Armstrong World Industries Inc (AWI) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen. And welcome to fourth quarter 2010 Armstrong World Industries Incorporated conference call. My name is Jasmine and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host to Mr. Tom Waters, Vice President, Treasury, and Investor Relations. Please proceed sir.

Thank you, Jasmine. Good afternoon, and welcome. Please note that members of the media have been invited to listen to this call. And the call is being broadcast live on our website at Armstrong.com. With me this afternoon are Matt Espe, our President and CEO, Tom Mangas, our CFO, and Frank Ready, the CEO of our Worldwide Flooring Business, Vic Grizzle, our new CEO of our Worldwide Ceiling Business, is traveling in Asia this week but will join us for future calls. Hopefully you have seen the press release this morning and both the release and the presentation Tom Mangas will reference during this call are posted on our website in the Investor Relations section. In keeping with SEC requirements, I advise that during this call we will be making forward-looking statements that involve risks and uncertainties. Actual outcomes may differ materially from those expected or implied.

For more detailed discussion of the risks and uncertainties that may affect Armstrong, please review our SEC filings, including the 10-K we filed this morning. We undertake no obligation to update any forward-looking statements beyond what is required by applicable Securities laws. In addition, our discussion of operating performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures with the most directly comparable GAAP measures is included in the press release and in the Appendix of the presentation. Both are available on our website. With that, I will turn our call over to Matt.

Thanks Tom. Good afternoon, everyone and thank you for participating in our call today. Before we get to the specifics of our fourth quarter performance and our outlook for 2011, I want to take a few moments to reflect on the significant events of 2010, reiterate the steps we're taking to execute our core strategies and discuss some of the critical activities that will be taking place at Armstrong in the coming months. This past year was noteworthy in the history of Armstrong. Importantly, 2010 marked 150-year anniversary of our Company, a rare achievement in today's corporate environment. It was a year of significant senior management change -- Don Maier came on board in January as our Senior Vice President of Operations; Tom Mangas joined as CFO in February; I was named CEO in July; Tom Kane became Senior Vice President of HR in August; and finally, we just recently announced that we have hired Vic Grizzle to fill the CEO Worldwide Building Products position that's been vacant for over a year.

Vic has a track record of consistent success driving growth, enhancing margins and controlling costs, a professional performance that gives me enormous confidence in his ability to take our Building Products Business to the next level. His understanding of a diverse customer base, coupled with his global mindset and strong leadership presence will help get us where we need to be internally and in the marketplace. With Vick's appointment, we enter 2011 with our critical senior leadership in place. We have an exciting blend of new talent combined with excellent leaders with years of experience here at Armstrong. We have also revamped our leadership in Asia, creating CEO positions for both flooring and ceilings businesses to align with our global organization structure. These positions have recently been filled and we are excited about the leadership focus that can be applied to our two core business in these rapidly growing markets.

Also of significance to Armstrong shareholders in our fourth quarter of 2010 were the recapitalization of the Company, and the payment of an $800 million special dividend. This recap allowed us to return cash to shareholders and create a more efficient balance sheet. We are comfortable with our current leverage metrics, maturity profile and liquidity. 2010 was a year of solid operating results in a continuing soft economic environment. We achieved improved operating income and EBITDA and produced significant free cash flow, despite weak end markets. These improvements have been driven by a continued emphasis on cost and capacity removal across our businesses, a focus on recapturing inflation through price and the continuing introduction of new products.

In summary, 2010 was a busy year. We executed against many difficult but necessary decisions, which competitively positioned Armstrong to grow margins, even in flat markets, and to benefit from the eventual market recovery, with significant incremental margins. Six months into the job, I'm even more convinced than ever that Armstrong has a bright future and while the tasks ahead of us aren't easy, we have the appropriate plans and people in place to achieve them.

Having said that, I would now like to review our strategies, and enumerate some of the steps we have taken and will be taking to execute them. As we mentioned before, strengthening our core businesses, which are global ceilings and flooring, is the number one priority. Toward this end, we have been taking steps to create a more efficient cost structure. This is that $150 million of cost reduction we have been discussing. The cost savings are coming from footprint rationalization, lean initiatives to drive improvement and plant operations, more efficient global procurement, and SG&A reductions, particularly G&A.

In 2010, you'll remember that we took the following actions. We restructured our European flooring operations. In September we announced a reduction of our work force by 38%. In the fourth quarter, we closed and sold our Teesside UK flooring plant, effectively exiting the residential flooring business in Europe. We are in the process of closing our homes in Sweden heterogeneous flooring plant and expect to cease production at the end of April. We recently announced the idling of our Statesville, North Carolina engineered flooring plant. With this action, we have announced the closure or idling of 11 facilities in the past two years. In support of these actions, we recorded over $100 million in restructuring, severance impairment and other unusual items in 2010, including $50 million in the fourth quarter. Included in this number is $22 million associated with the write-down of our Bruce brand name. Procurement is another area of opportunity we have highlighted in the past. We have created a consolidated global procurement organization that oversees almost 90% of our spend.

We have recently created a structure for sourcing products from China that will improve our supply chain. Procurement will be increasingly important in 2011 as we continue to face inflationary headwinds for many of our inputs. The second building block of our strategy is to expand the core to increased investment and growth in emerging markets. We had previously announced that we are building a vinyl sheet flooring plant in China that is expected to be operational in 2012. I'm pleased to announce our Board of Directors recently approved the construction of a new ceilings plant in China. This investment of $50 million to $60 million will roughly double our ceiling manufacturing capacity in Asia and should be operational late in 2012.

The two China plants, the mineral wool plant in West Virginia and other strategic capital investments will cause our capital expense to double from 2010 levels to just under $200 million, in 2011. In addition to capital investments, we are adding significant sales and marketing resources in China, India, Russia and the Middle East. In the fourth quarter, we added more than 40 people and by mid-year, we are targeting an additional 90 plus. These resources, primarily in China and India, represent a significant investment in marketplaces where we haven't dedicated enough resources in the past. We believe these are bold steps towards growing and solidifying our leading position in these rapidly developing markets. To put some of these investments in perspective, the three plants we have currently in development, or construction, compare to only one new plant built by Armstrong in the last 15 years. The eight sales positions we added in the Middle East represent a 160% increase from previous levels.

I recently hosted a leadership conference here in Lancaster, where we gathered the top 100 global business leaders to align our priorities, establish common metrics and initiate discussions on organizational vitality. Priority alignment was mostly a reiteration of the core strategies we have been discussing since last spring but I felt it crucial to get complete alignment and understanding amongst our top leaders. The metric discussion was an introduction of the new management idea. In the past new bankruptcy, the post-bankruptcy sell process and the financial crisis, Armstrong focused on operating income and cash flow, both important metrics and challenging in transitional times. While operating income and especially cash flow remain critical measurements, we want to change the organizational focus to EBITDA, a more cash based and challenging measure than operating income and critically add return on invested capital as a key long-term measurement for the Company.

As you are aware, research indicates a return on invested capital has a high positive correlation to shareholder return and educating and incenting our management to focus on return on invested capital is an important change to our financial management of the Company. The third key message at the conference was organizational vitality. I consider our talent management processes as important if not more than our strategic and operational planning processes. Over the next several months, and on an annual basis in the spring, I'll be spending significant time ensuring that we have extremely robust organizational processes in place, and that they are consistent with our strategies. Among other things, I'll be looking at performance management, compensation and incentive plans, organizational structure and succession planning. I intend to be personally involved in discussions on hundreds of our top managers. In a mature industry, attracting, retaining and developing the best people is a key differentiator.

As we look ahead to 2011, we feel positive about the factors we can control, including cost reduction, new product introduction, and operational execution. We remain cautious about the markets, particularly in the US and Western Europe. We have built our plans expecting little help from external factors. We see housing starts in the US essentially flat at around the 600,000 level. We expect overall remodel activity to be flat with 2010 slightly down on the residential side and slightly up on the commercial side. International, the expectations are more of a mixed bag. We expect GDP growth in Western Europe in the low 2% range. We expect our markets in Australia to soften a bit as government stimulus ends. But we expect continued strong year-on-year growth in China, India and to a slightly lesser extent, Russia. Overall, we see modest volume growth in 2011.

We expect to face significant headwinds from inflation on a wide range of commodities, including steel, waste paper, starch, titanium dioxide and inputs linked to oil prices. Our plan includes new pricing actions in the full year benefit of actions we took in 2010. We expect to continue to drive positive mix benefits from our new product launches. We expect significant manufacturing cost savings from the plant closure activity executed in 2010, as well as the Holmsund, Beaver Falls and Statesville actions taken in 2011 and from the continued benefits of our lean and procurement efforts. We'll also benefit from lower SG&A expense as a result of our cost reduction initiatives. All that said, we expect 2011 revenues to be in the $2.8 billion to $3 billion range and the increase driven by price and mix in North America and Europe, and volumes in our emerging markets. Excluding restructuring and unusual items, we believe EBITDA will be in the range of $360 million to $410 million, up from a comparable $303 million in 2010. Now, let me turn it over to Tom Mangas for a discussion on the segments and numbers. Tom?

Thanks Matt. Good afternoon everybody and thanks for participating in today's call. Before reviewing the fourth quarter results, I would like to briefly recap our refinancing and special dividend action in the quarter. During our third quarter call, we outlined our intent to refinance and pay an $800 million special dividend. As you know, we were successful in our efforts. On November 23, we closed a $1.05 billion credit agreement comprised of a $250 million revolver and $800 million in term loans and on December 10, we paid a dividend of $13.74 per share. We completed our recapitalization efforts in December with the execution of a $100 million accounts receivable securitization, would provide incremental low cost liquidity and letter of credit capacity and a $35 million recovery zone facility bond related to our West Virginia mineral wool plant.

As a result of these actions, our credit ratings were downgraded to double B-minus with a negative outlook from S&P and B1 from Moody's and annual interest expense will increase about $30 million to approximately $50 million in 2011. In response to improving capital market conditions, we are in the market now, looking to refinance and reprice our term B loan. After fees, this action will likely yield interest savings of roughly $2 million in 2011 and annual savings in the $3 million to $5 million range beginning in 2012.

Now, turning to the results, I will be referring to slides available on our website, starting with slide four, as Tom already covered slide two. The macro trends in 2010 continued in the fourth quarter as North American residential markets remained weak and commercial markets in North America and Europe were essentially flat. Emerging markets grew nicely, albeit off a small base. Adjusted operating income of $19 million and adjusted EBITDA of $47 million for the quarter were within our guidance but down $7 million each from 2010. $23 million of inflation, primarily from lumber and lower US residential volume, more than offset price and mix and lower manufacturing and SG&A expense. Adjusted EPS for the quarter was $0.11 per share, down $0.12 per share versus the fourth quarter of 2009. Free cash flow of $43 million significantly exceeded our guidance, primarily driven by lower working capital, but was down $10 million from 2009. Net debt at year end of $559 million is up from -- is up $656 million year-on-year as a result of the $800 million special dividend.

Slide five explains how you get from our adjusted operating income of $19 million to an as reported operating loss of $30 million. In the quarter, we took a $22 million non-cash asset impairment charge related to our Bruce and HomerWood trademarks. A slightly smaller charge was also incurred on these assets in the fourth quarter of 2009. An additional $28 million of expense was incurred related to plant shutdowns and closures including our Montreal vinyl (inaudible) plant, Teesside vinyl sheet, the Oneida center and national wood flooring plants, the Beaver Falls ceiling plant and the sale of our European [Fonex] metal ceiling installation business, as well as severance and other SG&A related expenses. Of this $28 million, $7 million was characterized as restructuring. Interest expense was higher versus the prior year due to our late November recapitalization where we assumed more debt at higher interest rates than before.

Moving to slide six. This provides our sales and adjusted operating income by segment. Worldwide building products led sales and income growth in the quarter. Despite flattened markets in North America, global building products grew sales 6% on a constant dollar basis and adjusted operating income by $8 million. The sales gains were driven by volumes in Asia and Europe with Russia as a key contributor and price and mix improvement in North America. Operating income benefited from the sales gains as well as lower fixed manufacturing and SG&A expense. Wood flooring and cabinets experienced sales declines of 11% and 6% respectively. These businesses sell almost entirely into North American residential focused end markets. The sales declines were driven by continued softness in new home construction and residential repair and remodel activity.

Cabinets relatively better, sales performance was due to their higher exposure to the multi-family home sector. Adjusted operating income for wood fell by $14 million as weak sales were exacerbated by higher lumber costs. Cabinets grew adjusted operating income by $3 million versus the prior year despite the sales decline as a result of aggressive reductions to fixed manufacturing and SG&A expenses. Resilient flooring sales were down 2% on a constant dollar basis.

North American commercial flooring was up 5% while residential was down 8%. European flooring was down 10% partly due to our exit from the residential flooring business. However, commercial trade sales in Europe were almost -- were up almost 3% in the quarter. Asia Pacific flooring sales rose 4%. Adjusted operating income was up $6 million due to lower fixed manufacturing and SG&A costs. An allocated corporate expense was a $9 million drag on quarterly earnings versus the prior year; this was due on our investment in lean manufacturing processes, strategic consulting investments to help drive productivity improvements, and the continued and expected decline of our non-cash pension credit.

Slide seven shows the building blocks from the fourth quarter of 2009, adjusted operating income to our current results. As you can see, dramatically accelerating input costs and lower volumes were greater than price and mix. However, our strong cost [out] efforts in manufacturing and SG&A helped to minimize the overall impact in the quarter. Input inflation has been and continues to be our most significant challenge, and we have been calling this out consistently in the past year. In 2010, lumber was the primary driver of inflation. As we turn to 2011, petroleum-based feed stocks, agricultural products, waste paper and steel are starting to significantly accelerate. To offset these pressures, we took pricing during 2010 and have recently implemented additional actions.

Let me summarize our pricing actions for the past 12 months. In America's floors, you will recall we announced pricing of 4% to 6% across wood flooring products effective April 1, 2010 and a second price increase effective July 1, 2010 of 6% only on solid wood products, which represents two-thirds of our wood sales. We took a 6% increase for resilient products on June 1 and we just implemented another increase of 4% to 6% on resilient products this month. We also just executed a 5% to 7% increase effective January 1 for our European flooring products. On ceiling tiles in the US and Europe, we took a 5% increase effective in February of 2010. In July, we announced an additional 5% increase nationally and a 15% increase in selected southeastern US markets, effective in August. We just implemented another 5% increase on ceilings this month.

WAVE took a 10% increase in the Americas in May, and another 5% increase effective in October, to recover from rapidly rising steel costs. WAVE has also executed an additional price increase of 7% this month. WAVE Europe similarly took two rounds of increases through the spring of 2010, and recently announced an increase of 8% to 10% effective in the spring of 2011. As we have described before, our effective yield is less than our announced pricing due to competitive pricing pressures over time. Manufacturing costs and SG&A reductions continued to provide critical benefits and have allowed us to deliver full year-over-year earnings improvement despite lower sales and higher input costs and further cost reductions will be a core building block of our earnings progress in 2011. I will spend a few moments later in the call to outline our $150 million cost out reduction program.

Slide eight shows our results against free cash flow for the quarter. As mentioned before, we generated $43 million in free cash flow, compared to $53 million in the prior year, with relative change in working capital, explaining the difference. This positive contribution was significantly above our guidance as working capital improved more than we had projected, just not as much as that it improved in the prior year. Some of this benefit is timing related but some of it is a yield from our lean efforts. Free cash flow also benefited by $14 million from asset sale proceeds, mostly from closed or non-core properties in Europe.

Slide nine summarizes our key metrics for the full year of 2010. Sales declined less than 1% on a constant exchange basis versus 2009. Despite this adjusted operating income increased 20%, and we built 110 basis points of operating margin. EBITDA was only modestly positive as a lot of our operating income improvement was associated with reduced depreciation and amortization from plant closures and the roll off of shorter live assets that were reset at our emergence to fair values according to Fresh-Start Accounting rules. Adjusted earnings per share were up $0.28 and we generated $31 million, less free cash flow.

Moving to slide 10. For the full year, three of our four reported business segments delivered earnings improvement versus the prior year with only worldwide building products showing sales growth. Again, the $18 million year-on-year drag from corporate unallocated is driven by our investment in lean manufacturing processes and strategic consulting spend which are driving our $150 million cost reduction program as well as the continued and expected decline of our non-cash pension credit. Our cabinets business did have its loss in 2010, losing $6 million on an adjusted basis compared to $12 million in 2010. Cabinets was free cash flow neutral in 2010 and we believe this business will be profitable and will generate positive free cash flow in 2011. We have said before that cabinets is not a core business to Armstrong but the business is neither a drain on management attention nor our financial resources.

Slide 11 summarizes the building blocks for our full-year adjusted operating income results. The story is largely the same as we just reviewed for the fourth quarter. Price and mix benefits only offset half the commodity cost increases on the year. Weak end markets drove volumes lower, though we believe we built share in most segments over the year, recognizing consistent data is hard to come by for our channels of distribution. Fundamentally, strong cost control, both in manufacturing and in SG&A, ultimately delivered our earnings progress. Not illustrated on any of these slides but of note, our European business made significant improvement in 2010. As you know from previous announcements during the year, we exited the residential business and now starting our [intention] to close the Holmsund plant at the end of April and began to make what will end up being significant reductions in SG&A costs.

The business generated an adjusted operating loss of $19 million, a 30% reduction off the 2009 loss of $27 million. This was short of our expectation that we would have the loss in 2010, driven by the lower than expected product mix which was impacted in part by some of the restructuring actions, and higher than expected raw material inflation that could not be covered with price increases. However, the actions initiated in 2010 are improving the cost structure of the business, and we believe position the business to be breakeven on an adjusted EBITDA basis in 2011.

Slide 12 similarly provides the bridge on our full year free cash flow. Cash earnings and WAVE dividends offset each other versus 2009. We reduced modestly our capital spending versus the prior year, driven by the heavier load from the retrofitting of the Lancaster glass factory, where the capital was largely spent in 2009. Finally, where we continue to make year-over-year improvements in networking capital, the improvement in 2010 was simply not as large as the improvement in 2009 similar to what we described in the fourth quarter. Slide 13 illustrates our capital structure as of December 31, 2010. As Matt mentioned, we are comfortable with our credit metrics. Our gross debt to adjusted EBITDA at the end of the year was 2.8 times, within the 2 to 3 times range we had discussed as being our comfort zone. On a net-debt basis, leverage is under 2 times.

Finally, with our maturities pushed out to 2015 and beyond, and with our cash on hand, the revolver, the accounts receivable from securitization in place, we are confident we have sufficient liquidity to run the business and support the significant organic investments that Matt described. As an update to our December 31 position in January we repatriated $140 million of foreign cash and repaid our small revolver draw, leaving our revolver undrawn at this point. We have spoken in the past about our efforts to reduce costs by $150 million, net of inflation. I would like to take a moment and update you on our efforts and indicate where you can and will see the results of these actions.

As you can see on page 14 of our investor presentation, we achieved $35 million in savings in 2010. You will see from our prior bridges that we reduced total manufacturing costs by $48 million versus in 2009. Adjusting for the benefits of lower depreciation from fresh start accounting, actions taken in 2009, before we announced our plan and small headwinds from the lower pension credit, $15 million of this benefit was derived from actions we took in 2010. SG&A is much cleaner, as the small benefits received in 2010 from fresh start accounting and stock compensation expense were offset by the lower pension credit. So the full $20 million benefit was attributable to our 2010 actions. In 2011, we expect to deliver $65 million more in cost savings. Adjusted SG&A will be roughly flat year over year.

However, when we factor in a significantly lower pension credit, which I will cover later, the rebuild of the stock-based compensation program from accelerated investing that took place from the TPG transaction in 2009, and $15 million of incremental SG&A spending on emerging market sales and marketing resources, core SG&A costs will be lower by $25 million. The full-year impact of 2010's manufacturing actions and a partial year benefit of 2011 planned actions will deliver an additional $40 million in manufacturing cost out as evidenced by the 100 basis points to 200 basis points improvement in gross margin we are projecting. Finally, in 2012, we expect the final $50 million to be delivered as additional SG&A costs removed and the 2011 plant closures are fully realized, and another year's efforts from lean and procurement are realized.

We have described the program before as being comprised of SG&A, manufacturing productivity and procurement. Today, we are only showing building blocks from SG&A and manufacturing that get us to the $150 million goal. Clearly, we are working hard to deliver purchasing benefits and we are seeing good results from our efforts. But these results are being overwhelmed by the rapid run-up in our input costs, exceeding any benefit we had hoped to deliver towards the $150 million. Rather than muddy the waters, with some reconciliation attempting to parse out what we delivered and what the commodity markets have done to consume it, we are simply going to focus on the SG&A and manufacturing building blocks to deliver the $150 million program and use all the levers at our disposal to counteract commodity inflation including price, mix improvements and the excellent work from our procurement organization to buy better.

As Matt reviewed, we are making return on investment capital a priority metric for Armstrong, and slide 15 illustrates our recent performance, which has not been great. We will be focusing the organization on both the as reported and adjusted return on investment capital of the Company. On an adjusted basis, our performance turned the corner in 2010. We are confident that in historically normal housing and commercial construction markets, this return will be comfortably in excess of our cost of capital. Our goal is to get there by 2013, even assuming domestic housing starts around 1 million. Our efforts to drive costs lower through restructuring and lean and international expansion of our core businesses are key building blocks to get to this goal.

Now let's turn to our guidance, which starts on slide 16. As Matt mentioned, we are not expecting much help from the markets in 2011, so our sales guidance of $2.8 billion to $3 billion is modest and is mostly driven by price and mix improvement. From an overall market perspective, we expect 2011 to be another down year for new commercial construction though we expect low single digit growth for commercial remodeling activity, consistent with what we saw in 2010. Overall, we are expecting the overall North American commercial market opportunity to be flat to up low single digits. For North American residential markets, we expect a very modest pick up in housing starts to about 600,000 units and for these to be more weighted to multi-family activity. However, given the timing of the starts, the lag effect we experienced between starts and when we see a benefit in sales, the effect of the home tax credit in the base and our belief that residential remodeling and renovation activity will be up only slightly, given the continued weakness in home values, we see our total residential market driven opportunity for the full year as essentially flat.

As you can tell, we remain relatively guarded about the outlook for a meaningful rebound in the residential markets. This posture served us well in 2010, as it led us to take several actions to get our costs right. Of course, we are prepared to capitalize on any sudden upturn in the markets that may come. Despite the sales outlook, we do expect adjusted operating income to be up significantly in the $255 million to $305 million range, as we experience the full year benefits of our 2010 cost out efforts, as well as the 2011 actions we are executing. With approximately $105 million of depreciation, EBITDA should be in the range of $360 million to $410 million. Higher interest expense will dampen EPS growth but we still anticipate increasing to a range of $2.04 to $2.53 per share before any interest expense effects from our anticipated debt repricing. Free cash flow will be lower than 2010, as capital expenditures double to support our more aggressive emerging market expansion efforts and working capital improvements contribute less in 2011, after years of balance sheet liquidation to adjust to a lower sales base.

Slide 17 provides a more detailed assumptions going into our earnings guidance and includes specifics on the first quarter. As you can see, inflation remains our biggest challenge. We anticipate $35 million to $45 million in net input cost increases for the year. Again, mostly in petroleum-based materials, waste paper, steel and agricultural commodities like linseed oil and starch. We expect to improve manufacturing margin 100 basis points to 200 basis points in 2011 as a result of our manufacturing footprint rationalization program, lean productivity efforts and year-over-year price mix and procurement improvements.

I want to spend a minute on our pension credit. As you know, Armstrong's earnings have in the past, and continue in 2011, to benefit, from a non-cash pension credit. There are many technical aspects of pension accounting, but essentially the historical surplus for our US retirement income plan assets over its liabilities, and expectations for future investment returns to exceed the growth of a liability create a credit to our earnings. As asset values dropped in 2008, the discount rate used to value the liability also dropped. The [fund and] status of the plan was also significantly reduced. This has a delayed impact on the pension credit which you see dropping from $59 million in 2009 to $51 million in 2010. On its own, the credit would drop further in 2011 as previous losses continue to be amortized but this drop will accelerate as we execute a de-risking strategy with the plan's asset.

As a bit of background here, there has always been an asymmetric cash risk reward profile involving pension investing. We're on a surplus and it is hard to access the cash. Run a deficit and cash funding is required. This situation was exacerbated by the 2006 Pension Protection Act, which created higher funding thresholds, shortened amortization periods and reduced the smoothing of assets and liabilities. In order to address the cash funding risk, Armstrong's retirement committee has decided to alter the allocation of the plan assets to significantly increase investments in long duration bonds. High quality, long duration bonds are the basis for the discount rate used to value the plan's liability. Thus, changes to the value of these bonds mirror changes to the value of the liability. Exposures to equities will be reduced.

This reallocation will occur over the course of 2011. This is a positive change for Armstrong, and all its stakeholders. As the probability and potential magnitude of future cash contributions to the retirement income plan are significantly reduced. However, one of the accounting effects of this de-risking is that the plan's investments have a lower expected return on assets, which negatively impacts the pension credit calculation. Our 2011 pension credit will be approximately $25 million, and there will be an additional reduction in 2012 when the reallocation is complete. As a result, when you compare our earnings and EBITDA from 2011 to 2010, there will be a higher quality to the 2011 results, as they will benefit less from this non-cash credit. I suspect this is more than you ever wanted to know about pension accounting but given the magnitude of this change, we felt it was important to go into some depth.

Moving onto the balance of the slide, we expect the earnings from our WAVE JV to be up $5 million to $10 million following the commercial opportunity. In terms of cash taxes, and the effective tax rate, we expect cash taxes to remain quite low at about $15 million. With our net operating loss carry-forwards in the US from our asbestos-related bankruptcy, we expect to continue to shelter earnings through early 2013. We estimate the net present value of the remaining bankruptcy related NOL to be about $125 million.

We continue to use an adjusted effective tax rate of 42% for comparability purposes. We are projecting first quarter sales of $640 million to $705 million versus $659 million in the first quarter of 2010. We are estimating the first quarter adjusted EBITDA of $72 million to $88 million, compared to $56 million in the prior year. We expect to spend between $180 million to $200 million in capital in 2011. This is up significantly versus 2010, driven by the incremental investments to support the emerging market investment Matt described, complete our mineral wool plant in West Virginia and complete the relocation of our Beaver Falls capacity at Pensacola.

We intend to exclude from our adjusted EBITDA between $18 million to $27 million for restructuring and business [reset] items for our cost reduction efforts that we have already announced but not completed. You will find further reconciliations to GAAP measures for the fourth quarter and the year in the Appendix for the total Company and the segments. To close, we are pleased with our 2010 results and are pleased to be able to guide significant financial improvement in 2011, despite relatively flat markets. I am confident we are putting in place the right plans and prioritizing the right investments to win in the marketplace and dramatically improve our return on invested capital. By doing so, improve shareholder returns, both over the short and long-term. Now I'll turn it back to Matt.

Thanks, Tom. Let me close by emphasizing five key take-aways for all of our shareholders. First, as you have heard, we are taking the necessary actions to strengthen our core businesses and improve our profitability. Second, we have addressed the bleeding at our cabinets and European flooring businesses. Third, we are aggressively expanding in key emerging markets. Fourth, we are focused on putting the right people in the right places with the resources required to execute our plans. And fifth, we have increased the pace of our execution and change throughout our entire organization globally. So, in conclusion, after six months on the job, I remain confident and very excited about our long-term prospects. We have terrific brands, products, and people. And we are making the right bets to win in the future. So with that said, I want to thank everybody for your time today, and now Tom and I and others would be happy to take any questions you might have.

(Operator instructions) First question comes from the line of Keith Hughes with SunTrust. Please proceed.

Thank you. A first question on the losses in Europe. How much of those losses, I believe you said it was about $8 million in the Press Release, were remaining losses from Teesside, and also the Swedish operation that's in the process of being shut down?

Keith, your question was how much of the remaining loss was associated with that?

How much of the $8 million loss that we -- you registered in the fourth quarter were associated with those two operations?

Well, we shut down the residential operation midway through the quarter and we are still running Holmsund full out. We don't intend to close Holmsund until the end of April 2011. So I think between those two actions and the SG&A take-out that's to come in the -- that becomes heavier in 2011 is what drives the balance of that loss to zero.

Okay. Is the -- in terms of revenue loss from the two announced closures, was that an impact in the quarter? And what revenues from those operations, in 2010 were registered and will not be reported in 2011?

Well, we'll continue to, again, Holmsund -- the product line in Holmsund is a Heterogeneous product. We will continue to sell Heterogeneous product; it's just that we don't intend to produce it at Holmsund and also pare back our SKU counts significantly. Residential sales, yes, that all gets eliminated. You'll recall as we built our Lancaster, glass factory here, we haven't taken product out of there. That business became decaled once we opened up that plant here in the US, no longer needed production out of Europe. So we do intend to cease that level of revenue and I believe, Frank, correct me if I'm wrong, the revenue from Residential was roughly around $30 million to $40 million.

About $25 million to $30 million.

About $25 million to $30 million in 2010.

Just switching over real quick to building products, if you look at the pace of business in the fourth quarter and here for the first couple of months, any change up or down from what we saw for most of 2010?

So, I would say -- this is Tom. That we saw good, sustained pace through the fourth quarter. As you know, we had a price increase effective February 1. We saw stronger sales growth in February associated with the price driven pull forward of volume that was slightly ahead of our expectations. February has come in where we thought it would so net's still positive trends and feeling relatively good about low single digits levels of growth in that business.

The vast majority of that continues to come from remodel.

Remodel, okay. And finally, just on the Corporate costs -- unallocated costs, as there is some consultant expenditures in there, is that going to be ongoing or was there something unusually high here in the fourth?

That was something unusually high here in the fourth. We -- as you saw, we took a lot of restructuring and SG&A. We had some groups come in and consult with us on benchmarking, organization design, outsourcing and off shoring. All significant efforts to get SG&A out. There is a small, carry forward on the outsourcing and off shoring effort that we continue to pursue through 2011 but bulk of the strategic consulting is done. And we're -- the significant up investment in lean manufacturing is fully in the base now.

All right. Thank you.

Your next question comes from the line of David MacGregor with Longbow Research. Please proceed.

Yes. Good afternoon, everyone.

Hello David.

Could you just bring us up to date on raw materials an a percentage of revenue in each of your segments? What that would represent?

I'd be happy to do that. Generally, raw material in the Ceilings business is in the 30% to 35% range and it is in the 50% to 60% range in Flooring. With wood being on the higher end of that.

That's of revenues, not of COGS, right?

That is composition of COGS.

So Ceilings 30% to 35% of COGS and Flooring 50% to 60% of COGS.

Right.

And then I guess, if you could just also update us on in terms of contribution margins and where you think those are now that you have had all this raw material cost inflation?

Okay. Well, the -- let's just start the with the fourth quarter of Building products. The -- we closed the quarter with a EBITDA margin of around 16% on Global worldwide Building products. Operating income margin of 11%, which is typically our seasonally low point. For the full year, we did build about 200 basis points of improvement in those margins versus the prior year. And I would say, relatively speaking, we are seeing significant cost increases associated with WAVE, starch, Ti02, which are all inputs to Ceilings.

But we have been able to generally price to recover there, so we are not seeing margin degradation yet, associated with the Ceiling products. So you get driven by the pricing I went through in the litany. On Wood products, contribution margins for the fourth quarter, we just give absolute margins, yes, our -- they were quite bad, given the significant loss we had in wood for the full year. We had an operating margin of wood of around 9% -- minus 9%, that is, and on a direct margin basis, more like 34% was our direct margin. And that's been significantly under pressure, driven by the significant run-up in lumber so that guys, we who took it on the chin mostly in 2010.

So as you put together your guidance for next year and albeit it is a fairly broad range tool, $2.04 to $2.53, I guess there is a still a lot of uncertainty with respect to cost of raw material cost inflation and the rate at which you can recover through pricing initiatives. I know historically you have talked about contribution margins in the Ceilings business being about a 35% level. Direct margins, I think, is what you call them. How should we think about that within the context of your guidance?

I think -- we really -- for Ceilings, we haven't been moved off of what we think our going contribution margin is for incremental volumes so if that is the core of your question. Though I think we are still in the same 30% to 40% range for incremental margins with incremental volume. And wood, we have been taking price increases; they have been successful earlier, less successful now -- more recently. And so, I think we are still in that 25% range of incremental margin with extra, every $1 of volume with wood.

On Resilient, incremental margins, they are in the 25% to 30% range, so it is in between. That is your stagger step between these and absolutely on the Resilient side, which is predominantly a Petroleum-based product form. That is where the most pressure and that is where we have been taking significant pricing recently to recover and seeing how that pricing plays in the market will be critical to us being able to hold that level of incremental margin or not. I mean, a lot of that pricing just went in this month, both here and in Europe and I'll let Frank speak to what he has seen in the marketplace in terms of competition announcing their intent and so forth.

Yes, on the price action for Resilient, as Tom mentioned in his remarks, in Europe, we announced and implemented in January of 5% to 7% increase. Then we implemented a 4% to 6% for Resilient North America; that just went in about two weeks ago. In all instances, both in Europe and in North America, everybody else is going as well. I think they see the run up of raw materials and the outlook not being positive. So early out of the blocks, at least, everybody has announced, everybody is pursuing the price increase; it is way too early to give you a sense of percent that's going to stick. But at least out of the gates, everybody is giving it a shot.

But with the indication -- yes, go ahead.

David, just coming back to your point on the wide range of guidance, I mean, I think you put your finger on it. We have been spooked by the run up of commodities here in the last month and seeing it roll through. As we framed in the outlook, we are seeing incremental to last year $35 million to $45 million. So that is what is giving us pause on our range in addition to the continued uncertainty around the overall end markets.

Okay, good. Tough raw material, but congratulations on all the operating partners.

Thank you very much, David.

Next question comes from the line of John Baugh with Stifel Nicolaus. Please proceed.

Good afternoon. Thank you. I saw in the K, that pricing for the year 2010 impacted revenue positively by, I believe it was $8 million. In light of all the announced increases, my assumption is that, that little of the announced stock. Could you common more specifically on that number and what happened in 2010? You just commented on 2011 I know. But I'm curious what happened last year.

Most of the -- before frank -- most of the price increases in 2010 were Building products.

Yes, we -- Matt's right, the majority were in Building products. And the majority of -- were North America and for Resilient were back half loaded. So you would not have seen much impact at all in 2010.

You'll see those carry in to 2011.

Correct.

Okay.

And also, also John, we were coming down on price in the early part of the year. So we were, you think about 2009, we didn't have the cadence of pricing and we were basically on a downward slope, and those pricing were really trying to create a floor come back of. So first three or four months, were without price increase an effective price increase and so, prices were going down in that first quarter and the first part of the second quarter. You go back to the fourth quarter, we put on a fair amount of price between the two business and we did [$12 million] globally just in the fourth quarter year on year.

Okay. That's helpful. I was also anxious to hear some discussion about the Engineered Wood flooring, pending duties tariffs. If you could share with us your exposure, positively or negatively, to that, and then the impact, if there is a material increase on Chinese imported goods to Armstrong? Thank you.

Let me just comment, this is Matt. Maybe frame it a little bit and then we'll ask Frank to give you additional color. If you think about the sales in 2010, about 4% of the total revenue comes from Engineered flooring originating in China. So as we think about this, we are somewhat uniquely positioned as a domestic manufacturer, because we are also a Chinese manufacturer and we are a third-party importer. So we were invited to join the petition; we declined. But again our position is we are not opposing it either. So when it comes to the position on the petition, we are somewhat indifferent and our strategy and our response is going to vary depending upon the outcome. But we don't think we are going to be significantly benefited or harmed really by any decision. Frank, do you have anything?

No, I think Matt said it well, John. We have the strongest position with Domestic manufacturing in the US, that if something were to happen, we're in best spot to leverage that with local production and at the same time what comes in from overseas is only 4% of our total. If it were to go the other way, we could deal with that 4%. I think the key word you said, John, is pending. We are not forecasting which way this thing is going to go and we probably won't know for another month or two in terms of getting any additional insights. So I don't want to speculate on which way it is going to go other than to reiterate what Matt said that I think we are pretty well positioned either way.

I'm sorry, that's 4% of consolidated Company total or of just the Wood business?

Of the Wood business.

Okay. Then could you update us, maybe Frank, on the collective bargaining issues in 2011? And if there are any other union issues throughout the Company. Thank you.

Well I could -- well, let me just comment quickly. I mean the one in front of us, I wouldn't want to speculate or discuss the entire strategy. But we're certainly involved right now in Beverly, West Virginia. So maybe just a couple of comments on that and then Frank, you could add as well. But we are disappointed at this point that our employees in Beverly rejected the labor agreement that we proposed. We think the proposal's fair. We think it is realistic and it is important and necessary to help keep the plant competitive, particularly when you consider Healthcare and Retirement costs. So the Union employees there voted to work a contract for now and we are obviously hopeful that they'll ratify a contract soon. As of now, the plant's running and operating normally. If it becomes necessary, we certainly have contingency plans that make -- that will ensure that all of our customer orders are filled without any disruption. Beyond that, I think it is just not helpful to speculate. But Frank, any additional comments?

No, I think that's it. I think the plant's fully operational. The employees continue to work. And we have prepared for any potential outcome to ensure we protect the interest of our customers, which is first and foremost our objective.

Okay. My last question is on the Ceilings side of the business, just focusing on North America and looking at 2010, how much would you guess was remodel versus construction? And then how might that look again? The building front products only North America in 2011?

Well, about thinking about 2010, about 75% to 80% of it came from remodel. There wasn't a the lot of commercial construction in the market. We don't see that changing appreciably in 2011. And as I think Tom mentioned earlier, we are pleased with the level of activity we have seen so far this year. So we see it as -- in terms of steady state, 2011, over 2010.

I do think we are seeing Architectural activity consistent with the ABI Index. We are seeing more people asking for quotes but it's not translating into volume yet. We're unclear how it translates through the year for Ceiling, which is usually one of the last things that go in.

Thank you.

Good. Thank you.

Next question comes from line of Kathryn Thompson with Thompson Research Group. Please proceed.

Hi. Thank you for taking my questions today. How much does volume versus the realization of cost cutting initiatives contribute to your fiscal 2011 guidance and overall improvement?

Kathryn, it is Matt. I mean, the vast majority of the EBITDA improvements year over year is cost driven -- SG&A, and manufacturing cost driven and we have a fairly modest outlook in terms of revenue. The revenue growth you are going to see is mix and price, more than volume.

By far you can start with the $150 million articulation, really laying out $65 million in cost action coming in 2011. That is a major building block on top of the $303 million we just delivered and our range of sales guidance is only plus 1% to plus 8% at the high end. So it is not a significant contributor.

Most of that like I said is mix in price not absolute volume.

That's right.

Particularly when we are thinking about North America.

Sure and what are your adjusted breakeven levels for each division in the wake of your cost cutting efforts? Or at least what is the targeted breakeven level for a few of your major divisions?

In terms of a sales position?

Yes. Yes. Just after you have taken out all the costs, what would you view as a breakeven for your major segments?

Okay. Well I would think that, clearly, for building products we're well in excess of that.

Sure.

Cabinets were at that point. I mean the sales level that we had in 2010, if we were to maintain it, we would deliver positive EBITDA, would -- about $500 million of sales would be our breakeven there, given the cost takeout we have executed and -- .

Okay. And you talked earlier about your ROIC goals. What are your stated goals, going forward?

Well, our goal is to keep it near term, 2013. We want to get to ROIC on an as reported basis above our --

Exceeding the cost of capital.

That is our goal. That does have some bounding of what has to happen in the internal -- external markets of about $1 million starts, which is less than what we think the long-term run rate of housing is which is a proxy for Commercial market opportunity or residential market opportunity. But that is our goal.

Okay. Also, on your West Virginia plant, could you give a little bit more detail about the status of where that stands? Do you still plant -- have -- anticipate to have the plant go live by Q1, 2012? Just what additional details can you give us on that plant?

Dave is here but everything is on track. And we or actually maybe -- arguably maybe slightly ahead of pace. So we are very comfortable with how we are managing the project and we're looking to bring it in exactly on the time frame that we committed to.

Maybe even a month or two early.

Slightly earlier, yes, we are hedging a little bit.

It's still $35 million of raw costs?

I'm sorry?

It's still looking at $35 million for that plant?

Yes, short of capital yes. So we are hedging a little bit, but we are very pleased with where we are in the process and the team's making great progress.

Then finally on the multi-family, you mentioned improvement in cabinets from multi-family construction, and we definitely have seen some of that in our primary research. What comments -- could you clarify a little bit more what you are seeing in the multi-family construction and market? And how has the trend changed over the past 12 months?

One, the absolute number of starts has risen. But more importantly, we are seeing much greater activity on the Renovation side. We are seeing more movement in terms of tenants in and out. It's become more competitive and as a result of that, people are vying for that tenant, so they're upgrading the apartments and the space. And so what that's done is driven demand for Cabinets products, and to a lesser degree, Vinyl products in multi-family. Now when you look at our Cabinets business, the not so good effect of that is multi-family tends to skew more towards the lower end of the mix versus single family. So as multi-family grows, you do see a negative mix impact in certainly the Cabinets business and that is what we saw in the fourth quarter.

How does this impact your Vinyl business?

Vinyl is a positive because you -- Vinyl is a product that has pretty strong penetration in that segment, predominantly in kitchens and small laundry areas. And so when there is tenant movement and you see that activity, floor is typically one of the first things to get redone in the kitchen and that helps our business in terms of remodel activity.

Great. Thank you very much. That's very helpful.

Your next question comes from the line of Robert Wetenhall from RBC.

I wanted to understand along with a new ROIC target. Do you have a long-term EBITDA target that you would be willing to share?

Well, we are not going to guide long term at this point, Bob. But I mean, just in terms of our internal targets, it's significant improvement. And I would say based on modest assumptions around the marketplace, product mix, price, cost driven.

Got it. Okay. On cabinets, you are looking to be breakeven this year on an adjusted basis, correct?

Better than breakeven.

Exceed -- yes, we're going to exceed -- the plan is to exceed breakeven.

Got it and how are you looking in European flooring?

In terms of our progress?

Right. I think you were -- last call you said you're taking out $35 million in savings and trying to -- I think Matt's comment was the second point is "stopping the blood letting."

Yes.

Trying to get my hands around that.

Yes, it's -- we continue to make great progress. I think recent news is all good. I think we have a significantly stronger, incredibly more focused business platform there in Commercial. The leadership team is actually executing well and we are very confident that sitting here at the end of February, we are very confident that the team will meet their commitment for 2011.

I'm just trying to understand and maybe Matt could address this. Is your operating improvement performance on a consolidated basis picking up because you are closing, losing businesses that are segments that are losing money? Or is it, in the other sense, that your existing operations are becoming more profitable?

Are you talking about overall or Flooring Europe?

I'm looking at it more on a consolidated basis. I'm getting the impression from your press release and your commentary that you are plugging a lot of leaks which is definitely giving you some momentum coming into 2011. Just trying to make sure I'm right.

Here's what I think about it. I think we are doing both, frankly. I mean, I think we are addressing underperforming. We're addressing or exiting underperforming businesses. I mean, if you look at flooring in Europe, the simplest example we have is part of the reason that business is experiencing the turnaround that we are seeing is we've made the big decisions to exit the Resident market. And so to your point earlier, we are exiting segments, customer segments or market segments that we don't have a competitive advantage and we can't make money. So we have a somewhat smaller, but a lot stronger, more focused Commercial business. But that is probably the best example of stepping up and making those decisions.

Beyond that, I think a lot of the operational EBITDA improvement we are seeing year over year like we said is SG&A. Beyond that, it is process improvement in both manufacturing operations and lean. But we are seeing process improvement in our -- what we would call our G&A processes. We are executing on a -- in terms of mix and price, we talked about that. So, as we think about it, what we are doing, we are executing across the things we control and manage -- new product introductions on a timely basis well positioned in the marketplace; executing on price increases; making the tough decisions around SG&A, as we say, mostly G&A; executing on lean projects across the organization; and exiting underperforming customer segments. With that combination of things, and at the same time making what we think are prudent but important bets in emerging markets like China, Russia, India.

Well, just -- one final question, your CapEx is going a lot up pretty dramatically. I understand, it sounds like you are putting a lot into China with two plants coming on. Would you characterize this year as a year of investment with the expectation that you'll be able to harvest ann EBITDA and earnings growth on a much greater magnitude than 2012 and 2013 because of the CapEx investment this year?

We are not going -- I'm sorry. I interrupted you Bob.

I'm just trying to understand when you characterize your current actions as a year of investment, leading to better growth down the road?

Well, I think we are clearly excited about the investments we are making. Again, without providing unintentional guidance in 2012 and 2013, clearly we are making the investments in China and contemplating others that position us to increase our earnings growth and achieve the return on investment -- return on invested capital metrics that we talked about.

Okay. Thanks very much.

Thanks Bob.

Your next question comes from the line of Jim Barrett with CL King and Associates. Please proceed.

Good afternoon, everyone.

Hello Jim.

Matt, considering you are building a Chinese Flooring plant, can you talk about that market a little bit? To what degree is the competition there local versus the same players that you see in Europe and North America?

Well, let me comment and we'll kick it over to Frank for additional color. But clearly there, when you talk about Heterogeneous or Homogenous Resilient flooring, they -- we tend to compete with the same guys we do on a global basis. So we think we have an enormous opportunity in what we would consider our market segment, sweet spot-- Education; Healthcare, we talked about the rapid expansion and investment by the central government in both of those segments.

And we think Resilient flooring is an excellent -- it is an excellent application for resilient flooring. We think having a manufacturing facility there gives us significant market level advantages from a cost perspective but also a supply chain perspective. So we are very excited about it. And again the -- while it's early days in the construction of the plant, we are pleased with the progress on the project, and we have no reason to believe we won't be able to bring that in, on plan, and on time.

And then, secondly, could you just talk more generally about your manufacturing and distribution footprint? Are you now positioned where you would like the Company to be to anticipate a recovery in North American markets?

Well, I think from a North American perspective with -- especially with the Mineral Wool plant we talked about earlier in West Virginia, I think we are going to be in very good shape from a capacity perspective as the economy and our key segments generally recover. So, if you look at both Flooring and Ceilings, and again with the West Virginia plant, I -- we feel very good about our position there. We have a streamlined platform in Europe, but it's more focused and again, we are making the investments in China that give us the capacity expansion there we need to take advantage of the market opportunity we see.

And then finally, if you could just drill down on Wood flooring for a moment, how would you describe the level of price competition in that industry considering the spike in lumber costs?

Frank, do you want comment on that? It would probably be best if you do it.

I mean, the balance is, Jim, the run up of lumber and the soft market which creates a lot of capacity and people hungry to fill their plants. As lumber got worse in the back half of the year, pricing stabilized to some degree and our ability to get price actually picked up as the year went on. I'm not going to comment on 2011, we'll have to see how that plays out in terms of both the lumber side as well as the price side. But it's certainly the second half in terms of price realization was better than the first half.

Okay. Well, thank you both. Appreciate it.

Next question from the line of Ivy Zelman with Zelman and Associates.

Hi guys. This is Scott Rednor on for Ivy Zelman. Thanks for taking my question. You guys noted in your filing that mix is an approximate $25 million benefit in 2010. Seems like most of that is flowing through fourth quarter. Just wondering if you guys could give a little more detail given that, that's baked into your guidance in terms of that is flowing through in your segments and if that can accelerate in the year to come?

Okay yes. So, yes, we have seen significant strength in mix, largely in the Ceiling product area. We have seen our higher end product forms simply do better than our lower end forms, which, given the downturn and I guess you would have imagined, pressure on cost inputs, people are migrating to our higher end optimal Ultima product lines, which is a better mix for us. So, that's the primary driver, and largely Ceiling driven. Frank, do you have any thoughts on that?

The only thing in Floor we saw, a nice mix gains in the North American vinyl business. Really throughout the year, and that continued in the fourth quarter. That was driven largely off of new products, and the expansion of our Glass program through Lancaster, that tends to mix towards some better end products.

Great. And on the Vinyl side, how much of that would be related to the higher end LVT or the Fiberglass relative to the sheet and the Vinyl? Excuse me.

It is actually a pretty -- it is pretty much a split. We did get benefit from the fiberglass that we are now making in Lancaster in the second half and that helped us in terms of mixing up. In addition to that, luxury Vinyl Tile, which some people call it large format tile, in Residential vinyl, also helped us quite a bit. We had some significant launches at the beginning of 2010 that really gained traction in the back half of the year and contributed solidly to the mix (technical difficulty).

Great. Thank you.

Thanks Scott.

Your next question comes from the line of Robert Kelly with Sidoti & Co.

Hi, good afternoon.

Good afternoon.

A question on the 2010 CapEx. How much of that is maintenance CapEx?

2010, it was just about half was maintenance.

And then 2011?

Well, 2011 would be about a quarter.

Yes it is roughly the same. Same amount. Obviously, we doubled the CapEx.

So most of the growth CapEx you are going into is emerging market. Could you just update us on what percent of consolidated sales emerging market is, as of 2010 end, and what potential capacity or market opportunity out there, two to three years down the road for where you are putting your investments?

Well, so, a percent of our emerging market is less than 10% of sales today. We want it to be a much bigger portion of our sales in the future and my guess is, that despite our best attempts to grow a share of our total sales, we won't be that successful just because the US will rebound at some point and drive the US side of the ledger up. But we have significant growth ambitions in Asia to -- and that is why we are putting these plants out there. I think we have potential to more than double sales over the next five years in the product forms primarily driven by India and China.

I think the way to think about it is 70% in the US, 20% in Europe and 10% in Asia, give or take. To Tom's point, there are parts of Asia, Australia for instance that we wouldn't consider an emerging market. So Russia is in Europe, that could be argued as an emerging market. We view it that way so I think, to your point, to characterize emerging markets as -- in total is less than 10%. I think very responsible way to think about it. To Tom's point, to sit back and think about a significant remix of our revenue, regionally, is tough just because in North America not so big and we expect to continue -- our commitment continue to grow in North America. So we see expansion opportunities, clearly the rate of growth, in the emerging markets should be expected to be significantly higher than the US. But a little bit of lift here, a little bit of lift in Western Europe is a big number.

Thanks.

Thanks.

Thanks Bob.

And at this time, there are no further questions. I will turn the call back to Mr. Tom Waters for closing remarks.

Thank you Jasmine. I would like to thank everyone who participated. And we appreciate your time.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.