Tom Waters - VP, Treasury & IR Matt Espe - President & CEO Dave Schulz - CFO Tom Mangas - CEO, Worldwide Floor Vic Grizzle - CEO, Worldwide Ceiling.

Dennis McGill - Zelman Associates Kathryn Thompson - Thompson Research Group George Staphos - Bank of America Merrill Lynch David MacGregor - Longbow Research Eli Hackel - Goldman Sachs Nishu Sood - Deutsche Bank Will Randow - Citi Group Ken Zener - KeyBanc Keith Hughes - SunTrust Robinson Humphrey Robert Kelly - Sidoti & Company Jim Barrett - C.L.

King & Associates Stephen Kim - Barclays John Baugh - Stifel Justin Bergner - Gabelli & Company.

Good day ladies and gentlemen and welcome to the Armstrong World Industries' 2014 First Quarter Earnings Conference Call. (Operator Instructions). I will now introduce your host for today's conference, Tom Waters, Vice President of Treasury and Investor Relations. You may begin..

Thanks Ashley. 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 today are Matt Espe, our President and CEO; Dave Schulz, our CFO, Tom Mangas, CEO of our Worldwide Floor businesses; and Vic Grizzle, CEO of our Worldwide Ceiling business.

Hopefully you have seen our press release this morning, and both the release and the presentation Dave Schulz 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 more detailed discussion of the risks and uncertainties that may affect Armstrong please review our SEC filings, including the 10-q filed this morning. Forward-looking statements speak only as of the date they are made.

We undertake no obligation to update any forward-looking statements 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. Overall the first quarter of 2014 was in-line with the guidance we provided in February. Sales of $634 million were on the low end of our guidance range of $625 million to $665 million. Adjusted EBITDA for the quarter of $83 million was right in the middle of our guidance range of $75 million to $90 million.

We had a steady quarter and key themes were price improvement and reduced manufacturing cost.

Additionally, we have seen there are strategy in the Wood segment, that has had an impact on our performance and I also want to highlight a few events including the impact of the weather on our North American business, Russia and the most recent secondary offering by the Trust and TPG.

Isolating the impact of weather from the other variables in our business is difficult and we believe that versus our guidance weather impacted the top line by about $5 million to $10 million and the bottom-line by about half of that.

Versus prior year we estimate that the top line impact was $10 million to $20 million with a little more than half of that hitting the bottom line. EBITDA was impacted not only by the lost sales but also by additional operational cost driven by the snow, ice and freezing weather as well as higher energy prices.

Our projection is at more than half of the loss of the business will come back during the year but timing will be project specific and influenced by labor availability. Now weather provided some noise during the quarter, but all indications that the macroeconomic climate we expected entering the year is still on track.

We did see markedly different regional sales results with certain flooring markets in the West and South West of double digits year-on-year but the North West and Mid-West, North-East rather than Mid-West were down significantly.

The situation in Russia did impact our first quarter top line results; the most immediate effect was the decline in the value of the ruble. As a result of this we instituted a 10% price increase effective in April which drove buy-ahead activity in March. Net-net the currency decline in the March volume increase offset each other on the sales line.

The bottom-line impact of the ruble decline was about $2 million most of which was anticipated in our guidance. This impact is essentially all in the ceiling segment. As you know the geo-political situation in Russia continues to be in flex, so we’re monitoring conditions closely.

We have semi-weekly calls with our Russian leadership team as well as our external advisors. On the ground our operations are continuing and to-date products are entering the country without delays or complications of the border.

Armstrong Engineers have been able to travel to and from Russia without incident, construction of the plant in Alabuga remains on schedule, we’re getting excellent support from the leaders of the local special economic zone.

We continue to build-out our go-to-market capabilities and invest in our manufacturer’s footprint in this very important market. Overall we remain optimistic and committed to the long run in Russia. In the Wood segment, I’m pleased to report that our new strategy of aggressive price increases to drive price and mix has started to pay-off.

Both price and mix were positive in the quarter contributing about 10% to our sales. Volumes were down as anticipated due to our constraining solid wood production to minimize pre-kiln dried lumber purchases and overtime. Wood profitability was up versus last year as a price and mix gains together offset year-over-year inflation.

Manufacturing improvements were driven by a stable workforce, low over time and almost no PKD lumber purchases. Inflation remains an issue as we experienced $12 million of lumber cost increases in the quarter and lumber costs were even higher when we anticipated in February.

So to counter-attack this, we are once again raising wood prices by 4% to 10% effective mid-June. As we will experience lumber inflation for the entire quarter and did not realize the additional price benefit until mid-June, wood margins on a percentage basis will take a step back in the second quarter.

Now barring further unforeseen lumber cost inflation, margins will resume rising in the second half of 2014.

There is still a lot of work to be done to drive margin improvement back to the levels necessary to earn the return on capital we expect in this business but I’m encouraged by the early results of the new strategy and the improved performance in our plans.

Lastly of note in the quarter, TPG and the Asbestos Trust executed another secondary offering of 3.9 million shares of Armstrong Stock in March.

As you likely saw in our proxy and other recent disclosures, Kevin Burns, a TPG Partner will not stand for reelection or Board in June and our Board size will shrink to 11 that’s 10 Independent Directors and me.

So to close, our team remains focused in our investments in manufacturing here and abroad, all staying agile in order to actively address our capitalize on market conditions. So that said I turn the call over to Dave for more details on our financial performance and will look at guidance..

Thanks Matt. Good morning to everyone on the call. We’re reviewing our first quarter results; I will be referring to the slides available on our website starting with slide 4, key metrics. As Tom Waters already has covered slide 2 and slide 3 is simply an explanation regarding our standard basis of presentation.

Sales of $631 million were up 3% versus 2013 on a comparable foreign exchange basis. Operating income and EBITDA were up as well, EPS was up significantly driven by operating performance as well as the change in the tax rate that I will address in the moment. Free cash flow for the quarter was a use of $55 million similar to last year.

The first quarter is seasonally a use of cash for Armstrong as receivables grow below year-end level and as we build inventories for the busier summer season. Net debt was up $185 million driven by our $260 million share repurchase in September of 2013 and partially offset by operational cash generation.

Return on invested capital was lower driven by as reported profitability in the last nine months of 2013 versus the comparable period in 2012 and by increases to the investment capital base. Slide 5, details the adjustments we made to EBITDA and provides a reconciliation to our reported net income of $70 million in the quarter.

We had minimal cost reduction expenses in 2014 but had $6 million of expenses related to headcount reductions in our foreign businesses in Europe and Australia in 2013. Interest expense was higher in 2013 due to the expensing of the previously capitalized fees as part of our prior year refinancing.

A 2014 tax rate of 53% is actually fairly typical for us in a first quarter as North America profitability is seasonally low so our unbenefited foreign losses have a larger than average impact on the rate.

2013’s rate of almost 80% was unusual as North American profits were reduced by the refinancing cost which greatly magnified the effect of the foreign losses. Moving to slide 6, this illustrates our sales and adjusted EBITDA by segment for the quarter.

Excluding the impact of foreign exchange Resilient Flooring sales were down 2% driven by volume declines in North America and Europe. North America was impacted by weak demand in education and healthcare, weather and a comparable period that included significant sales to a major U.S. retailer as they refurbished their stores last year.

European sales were impacted by continuing weakness in Central Europe. Pacific Rim sales were up with India and South-East Asia notably positive. Mix in North America was also a positive sales driver.

Despite lower sales the Resilient segment delivered flat EBITDA as improvements in Europe and the Pacific Rim offset the volume declines in North America. Matt discussed the Wood segment results so I will move on to building products. Ceiling sales were up 6% on an equivalent foreign exchange basis as all regions experienced sales and volume growth.

EBITDA was flat on a global basis as gains in the Americas were offset by declines in Europe and the Pacific Rim. As Matt mentioned earlier we saw some impact due to weather in the Americas, it was about $2 million of incremental expense associated with higher energy cost and repairs.

Europe was impacted by the foreign exchange headwinds Matt mentioned as well as weaker mix driven by strong sales to Russia and softness in the UK. We believe the UK issue is related to the distributor inventory levels and not the market so we expect improvements in future quarters.

The combined impact of higher energy cost due to weather, and the foreign exchange headwinds associated with Russia negatively impacted margins by a 130 basis points. Excluding these items EBITDA margins were comparable to the prior year.

The Pacific Rim also suffered from weaker mix as China volume growth was in the low margin retail sector as government spending on higher end project slowed. Corporate expenses were flat versus last year, slide 7, shows the building blocks of adjusted EBITDA from the first quarter of 2013 to our current results.

Of note price and mix offset inflationary headwinds primarily driven by lumber. Volume was a slight negative as declines in flooring were only partially offset by gains in ceilings. Manufacturing was positive across the Board with notable improvements in Wood Flooring.

SG&A was up year-on-year partially driven by increased spending on promotional activity. Turning now to slide 8, you can see our free cash flow for the quarter was very similar to 2013 total but the factors are differed. Earnings are up but working capital was down versus 2013 when working capital was unusually favorable.

Capital expenditures declined as the investments in China are complete. Interest expense improvements reflect our March 2013 refinancing and WAVE was favorable versus last year. The other category reflects foreign exchange and VAT payments. Slide 9, updates our guidance for 2014.

The ranges for sales and EBITDA for the full year are unchanged from the initial guidance we issued in February. Russia is a concern but would and assume it's business in North America should be able to provide an offset.

Free cash flow was lower than previous guidance due to accelerated capital expenditures related to our LVT investment here in Lancaster. Slide 10 provides more details on guidance. Our inflation expectations for the year is up $10 million to $30 million to $40 million almost entirely due to our latest expectations for lumber.

Productivity, SG&A, WAVE and cash taxes are all unchanged from our initial guidance. On taxes we now anticipate an effective tax rate of 48% to 50% reflecting an increase in the amount of unbenefited foreign losses relative to our earlier guidance.

For Q2, we expect sales of $710 million to $750 million at the midpoint this would be an increase of 4% from 2013 on a comparable foreign exchange basis. Adjusted EBITDA should be in a range of $92 million to a $110 million, at the midpoint this would be a slight increase from the prior year.

Profitability in the second quarter will be impacted by the dynamic of wood lumber inflation versus price realization of the recently announced increase. Russia and higher year-on-year SG&A spending will also impact Q2 guidance. With that I will turn it back over to Matt..

Thanks Dave. Despite the weather and developments in Russia I’m pleased that we were able to deliver on our first quarter guidance and reiterate our sales and EBITDA guidance for the year.

Strength in our North American ceilings business continued progress in the Wood segment and team efforts around the globe should allow us to deliver these financial results. And so with that we will be happy to take your questions..

(Operator Instructions). Our first question is from Dennis McGill of Zelman Associates. Your line is open..

Just quickly on the Wood flooring business, I think volume was down about high single in the quarter, as you look at some of the decisions you’re making with where you’re doing business in certain customer accounts, when would you expect volumes to at least match market activity over the next I guess rest of this year into ’15?.

Yes you are right; we were down in unit’s high singles that’s reflection of our strategy to both drive price and mix to recover structural margins as well as to constrain our production to what we can dry on our own yard, if you recall last we were using a lot of PKD to enable that.

We’re making investments in this quarter that will enable us to increase our drying capacity and that will start to come online in the July-August period. And so we will have capacity to be able to expand with market growth in the back half of the year that will ramp through the back half of the year.

That said though we’re focused on margin recovery, path for the Wood Flooring business. While we had a reasonable start to the year, we continue to see aggressive commodity inflation on the lumber side. You saw that in the higher guidance we just recently went out for another 4% to 10% price increase on solid wood and engineered wood.

So we’re going to continue to as the market leader, be the price leader and drive pricing and we don’t hope for but we expect there will be some competitive scraping going along the way that we will in the short term maybe cost us some share growth which could constrain some of that matching market growth underlying your question..

Clearly but that’s our priority in 2014 as margin restoration I think responsible investments to Tom’s point to expand our capacity little bit but it's really price margin and mix..

Thank you. Our next question comes from Kathryn Thompson of Thompson Research Group. Your line is open..

Mainly wanted to step back and you alluded to talking about better trends in certain geographies versus others that were less affected by weather.

But maybe if you could progress through the quarter in terms of trends on your ceilings business to get a sense of what’s really reflected in true demand and maybe particularly be hopeful if you could look at areas that were perhaps harder hit by weather and how they are doing now versus when they were dealing with snow and ice alike. Thank you..

I think Dave has got a little bit more detail by sort of region in the U.S. but just to reiterate if you look at the weather impact for us kind of $5 million to $10 million it's just isn't that significant. I think to your point Kathryn the details are sort of in specific regions.

I mean we had some regions that were relatively robust and regions obviously predictably the Mid-West and North-East that were affected.

We got hit two ways, we got a little market softness as a result of the weather as reported by our distributors but also remember we had couple of million dollars of additional expenses particularly in the Ceilings plants related to the increased maintenance and energy cost as a result of the weather.

So we got kind of and similar in flooring, one of our big plants being in Kankakee, Illinois, South of Chicago, so you can imagine that they were affected as well.

So Dave do you want to give some more transparency on the regions?.

So Kathryn just to provide a little bit of color on this.

As Matt mentioned it's extremely difficult for us to pull out the pure impact on weather, one of the things that we look at was the number of days that our distributors reported that they lost during the quarter due to bad weather and that ranges into North-East and the Mid-West between 5 and 10 days lost of shipping.

In the Mid-Atlantic it was between 3 and 5 days and then even in the South-East because of some of the Freezing weather. We lost up to 5 days of shipments from our distributors. So we have used that to estimate the range between both of our businesses on the impact of weather on sales.

If we take a look at some of the trends during the quarter from a sales perspective obviously those regions where we had the larger impact on lost shipping days we were -- its very difficult to pull out the impact of the weather but some of the regions that were not impacted by the weather, we are very pleased with the results.

I mean we saw mid-singles in some parts of the country even low-double digits in some parts of the country relative to the prior year within our Ceilings business..

Thank you. Our next question comes from George Staphos of Bank of America Merrill Lynch. Your line is open..

Two part question kind of same theme, to the extent that you can cover it. Now if we look at Resilient Flooring you mentioned some of the items that hurt you in the quarter in terms of why the Americas volumes or revenue were down.

Is it possible to parse the traditional products relative to luxury vinyl tile and when should we expect that LVT could ultimately drive positive sales comps in the Americas realizing a lot of it's ultimately been driven by what the market is doing and then I don’t know if I heard you saw will Russia and devaluation conspire to keep margins flat or lower in Ceilings and building products over the rest of the year and what are the puts and takes there? Thank you..

Sure. I'll frame it. I think we'll ask Tom to come on Resilient Flooring and maybe Vic will add a little color on Russia but in terms of Resilient Flooring the major driver for the weakness was market segment performance.

Remember that our Resilient Flooring business plays extremely, plays hard in healthcare and education and those market segments a little softer than anticipated coming in. LVT is a fairly robust product platform inside Resilient Flooring but on a fairly small basis so far.

But Tom anything to add to that?.

Sure. George, we do about 150 million or so in North America total Resilient sales in the first quarter. LVT is just shy of 10% of that, so you know it is a and it's a growing segment for us and you’ve high expectations particularly as we bring this plant on it.

I think LVT can be a disproportionate profit driver for us but it still pales in comparison to the VCT market within that segment. So looking at the dynamics we expect the VCT will lose share to LVT which is why we’re investing in it and also LVT will continue to take share from sheet. We think it's a very exciting category.

We have got aggressive growth plans there as well as productivity plans but it's going to be a few quarters before it's really going to be a driver of the segment in the Americas..

And just to reiterate we did announce or conducted ground breaking ceremony for the new LVT plant here in Lancaster about two weeks. So we are committed to the product, we’re committed to the platform. We think it's a very exciting part of the Resilient Flooring business.

In Russia we did comment a little bit on the quarter more than the year, it's hard really to predict what the ruble is going to be on a go forward basis but as we said the ruble devaluation the first quarter resulted in our executing a 10% price increase.

The effect of that price increase falls outside of the quarter so the increase is effective in April. The ruble devaluation or the market dynamic didn’t affect our revenue performance in Russia. We do suspect there is some buy-ahead in advance of the price increase and we think the bottom-line impact of that was about $2 million.

On a go forward basis the team is prepared to continue to offset inflationary price increases as necessary and as I said we're monitoring the situation semi-weekly and frankly more fluid way than that.

But we're staying very close to dynamics and we’re adapting our structure, our approach as the situation warrants and Vic any additional comments?.

I think you covered it well, I will just add that if the ruble stays where it is with our 10% price increase we should be able to call back the margin impact to what we saw in the first quarter and as you said if it continues to devalue then we will back out with the price increases, is our plan..

Thank you. Our next question comes from David MacGregor of Longbow Research. Your line is open..

Question on flooring, I guess two part question on flooring for Tom.

First of all in the Wood business, do you sense that your wood costs are beginning to level off? I know you’ve got some drying capacity coming on here mid-year but do we start to level off? And if that’s the case, at this trajectory when do margins normalize in the Wood business? And is that sort of a 10% to 12% level as you’ve seen sort of peak margin performance in the past? And then the second part of the question is really more with respect to the Resilient business and Tom, I’ve asked this before I’m just -- well guess looking for your most recent thinking on this given you’ve been in the job a little bit now.

But how do you improve on the structural profitability of Resilient longer term? Thanks..

So, we continue to see wood inflation that’s why we took our guidance up at the company level over $10 million. We continue to see the one common, two common, 3A for Appalachian Wood continues to move up and we’re pricing behind it and that is where our focus is right now. It's hard to kind of anticipate a timeline.

David, that when we achieve normalized margins as we're chasing inflation. Our study of our history at least suggest as long as we’re chasing inflation up we’re going to have subpar margins and as soon as that crescent starts to normalize or come down we will have strong margins until the competition forces us to price it away.

Although overtime we have demonstrated that we lose it on the way up and we gain on the way down and we net whole. So we’re reluctant to and we still haven't put an anchor into the ground when we expect margins to normalize.

Now relative to target margins I think we have a mid-cycle guidance on the wood segment there, we haven't moved off of that target margin that mid-cycle.

I think the mid-cycle over the year crept away from us in terms of timing but our goal is still to be in the teens, in wood and you know when you think back to the anchor point that you framed is 11% or so. That was at trough volumes for the wood business but in a stable commodity environment.

So what we need to have happened to get back to that mid-cycle guidance in the teens for wood is going to be a stable commodity environment. We’re going to be pricing and mixing up getting productivity back but I got to have that commodity cycle level out.

You know if everything were to stop today we would make a lot of progress by the end of the year. I’m not expecting it to stop today. On your Resilient question, absolutely we’re looking for ways to improve and continue to improve the structural profitability of the Resilient business. Let me start with what we have done, since I’ve got the job.

In December we took charges roughly around $8 million in total in the fourth quarter, for restructuring. We took a line crew out of our Braeside in Australia plant. We have executed, we have people walk out the door. We have announced with the Works Council and agreed 60 people to leave our Delmenhorst facility.

So we have taken restructuring actions already in the year.

We’re already benefiting from the improved run-rates in Braeside and we expected in the last quarter of the year to start benefiting from the productivity improvements in Delmenhorst but we’re not necessarily done and we continue to look through our strategic planning process ways that we can drive the supply chain for additional cost out productivity.

So stay tuned for that. I think there is more that we can be doing and particularly as we see a rotation of volumes into LVT we will look for ways to continue to take the right kind of structural actions and the declining product categories to make sure our costs are very tight. Thanks for your questions..

Thank you. Our next question comes from Eli Hackel with Goldman Sachs. Your line is open..

Two questions, one just on wood quickly. Given that 1Q is normally the lowest margin quarter for you guys and you instituted a new pricing strategy trying to guess, at least estimate where you think wood inflation is going to be going out and pricing your product off that.

Maybe you can just provide a little bit more detail in terms of why you expect margins to be lower next quarter and maybe at least the magnitude in your view for back half ramp if that’s possible and then second is just on the commercial market, clearly thing it's still choppy.

When you talk to your distributors what are they saying in terms of the number of bids they are getting, or number of quotes they're having to give out which could mean business in the second half of this year and early ’15. Thank you..

Matt will take the commercial question. So I mean you’re right seasonally, Q1 tends to be a lower quarter versus Q2, Q3 but again the underlying driver is the commodity inflation.

We’re realizing it now, we took pricing in December which was great, it's what would help us achieve in the first quarter but we continue to see the commodity inflation continue to go up. We see that dragging in the second quarter.

Also as we frame in Dennis' question, our units were down 9%, upper singles in the first quarter and so we are being cautious on what we think is the relative sales growth rate we can achieve in the second quarter as we continue to drive significant price and mix in there as you know the price was essentially effective in February, March.

So we didn’t have a fourth quarter effect of that. So call us conservative, call us prudent here. I think we want to see sustained level of improvement and before we call the volume..

Just some comments on the market, I think you get the noise a little bit of noise in the first quarter relative to the weather kind of out of the way. It wasn’t that big a factor. I don’t think it drives our outlook of the market. As we look at Q2 through the end of the year, the commercial market recovery is about as we anticipated.

Maybe a little softer in education and healthcare maybe little stronger in in office, but by and large, sitting here today, the market looks like it's developing as expected.

We’re expecting an acceleration, an improvement of the environment as we go into the second half that is borne out by the views of virtually all of our distribution channels in both our flooring and the ceiling segments.

So we anticipate continued improvements we go through the year but in total the year’s going to land looking at today the year is going to land about as we expected.

Again just to reiterate commercial starts experienced this year really benefit us in 2015 and 2016 but I would say that our distribution channel answering your question is reasonably optimistic about it, sustained commercial recovery in the second half. Coming in the year we called the market up kind of low single digits overall..

Thank you. Our next question comes from Nishu Sood of Deutsche Bank. Your line is open..

In the last couple of months there has been quite a bit of investor excitement and focus on another prospect of splitting the flooring business from their ceiling tile business and I think there comes from a perception that given the difficulties that’s come out of flooring and the real focus on some of those problems that has kind of increased you’re the management’s willingness to kind of consider splitting those two businesses.

So I wanted to ask you if you could comment on that if that’s an accurate depiction of last quarter, you had made the comment that we’re open to things but we’re obviously focused on executing right now and I was wondering if you could also give us an update in terms of that question on the timing of how you’re considering it..

Not a lot of information issue. I appreciate the question; we are certainly sensitive to the view in the marketplace held by some. I would just say this that leadership team is focused entirely on building shareholder value over the mid-term.

We’re constantly looking and evaluating options and choices, alternatives and opportunities to increase that shareholder value and that goes on in direct concert with the Board on a continuing basis. We seek advice from outsiders, outside advisors continuously to look at ways that we can drive shareholder value over the mid-term.

The management team and they are here now remains focused on improving the businesses we have. I think we have real opportunity, obviously real opportunity to drive much improved results in our Wood Flooring business. Tom and the team they are driving meaningful and sustainable results we’re hearing about today.

We’re making meaningful investments to improve the profitability and position Resilient Flooring for continued growth. The Ceilings team continues to execute extremely crisply. So any good leadership team has to do both, particularly in this operating environment. We have got something’s we needed fix, the team is laser focused on getting those fixed.

At the same time we’re in continuous discussion with our Board and outside advisors on ways to unlock shareholder value in advance and we have remained strategically nimble in doing that. .

Thank you. Our next question comes from Will Randow of Citi Group. Your line is open..

On the CapEx and the capital allocation fund, I guess over the medium term where do you see capital expenditures normalizing I would say in ’15-’16 closer to the D&A levels and I guess what level of balance sheet leverage are you comfortable with today before you think about additional share buybacks?.

I will just comment on CapEx and we will let Dave talk about the balance sheet leverage. Right now we have got sort of two major projects that we’re winding through or going through. We have completed our three plants in China. By the end of this year, we will complete construction in the Ceilings plant in Russia.

As we mentioned just a minute ago, we have initiated a LVT investment in North America that will be completed in 2015 that’s little over $40 million. At the end of that, sitting here today, we're not anticipating additional organic investments.

So as we work through those thing about an increased level of CapEx spend over the norm in ’14, a little less than ’15 as we wind down the LVT plant and we have seen normalized CapEx requirements on a go forward maintenance basis of about a $100 million after the completion of those plants..

So on a long term basis excluding as Matt said any additional organic investments, we do not have contemplated at this point. Our normal maintenance and repair productivity capital spend is between a $100 million and $120 million per year and so obviously as we complete the LVT facility, we complete the Russia plant as we get into 2015.

We would anticipate that our capital expenditures into 2016 and beyond would moderate more to that $100 million to a $120 million level. I think your second question was about leverage, so we’re very comfortable with our leverage being in that 2 to 3 times EBITDA.

We feel very comfortable, that gives us the flexibility that we may need if there are additional organic investments or perhaps some other opportunities for us to drive shareholder value..

Thank you. Our next question comes from Ken Zener of KeyBanc. Your line is open..

Can I do wood first, the roughly 9% volume decline, could you give us the delta versus what you think the market was as well as the spread in margins of the business you’re relinquishing versus the core business that you are planning on keeping which is facing obviously the incremental wood inflation..

So we did decline volumes high single-digits, it wasn’t -- I said 9% but I didn’t mean that, it was more of a high single-digits.

So we’re pursuing through our price increases a rationalization of our businesses, so we’re seeing more of our low-end opening price point products decline, disproportionate to our high-end, high-margin products which is what’s achieving the significant pricing mix result we saw in the first quarter and we expect that to continue and we have seen that has been good for our business, it improves our ability to get productivity at the plants and we have been able to maintain shelf space and share of mind of our customers, consumers on the high end.

So we think that’s a smart strategy and one we will continue to do.

What was your second question Ken?.

And the line has been removed..

All right. I forgot the second question, sorry about that Ken. Maybe you can dial back and ask me. There you go. Thank you..

I will go ahead and open the backup..

All right. Thank you..

You’re welcome. Ken your line is open..

So my first question was still following up on the margin spread associated between the high end and then you’re keeping and pushing the price through versus the sales you’re relinquishing.

Just so we can get an understanding of kind of the margin benefit you’re getting from relinquishing sales that are unprofitable simply core inflation that you’re trying to catch up on..

No I think I answered that question, so I wasn’t going to answer more specifically than that..

A 130 basis points in ceiling basis point headwind, was it referring specifically to energy and FX.

Which pieces -- is it the FX, is that roughly half and half and the FX is going to persist here for maybe quarter a two or with but I know another competitor talked about spikes and energy curtailment, how would you kind of frame out the energy? Is that part of just the natural gas inflation we see or is that really tied to weather spikes in the quarter? Thank you..

To answer your question, this is Matt. The headwind we see between energy related to the weather and FX mostly, the ruble is almost 50:50 to your point.

It's very different for us to forecast or anticipate additional headwind related to potential devaluations of the ruble but we will say and what we have said is I think Vic made this comment just a moment ago; we’re positioned to continue to increase prices to offset devaluation -- currency devaluation in Russia as we go forward.

If there is no further devaluation then the increases announced effective in April, we will offset the headwind that we received in February, March as a deval. So we just -- as we experience, if we experience additional devaluation we will continue to move our prices in accordance.

Those increases appear to have been followed in the marketplace, so I think that’s really where it is. The energy increases as a result of the weather. Our predominantly natural gas, we had spikes in natural gas pricing related to weather and shortages.

So again given the fact that weather has stabilized, we don’t anticipate any major weather events in this point forward and we don’t anticipate any additional headwinds related to weather, related to energy specifically natural gas and again if you look at the whole scheme of things we wanted to point out both of those items because there is a tremendous amount of interest in the ABP margins and we want to be clear as to what was driving that margin degradation Q1, ’14 over ’13 and it could be attributed to both of the factors that you pointed out..

All right, we will move on to Keith Hughes of SunTrust. Your line is open..

Question on building products, you referred to the Q2 price and mix adding 7 million to the revenue line but when you get to operating income negative to, is that negative mix from China you’re referring to? What all is in those numbers that make it negative when we get to the operating income line?.

On the operating income line there is two things really driving it, I think the weather and the FX was clearly articulated the impact of that. There were also some mix related to both, nearly all the regions had negative mix and some of it was channel mix like in the U.S. and then we had market mix in both Europe and Asia.

So the China was mentioned, we had a stronger retail segment in the China market which is a lower margin business for us and then in our European business part of the Western European business was softer relative to the stronger lower margin parts of the business. So it was market mix and Europe contributing to that as well..

And is that going to continue in the second quarter that kind of impact?.

No we believe this is timing, it will balance out as we have expected it throughout the remainder of the year..

And in the same line there was SG&A in unfavorable 3 million [ph], is that in Russia?.

So we did have some year-over-year SG&A related to our emerging market investments and then we also obviously had some replacement and then some also -- we had made some investments in the back half of 2013 in our core markets for selling and promotion activity and that continued into the first quarter of 2014..

Do those abate in the second quarter as well?.

We would anticipate that those are structural increases to SG&A in the emerging markets and also the increase in go to market capability in the core markets, so they will continue..

Thank you. Our next question comes from Robert Kelly of Sidoti. Your line is open..

What’s your confidence level that the most recent Wood Flooring price increase is going to stick?.

Well as Tom pointed out as the share leader, I mean we will continue to drive price increases to offset material inflation. Our experience so far has been that they didn’t follow but it's difficult and probably not prudent for us to speculate on what our competition is going to do..

And then just one question on the full year guide for EBITDA. You mentioned in the earlier part of the Q&A about kind of banking on the second half acceleration, it is the difference between hitting the high end and the low end of your EBITDA guidance and tied to the North American commercial story.

Any color you can provide on that?.

I appreciate that. We’re really not going to shade it that finally at this point in terms of where in the range we might land. I think we have got a couple of key drivers; one is frankly some we have relative softness in our wood performance in the third and fourth quarter last year.

So we expect the sustained improvement that Tom’s team is driving, it will more than offset the softness experience last year plus as we said just an acceleration or a continued strengthening in our core commercial markets, you know the second half will help us there as well.

And then beyond shading inside the expected ranges we'll have to just execute as well as we can and see where we land. Thank you..

Thank you. Our next question comes from Jim Barrett of C.L. King & Associates. Your line is open..

This is a question for either Matt or Tom Mangas, could you talk about in your Resilient Flooring domestically some sense of the degree of growth you’re seeing in the sales of that business to the residential remodeling market? Then could you just generally comment on the margin mix comparison in that market versus non-res?.

We haven't seen, I will kick it off and I’m sure Tom has got a lots to add to this but we haven't seen a resurgence, meaningful resurgence in the repair and remodel business in resi, any significant improvement we would see in Resilient would likely come in the remodel of multi-family.

You’re not seeing a lot of Resilient Flooring in single family homes. But we haven't seen that comeback as you would have anticipated with the kind of broader recovery.

Tom?.

Yes, so I would say Jim that 90% or more maybe 95% of the Resilient business in the Americas is -- the Residential Resilient business in the Americas is repair, remodel. There is not a lot of sheet vinyl going into new homes these days unless it's multi-family like Matt said.

And so it's predominantly a repair, remodel and therefore, it is at the standard margin for the business..

Thank you. Our next question comes from Stephen Kim of Barclays. Your line is open..

Had a couple of questions for you regarding LVT, I was curious if you could first give us a sense for what the cadence of charge is it is going to be or expenses will be associated with the start of the LVT and while we’re at it maybe just throw in Russia there too.

And then the second question is a broader one about LVT, the opportunity there has not gone unnoticed by a number of players in the industry and I was curious if you could just sort of talk bigger picture about what your expectations are for being able to capture a dominant share in LVT like you do in Resilient, maybe share with us in your view what it is about the LVT market? How it's bought? And what other than just by virtue of birth right just getting into this new category will enable Armstrong to have a very strong share in this category like it does in the rest of Resilient.

Thanks..

Listen we’re a little reluctant to try to breakout complex projects like Russia or LVT in sort of a quarterly phasing of expenses and cash drops. I mean you could have significant pieces of equipment and the engineering associated with that equipment kind of land inside or outside any given quarter.

So what we’re trying to do is give you a sense within a current year of what we think that those expenses and CapEx is going to be. So we would like to sort of leave the guidance and the comments around both of those projects kind of intact.

If anything significant changes or pushes them outside the chronological timeframe we have laid out, we will certainly share that with you but other than that we probably feel comfortable leaving that where it is. I know Tom wants to comment on the LVT just to -- we have been in LVT for a while, so we have been sourcing that product.

So, the investment we’re making will continue the momentum that we've developed in the LVT market. We believe that we are uniquely positioned to take advantage of this investment and that is manufacturing technology. We also observe and understand and believe that our competition is moving into this arena.

So again, no real surprises there and Tom anything else?.

Sure. What I would say is, LVT is a fast growing market opportunity. It is one that is designed and performance led and these are two areas we think we excel and provide a differentiated reason to believe that we will earn a disproportionate share of the market.

I will say today though we’re not the share leader in LVT, although we have a significant position.

We’re probably the number three player domestically in LVT but with that still between the residential and commercial segments we expect to open this plant and earn significant margin by taking that source of product onshore which will provide relative to the competition, it was mostly sourced offshore today, couple of guys have announced new plants but create a significant advantage on cost, significant advantage on lead times and design flexibility by bringing it in-house.

While I don’t think we have dominant shares in any business, I think we have leadership shares in VCT and we certainly hope to achieve that in LVT although we don’t need to achieve that to make this plant a very attractive return for the company..

Thank you. Our next question comes from John Baugh of Stifel. Your line is open..

I wondered on ceilings, you were commenting I believe a low single-digit volume outlook.

Was that a North American comment only or if it wasn’t -- if you can kind of go around the globe in what you’re seeing in key foreign markets and then comment as well on pricing in ceilings in North America amount and timing and pricing anywhere else other than Russia where you already touched on. Thank you..

Dynamically, we talked about was entirely North America and we’re not going to really comment on anticipated pricing announcements or anticipated pricing performance -- I don’t know, do you want to, Vic, give some flavor in Russia or rather in Europe and--.

Yes I can just go around that one real quick. As we have talked about, the U.S. is -- again our overall start with the worldwide, what kind of market outlook is. As Matt talked about is playing out as we expected it to do so. There is not any real surprises across the world in terms of the markets. Again U.S. is flat to low single-digits in the U.S.

commercial business that’s what we expect to see. In Europe it's mix. We have I think seen the bottom in the European market overall, the UK market, there is some timing in our sales there but the market actually is playing out to be flat to positive like we’re seeing in the Americas.

North Europe is overall better and then you’ve a Southern Europe that is still weak and softer than prior year. And Russia is just very volatile right now.

We don’t know exactly where that market is going to go based on political events there but I do know is that we’re playing very well and our teams are executing in Russia inspite of the headwinds that we’re seeing there.

And Asia again is playing out as expected, all of our emerging markets in Asia are positive growth and they are slower than what we have experienced in emerging markets in the prior three years, again as we expected. I think overall favorable market conditions generally speaking and again as we expected ..

I am being told we have time for one more question. We have time for one more question, we’re having some technology difficulties in this part so I apologize for that, but we would be happy to take one more question..

All right. Our final question is from Justin Bergner of Gabelli & Company. Your line is open..

Quick question on ceiling volumes.

With the weather being as it was, were there any -- was there any upside in the quarter from volumes associated with taking share from competitors that had more weather challenges than Armstrong? Or were the pretty strong volumes in North America a function of other factors?.

It's always difficult for us to anticipate share gains and losses in and outside any quarter. There is just so many moving parts. So we’re not sitting here believing we made any significant share gains in Q1 and again I think that’s really more of an annual dynamic than any issue or opportunity inside any given quarter.

There is just so many -- you know you got large projects, that fall and don't fall, different companies are affected differently by markets and weather in any given period, short term period. So we’re always very reluctant to comment on that but we do appreciate the interest. We understand the question.

And with that said I would like to thank everybody this morning for your interest and the questions and hope you have a very nice day. Thanks everyone..

Ladies and gentlemen thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day..