We added to our investment in AWI during the first quarter when the market declined and AWI’s stock price went with it, becoming more attractive with every tick downward. There are legitimate headwinds – a strong dollar, weak emerging markets, tepid domestic demand – but I find that Armstrong’s ceilings segment is still an excellent business and I continue to believe we own it at an attractive price. The recently reported 2015 results and outlook for 2016 affirmed my view – high margins, little competition, excellent returns on capital and copious free cash flow. I also took advantage of an opportunity to meet the incoming CEO, Vic Grizzle, and I believe he will act to preserve AWI’s current advantages. AWI is our largest investment as of this writing.

In April the company completed the spinoff of its struggling flooring business (now a separate business traded under the ticker “AFI”). Despite the turnaround potential or an outright sale of the business – neither of which, in my opinion, is likely any time soon – I sold all of the shares we received. Flooring is almost the inverse of the ceilings business. The competition is vicious, pricing power is nil, margins are low, returns on capital are subpar, and free cash flow is hard to find. The balance sheet is reasonable and AFI has some time to make changes, but history and the current state of affairs make for an uphill battle.

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The above commentary is excerpted from the 1Q16 quarterly letter of Anabatic Investment Partners LLC. The fund’s Managing Principal and Portfolio Manager is Philip C. Ordway. Please note that the complete text of the disclaimer included with the fund’s quarterly letter is also reproduced below.

THE INFORMATION PROVIDED HEREIN IS CONFIDENTIAL AND PROPRIETARY AND IS, AND WILL REMAIN AT ALL TIMES, THE PROPERTY OF ANABATIC INVESTMENT PARTNERS LLC, AS INVESTMENT MANAGER, AND/OR ITS AFFILIATES.   THE INFORMATION IS BEING PROVIDED SOLELY TO THE RECIPIENT IN ITS CAPACITY AS AN INVESTOR IN THE FUNDS OR PRODUCTS REFERENCED HEREIN AND FOR INFORMATIONAL PURPOSES ONLY.

THE INFORMATION HEREIN IS NOT INTENDED TO BE A COMPLETE PERFORMANCE PRESENTATION OR ANALYSIS AND IS SUBJECT TO CHANGE.  NONE OF ANABATIC INVESTMENT PARTNERS LLC, AS INVESTMENT MANAGER, THE FUNDS OR PRODUCTS REFERRED TO HEREIN OR ANY AFFILIATE, MANAGER, MEMBER, OFFICER, EMPLOYEE OR AGENT OR REPRESENTATIVE THEREOF MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE INFORMATION PROVIDED HEREIN.  AN INVESTMENT IN ANY FUND OR PRODUCT REFERRED TO HEREIN IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK.  THERE CAN BE NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY SUCH FUND OR PRODUCT WILL BE ACHIEVED.  MOREOVER, PAST PERFORMANCE SHOULD NOT BE CONSTRUED AS A GUARANTEE OR AN INDICATOR OF THE FUTURE PERFORMANCE OF ANY FUND OR PRODUCT.  AN INVESTMENT IN ANY FUND OR PRODUCT REFERRED TO HEREIN CAN LOSE VALUE.  INVESTORS SHOULD CONSULT THEIR OWN PROFESSIONAL ADVISORS AS TO LEGAL, TAX AND OTHER MATTERS RELATING TO AN INVESTMENT IN ANY FUND OR PRODUCT.

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INDEX PERFORMANCE DATA AND RELATED METRICS, TO THE EXTENT REFERENCED HEREIN, ARE PROVIDED FOR COMPARISON PURPOSES ONLY AND ARE BASED ON (OR DERIVED FROM) DATA PUBLISHED OR PROVIDED BY EXTERNAL SOURCES.  THE INDICES, THEIR COMPOSITION AND RELATED DATA GENERALLY ARE OWNED BY AND ARE PROPRIETARY TO THE COMPILER OR PUBLISHER THEREOF.  THE SOURCE OF AND AVAILABLE ADDITIONAL INFORMATION REGARDING ANY SUCH INDEX DATA IS AVAILABLE UPON REQUEST.