ARMSTRONG WORLD INDUSTRIES INC [AWI] Filings

10-Q 1 awi-20220930.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-2116

ARMSTRONG WORLD INDUSTRIES, INC.

(Exact Name of Registrant as Specified in its Charter)


Pennsylvania	23-0366390
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2500 Columbia Avenue, Lancaster, Pennsylvania	17603
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (717) 397-0611

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

AWI

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of Armstrong World Industries, Inc.’s common stock outstanding as of October 20, 2022 – 45,662,803.

TABLE OF CONTENTS


		PAGE
Cautionary Note Regarding Forward-Looking Statements		3

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
Signatures		34

When we refer to “AWI,” the “Company,” “we,” “our” or “us,” we are referring to Armstrong World Industries, Inc. and its subsidiaries.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q and the documents incorporated by reference herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, our expectations concerning our markets and their effect on our operating results; the impacts of COVID-19 on our business; our expectations regarding the payment of dividends; and our ability to increase revenues, earnings and earnings before interest, taxes, depreciation and amortization (as discussed below). Words such as “anticipate,” “expect,” “intend,” “plan,” “target,” “project,” “predict,” “believe,” “may,” “will,” “would,” “could,” “should,” “seek,” “estimate” and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors that could have a material adverse effect on our financial condition, liquidity, results of operations or future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to:

Risks Related to Our Operations

•

key customers;

•

availability and costs of manufacturing inputs or sourced products;

•

Worthington Armstrong Venture, our joint venture with Worthington Industries, Inc;

•

labor;

•

costs savings and productivity initiatives;

•

sustainability;

Risks Related to Our Strategy

•

digitalization initiatives and new technology;

•

strategic transactions;

Risks Related to Financial Matters

•

negative tax consequences;

•

our indebtedness;

•

our liquidity;

•

covenants in our debt agreements;

•

defined benefit plan obligations;

•

the tax consequences of the separation of our flooring business from our ceilings business;

Risks Related to Legal and Regulatory Matters

•

environmental matters;

•

litigation;

•

claims;

•

intellectual property rights;

•

international operations;

Risks Related to General Economic and Other Factors

•

economic conditions;

•

construction activity;

•

competition;

•

customer consolidation;

•

information technology disruptions and cybersecurity breaches;

•

geographic concentration;

•

dividend payments;

•

public health epidemics or pandemics (like COVID-19); and

•

other risks detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”), press releases and other communications, including those set forth under “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2021, and in the documents incorporated by reference herein and therein.

Such forward-looking statements speak only as of the date they are made. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Armstrong World Industries, Inc., and Subsidiaries

Condensed Consolidated Statements of Earnings and Comprehensive Income

(amounts in millions, except per share data)

Unaudited


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net sales	$	325.0		$	292.2		$	928.6		$	824.1
Cost of goods sold		207.5			181.5			591.0			521.0
Gross profit		117.5			110.7			337.6			303.1
Selling, general and administrative expenses		59.3			62.3			177.9			176.5
Loss (gain) related to change in fair value of contingent consideration		7.1			(0.3	)		13.3			(9.8	)
Equity (earnings) from joint venture		(22.2	)		(23.4	)		(61.7	)		(68.1	)
Operating income		73.3			72.1			208.1			204.5
Interest expense		7.0			6.1			17.9			17.4
Other non-operating (income), net		(1.4	)		(1.4	)		(4.1	)		(4.3	)
Earnings from continuing operations before income taxes		67.7			67.4			194.3			191.4
Income tax expense		13.2			16.6			43.2			48.0
Earnings from continuing operations		54.5			50.8			151.1			143.4
Gain (loss) from disposal of discontinued businesses, net of tax (benefit) expense of ($3.0), $-, ($3.0) and $1.7		3.0			-			3.0			(2.1	)
Net earnings (loss) from discontinued operations		3.0			-			3.0			(2.1	)
Net earnings	$	57.5		$	50.8		$	154.1		$	141.3
Other comprehensive income, net of tax:
Foreign currency translation adjustments		(2.1	)		(0.8	)		(2.3	)		0.3
Derivative gain, net		4.9			0.8			18.5			5.7
Pension and postretirement adjustments		0.2			0.1			0.9			0.5
Total other comprehensive income		3.0			0.1			17.1			6.5
Total comprehensive income	$	60.5		$	50.9		$	171.2		$	147.8
Earnings per share of common stock, continuing operations:
Basic	$	1.18		$	1.07		$	3.24		$	3.00
Diluted	$	1.18		$	1.06		$	3.23		$	2.98
Earnings (loss) per share of common stock, discontinued operations:
Basic	$	0.07		$	-		$	0.06		$	(0.04	)
Diluted	$	0.07		$	-		$	0.06		$	(0.04	)
Net earnings per share of common stock:
Basic	$	1.25		$	1.07		$	3.30		$	2.96
Diluted	$	1.25		$	1.06		$	3.29		$	2.94
Average number of common shares outstanding:
Basic		46.1			47.5			46.6			47.7
Diluted		46.1			47.8			46.7			48.0

See accompanying notes to Condensed Consolidated Financial Statements beginning on page 9.

Armstrong World Industries, Inc., and Subsidiaries

Condensed Consolidated Balance Sheets

(amounts in millions, except share and per share data)


	Unaudited
	September 30, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	86.8		$	98.1
Accounts and notes receivable, net		119.4			109.1
Inventories, net		115.1			90.2
Income taxes receivable		6.9			1.4
Other current assets		23.6			23.1
Total current assets		351.8			321.9
Property, plant, and equipment, less accumulated depreciation and amortization of $534.1 and $494.0, respectively		541.2			542.8
Operating lease assets		19.0			21.0
Finance lease assets		16.6			18.4
Prepaid pension costs		112.7			109.0
Investment in joint venture		58.1			50.0
Goodwill		166.6			167.0
Intangible assets, net		409.0			421.4
Income taxes receivable		-			0.6
Other non-current assets		64.4			57.9
Total assets	$	1,739.4		$	1,710.0
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt		25.0			25.0
Accounts payable and accrued expenses		178.7			174.9
Operating lease liabilities		6.1			5.6
Finance lease liabilities		2.2			2.2
Income taxes payable		0.4			1.9
Total current liabilities		212.4			209.6
Long-term debt, less current installments		658.3			606.4
Operating lease liabilities		13.2			15.6
Finance lease liabilities		15.1			16.8
Postretirement benefit liabilities		68.2			71.1
Pension benefit liabilities		35.4			36.9
Other long-term liabilities		27.4			46.7
Income taxes payable		13.2			20.3
Deferred income taxes		175.0			166.9
Total non-current liabilities		1,005.8			980.7
Shareholders' equity:
Common stock, $0.01 par value per share, 200 million shares authorized, 62,881,645 shares issued and 45,771,839 shares outstanding as of September 30, 2022 and 62,775,155 shares issued and 47,302,299 shares outstanding as of December 31, 2021		0.6			0.6
Capital in excess of par value		569.3			561.3
Retained earnings		1,132.8			1,011.4
Treasury stock, at cost, 17,109,806 shares as of September 30, 2022 and 15,472,856 shares as of December 31, 2021		(1,089.0	)		(944.0	)
Accumulated other comprehensive loss		(92.5	)		(109.6	)
Total shareholders' equity		521.2			519.7
Total liabilities and shareholders' equity	$	1,739.4		$	1,710.0

See accompanying notes to Condensed Consolidated Financial Statements beginning on page 9.

Armstrong World Industries, Inc., and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(amounts in millions, except share data)

Unaudited


	Three Months Ended September 30, 2022
																Accumulated
						Additional										Other
	Common Stock					Paid-In		Retained			Treasury Stock					Comprehensive
	Shares			Amount		Capital		Earnings			Shares		Amount			(Loss)			Total
June 30, 2022		46,462,821		$	0.6	$	565.7	$	1,086.0			16,413,011	$	(1,029.0	)	$	(95.5	)	$	527.8
Stock issuance, net		5,813			-		-		-			-		-			-			-
Cash dividends - $0.231 per common share		-			-		-		(10.7	)		-		-			-			(10.7	)
Share-based employee compensation		-			-		3.6		-			-		-			-			3.6
Net earnings		-			-		-		57.5			-		-			-			57.5
Other comprehensive income		-			-		-		-			-		-			3.0			3.0
Acquisition of treasury stock		(696,795	)		-		-		-			696,795		(60.0	)		-			(60.0	)
September 30, 2022		45,771,839		$	0.6	$	569.3	$	1,132.8			17,109,806	$	(1,089.0	)	$	(92.5	)	$	521.2

	Nine Months Ended September 30, 2022
																Accumulated
						Additional										Other
	Common Stock					Paid-In		Retained			Treasury Stock					Comprehensive
	Shares			Amount		Capital		Earnings			Shares		Amount			(Loss)			Total
December 31, 2021		47,302,299		$	0.6	$	561.3	$	1,011.4			15,472,856	$	(944.0	)	$	(109.6	)	$	519.7
Stock issuance, net		106,490			-		-		-			-		-			-			-
Cash dividends - $0.693 per common share