Armstrong Flooring, Inc.
Q3 2017 Earnings Call Transcript

Published: 6 Nov 2017

[Operator:]

Greetings, and welcome to the Armstrong Flooring Incorporated Third Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I would now like to turn the conference over to your host, Doug Bingham. Thank you.

[Doug Bingham:]

Thank you for joining us today for Armstrong Flooring's third quarter 2017 earnings conference call. Today's call is hosted by Chief Executive Officer, Don Maier; and Chief Financial Officer, Ron Ford. We trust you have seen our third quarter press release this morning. Additionally, a copy of the slide presentation to accompany this call is available on the Investors section of our website at www.armstrongflooring.com. I refer you to Slide 2 of that presentation and 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 Flooring, please review our SEC filings. Forward-looking statements speak only as of the date they are made, and 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 to the most directly comparable GAAP measures is included in the press release and in the appendix of this presentation. With that, I will now turn the call over to Don.

[Don Maier:]

Thank you, Doug. Good morning everyone and thank you for participating in our third quarter 2017 earnings call. Before I review the quarter and our recent progress, I would like to introduce Ron Ford, our new CFO. He joined our team in September. Ron came to us from Silgan Containers where he was a key part of their leadership team and helped to drive impressive results and shareholder returns. He has a strong background serving in leadership roles at multiple companies, and I'm confident that he will be an important contributor to our company as we build additional value to our strategic priorities. I would also like to thank Kim Boscan for her work as our interim CFO, and look forward to her continued service as our Controller. Today I will discuss our operating highlights and business activities. Ron will then cover additional details on our financial results and outlook before I offer closing comments. After our prepared remarks, we will open up the call to answer your questions. Turning to Page 3 which provides some key highlights and recent updates, third quarter 2017 results came in largely in line with our expectations with double-digit gains in Luxury Vinyl Tile or LVT and the contributions of our recently acquired Vinyl Composition Tile or VCT assets helping to drive higher resilience segment sales. While we were pleased with that progress, these positive developments were more than offset by soft demand and competitive pressures in the remainder of our portfolio primarily residential sheet and wood flooring, which push total net sales down 1% year-over-year. These challenging top line dynamics are largely continuation of the declining industry trend that we have seen over multiple years. In a few minutes I'll talk about some of the actions we're taking to improve our performance in these categories. Adjusted EBIT was $26 million for the third quarter 2017 compared to $32 million in the prior year quarter, which mainly reflects that pressure. As a result, we have been aggressively working to improve our competitive position through a variety of initiatives that are aligned with our strategic priorities to drive transformative growth and profits. Specifically, we have taken steps to address sustained challenges in our legacy businesses and to reweight our portfolio towards more attractive categories to deliver on our medium-term goals. These steps include innovation-based growth initiatives such as the extension of our Diamond 10 Technology Coating on the wood products, which we recently rolled out. During the third quarter, we began the rapid integration of our newly acquired VCT assets with great success providing for favorable operating leverage on better capacity utilization. We continue to shift our portfolio to be more weighted towards LVT, which is the rapidly growing category. Building on that continued success in October, we began producing LVT in our second domestic plan by repurposing a portion of our Stillwater, Oklahoma resilient sheet plant, which further expanded our domestic production capabilities in LVT. Finally, in October, we completed the previously announced closing of two wood flooring facilities, which we expect to improve our cost position by $8 million to $10 million annually. Beyond these examples out of many operational enhancements that we underway, we continue to build value through our share repurchase efforts. During the quarter, we produced $26 million of free cash flow which we used to repurchase $26 million of shares totaling $40 million year to date. We are actively working to build value on our company through all the avenues and our conservatively leveraged balance sheet provides us the flexibility to accomplish this through a range of initiatives. Moving to our acquisition update on Page 4, as a reminder VCT has a significant category within the hard surface flooring industry, and one of our more profitable businesses within a well-structured category. In June 2017, we completed the acquisition of Mannington’s VCT assets as planned. Since that time, we have worked hard to integrate these assets onto our platform with great success. During the quarter, we had a positive top line impact from the fourth quarter of our VCT expansion. The success in the large part helped our ability to leverage our deep expertise in VCT to effectively serve the core commercial customers in this category. As a result, we are operating at improved capacity utilization levels in our VCT plant network as we layer in acquired sales using our existing production facilities and go-to-market structure. We continue to expect the acquisition of Mannington’s VCT assets to drive accretive benefits to our adjusted EBITDA beginning in 2018 as we have fully ramped up our production and selling efforts. Looking at our manufacturing facility update on Page 5, first on resilient, in October we were excited to have begun producing LVT from our second domestic plant in Stillwater, Oklahoma. Through technological advancements, we have been able to partially convert an existing resilient sheet plant which is a direct result of our commitment to innovation and leadership in the LVT category. This category continues to be the fastest growing part of the hard surface flooring industry and we fully expect to continue growing faster than the market through our innovative designs and structures. Conversely, the resilient sheet industry has seen accelerating conversion of consumer preference into LVT. Against this backdrop, we have seen additional sheet industry capacity brought online in recent years. This has resulted in relatively low capacity utilization levels throughout the industry and challenging market economic. We have taken to improve our resilient sheet offerings through our Diamond 10 Technology, which has been very well received and we have a number of other initiatives underway to address this unfavorable trend in the resilient sheet. However, the overall industry challenges will continue. To that end, the repurposing of a portion of this plant is an exciting milestone for Armstrong's flooring and delivered strategic benefits to both our LVT business at entry level price points and resilient and resilient sheet utilization. The plant is already producing our new American Personality's line, which has better visuals and performance speakers compared to the entry level competitive offering. This will allow us to ship a portion of our entry level product line from a source model to domestic manufacturing, which will help improve our margin structure on the low end. While this expanded production capacity represents only a small portion of our current LVT sales, we’re focused on perusing additional opportunity to take advantage of rising LVT demand with existing capacity. Second, in October we completed the previously announced consolidation of our wood flooring manufacturing network through the closing of two facilities including a solid wood plant and an engineered wood plant. As a reminder, our plant for the wood business is centered on improving profitability over the next several years to establish a more profitability growth foundation. Our actions reinforce our commitment to the long-term liability of this business. Our remaining wood plant capacity is now more in line with current customer demand and also better able to leverage productivity benefits realize across our wood plant operations in recent years. We expect to generate a favorable written manufacturing, as we incurred total pre tax cost of $3 million to $5 million or generating benefits of $8 million to $10 million of annualized adjusted EBITDA. Before I turn the call to Ron, I would like to mention the continuous innovation in durability and design across major wood and resilient categories remains the central part of our strategy to improve our mix of sales to higher growth products, while maintaining strong competitive in legacy categories. Diamond 10 Technology is a clear example of a superior product that is gained exceptional market response and advancing rapidly from LVT to our broader portfolio. Durability is critical and the enhanced scratch and same resistance offered by Diamond 10 Technology strengthens the value proposition we can offer to our customers. We've also continued to innovate in LVT including the launch of two new product families in Rigid Core, which will further strengthen the bread and debt of our LVT portfolio. We recently introduced the next generation of LVT which we call Prism. This great new product sold some of the limitations of previous generation product. Prism offers superior dent resistant, sharper visuals and as water proof. We’ve rolled out Prism to the market place and I'm excited about its potential to drive meaningful growth in the category. Even as we work with just our cost profile, we continue to peruse, innovation across multiple categories with a goal of providing an even more competitive line up of winning products for our customers, which we anticipate will reignite sustained growth. I will now turn the call over to Ron, to walk through the details of our financial performance.

[Ron Ford:]

Thank you, Don, and good morning to those on the call today. I'm glad to be a part of the Armstrong Flooring team, and I look forward to contributing to the Company’s achievement of it goals. I will begin with a review of our financial results on Page 6. In resilient, net sales were up 2.2% due to strong volumes in LVT and VCT along with a favorable mix which more than offset lower price across most categories. The improvement in DCT sales was a result of recent acquisition of the Mannington VCT assets and higher distributor inventory levels. Double-digit volume growth in LVT from both sourced and manufactured products provided a positive impact on mix. The shifting consumer preference LVT continues to pressure the traditional categories which still comprise the majority of our resilient segment sales. Additionally, as mentioned in prior calls, residential sheet shipments were significantly impacted by lower sales in the strategic retail customer channel which we expect to continue to be in headwind through year end. In wood net sales 114 million were down 7% compared to the prior year due to lower volumes in solid and engineered wood. The solid wood decline was primarily due to the strategic retail customer channel, which we expect will continue to the first half of the 2018, and engineered wood we continue to face challenges from an unfavorable industry structure which has put pressure on our top line. Price remains flattish sequentially since the beginning of 2017 though down modestly year-over-year, primarily driven by continued competition in the distribution channel. Total adjusted EBITDA decreased 6.9 million to 25.5 million compared to the prior year quarter. The decline was primarily attributable to lower sales. Resilient adjusted EBITDA was 21.2 million compared to 22.9 million in the prior year quarter. This was mainly driven by the timing of raw material inflation in 2017, compared to a deflationary environment in the prior year quarter with a partial offset from segment SG&A savings lower unit costs and our LVT manufacturing operations and strong productivity throughout the network. Raw material cost continue to rise so we have announced another 3% to 6% price increase effective in the fourth quarter for our legacy commercial products to offset some of these inflationary impacts. Wood adjusted EBITDA was 4.2 million as compared to 9.4 million in the prior year quarter, driven by the combined impact of lower net sales and year-on-year raw material inflation, which more than offset tighter SG&A spend. Lumber cost remained fairly steady in 2017 so we continue expect unit lumber cost slowing to our P&L to be unfavorable through year end on a year-over-year basis. Turning to our cash flow on Page 7, in the third quarter of 2017 we produced 26 million of free cash flow as compared to 33 million in the second quarter. This cash flow performance is consistent with our plan to deliver positive free cash flow for the full year of 2017. During the quarter adjusted EBITDA excluded two significant pretax charges, including a 12.5 million write-down of the Bruce trademark and a $23.7 million charge in connection with the two wood plant closures, excluding 2.7 million of actual cash charges for wood plant closings to remainder of the 36.2 million or non-cash items. During the quarter, we repurchased approximately $25.6 million worth of AFI stock bringing our total repurchases since the inception of the stock repurchase program to $40 million, representing approximately 9% of shares outstanding. Furthermore, the ended the quarter with a solid balance sheet that affords us the flexibility to invest in our transformational activities. Now turning to our full-year 2017 outlook on Slide 8, while our year-to-date results have been impacted by top line challenges, which we expect to persist through year-end, we remain confident in the transformative steps we are taking to achieve full year 2017 adjusted EBITDA within our previously announced outlook range of $60 million to $70 million. We continue to focus on our innovation-based growth initiatives added efficiencies and improved utilization of our existing facilities and selling infrastructure as we've discussed today. We now expect capital expenditures for 2017 to be in the range of $40 million to $45 million compare to $45 million prior. Maintenance CapEx still should be approximately 2% to 2.5% of sales, with the balance of the spending budgeted for high return investments. We anticipate that 2017 will be another year of positive free cash flow. We expect to end the year below our target leverage ratio of 1.5 times to 2 times EBITDA, while preserving ample liquidity to invest in internal projects and other value enhancing initiatives. I will now hand the call back to Don for closing comments.

[Don Maier:]

Thanks, Ron. Turning to our medium-term financial goals on Slide 9, our commitment to achieve a 10% EBITDA margin by 2020 under a range of growth scenarios is unchanged. We believe we are taking appropriate steps to improve our overall business performance. We have a clear strategy with multiple leverage to accomplish this goal. As we have discussed today, we remain confident in our ability to drive our strategic priorities in the medium-term. We are committed to our growth strategies while also taking the necessary actions through to revitalize our legacy business. We are finding new growth opportunities, we are able to controlling costs and we are improving the capacity utilization within our plant network through acquisitions, plant conversions and plant closures. We look forward to executing on all of our objectives as we build-upon our strong brand and market leadership to drive shareholder return. We look forward to building additional value through our unique opportunities. Operator, we are now ready to take questions.

[Operator:]

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Keith Hughes with SunTrust Robinson Humphrey. Please state your question.

[Keith Hughes:]

Thank you. Just in the quarter can you tell us how much the VCT acquisition has in the sale?

[Don Maier:]

I assume you are referring to the Mannington Mills, the acquisition of their VCT business?

[Keith Hughes:]

That's right yes.

[Don Maier:]

Yes, what we have shared is that if you look at the trailing 12-months from March 31st the pro forma impact would be approximately $20 million on an annualized basis. We've also indicated that we have products with range from 20% to 30% margins and that VCT is at the high end of that margin. We are pleased with our progress as I've said we've had strong results from our integration of that business and so you can assume kind of the models that you have retrieve from what I've provided you with the impact for the portion of the yield that has occurred as while at the fourth quarter.

[Keith Hughes:]

Okay and that 20% to 30% is I think middle margin?

[Don Maier:]

That correct. It'll be at the high end of that range?

[Keith Hughes:]

High end of that range okay, and the one of your thoughts you talked about change of the overall, LVT, that what should the LVT that is producing and for what of the capacity of that will be?

[Don Maier:]

So from competitive reason, we want to disclose what the capacity would be out of that plant, However, as I indicated and my comments earlier, have a continued focus on and deploying and repurposing exiting capacity to respond to the growth we're seeing in the LVT market.

[Keith Hughes:]

Are you able to produce Rigid Core product yet.

[Don Maier:]

We better not comment on that right now, Keith.

[Keith Hughes:]

Okay and can you give us any sort of feel for our run rate basis or anything of that nature. What LVT as a percentage of resilient or total company sale?

[Don Maier:]

We, I guess we have -- we guess an indication last year on our fourth quarter earnings call, as we where we stood, we're continuing to be pleased with the shift in our portfolio but we haven't disclose any news number on that, hopefully we will be able to give you some insights on that with our fourth quarter earnings call.

[Keith Hughes:]

Okay and I guess around LVT, several things about pricing and the -- and of course specifically around sheet vinyl. How does LVT pricing work?

[Don Maier:]

So Keith, I will -- may be turn the call over to or the question over to Ron, about for him to share some of the what he has well, but overall pricing we see kind of a overall sort of same trend we seeing in pricing in LVT. I would say on the more commodity type products, I would typify it as slightly declining but we’re not seeing an acceleration in that pricing environment, as I guess as been speculated on a number of different calls and conversations that we’ve had, we're very focused frankly on the, what we believe is the next kind of wave of the LVT segment, which is the Rigid Core or WPC categories. We have significant launches both in our Rigid Core elements as well as we’re very excited about the next generation of product in the category, which we call Prism. So, those products are coming in at kind of new echelons of pricing, given the performance and benefits that those products provide. Ron, anything you would like to add to that? Or did I take all of our gunpowder?

[Ron Ford:]

I think you've covered briefly.

[Operator:]

Our next question is from Mike Wood with Nomura Instinet. Please state your question.

[Mike Wood:]

First just to start with, it looks like about eight weeks less than a year, wondering if you could talk about what you need to hit the high end and what would happen for you to hit the low end of your EBITDA range? I think it's about 0.5 million to 10.5 million EBITDA implied for the fourth quarter.

[Ron Ford:]

Thanks Mike. I think we have a firm grasp on all leverage with the exception of really understanding what happens on the top line. We've seen the market it feels like it's slowed a bit looking at the other information itself from competitors in the marketplace that seems to be the case. There was as well a little bit of noise we think from the weather the hurricane impacts both In Texas and Florida. So, it's really I think the variability of where we land here will be largely driven on -- how successful we are in driving the top line.

[Mike Wood:]

Great and then you are doing a good job growing LVT business, if we were to looking your resilient business at Mannington and then your wood looks like volumes were down mid to high single digits. First on that I was wondering if you could par down. How much of the decline is from the product shift specifically you called out from the major strategic customer?

[Ron Ford:]

Yes, so the strategic customer shift is we are approaching kind of the anniversary of that so that’s been I think it will sunset here in the fourth quarter approximately. And to your point Mike what we are seeing is we are very pleased with our progress and LVT, obviously very pleased with the synergies that we are grabbing and the growth we are grabbing with the VCTP acquisition. But the pressure remains on core kind of residential sheet category. So we are taking a number of steps number one you saw that we have introduced the Diamond 10 Technology onto residential sheet that’s to give us some differentiation in the marketplace. We are driving our strata max product which has superior performance characteristics, largely in the performed -- of the property management categories but it's also applicable across all end markets. And then very excited with the ability to convert some of that capacity in Stillwater Oklahoma to be targeted towards LVT, so that gives us better capacity utilization and the cost profiles for the product for all products coming through that plant. And then lastly, we are being very aggressive and going after those business opportunities that we lost in last line reviews. So we are still the leader and we intend to continue to drive growth in that part of our business.

[Mike Wood:]

Finally, is there anything you could share with us maybe on what could Diamond 10 for example. They give us a sense of how that’s impacting your performance versus the market -- is it surely to see that Diamond 10 help you gain share within residential sheet vinyl or even in hardwood products or the engineered products shift some numbers to maybe quantify how that is impacting you as it gets rolled out?

[Ron Ford:]

We are certainly seeing the impact in the LVT category. We have been in the market now for over a year on the commercial side a little bit longer on the residential side as well in addition to driving with a little market share growth we are also able to capture a price premium because of that technology. That’s been cascaded following LVT onto both of our commercial sheet products as well as our residential sheet. On the residential sheet side that's the only category where we did not adjust price pricing because of the technology again trying to use that as a differentiator in the marketplace kind of equal price but better benefits, better performance would be the approach. And it's way too early we've just launched the paragon wood products into the market, but it wouldn’t get merits targeted at our premium end of the solid hardwood offering and data price premium because of the performance characteristics. And as I've indicated where are growing our intention or too eventually get Diamond 10 across the entire portfolio when were just about there.

[Operator:]

Our next question comes from Alvaro Lacayo with Gabelli & Company. Please state your question.

[Alvaro Lacayo:]

So I'll just start with my first question I guess with the announcement of the repurposing of the plant in Oklahoma and to do more LVT. Just from a overall strategic picture maybe if you can highlight what kind of opportunity exists in repurposing maybe other manufacturing plants within the resilient segment? And also maybe if you can just provide some context around what exactly you did to repurpose partially repurpose this plant? How challenging was it? How long did it take? Any color on that would be very helpful.

[Don Maier:]

Yes, certainly. So, first of all to your first part of your question, we are continuing to invest heavily into our innovation and technologies and where we can redeploy existing capacity or capabilities to accomplish that, that's clearly a core to our overall strategy. I won't go into any greater details but our roadmap would include other projects beyond Oklahoma that have similar sort of profiles and opportunities for us. We fast track the Stillwater, Oklahoma project I'm really proud of our technology team and all of the technical resources were involved in this process. Where they were actually able to adapt unique ability of that sheet plant that I don’t believe exists elsewhere certainly in North America. I don’t believe in the world perhaps and as a result of the kind of the breakthroughs both on in the material science side as well as being able to adapt our manufacturing process, we were able to get that product launch in the fairly short of time window relative to certainly anything that would be done as a greenfield or brownfield type introduction.

[Alvaro Lacayo:]

And then on the mix and other impact on EBITDA specifically in resilient and maybe some commentary around wood, if resilient is being driven by LVT and VCT specially the acquisition, which carry better incremental margins. I was just wondering why there was a negative on the mix and other and maybe highlight some of the drivers of that?

[Don Maier:]

Yes, I'll let Ron answer that question.

[Ron Ford:]

Alvaro, this is Ron. To great extent, mix is both the function of obviously the respective margins of the product sold, but also mix in this particular quarter was affected by the volume of source products versus manufactured products.

[Alvaro Lacayo:]

And then just on the M&A front and capital deployment I mean what are you seeing sort of the environment today. I mean historically it's for a market that is consolidated. Just wondering what you're seeing from an activity standpoint today and what kind of conversations are out there around the potential opportunities to better improve footprint of the M&A?

[Don Maier:]

That’s a very great question and we certainly believe that this is a market that is ready for some consolidation. There are very few opportunities out there that we don’t get an opportunity to look at and we will certainly keep our eye open for opportunities to deploy for the benefit of shareholders.

[Ron Ford:]

Our focus continues to be really none on a transformational acquisition but really acquisitions that help enable our growth strategies and drive those growth initiatives.

[Alvaro Lacayo:]

And then just my final question on impairment, so you get the 26 million in land impairment, the result was also $12 million impairment related to the Bruce brand. Can you just, was the previously announced as well or was there some, what thought going to that and driving that impairment.

[Ron Ford:]

This is Ron. There have been in the past -- of course as we look at our intangible assets, periodically. At least annually, we're obliged to evaluate our prior investment in any intangible asset. And as we decided to close the two wood plants to balance our capacity portfolio, we also decided, so I'm taking this to evaluate to the carrying way of the physical and the intangible assets. We believe our tangible assets are very appropriately. We concluded under GAAP rules, we should conservatively tie the value the Bruce brand to the trained and wood sales in adjusted accordingly.

[Operator:]

Our next question is from Scott Rednor with Zelman & Associates. Please take you question.

[Scott Rednor:]

I think everything on LVT is been asked. So I just want to switch to the wood side. Can you may be talk about the ongoing shift there, may you guys call that the retail channel? And I was hoping you could may be tied that into some of the specialty forum players, they enough time. How do you see that may be changing or not changing the market?

[Ron Ford:]

So, I think kind of to paint the landscape that we see, we're the leader in the wood category, a significant share leader certainly on the solid side and less of a leadership role on the engineered side. So I really have to break it into those two kind of factors if you will, on the solid side, we continue to be pleased with the progress we've made in driving the overall profitability and attractiveness of that category and as evidenced by the recent launch here of the paragon Diamond 10 Product, the scenario we're continuing to investment, our resources into both from a style and design but also from a performance standpoint. On the engineered side, I will tell you the dynamics are very different, that category is very exposed to Asian imports. And I think the latest research that we show that is about 46% now of engineers floors are coming in from Asia. We source from Asia today and our strategy is to ship more of volume to a sourced model given the relative value that can be driven through that can be driven for that piece. We have also discussed the possibility of licensing the Armstrong brand to our distributors and to select manufacturers in Asia to be able to be very competitive on those opening price point categories where the margins are obtained. So at this point we are focused on growing our solid business. We are still focused on at least a large part of our engineered portfolio and improving the profitability of that before we really lean on growth.

[Scott Rednor:]

And then on the capital side, the adjustment this year I think you guys were previously looking for 45 and now it's 40 to 45? Can you guys just maybe elaborate is there anything that timing or productivity?

[Ron Ford:]

This is Ron. All of our investment decisions are made with the combination of our channel partners, consumers in the market and our shareholders in mind. And we will keep -- we will continue to do that. We will invest very carefully in evaluated investments, in innovation and technology. We will take advantage of opportunities and returns shareholders. We expect our CapEx to be largely in line with our depreciation, as we invest wisely in our growth.

[Don Maier:]

I would say that -- and just to add to that, we are not constraining our capital spend but we are always seeking to be more efficient with the capital spend. So as we have been able to do things like the repurposing of the capacity and Stillwater that came in at a capital expenditure that was much lower than what we were looking at, to drive greenfield type productivity or capital there. So, we will continue to use these productivity to -- and creativity in for capital if you will in our process.

[Scott Rednor:]

And then maybe just one quick one on the model along those lines. If I add back the 18.7 of accelerated depreciation at some price DNA stepped up around 17 million, but your CapEx line it has to be something much lighter than that. What's the delta there?

[Don Maier:]

I just want to make sure I understand your question, the delta between CapEx and depreciation?

[Scott Rednor:]

I think you just alluded to that your CapEx should be running close to your G&A of call it 45 million, but if you add back from the 36 million in G&A that you guys reported, the 19 million of accelerated, it was like 17 million which is significantly higher run rate than where you guys have been running.

[Don Maier:]

I think you need to look at it on a year-to-date basis versus the quarter.

[Scott Rednor:]

So a step-down going forward?

[Don Maier:]

Our expectation is that if you look at it -- that CapEx over the calendar 2017, you would -- you should expect to see capital expenditures approximately equal to depreciation and amortization. Excluding any accelerated depreciation that we are taking on the two plant closures?

[Scott Rednor:]

I'll clarify that later. Thank you.

[Operator:]

Our next question is from Dillard Watt with Stifel. Please did state your question.

[Dillard Watt:]

I want to talk a little bit about 2018. I'm sure you will give a little bit of guidance here after you report the fourth quarter and I don't need any -- need any in terms of the numbers at the moment. I was just curious if you might walk through all the puts and takes on margin or maybe the puts and takes on what would get you to the higher end or lower end of your incremental? Obviously, we have the acquisition that's still anniversarying continuing to ramp-up LVT capacity. I think raw materials are probably going to be a headwind. Could you walk through some of that for us?

[Don Maier:]

Dillard, this is John. The items and kind of building blocks that we have disclosed at this point in time, you had a number of models, just make sure I clicked through the list. We had a restructuring that was completed for our practical purposes at the conclusion of the second quarter. And we had size of that at a $6 million to $7 million full-year run rate, so that was completed in mid-year if you will. We have the two woods plants which we had just completed their closure and that will be $8 million to $10 million running there, and so if there is just a very small part of that one path to 2017 here over the last kind of two months of the year. We did complete the VCT acquisition and what we indicated there was that, it will be fully accretive beginning in 2018 and that was pro forma top line of about 20% flowing through at about 30% is what we disclosed there. We haven't quantified any of the product launches that we've discussed or the LVT repurposing and Stillwater but those are against the backdrop of some very challenging markets and we haven't quantified those as well. So those are kind of the positive buildings blocks and then we continue to face the headwinds on the legacy parts of the business as we see the consumer preference shifting from some of these legacy categories into some of the faster growing areas like LVT.

[Dillard Watt:]

In our raw materials meaningfully different next year year-over-year as we stand here at the in early November?

[Don Maier:]

We haven't provided any outlook guidance. I will tell you we have seen some inflation and fortunately that's why we've been able to offset that with manufacturing productivity as well as we indicated that we took two price increases on the commercial resilient side, which we think we will see good realization on. Unfortunately, on the residential resilient side of the equation it's much harder to realize price. And that I would say that same situation applies to the wood business in general as well.

[Dillard Watt:]

Okay. And lastly just -- so on the Oklahoma City restructuring, there and -- is that pretty much of an immediate benefit in terms of the margins? Or did you do you expect tend to or little bit of short-term paying for the long-term benefit?

[Don Maier:]

So, we've just launched the product so there will be a ramp to it and we are focused on a controlled roll out of the products to allow the planting to keep service levels in inventory where they need to be. So I would say nothing extraordinary there, but that the plan is up and running the products as we speak. And but at Stillwater, Oklahoma -- I'm sorry if, I implied upon the city.

[Operator:]

And now, we have a follow up question from Keith Hughes from SunTrust Robinson Humphrey. Please take your question.

[Keith Hughes:]

Just going back to D&A, can you tell us what DNA is going to look like on a quarterly basis moving forward by segment, if possible?

[Don Maier:]

We haven't broken that out by segment, I will say that -- I will reiterate, Keith, that our depreciation and amortization excluding the accelerated depreciation that we're taking on a two plan closures should be recently consistent across all quarters and don’t expect anything unusual in the fourth quarter/

[Keith Hughes:]

So historically D&A is around about $11 million to $12 million, if that what you would expect moving forward?

[Don Maier:]

Yes.

[Operator:]

Ladies and gentlemen, we've reached the end of our question-and-answer-session. I would like to turn the conference back over to management for closing remarks.

[Don Maier:]

Thank you, operator, and thank you everyone for joining us today. We truly appreciate your interests in Armstrong Flooring. And we look forward to updating you on future calls. Have a great day. Thank you.

[Operator:]

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.