Armstrong World Industries Earnings 2019-09-30

AWI 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

awi-10q_20190930.htm

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, 2019

☐	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 23, 2019 – 48,497,950.

TABLE OF CONTENTS

		PAGE
Cautionary Note Regarding Forward-Looking Statements		3

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures		43

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; our expectations regarding the payment of dividends; and our ability to increase revenues, earnings and EBITDA (as such terms are defined by documents incorporated by reference herein). 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:

•

economic conditions;

•

construction activity;

•

competition;

•

key customers;

•

customer consolidation;

•

availability and costs of raw materials and energy;

•

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

•

negative tax consequences;

•

environmental matters;

•

strategic transactions;

•

covenants in our debt agreements;

•

our indebtedness;

•

our liquidity;

•

claims, litigation and cybersecurity breaches;

•

international operations;

•

defined benefit plan obligations;

•

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

•

intellectual property rights;

•

costs savings and productivity initiatives;

•

labor; 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, 2018, as amended, 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 forward-looking 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,
	2019			2018			2019			2018
Net sales	$	277.1		$	260.5		$	791.2		$	736.4
Cost of goods sold		165.4			162.6			484.7			485.0
Gross profit		111.7			97.9			306.5			251.4
Selling, general and administrative expenses		41.3			35.3			134.3			113.7
Equity earnings from joint venture		(42.9	)		(18.7	)		(83.0	)		(59.2	)
Operating income		113.3			81.3			255.2			196.9
Interest expense		11.7			9.9			31.6			28.9
Other non-operating (income), net		(5.1	)		(9.2	)		(16.0	)		(27.3	)
Earnings from continuing operations before income taxes		106.7			80.6			239.6			195.3
Income tax expense		16.0			16.4			48.8			42.3
Earnings from continuing operations		90.7			64.2			190.8			153.0
Net earnings from discontinued operations, net of tax expense (benefit) of $2.5, ($0.5), $7.2 and $1.2		4.8			5.0			3.0			14.4
(Loss) gain from disposal of discontinued businesses, net of tax (benefit) of ($5.0), ($4.6), ($4.9) and ($4.9)		(22.3	)		7.0			(27.0	)		(16.1	)
Net (loss) gain from discontinued operations		(17.5	)		12.0			(24.0	)		(1.7	)
Net earnings	$	73.2		$	76.2		$	166.8		$	151.3
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		78.6			(7.0	)		84.6			(21.9	)
Derivative (loss) gain, net		(2.7	)		(0.5	)		(15.9	)		5.3
Pension and postretirement adjustments		5.5			2.7			11.2			7.6
Total other comprehensive income (loss)		81.4			(4.8	)		79.9			(9.0	)
Total comprehensive income	$	154.6		$	71.4		$	246.7		$	142.3
Earnings per share of common stock, continuing operations:
Basic	$	1.86		$	1.26		$	3.90		$	2.94
Diluted	$	1.83		$	1.23		$	3.84		$	2.89
(Loss) earnings per share of common stock, discontinued operations:
Basic	$	(0.36	)	$	0.24		$	(0.49	)	$	(0.03	)
Diluted	$	(0.35	)	$	0.23		$	(0.48	)	$	(0.03	)
Net earnings per share of common stock:
Basic	$	1.50		$	1.50		$	3.41		$	2.91
Diluted	$	1.48		$	1.46		$	3.36		$	2.86
Average number of common shares outstanding:
Basic		48.7			50.7			48.8			51.9
Diluted		49.5			51.9			49.6			52.8

See accompanying notes to Condensed Consolidated Financial Statements beginning on page 8.

Armstrong World Industries, Inc., and Subsidiaries

Condensed Consolidated Balance Sheets

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

	Unaudited
	September 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	98.0		$	325.7
Accounts and notes receivable, net		88.8			79.9
Inventories, net		69.4			61.2
Assets of discontinued operations		-			244.3
Income taxes receivable		26.4			1.7
Other current assets		14.1			4.8
Total current assets		296.7			717.6
Property, plant, and equipment, less accumulated depreciation and amortization of $439.5 and $412.9, respectively		508.8			501.0
Lease right-of-use assets		35.2			-
Prepaid pension costs		72.9			52.8
Investment in joint venture		65.7			40.8
Goodwill and intangible assets, net		459.4			442.0
Deferred income taxes		10.6			14.8
Income taxes receivable		0.8			0.8
Other non-current assets		59.6			68.5
Total assets	$	1,509.7		$	1,838.3
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt	$	-		$	55.0
Accounts payable and accrued expenses		141.8			383.3
Liabilities of discontinued operations		-			110.3
Income taxes payable		0.4			0.9
Total current liabilities		142.2			549.5
Long-term debt, less current installments		650.5			764.8
Lease non-current liabilities		30.1			-
Postretirement benefit liabilities		54.6			58.8
Pension benefit liabilities		48.4			50.3
Other long-term liabilities		41.2			38.0
Income taxes payable		20.2			26.5
Deferred income taxes		155.2			124.4
Total non-current liabilities		1,000.2			1,062.8
Shareholders' equity:
Common stock, $0.01 par value per share, 200 million shares authorized, 62,171,708 shares issued and 48,431,228 shares outstanding as of September 30, 2019 and 61,553,724, shares issued and 48,808,239 shares outstanding as of December 31, 2018		0.6			0.6
Capital in excess of par value		549.4			547.4
Retained earnings		970.3			829.8
Treasury stock, at cost, 13,740,480 shares as of September 30, 2019 and 12,745,485 shares as of December 31, 2018		(773.4	)		(692.2	)
Accumulated other comprehensive (loss)		(379.6	)		(459.6	)
Total shareholders' equity		367.3			226.0
Total liabilities and shareholders' equity	$	1,509.7		$	1,838.3

See accompanying notes to Condensed Consolidated Financial Statements beginning on page 8.

Armstrong World Industries, Inc., and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(amounts in millions, except share data)

Unaudited

	Three Months Ended September 30, 2019
																Accumulated
						Additional										Other
	Common Stock					Paid-In		Retained			Treasury Stock					Comprehensive
	Shares			Amount		Capital		Earnings			Shares		Amount			(Loss)			Total
June 30, 2019		48,661,946		$	0.6	$	538.1	$	905.7			13,393,176	$	(740.3	)	$	(461.0	)	$	243.1
Stock issuance, net		116,586			-		-		-			-		-			-			-
Cash dividends - $0.175 per common share		-			-		-		(8.6	)		-		-			-			(8.6	)
Share-based employee compensation		-			-		11.3		-			-		-			-			11.3
Net earnings		-			-		-		73.2			-		-			-			73.2
Other comprehensive income		-			-		-		-			-		-			81.4			81.4
Acquisition of treasury stock		(347,304	)		-		-		-			347,304		(33.1	)		-			(33.1	)
September 30, 2019		48,431,228		$	0.6	$	549.4	$	970.3			13,740,480	$	(773.4	)	$	(379.6	)	$	367.3

	Nine Months Ended September 30, 2019
																Accumulated
						Additional										Other
	Common Stock					Paid-In		Retained			Treasury Stock					Comprehensive
	Shares			Amount		Capital		Earnings

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$93.05	49	$4,556

10-Q	2019-09-30	Quarter: 2019-09-30
10-Q	2019-06-30	Quarter: 2019-06-30
10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-10-28	Earnings, Regulation FD, Exhibits
8-K	2019-09-30	Enter Agreement, Exhibits
8-K	2019-09-30	M&A, Regulation FD, Exhibits
8-K	2019-07-29	Earnings, Regulation FD, Exhibits
8-K	2019-07-24	Other Events, Exhibits
8-K	2019-07-11	Shareholder Vote
8-K	2019-06-05	Regulation FD
8-K	2019-04-29	Earnings, Regulation FD, Exhibits
8-K	2019-04-24	Other Events, Exhibits
8-K	2019-04-04
8-K	2019-03-05	Exhibits
8-K	2019-02-25	Earnings, Regulation FD, Exhibits
8-K	2019-02-20	Other Events, Exhibits
8-K	2019-01-22	Exhibits
8-K	2018-12-07	Regulation FD, Exhibits
8-K	2018-11-07	Regulation FD, Exhibits
8-K	2018-11-06	Other Events, Exhibits
8-K	2018-10-30	Earnings, Regulation FD, Exhibits
8-K	2018-09-17	Regulation FD
8-K	2018-08-02	Regulation FD, Exhibits
8-K	2018-07-27	Earnings, Regulation FD, Exhibits
8-K	2018-07-18	Enter Agreement, Exhibits
8-K	2018-07-12	Shareholder Vote, Other Events
8-K	2018-06-06	Regulation FD, Exhibits
8-K	2018-02-20	Officers

ATR	Aptargroup	7,599
NWL	Newell Brands	6,960
ENTG	Entegris	5,812
BERY	Berry Global Group	5,121
MYE	Myers Industries	607
TUP	Tupperware Brands	599
AFI	Armstrong Flooring	176
CMT	Core Molding Technologies	51
DSWL	Deswell Industries	42
FORD	Forward Industries	10

EX-31.1	awi-ex311_9.htm
EX-31.2	awi-ex312_7.htm
EX-32.1	awi-ex321_6.htm
EX-32.2	awi-ex322_8.htm