ARMSTRONG WORLD INDUSTRIES INC [AWI] Filings

10-Q 1 awi-20210930.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, 2021

☐ 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 21, 2021 – 47,475,717.

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	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35

PART II - OTHER INFORMATION		36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		38

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 residential and commercial 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 (“EBITDA”). 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 raw materials and energy;



Worthington Armstrong Venture (“WAVE”), our joint venture with Worthington Industries, Inc;



costs savings and productivity initiatives;



labor;

Risks Related to Our Strategy



strategic transactions;



digitalization initiatives and new technology;

Risks Related to Financial Matters



negative tax consequences;



covenants in our debt agreements;



our indebtedness;



our liquidity;



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;



sustainability;



intellectual property rights;



international operations;

Risks Related to General Economic and Other Factors



economic conditions;



construction activity;



competition;



customer consolidation;



geographic concentration;



information technology disruptions and cybersecurity breaches;



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, 2020, 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 Operations and Comprehensive Income

(amounts in millions, except per share data)

Unaudited


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
Net sales	$	292.2		$	246.3		$	824.1		$	698.2
Cost of goods sold		181.5			155.1			521.0			447.9
Gross profit		110.7			91.2			303.1			250.3
Selling, general and administrative expenses		62.3			41.0			176.5			108.8
Change in fair value of contingent consideration		(0.3	)		-			(9.8	)		-
(Gain) related to sale of fixed and intangible assets		-			(6.9	)		-			(21.0	)
Equity (earnings) from joint venture		(23.4	)		(15.2	)		(68.1	)		(48.2	)
Operating income		72.1			72.3			204.5			210.7
Interest expense		6.1			6.1			17.4			18.7
Other non-operating (income) expense, net		(1.4	)		(3.2	)		(4.3	)		361.8
Earnings (loss) from continuing operations before income taxes		67.4			69.4			191.4			(169.8	)
Income tax expense (benefit)		16.6			15.2			48.0			(50.9	)
Earnings (loss) from continuing operations		50.8			54.2			143.4			(118.9	)
(Loss) from disposal of discontinued businesses, net of tax expense (benefit) of $ -, $ -, $1.7 and ($1.4)		-			(0.2	)		(2.1	)		(3.0	)
Net (loss) from discontinued operations		-			(0.2	)		(2.1	)		(3.0	)
Net earnings (loss)	$	50.8		$	54.0		$	141.3		$	(121.9	)
Other comprehensive income, net of tax:
Foreign currency translation adjustments		(0.8	)		(6.2	)		0.3			(8.2	)
Derivative gain (loss), net		0.8			1.5			5.7			(12.3	)
Pension and postretirement adjustments		0.1			(0.8	)		0.5			286.8
Total other comprehensive income (loss)		0.1			(5.5	)		6.5			266.3
Total comprehensive income	$	50.9		$	48.5		$	147.8		$	144.4
Earnings (loss) per share of common stock, continuing operations:
Basic	$	1.07		$	1.13		$	3.00		$	(2.48	)
Diluted	$	1.06		$	1.13		$	2.98		$	(2.48	)
Earnings (loss) per share of common stock, discontinued operations:
Basic	$	-		$	-		$	(0.04	)	$	(0.06	)
Diluted	$	-		$	-		$	(0.04	)	$	(0.06	)
Net earnings (loss) per share of common stock:
Basic	$	1.07		$	1.13		$	2.96		$	(2.54	)
Diluted	$	1.06		$	1.13		$	2.94		$	(2.54	)
Average number of common shares outstanding:
Basic		47.5			47.9			47.7			47.9
Diluted		47.8			48.0			48.0			47.9

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, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	94.3		$	136.9
Accounts and notes receivable, net		102.9			78.3
Inventories, net		89.6			81.5
Income taxes receivable		2.7			2.3
Other current assets		20.8			12.8
Total current assets		310.3			311.8
Property, plant, and equipment, less accumulated depreciation and amortization of $481.8 and $487.1, respectively		527.3			529.9
Operating lease assets		19.1			19.2
Finance lease assets		19.0			20.4
Prepaid pension costs		122.1			119.5
Investment in joint venture		54.0			41.2
Goodwill		166.6			160.7
Intangible assets, net		427.0			457.5
Income taxes receivable		-			0.6
Other non-current assets		59.5			57.7
Total assets	$	1,704.9		$	1,718.5
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt		25.0			25.0
Accounts payable and accrued expenses		156.8			136.5
Operating lease liabilities		5.0			4.8
Finance lease liabilities		2.2			2.0
Income taxes payable		5.3			4.0
Total current liabilities		194.3			172.3
Long-term debt, less current installments		602.4			690.5
Operating lease liabilities		14.3			14.6
Finance lease liabilities		17.4			18.8
Postretirement benefit liabilities		70.6			74.9
Pension benefit liabilities		38.7			40.4
Other long-term liabilities		55.2			76.5
Income taxes payable		22.4			21.2
Deferred income taxes		167.4			158.4
Total non-current liabilities		988.4			1,095.3
Shareholders' equity:
Common stock, $0.01 par value per share, 200 million shares authorized, 62,740,154 shares issued and 47,547,622 shares outstanding as of September 30, 2021 and 62,599,331 shares issued and 47,913,821 shares outstanding as of December 31, 2020		0.6			0.6
Capital in excess of par value		557.7			553.7
Retained earnings		980.6			869.8
Treasury stock, at cost, 15,192,532 shares as of September 30, 2021 and 14,685,510 shares as of December 31, 2020		(913.9	)		(863.9	)
Accumulated other comprehensive (loss)		(102.8	)		(109.3	)
Total shareholders' equity		522.2			450.9
Total liabilities and shareholders' equity	$	1,704.9		$	1,718.5

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, 2021
																Accumulated
						Additional										Other
	Common Stock					Paid-In		Retained			Treasury Stock					Comprehensive
	Shares			Amount		Capital		Earnings			Shares		Amount			(Loss)			Total
June 30, 2021		47,732,943		$	0.6	$	554.7	$	939.8			15,005,603	$	(893.9	)	$	(102.9	)	$	498.3
Stock issuance, net		1,608			-		-		-			-		-			-			-
Cash dividends - $0.21 per common share		-			-		-		(10.0	)		-		-			-			(10.0	)
Share-based employee compensation		-			-		3.0		-			-		-			-			3.0
Net earnings		-			-		-		50.8			-		-			-			50.8
Other comprehensive income		-			-		-		-			-		-			0.1			0.1
Acquisition of treasury stock		(186,929	)		-		-		-			186,929		(20.0	)		-			(20.0	)
September 30, 2021		47,547,622		$	0.6	$	557.7	$	980.6			15,192,532	$	(913.9	)	$	(102.8	)	$	522.2

	Nine Months Ended September 30, 2021
																Accumulated
						Additional										Other
	Common Stock					Paid-In		Retained			Treasury Stock					Comprehensive
	Shares			Amount		Capital		Earnings			Shares		Amount			(Loss)			Total
December 31, 2020		47,913,821		$	0.6	$	553.7	$	869.8			14,685,510	$	(863.9	)	$	(109.3	)	$	450.9
Stock issuance, net		140,823			-		-		-			-		-			-			-
Cash dividends - $0.63 per common share		-			-		-		(30.5	)		-		-			-			(30.5	)
Share-based employee compensation		-			-		4.0		-			-		-			-			4.0
Net earnings		-			-		-		141.3			-		-			-			141.3
Other comprehensive income		-			-		-		-			-		-			6.5			6.5
Acquisition of treasury stock		(507,022	)		-		-		-			507,022		(50.0	)		-			(50.0	)
September 30, 2021