![]() Earnings Call Presentation 4 th Quarter 2014 February 23, 2015 Exhibit 99.3 |
![]() 2 Our disclosures in this presentation, including without limitation, those relating to future financial results guidance and the separation of our flooring business from our building products business, and in our other public documents and comments contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Those statements provide our future expectations or forecasts and can be identified by our use of words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "outlook," "target," "predict," "may," "will," "would," "could," "should," "seek," and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance or the separation of our businesses. Forward-looking statements, by their nature, address matters that are uncertain and involve risks because they relate to events and depend on circumstances that may or may not occur in the future. As a result, our actual results may differ materially from our expected results and from those expressed in our forward-looking statements. A more detailed discussion of the risks and uncertainties that may affect our ability to achieve the projected performance is included in the “Risk Factors” and “Management’s Discussion and Analysis” sections of our reports on Forms 10-K and 10-Q filed with the SEC. 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 under applicable securities law. In addition, we will be referring to non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of the differences between these measures with the most directly comparable financial measures calculated in accordance with GAAP are included within this presentation and available on the Investor Relations page of our website at www.armstrong.com. The guidance in this presentation is only effective as of the date given, February 23, 2015, and will not be updated or affirmed unless and until we publicly announce updated or affirmed guidance. Safe Harbor Statement |
![]() 3 All figures throughout the presentation are in $ millions unless otherwise noted. Figures may not add due to rounding. • When reporting our financial results within this presentation, we make several adjustments. Management uses the non-GAAP measures below in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. As reported results will be footnoted throughout the presentation. Basis of Presentation Explanation • We report in comparable dollars to remove the effects of currency translation on the P&L. The budgeted exchange rate for 2014 is used for all currency translations in 2014 and prior years. Guidance is presented using the 2015 budgeted exchange rate for the year. • We remove the impact of discrete expenses and income. Examples include plant closures, restructuring actions, and other large unusual items. We also remove the non-cash impact of our U.S. Pension Plan. • Taxes for normalized Net Income and EPS are calculated using a constant 39% for 2015 guidance, and 2014 and 2013 results, which are based on the expected full year historical tax rate. What Items Are Adjusted Comparable Dollars Other Adjustments Net Sales Yes No Gross Profit Yes Yes SG&A Expense Yes Yes Equity Earnings Yes Yes Operating Income Yes Yes Net Income Yes Yes Cash Flow No No Return on Capital Yes Yes EBITDA Yes Yes |
![]() 4 • Flooring business separation announcement • Review of fourth quarter and full year 2014 results • 2015 Outlook Agenda |
![]() 5 Creating Two Independent Industry Leaders [Armstrong World Industries] • Global commercial suspended ceiling solutions provider • #1 market position in all major geographies • Poised to deliver margin expansion driven by recovery in North American commercial • Recently completed investments in expanded sales and manufacturing capabilities • Attractive opportunities for enhanced growth and margins, including emerging markets • 23 year WAVE JV delivered $68M of cash dividends and $65M of equity earnings in 2014 Vic Grizzle Chief Executive Officer Key Statistics (2014 Year End) $1.3B (95/5) Revenue (% Commercial vs. Residential) $330M * Adjusted EBITDA ~3,400 Team Members Worldwide 22 Manufacturing Facilities in 8 Countries † 100+ Countries Have Armstrong Ceilings [Armstrong Flooring ] • Dedicated hard surface flooring products designer and manufacturer • Substantial margin expansion, driven by mix and operating leverage • Positioned to benefit from expected recovery in North American commercial • Significant growth opportunity in Asia • Well-positioned for both residential and non-residential cyclical recoveries Don Maier Chief Executive Officer Key Statistics (2014 Year End) $1.2B (35/65) Revenue (% Commercial vs. Residential) $114M * Adjusted EBITDA ~3,600 Team Members Worldwide 17 Manufacturing Facilities in 3 Countries 8,000,000+ Annual Visitors to Global Websites * Does not include unallocated corporate expense of $60 million †Including the WAVE JV |
![]() 6 • Final approval of Armstrong’s Board of Directors • Receipt of opinion of counsel regarding the tax-free nature of the separation • Effectiveness of a Form S-1 filing with the Securities and Exchange Commission Principal Closing Conditions Separation Details • Expected tax-free spin-off of AFP to current AWI shareholders • Expected completion in the first quarter of 2016, subject to customary conditions Structure and Timing • Separation Management Office (SMO) to lead transition planning • Expect to enter into intercompany agreements for certain shared services Transition Management |
![]() 7 Enhanced Opportunities To Create Value Two Companies With Distinct Operating Models, Market Dynamics, Capital Needs and Distribution Channels, With Minimal Overlap and Synergies Strategic • Increases flexibility to pursue domestic and international growth opportunities • Sharpens focus on distinct strategic priorities and distribution channels • Closer alignment of compensation/incentives to performance Operational • Little overlap, no significant synergies from operating as combined entity • Enhances ability to address unique customer needs • Greater opportunity to build stronger and more intimate customer relationships Financial • Optimized capital structures to match different risk and cash flow profiles • Direct access to capital markets to fund growth agendas • Allows investors to better assess each business on its own merits |
![]() 8 Outlook Positioning both businesses to succeed as independent companies Both businesses more profitable in 2016 [Armstrong World Industries] • Volumes grow for the first time since 2008 • Another solid year in the Americas • Profit growth in Europe, but challenges from Russia and the Ruble • Growth continues in the Pacific Rim [Armstrong Flooring • North America commercial up low single digits, Residential new and R&R both up • UK and Middle East improve, offset by soft Euro-zone and challenging Russia • China up except for high-end office, India strong, Australia mixed • Overall emerging markets challenged Economic Conditions • 2015 is a year of investment in North America • Especially in the residential sector • Recapture volumes, reinvigorate products and set the stage for 2016 • LVT and Somerset investments come on-line in 2015 |
![]() 9 Financial Review Financial Review |
![]() 10 European Flooring Exit – 2014 Guidance Impact • European Flooring Business • Announced decision to exit European flooring business in Q4 2014 • Treated as discontinued operation starting in Q4 2014 and removed from historical presentation within continuing operations • Results had previously been included in the Resilient segment Q4 2014 FY 2014 October sales guidance $610 - $650 million $2,680 - $2,720 million October EBITDA guidance $55 - $75 million $355 - $375 million Estimated European Flooring sales $50 million $210 million Estimated European Flooring EBITDA ($5) million ($10) million Implied Guidance ranges excluding European Flooring Sales $560 - $600M $2,470 - $2,510 EBITDA $60 - $80M $365 - $385 |
![]() 11 Key Metrics – Fourth Quarter 2014 2014 2013 Variance Net Sales (1) $595 $610 (2.5%) Operating Income (2) 47 44 7.3% % of Sales 8.0% 7.2% 80 bps EBITDA 78 72 8.3% % of Sales 13.2% 11.8% 140 bps Earnings Per Share (3) $0.38 $0.35 6.9% Free Cash Flow 49 (7) 768% Net Debt 857 954 (97) ROIC (4) 7.7% 9.8% (210 bps) (1) As reported Net Sales: $587 million in 2014 and $615 million in 2013 (2) As reported Operating Income: $36 million in 2014 and $43 million in 2013 (3) As reported EPS: $0.19 in 2014 and $0.42 in 2013 (4) Unadjusted |
![]() 12 Fourth Quarter 2014 vs. PY– Adjusted EBITDA to Reported Net Income 2014 2013 V EBITDA– Adjusted $78 $72 $6 Depreciation and Amortization (31) (28) (3) Operating Income – Adjusted $47 $44 $3 Non-cash impact of U.S. pension - (1) 1 Foreign Exchange Movements (1) - (1) Impairment 10 - 10 Cost Reduction Initiatives 2 2 - Operating Income – As Reported $36 $43 ($7) Interest/Other (Expense) (12) (12) - EBT $24 $31 ($7) Tax (Expense) (13) (8) (5) Net Income $11 $23 ($12) |
![]() 13 Fourth Quarter Sales and EBITDA by Segment – 2014 vs. Prior Year |
![]() 14 • Sales increased slightly over a strong base period (sales were up over 9% in the fourth quarter of 2013). Price and mix both improved and were only partially offset by lower volumes, primarily in the Americas. • Soft year-on-year retail activity driven by Lowes load-in in 2013 • Reflects impact of price increases announced earlier in year and continued strong mix performance. • Driven by lower volumes in the Americas. • Strong productivity in the Americas more than offset increased costs associated with Russia plant construction and higher input costs. • Lower SG&A spending in the Americas and Pacific Rim Building Products Fourth Quarter Results Margin improvement demonstrates strong operating leverage as adjusted EBITDA improved 7% despite volume declines and higher plant construction and input costs Key Highlights Q4 2013 Adjusted EBITDA $ 68M Price & Mix 8 Volume (9) Manufacturing & Input Costs 4 SG&A 2 Q4 2014 Adjusted EBITDA $ 73M |
![]() 15 • Sales increased slightly as strength in the Pacific Rim offset lower volumes in the Americas. Mix improvements in the Americas offset the lower volumes. • With commercialization of the two plants in China completed, volumes in China were up over 30%. • Driven by positive mix performance in the Americas and Pacific Rim. • Double digit volume growth in the Pacific Rim was more than offset by lower volumes in the Americas. • Strong productivity offset input cost inflation Resilient Fourth Quarter Results Improved results in the Pacific Rim and strong global productivity drove margin improvement Key Highlights Q4 2013 Adjusted EBITDA $ 18M Price & Mix 1 Volume (1) Manufacturing & Input Costs 3 Q4 2014 Adjusted EBITDA $ 21M |
![]() 16 • Sales declined 15% despite improvements in price and mix as pricing actions by competitors resulted in lower volumes. • The comparison was impacted by a strong base period (sales were up over 20% in the fourth quarter of 2013). • Reflects impact of price increases announced earlier in the year as a result of higher lumber costs and continued mix improvements. • Lower volumes driven by share loss at opening price points. • Continued increases year on year in lumber costs. Wood Fourth Quarter Results Despite improved price and mix performance, sales and margins decline due to lower volumes and continued elevated lumber pricing Key Highlights Q4 2013 Adjusted EBITDA $ 4M Price & Mix 9 Volume (10) Manufacturing & Input Costs (6) SG&A (1) Q4 2014 Adjusted EBITDA $ (4M) |
![]() 17 EBITDA Bridge – Fourth Quarter 2014 vs. Prior Year ($20) |
![]() 18 Free Cash Flow – Fourth Quarter 2014 vs. Prior Year * Includes $24 million associated with the closing of intercompany loan hedges |
![]() 19 Key Metrics – Full Year 2014 2014 2013 Variance Net Sales (1) $2,515 $2,508 0.3% Operating Income (2) 266 269 (1.3%) % of Sales 10.6% 10.7% (10 bps) EBITDA 384 372 3.2% % of Sales 15.3% 14.8% 50 bps Earnings Per Share (3) $2.32 $2.11 10.1% Free Cash Flow 64 68 (6.3%) (1) As reported Net Sales: $2,515 million in 2014 and $2,527 million in 2013 (2) As reported Operating Income: $239 million in 2014 and $266 million in 2013 (3) As reported EPS: $1.83 in 2014 and $2.17 in 2013 |
![]() 20 Full Year Sales and EBITDA by Segment – 2014 vs. Prior Year |
![]() 21 EBITDA Bridge – Full Year 2014 vs. Prior Year ($13) ($41) $4 $14 |
![]() 22 Free Cash Flow – Full Year 2014 vs. Prior Year ($56) ($9) * Includes $29 million associated with the closing of intercompany loan hedges |
![]() 23 2015 Estimate Range (1) 2014 (2) Variance Net Sales (3) 2,525 to 2,625 2,515 0% to 4% Operating Income (4) 230 to 270 271 (15%) to (1%) EBITDA 350 to 390 389 (10%) to 0% Earnings Per Share (5) $2.05 to $2.45 $2.38 (14%) to 3% (1) Guidance is presented using 2015 budgeted foreign exchange rates (2) 2014 results are presented using 2015 budgeted foreign exchange rates (3) 2015 and 2014 net sales include the impact of foreign exchange (4) As reported Operating Income: $175 - $215 million in 2015 and $239 million 2014 (5) As reported earnings per share: $1.25 - $1.60 in 2015 and $1.83 in 2014 Key Metrics – Guidance 2015 |
![]() 24 2015 Financial Outlook Sales (1) $1,300-$1,350 million; EBITDA $335-$360 million Sales (1) $1,225-$1,275 million; EBITDA $80-$100 million EBITDA ($65) – ($70) $45 - $55 million; Adjusted long-term ETR of ~39% (2) $125 - $150 million Non-cash: $22 - $28 million US pension expense Cash: $20 - $40 million transaction costs ABP Segment AFP Segment Cash Taxes/ETR Capital Spending Exclusions from EBITDA (1) Net sales include foreign exchange impact (2) As reported ETR of 47% for 2015 Corporate Segment |
![]() 25 Appendix |
![]() 26 Full Year 2014 vs. Prior Year – Adjusted EBITDA to Reported Net Income 2014 2013 V EBITDA– Adjusted $384 $372 $12 Depreciation and Amortization (118) (103) (15) Operating Income – Adjusted $266 $269 ($3) Non-cash impact of U.S. pension 1 (2) 3 Foreign Exchange Movements (1) (2) 1 Impairments 13 - 13 Cost Reduction Initiatives 14 7 7 Operating Income – As Reported $239 $266 ($27) Interest/Other (Expense) (54) (67) 13 EBT $185 $199 ($14) Tax (Expense) (83) (72) (11) Net Income $102 $127 ($25) |
![]() 27 Consolidated Results Fourth Quarter 2014 Reported Comparability (1) Adjustments FX (2) Adj 2014 Adjusted 2013 Reported Comparability (1) Adjustments FX (2) Adj 2013 Adjusted Net Sales 587 - 8 595 615 - (5) 610 Operating Income 36 12 (1) 47 43 1 - 44 EPS $0.19 $0.20 ($0.01) $0.38 $0.42 ($0.07) - $0.35 Full Year 2014 Reported Comparability (1) Adjustments FX (2) Adj 2014 Adjusted 2013 Reported Comparability (1) Adjustments FX (2) Adj 2013 Adjusted Net Sales 2,515 - - 2,515 2,527 - (19) 2,508 Operating Income 239 28 (1) 266 266 5 (2) 269 EPS $1.83 $0.50 ($0.01) $2.32 $2.17 ($0.04) ($0.02) $2.11 (1) See earnings press release and 10-K for additional detail on comparability adjustments (2) Eliminates impact of foreign exchange movements |
![]() 28 Segment Operating Income (Loss) Fourth Quarter 2014 Reported Comparability (1) Adjustments 2014 Adjusted 2013 Reported Comparability (1) Adjustments 2013 Adjusted Building Products 55 - 55 52 1 53 Resilient Flooring 16 (1) 15 10 1 11 Wood Flooring (19) 12 (7) 0 - 0 Unallocated Corporate (Expense) Income (16) - (16) (19) (1) (20) Full Year 2014 Reported Comparability (1) Adjustments 2014 Adjusted 2013 Reported Comparability (1) Adjustments 2013 Adjusted Building Products 265 (2) 263 263 - 263 Resilient Flooring 61 5 66 70 3 73 Wood Flooring (2) (15) 23 8 6 - 6 Unallocated Corporate (Expense) Income (72) 1 (71) (73) - (73) (1) Eliminates impact of foreign exchange movements and non-recurring items; see earnings press release and 10-K for additional detail. (2) Includes a $1 million gain in the second quarter of 2014 related to a refund of previously paid duties on imports of engineered wood flooring |
![]() 29 Cash Flow Fourth Quarter Full Year ($ millions) 2014 2013 2014 2013 Net cash from operations $98 $52 $209 $214 Net cash (used for) investing (52) (59) (149) (146) Add back (subtract) adjustments to reconcile to free cash flow Net cash effect from deconsolidation of European Flooring business 4 - 4 - Other (1) - - - Free Cash Flow $49 ($7) $64 $68 Cash flow includes cash flows attributable to the European flooring business |