ARMSTRONG WORLD INDUSTRIES INC [AWI] Filings

10-Q 1 awi-20220331.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 March 31, 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 April 21, 2022 – 46,960,247.

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	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
Signatures		31

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 (“WAVE”), 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
	March 31,
	2022			2021
Net sales	$	282.6		$	251.9
Cost of goods sold		180.4			164.4
Gross profit		102.2			87.5
Selling, general and administrative expenses		57.1			54.2
Loss related to change in fair value of contingent consideration		0.1			0.2
Equity (earnings) from joint venture		(18.2	)		(21.0	)
Operating income		63.2			54.1
Interest expense		5.1			5.7
Other non-operating (income), net		(1.3	)		(1.3	)
Earnings from continuing operations before income taxes		59.4			49.7
Income tax expense		15.0			12.2
Earnings from continuing operations		44.4			37.5
Loss from disposal of discontinued businesses, net of tax expense of $- and $1.7		-			(2.1	)
Net loss from discontinued operations		-			(2.1	)
Net earnings	$	44.4		$	35.4
Other comprehensive income, net of tax:
Foreign currency translation adjustments		0.7			0.6
Derivative gain, net		10.6			3.8
Pension and postretirement adjustments		0.6			0.2
Total other comprehensive income		11.9			4.6
Total comprehensive income	$	56.3		$	40.0
Earnings per share of common stock, continuing operations:
Basic	$	0.94		$	0.78
Diluted	$	0.94		$	0.78
Loss per share of common stock, discontinued operations:
Basic	$	-		$	(0.04	)
Diluted	$	-		$	(0.04	)
Net earnings per share of common stock:
Basic	$	0.94		$	0.74
Diluted	$	0.94		$	0.74
Average number of common shares outstanding:
Basic		47.1			47.8
Diluted		47.2			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
	March 31, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	76.1		$	98.1
Accounts and notes receivable, net		114.1			109.1
Inventories, net		103.9			90.2
Income taxes receivable		0.4			1.4
Other current assets		23.6			23.1
Total current assets		318.1			321.9
Property, plant, and equipment, less accumulated depreciation and amortization of $504.7 and $494.0, respectively		539.2			542.8
Operating lease assets		21.6			21.0
Finance lease assets		17.8			18.4
Prepaid pension costs		110.3			109.0
Investment in joint venture		57.5			50.0
Goodwill		167.1			167.0
Intangible assets, net		416.9			421.4
Income taxes receivable		-			0.6
Other non-current assets		59.6			57.9
Total assets	$	1,708.1		$	1,710.0
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt		25.0			25.0
Accounts payable and accrued expenses		145.4			174.9
Operating lease liabilities		6.1			5.6
Finance lease liabilities		2.3			2.2
Income taxes payable		14.0			1.9
Total current liabilities		192.8			209.6
Long-term debt, less current installments		615.3			606.4
Operating lease liabilities		15.7			15.6
Finance lease liabilities		16.2			16.8
Postretirement benefit liabilities		70.7			71.1
Pension benefit liabilities		36.4			36.9
Other long-term liabilities		32.0			46.7
Income taxes payable		19.6			20.3
Deferred income taxes		171.8			166.9
Total non-current liabilities		977.7			980.7
Shareholders' equity:
Common stock, $0.01 par value per share, 200 million shares authorized, 62,792,506 shares issued and 47,018,645 shares outstanding as of March 31, 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		563.9			561.3
Retained earnings		1,044.8			1,011.4
Treasury stock, at cost, 15,773,861 shares as of March 31, 2022 and 15,472,856 shares as of December 31, 2021		(974.0	)		(944.0	)
Accumulated other comprehensive loss		(97.7	)		(109.6	)
Total shareholders' equity		537.6			519.7
Total liabilities and shareholders' equity	$	1,708.1		$	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 March 31, 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		17,351			-		-		-			-		-			-			-
Cash dividends - $0.231 per common share		-			-		-		(11.0	)		-		-			-			(11.0	)
Share-based employee compensation		-			-		2.6		-			-		-			-			2.6
Net earnings		-			-		-		44.4			-		-			-			44.4
Other comprehensive income		-			-		-		-			-		-			11.9			11.9
Acquisition of treasury stock		(301,005	)		-		-		-			301,005		(30.0	)		-			(30.0	)
March 31, 2022		47,018,645		$	0.6	$	563.9	$	1,044.8			15,773,861	$	(974.0	)	$	(97.7	)	$	537.6

	Three Months Ended March 31, 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		40,278			-		-		-			-		-			-			-
Cash dividends - $0.21 per common share		-			-		-		(10.2	)		-		-			-			(10.2	)
Share-based employee compensation		-			-		2.9		-			-		-			-			2.9
Net earnings		-			-		-		35.4			-		-			-			35.4
Other comprehensive income		-			-		-		-			-		-			4.6			4.6
Acquisition of treasury stock		(125,635	)		-		-		-			125,635		(10.0	)		-			(10.0	)
March 31, 2021		47,828,464		$	0.6	$	556.6	$	895.0			14,811,145	$	(873.9	)	$	(104.7	)	$	473.6

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

Armstrong World Industries, Inc., and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

Unaudited


	Three Months Ended
	March 31,
	2022			2021

Cash flows from operating activities:
Net earnings	$	44.4		$	35.4
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		21.2			25.6
Deferred income taxes		1.1			1.2
Share-based compensation		2.9			2.3
Loss on disposal of discontinued operations		-			0.4
Equity earnings from joint venture		(18.2	)		(21.0	)
U.S. pension (credit)		(0.2	)		-
Loss from change in fair value of contingent consideration		0.1			0.2
Payments of contingent consideration in excess of acquisition-date fair value		(1.9	)		-
Other non-cash adjustments, net		0.2			0.2
Changes in operating assets and liabilities:
Receivables		(13.1	)		(12.9	)
Inventories		(13.6	)		(2.1	)
Accounts payable and accrued expenses		(17.5	)		(9.2	)
Income taxes receivable and payable, net		13.0			5.5
Other assets and liabilities		(1.7	)		(6.0	)
Net cash provided by operating activities		16.7			19.6
Cash flows from investing activities:
Purchases of property, plant and equipment		(12.0	)		(13.2	)
Return of investment from joint venture		12.2			16.5
Payments to Knauf upon disposal of discontinued operations		-			(11.8	)
Other investing activities		-			(0.3	)
Net cash provided by (used for) investing activities		0.2			(8.8	)
Cash flows from financing activities:
Proceeds from revolving credit facility		25.0			50.0
Payments of revolving credit facility		(10.0	)		(50.0	)
Payments of long-term debt		(6.2	)		(6.3	)
Dividends paid		(10.9	)		(10.1	)
Proceeds from share-based compensation plans, net of tax		0.2			0.7
Payments for finance leases		(0.6	)		(0.5	)
Payments of acquisition-related contingent consideration