion feet to support a market that's estimated to be 700 million feet in 2009. Sourcing gives us the flexibility to offer the best products of the marketplace without being limited by our own manufacturing capability.

Also, low industry utilization gives us the opportunity to procure products at low prices. Strategically this approach makes sense for Armstrong, but it does limit our opportunity with the big bucks.

Home Depot and Lowes want to buy directly from the manufacturer. This knocks Armstrong out of consideration for in-stock Laminate business. Our number four share in laminate is the result of a conscious strategy. We are recognized as the clear leader in the distributor channel.

Armstrong's share gain in residential is not just a 2009 phenomenon. Since 2007 Armstrong has consistently outperformed the market in both Hardwood and Resilient.

In Resilient the market decline has ranged from down 14% in 2007 to an estimated 20% in 2009. Armstrong's performance while down has been significantly better than the market, down 9% in 2007 and down and estimated 13% in 2009.

There's a similar story for Hardwood. The hardwood market has been much tougher give the importance of the new home segment. The hardwood market has ranged from down 17% in 2007 to an estimated minus 29% in 2009. Armstrong has done much better than the market. We were down 6% in 2007 and estimate being down 17% in 2009.

Now, nobody likes declining numbers. However, in a market like this where declines are reality the ultimate measure is how well you are performing versus competition. Armstrong beats competition day after day, product after product.

This is a similar view of the commercial market. The overall market was 5.7 billion feet in 2008 which was down 6% versus the previous year. Similar to residential vinyl is the largest hard surface category. It's second only to carpet in volume.

Market declines have intensified in 2009. Industry shipments are expected to be down 20% versus 2008. There was 70% of commercial vinyl shipments through the education, through retail and the healthcare segments.

Each of these segments have been impacted by the current macro-economic environment. In retail chains simply aren't building new stores. In many cases renovation of existing stores has been put on hold.

Education relies on state and local funding for new as well as renovation activity. With revenues down many projects have been delayed or actually cancelled. And the story's similar in the healthcare segment.

Category shares in commercial are relatively stable. The vinyl category has a 19% share of total commercial opportunity. Armstrong is the market leader in commercial vinyl and we're gaining share. Armstrong VCT has more than 50% share and is twice as big as its nearest competitor. Our brand is synonymous in the commercial market with quality and service.

Commercial sheet is a smaller category with more competitors. While we do enjoy a number 1 position competition is much more fragmented in this product segment.

As in Residential Flooring Armstrong has consistently outperformed the commercial market. The market has ranged from a plus 3% in 2007 to a minus 19% in 2009. Our performance has ranged from a plus 6% in 2007 to a minus 15% this year.

The driver of this performance is not a mystery. You win the commercial business by offering the visuals designers want supported by consistent quality and service that makes your brand the product of choice with the contractor.

While I'll get into more detail when I discuss renovation we have significantly expanded our product range in every commercial category. Today we offer over 900 design and color options to the commercial market.

In addition, we have produced color continuum. You can see it in the back after we're done. Color continuum is a simple, organized color system that optimizes color selections across our entire portfolio.

For the designer it makes it easier to find the right shade of color within a category as well as to coordinate color across categories. In terms of customer service we have the product available when the contract needs it. Our fill rates are consistently above 98%. Lastly, our claims average 0.3% of sales. We simply don't have quality issues.

Both the residential and commercial markets will be challenging for the remainder of 2009. We expect 2010 will be only slightly less challenging. In 2010, residential new construction will bottom out. They will not grow.

We believe the remodel segment will decline 6% to 8% as consumers deal with reduced home equity in an uncertain job market. On the commercial side recovery will follow the general economy. Our view is the 2010 commercial market will be down 4% to 5%.

Raw material cost trends are favorable in both the Resilient and hardwood business. In Resilient PVC and plasticizer have come down with the price of oil. This time last year oil prices were at $140 a barrel. Currently prices are in the low $60s. Lumber prices have also declined as overall demand for hardwood has fallen with the market.

In terms of price we cover material inflation with price in our Commercial business. In the Residential business we do not cover inflation with price due to the industry structure.

But since we did not get significant price in the residential business when raw material prices were going up we don't anticipate giving price reductions in response to raw material cost deflation.

Commercial is different. We'll give back some of the price gains we got when raw material prices were going up. How much we give back will be determined by competition.

Productivity continues to be a great story in the business. Residential productivity average 2% to 3% a year. Hardwood is even higher at 4% a year. This is driven by a focus on everyday process improvement in our plants.

The industry dynamics vary by business. Generally our costs are lower than competition. This isn't surprising given our scale in these businesses. The number of competitors is low in the sheet and VCT segments. The presence of a strong number 1 in Armstrong, the lack of category growth and the substantial capital required to get into business have discouraged new players from entering the market.

There are two red blocks on this chart. The first relates to industry capacity utilization in residential sheet vinyl. Even prior to the market slowdown there was too much capacity in residential sheet. This was driven by three primary factors.

First, changing consumer preference; second, a mid-shift to less expensive materials, and then lastly the growth of glass-backed floors. Until the recently the US sheet market was predominantly felt-backed products. Felt-backed floors are durable, but they require a full spread of adhesive to fully bond the floor to the subfloor. The rest of the world uses glass-backed floors.

Glass-backed sheet vinyl is softer underfoot and is more dimensionally stable. And as a result it can be installed without adhesive. Introduced in North American about 12 years ago glass-backed floors now represent 20% of the sheet vinyl market.

Armstrong is the number 1 player on glass in North America. We currently produce it in our facility in England. The growth of the category has attracted increased competition from Europe. If you recall we announced last year we would convert our Lancaster, Pennsylvania plant to produce glass-backed floors.

Our felt-backed product will be produced in our Stillwater, Oklahoma plant. This project is scheduled for completion at the end of the year. This investment will provide low cost and will allow us to shift more of our line to the high-growth glass segment. The additional glass volume also results in improved utilization in both our plants.

As I mentioned Armstrong has two domestic sheet vinyl plants. We also have the capability to produce felt and glass products. Our competitors have single facilities. This gives them limited opportunities to reduce capacity. It also does not provide enough capacity for them to consolidate a competitor into one of their facilities.

Armstrong with two plants with the capability to produce felt and glass-backed products is well positioned to capitalize on consolidation opportunities in residential sheet.

The second red block on this chart is commercial sheet costs. The majority of competition is from Europe. The domestic market is only 3% of total commercial opportunity.

At these volumes it's very difficult to get the economics of a plant to work in North America. We source our product from Armstrong Europe which has processed some scale disadvantages relative to competition.

The US sheet margins in this category are good. And any solution in Europe will have to include a competitive source of supply to the US market. Our strategy starts offering the best product portfolio relative to competition.

As I said last year nothing matters if you don't have products consumers want to buy. Our strategy has been to offer the broadest assortment of styles and designs. At a time when many competitors have throttled back new product introductions our commitment remains strong.

In 2009, we will introduced over 300 new SKUs in our line. On average we'll churn about 15% to 20% of our line annually. Our commitment to product is not just a (inaudible) of visuals.

Consumers in a tough economy are mixing down. Retailers need margin and are looking to mix up. The opportunity is to provide the customer a reason to trade up which provides additional margins to the retailer. Many of the new products I'll review in the next slide represent mixed opportunities for Armstrong.

The secondary strategic focus is market coverage. This starts with offering a brand that consumers know and trust. We have continued to invest in the Armstrong brand both in print and TV advertising throughout this downturn.

Our spend is higher than competition. It has remained constant since 2006. In combination with our brand in a broader assortment of product we need merchandising presence that tells our story of retail. In 2009 alone we'll place over 4000 new displays at retail.

In terms of sales coverage today we have an Armstrong team that works with our distributor partners to drive sales. While effective this does drive some redundant costs. Not every customer needs to see a sales rep. Not every customer requires the same call frequency or level of service.

The opportunity is to have the right type of sales resource calling on a customer at the right call frequency. This can improve effectiveness of sales coverage at lower cost.

The next area of strategic focus is low-coast manufacturing. As mentioned earlier we have a good track record on productivity in the business. Beyond the baseline productivity we do have additional opportunities, the Lancaster glass investment I mentioned earlier.

This investment will reduce production and transportation costs substantially. In addition we will gain a working capital benefit by producing locally.

As I mentioned this project is on schedule to be completed by the end of this year. In terms of hardware productivity the opportunity here is to reduce labor costs and improve yield. The two actually go hand-in-hand. The more you can reduce labor through automation the more variability you can take out of your process and improve yield. This is a key focus area for us in 2009 and 2010.

The fourth strategy is environmental leadership. We have a great foundation in linoleum which has grown consistently in share in the last three years. We recently expanded our assortment of visuals and color options to make our product line even stronger.

Last year we introduced Migrations tile. This product offers the durability and value of VCT without containing PVC. It's made with rapidly renewable resources and recycled limestone. The next step is to use this technology platform as the foundation for developing a green sheet product.

In hardwood two of our manufacturing plants are FSC certified. FSC certification ensures wood comes from suppliers that practice sustainable forest management.

These next two slides provide examples of the product and merchandising initiatives launched recently in support of our strategies. Alternate vinyl tile was introduced in April of 2009. A 16-inch-by-16-inch tile this product isn't establishing a new trend as other competitors also offer large floor mat tile.

However, the response to Alterna has been exceptional. The total of 40 SKUs is wining high marks for (inaudible) additional assortment and quality of design execution. We have received commitments for over 1500 displays which are scheduled to be set at retail by the end of the third quarter.

In laminate Grand Illusions high gloss has established a new standard for visual realism. Made to simulate the look of high-end, smooth piano-finished wood Grand Illusions has become the product of choice in laminate.

The last example is on the hardwood side with Rural Living which is an engineered, Hand Scraped. Visual treatments like Hand Scraped continue to grow in popularity.

The challenge for domestic producers is the labor intensity of Hand Scraped business. Armstrong built a plant in China which has been open about 18 months to position us to provide labor-intensive products cost-competitively.

New products are only part of the story. Equally important is it's gaining placement at retail so the consumer can actually shop and see your product. Now I mentioned earlier we'll place over 4000 new displays of retail in 2009. These displays create strong presence in the retail show room, provide the retailers the broadest selection of products and reduce the need for competitive displays.

These are examples of new product initiatives in the commercial business. Migrations which I mentioned earlier provides an environmental solution in tile.

In both linoleum and homogeneous sheet tile we have expanded our assortment of colors that coordinates across categories. Again, marketed as color continuum this broad selection of coordinating colors makes it easy for designers to find the color that meets their needs both within a category as well as across categories.

Lastly, early this year we expanded our commercial portfolio to include laminate flooring. While it's a relatively small category this does represent additional sales and mixed opportunity for Armstrong.

In the current difficult market environment we have to (technical difficulty) cost to mitigate as much as we can with the decline in volume. The advantage we have as multiple plants that gives us the opportunity to idle a facility and realize significant short-term savings.

Since the residential downturn started in 2006 we have idled an engineer plant in Pittsburgh, Mississippi and a solids plant in Nashville, Tennessee. In addition, with the (technical difficulty) we have idled a vinyl tile plant in Montreal, Canada. Lastly, we have reduced crews in many of our plants in response to declining volumes. This has been done with no impact on customer service.

In idling these plants we maintain a maintenance crew as well as security to ensure we can restart these facilities in a timely fashion when the market recovers.

On SG&A we have reduced our spend by $41 million since 2005. We didn't do this by cutting what's important. We've maintained our brand, innovation and merchandising investment. Rather, we used a process improvement focus to simplify processes and eliminate non-value [at work].

Our strategic initiatives and cost-reductions actions provide significant operating leverage in our plant. This chart shows growth in sales and operating margin for the period 2009 through 2012.

First, regarding the top line, growth is driven by the following. A market recovery in 2011 and 2012 in both residential and commercial we expect the market to grow in the high single-digits each year. We also include share gains consistent with what we experienced the last three years. And lastly, it includes some mixed gains due to product initiatives already launched.

On the cost side we've assumed the following. Baseline productivity will be consistent with what we've achieved in the past. Additional cost reductions will come from our Lancaster investment in hardwood automation initiatives. Price versus inflation assumptions in the plan are consistent with past experience.

Lastly on SG&A we've assumed that nearly two-thirds of the SG&A cost reductions will stick. The remaining one-third is tied to growth and top line and will come back into the business as the market recovers.

The net result is tremendous leverage. From sales growth of 8% to 12% per year operating margins grows over 70% per year. Return on capital increases from 3% in 2009 to 12% to 14% in 2012.

I want to switch gears if I could and provide a brief overview of our cabinets business. Cabinets is the story of the business that's doing everything right in a lousy environment.

As background, Armstrong Cabinets is a niche player focused on the small and mid-sized building. Sales in 2008 were $179 million which was down 24% versus 2007. Operating margin was a loss of $7 million. 75% of the business is new construction where the market decline has been particularly hard on this business.

Cabinets has substantially improved this position in the last three years. We've expanded our product offer of both species and door styles. We've applied a process improvement focus that has resulted in consistent productivity gains and manufacturing. We've achieve best in class customer service. And lastly we continue to improve quality. Armstrong Cabinets won the JD Power Award in both 2007 and 2008.

As a result of these efforts Armstrong Cabinets has outperformed the market. In 2008 the market declined nearly 35%. Our sales were down 24%. The trend continues in 2009. Again, the market is down over 30% and our sales are projected to be down 17%.

While we can't impact the market we can continue to make this a better business, first by improving the productivity of company-owned sales service centers. We can reduce cost by eliminating under-utilized show rooms, consolidating back office functions and partnering with third party logistics where it makes sense.

Second, in manufacturing, we'll continue to drive baseline productivity. In addition, similar to hardwood there are opportunities to reduce labor through automation, particularly in the finishing operation. This will drive additional savings in 2010.

Now, to get substantial improvement in this business we need the market to recover. If we use the same macro-economic assumptions used in the flooring business in combination with the improvement that have been made in cabinets the financials of the business improve dramatically.

In 2012, sales should be $190 million to $200 million, operating margin $10 million to $15 million, the return on capital greater than 12%. When the market comes back this will be a very good business.

While the short term is not attractive in terms of operating income the cash use in Cabinets is minimal. In 2009, cash flow is actually positive $1 million. In 2010 and 2011, the business uses $2 million to $3 million in cash.

In summary, cabinets is a business that will have a tough time in the short term due to the market. However, it will use minimal cash and it's focused on the right strategic initiatives. The result will be a profitable business when the market recovers. Thanks very much. And I'm going to turn it over to Nick Grasberger.

Thanks, Frank, and good morning. Building Products is the global leader in suspended ceilings and grid. Grid are the metal railings installed with ceiling panels.

We're the most profitable company in the industry. Our operating margins are between 15% and 20% depending upon where we are in the cycle. And we have the number 1 market share in each major geography.

Sales are over 90% commercial. We fell under segments such as office, healthcare, retail and education. We have about a $100 million residential business predominantly in the US and also in Canada. The margins are much lower in residential, but it is a profitable business.

The grid business as Mike mentioned is a joint venture with Worthington Industries. It's a 50-50 joint venture. We consolidate about 50% of the profits and some of the sales outside the United States.

What I've done here on this chart is I've shown a full consolidation of Building Products and WAVE to help you better understand the margin structure of the business. In 2008, sales consolidated Building Products and WAVE were about $1.6 billion and operating income was about $300 million.

You'll note that the profit margins in the Americas are a good bit higher than they are in Europe, Asia and elsewhere for a few reasons. First of all, the product mix in the Americas is much richer than it is elsewhere. We also have greater scale which of course helps to leverage fixed cost and SG&A and manufacturing. We also tend to have exclusive distributors in North America as well as just a few large competitors in contrast to other markets where we tend to have more smaller and indigenous competitors.

In the developing markets in China we manufacture and export to other markets in Asia. We tend to have very attractive growth prospects in the developing markets due to large projects, projects such as airports, universities, office (inaudible), government buildings and so forth.

In fact in the past few months we've recently been awarded a few multimillion dollar global projects in places like the Middle East and in India. From a manufacturing standpoint we have 20 plants including the grid plants. So, we have nine in the Americas, nine in Europe and two in Asia.

We do run AVP as a global business. So, assumptions such as product development, manufacturing support, finance and HR are centrally-managed in Lancaster and support the operations globally.

Well, we differentiate our products versus competition based on attributes. In the ceilings business the predominate attribute would be acoustics. And within acoustics the two important properties are the ability of the product to absorb sound and to block sound.

Durability is also important in ceiling tiles. Durability is viewed as the product's resistance to staging and to scratching and also the hardness of the edges on the product.

Aesthetics are also of course important defining characteristics. And aesthetics would be texture of finish and edge detail. And within great products perhaps the most important attribute would be the ease of installation, the ability for the contractor to save time and money in installation. And load rating is also an important attribute within grid.

In general in the United States material costs of our products are less than the installation costs. And that's not necessarily the case outside the US So, in the US install cost can range anywhere from $2 a square foot for commodity products up to $24 a square foot and higher for specialty wood and metal products.

As a reference point drywall or Gypsum are an installed basis in the US is about $5 a square foot. And of course with drywall you don't have access to the (inaudible).

Now, let's talk about the product portfolio here just briefly. We have expanded the portfolio dramatically over the past several years. We tend to view our products and product families. We've historically had seven product families. We've added three new product families in the last few years and we have over 1000 SKUs.

Well, the traditional product has really been this wet-form product that is made with mineral wool and starch and clay and waste paper and so forth. We have over the past several years added fiberglass-based products which we call soft fiber products. They are dry-formed. They are not perhaps as durable as wet-felt ceilings.

They do, however, have very good sound absorption. They're not as competitive with respect to sound blocking. And they are products that are growing very fast both in Europe and North America. And we have capabilities in both markets.

The metal ceilings are characterized by their aesthetics and also their durability. They're very popular in transportation airports for example as well as in stadiums. Wood ceilings provide that warm kind of home-like feeling to commercial spaces and are very popular in institutions such as healthcare facilities and schools.

We also have a very broad line of specialty products which would include canopies and Clouds made out of different translucent materials, wood, metal and so forth. They kind of make a design statement and they also have good acoustical benefits. Not surprising they have very high price points. And you often find them in exposed structures where we do not have ceilings.

This chart is a view of the segments in commercial that we sell into. Office is the largest and most important segment to our business. It also has the highest margins. Retail would be the second largest in the US and would also have the second highest margins. Of course these are currently two of the weakest segments. As we look forward we do expect off the lower base office and retail to recover in line with the other commercial segments.

What's notable in (technical difficulty) and retail is that the mix has improved significantly over the past few years. And certainly this year that's helping to mitigate the decline in the segment.

Help from stimulus projects globally mostly in government buildings or around the world we're seeing in healthcare and education trends towards higher importance on acoustics.

So, if you look at the opportunity model that we have, the opportunity model in terms of the new versus renovation varies somewhat significantly by geography. In the US we believe that about 30% of the opportunity in commercial is derived from new construction. Another 25% to 30% would be major renovation projects. And the balance would be maintenance and repair projects.

So, we view our model the best predictor, indicator of volume changes in commercial in the US to be GDP. So, while if you look into 2010 most would expect office starts or commercial starts to be down about 15%. But because most also expect modestly positive GDP growth in 2010 we would expect overall to be down about 5% in volume in 2010 in the US.

So, in terms of segment shares in the Americas it's a rather concentrated industry. Between Armstrong and US (inaudible) we have about 85% to 90% of the market. In the US we go to market mostly through distribution. About 80% of our sales go through distribution, the balance through contractors.

On a competitive basis we do have the largest number of distribution points in the US. We also have the largest number of exclusive contractor relationships.

Within retail about 60% of the product goes into the big box. We have 95% share with Lowes and about 30% with Home Depot. In the European market about 95% of the product goes through distribution. Europe is characterized relative to the US as a market that has far more competitors both large and small.

The UK is far and away our most important market in Europe. We have the largest shares over 50% and the margins are a good bit higher in the UK than they are in other geographies in Europe.

Our market share is above one-third in geographies such as France, Spain, Italy and Central Europe. We have about a 25% share in Russia and less than 25% in Germany and the Benelux.

The European market is also characterized by being roughly equally split between the two major product forms and suspended ceilings, those being the wet-form product made from mineral wool, what we call wet felt and the dry-form product made from fiberglass which we call soft fiber.

Armstrong is the leader in the wet felt product in Europe. Within Europe [Loxon] and [Epathon] are two companies that are aligned with installation manufacturing and make only the soft fiber products.

In Asia we also have the leading market position and most markets outside of Japan. We have a very strong mix in India and in Australia. In China the very low-end products tend to be more popular. In the big cities where you have the class layoff is construction that's where we have our share and we have the high margins.

Over time we would expect that as labor rates go up that our products will become more competitive on an installed basis with drywall. And we'll take share within the category.

Okay. In terms of financial performance, Mike mentioned this earlier, we've seen a really pretty terrific financial performance from building products over the past five years. The trough in the commercial in the US was in 2003. Since 2003 profits have grown about three times from $100 million in 2003 to about $300 million in 2008. Sales on average grew about 8% a year during that period and profits grew about 25% per year.

In terms of revenue over that period, the five-year period from 2003 to 2008, volume average growth of about 2% to 3% a year, and mix was also up about 2% to 3% per year. And I'll talk more about mix in a minute. We also in the business had probably covering total inflation in building products.

On the manufacturing side manufacturing and SG&A costs both declined in real terms. On the operating margins expanded over this period from 12-1/2% in 2004 to 19% in 2007 and 2008.

Return on capital has also grown significantly over the period. It is burdened by about a $0.5 billion dollars of intangibles and has stepped-up value of the WAVE investment on the balance sheet. We came out of the bankruptcy through fresh-start accounting in 2006.

So, this year we expect sales to decline globally in AVP between 15% and 20% and profit to decline about 30% back to where we were in 2005 and 2006. But given the very high margins in this business the direct margins are between 50% and 55% in both ceilings and grid we would have expected profit to decline much more.

So, our fall through of change in sales relative to change in, or change in profit over change in sales will be about 30% for the year against these direct margins of 50% to 55%.

So, as we look at the markets what we expect in the markets this year the US can expect volume to be down about 16% to 18%. But we have actually seen in June and July some better performance. We're certainly not yet getting excited about that, but we have seen volume declines in the past few months be more in that high single-digit range as opposed to that 18% to 20% range that we saw in the second quarter.

In the UK the UK volume should decline this year between 25% and 30%. That market is not getting better. The order rates that we see today are very similar to the trends that we've seen in the first half of the year.

Russia, Mike mentioned Russia has been down between 40% and 50% so far this year. We do expect the second half of the year to be better mostly because of easier comps. We don't really see the Russian market improving.

We do, however, see some improvement in China and India. As we go into the second half of the year we expect growth, year-over-year growth, in volume in both China and India where they were down in the first half of the year.

Now, just a few comments on mix. Product mix has really helped drive AVP over the past five or so years. We are very focused on mix in the organization between product development, marketing and the sales organization. As I said we picked up two to three points of mix per year over this period. And that's added about 50 to 100 basis points per year in operating margin.

This chart shows the proportion of commodity versus high-end and specialty products that have changed over the past five years. You can see that in 2003 in the ceilings business the proportion of sales that came from high-end or specialty products was about 52%. That's increased to over 60% in 2008.

And a similar story in grid where new products at higher price points with higher margins have helped drive the profitability in the business over the past five years.

So, as we look forward and actually this year we would expect mix to be somewhat neutral. We saw some reasonable mix in the first quarter. It flattened out in the second quarter. So, we would expect mix to be roughly neutral for the full years'.

We look forward even though we've picked up two to three points of mix per year in the previous upturn we're only assuming in our model that I'll talk about in a minute that we pick up one to two points of mix. Hopefully that will be somewhat conservative.

Okay. We have a business in the US called Architectural Specialties. And this is a business that we began about ten years ago and we've seen a dramatic increase in sales and in profit. In fact, in the month of June Architectural Specialties had its best month ever in terms of both sales and profit.

So, the business has, we largely sourced the products in Architectural Specialties. They tend to be very high-end ceiling and rural products. We do manufacture some of the products, but over 90% of the products are sourced.

What we bring here is we bring a product design expertise, project management expertise. We've developed a very good supply chain function. We're constantly looking for new products that we source into this market.

But perhaps one of the biggest benefits of Architectural Specialties is that it tends to pull through on these big jobs core products in ceilings and grid.

Just a few examples, some of you I'm sure are familiar with the new Goldman Sachs building downtown. We have about a $6 million project in that building. About one-third of that or so would have been the very high-end Architectural Specialties products. And the balance of it would have been more standard, but high-end products within Armstrong that were pulled by that job.

Just a few other examples here in New York, NYU, the Stern School of Business, we recently were awarded a project there. It was about $1 million. About half of that was a high-end bamboo and metal product. And it pulled through about $0.5 million of additional core products.

So, there are many, many examples of this. And so the numbers that you see on this chart of course really just reflect the high-end products within AS, but there's a big benefit to the core business as well.

So, this is a market where it's somewhat fragmented across metal and wood and in translucents. We have about a 20% to 25% share or we're number 1 or 2 in each of those principle categories. The pictures here that you see on the chart are an elementary school in South Carolina and the Neyland Stadium which many of you, hopefully some of you would know is the University of Tennessee Football Stadium.

So, as we look forward strategically we believe we have an excellent opportunity to grow and construct a similar business to this in Europe. We today have a metal ceilings business in Europe that focuses on big projects.

And so we think we have a lot of the expertise in the project management capability existing in Europe today. What we don't have in Europe today is the expertise in the supply chain to go out and source a lot of the non-metal products like we do in the US to be successful.

So, this is an initiative that we're very excited about. We believe we need to add some resources for European business, but of course we have the successful US model to base our planning upon.

So, hopefully some of you are able to see in the back some of the new products within AVP. We are very excited about each of these. The first one I'd like to talk about is DC FlexZone. This is a product that we think addresses a structural change in commercial buildings. It's DC power that is wired directly into the suspension system. And it creates effectively a Plug and Play environment in the ceiling plane.

So, there are lights and censors and other devices that can be easily connected, disconnected and moved which creates flexibility in how the building space is used. The compatibility with DC power with alternative energy sources supports the goal of reducing energy consumption in buildings.

DC FlexZone was recently installed in the new national headquarters of the US Green Building Council and was a Gold Award winner at the NeoCon show in Chicago last month.

We're part of an alliance with this product, with alliance of I think over 50 companies now, companies such as Johnson Controls, Steelcase, Osram Sylvania where we are collectively trying to get DC power rapidly adopted in commercial buildings.

ATR is another new product that builds on our commitment to sustainability. It's made of jute which goes from seed to harvest in just three months. And it offers a very high sound absorption as well as high light reflectance on its surface.

(Inaudible) 10 which we also have a sample of in the back is a metal ceiling that has extra micro perforations for added acoustics and a very narrow grid. And collectively that addresses a large kind of historic segment that we think will be very attractive to us.

And finally Wings on the bottom right there, Wings is the first cantilevered ceiling product in the industry. It's a floating canopy with no wings, an extruded aluminum spine. And it can be used within existing ceiling or also in an exposed structure space.

So, let's talk about cost for a minute. Despite the growth over that five-year period from 2003 to 2008 cost was really held in real terms steady within AVP. Until this year of course you can see the step-down in cost in 2009.

But over this period manufacturing productivity has largely offset inflation in manufacturing excluding raw materials and energy. But the step-down that you see in cost in 2009 on the manufacturing side is in part the closure of our Mobile, Alabama facility.

We've historically had seven ceilings plants in the US. Now, we have six. And we've idled the plants, but it could well be with the productivity that we're seeing in the other plants that we will not need to reopen Mobile in the future.

In terms of SG&A the step-down, or the increase I guess in 2006 and 2007 was really due to some investments we made in Asia. We felt that give the growth prospects in Asia it would be wise to invest in some infrastructure and some additional resources in Asia. We did that.

We also had a relatively heavy spend in 2007 on retail displays. The changes we've made in SG&A in 2009 have largely been in SG&A functions outside of the sales support functions.

As we look at what we've done this year we think the vast majority of the reduction is permanent. And I believe that we even have further opportunity on the cost side of SG&A going forward. So, in fact in our three-year plan we don't have SG&A increasing despite, in dollar terms, despite the growth that we expect in volume.

These are the six core strategies within AVP and they really have not changed. What's changed here are the initiatives that support these strategies.

So, we talked a little bit about a few of these already. Soft fiber is growing faster than our traditional wet-felt product both in North America and in Europe. And so in our three-year plan we need to invest in some new products. We also believe that we'll be out of manufacturing capacity in soft fiber. So, we'll need to invest in capacity.

Metal ceilings in Asia is a very fast-growing segment. It's very fragmented. We have a relatively small share. We do make a very, basic, metal ceiling products in WAVE plant in China, but we are analyzing whether it makes sense for us to invest in manufacturing. So we largely source the higher end metal products in China today, but we are looking at the merits of making a manufacturing investment there. And of course we have a lot of expertise in metal ceilings both in Europe and in the US that we can bring to bear on the Asian market.

In terms of architectural specialties and this would apply both to the US and to Europe as I said we are constantly looking for new products and it is really one of the strengths of the business. Some of the recent products that we have added or are thinking about adding would be wood canopies, additional translucent ceiling panels, as well as metal ceilings for secure areas.

In terms of market coverage I mentioned the specialties business in Europe we think that is a relatively untapped market in Europe within market coverage. We also believe, in Russia we have sold through two large distributors for sometime. And although their coverage is good it does not really extend east very far so we are in the process of adding distributors in China.

You may recall last year at this time we were talking about building a plant in China. I mentioned volumes will be down this year between 40% to 50% , but nonetheless Russia is a very good market for us. Overtime we were able to increase the mix significantly from a low-end commodity product, you know, up to a more standard type of product for Armstrong and we certainly in the long term are bullish on Russia.

In China the focus there is mostly around promoting the benefits of acoustics. Again drywall is the predominant ceiling of choice in China really for two reasons. One is it is cheaper on an installed basis when you get outside the big cities. And secondly, the acoustical properties of our product are really not appreciated.

So we believe that we can do a better job of promoting the category and increasing the share of our suspended ceiling product relative to the drywall over time. A low cost manufacturing like everyone else we have excess capacity. We in the US our capacity utilization rate is kind of around 80% right now and a little bit less than Europe.

We have seen good productivity in the plants and we expect the market to continue to be down at least the US next year. So e are continuing to study whether or not there is additional capacity that we can take out of the system.

Supply chain effectiveness, we are constantly looking for sources of recycled materials. Also for material substitution and also for new sources of some of the key input materials into the business.

And finally with the low cost manufacturing we will in the fall open a grid plant in India and it will the first grid plant in India opened by a multi national company. So we do believe, of course, we source the product into India today from China and on the landed cost basis it is not as a competitive of course as you would like it to be, so we are excited about having a more cost competitive product in the Indian market.

In service and quality what I'd say here is that we believe we need to allocate increasingly more time of our sales force to architects. When you spend time with architects you get specifications written and that is a good thing.

So we have introduced a number of IT based initiatives with our distributors that would enable us to again reallocate time away from the distributor more towards architects and that has been the focus over the past couple of years.

And price again going forward as we have historically we would expect price to cover inflation and environmental leadership is mostly about new products, right. We talked about [DC, flexon and tiara] but also recycled contents and new sources or waste paper and scrap fiberglass and so forth.

So I'd like to close as well with a view of the operating leverage in the business and what we expect over the next three years. As I said we expect the US market to be down about 5% next year. We expect the European and Asian markets to be kind of plus or minus zero. Obviously some markets within Europe and Asia are stronger or weaker than others.

But as we look into 2011 and 2012 we are expecting a recovery. In 2011 we are looking for a volume growth to be in the 5% to 6% range; in 2012 volume growth to be 7% to 8%, somewhat lower in the US, but still of course positive.

If you look at that model on the top line with the volume growth price covering inflation and again a relatively modest improvement in mix, 1% to 2% per year, we would expect in 2009 to '12 to have average annual growth rates of 5% to 8%. Again that is including a relatively weak 2010.

So that is on the revenue side. Then if you look at the continued cost control some of these initiatives that I talked about in terms of architectural specialties and soft fiber and metal in Asia, you look at all of those together and we would expect to see a profit growth average of 15% to 20% a year. In fact next year despite the volume decline in the US we believe we can hold profit constant on a global basis.

What this would mean in 2012 is that we would achieve earnings of $300 million to $325 million which is in line with where the peak was in 2008. And of course we would view 2012 as not being the peak of the next cycle. And so another way of saying that is that we certainly are targeting and would expect for both earnings and margins at the peak of the next cycle to be higher than where they were in 2008 peak of the previous cycle.

Okay, thank you for listening I am going to turn it over to Bill.

Thanks, Nick. Before discussing our outlook I would like to set the stage by reminding everyone of our recent historic performance. Between 2005 and 2008 we increased operating income by 40% despite declining residential markets and raw material inflation. The majority of the volume decline hit our business in 2008 due to the severe decline in US residential markets. These markets primarily hit our North America Flooring and Cabinets businesses.

Every year included raw material and energy inflation with roughly half of the amount shown realized in 2008. We were able to offset these challenges however, through several actions including our commercial businesses especially ceilings were successful in raising prices sufficiently to largely offset inflation.

Our residential businesses could not cover their inflation with price increases. A sustained focus on innovation allowed us to steadily improve product mix again particularly in the ceilings business. Focused initiatives and ongoing productivity efforts reduced manufacturing and SG&A expenses. Our North America Flooring businesses were particularly successful in this area. Finally our WAVE joint venture delivered strong earning growths during this period.

So this leads us to the changes from 2008 to 2009. The prior trend lines were altered dramatically as global commercial markets began declining in earnest. For the year we reaffirmed our estimate that sales will fall 17% to 20% on further declines in US residential markets plus unprecedented reductions in commercial. Consequently sales in all segments are expected to experience declines in the mid to high teens compared to 2008.

Operating income is expected to fall between 47% and 55% in 2008. Cost reductions through year will not be sufficient to offset the margin impact of lower sales. All of our segments should have favorable cost performance, but lower income. Our cash flow guidance has improved. In April we had expected free cash flow would end up roughly at 75% of the amount generated in 2008. We now expect cash flow to be roughly equal plus or minus $10 million.

Continued focus on working capitol and cost control largely account for this improvement. This slide provides the same financial outlook details as discussed in the first quarter call. The main take away is that all elements are either equal to or improved from our April call.

Let's now look at the expected operating leverage for the full year and we are using the mid point of guidance for this chart. Focused prudent cost reductions and input cost deflation should significantly limit the fall through of lower sales to operating income so we expect our fall through to be approximately 20% for the year.

Here is our estimated balance sheet as of the end of 2009 rounded to the nearest $50 million for the different items. A few points are worth mentioning. First, as expected year-end cash levels should approximately equal that level. Second, there will be significant changes to several tax related lines in the third quarter.

In July we received IRS approval of the $180 million tax refund received in 2007. A net accounting affect of this good news is that income tax expense will be reduced by $10 million in the third quarter.

The next two slides provide a framework around how we currently view the next few years. In building our recently completed three year strategic plan we assumed the following: Some markets such as new home construction could begin recovering in 2010. However, we believe our most important markets residential renovation and commercial will be below 2009 levels in 2010. We expect sales to decline a bit further in 2010 all be it at a much slower rate of decline than what was felt in 2008 and 2009.

Most markets are expected to grow in 2011 and 2012. However, we are preparing for a gradual recovery as evidence by our belief that 2012 opportunity levels will still be less than what we experienced in 2008. We see the price inflation balance being roughly neutral for this period.

As with past performance our commercial businesses should be able to recover input inflation while the residential businesses may not. We will continue to invest in productivity and cost reduction initiatives. We will still have good opportunities in all of our businesses. The domestic operating loss should provide cash tax benefits through 2012.

Finally, as Mike has already discussed we expect to eliminate the floor Europe operating losses by 2011. Based on these assumptions and the foundation we have been laying over the last several years the company should be strongly position to take advantage of recovering markets. A return on capitol target is 10%, our performance should approach the target in 2011 and exceeded in 2012. Further free cash flow should remain strong especially in the later two years.

A few final thoughts we continue to stay focused on customer service, product innovation, prudent capitol investments, and good cost control. This focus is helping us remain profitable and cash flow positive through the global economic downturn. We are confident that it will allow us to make the most of the eventual recovery. That concludes my comments and I would like to turn it over to Mike.

Thanks, Bill. A couple of sort of off script comments having listened to these guys stories one more time. One of the things that is really an asset to the company is the culture in building products of improving mix. In 2003 Architectural Specialties was loosing 4 million dollars and I kept being promised that it was going to be successful and at the end of the day it is a remarkably successful business.

And it's a model that we have really tried to make sure the other businesses follow and it has been very good for us. One example of this is Milton's high gloss laminate. We have taken a laminate position that really was not much of anything and turned it into a nice business of good product innovation at the high end of the market which has allowed us to earn margins where other people find them illusive.

The other thing we have done in terms of product innovation is we have taken a wood business that essentially offered 574 different kinds of oak flooring and turned it into a business that really does have a diversified product mix that can meet the needs of retailers as well as consumers and improving what we offer retailers is a supplier.

Of course the masterwork program we have in vinyl to actually produce vinyl visuals that are realistic against what the consumers want has really helped us gain share in the vinyl business. It is innovation and commitment to making sure we have good-quality products which is very important to us.

The other side of it is customer service. We simply do not disappoint customers. Frank talked about 98% service levels and Nick did not embarrass him about talking about his 99.5% service level. The truth is when Armstrong commits to having something there it is there. It's there when people want it.

One of the best stories about quality is cabinets. When we bought Cabinets by their own admission by the desecration who ran Cabinets at the time we made a schlock cabinet which we sold him the brand name IXL. We have gone from that to a JD Powers award-winning product sold under the Armstrong brand. It has done wonders for us in the market place. We feel terrific about what we have been able to do in improving products and what we supply customers.

In terms of growth opportunities you heard Nick talk about the opportunities we have in every geography to improve our ceilings business. Frank talked about what we need to do in improving a return on capitol in wood and we think we finally have an answer for an application of capitol.

Our plants can create a real differentiated between us from competition and of course we are spending to improve the position of vinyl which is such an important contributor to us. As Frank talked about people said that vinyl has gone out of business we make a square mile of vinyl every eight days. When you think about vinyl going out of business it is really not true.

Of course our wood business is down so now the wood we make each year if you line it up end to end only goes to the moon and a little bit of the way instead of halfway back. We have great opportunities in the company in what is a really, really tough environment. The macroeconomics of what we see remains grim. We just do not see a big pickup.

We are very lucky to be working for a company that is profitable and industry leading, but we are going to be prudently cutting costs as required and balancing short-term opportunities against long-term opportunities. We are going to invest in and benefit from product introductions in our brand. We are going to continue to support our brand.

The thing that we do not talk about very much externally is that we talk about internally is safety. We have 11,200 people today and the safety of all of them is important. We have reduced the accident rate at Armstrong since 2001 by 80%. Our accident rate in 2001 was 5.5, but so far this year it is 1.06. And in the cabinets business we have reduced it from over 14 to 1.2, so a 90% reduction. We care about our people and we try to make sure they are safe. We worry about customers. We try to makes sure what we promised and when we promised it.

At the end of the day our objective is what we have said many times is to emerge from this economic downturn that we have around the world a better position then when we went into it and to remain profitable throughout the period. To do that we are going to keep doing what we have been doing.

We are going to sustain product innovation, invest in our brands, provide great customer service, an industry leading quality, invest prudently in manufacturing capabilities, generate cash, and become productive in all that we do.

And with that I will throw it open for questions. Now we have questions that come from a couple of different places because there are people on listening to it over the Internet so they get the email questions to Beth so every now and then I am going to look at Beth. And if I don't I suspect she will interrupt me. So, yes sir.

When you do look out to --

Use the mic so everybody can --

When you do look out to 2011 and 2012 how important are acquisitions to your strategic plan? If they are important could you discuss them by segment?

They're not important. We have opportunities to do small things. We do not have opportunities to do big things and we do not believe in diversifying acquisitions. We have small opportunities to enhance both the building products business domestically, but nothing that is going to fundamentally reshape Armstrong and we are going to going to get very far from what we do. Okay, go, I'm sorry.

I have two questions one if you could just aggregate the results of WAVE from your presentation and what you think will happen with the profitability of that business over the next couple of years.

Secondly what steps do you think is necessary from here to improve the profitably of the European flooring business? You said that there was a $25 million this year up from 20 expecting it to be profitable in three years.

The WAVE business in the last year was about $400 million and this year they will be closer to $300 million and profit was about $140 million last year and it will be between $90 and $100 million or so this year.

On the European floor the last time we spoke we described a strategy which says we understand very well the source of our manufacturing cost disadvantage and can readdress most of it through investment in plant. We have to continue to reduce our SG&A structure and we have made progress on that.

Actually have a team working on that for the next round of productions there right at the moment. We have to do both of those things and get a market recovery to get back to where we will break even in that business. As we have said before we continue to think a better answer is some kind of partnership in Europe, but we have not yet found that to be an option for us. Yes, sir?

A couple of questions with European flooring is the $25 million of restructuring expenditures is that the capital contribution that is being made to the Europeans?

We didn't, did we say $25 million? We did not say that. We had said, I think we had said before that the capital required on the fix it plan is about $30 million eros over 2.5 years.

Okay thanks. Then you said something at the very beginning on housing starts what was your number?

We said in 2012 single family starts were 780. And so that says total starts are just under a million. Okay, which is a little, I think is lower than you normally think you would get out of recovery, but on the other hand we do not think, we just don't think that we are going to get through the overhang in the market as nearly as fast as some others do.

Fair enough. Then your working capitol trends in terms of sales outstanding inventory days, you expect those to be consistent with what you have achieved here in the half of 2009 through the next couple of years?

Yes, our stuff behaves kind of the way it is supposed to which in the sense is when we see downturns we will see a slight increase in days in inventory just because of the ways models work.

We are obviously working very hard to make sure we have only good productive inventory. We would expect to see a couple of days lingering this year and we will see that come back as we see some volume grow.

Our receivables so far have been okay. We keep a very close watch on them and most of what we see in receivables is customer mix. We are seeing growth in some customers with longer terms than the customers with shorter terms.

My last question is with regards to the trust. Can you give an update on where the trust stands?

I cannot. I would love to, but I do not know to be honest with you. We do not speak for the trust. They have a public reporting obligation which they do once a year, but they do not tell us where they are. I joke about it. It is true the flow of the information is from me to the trust not the other way around.

When I think about your business I guess the improvements that you should see is having to start at some point down the road. Do they pickup, what sort of a lag is there from the time of having starts from the increase that 750 number and the time it starts affecting your bottom line?

We think of it is six to nine months, it depends. The average time to build a house is five, six months or something like that which I really do not believe having built a couple of houses mine never got built in 5.5 months, but the average in the country is about 5.5 to five to eight months, something like that. We are very late in the cycle so we think six to nine months and really in commercial it is the same thing. Not that new commercials are less than important to us it is the same thing. We are a late item in the thing and six to nine months and commercial is more along nine months is what we think is the lag.

So 2011 is the really up kick in starts and it is going to be more in 2012 when the profitability really starts to benefit?

Yes that is true that it would be the case. We do kind of think that there will be some improvement in the housing market towards the end of 2010 which will lead to improvement for us in 2011. The commercial market we do not expect to see improvement in 2010, we expect to see improvement in 2011.

Thank you.

Yes, sir.

Based on your presentation comments, the company is going to be nearly debt free at the end of this year and be generating somewhere between $150 to $200 million of free cash in year over the next few years. So if small acquisitions are the only thing you'd be considering, what are the capital allocation decisions you might be considering for that money, be paid in special dividends?

Yes, we've always said, look, we're not interested in piling on cash. On the other hand, cash has no enemies. Cash is a good thing today. So, you know, we've always said, you know, we will not have excess cash much beyond our needs. And if we have that we'll look at dividends and share repurchases as ways to return cash to the shareholder.

What do you think a prudent amount of leverage for this business should be or what you think --?

You know, its very situation dependent. Today the prudent amount of leverage is zero. You know, if you go in a normal time we, you know, Nick and I use to, when Nick was a CFO we used to say we could, $1 billion was a reasonable amount of, was better. We could go substantially above that for short periods of time in a normal world. But until we see some sense of normality I like having less leverage rather than more. Yes, ma'am.

What is your expectation for price erosion in 2010 and then --?

I'm sorry, ma'am. I didn't hear that. I didn't hear what you said.

Can you tell us what your expectation is for price erosion in 2010 and then can you estimate how much of your cost savings in 2010 will reach your bottom line for earnings?

(Inaudible), do you want to handle that?

I don't know the answer for cost erosion. I don't know that we are for price erosion. I think we think prices will be sort of neutral when we look at price and mix, which we have tended to do.

Price and mix have generally been positive for us. And what we think now is the combination of price and mix will kind of be neutral. And what was the second half? I'm sorry.

It's okay. Can you estimate how much of your cost savings in 2010 will reach your bottom line for earnings?

You know, we don't think about it that way. We look at what's the effective manufacturing productivity in 2010. I don't (inaudible). So we think that what we will realize is about 3%.

Okay. Thank you.

Now, we have been pretty good, and I'm going to say this. You know, the final, the Floor business has been good year after year getting productivity. In the last couple of years the building products business has gotten consistent productivity. And that's one of the things Nick sort of eluded to when he said that, you know, gee, maybe we'll never have to start up Mobile again.

I desperately hope he's wrong. The, because, you know, we do get a little extra capacity each year and so, you know, when we bought the wood business, we had about four or five more engineer plants than we have today. We've been able to increase productivity and capacity, which is one of the reasons why our CapEx tends to be a little lower than some other companies because we don't, we can handle most market growth without adding capacity. But if the market comes back relatively quickly, you know, we'll need Mobile and we'll need these other plants.

Sure, I have a couple of questions. And I think I'll ask and answer them upfront if that is --?

Sure, absolutely. And you guys can do that too if you want.

The first is what was EBITDA for the quarter? And it was $83 million. And also availability into the revolver, which our $300 million revolver is undrawn, but we do have some letter credits against it. So it's about 250 available. And finally, any comments on covenant compliance expectations for 2010? We are well, well within all our covenants this year and we have talked about continuing to be cash positive so certainly no concerns on that front. The second and Mike would you consider any acquisition activity in US vinyl in order to remove industry capacity?

Let me give this question a fair amount. Under the circumstances it depends, you have different players and it is hard to see how Roquette would back away from the market. Mannington is probably our biggest competitor and a private family company it is a little hard to see them walking away from it.

Congoluem of course has been in Chapter 11 and that has not helped them in terms of their business so they have kind of been struggling with that. We would not be interested there until they get their case resolved, which can be proving to be more difficult then one might think. Yes, sir.

I think you mentioned on the ceiling outside that from this year you expect volumes down 15% to 20%, did you split that out between new construction and remodeling?

No, that would be difficult to do. Certainly again we tend to look at GDP as the indicator. Generally when GDP is above 2.5% or so and we see growth so this year renovation is clearly down. Every component of our opportunity model would be down.

I guess I am trying to understand your comments about next year where GDP splatters on the remodel on the non-red side it might be flattish. Maybe help us understand in an atypical market or maybe more today where new construction is collapsing does that lead to more remodeling because the tenants are more likely to change the space as opposed to get new space filled or how do you think about that?

I did not mean to imply that GPT is moderately positive next year that renovation would be positive. What I meant to say is it would be just much less negative than the new construction piece and that would pull the blended figure down to about minus 5%.

Nobody should think that non-res is up for us is going to be up in 2010 or flat, it will be down and the only question is how much. You do not really get good visibility on new versus renovation and really most of our businesses, but certainly not in the Ceiling business. We have good visibility on major projects. There is a lot of new stuff that we never see or we never have much visibility of because it has gone through distribution.

My other question just has to do on across the business on the capacity of or utilization side. Given that I think utilization rates are probably lower this cycle than you have seen in other cycles how do you think that impacts the recovery and the ability to get pricing when volumes do come back?

Well I think one of the things is that happen is our utilization rates are better than most because we have been able to take capacity out. (inaudible) utilization rates are?

Yes, in the US with the closing of Mobile we are just a little north of 80% utilized in North America. In Europe we are between 75% and 80%. Europe as we you is more difficult to flex down on the workforce so we are not doing quite as well as what we are doing in the US, but it is still a high relative as to where our competitors are.

In the flooring business with idling of the Montreal facility in vinyl tile, vinyl tile right now is in the high 88% to 90% capacity utilization. The sheet vinyl is in the mid to high 70s and then wood with the closure of Nashville and Vicksberg is in the high 80s as well.

Of course that is a good thing for you guys to understand. If you think about how we are able to leverage fixed costs. The question that you asked really relates to what competitor capacity utilization is going to be like? For us it is less about the capacity utilization than the number of competitors.

You can look at our business and map margins against the number of competitors pretty well. We obviously think it is going to be tougher to get price in wood than we think it will be a good price in ceilings. We do not have as much price built in as we were able to realize over the last three to four years.

I would like to ask a few follow-up questions on your outlook for new commercial construction and renovation activity. If we look at Dodge starts through the first six months of the year total non-residential square footage starts are down about 49% to 50% if certain the categories that are active in commercial, food, retail, office were down 60% to 70% which makes the peak to trough decline basically 80% to 85% over two years.

I would just like to understand how you bake those forecasts into your overall view of GEP to get to kind of a new residential square footage number for 2010 and 2011 when those starts to roll in activity.

Slow down, slow down. Maybe other people are understanding, but I am not. Break it into pieces. The questions about new commercial stuff?

Sure, new commercial starts FW Dodge is a service that measures --?

I know what Dodge is and I got the point about it. It is going to be down about 80% peak to drop. Help me with --?

Sure, like I understand how you take that kind of a square footage start activity and think about forecasting into next year.

We have a variety of models which we adapt to over time to look at for ceilings with the mode. The Dodge has been an input into that and what we find is a better predictor of what our sales actually are is GDP.

As Nick said if we have GDP at 2.5% or more we tend to have growth. This year of course GDP is going to be well below that and we have a substantial negative decline in sort of the 15% to 20% than 15%. We do not have a model built on here starts, here is renovation.

We do understand that our starts are down a lot and that is one of the factors that causes and we look at that and where we think it is going to be. We take that into account, but we do not really model that.

That is not a critical element in our model of where it is going to be. This gentleman asked about will people renovate more or less. You can make arguments both ways. You can make arguments that commercial renovation is driven by the building of new space because the old space now has to compete with new space.

The other side of it is people who are remaining in old space longer may decide to renovate is, so you can argue it explicitly -- we don't explicitly take it into account. Now, the residential thing that you were starting on?

Actually, I was asking on the commercial renovation. You touched on it, but I just wanted to get your sense of how much of that activity do you feel is related to transactional activity in the market, that somebody redoes their ceiling tiles when a building is sold or tenants move around? And how much of it is related to a tile breaking or leaks in the roof that force kind of automatic refreshers?

No. We don't really -- we don't really have a basis for knowing that. There is obviously a fair amount of the latter stuff. Actually that stuff, we -- our current outlook will say that stuff is going to be less important to us because one, the tiles we make are better. We don't have as much leakage. You know, the construction techniques are better so you don't get staining and other stuff. Smoking is down, so you don't have -- so you're not replacing those tiles because of yellowing and stuff. So as we look forward, we think that element of our business will slow down a bit, the pure maintenance, replacement of it.

The stuff around people moving, I know you guys see it in your own offices. People -- when companies are feeling good, they'll invest in their office space, either by moving or renovating it. When they're not feeling good, they -- it's very much a discretionary item. So, I think we would tell you that we don't really know how much of our business relates to somebody having moved versus somebody upgrading space that they're remaining in.

Oh, we have somebody with a microphone. Who's got that? Yes, sir? Go ahead now.

Hi, Mike. The -- could you just talk a second about the health of your distributor network?

Sure.

The companies would seem like the types of business that might have seen credit-starved conditions during the last -- this downturn. And you don't talk much about destocking at the distributor level. So --.

Well, we talked a lot about destocking in the fourth quarter. There was a heck of a lot of destocking, both at the distributor and retailers in the fourth quarter. In terms of the health of our distributors, we look at it a lot and we've had a couple of -- we had one big wood distributor go out of business at -- in the fourth quarter, I think, or last year in any case, and -- where we took over. We had our own distributor take over that territory. But -- and we've had a small guy go out.

But, we have not -- we watch it closely. None of our distributors are having parties, but they're okay. In Nick's business, he's seen more consolidation of distribution, and so I think there's probably on a little sounder footing. We -- it is not a -- it's something we worry about. We don't currently have any significant problems there.

Thank you. Then for Nick, one quick question, the DC FlexZone product looks a lot like something that Steelcase tried to implement several years ago and they ran into the difficulty of getting local, urban unions to allow the electrical to run along a pre -- prefab products because it's typically a union-installed product that has a higher labor rate. So, have you considered what might -- what obstacles like that might arise unintendedly?

You know, not that I'm aware of, there's someone in the room that could probably answer that question.

Joann? Joann, do you have anything you'd like to say about that? We brought Joanne, because she really knows the answers to this stuff.

That's right.

Actually, the DC FlexZone system will be installed by acoustical contractors who are the same folks who install our grid and suspension systems today, though the electrical contractor is still in the picture because he makes the connection. So, there still needs to be a connection from DC FlexZone to your AC source, so they are not out of the picture at all.

Yes, I think the question he asked is an interesting one though. It is intriguing, I hadn't thought of it, because there have been instances where trades have gotten in the way of adopting technology because they -- you had to have a union electrician -- if it had to do with electricity, you needed a union electrician. So I'm sure Joann's right, but it's something we'll take a look at. Yes, sir? Yes? Oh, I'm sorry.

Just to follow --.

That fellow has a question next time.

Just following up on the non-residential question, how much of non-res ceilings is the big projects that have visibility that you talked about?

Well, yes. The -- I think I mentioned this in my remarks. New construction, big projects would be about 30%, and the large renovation projects would be between 25% and 30%. And the balance would be these smaller repair and remodel projects.

And what sort of visibility looking forward, how many months do you typically have on that?

Well, it's a short-cycle business, as you would imagine. What I can say is this opportunity model that we have that's based on GDP has continued to hold up pretty well in this cycle. So -- whereas last year, our model had a correlation to GDP of about 80%. This year, it's down to about 75%, but it's still quite high. So we, of course, were concerned that things might be different, and they still could be this time around, and that model may break down. But up to this point, it really has not.

The -- on that issue, we do obviously track projects [and] the sales force, and so we have good visibility on the number of projects being tracked and the size of those. So, we do have some sense for what -- we look at -- we can tell in an aggregate what's happened. And so as we look at it today, we're tracking -- we're tracking fewer square feet than we were, but it's more -- and it's smaller projects than it was. So, the great big ones are a little lower. So, we have some visibility ahead of time.

In terms of what Nick said about short-cycle, it is -- there's -- it's a short cycle from order until -- but, there is -- can be a long process before we hit specification and the building gets okayed. Okay?

I was handed a note that says that we're very aware of the union problem and we have a plan to address. There's no detail about the plan to address, so I (inaudible)

Well, I don't want to put Joann more on the spot.

No, no, no. No, I assumed -- I assumed that they -- they're -- it's very unusual for them not to be aware of something because -- yes, sir?

I wanted to get your thoughts on the balance sheet strategy. Fully understand why you want to take a prudent approach, and I fully understand that there's a "more normal" leverage that would be appropriate. I'm kind of curious what your thoughts are as to what might trigger a move from the prudent to a normal and whether that will be dependent upon things that you see externally or things you're seeing internally?

What was the last part?

Things that you might be seeing internally versus externally.

Well, you know, it's really -- it's more driven by external factors and what the earnings level are. The -- we're not very long. We're not very far away from a period where we didn't have access to the -- to debt. So the question is, is we have a functioning liquid market and we have earnings there, we'll take a hard look at it.

And so, we -- and look at the uses for excess cash. So, we -- you saw from the specific dividend that we did last year that we are willing to -- we're willing to dividend money, and we obviously felt and we do have quick cash that would justify a next one. But if we're dividending today would do something adverse with respect to the ratings and everything else, we don't need that. So, a part of it's going to be the rating-agency environment, the earnings environment and the access -- and access to capital markets.

I think we all are resetting our sense of what rates are, right? As the -- what -- today's rates are kind limp. If you look at them against historical rates, excluding the salad days, they're not so bad. Now the risk premium is high, but in absolute terms there kind of -- people borrowed at those rates for a long time. So I think all Boards of Directors, including mine, are having to get their head around what market rates are going to look like going forward. And we'll factor that in, but the nice thing about Armstrong is it has good cash generation capability, even in bad times.

And the other side of it is we are a conservative group when it comes to financials, so we don't want to ever get in a situation where we're forced to sacrifice the business because of covenant issues. And today, there's no shortage of companies out there whose covenant problems are making them do stuff that they'd rather not do, and we'd like to stay away from that because at the end of the day our success or failure as a company is going to depend on what we deliver to customers, not what our leverage is. (inaudible)

No.

Okay. Oh, okay, we have one in --.

Yes, good morning.

Good morning.

And thanks for a thorough presentation. Thanks for looking forward to 2012 for us. That's helpful. Just think looking at the sourced business, I've been thinking about that as maybe 10% to 15% of your revenues. Just, could you confirm that for us? What does that look like as a percentage of your total revenues by 2012? And how much more profitable could it be by 2012?

Bill, your end.

In the flooring business, 10% is a good number. About 10% of what we sell we source, and the primary drivers of that are laminate where we source 100% and commercial sheet where we source some product from a third party in Korea. What that's going to look like in 2012, as we look between here and there we're going to continue to source laminate based on what we know today, and so I think that will stay fairly stable.

Likewise in commercial sheet, we don't anticipate a big change in our current source of supply going forward. They work. They're good vendors that are -- care about customer service as much we do. And they're good products to sell in the marketplace, so we don't anticipate a big change from that 10%.

Nick, do you want to comment on sourced product?

Yes. In the core business, the vast majority of the product that we offer, we do manufacture. It's really in the specialty business that I mentioned in the US, so it would be well under 10% in building products.

Is it more profitable by then? Or, does the profitability change over that time?

Oh, its profitability over time? We don't see --.

We don't see anything that's going to specifically change --.

We don't see --.

(inaudible) one way or the other.

So, we're not -- we're not anticipating it's going to change. Okay. We'll -- we have --.

Given that you look out to 2011 with your forecast so -- I mean for recovery, how -- could you talk about how will you -- what kind of milestones you think you'll be looking at meanwhile as far as trying to evaluate whether your projection -- whether you're on track with your projections with regards to the residential and commercial market? So, if you're below your expectations, what will you be doing there? And at what point between now and 2011 to take out more cost, and what would trigger that?

Okay. The -- we will have our normal productivity efforts next year, and we will have kept our normal pressure on SG&A next year. The thing that we won't be putting back -- remember, Frank said that a third of what he has taken out in SG&A would come back with volume, but we're not going to put that out until we actually see the increase in housing starts. We do get 6 to 9 months advance warning on the residential business as to what's going to happen to us.

So, we don't -- it is possible if the non-res market were as bad next year as it is this year in terms of another sort of 15 year-over-year thing that we would have to close another plant. And if that were -- if we saw volume heading in that direction, we obviously have the ability -- we have the -- we obviously have the ability to do that both in floors and ceilings. And so what we'll do is keep an eye on the stuff that you guys are talking about, whether it's the new -- the construction starts, whether it's res or non-res, and make sure that we don't have more capacity than we absolutely need to do it.

On the SG&A side, we don't do more -- we're not doing it -- we do some on SG&A that's related to the decline in the business, but it's more related to stuff that we shouldn't be doing anyway. And so, and awful lot of the stuff we've taken out we probably shouldn't have spent in the first place or its time has passed. So, we will continue to -- we'll continue to do that. But -- so, I think the biggest effect it would have if -- we look at the starts, we look at our volume, and if we think -- we're convinced that we were going to have another year as bad as this year, we would be taking out more manufacturing capacity, would be the -- would be our first step to that.

And then ultimately, that would put enough pressure there -- that could put -- and there is a point at which, however confident we are about our debt commitments, that we would run into trouble. And of course, then you have to do a lot of stuff you might not like to, but we don't see -- at the moment, we don't see ourselves running into that problem.

All right. Look, here's the -- I want -- (inaudible) and thanks, everybody, for coming. You've sat for a long time. At my age, I no longer like to sit as long spend this with -- in one place. So, I appreciate it. I really appreciate the interest in Armstrong. We love this company. We think the -- I think these guys are doing a great job.

I think when you go back and talk to the folks here who are managing our products you'll find out they have a great vision for what they're going to do with their businesses, and we've got a company here that really does deliver value for its customers, and ultimately that'll translate into value for it's shareholders and we appreciate your support. So, thanks very much.