Welcome to the Armstrong World Industries, Inc. fourth quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Miss Beth Riley, Vice President, Investor Relations and Communications.

Good morning and welcome. Please note that members of the media have been invited to this call and the call is being broadcast live on our website at armstrong.com. With me this morning are Mike Lockhart, our Chairman and CEO and Nick Grasberger, current our Senior Vice President and CFO. Hopefully you've seen our press release this morning. Both the release and the presentation that we will reference during this call are posted on our website in the investor relations section. In keeping with SEC requirements, I advise that during this call we will be making forward-looking statements that involve risks and uncertainties. Actual outcomes may differ materially from those expected or implied. For a more detailed discussion of the risks and uncertainties that may affect Armstrong, please review our SEC filings including the 10-K filed today. 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 to the most directly GAAP measures is included in the press release and in the appendix of the presentation. Both are available on our website. With that, I'd like to turn the call over to Mike.

Good morning everybody and thanks for taking the time to participate in the call. As you have no doubt repeatedly heard, the markets for building materials declined substantially in the fourth quarter of 2008. Our residential and commercial orders contracted dramatically in the final weeks of the year and this is reflected in our results. Inventory reductions by retailers and distributors had a significant adverse affect of our sales. In the fourth quarter, inventory adjustments reduced Armstrong floor products North American sales by over 10%. Excluding the benefit of foreign exchange, sales declined 14% for the quarter and 6% for the year. Adjusted operating income was down more than 50% for the quarter and 14% for the year which is better than our peers. We continue to generate cash, a total of $140 million of free cash flow for the year and our balance sheet remains strong. We are improving the factors within our control. We're improving product mix and price realization while reducing manufacturing and SG&A expenses. I'd like to take a second just to talk about how we think about the downturn. The economic downturn in the fourth quarter hit America with an unanticipated savagery. Sales collapsed and everyone's running hard to size their businesses for 2009 volume no one has confidence in. We're not different, except that we expect to be profitable and generate cash in 2009. Here's how we're thinking about the downturn. First, it will be deeper and longer than people think. Second, we have an opportunity to come out of the downturn substantially better positioned than when we went in. We can't do anything about the market, but we can work on price, volume, mix and cost. In terms of price, first of all, we're covered inflation where we see it, particularly in building…

Good morning. My comments will refer to 10 charts that we have posted on the website. I will move somewhat quickly through the commentary on the fourth quarter and full year of 2008 and spend a bit more time on the outlook for 2009. The first chart is simply a bridge of operating income for the fourth quarter from the reported loss of $7 million to our adjusted figure of $25 million, and the biggest adjustment here is that an impairment charge, non cash charge we took in the fourth quarter against the gross trademark in our wood business. That was about $25 million. Moving to the next chart, these are the key metrics for the fourth quarter again, adjusted for non recurring items. Mike mentioned that sales were down about 14% for the fourth quarter. The composition of that is as follows; unit volume was down about 18%, price was up about 2.5% and mix was up about 1.5%. Operating income for the quarter was down about 50%. That is a fall through of about 23% so looking at Delta operating income divided by Delta sales, you get about a 23% ratio and you'll see in a minute that we took out a good bit of SG&A and manufacturing costs in the fourth quarter. Earnings per share, on a normalize basis for the fourth quarter was $0.21. On an as reported basis, it's $0.46. So in addition to the impairment on the wood business that I mentioned, we also took a charge of about $14 million, a non cash charge to increase the valuation allowance against some state tax NOL's. In terms of cash flow, cash flow was well down versus the fourth quarter a year ago, $65 million versus $250 million. The principal difference there as you may…

Nick at one point said that we have two debt covenants, and then he explained three. We actually have three, so not a big deal but we do have all of those debt covenants.

(Operator Instructions) Your first question comes from John Baugh – Stifel Nicolaus. John Baugh – Stifel Nicolaus: Working capital guidance for '09, did I miss that or could you just review that?

Working capital which was up about $60 million in 2008 we expect to be down at $60 million to $80 million in 2009. So we've been running at a working capital intensity or ratio to sales at about 20% and we expect that to move up to 212% or 22%. Working capital will come down. And of course, on an average basis, working capital will come down more. The figure I mentioned is kind of point to point because as you look at receivables in the fourth quarter, we hope if not expect that sales in Q4 of '09 will be somewhat similar to those in 2008. You wouldn't see a big decline in receivables as we're seeing now as we'll see through most of 2009. John Baugh – Stifel Nicolaus: So sources between $60 million and $80 million, and I guess that's offset to a degree by the severances, mostly cash. Is there a total cash out number for '09 in terms of all the severance, restructuring, etc.?

All of the restructuring together, including the capital spending and the P&L items that are cash will between $40 million and $50 million. John Baugh – Stifel Nicolaus: So you'll have a cash outflow in '09 of $40 million to $50 million which incorporates all the changes you're making and severance.

About $35 million of that would be investments in the plants and the balance would be cash severance. John Baugh – Stifel Nicolaus: A lot of detail there Mike on European flooring and I tried to follow as best I could and I'll review it in the transcript, but what is the bottom line from an EBIT perspective with the starting point being calendar '08 to kind of how you see it progressing in '09 and '10 with the steps you're taking?

We think that we will lose about $25 million. We lost about $25 million in '08 and we will lose somewhat more than that in 2009, but not significantly. In 2010, in the second half of 2010, we'll begin to see the benefits that we expect in terms of the direct cost savings of the new heterogeneous plant and we should have high single digit profitability in 2011. John Baugh – Stifel Nicolaus: That $25 million loss in '08, is that a net number of this product you're selling and making money on to the U.S.?

That's gross. The right way to think about it, in the U.S., the $25 million is the loss in Europe and there's a big chunk of the business which is inter-company, and it varies by business. But in cushion and vinyl, 40% of our volume goes to the U.S. and that's the high end, and at the low end, linoleum only about 11% of our volume goes to the U.S. The U.S. margin is in addition to that and the margins we make on products, margins we make in the U.S. on products we source from our European business is around $22 million. John Baugh – Stifel Nicolaus: What kind of revenue are we talking about in '08, '09 or '10 for the European piece only?

The trade sales will be 200 million Euros. John Baugh – Stifel Nicolaus: So when we're talking about losing $25 million U.S. dollars on roughly 200 million Euro trade and thinking about swinging to a high single digit margin on say that same volume a couple of years from now. Is that correct?

Yes. John Baugh – Stifel Nicolaus: Help me on the flooring side, huge declines obviously in the fourth quarter, and you alluded to that, is there any way because you're selling for the most part in vinyl, and then more to distributors to differentiate between what you think the end market was actually consuming versus what you sold? In other words, how much of the decline was due to distributors or your primary customers chocking on inventory, just not wanting to take anything. Any color or the end market was down 35% year over year in the fourth quarter.

Here's how we look at it. As I said, we have very good visibility on what happens to the inventories at the big box customers and of the distributors. Where we don't have good visibility is what happens to inventories of independent retailers. So we don't have any visibility of that. But I think the effect of that is relatively small compared to what's happened in big box and distributors. It varies by business but in the residential side, between 10% and 12% of sales was lost due to inventory reductions. That says that year over year, the Delta inventory as a percent of prior year sales was 10% to 12%. In the commercial side of course, it's much less, and so the commercial inventory loss that we had was in the neighborhood of 3% to 6% of prior year sales. And indeed, linoleum which tends to be a product which is benefiting inventories actually went up a little bit but if you think about it on the residential side, its 10% to 12% of sales effect and on the commercial side is kind of 3% to 6% to 7%. That's why when Nick said we expect fourth quarter sales of next year to be about the same, that's one of the factors in it. We don't expect to see the same kind of big impact on our sales from an inventory adjustment in the fourth quarter of 2009. So if it sounded odd that we would expect sales to be flat, it's not a recovery in the market. We don't expect to see the same kind of inventory reduction. John Baugh – Stifel Nicolaus: When during the year would be you best guess in terms of when you customers have more or less gotten their inventory closer to where you want them?

We're seeing some benefits of it today. So if I look at my rough sheet orders, my rough sheet orders are actually up 7% in the last four weeks because we're beginning to see orders as the big box customers and people kind of restore some inventory that they took out at year end. So I think we're seeing an awful lot of that has already happened. We'll see. I hate like hell to be optimistic in this environment, but clearly the last four weeks for us has been significantly better on a orders basis. It's still bad, but significantly better on an orders basis than it was in the fourth quarter as it was in January. We hope that maybe we've had most of that behind us.

Your next question comes from Dennis McGill – Zelman & Associates. Dennis McGill – Zelman & Associates: I was hoping to focus a little bit on the ceilings side of the business. Mike, I think in the prior discussion just thinking about where margins can kind of stabilize in a down market. You alluded to the fact that the volumes you're seeing right now are probably already worse than the prior two downturns. Do you still feel good about being able to maintain profitability above the prior cycles given the volumes that are coming down and given the cost cuttings that you're making?

I do. I think obviously with the volumes lower than we thought they were going to be, the margins will be a little bit lower. On the other hand we think we can sustain profitability versus the previous trough we had in '03. Our salaried employment in that business is below what it was in 2003 and as I said, we will announce next month some capacity reductions that I think will get us in better shape in terms of our production costs. We feel pretty good about the business and we continue to be in a world where people want to make money and ceilings instead of just ceilings and that's helping everybody. Dennis McGill – Zelman & Associates: When you say capacity do you think it will come in the form of an entire facility or will you start with lines pulling back?

We've already started with line. The real question is can we close it. The guys are in analysis. The advantage of closing an entire plant are substantial so it's hard for me to imaging that that isn't where we're going to come out. Dennis McGill – Zelman & Associates: I'd like to verify something I thought you said earlier. I thought you said you're not going to give volume share to those that want to compete on price but maybe I misheard you.

I think that's right. We worked to hard to get our share. The point is we have very different industry structures in our ceilings and grid business. The industry structure is such that people tend not to compete on price which we think is a good idea. Then obviously in the context of the floor business, intermittently we'll have somebody decide they're going to try to cut price and what we do, we respond to that pretty aggressively. Dennis McGill – Zelman & Associates: So that was more the flooring business as opposed to ceilings because you don't expect the price pressure on the ceilings.

To say we don't expect price pressure is wrong, because everybody competes on price. What we don't expect to see wholesale price reductions. We have seen lower prices in the grid business already. That's one of the reasons that's driving grid prices down. I think I said that we don't compete on price. That's not true. We compete on price every day. It is not the principal form of competitive activity in that industry. Dennis McGill – Zelman & Associates: Have you seen pressure yet on the tile side of the ceilings business?

Mostly volume pressure than anything else at this point. Dennis McGill – Zelman & Associates: I wanted to kind of wrap up on some of the comments you were making on the inventory side. If I understood what you're going through, you're seeing some benefit as the inventory reductions weren't really rescaling to a new environment, but almost over correcting at year end so you are staring to get a little bit of a benefit here. Do you feel like the customer base was adjusting to a new 2009 reality or you'll get a good chunk of that inventory back through?

I think that the big box guys may have over adjusted a little bit. The other distributors we're not going to see any benefit from that. Honestly, I think the biggest problem is nobody knows what 2009 reality is so we want to believe that they've made an adjustment and order rates would suggest that they've made the adjustment fully, but we have to continue to see economic activity at these levels. If we see it go down, then I suspect we'll see further erosion. But at the moment, we feel like we've seen most of the adjustment. Dennis McGill – Zelman & Associates: Just running some numbers on the map of that European restructuring, it seems like you've got to take out about $40 million or so of costs. Is that about right over the next two years?

No, not over the next two years. We said we could do that, we will do that. The first comment was around heterogeneous where our sales are around 30 million Euros and the second comment was around homogeneous which is where our sales are around 45 million Euros. 20% is not on the total $200 million of trade sales.

Just to be clear, we would expect the cost savings on a full run basis to be about $20 million a year. So for us to get to break even in 2011 like Mike mentioned, or a slight profit, we will need some recovery from the market. We can't at least at this point; we don't have plans to erase the entire $25 million with cost reduction. We do need some recovery.

Your next question comes from Jim Barrett – C. L. King. Jim Barrett – C. L. King: You did mention grids and tiles in terms of the current pricing environment. Have you see any evidence specifically currently in wood flooring or resilient flooring that competitors are getting more aggressive on the price front, or cabinets?

We've seen some price aggressiveness on the wood flooring in January which we had to react to. We saw some aggressiveness which we had to react to. On the sheet, on the residential side of the vinyl business, we never saw prices go up, so all we're doing with the raw material cost reductions is offsetting some amount of the pressure that's coming from volume. So we haven't seen a lot of price pressure there. I think everybody was in tough shape last year because of the lack of the ability to pass through prices. The answer in wood, we've seen a little bit of it. Some of that is going to be due, we have slightly better raw material costs and some of it is we've been blessed in the sense that we had 10 wood facilities so as the market came down we could close plants and respond to it. A lot of our competitors only had one facility and they have a heck of a time responding to the downturn in the market except through trying to keep that plant full with lower prices. So as we said, we're going to continue, we're not going to give up the share we fought so hard to win based on price, and everybody ought to sit back and compete on product and quality. Jim Barrett – C. L. King: Do you expect to see a significant consolidation in the wood flooring industry by the end of this downturn?

Yes. Jim Barrett – C. L. King: Is your guidance for '09, does it implicitly reflect the current pricing pressures you're seeing that you've referenced over the last couple of minutes.

Yes. Jim Barrett – C. L. King: How significant are ceilings, we're already anecdotally about half started building or not continuing to be constructed, how significant is that phenomenon world wide and where would your expectation be when the credit markets do thaw in terms of those buildings being restarted?

The importance of new construction varies dramatically based on where we are in world. In the developed markets, North America, Western Europe, new construction is a relatively small percentage of things, 20% to 25% of total volume goes into new construction. When we get into markets like Russia, India and China, new construction is a substantially bigger piece of the pie and is almost what the pie is. We've seen at all three of those markets, we've seen significant dislocations as a result of economic downturn. When is it going to turn around? It beats the heck out of me. I don't know. I'm not smart enough to know. Jim Barrett – C. L. King: I understand that, but typically is ceilings not a lagging phenomena compared to a rebound to residential construction?

It does. It lags anywhere from nine months to a year depending on what it is. Why don't I make sure I understand your question before I keep rattling on? Jim Barrett – C. L. King: You essentially answered it. It sounds like in Russia, India and China the market for ceilings may rebound faster than one would normally think simply because these buildings have already been partially constructed. That's what my question really was.

There will be some of that. The question is when will those markets rebound and that's a much tougher question. Jim Barrett – C. L. King: Did you comment on the economic stimulus package and how that might impact your businesses?

We didn't do that on purpose because I'm not sure we know. I think the short answer on that is, there was nothing in the economic stimulus package as it was passed that made us feel very optimistic about what it was going to do for us short term. We do a lot in health care and education. Of course the education is largely driven by state budgets so to the extent there was at one point a proposal that would provide some money for states that could help in the school construction, that was something that was going to beneficial for us. I think a combination of eliminated or diluted to the point where we don't see a lot in the economic stimulus bill for us except to the extent that it helps the overall economy.

Your next question comes from [Maria Vilanovos – Longbow Research] [Maria Vilanovos – Longbow Research]: In terms of your market share I was wondering as we face this down market where you feel like you can gain share?

I'm sorry, I didn't hear that. [Maria Vilanovos – Longbow Research]: In terms of your market share, as we're facing a down market, where do you think you might be able to gain share.

What we've done is we looked at the fourth quarter and said, here's where we think the market from macro indicators and here's what we know happened in terms of the inventory thing which kind of plugs you to share. And what we saw in that instance is we gained a little bit of share and virtually all of the forms of the floor business in North America. If we do the same sort of thing in Europe where we feel good about, is we feel very good about what we've been able to achieve in Central Europe. So we think we should be able to pick up little bits of share. It's not going to be tons of share unless one of the guys goes out of the business which we don't see happening short term. We do think that we do hope to benefit from a trend among retailers to reduce the number of suppliers they work with. Again vinyl is a declining category for a retailer. It's gotten worse so there may be more of an opportunity for us to become the only supplier for that form of product and we've done some things in terms of displays and other things that will help facilitate that change for retailers that would like to do it.

Your next call comes from [Andrew Fineman – Meridian] [Andrew Fineman – Meridian]: Could you please tell me what net debt is at the end of the year?

At the end of 2008? [Andrew Fineman – Meridian]: Yes.

Total debt is about $500 million. U.S. cash was about $200 million. So the way we look at it, we call net debt $300 million, but we also have $150 million of cash in Canada and the U.K. and a few other places. So if you look at the broader definition of cash net debt is about $150 million. [Andrew Fineman – Meridian]: The taxes that you incurred for 2008?

I think it was about $25 million and we expect that to be only about $5 million in '09. [Andrew Fineman – Meridian]: And the depreciation and amortization for this year and next year?

It's about $145 million, $150 million. [Andrew Fineman – Meridian]: For both years?

Yes. [Andrew Fineman – Meridian]: Can you also tell us, you said that pension income would be down by $10 million in 2009? How much is it in 2008?

The so called net period credit pension on the U.S. defined benefit plan was a credit of about $65 million, and we're thinking it will be around $55 million or so in 2009. [Andrew Fineman – Meridian]: Sorry to bother you with these things but the only way you'll be able to answer the questions is if I ask them on the conference call because you can't tell me anything that you don't tell the whole world. And since this is the end of the year I know that 10-K probably won't be out for awhile.

It's being filed today. [Andrew Fineman – Meridian]: You got your unallocated corporate expense down to $2.4 million this year. So that line includes pension income. So we know that it's going to up at least $10 million next year, but then you also seem to have not taken bonuses or something so your compensation went way down in the fourth quarter. So I wondered if you could ball park how much that might be up in 2009 aside from the $10 million that we already know about.

Aside from the $10 million, I think you'd see that figure go up to about $15 million. [Andrew Fineman – Meridian]: On interest, I know you don't count the foreign cash as cash, but because of your covenants and because you'd have to pay taxes to bring it back, but it's still cash so I include it, and net debt, you own it and it affects interest expense so I'm kind of trying to estimate interest expense for 2009. In the past you've had a lot of interest income too from having so much cash. Could you possibly give some kind of a net number for what that might be in 2009?

I think it will be between $13 million and $15 million versus the $20 million in 2008. The net number will be between $13 million and $15 million.

Your next question comes from John Baugh – Stifel Nicolaus. John Baugh – Stifel Nicolaus: Any update on the trust, any clarity or color on their cash needs?

We've said this before that the flow of information between us and the trust is really one directional and so the short answer is we don't really know what their cash needs are. We can't speak for them, so we didn't say anything about it. We're not in a position to.

There are no other questions. I would like to turn the call to Beth Riley for closing remarks.

Thank you everybody for spending the time with us. This was more thorough than we usually get but we had a lot of information we thought it was important to impart. I will be available as always for follow up calls. Have a good day.