Armstrong World Industries Inc 10-Q for FY2023 Q1
Armstrong World Industries Inc (AWI)
About this 10-Q
Armstrong World Industries Inc filed this 10-Q on April 25, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $310.2M
- up 9.8% from $282.6M a year earlier
- Net income
- $47.3M
- up 6.5% from net income of $44.4M a year earlier
- Diluted EPS
- $1.04
- up 10.6% from $0.94 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
☒ |
Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
Emerging growth company |
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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 20, 2023 –
TABLE OF CONTENTS
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Item 1. |
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5 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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29 |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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2
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, broader economic conditions and their effect on our operating results; 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,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “outlook,” “target,” “predict,” “may,” “will,” “would,” “could,” “should,” “seek,” 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
Risks Related to Our Strategy
Risks Related to Financial Matters
Risks Related to Legal and Regulatory Matters
Risks Related to General Economic and Other Factors
3
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.
4
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
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Net sales |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Selling, general and administrative expenses |
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Loss related to change in fair value of contingent consideration |
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Equity (earnings) from joint venture |
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Operating income |
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Interest expense |
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Other non-operating (income), net |
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Earnings before income taxes |
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Income tax expense |
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Net earnings |
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$ |
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$ |
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Other comprehensive income, net of tax: |
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Foreign currency translation adjustments |
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Derivative (loss) gain, net |
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Pension and postretirement adjustments |
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Total other comprehensive (loss) income |
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Total comprehensive income |
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$ |
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$ |
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Net earnings per share of common stock: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Average number of common shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to Condensed Consolidated Financial Statements beginning on page 9.
5
Armstrong World Industries, Inc., and Subsidiaries
Condensed Consolidated Balance Sheets
(amounts in millions, except share and per share data)
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Unaudited |
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March 31, 2023 |
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December 31, 2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts and notes receivable, net |
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Inventories, net |
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Income taxes receivable |
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Other current assets |
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Total current assets |
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Property, plant, and equipment, less accumulated depreciation and amortization of |
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Operating lease assets |
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Finance lease assets |
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Prepaid pension costs |
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Investment in joint venture |
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Goodwill |
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Intangible assets, net |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities and Shareholders' Equity |
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Current liabilities: |
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Current installments of long-term debt |
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$ |
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$ |
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Accounts payable and accrued expenses |
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Operating lease liabilities |
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Finance lease liabilities |
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Income taxes payable |
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Total current liabilities |
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Long-term debt, less current installments |
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Operating lease liabilities |
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Finance lease liabilities |
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Postretirement benefit liabilities |
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Pension benefit liabilities |
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Other long-term liabilities |
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Income taxes payable |
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Deferred income taxes |
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Total non-current liabilities |
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Shareholders' equity: |
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Common stock, $ |
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Capital in excess of par value |
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Retained earnings |
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Treasury stock, at cost, |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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See accompanying notes to Condensed Consolidated Financial Statements beginning on page 9.
6
Armstrong World Industries, Inc., and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
(amounts in millions, except share data)
Unaudited
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Three Months Ended March 31, 2023 |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-In |
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Retained |
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Treasury Stock |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Earnings |
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Shares |
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Amount |
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(Loss) |
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Total |
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December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Stock issuance, net |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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Cash dividends - $ |
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- |
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- |
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- |
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( |
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- |
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- |
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- |
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( |
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Share-based employee compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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Net earnings |
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- |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive (loss) |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Acquisition of treasury stock |
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( |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
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March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Three Months Ended March 31, 2022 |
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-In |
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Retained |
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Treasury Stock |
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Comprehensive |
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Shares |
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Amount |
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Capital |
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Earnings |
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Shares |
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Amount |
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(Loss) |
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Total |
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December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Stock issuance, net |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Cash dividends - $ |
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- |
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- |
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- |
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( |
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- |
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- |
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- |
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( |
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Share-based employee compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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Net earnings |
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- |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive income |
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- |
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- |
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- |
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- |
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- |
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- |
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Acquisition of treasury stock |
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( |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
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March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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See accompanying notes to Condensed Consolidated Financial Statements beginning on page 9.
7
Armstrong World Industries, Inc., and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
Unaudited
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net earnings |
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$ |
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$ |
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Adjustments to reconcile net earnings to net cash provided by operating activities: |
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Depreciation and amortization |
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Deferred income taxes |
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( |
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Share-based compensation |
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Equity earnings from joint venture |
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( |
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( |
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Loss from change in fair value of contingent consideration |
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Payments of contingent consideration in excess of acquisition-date fair value |
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( |
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( |
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Other non-cash adjustments, net |
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( |
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Changes in operating assets and liabilities: |
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Receivables |
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( |
) |
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( |
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Inventories |
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( |
) |
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( |
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Accounts payable and accrued expenses |
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( |
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( |
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Income taxes receivable and payable, net |
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Other assets and liabilities |
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( |
) |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property, plant and equipment |
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( |
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( |
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Return of investment from joint venture |
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Net cash (used for) provided by investing activities |
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( |
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Cash flows from financing activities: |
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Proceeds from revolving credit facility |
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Payments of revolving credit facility |
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( |
) |
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( |
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Payments of long-term debt |
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( |
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Payments for finance leases |
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( |
) |
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( |
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Dividends paid |
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( |
) |
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( |
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Proceeds from share-based compensation plans, net of tax |
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( |
) |
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Payments of acquisition-related contingent consideration |
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( |
) |
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( |
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Payments for treasury stock acquired |
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( |
) |
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( |
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Net cash (used for) financing activities |
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( |
) |
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( |
) |
Effect of exchange rate changes on cash and cash equivalents |
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Net (decrease) in cash and cash equivalents |
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( |
) |
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( |
) |
Cash and cash equivalents at beginning of year |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental Cash Flow Disclosures: |
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Interest paid |
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$ |
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$ |
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Income tax payments, net |
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Amounts in accounts payable for capital expenditures |
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See accompanying notes to Condensed Consolidated Financial Statements beginning on page 9.
8
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Armstrong World Industries, Inc. (“AWI”) is a Pennsylvania corporation incorporated in 1891. When we refer to “AWI,” the “Company,” “we,” “our” or “us” in these notes, we are referring to AWI and its subsidiaries.
Except as disclosed in this note, the accounting policies used in preparing the Condensed Consolidated Financial Statements in this Form 10-Q are the same as those used in preparing the Consolidated Financial Statements for the year ended December 31, 2022. These statements should therefore be read in conjunction with the Consolidated Financial Statements and notes that are included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022. In the opinion of management, all adjustments of a normal recurring nature have been included to provide a fair statement of the results for the reporting periods presented. Operating results for the first quarter of 2023 and 2022 included in this report are unaudited. Quarterly results are not necessarily indicative of annual earnings, primarily due to the different level of sales in each quarter of the year and the possibility of changes in general economic conditions.
These Condensed Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The statements include management estimates and judgments, where appropriate. Management utilizes estimates to record many items, including certain asset values, contingent purchase price liabilities, allowances for bad debts, inventory obsolescence and lower of cost and net realizable value charges, warranty reserves, workers’ compensation, general liability and environmental claims, and income taxes. When preparing an estimate, management determines the amount based upon the consideration of relevant information and may confer with outside parties, including external counsel. Actual results may differ from these estimates.
Certain prior year amounts have been reclassified in the Condensed Consolidated Financial Statements to conform to the 2023 presentation.
Acquisitions
In November 2022, we acquired the business and assets of GC Products, Inc. (“GC Products”), based in Lincoln, CA. GC Products is a designer and manufacturer of glass-reinforced-gypsum, glass-reinforced-cement, molded ceiling and specialty wall products with
NOTE 2. SEGMENT RESULTS
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net sales |
|
|
|
|
|
|
||
Mineral Fiber |
|
$ |
|
|
$ |
|
||
Architectural Specialties |
|
|
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
||
Our product-based Mineral Fiber and Architectural Specialties segment net sales represent the product-based group offerings we sell to external customers.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Segment operating income (loss) |
|
|
|
|
|
|
||
Mineral Fiber |
|
$ |
|
|
$ |
|
||
Architectural Specialties |
|
|
|
|
|
|
||
Unallocated Corporate |
|
|
( |
) |
|
|
( |
) |
Total consolidated operating income |
|
$ |
|
|
$ |
|
||
9
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Total consolidated operating income |
|
$ |
|
|
$ |
|
||
Interest expense |
|
|
|
|
|
|
||
Other non-operating (income), net |
|
|
( |
) |
|
|
( |
) |
Earnings before income taxes |
|
$ |
|
|
$ |
|
||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Segment assets |
|
|
|
|
|
|
||
Mineral Fiber |
|
$ |
|
|
$ |
|
||
Architectural Specialties |
|
|
|
|
|
|
||
Unallocated Corporate |
|
|
|
|
|
|
||
Total consolidated assets |
|
$ |
|
|
$ |
|
||
NOTE 3. REVENUE
Disaggregation of Revenues
Our Mineral Fiber and Architectural Specialties operating segments both manufacture and sell ceiling and wall systems (primarily mineral fiber, fiberglass wool, metal, wood, wood fiber, glass-reinforced-gypsum and felt) throughout the Americas. We disaggregate revenue based on our product-based segments and major customer channels, as they represent the most appropriate depiction of how the nature, amount and timing of revenues and cash flows are affected by economic factors. Net sales by major customer channel are as follows:
Distributors – represents net sales to building materials distributors who re-sell our products to contractors, subcontractors’ alliances, large architect and design firms, and major facility owners. Geographically, this category includes sales throughout the U.S., Canada, and Latin America.
Home centers – represents net sales to home centers, such as Lowe’s Companies, Inc. and The Home Depot, Inc. This category includes sales primarily to U.S. customers.
Direct customers – represents net sales to contractors, subcontractors, and large architect and design firms. This category includes sales primarily to U.S. customers.
Other – represents net sales to independent retailers and certain national account customers, including wholesalers who re-sell our products to dealers who service builders, contractors and consumers, online customers, major facility owners, group purchasing organizations and maintenance, repair and operating entities. Geographically, this category includes sales throughout the U.S. and Canada, and Latin America.
The following tables provide net sales by major customer channel within our Mineral Fiber and Architectural Specialties segments for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
Mineral Fiber |
|
2023 |
|
|
2022 |
|
||
Distributors |
|
$ |
|
|
$ |
|
||
Home centers |
|
|
|
|
|
|
||
Direct customers |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
10
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
Architectural Specialties |
|
2023 |
|
|
2022 |
|
||
Distributors |
|
$ |
|
|
$ |
|
||
Direct customers |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
NOTE 4. ACCOUNTS AND NOTES RECEIVABLE
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Customer receivables |
|
$ |
|
|
$ |
|
||
Miscellaneous receivables |
|
|
|
|
|
|
||
Less allowance for warranties, discounts and losses |
|
|
( |
) |
|
|
( |
) |
Accounts and notes receivable, net |
|
$ |
|
|
$ |
|
||
We sell our products to select, pre-approved customers whose businesses are affected by changes in economic and market conditions. We consider these factors and the financial condition of each customer when establishing our allowance for losses from doubtful accounts.
As of December 31, 2022, miscellaneous receivables included $
NOTE 5. INVENTORIES
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Finished goods |
|
$ |
|
|
$ |
|
||
Goods in process |
|
|
|
|
|
|
||
Raw materials and supplies |
|
|
|
|
|
|
||
Less LIFO reserves |
|
|
( |
) |
|
|
( |
) |
Total inventories, net |
|
$ |
|
|
$ |
|
||
NOTE 6. OTHER CURRENT ASSETS
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Prepaid expenses |
|
$ |
|
|
$ |
|
||
Fair value of derivative assets |
|
|
|
|
|
|
||
Assets held for sale |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other current assets |
|
$ |
|
|
$ |
|
||
As of March 31, 2023 and December 31, 2022, assets held for sale included the property, plant and equipment of our idled Mineral Fiber plant in St. Helens, Oregon.
NOTE 7. EQUITY INVESTMENT
Investment in joint venture reflects the equity interest in our
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net sales |
|
$ |
|
|
$ |
|
||
Gross profit |
|
|
|
|
|
|
||
Net earnings |
|
|
|
|
|
|
||
11
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 8. LEASES
NOTE 9. GOODWILL AND INTANGIBLE ASSETS
The following table details amounts related to our goodwill and intangible assets as of March 31, 2023 and December 31, 2022.
|
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Estimated |
|
Gross |
|
|
Accumulated Amortization |
|
|
Gross |
|
|
Accumulated Amortization |
|
||||
Amortizing intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Developed technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Trademarks and brand names |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-compete agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Non-amortizing intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trademarks and brand names |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total intangible assets |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Goodwill |
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Amortization expense |
|
$ |
|
|
$ |
|
||
NOTE 10. OTHER NON-CURRENT ASSETS
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Cash surrender value of company-owned life insurance policies |
|
$ |
|
|
$ |
|
||
Investment in employee deferred compensation plans |
|
|
|
|
|
|
||
Fair value of derivative assets |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other non-current assets |
|
$ |
|
|
$ |
|
||
NOTE 11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Payables, trade and other |
|
$ |
|
|
$ |
|
||
Employment costs |
|
|
|
|
|
|
||
Current portion of pension and postretirement liabilities |
|
|
|
|
|
|
||
Acquisition-related contingent consideration |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accounts payable and accrued expenses |
|
$ |
|
|
$ |
|
||
12
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 12. INCOME TAX EXPENSE
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Earnings before income taxes |
|
$ |
|
|
$ |
|
||
Income tax expense |
|
|
|
|
|
|
||
Effective tax rate |
|
|
% |
|
|
% |
||
The effective tax rate for the first quarter of 2023 was higher compared to the same period in 2022 due primarily to an increase in our valuation allowance for capital loss carryforwards recorded in the current quarter.
It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. However, an estimate of the range of reasonably possible outcomes cannot be reliably made at this time. Changes to unrecognized tax benefits could result from the expiration of statutes of limitations, the completion of ongoing examinations, or other unforeseen circumstances.
NOTE 13. DEBT
Our long-term debt is comprised of borrowings outstanding under our $
We utilize lines of credit and other commercial commitments to ensure that adequate funds are available to meet operating requirements. Letters of credit are currently arranged through our revolving credit facility and our bi-lateral facility. Letters of credit may be issued to third party suppliers, insurance and financial institutions and typically can only be drawn upon in the event of AWI’s failure to pay its obligations to the beneficiary.
|
|
March 31, 2023 |
|
|||||||||
Financing Arrangements |
|
Limit |
|
|
Used |
|
|
Available |
|
|||
Bi-lateral facility |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Revolving credit facility |
|
|
|
|
|
- |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
NOTE 14. PENSIONS AND OTHER BENEFIT PROGRAMS
Following are the components of net periodic benefit costs (credits):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
U.S. defined benefit plans: |
|
|
|
|
|
|
||
Pension benefits |
|
|
|
|
|
|
||
Service cost of benefits earned during the period |
|
$ |
|
|
$ |
|
||
Interest cost on projected benefit obligation |
|
|
|
|
|
|
||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
Amortization of net actuarial loss |
|
|
|
|
|
|
||
Net periodic pension cost |
|
$ |
|
|
$ |
|
||
Retiree health and life insurance benefits |
|
|
|
|
|
|
||
Interest cost on projected benefit obligation |
|
$ |
|
|
$ |
|
||
Amortization of prior service credit |
|
|
|
|
|
( |
) |
|
Amortization of net actuarial gain |
|
|
( |
) |
|
|
( |
) |
Net periodic postretirement (credit) |
|
$ |
( |
) |
|
$ |
( |
) |
We also have an unfunded defined benefit pension plan in Germany, which was not included as part of prior dispositions. This plan is reported as a component of our Unallocated Corporate segment. Net periodic pension cost for this plan was immaterial for the three months ended March 31, 2023 and 2022.
13
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
The service cost component of net benefit cost has been presented in the Condensed Consolidated Statements of Earnings and Comprehensive Income within cost of goods sold and selling, general and administrative ("SG&A") expenses for all periods presented, which are the same line items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are presented in the Condensed Consolidated Statements of Earnings and Comprehensive Income separately from the service cost component within other non-operating income, net.
NOTE 15. FINANCIAL INSTRUMENTS AND CONTINGENT CONSIDERATION
We do not hold or issue financial instruments for trading purposes.
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
||||
Assets (liabilities), net: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total long-term debt, including current portion |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Interest rate swap contracts |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition-related contingent consideration |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value because of the short-term maturity of these instruments. The fair value estimates of long-term debt are based on quotes from a major financial institution of recently observed trading levels of our Term Loan A debt. The fair value estimates for interest rate swap contracts are estimated by obtaining quotes from major financial institutions with verification by internal valuation models. We engaged an independent, third-party valuation specialist to determine the fair value estimate for acquisition-related contingent consideration payable based on performance, which was measured using a Monte Carlo simulation. As of December 31, 2022, $
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Three levels of inputs may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets or liabilities;
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; or
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The fair value measurement of assets and liabilities measured at fair value on a recurring basis and reported on the Condensed Consolidated Balance Sheets is summarized below:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
|
Fair value based on |
|
|
Fair value based on |
|
||
|
|
Level 2 |
|
|
Level 2 |
|
||
Assets, net: |
|
|
|
|
|
|
||
Interest rate swap contracts |
|
$ |
|
|
$ |
|
||
The changes in fair value of the acquisition-related contingent consideration liability for the three months ended March 31, 2023 and 2022 were as follows:
14
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Fair value of contingent consideration as of beginning of period |
|
$ |
|
|
$ |
|
||
Cash consideration paid |
|
|
( |
) |
|
|
( |
) |
Loss related to change in fair value of contingent consideration |
|
|
|
|
|
|
||
Fair value of contingent consideration as of end of period |
|
$ |
|
|
$ |
|
||
During the three months ended March 31, 2023, we paid $
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS
We are exposed to market risk from changes in foreign exchange rates, interest rates and commodity prices that could impact our results of operations, cash flows and financial condition. We use interest rate derivatives to manage our exposures to interest rates. At inception, interest rate swap derivatives that we designate as hedging instruments are formally documented as a hedge of a forecasted transaction or cash flow hedge. We also formally assess, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer probable of occurring, we discontinue hedge accounting and any future mark-to-market adjustments are recognized in earnings. We use derivative financial instruments as risk management tools and not for speculative trading purposes.
Counterparty Risk
We only enter into derivative transactions with established financial institution counterparties having an investment-grade credit rating. We monitor counterparty credit ratings on a regular basis. All of our derivative transactions with counterparties are governed by master International Swap and Derivatives Association agreements (“ISDAs”) with netting arrangements. These agreements can limit our exposure in situations where we have gain and loss positions outstanding with a single counterparty. We do not post nor do we receive cash collateral with any counterparty for our derivative transactions. These ISDAs do not have any credit contingent features; however, a default under our bank credit facility would trigger a default under these agreements. Exposure to individual counterparties is controlled and we consider the risk of counterparty default to be negligible.
Interest Rate Risk
We utilize interest rate swaps to minimize the fluctuations in earnings caused by interest rate volatility. These swaps are designated as cash flow hedges against changes in interest rates for a portion of our variable rate debt. Effective the second quarter 2020, we adopted Accounting Standards Update 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” (“ASU 2020-04”) which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”). In March 2023, we amended our interest rate swaps in accordance with ASU 2020-04, changing our hedged interest rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”).
The following table summarizes our interest rate swaps as of March 31, 2023:
Trade Date |
|
Notional |
|
Coverage Period |
|
Risk Coverage |
|
|
$ |
|
|
||||
|
$ |
|
|
||||
|
$ |
|
|
||||
|
$ |
|
|
||||
|
$ |
|
|
||||
Under the terms of our interest rate swaps above, we pay a fixed rate monthly and receive 1-month SOFR, inclusive of a
15
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
Financial Statement Impacts
The following tables detail amounts related to our derivatives as of March 31, 2023 and December 31, 2022. We did not have any derivative assets or liabilities not designated as hedging instruments as of March 31, 2023 or December 31, 2022. The derivative asset amounts below are shown gross and have not been netted.
|
|
Derivative Assets |
|
|||||||
|
|
|
|
Fair Value |
|
|||||
|
|
Balance Sheet |
|
March 31, |
|
|
December 31, |
|
||
Interest rate swap contracts |
|
|
$ |
|
|
$ |
|
|||
Interest rate swap contracts |
|
|
|
|
|
|
|
|||
|
|
Amount of (Loss) Gain |
|
|
Location of Gain |
|
Gain Reclassified |
|
||||||||||
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
||||||||||
|
|
March 31, |
|
|
|
|
March 31, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
|
|
2023 |
|
|
2022 |
|
||||
Derivatives in cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|||||||||
Interest rate swap contracts |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
As of March 31, 2023, the amount of existing gains in Accumulated Other Comprehensive Income (“AOCI”) expected to be recognized in net earnings over the next twelve months was $
NOTE 17. SHAREHOLDERS’ EQUITY
Common Stock Repurchase Plan
On July 29, 2016, our Board of Directors approved our share repurchase program pursuant to which we are authorized to repurchase up to $
Repurchases under the Program may be made through open market, block and privately negotiated transactions, including Rule 10b5-1 plans, at such times and in such amounts as management deems appropriate, subject to market and business conditions, regulatory requirements and other factors. The Program does not obligate AWI to repurchase any particular amount of common stock and may be suspended or discontinued at any time without notice.
During the three months ended March 31, 2023, we repurchased
16
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
Dividends
In February 2023, our Board of Directors declared a $
Accumulated Other Comprehensive (Loss)
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Foreign |
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Derivative |
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Pension and Postretirement Adjustments (1) |
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Total |
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||||
Balance, December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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( |
) |
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Other comprehensive (loss) income before reclassifications, |
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) |
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Amounts reclassified from accumulated other |
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( |
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Net current period other comprehensive (loss) income |
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( |
) |
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) |
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Balance, March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
||
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Foreign |
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Derivative |
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Pension and Postretirement Adjustments (1) |
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Total |
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||||
Balance, December 31, 2021 |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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( |
) |
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Other comprehensive income before reclassifications, |
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Amounts reclassified from accumulated other |
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) |
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Net current period other comprehensive income |
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||||
Balance, March 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
||
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Amounts |
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Affected Line Item in the |
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Three Months Ended March 31, |
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2023 |
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2022 |
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Derivative Adjustments: |
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Interest rate swap contracts, before tax |
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$ |
( |
) |
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$ |
( |
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Interest expense |
Tax impact |
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Income tax expense |
||
Total (income), net of tax |
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Pension and Postretirement Adjustments: |
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Prior service credit amortization |
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( |
) |
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Other non-operating (income), net |
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Amortization of net actuarial loss |
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( |
) |
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Total (income) loss, before tax |
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Tax impact |
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Income tax expense |
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Total (income) loss, net of tax |
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) |
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Total reclassifications for the period |
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$ |
( |
) |
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$ |
( |
) |
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17
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 18. LITIGATION AND RELATED MATTERS
ENVIRONMENTAL MATTERS
Environmental Compliance
Our manufacturing and research facilities are affected by various federal, state and local requirements relating to the discharge of materials and the protection of the environment. We make expenditures necessary for compliance with applicable environmental requirements at each of our operating facilities. While these expenditures are not typically material, the applicable regulatory requirements continually change and, as a result, we cannot predict with certainty the amount, nature or timing of future expenditures associated with environmental compliance.
Environmental Sites
Summary
We are actively involved in the investigation and remediation of existing or potential environmental contamination under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and state Superfund and similar environmental laws at two domestically owned locations allegedly resulting from past industrial activity.
In each location, we are one of multiple potentially responsible parties and have agreed to jointly fund the required investigation and remediation, while preserving our defenses to the liability. We may also have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies. We have pursued coverage and recoveries under those applicable insurance policies with respect to certain of the sites, including the Macon, GA site and the Elizabeth City, NC site, each of which is summarized below. Other than disclosed below, we are unable to predict the outcome of these matters or the timing of any future recoveries, whether through settlement or otherwise. We are also unable to predict the extent to which any recoveries might cover our final share of investigation and remediation costs for these sites. Our final share of investigation and remediation costs may exceed any such recoveries, and such amounts net of insurance recoveries may be material.
Between 2017 and 2021, we entered settlement agreements totaling $
Estimates of our future liability at the environmental sites are based on evaluations of currently available facts regarding each individual site. We consider factors such as our activities associated with the site, existing technology, presently enacted laws and regulations and prior company experience in remediating contaminated sites. Although current law imposes joint and several liability on all parties at Superfund sites, our contribution to the remediation of these sites is expected to be limited by the number of other companies potentially liable for site remediation. As a result, our estimated liability reflects only our expected share. In determining the probability of contribution, we consider the solvency of other parties, the site activities of other parties, whether liability is being disputed, the terms of any existing agreements and experience with similar matters, and the effect of our October 2006 Chapter 11 reorganization upon the validity of the claim, if any.
Specific Material Events
Macon, GA
The U.S. Environmental Protection Agency (the “EPA”) has listed
In September 2010, we entered into an Administrative Order on Consent for a Removal Action (the “Removal Action”) with the EPA to investigate PCB contamination in
18
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
issued an Action Memorandum in July 2013 selecting our recommended remedy for the Removal Action. The Operable Unit 1 response action is complete and the final report was submitted to the EPA in . The EPA approved the final report in November 2016, and a Post-Removal Control Plan was submitted to the EPA in March 2017.
It is probable that we will incur field investigation, engineering and oversight costs associated with a Remedial Investigation and Feasibility Study (“RI/FS”) with respect to the remainder of the Superfund site, which includes the other landfill on our property, as well as areas on and adjacent to our property and Rocky Creek (“Operable Unit 2”). In September 2015, AWI and other Potential Responsible Parties (“PRPs”) received a Special Notice Letter from the EPA under CERCLA inviting AWI and the PRPs to enter into the negotiation of an agreement to conduct an RI/FS of Operable Unit 2. We and the other PRPs entered into a settlement agreement with the EPA effective September 2018, in response to the Special Notice Letter to conduct the RI/FS. The PRPs submitted a complete RI/FS work plan, which was approved by the EPA in September 2019. Investigative work on this portion of the site commenced in December 2019.
In June 2021, the PRPs submitted the Site Characterization Summary Report (SCSR) for Operable Unit 2 to the EPA. The purpose of the SCSR is to demonstrate that the available data for Operable Unit 2 is adequate for the risk assessment and for the development of remedial action objectives. In August 2022, the PRPs submitted to the EPA a Human Health Baseline Risk Assessment, and in December 2022, the PRPs submitted to the EPA a final Baseline Ecological Risk Assessment for Operable Unit 2. Both risk assessments were approved by the EPA and are exhibits to the draft Remedial Investigation Report, which the PRPs finalized and submitted to the EPA in March 2023. The PRPs are in the process of completing the Feasibility Study which will evaluate remedial alternatives for Operable Unit 2, and is needed to complete the RI/FS. We may ultimately incur costs in remediating any contamination discovered during the RI/FS. The current estimate of future liability at this site includes only our estimated share of the costs of the investigative work that the EPA is requiring the PRPs to perform at this time. We are unable to reasonably estimate our final share of the total costs associated with the investigation work or any resulting remediation therefrom, although such amounts may be material to any one quarter's or year's results of operations in the future. We do not expect the total future costs to have a material adverse effect on our liquidity or financial condition as the cash payments may be made over many years.
Elizabeth City, NC
This site is a former cabinet manufacturing facility that from 1977 until 1996 was operated by Triangle Pacific Corporation, which became Armstrong Wood Products, Inc. (“AWP”), and is now AHF Products, LLC. The site was formerly owned by the U.S. Navy (“Navy”) and Westinghouse, which was purchased by Paramount Global (“Paramount”) (then known as CBS Corporation). We assumed ownership of the site when we acquired the stock of AWP in 1998. Prior to our acquisition, the North Carolina Department of Environment and Natural Resources listed the site as a hazardous waste site. In 1997, AWP entered into a cost sharing agreement with Westinghouse whereby the parties agreed to share equally in costs associated with investigation and potential remediation. In 2000, AWP and Paramount entered into an Administrative Order on Consent to conduct an RI/FS with the EPA for the site. In 2007, we and Paramount entered into an agreement with the Navy whereby the Navy agreed to pay one third of defined past and future investigative costs up to a certain amount, which has now been exhausted. The EPA approved the RI/FS work plan in August 2011. In January 2014, we submitted draft Remedial Investigation and Risk Assessment reports and conducted supplemental investigative work based upon agency comments to those reports. In connection with the separation of Armstrong Flooring, Inc. in 2016, we agreed to retain any legacy environmental liabilities associated with the AWP site. The EPA published an Interim Action Proposed Plan for the site in April 2018 seeking public comment until June 2018. The EPA evaluated comments, including ours, and has published its Interim Record Of Decision selecting an interim cleanup approach. In September 2018, AWI and Paramount received a Special Notice Letter from the EPA under CERCLA inviting AWI and Paramount to enter into the negotiation of a settlement agreement to conduct or finance the response action at the site. In response to the September 2018 Special Notice Letter, we and Paramount submitted a good faith offer to the EPA in May 2019. In June 2021, we entered into a negotiated Partial Consent Decree and Site Participation Agreement with the EPA, Paramount and the United States on behalf of the Navy for the remedial design and remedial action for the interim remedy. Because the United States does not conduct work as a PRP at Superfund sites, similar to the 2007 agreement, the United States agreed to pay its share of the estimated costs of performing the work. The Partial Consent Decree was entered by the U.S. District Court for the Eastern District of North Carolina in January 2022. A Remedial Design Work Plan (“RDWP”) for the site was submitted to the EPA in June 2022, and AWI and Paramount responded in November 2022 to comments received from the EPA in September 2022. The EPA approved a revised RDWP in February 2023 and work on a pre-design investigation work plan is ongoing. The current estimate of future liability at this site includes only our estimated share of the costs of the interim remedial action that, at this time, we anticipate the EPA will require the PRPs to perform. We are unable to reasonably estimate our final share of the total costs associated with the interim or final remediation at the site, although such amounts may be material to any one quarter’s or
19
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
year’s results of operations in the future. We do not expect the total future costs to have a material adverse effect on our liquidity or financial condition as the cash payments may be made over many years.
Summary of Financial Position
Total liabilities of $
The estimated environmental liabilities above do not take into account any claims for additional recoveries from insurance or third parties. It is our policy to record insurance recoveries as assets in the Condensed Consolidated Balance Sheets when realizable. We incur costs to pursue environmental insurance recoveries, which are expensed as incurred.
Actual costs to be incurred at identified sites may vary from our estimates. Based on our knowledge of the identified sites, it is not possible to reasonably estimate future costs in excess of amounts already recognized.
OTHER CLAIMS
From time to time, we are involved in other various lawsuits, claims, investigations and other legal matters that arise in the ordinary course of business, including matters involving our products, intellectual property, relationships with suppliers, relationships with distributors, other customers or end users, relationships with competitors, employees and other matters. In connection with those matters, we may have rights of indemnity, contribution or reimbursement from other parties or coverage under applicable insurance policies. When applicable and appropriate, we will seek indemnity, contribution or reimbursement from other parties and pursue coverage and recoveries under those policies, but are unable to predict the outcome of those demands. While complete assurance cannot be given to the outcome of any proceedings relating to these matters, we do not believe that any current claims, individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations.
NOTE 19. NET EARNINGS PER SHARE
The following table is a reconciliation of net earnings to net earnings attributable to common shares used in our basic and diluted net Earnings Per Share (“EPS”) calculations for the three months ended March 31, 2023 and 2022. EPS components may not add due to rounding.
|
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Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net earnings |
|
$ |
|
|
$ |
|
||
(Earnings) allocated to participating vested share awards |
|
|
|
|
|
( |
) |
|
Net earnings attributable to common shares |
|
$ |
|
|
$ |
|
||
The following table is a reconciliation of basic shares outstanding to diluted shares outstanding for the three months ended March 31, 2023 and 2022 (shares in millions):
|
|
Three Months Ended |
|
|||||
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|
March 31, |
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|||||
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2023 |
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2022 |
|
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Basic shares outstanding |
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Dilutive effect of common stock equivalents |
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Diluted shares outstanding |
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20
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
Anti-dilutive stock awards excluded from the computation of dilutive EPS for the three months ended March 31, 2023 and 2022 were
21
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the financial statements, the accompanying notes, the cautionary note regarding forward-looking statements and risk factors included in this report and our Annual Report on Form 10-K for the year ended December 31, 2022.
OVERVIEW
AWI is a leader in the design, innovation and manufacture of ceiling and wall solutions in the Americas. Our products primarily include mineral fiber, fiberglass wool, metal, wood, wood fiber, glass-reinforced-gypsum and felt. We also manufacture ceiling suspension system (grid) products through a joint venture with Worthington Industries, Inc. ("Worthington") called Worthington Armstrong Venture ("WAVE").
Acquisitions
In November 2022, we acquired the business and assets of GC Products, Inc. (“GC Products”), based in Lincoln, CA. GC Products is a designer and manufacturer of glass-reinforced-gypsum, glass-reinforced-cement, molded ceiling and specialty wall products with one manufacturing facility. The operations, assets and liabilities of GC Products are included in our Architectural Specialties segment. The acquisition of GC Products did not have a material impact on our results of operations for the three months ended March 31, 2023.
Manufacturing Plants
As of March 31, 2023, we operated 16 manufacturing plants, with 14 plants located within the U.S. and two plants in Canada. This excludes our St. Helens, Oregon mineral fiber manufacturing plant, which was closed in the second quarter of 2018, and was classified as an asset held for sale as of March 31, 2023.
WAVE operates seven additional plants in the U.S. to produce suspension system (grid) products, which we use and sell in our ceiling systems.
Reportable Segments
Our operating segments are as follows: Mineral Fiber, Architectural Specialties and Unallocated Corporate.
Mineral Fiber – produces suspended mineral fiber and soft fiber ceiling systems. Our mineral fiber products offer various performance attributes such as acoustical control, rated fire protection, aesthetic appeal, and health and sustainability features. Ceiling products are sold to resale distributors, ceiling systems contractors and wholesalers and retailers (including large home centers). The Mineral Fiber segment also includes the results of WAVE, which manufactures and sells suspension system (grid) products and ceiling component products that are invoiced by both AWI and WAVE. Segment results relating to WAVE consist primarily of equity earnings and reflect our 50% equity interest in the joint venture. Ceiling component products consist of ceiling perimeters and trim, in addition to grid products that support drywall ceiling systems. For some customers, WAVE sells its suspension systems products to AWI for resale to customers. Mineral Fiber segment results reflect those sales transactions. The Mineral Fiber segment also includes all assets and liabilities not specifically allocated to our Architectural Specialties or Unallocated Corporate segment, including all property and related depreciation associated with our Lancaster, PA headquarters. Operating results for the Mineral Fiber segment include a significant majority of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations.
Architectural Specialties – produces, designs and sources ceilings and walls for use in commercial settings. Products are available in numerous materials, such as metal, felt and wood, in addition to various colors, shapes and designs. Products offer various performance attributes such as acoustical control, rated fire protection and aesthetic appeal. We sell standard, premium and customized products, a portion of which are derived from sourced products. Architectural Specialties products are sold primarily to resale distributors and direct customers, primarily ceiling systems contractors. The majority of this segment's revenues are project driven, which can lead to more volatile sales patterns due to project scheduling uncertainty. Operating results for the Architectural Specialties segment include a portion of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations.
Unallocated Corporate – includes certain assets, liabilities, income and expenses that have not been allocated to our other business segments and consists of: cash and cash equivalents, the net funded status of our U.S. Retirement Income Plan (“RIP”), the estimated fair value of interest rate swap contracts, outstanding borrowings under our senior secured credit facility and income tax balances.
22
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Factors Affecting Revenues
For information on our segments' 2023 net sales by segment, see Notes 2 and 3 to the Condensed Consolidated Financial Statements.
Markets. We compete in the building product construction markets of the Americas. We closely monitor publicly available macroeconomic trends that provide insight into commercial construction market activity, including, but not limited to, GDP, office vacancy rates, the Architecture Billings Index, new commercial construction starts, state and local government spending, corporate profits and retail sales. The Company continues to monitor the impacts of COVID-19 and other global events, including the conflict in Ukraine, both of which had minimal direct impacts on our results of operations during the first quarter of 2023 and 2022. Additionally, we have monitored, and will continue to monitor, the impact of domestic and international bank failures, which had no direct impact on our results of operations, financial condition and results of operations during the first quarter of 2023.
Several factors and trends within our markets affected our business performance during the first quarter of 2023 compared to the first quarter of 2022, most importantly rising interest rates, lower inflation on certain input costs, and the lessening impact of supply chain and labor availability constraints, all of which resulted in uneven market demand. For the three months ended March 31, 2023, increased sales volumes contributed $21 million to net sales compared to the same period in 2022, primarily in our Mineral Fiber segment. The increase in Mineral Fiber sales volumes was primarily driven by comparison to a weaker prior-year period due to reductions of inventory levels at certain customers, and partially due to current-year inventory level increases at our home center customers.
Average Unit Value. We periodically modify sales prices of our products due to changes in costs for raw materials and energy, market conditions and the competitive environment. Typically, realized price increases are less than announced price increases because of project pricing, competitive adjustments and changing market conditions. We also offer a wide assortment of products that are differentiated by style, design and performance attributes. Pricing and margins for products within the assortment vary. In addition, changes in the relative quantity of products purchased at different price points can impact year-to-year comparisons of net sales and operating income. Within our Mineral Fiber segment, we focus on improving sales dollars per unit sold, or average unit value (“AUV”), as a measure that accounts for the varying assortment of products and like-for-like pricing impacting our revenues. We estimate that favorable AUV increased our total consolidated net sales for the three months ended March 31, 2023 by approximately $6 million compared to the same period in 2022. Our Architectural Specialties segment revenues are primarily earned based on individual contracts that include a mix of products, both manufactured by us and sourced from third parties, which varies by project. As such, we do not track AUV performance for this segment, but rather attribute most changes in sales to volume.
During the first quarter of 2023, we implemented price increases on Mineral Fiber ceiling, grid products and certain Architectural Specialties products. We may implement future pricing actions based on numerous factors, namely the rate and pace of inflation and its impact on our business.
Seasonality. Historically, our sales tend to be stronger in the second and the third quarters of our fiscal year due to more favorable weather conditions, customer business cycles and the timing of renovation and new construction projects.
Factors Affecting Operating Costs
Operating Expenses. Our operating expenses are comprised of direct production costs (principally raw materials, labor and energy), manufacturing overhead costs, freight, costs to purchase sourced products and SG&A expenses.
Our largest raw material expenditures are primarily for fiberglass, perlite, recycled paper and starch. Other raw materials include aluminum, clays, felt, pigment, steel, wood and wood fiber. We manufacture most of our mineral wool at one of our manufacturing facilities. Natural gas and packaging materials are also significant input costs. Fluctuations in the prices of these inputs have an impact on our financial results. In the first quarter of 2023, higher costs for raw materials and energy negatively impacted operating income by $4 million compared to the same period in 2022.
2020 Acquisition-Related Expenses and Losses
In connection with our acquisitions of Turf in July 2020, and Arktura LLC (“Arktura”) in December 2020, we recorded certain acquisition-related expenses and losses to operating income in the three months ended March 31, 2023 and 2022, summarized as
23
Management’s Discussion and Analysis of Financial Condition and Results of Operations
follows (dollar amounts in millions):
|
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Three Months Ended |
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|
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|||||
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|
March 31, |
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|
|
|||||
|
|
2023 |
|
|
2022 |
|
|
Affected Line Item in the Condensed Consolidated Statements of Earnings and Comprehensive Income |
||
Loss related to change in fair value of contingent consideration |
|
|
- |
|
|
|
0.1 |
|
|
Loss related to change in fair value of contingent consideration |
Deferred cash and restricted stock expenses |
|
|
1.3 |
|
|
|
2.0 |
|
|
SG&A expenses |
Net negative impact to operating income |
|
$ |
1.3 |
|
|
$ |
2.1 |
|
|
|
The change in fair value of contingent consideration was related to our Turf acquisition and was remeasured quarterly during the acquisition's earn-out period which was completed on December 31, 2022. See Note 15 to the Condensed Consolidated Financial Statements for further information. Expenses related to the deferred cash and restricted stock awards for Arktura’s former owners and employees are recorded over their respective service periods, as such payments are subject to the awardees’ continued employment with AWI. Depreciation of fixed assets acquired and amortization of intangible assets acquired have been excluded from the table above.
Employees
As of March 31, 2023 and December 31, 2022, we had approximately 3,000 full-time and part-time employees.
RESULTS OF OPERATIONS
Please refer to Note 2 to the Condensed Consolidated Financial Statements for a reconciliation of operating income to consolidated net earnings before income taxes.
CONSOLIDATED RESULTS
(dollar amounts in millions)
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
March 31, |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change is Favorable |
|
|||
Total consolidated net sales |
|
$ |
310.2 |
|
|
$ |
282.6 |
|
|
|
9.8 |
% |
Operating income |
|
$ |
70.2 |
|
|
$ |
63.2 |
|
|
|
11.1 |
% |
Consolidated net sales for the first quarter of 2023 increased 9.8% over the prior-year period as higher volumes contributed $21 million and favorable AUV contributed $6 million. Mineral Fiber net sales increased $25 million and Architectural Specialties net sales increased $2 million over the prior-year period. The increase in Mineral Fiber segment net sales was primarily driven by higher volumes, and partially due to improved AUV. The increase in Mineral Fiber segment sales volumes was primarily driven by a recovery of sales volumes compared to a weaker prior-year period due to inventory level reductions at certain customers and partially due to current-year inventory level increases at our home center customers. The favorable AUV was primarily driven by positive like-for-like pricing, partially offset by unfavorable geographic mix. Architectural Specialties segment net sales improved due to growth across most product categories, partially offset by lower metal product sales.
Cost of goods sold in the first quarter of 2023 was 63.9% of net sales, compared to 63.8% for the same period in 2022. The increase in cost of goods sold as a percent of net sales for the first quarter of 2023 was driven by raw material and energy inflation and inventory valuation impacts, partially offset by favorable AUV performance and improved manufacturing productivity.
SG&A expenses in the first quarter of 2023 were $62.7 million, or 20.2% of net sales, compared to $57.1 million, or 20.2% of net sales, for the same period in 2022. The year-over-year increase in SG&A expenses was driven primarily by a $5 million increase in selling expenses, primarily related to investments in our Architectural Specialties segment and higher costs in support of our digital selling initiatives, in addition to $3 million in severance costs related to cost savings initiatives in the current-year quarter, partially offset by a $1 million reduction in acquisition-related expenses.
Equity earnings from our WAVE joint venture were $20.8 million in the first quarter of 2023, compared to $18.2 million in the first quarter of 2022. WAVE earnings growth was primarily driven by lower steel costs and the benefits of a recovery of sales volumes compared to a weaker prior-year period due to inventory level reductions at certain customers. These benefits were partially offset by the impact of unfavorable AUV. See Note 7 to the Condensed Consolidated Financial Statements for further information.
24
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Interest expense was $8.7 million in the first quarter of 2023 compared to $5.1 million in the first quarter of 2022. The increase was primarily due to higher interest rates on floating rate debt.
Other non-operating income, net, was $2.4 million in the first quarter of 2023 compared to $1.3 million in the first quarter of 2022. Other non-operating income, net, is primarily comprised of the non-service cost components of pension and postretirement net periodic benefit costs.
Income tax expense was $16.6 million in the first quarter of 2023 compared to $15.0 million in the first quarter of 2022. The effective tax rate for the first quarter of 2023 was 26.0% compared to 25.3% for the same period of 2022. The increase in the effective tax rate for the first quarter of 2023 was primarily due to an increase in our valuation allowance for capital loss carryforwards recorded in the current quarter.
Total Other Comprehensive Loss (“OCL”) was $2.1 million in the first quarter of 2023 compared to Other Comprehensive Income (“OCI”) of $11.9 million in the first quarter of 2022. The change in OCL in the first quarter of 2023 compared to the same period in 2022 was primarily driven by derivative gains/losses. Derivative gain/loss represents the mark-to-market value adjustments of our derivative assets and liabilities, and the recognition of gains and losses previously deferred in OCI. Also impacting the change in OCL were pension and postretirement adjustments and foreign currency translation adjustments. Pension and postretirement adjustments represent the amortization of actuarial gains and losses related to our defined benefit pension and postretirement plans. Foreign currency translation adjustments represent the change in the U.S. dollar value of assets and liabilities denominated in foreign currencies. Amounts in the first quarter of 2023 and 2022 were driven primarily by changes in the Canadian dollar.
REPORTABLE SEGMENT RESULTS
Mineral Fiber
(dollar amounts in millions)
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
March 31, |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change is Favorable |
|
|||
Total segment net sales |
|
$ |
228.4 |
|
|
$ |
203.2 |
|
|
|
12.4 |
% |
Operating income |
|
$ |
63.8 |
|
|
$ |
57.6 |
|
|
|
10.8 |
% |
Net sales increased in the first quarter of 2023 due to $19 million of higher sales volumes and $6 million of favorable AUV. The increase in volumes was driven primarily by a recovery of sales volumes compared to a weaker prior-year period due to inventory level reductions at certain customers, and partially due to current-year inventory level increases at our home center customers. The improvement in AUV was driven by favorable like-for-like price, partially offset by unfavorable geographic mix.
Operating income increased in the first quarter of 2023 primarily due to a $12 million benefit from higher sales volumes, a $5 million benefit from favorable AUV and a $3 million increase in equity earnings. These benefits were partially offset by an $8 million increase in manufacturing costs, primarily driven by raw material and energy inflation, and inventory valuation impacts, partially offset by improved manufacturing productivity. Also partially offsetting the favorability was $3 million in severance costs related to cost savings initiatives in the current-year quarter and a $3 million increase in selling expenses, partially in support of digital growth initiatives.
Architectural Specialties
(dollar amounts in millions)
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
March 31, |
|
|
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change is Favorable |
|
|||
Total segment net sales |
|
$ |
81.8 |
|
|
$ |
79.4 |
|
|
|
3.0 |
% |
Operating income (loss) |
|
$ |
7.2 |
|
|
$ |
6.5 |
|
|
|
10.8 |
% |
Net sales increased $2 million in the first quarter of 2023 compared to the same period in 2022, driven by growth across most product categories, partially offset by lower metal product sales. Net sales growth was also negatively impacted by the timing of custom project sales.
Operating income increased in the first quarter of 2023 primarily due to a $2 million margin benefit from increased sales and favorable project mix and a $1 million reduction in acquisition-related expenses, partially offset by a $2 million increase in selling expenses.
25
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unallocated Corporate
Unallocated Corporate operating loss was $1 million in the first quarter of 2023 and 2022.
FINANCIAL CONDITION AND LIQUIDITY
Cash Flow
Operating activities for the first three months of 2023 provided $26.2 million of cash, compared to $16.7 million in the first three months of 2022. The increase was primarily due to favorable working capital changes, most notably in inventory.
Net cash used in investing activities was $1.5 million in the first three months of 2023, compared to $0.2 million of cash provided in the first three months of 2022. The unfavorable change in cash in the first quarter of 2023 compared to the same period in 2022 was primarily due to increased purchases of property, plant and equipment, partially offset by an increase in dividends from WAVE.
Net cash used for financing activities was $34.7 million in the first three months of 2023, compared to $39.2 million in the first three months of 2022. The favorable change in cash was primarily due to decreased payments on borrowings and a decrease in repurchases of outstanding common stock, partially offset by higher payments of acquisition-related contingent consideration in 2023.
Liquidity
Our liquidity needs for operations vary throughout the year. We retain lines of credit to facilitate our seasonal cash flow needs, since cash flow is historically lower during the first and fourth quarters of our fiscal year.
We have a $950.0 million variable rate senior credit facility, which is comprised of a $500.0 million revolving credit facility (with a $150.0 million sublimit for letters of credit) and a $450.0 million Term Loan A. The revolving credit facility and Term Loan A are currently priced at 1.625% over SOFR, plus a 10-basis point adjustment. The revolving credit facility and Term Loan A mature in December 2027. We also have a $25.0 million bi-lateral letter of credit facility separate from the senior secured credit facility.
As of March 31, 2023, total borrowings outstanding under our senior credit facility were $450.0 million under Term Loan A and $220.0 million under the revolving credit facility.
The senior credit facility includes two financial covenants that require the ratio of consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) to consolidated cash interest expense minus cash consolidated interest income to be greater than or equal to 3.0 to 1.0, and requires the ratio of consolidated funded indebtedness, minus AWI and domestic subsidiary unrestricted cash and cash equivalents up to $100 million, to EBITDA to be less than or equal to 3.75 to 1.0 (subject to certain exceptions for certain acquisitions). As of March 31, 2023, we were in compliance with all covenants of the senior credit facility.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to replace LIBOR rates with the SOFR effective in mid-2023. The Alternative Reference Rates Committee (“ARRC”) has proposed that the SOFR rate represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR. In the second quarter of 2020, we adopted Accounting Standards Update 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” ("ASU 2020-04") which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of LIBOR. In March 2023, we amended our interest rate swaps in accordance with ASU 2020-04, changing our hedged interest rate from LIBOR to SOFR.
The Term Loan A is currently priced on a variable interest rate basis. The following table summarizes our interest rate swaps (dollar amounts in millions):
Trade Date |
|
Notional |
|
Coverage Period |
|
Risk Coverage |
|
November 28, 2018 |
|
$ |
200.0 |
|
November 2018 to November 2023 |
|
USD-SOFR |
September 19, 2022 |
|
$ |
25.0 |
|
September 2022 to December 2023 |
|
USD-SOFR |
March 10, 2020 |
|
$ |
50.0 |
|
March 2021 to March 2024 |
|
USD-SOFR |
March 11, 2020 |
|
$ |
50.0 |
|
March 2021 to March 2024 |
|
USD-SOFR |
November 28, 2018 |
|
$ |
100.0 |
|
March 2021 to March 2025 |
|
USD-SOFR |
Under the terms of our interest rate swaps above, we pay a fixed rate monthly and receive 1-month SOFR, inclusive of a 0% floor.
26
Management’s Discussion and Analysis of Financial Condition and Results of Operations
As of March 31, 2023, these swaps are designated as cash flow hedges against changes in SOFR for a portion of our variable rate debt.
We utilize lines of credit and other commercial commitments to ensure that adequate funds are available to meet operating requirements. Letters of credit are currently arranged through our revolving credit facility and our bi-lateral facility. Letters of credit may be issued to third party suppliers, insurance and financial institutions and typically can only be drawn upon in the event of AWI’s failure to pay its obligations to the beneficiary. The following table presents details related to our letters of credit facilities (dollar amounts in millions):
|
|
March 31, 2023 |
|
|||||||||
Financing Arrangements |
|
Limit |
|
|
Used |
|
|
Available |
|
|||
Bi-lateral facility |
|
$ |
25.0 |
|
|
$ |
8.1 |
|
|
$ |
16.9 |
|
Revolving credit facility |
|
|
150.0 |
|
|
|
- |
|
|
|
150.0 |
|
Total |
|
$ |
175.0 |
|
|
$ |
8.1 |
|
|
$ |
166.9 |
|
As of March 31, 2023, we had $96.0 million of cash and cash equivalents, $80.7 million in the U.S. and $15.3 million in foreign jurisdictions, primarily Canada. As of March 31, 2023, we also had $280.0 million available under our revolving credit facility. We believe cash on hand and cash generated from operations, together with borrowing capacity under our credit facility, will be adequate to address our near-term liquidity needs based on current expectations of our business operations, capital expenditures and scheduled payments of debt obligations.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to our critical accounting estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding our exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on the evaluation of the effectiveness of our disclosure controls and procedures by our management, with the participation of our principal executive officer and our chief financial officer, as of March 31, 2023, our principal executive officer and our chief financial officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) Changes in Internal Control Over Financial Reporting. There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 18 to the Condensed Consolidated Financial Statements, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Purchases of Equity Securities
Period |
|
Total Number |
|
|
Average Price |
|
|
Total Number of |
|
|
Maximum Approximate Value |
|
||||
January 1 – 31, 2023 |
|
|
137,225 |
|
|
$ |
72.87 |
|
|
|
137,225 |
|
|
$ |
338,788,146 |
|
February 1 – 28, 2023 |
|
|
55,467 |
|
|
$ |
79.63 |
|
|
|
50,252 |
|
|
$ |
334,788,244 |
|
March 1 – 31, 2023 |
|
|
189,463 |
|
|
$ |
72.25 |
|
|
|
179,792 |
|
|
$ |
321,788,971 |
|
Total |
|
|
382,155 |
|
|
|
|
|
|
367,269 |
|
|
|
|
||
On July 29, 2016, our Board of Directors approved our share repurchase program pursuant to which we are authorized to repurchase up to $1,200.0 million of our outstanding shares of common stock through December 31, 2023 (the “Program”).
Repurchases under the Program may be made through open market, block and privately negotiated transactions, including Rule 10b5-1 plans, at such times and in such amounts as management deems appropriate, subject to market and business conditions, regulatory requirements and other factors. The Program does not obligate AWI to repurchase any particular amount of common stock and may be suspended or discontinued at any time without notice.
During the three months ended March 31, 2023, we repurchased 0.4 million shares under the Program for a total cost of $27.0 million, excluding commissions and taxes, or an average price of $73.51 per share. Since inception and through March 31, 2023, we have repurchased 12.8 million shares under the Program for a total cost of $878.2 million, excluding commissions and taxes, or an average price of $68.80 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
29
ITEM 6. EXHIBITS
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit No. |
|
Description |
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
Certification of Chief Executive Officer required by Rule 13a and 18 U.S.C. Section 1350. †† |
|
|
|
32.2 |
|
Certification of Chief Financial Officer required by Rule 13a and 18 U.S.C. Section 1350. †† |
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. † |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema. † |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase. † |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase. † |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase. † |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase. † |
|
|
|
104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 has been formatted in Inline XBRL. |
† Filed herewith.
†† Furnished herewith.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Armstrong World Industries, Inc. |
|
|
|
|
By: |
|
/s/ Christopher P. Calzaretta |
|
|
Christopher P. Calzaretta, Senior Vice President and |
|
|
Chief Financial Officer (Principal Financial Officer) |
|
|
|
By: |
|
/s/ James T. Burge |
|
|
James T. Burge, Vice President and |
|
|
Controller (Principal Accounting Officer) |
Date: April 25, 2023
31
Exhibit No. 31.1
I, Victor D. Grizzle, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Armstrong World Industries, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: |
|
April 25, 2023 |
|
|
|
|
|
|
|
|
|
|
|
/s/ Victor D. Grizzle |
|
|
|
|
Victor D. Grizzle |
|
|
|
|
Director, President and Chief Executive Officer |
Exhibit No. 31.2
I, Christopher P. Calzaretta, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Armstrong World Industries, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: |
|
April 25, 2023 |
|
|
|
|
|
|
|
|
|
|
|
/s/ Christopher P. Calzaretta |
|
|
|
|
Christopher P. Calzaretta |
|
|
|
|
Senior Vice President and Chief Financial Officer |
Exhibit No. 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
I certify to the best of my knowledge and belief that the periodic report on Form 10-Q of Armstrong World Industries, Inc. (the “Company”) containing its financial statements for the fiscal quarter ended March 31, 2023 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and that information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Company as of that date.
/s/ Victor D. Grizzle |
Victor D. Grizzle |
Director, President and Chief Executive Officer |
Armstrong World Industries, Inc. |
Dated: April 25, 2023
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit No. 32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
I certify to the best of my knowledge and belief that the periodic report on Form 10-Q of Armstrong World Industries, Inc. (the “Company”) containing its financial statements for the fiscal quarter ended March 31, 2023 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and that information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Company as of that date.
/s/ Christopher P. Calzaretta |
Christopher P. Calzaretta |
Senior Vice President and Chief Financial Officer |
Armstrong World Industries, Inc. |
Dated: April 25, 2023
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.