Armstrong World Industries Inc (AWI) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Armstrong World Industries fourth-quarter 2014 earnings call. (Operator Instructions). As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Tom Waters, Vice President of Treasury and Investor Relations. Sir, you may begin.

Thanks, Amanda. Good morning 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 morning are Matt Espe, our President and CEO; Dave Schulz, our CFO; Don Maier, CEO of our Worldwide Floor Businesses; and Vic Grizzle, CEO of our Worldwide Ceiling Business.

Hopefully you have seen our press releases this morning and both the releases and the presentation we will reference during this call are posted on our website in the investor relations section.

I advise you 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 a 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. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law.

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 the call over to Matt.

Thanks, Tom. Good morning, everyone. We have a lot to cover today so let me start by laying out our agenda.

First, I will spend a minute on our fourth-quarter and full-year results but I will leave the bulk of that discussion to Dave. I want to spend the majority of my time discussing the announcement we made this morning to separate our two businesses and provide some context on our guidance for 2015 and the internal and external factors that inform our view on the coming year.

For the fourth quarter, reported sales of $587 million and EBITDA of $78 million were within our guidance range after moving our European flooring business to discontinued operations. Dave will help you reconcile that impact and touch on a one-time item that helped us deliver earnings near the top of the range we provided in October.

Within the fourth-quarter results, our North American residential businesses were challenged. They wood business continued to see volume losses as a result of competitor pricing actions and profitability for this segment swung to a loss. Residential resilient experienced a mid single-digit sales decline. Commercial resilient in the Americas had a solid quarter with sales and EBITDA both up.

The ceilings business in the Americas delivered another quarter of record profitability with EBITDA up over 10% from 2013 despite volumes being down year on year. For the full year, ceilings grew sales 3% and profitability to a record level. Americas ceilings EBITDA margins expanded to 42% with continued price and mix gains, strong manufacturing productivity and an increased contribution from WAVE driving the results. For the year, consolidated as reported sales of $2.5 billion were down 0.5% but sales were up slightly when adjusted for foreign exchange. EBITDA for the year of $384 million was up $12 million or 3% from 2013.

Turning now to this morning's announcement that our Board of Directors has unanimously approved a plan to separate Armstrong into two independent companies, I want to walk through our thinking, give you a sense of what each company will look like, cover the timeline and process for completion and outline the opportunities we see for each company to create value.

Let me start by saying that today's announcement is a continuation of the actions we have been taking to create long-term shareholder value since we emerged from bankruptcy. Since 2008, we have improved margins by dramatically reducing SG&A, divesting non-core and underperforming businesses and investing in growth opportunities around the world. Over the same period, we have returned over $1.5 billion of capital to our shareholders through dividends and share repurchases which brings us to today's announcement.

We believe that the time is right to separate the businesses. As you can see on slide five, we are creating two industry-leading publicly traded companies, Armstrong World Industries which will be made up of our Armstrong Building Products Business unit and Armstrong Flooring. These are two very different businesses with distinct market positions, operating models, margin and return profiles and capital needs. Each have sufficient scale to operate as standalone entities.

Separating them will create pure play businesses giving investors greater choice in ownership and each company greater flexibility with respect to strategic options. Armstrong World Industries will be a global provider of suspended ceiling solutions for use in renovation and new construction, mostly operating in the commercial space with diverse end use applications. Led by Vic Grizzle, the company will continue strengthening its leadership position in key domestic and international markets. Recently completed emerging market investments and expanded sales and manufacturing capabilities provide upside for future growth and profitability.

We are also seeing an increasingly solid contribution from our WAVE joint venture and we expect that trend to continue.

Armstrong Flooring Designs manufactures and sells high-quality flooring products in North America and Pacific Rim markets. Led by Don Maier, the company's North American residential and commercial franchises are leading designers and manufacturers of hard surface flooring. With significant investment focused in the key LVT category, it is well positioned for both residential and nonresidential cyclical recoveries.

Internationally, the company has strong positions in commercial flooring in China, Australia and expanding coverage throughout Southeast Asia. I will provide some further details in a moment on the actions we are taking to strengthen the business and build a foundation for flooring to thrive as an independent company which will be the focus of our 2015 investment.

Turning now to slide six, I want to quickly cover some of the key transaction details. The separation is expected to be achieved through a spin-off of the flooring business that will be tax-free to the company's shareholders and we expect the separation to be completed in the first quarter of 2016. During this time we will continue to operate the businesses in the normal course under the combined AWI umbrella.

Post separation, both businesses will continue to use the Armstrong brand and both will be headquartered on our Lancaster campus. Today's announcement is the first step in a process and there is still a number of decisions to make. We will announce updates like Board composition, capital structure and other details in due course.

Before we can complete the separation, there are a few customary conditions that need to be met including final approval from our Board, receipt of an opinion from legal counsel with respect to the tax-free nature of the spinoff, and the filing and effectiveness of appropriate documents with the SEC. We anticipate filing the requisite SEC documents later this year.

ABP and AFP have minimal overlap and already function quite independently. The businesses do not share plants or warehouses and each business has a separate salesforce, independent distribution partners and supply chain. So we don't expect the operational logistics to be challenging and we are confident that we can execute the separation with very little disruption.

At the corporate level, we will have to realign and adjust some functions to meet the needs of two separate public companies. We expect to enter into a transition services agreement under which Armstrong World Industries will provide Armstrong Flooring with certain shared back-office services such as IT, HR and transaction processing support for a transition period. We have created a separation management office to oversee the process.

Moving to slide seven, I want to walk through the strategic rationale supporting this decision and why we believe separating these businesses will create value and why now is the right time to initiate the process.

As we discussed at our Investor Day last year, we have been focused on actions to improve the flooring business and can create value for our shareholders. Building on the steps we have already taken including the completion of the floor plants in China and the exit of the European flooring business and the pending completion of the LVT plant, we believe that the rationale and economics of separating the businesses are compelling and flooring is now ready to stand on its own.

As I mentioned, there is limited overlap between the businesses so there is limited synergies in operating them on a combined basis. Our goal in separating ABP and AFP is to improve the business focus and agility of each. As independent companies, each will realize important strategic, operational and financial benefits.

Strategically, a separation will increase the flexibility to pursue domestic and international growth opportunities and sharpen management's focus on each company's distinct priorities, market opportunities and distribution channels unencumbered by considerations of the potential impact on the other business. Furthermore, the new structure will enable a closer alignment of compensation with results.

Operationally as the businesses already operate independently, each team will be able to build stronger and more intimate relationships with customers and enhance its ability to meet their needs.

Finally as separate companies, ABP and AFP will be able to optimize their capital structures and gain direct access to the capital markets to fund their growth agendas. Combined with greater transparency and operating performance, this will allow investors to better evaluate each business on its individual merits.

With that, we will move on to the discussion of our outlook for 2015 on slide eight.

Looking ahead to 2015, the corporate staff and the leaders of our business units will be focused on driving growth and positioning both companies for success in the future. We expect overall market conditions to improve slightly driven largely by a strengthening North American economy where we generate roughly three-quarters of our revenue. We anticipate low single-digit growth in the commercial market led by the office sector.

The North American residential market should continue to improve with growth in new home construction and an improved repair/remodel opportunity as homeowners gain confidence from rising home prices and improving employment numbers.

Overseas we expect a flat market in Europe with improving conditions in the UK and Middle East offsetting continued weakness in the Eurozone and a challenging operating environment in Russia.

In the Pacific Rim, we continue to expect overall growth in China driven by the publicly funded healthcare and education sectors but the high-end office sector will decline year on year. We expect India to grow double digits. We anticipate Australia will be mixed with ceilings up on project work and flooring down on constrained public spending.

Overall we expect emerging markets to remain below our previous expectations. With slowing private investment in China and the economic and currency challenges in Russia, returns on our emerging market investments will remain challenged over the near term.

For the flooring business, 2015 will be an investment year as we revitalize our marketing efforts and look to recapture volume. After several years of constraining go-to-market spending and flooring in order to protect profitability given challenging market conditions, we will be ramping up our sales and marketing efforts in 2015 to coincide with the opening of our LVT plant and the completion of the Somerset, Kentucky engineered wood flooring investment.

As a market leader, Armstrong has tremendous opportunities to get even closer to our residential customers, to drive volume as the market improves and to react more nimbly to competitive actions. The investments we are making are designed to increase our visibility with retailers and consumers including improve samples in literature, more versatile and targeted display systems, revitalized promotional and advertising efforts and more engagement directly with distributors.

We intend to be very competitive in the marketplace working closely with our winning customers to directly address the competitive threats we are seeing especially in our wood and resilient sheet businesses. We are confident these investments will pay off as we move into 2016.

On our last call I mentioned that I would be leading a deep dive review of all aspects of our residential flooring businesses and for the past several months, I've spent significant time internally and externally with our customers discussing Armstrong's residential product portfolio and marketing and service capabilities. These meetings that Don Maier and I have had with our flooring distributors and other customers have been productive and have honed our view of the issues.

Armstrong's partners clearly value their relationships with us and are excited to take these steps we have outlined to recapture volume and reinvigorate the market for our products. These actions will position the Company well for its eventual operation as an independent organization. We expect flooring to be positioned to earn more in 2016 than it did in 2014. Dave will give you additional details on the expected impact on 2015 when he reviews guidance in a moment.

In the ceilings business, we expect another solid year of performance in the Americas as price, volume and mix all contribute to sales growth. We expect profitability to improve as the margin impact from higher sales is aided by gains in productivity and contributions from WAVE. Investments will be made in our plants and in SG&A in the ceilings business to improve our industry-leading manufacturing and innovation capabilities and improve go-to-market service. We anticipate European profitability will improve slightly as the Russian plant is now online but the macro economic and currency issues in the region will constrain growth.

Pacific Rim sales will grow as markets expand and we gain share but profitability will the challenge due to the low product mix nature of the sales in China and inflationary pressures. We expect ceilings to continue to grow earnings as a standalone company in 2016.

I am confident that both our businesses are on the right track. We believe ceilings will post yet another record earnings year and flooring is taking the steps needed to win as an independent company in 2016.

With that said, let me turn the call over to Dave for a more detailed discussion of the financials. Dave?

Thanks, Matt. Good morning to everyone on the call. In reviewing our fourth-quarter results, I will be referring to the deck that Matt used while addressing the separation. I want to remind you that slide three outlines our standard basis of presentation. Note that starting with this presentation, we will be excluding the earnings impact of our US retirement income plan from adjusted EBITDA.

As many of you know, the accounting impact of this plan in the past has been a credit and will in the immediate future be an expense. However, as we have not made cash contributions to this plan in more than 20 years and don't anticipate cash contributions in coming years, we view the expense and credit from this plan to be noneconomic and thus our results and guidance are more relevant when this is excluded.

Slide 10 illustrates the adjustments to our October guidance as a result of the European flooring business moving to discontinued operations. This slide is self-explanatory and additional details of the financial statement's impact of our exit from the European flooring business can be found in our 10-K.

Slide 11, key metrics, lays out our fourth-quarter results. As you can see for the quarter sales of $595 million were down 2.5% versus 2013 on a comparable foreign exchange basis. Operating income was up 7% and EBITDA was up 8%. Earnings per share of $0.38 were up $0.03 from 2013. Free cash flow for the quarter was $49 million, up $56 million from last year. I will talk more about cash flow and EBITDA in upcoming slides.

Net debt was down $97 million from prior year driven primarily by operational cash generation and the cash settlement of a foreign currency hedge that I will discuss in a moment. Return on invested capital was down as a result of lower unadjusted earnings.

Slide 12 details the adjustments we made to EBITDA in the quarter and provides a reconciliation to our reported quarterly net income of $11 million. The impairment charge is a non-cash change in value of our Bruce Wood flooring brand.

Our fourth-quarter 2014 tax rate of 55% is higher than last year due to the timing of the domestic production activities deduction and R&D tax credits in 2014 versus 2013 as well as year-over-year changes in the state valuation allowance. For the year, our cash taxes were $15 million or 8% as the US federal tax liability was offset by AMT and foreign tax credits. For the year, the book tax rate was 45% as unbenefited foreign losses primarily related to our investments in China and Russia inflate our tax rates.

Moving to slide 13, this illustrates our sales and adjusted EBITDA by segment for the quarter. I will talk to the businesses on the next few slides but want to note here that corporate expenses were lower than last year with reduced spending across a variety of corporate cost centers.

Slide 14 provides additional color on the building product segment results. Ceilings sales were essentially flat on an equivalent foreign exchange basis with price and mix gains offsetting volume declines. In the Americas, sales were down slightly with high single-digit volume declines mostly offset by mix and price gains. End markets in the Americas were somewhat soft but not really out of line with prior quarters. The volume decline was primarily due to low stocking activity in 2013 which did not repeat.

European sales were up slightly as price gains offset volume and mix declines. Strong sales growth in Russia and the Middle East offset weakness in the UK and the Eurozone countries. Sales were up high single digits in the Pacific Rim despite weakness in China where high-end office projects continued to be challenged. This impacts both volumes and mix.

India had a very strong quarter. Building products adjusted EBITDA rose $5 million. With the record performance in North America that Matt mentioned, offsetting declines in Europe primarily related to construction and start-up costs at the Russia plant. Pacific Rim profitability was up on higher sales and cost containment.

Slide 15 illustrates our resilient segment results. Excluding the impact of foreign exchange, resilient flooring sales were up 2% driven by gains in China and commercial products in the Americas. Residential sales in the Americas were down mid-single digits. Overall volumes were down low-single digits but sales were lifted by strong mix performance in the Americas.

Pricing in this segment was relatively flat. Resilient profitability was up $3 million driven by global manufacturing productivity. Profitability in our Americas commercial business was up 18% with sales up mid-single digits.

Page 16 lays out our wood segment results. As Matt mentioned, wood volumes were down significantly but partially offset by continued year-over-year price and mix gains. A challenging comparison period, remember that Q4 2013 wood sales were up 23% and channel inventory reductions magnified this decline. For the quarter, wood profitability was down $8 million year on year. Lower volume accounted for more than all of the drop. Mix and price gains covered lumber inflation. Lumber costs declined modestly throughout the quarter but remain at elevated levels.

Slide 17 shows the building blocks of adjusted EBITDA from the fourth quarter of 2013 to our current results. Of note, price and mix more than offset inflationary headwinds from lumber costs but volume continued to be a drag on earnings. Manufacturing was a positive primarily in the Americas where we were aided by a one-time favorable adjustment to post-employment benefit reserves of $3 million. This is the one-time benefit in the quarter that Matt mentioned. SG&A was favorable due to the corporate cost containment I just referenced.

Turning now to slide 18, you can see our free cash flow for the quarter versus last year. Cash earnings were significantly improved due to our exit from the European flooring business, better cash earnings and lower cash taxes. The other item contains a cash settlement of a ruble hedge related to the funding of our Russia plant construction projects. During 2014, we funded this project using intercompany loans for the bulk of the cash needs. This allowed us to hedge our balance sheet exposure to the ruble via forward swap contracts.

As the ruble declined in the fourth quarter, the swap matured and we received a cash settlement of $24 million. The market at that time was such that we were unable to continue to hedge the loan and current rates make further hedging unattractive.

Slide 19 begins our discussion of year-to-date results. As you can see, sales are roughly flat versus 2013 despite consolidated volume declines of 4%. Operating income is down $3 million driven by the volume declines but EBITDA is up $12 million as we have higher depreciation expense due to our plant construction projects.

Adjusted EPS is higher than 2013 aided by our $260 million share repurchase in September of 2013 and lower interest expense partially due to the impact of capitalized interest when we refinance in the prior year. Free cash flow is down slightly and I will discuss that and the EBITDA details on the next few slides.

Slide 20 shows year-to-date segment level EBITDA performance. Sales of resilient flooring are down 1% driven by volume declines in the Americas residential business which more than offset continued mixed gains driven by LVT and double-digit volume gains in the Pacific Rim, particularly in China. Resilient profitability is down $6 million. The Americas residential business accounts for more than the entire decline. Americas commercial profitability was flat and the Pacific Rim improved.

Wood sales are down 4% year to date with price and mix driven gains in the first half of the year offset by volume declines in the second half. For the year, volumes were down more than 10% but price and mix gains dampened the decline. Wood profitability is up $4 million or more than 25% as price improvement offsets lumber inflation and mix gains and manufacturing improvements drive better results despite the lower volumes.

Building product sales were up 3% for the year as price and mix gains offset volume declines. Volumes are down 2% in the Americas, flat in Europe, and up mid-single digits in the Pacific Rim. Topline growth, excellent manufacturing performance in the Americas, and higher earnings from WAVE drove the $10 million profit improvement. Corporate expense is down year on year.

Slide 21 shows the building blocks of adjusted EBITDA from 2013 to 2014. Price and mix gains in the wood segment and in the Americas ceiling business more than offset volume declines primarily in wood in the Americas residential resilient business. Inflation primarily from lumber was again a year-on-year headwind. Manufacturing productivity offset higher SG&A and the WAVE business again contributed positively.

Turning to slide 22, you can see that our free cash flow for the year is relatively flat versus 2013 but with significant moving parts. The working capital change is primarily due to unusually favorable working capital in 2013. CapEx was higher as spend in the Russia, LVT and China metal plants was slightly greater than last year's spend in the three China plants. Other is largely the Russia hedge that I just discussed where the full-year impact is a favorable $29 million.

Slide 23 provides our initial look at guidance for the current year. As Matt discussed, we expect modest help from the markets and continued mix improvements to drive sales growth in 2015 up 2% at the midpoint. The investments in flooring and the continued challenging conditions in the emerging markets will limit our profitability in 2015. We expect operating income and EBITDA will be down year on year.

Another factor in our 2015 outlook I want to mention is trapped overhead associated with the European flooring business. As this business works its way through the German insolvency process, we continue to provide services primarily IT to the Company. Until the insolvency is resolved, we cannot eliminate the costs associated with these services. This represents an SG&A headwind to us of a few million dollars.

Slide 24 provides more details on guidance. Given the separation transaction, we are now including segment level guidance. As you can see, we expect ceilings profitability will grow, floor will decline, and corporate expenses will be slightly higher. Within this guidance is recognition that our emerging market investments are again delayed in delivering their anticipated returns.

On taxes, we anticipate an effective tax rate of 47% in 2015 but a long-term normalized effective tax rate of 39%. Cash taxes should be about $50 million.

Capital spending of $125 million to $150 million is above our steady-state level of $110 million to $120 million as we complete the Russia plant, finish the LVT investment and the Somerset improvements and as the ceilings business has a few extraordinary improvement projects in the Americas.

As mentioned, excluded from our guidance and historical results is the earnings impact of our non-cash US pension plan. This number will be finalized in March and may change slightly when we report first-quarter results. Also excluded are costs associated with the separation transaction which we estimate to be in the $20 million to $40 million range for 2015. These expenses and their timing are likely to be fluid so we will keep you updated each quarter.

Finally, there is likely to be a cash cost to finalize the insolvency of our European flooring business that we are currently unable to estimate. This cash spend will not impact the P&L as the segment is now in discontinued operations but it will impact cash flow. We will keep you posted on this as well.

With that I will turn it back over to Matt.

Thanks, Dave. Before we get to your questions, I want to take a moment to recap some of Armstrong's 2014 accomplishments around the globe.

In the Americas as mentioned, we achieved a record profit year for our ceilings business. We progressed with construction of our Lancaster LVT plant and the capacity and capability enhancements at our Somerset engineered wood facility. And we completed the addition of high-end capability and edge performance improvements to our Hilliard, Ohio ceilings plant.

In the Pacific Rim, we commercialized our new three new plants and grew China sales by 13%, India sales by 18%, and total regional sales by 8%. We added metal ceiling capability within our new plant in Wujiang, China to support continued growth in architectural specialties. We closed our Kunshan, China engineered wood plant and onshored production to our Somerset facility. We also closed a small floor tile plant in Thomastown, Australia to improve our cost position.

In Europe, we took the decision to cease funding our unprofitable flooring business. We added world-class edge capabilities to our Muenster, Germany ceilings facility. And finally in Europe, we completed construction of our $100 million ceilings plant in Yelabuga, Russia and the plant began shipping just last week.

The team here at Armstrong worked smart, worked hard and worked safely to realize these achievements and they should feel proud of what they accomplished in 2014.

With that, we would be happy to take questions.

(Operator Instructions). Stephen Kim, Barclays.

Thanks very much, guys. Yes, I guess my question would relate to trying to understand what kind of corporate expenses you think might be attributable to the various divisions and particularly with an eye towards how we should be thinking about those if they were to become standalone companies? Thanks.

Hi, Stephen. It is Dave Schulz. Thank you for your question. At this point, we still have a lot of work to do obviously but we are initially projecting that will have a minimal impact on our operating expenses on the separation of the company.

So if you could talk a little bit about the SG&A associated with that. So as we look at your company and we take a look at -- you had indicated that there were no synergies but there probably were some -- will be some duplicative costs I would assume if you run them independently. Can you give us any sense of how much that might be?

No, we are not in a position right now to provide you an enormous amount of detail on that. I think it is safe to say that obviously as we have to stand up two separate companies, there are a series of corporate expenses that will also need to be split out so as we provide you those details today we do have a rather large corporate segment that we talked about being about $60 million in 2014. We would anticipate that it would require all of that SG&A that is currently in corporate to effectively staff and operate two standalone companies. But at this point we are not in a position where we can provide you more detail beyond that.

Okay, great. Thanks very much, guys.

Dennis McGill, Zelman & Associates.

Good morning and thank you. I guess just as it relates to the spin-off, I realize you are still going through a lot of the decisions here. But as you think about capital structure, can you maybe just offer any initial thoughts or what would go into that thought process along the way? And then kind of related, Matt, what your role would be on a go-forward basis if this evolves?

Let's take your first question. Much like the last question, Dennis, we are at very preliminary stages here. We have got a lot of work to do on the details of the capital structure for both of the standalone companies and we would expect as we go through time here in the next few months to provide more clarity and detail on that.

So we've got lots of time ahead of us, lots of work to do. Our intent would be to update you regularly as things evolve and develop. As for me right now, my priority is to lead a successful separation of the two businesses and make sure that both are positioned to succeed as they go forward.

Okay. If I could just sneak in a clarification, Dave, on the unknown cash cost in Europe, is that related to the pension over there or could you give a little detail on what that relates to?

Sure, Dennis. It is not necessarily related to the pension. It is more related to some of the transactions that occurred between the German entity and the North America entity here at Armstrong. And so we had a series of transactions that obviously as we go through the unsolvency process there will be an evaluation as to whether some of those transactions particularly the cash associated with them should have been retained in the German entity versus in the AWI parent entity. So obviously we will have in-depth discussions with our administrator about that as we go through this process but it is not necessarily related to the pension.

Okay, thank you.

Kathryn Thompson, Thompson Research.

Thanks for taking my questions today. Just more conceptually focusing on flooring because that has been a division that has struggled a bit over the past couple of years, with this split up announcement today, will this be an opportunity to make more structural changes in the division ranging from product type to how products are sold in the market? Thank you.

I think it would be preliminary to talk about any specific structural decisions that we make in flooring. I think this gives us an opportunity to think about growth opportunities more broadly and a platform to move more strategically than we have in the past. I think in our comments we talked about decisions in floor may be encumbered by trade-offs in the ceilings business or vice versa. So by separating the two businesses, you have created two very independent businesses are now able to build their own capital structures and make those decisions as we go forward.

So we are not in a position today to point to any structural changes we would make on a product development basis or a go-to-market basis. I think that more importantly this gives Don as a leader of flooring and Vic as a leader of our ceilings business infinite more flexibility to do what makes sense for them in their respective industries.

But conceptually though this would be an opportunity to make changes be it growth or tweaking the model itself?

I don't really want to get into conceptual or speculation, Kathryn. We've got a lot of work to do. I think what this does provide is more flexibility for both the business leaders than they may have had in the past.

Okay. A quick follow-up. I assume that the JV relationship is unchanged with this announcement for ceilings?

Yes, this does not affect WAVE at all.

Great, thank you.

Michael Rehaut, JPMorgan.

Thanks. Good morning, everyone. First question I had I guess was just going back to corporate expense and just trying to make sure I understand it correctly. In terms of the $22 million to $28 million of the pension expense, would that be split out between the companies with two separate companies as well on a pro rata basis?

And I guess also along the lines of corporate -- with the shared services and some of the -- ostensibly there would be some separate administrative costs that flooring would need to encourage a separate public company. Would that potentially be -- would there need to be additional costs as it relates to the shared services that flooring would have with ceilings that they would start to need to build out some infrastructure of their own as well?

Let me take the last question, Dave, and maybe you take the pension question. So as we said in the remarks, what we intend to do is create a transitional plan where the shared services would be embedded in AWI which is the ceilings business so it would be a transaction agreement with very specific service levels between AWI and Armstrong Flooring. We expect that to remain in place for a very specific amount of time as Don and the leadership team in flooring build out their own capabilities in those regards.

So the first step is Don and the team need to determine exactly what level of capabilities and what level of services they need for IT, HR, transaction processing, etc. This structure gives them time to think through that and then begin methodically adding those capabilities to their organization. That could be in the form of in-house capabilities, in the form of continued outsourcing of those capabilities or more likely some hybrid of the two depending upon the nature of what needs to be done.

But the thinking at this point is we want to give AFP or Armstrong Flooring the opportunity to think through that by embedding that capability initially in Armstrong World Industries and then creating a transaction services agreement with the AFP leadership team.

It is Dave Schulz. Let me just address the pension. Obviously as a company today we have roughly a $2 billion pension liability. I first want to say that our pension as it stands today and the rights of our current retirees will not change and so we fully anticipate that we will continue the pension in its current form under AWI ownership. And again, that is for the US pension plan. We also have pension plans that are outside the United States and again the rights of the current retirees will not change as we go through this separation transaction.

In terms of how that will flow through to the different business units, we do anticipate that the flooring company on a standalone basis will still be absorbing their fair share of the $22 million to $28 million of pension liability and pension expense moving forward. And so we would anticipate that any expense component relative to the pension and the separate flooring business would flow to that flooring business.

The actual vehicle of how we are going to set that pension up is still to be determined. Obviously it is a very complicated area that we started the work on but we are not in a position to provide you any more detail of the composition of the pension going forward. But I do want to reiterate that our intent is that the rights of our retirees and our current employees that are under the pension will continue.

That is great. And just one other quick question if I could. The flooring business, I was hoping to get some kind of an update I guess on some of the issues that were highlighted from the third quarter. And perhaps, Don to speak to this or Matt if you like. But there were several issues that were highlighted last quarter in terms of challenges in that business, shifts between glass backed sheet and felt backed sheet, share loss within glass backed sheet, LVT and engineered wood on the wood flooring. So a lot of things that were going on last quarter.

I was hoping to get kind of an update on how you are thinking about addressing those issues. I know that in the guidance you talked about a lot of investments -- that 2015 will be an investment year. But any type of update around those different issues that you described last quarter would be helpful.

Let me kind of take that one and then kick it over to Don for additional comments. So the investment speaks to a lot of the actions we are taking in response to the issues we describe as you pointed out. The marketing and promotional spend behind the LVT launch, significant upgrades in our retail displays, etc., all stem from extensive discussions that Don has had and that Don and I have had with distributors and retailers across the country.

I think Don and his team have done a great job responding to a significant deterioration in the market conditions in the second half of 2014, lots more flexibility around our promotional and pricing support regionally. The feedback from the distribution channel partners has been very positive around the speed and adaptability of Don and his organization to a significant change in the operating environment.

I think that aside from about 300 individual actions -- and I'm not exaggerating here -- individual actions Don and the team have taken and are taking in response to opportunities regionally I think structurally investments we are going to point to in 2015 around strengthening our play in retail and putting some real marketing muscle behind the LVT launch. And thinking through and focusing on the wood facility, engineered wood coming out of Somerset, almost every single thing Don and his team are focused on particularly in the residential business is a result of dealing with the issues that we identified and discussed a little bit at the end of the third quarter. Don, any additional?

Yes, I think you summed it up well. I think I am pleased with the progress we have made but obviously a lot more work to be done here. Everything we are doing has been informed through this engagement with our distributors and our retail customers. As it relates to the felt to glass piece or glue down to loose lay is how we are really referring to it, we have had a couple of new product introductions which appear to really be addressing the opportunities for us in the property management segment. And with the investments we have at winning with retail that Matt mentioned, that will round out I think filling some of the gaps that we have on our sheet products.

On the LVT line as well, we have introduced a price fighting line in the commercial segment called parallel as well as launched an innovative installation methodology called on I-Set on Commercial and FasTak on the residential business and both of those products and the parallel product have been extremely well received in the market.

As we have seen the continued shift from solid to engineered, the investments in Somerset that Matt referred to, we have pretty much completed all of that project work and have those products all transitioned over.

So again, a lot more work to be done but solid progress I think in addressing those specific areas and the investments we are going to make in 2015 are really going to leverage on top of that.

Great, thank you.

Bob Wetenhall, RBC Capital Markets.

Thanks for taking the question and congratulations on the announcement. I wanted to ask Dave about the guidance for 2015 because it looks like at the midpoint of your guidance for EBITDA, you are $20 million, $25 million lower than 2014 levels. I am just trying to understand because some of your commentary suggests that resilient had some very favorable trends in 4Q and given those trends, I actually thought your guide would be a little higher and I'm trying to understand is the guide lower because of investment which was flung through the P&L or what explains that difference?

Bob, thanks for the question. It is primarily related to some of the investments that we are building into our 2015 plan and as appropriately reflected in the guidance. So as both Matt and Don just mentioned, we do have a lot of activity right now on both the product innovation front. We also are spending significantly to enhance our retail presence so some of the things that Matt mentioned earlier about our displays and our promotional activity, making sure that we have the right literature, the right go-to-market strategy as it goes down to our retail partners. So there are some significant investments.

And then the other thing I just want to point out is we talked about the market opportunity going forward. We do still see very low single-digit opportunity primarily in the healthcare and education side as it relates to our flooring business and that is also reflected appropriately into the guidance that we provided.

That is very helpful. I was going to ask Vic, you guys had a really healthy ceilings EBITDA margin in the 25% range last year which is great and I know you have talked before at your Investor Day about getting that margin 500 basis points higher to like 30%, 32%. How should we think about that? Is that driven by volume and pricing or is it lower cost inputs and how do we bridge that 500 basis points?

While we are talking about ceilings, you mentioned in your deck the verticals you participate like healthcare and education, any specific color what you are seeing on end market demand would be great. Thanks.

Thank you for the question. On the margin level first, back in May at our Investor Day we talked about growing the margin levels from where we are today in kind of a midcycle volume level. You remember we were talking about volumes getting back to midcycle levels of our peak in the 2006, 2007 timeframe. So that is a definite important component to getting back to some of the volume leverage that you need to increase the margin levels.

But the play that we are continuing to run that allows us to grow the margins even on a lower volume basis right now is the work that we are doing in our plants around productivity. Our lean methodology is really gaining some nice traction and we continue to get some nice significant productivity gains that is helping us to drive the margin. And we are committed to continuing to get price for the value that we are bringing our customers and that exceeds the inflationary level that we have had in the list couple of years and we plan to continue the efforts around that.

So again based on the value and the services that we are bringing our customers making sure that we are getting paid for that. So we are committed to that and we still believe that is the results that we can get in this market place. So that is that.

In terms of the market verticals if you will, again in the Americas business you get a little bit more of a balance of the verticals between office, healthcare and education. Really right now we see the office leading the market recovery and really on the new construction side in fact on the office side. So we continue to stay focused on that.

And then elsewhere outside the United States, the vertical really that drives our business is the office segment especially in the emerging markets. One of the differences between our business and the flooring business is if you remember as we discussed back in May was the development of ceilings in healthcare and education is well far behind I would say the office segment. In fact, a lot of those buildings in office and healthcare don't even have a ceiling so that is our opportunity.

So in the near term, the office segment is really going to be what is driving our business and again in emerging markets both in Russia and China as Matt talked about, those are challenged segments for us in the short term. I hope that answers your question.

Yes, that was great. Any commentary just to follow-up on ceilings with Worthington and that is going to stay in touch? I know you guys have some joint production facilities. Any change to that through the split or is that going to remain intact in the current structure?

Very pleased with that relationship.

Cool. Good luck and thanks very much.

Mike Wood, Macquarie.

Thanks for taking my question. Are you able to quantify for us the incremental investment embedded in 2015 guidance on that flooring, sales and marketing? And just overall how much you would say would be the total inefficiencies in 2015 from the plant start-ups with Lancaster and Somerset? Thanks.

It is Dave Schulz. Thank you for your question. We are obviously -- we have a couple of significant investments and we talked about some of these SG&A. The SG&A investment that we are making is a continuation of some of the work that we started in 2014 so that we are in the best position to leverage the LVT facility when it comes online here. But I am hesitant to break that out for you between the pure LVT plant start-up costs plus the SG&A investments. Obviously we are going to be able to continue to react to the market as necessary here. We are committed to making sure that as we go through the separation process we are setting both businesses up for success on a standalone basis and we are going to make the investments that we need to do so on the flooring business particularly.

If I could just tag in on that, and I think we covered this in the comments a little bit, Mike. We have deferred investments in flooring at sort of a waiting market related volume. So in anticipation of a recovery, we have deferred promotional spending, retail support, etc. and we feel that we have reached a point even with a modest outlook in the volume dealt us in the market in the residential business in 2015, that we need to bring bank those investments. Completely align with the Board. And so 2015 is really a year to get back in the game with pretty significant marketing and promotional support for our flooring business in North America.

These are investments we have had visibility to but we feel like that we have reached the point where it is necessary to do -- we will just go back on offense especially in light of a pretty significant LVT investment in Lancaster. So the team is excited about it, these will be focused investments, very targeted, in line with Don's strategic priorities. And as Dave said as we go through 2015, we will see if we need to make some additional investments, either proactively in the marketplace or reactively to changing conditions.

Okay. Can you also give us an update on what has been happening with green oak pricing and with the potentially supply ramping with increased price, why there hasn't maybe been more of a deflation on green oak pricing?

I can only comment generally speaking pricing was flattish but still at fairly high levels compared to two or three years ago.

Thank you.

Will Randow, Citigroup.

Good morning and thank you for taking my question. Sorry if I missed this but in terms of contemplating this tax free spin-off, what are your thoughts in terms of making sure for lack of a better term the tax-free status stays in place if there were to be industry consolidation involving the flooring business near term?

I don't know if we are in a position to even speculate on that. We are focused on a tax-free spin of the flooring business for our shareholders and that is the path we are on. I don't know, Dave, if you have additional comments?

No, clearly we are very much focused on a tax efficient transaction. We believe that the mechanism that we are planning for is the appropriate treatment from both a tax basis but it is the right thing to do from both our shareholders' perspective and from the company perspective as this will be essentially tax free as a spin to both our shareholders and to the company. So we feel it is the right approach going forward and we are committed to getting it done.

Thanks for that. And just as a follow-up in terms of input costs oil-based, are you seeing any easing in your current production costs for the resilient business in particular?

Will, this is Don. We have started to see a little bit of movement there in the downward direction but at this point in time nothing that I would call material or significant. Obviously you are starting to see oil prices stabilize and actually come up a bit more as well.

Could you quantify that, I'm sorry.

No, again it has not been significant enough to move the needle.

It is Dave Schulz. We have not seen the direct correlation yet between the drop in oil prices and the prices we are paying to our suppliers and we anticipate that there will be some form of a lag there. Obviously we are watching it closely and we will make sure that we keep you updated as we learn more.

Thanks again, guys.

Ken Zener, KeyBanc.

Good morning, gentlemen. Obviously there is a lot of focus on the company being spun out. But if we could just take a step back here, is there any reason to think these spun out companies are going to have a higher corporate cost structure after let's say the first year because obviously there is a lot of focus on increased cost structure. But is there any reason to assume that costs will be higher on a standalone basis after the initial period?

No, as we go through the process I think we will try to provide or we will provide more clarity and transparency on that. I think it is a little premature for us to be speculating or hypothesizing at this point. The driver for this is not cost reductions at headquarters. The driver for this is positioning two businesses in two very different markets or very different industries with different opportunities as pure play. Both businesses will eventually or both independent companies will need the same or very similar "corporate support" they receive today be it IT, the range of HR capabilities, transaction processing, accounting, investor relations, treasury, all of the traditional functions that any standalone business will have.

Part of the process and the methodical approach we intend to take over the next several months is to thoughtfully build those capabilities and position employees today that might be in corporate "into those positions".

So this will open up opportunities in both our flooring and ceilings businesses to build out the same capabilities in both of those businesses that reside somewhat centrally today.

Okay. And then my second question, just want to drill down domestically in the US ceiling tile. You grew 2% in the Americas. Could you give us a sense if that is 4% price mix minus 2% volume? And then if you could comment on what you expect WAVE contribution dollar wise to be year-over-year and then update us on any changes in the landscape that you have seen with new entrants into the ceiling tile market and the grid? Thank you.

On the price mix volume -- this is Vic Grizzle by the way. On price mix volume, the Americas volume overall was down and so all of the growth -- and I think Dave mentioned this in his talking remarks -- all of the growth was price and mix, both positive in the Americas as we have had in the last few years in the Americas. Again on a base of contractionary volume, that revenue was price and mix.

As far as if I understand your second question around competition, the competitive landscape remains about the same in the Americas with the addition of a new competitor, [Rothcon], which has been well publicized on their efforts to penetrate the US market. And from everything that we can tell they are active through their acquisition of (technical difficulty) marketplace but we are committed to obviously maintaining and holding our share and again just doing a better job serving our customers than they can do here in the Americas. So far we feel like we are doing that.

Thanks, Vic. I wonder if I could just clarify. You guys said you expected volume, price and mix to be up this year in the Americas. Could you comment on what you are seeing that gives you that confidence given the change in guidance last year relative to a positive view on volume? Thank you.

Really in the new construction area which -- and I will remind everybody is somewhere between 20% and 30% of the demand profile in the Americas -- that continues to get traction and again predominantly in the office space so we are seeing the activity in the marketplace around new construction activity.

The other part of this which is the other 70% of the demand profile in the Americas is the repair and remodel or the renovation segment which is highly correlated to GDP as we have talked about and this is the first time in three years that we are sitting at this time of the year and not seeing guidance for GDP being downwardly revised.

So the latest GDP reports have held the outlook for 3% to 3.2%. So I think that is positive and would yield an expansionary market on the remodel side in the Americas.

Thanks.

(Operator Instructions). Keith Hughes, SunTrust.

Thank you. I wanted to go back to the guidance on flooring for 2015, the $80 million to $100 million of EBITDA. I assume that compares to the $114 million in the slide. And so around that, how much is the LTV drag from that plant ramping up? And would I put the rest of the decline in the sales and marketing you mentioned earlier?

Keith, it is Dave Schulz. So just additional commentary, as we said during the prepared remarks, we think that wood is going to be roughly flat year on year. We have talked quite a bit about some of the investments that we need to make primarily the SG&A side related to improving our go-to-market capability, improving our displays with retail. We have not provided a breakout of the LVT ramp-up costs. Obviously they are going to be somewhat significant but that is included in the guidance range that we provided here. But again, the majority of the impact year-over-year is related to some of the investments that we are making in this go-to-market area.

And will we see these same go-to-market costs in resilient as well as in wood?

I would say that the go-to-market costs are across the entire portfolio. So as we think about improving our presence with retail, that would serve us both the wood business plus our resilient business and the LVT business as we go forward with those investments. It is not necessarily limited to wood or simply the resilient side of the market.

Okay, thank you.

Keith, this is Don. There is a significant portion of that focused towards the LVT line. So those investments have already begun and will carry us through the end of the year making sure that we've got the LVT line well represented out in retail.

Okay, thank you.

Jim Barrett, CL King & Associates.

Good morning, everyone. Matt, could you talk a bit about at this point in time what will it take to fix wood flooring? Is it a function of higher volume or does the industry need to exercise greater pricing discipline? Could you sort of elaborate on that?

I guess the answer is, yes. We had a significant degradation of the pricing environment the third and fourth quarter of last year. We were leading price increases and the last one or two were not filed as they had been prior to that so that created some downward pressure, it got some additional capacity coming online particularly in engineered. So I think there is a number of factors at work.

Our position is that by aligning distributors and adapting our go-to-market structure more regionally, providing a different kind of support to our distributors and again adapting to the environment that we found in the second half, we feel that we will be able to regain our volume. We are certainly going to need as we have said, we are going to need to make some price investments to compete effectively and we are not interested in losing share in wood flooring. We have got focus on new products.

You have got shifts in demand and preference from solid wood to engineering as the engineering wood quality and characteristics improve and become more like solid. So there is a lot of stuff going on there. I think Don and Joe Bondi, who leads our residential business in North America, understand the issues, are working with our distributors on a local basis to be more reactive to pricing and a little bit more proactive in terms of how they go to market.

And then they are also working back here with our product management organizations and marketing teams on retail support as well as new product launches.

So it is a combination of things. I think Don's priority is right on the mark and the investments are worth talking about. Really I think Dave and John both spoke to this, it is certainly LVT but I would say -- I would characterize it as more residential broadly and so being a bigger factor in the independent retailers through our independent distribution I think will go a long way to get us where we need to get.

Thank you very much.

George Staphos, Bank of America.

Good morning. It is actually Alex Wong sitting in for George. Thanks for taking the question and good luck with the transaction.

On the outlook for low single-digit growth in North America commercial, I believe industry sources are forecasting somewhat of a higher growth rate. Can you provide some color on the discrepancy between the two figures and what gives you confidence in that forecast?

And on a related note, you know we touched on end market trends in ceilings earlier. Can you provide us with some updates on the flooring side?

This is Matt. Let me take the first question and then I will hand it to Vic for additional comments on the segments.

We have a -- we have hopefully adopted a fairly modest outlook in the market conditions for 2015. Our experience in the last three to five years have been significant downward revisions in the market opportunity as we move through the current year. And in many cases that has caused us to revise our guidance and outlook as we go through the year.

Most of the revisions we have experienced have been directly related to a softening in the environment as it relates to the original outlooks by many of the traditional sources that people use. So what we have tried very hard to do this year and what we thought we did last year was have a very grounded look at the market.

So we expect and are not surprised at all that there is a little differential between the traditional sources and ourselves. You can write that off to conservatism. We would write it off to experience. With that said, let me hand it over to Vic to talk about -- give some updates on the individual segments.

I think that is actually a very good summary. For three years in a row, I don't think anybody in this industry has called this recovery right. So you are probably detecting a little bit of conservatism in our outlook. But as I mentioned earlier, I think the office segment is definitely showing some good traction recovery both on the new construction side as well as some of the renovation activities. So we are optimistic about that continuing again based on the positive outlook for the GDP which will support both office, healthcare and education growth in recovery. So again, I think Matt actually nailed it and I will turn it over to Don on the flooring side.

Yes, I think the piece that I would add is that our assumptions that we've made around housing starts, remodel on the residential side, and the commercial activities particularly in healthcare and education seem to be pretty much aligned right now with what we assumed as we built these business plans. So a lot of different forecasts and estimates out there as we kind of look for the center ground. These seem to be well correlated with what we have assumed in the 2015 plan.

Thanks very much.

Nishu Sood, Deutsche Bank.

Following up on that question about the ceilings outlook for 2015, I just wanted to dig into that number again. The key expectation for this year is the Americas being up low single digits and I think you have gone into a fair bit of detail about the GDP, etc. But if we look at 2014, I think most people would say that GDP was decent for 2014 and yet Americas I think you mentioned was down 2% and I think it was down even a little bit greater. I know there were some stocking issues or what have you, down even greater than that in the fourth quarter. So what makes up that delta then going from down 2% to being up low single digits if we get -- if as most people expect we get another year in 2015 like we had in 2014 with some acceleration in new commercial but another decent performance in GDP?

On the 2014 initiative, the GDP came in around 2.5 so it was definitely in a contractionary area which is exactly what we saw in the marketplace. Again, the new construction portion of the market continues to gain traction from 2013 starts that showed up in 2014 and we see that continuing into 2015. That is really the difference. The GDP needs to get to that 3% level for you to have an expansionary environment for the renovation remodel segment. I hope that answers your question.

No, that is helpful. The second question I wanted to ask was on flooring. Matt, if I heard you correctly, there have been a lot of questions asked about this already so I won't ask it again but you mentioned that there obviously the drags on flooring EBITDA in 2015 -- the $80 million to $90 million EBITDA estimate that you are giving reflects that. But if I heard you correctly I think you mentioned that in 2016 you would be above where you were in 2014 which is around $110 million. So that is quite a big jump. And again I know you are not going to quantify for us what the drags are in 2015 but what is your thought process there in putting that statement out there? Is that just the longer-term potential of the business? Are you reflecting some optimism? I know you are not quantifying the charges but are they quite large? Is that the main driver there? That is a pretty big jump from 2015 to 2016, what is your thought process in putting that out there?

That is a fair question. So the ultimate driver for revenue growth and earnings growth would be successful launch of the LVT plant at the end of this year and taking advantage of that growth opportunity in the market in 2016. A lot of the investments we are making whether they are sales and marketing or the plant itself are kind of -- I wouldn't say one-time in nature but let's call this a catch up. And so we don't necessarily anticipate sitting here today that the rate of investments in 2015 occur again in 2016 and 2017. What we are doing in 2015 is really I think a pretty significant exciting reset of the flooring business as it relates to retail and residential primarily in North America.

In 2016, what we are talking about is the benefit of those in terms of revenue, volume mix and price. I would say that the market outlook for 2016 hopefully is sort of modest. We are not banking on a big [gift] from the market as it relates to that.

Okay, great. Thanks.

Stephen Kim, Barclays.

I wanted to just follow-up if I could on a couple of things. You talked about the commodity costs and you are not really seeing it quite yet but you anticipate you are going to. I guess I just want to make sure, are you embedding anything in your guidance? And if you could also give us a sense for maybe what your average nat gas price that you paid -- that you let's say ran through the P&L in 2014 was just so we could do some sort of comparisons on our own?

Stephen, it is Dave Schultz. Obviously we are monitoring the commodities impact year-over-year. We obviously have put some of that impact in the benefit from a natural gas and from some of the oil-based impacts into our guidance for 2015. I will have to get back to you on the specific natural gas what we settled and what we are seeing going forward. But clearly that is one of the year-over-year impacts that we are seeing is our trend on natural gas is still coming down and so we would anticipate that we would get basically a slight increase due to natural gas pricing in 2015 embedded in our guidance already. I will need to get back to you on the specific numbers.

That is fine. Thank you for that. I guess on a related note, how about lumber, what are you assuming on that?

This is Don, Steve. On the lumber, we have seen over the last two months or so a slight downward movement on it. It has kind of leveled off the last three, four weeks and it is really hard to predict what the future holds. Our assumption is sort of a flat market in 2015.

Thank you very much for that.

Justin Bergner, Gabelli & Co.

My first question relates to the split of the businesses. To what degree is the European insolvency process as it relates to your flooring business, does that need to be resolved as a precondition from a timing point of view for the split to occur?

No, those are two separate actions and remember that the separation itself is 12 months away. But they are not related financially or structurally. We don't need to finish one to do the other.

Did you consider other strategic alternatives besides the split of the businesses as you went through this process?

Of course we did. The Board continually reviews strategic options. We have done so several times during the year every year so certainly many other options were considered and evaluated and the Board reached a unanimous decision that this was the best path forward for our shareholders, our employees in order to position the two businesses or to become two companies and compete the most effectively as they go forward in the markets they have to serve.

Got it. Then one last one if I may. In terms of renovation and the renovation trends in the ceilings business, obviously it has been a soft patch as far as volumetric demand goes. Could you maybe contrast what you are seeing on the renovation side as it relates to ceilings versus some better trends that we might be seeing in the roofing and lighting areas?

That is a difficult comparison for me to make sort of roofing but I can tell you that the level of activity in the renovation segment is giving us hope that we really do have a 3.2% GDP environment. So again, I can only point to the activity at this point so early in the year. I can only point to the activity and the optimism in the contractor and distribution communities that again should give us some hope that the recovery will gain some traction throughout the year and we will have a stronger second half than we had in the first half. I hope that was helpful.

Yes, thank you very much.

Michael Rehaut, JPMorgan.

Thanks for taking my follow-ups. First of all, I just wanted to get back to the question asked before about other alternatives for the flooring business before the decision of a spinoff. It seemed that there was a pretty protracted process in terms of those other options improving ostensibly the sale of that business. Was it more from the tax perspective that that ultimately didn't occur or did you just find a lack of offers out there? And given the length of time until the spin-off occurs about a year from now, is that something that could -- offers could still be entertained during that period given that it seems to be a little bit of a lengthy period. Was that done by intent to see if there is still some interest to the extent that a sale might still make sense?

I appreciate the question and I understand the nature of it. Our priority and our intent is to have a successful separation of the flooring and ceilings businesses into very successful and competitive companies. That is the play we are running, that is the priority. The timing that we have laid out has absolutely nothing to do with any other potential strategic actions that may or may not occur. This is a thoughtful timeline aided by several external advisors to provide the maximum ability for our two businesses to thoughtfully separate and build out their capabilities. That is the decision we have made, that is the path we are on.

Okay, I appreciate that. I guess the second question -- I wanted to circle back to understanding the investments being made in the resilient business in 2015. I guess describe that you expect wood EBITDA to be flat year-over-year and the resilient to be down I understand largely if not fully due to these investments. And it was described that some of those investments would involve marketing promotion behind a new LVT plant as well as upgrades and retail displays. Both of those sound very much again kind of on the marketing and promotional side. Just kind of curious if you could provide any thoughts around any of those investments from an expense standpoint might be more permanent in nature or ongoing to the extent that in some of these areas it might be viewed that you didn't invest sufficiently on a regular basis and might be part of day-to-day operating expenses going forward?

Okay, thank you. This really does need to be the very last question unfortunately. But as we described earlier I think a few times, we believe that these are necessary to position flooring to compete particularly in the residential business segments in North America. We deferred these investments over the last three to five years in anticipation of a volume recovery that hasn't really shown itself as much as we anticipated. And so we felt that we are at a point now where a refresh of our residential and retail support promotional activities is warranted.

In addition to that of course, we want to provide the appropriate levels of support and promotional activity behind a very exciting LVT launch later this year. So the vast majority of this spin I think as I said a little bit ago is kind of catch-up. We don't expect or are not sitting here guiding a structural increase expense on an annual basis but as we get to 2016, we will evaluate the opportunities and needs for investment there too.

So that said, I appreciate and understand all of the interest and attention to our announcement today. We want to provide the utmost opportunity to be clear about what we are doing. We think we are at an exciting point in the history of Armstrong. We've got a very solid team around the world in the entire company. We've got two very exciting businesses that are well-positioned to be two very exciting independent companies. We have a lot of work ahead of us. This is the beginning of the beginning. We've got very solid project management expertise. We expect to execute this crisply and be completed by the end of the first quarter of 2016 and we are committed to updating you regularly on our progress and any developments that we feel are necessary.

Again, thank you very much for all your attention and time and we will see you and talk to you all very soon. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.