Armstrong World Industries Inc 10-Q for FY2025 Q1
Armstrong World Industries Inc (AWI)
About this 10-Q
Armstrong World Industries Inc filed this 10-Q on April 29, 2025, covering the quarter ended March 31, 2025 (FY2025 Q1).
Headline figures
Quarter ended March 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $382.7M
- up 17.3% from $326.3M a year earlier
- Net income
- $69.1M
- up 15.4% from net income of $59.9M a year earlier
- Diluted EPS
- $1.58
- up 16.2% from $1.36 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.
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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 24, 2025 –
TABLE OF CONTENTS
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Cautionary Note Regarding Forward-Looking Statements |
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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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24 |
Item 3. |
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30 |
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Item 4. |
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Item 1. |
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31 |
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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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31 |
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Item 6. |
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32 |
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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 and demand for our products, tariffs, broader economic conditions and their effect on our operating results; our expectations regarding the payment of dividends and stock repurchases; and our ability to increase revenues, earnings and earnings before interest, taxes, depreciation and amortization. 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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2025 |
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2024 |
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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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Equity (earnings) from unconsolidated affiliates, net |
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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 (loss), 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) |
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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
(dollar amounts in millions)
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Unaudited |
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March 31, 2025 |
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December 31, 2024 |
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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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Investments in unconsolidated affiliates |
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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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Accumulated other comprehensive (loss) |
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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
(dollar amounts in millions, except share and per share data)
Unaudited
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Three Months Ended March 31, 2025 |
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Accumulated |
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Capital in |
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Other |
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Common Stock |
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Excess of |
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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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Par Value |
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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, 2024 |
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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, 2025 |
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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, 2024 |
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Accumulated |
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Capital in |
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Other |
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Common Stock |
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Excess of |
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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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Par Value |
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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, 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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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, 2024 |
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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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2025 |
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2024 |
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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 unconsolidated affiliates, net |
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( |
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( |
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Loss (gain) related to change in fair value of contingent consideration |
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( |
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Payment of contingent consideration in excess of acquisition-date fair value |
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( |
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Other non-cash adjustments, net |
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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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Investment in unconsolidated affiliate |
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( |
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Proceeds from company owned life insurance, net |
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Net cash provided by investing activities |
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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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( |
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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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Payments (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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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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( |
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Net increase (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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Purchases of property, plant and equipment through vendor financing |
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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 per 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, 2024. 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, 2024. 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 2025 and 2024 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. 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 2025 presentation, most notably disaggregated expenditures for our operating segments related to our December 31, 2024 adoption of the Financial Accounting Standards Board’s ("FASB") Accounting Standards Update ("ASU") 2023-07, "Improvements to Reportable Segment Disclosures." See Note 2 for additional details.
Acquisitions and Investments in Unconsolidated Affiliates
In December 2024, we acquired all the issued and outstanding stock of A. Zahner Company (“Zahner”), based in Kansas City, Missouri. Zahner is a designer and manufacturer of exterior metal architectural solutions. The operations, assets and liabilities of Zahner are included in our Architectural Specialties segment.
In April 2024, we acquired all of the issued and outstanding membership interests in 3form, LLC (“3form”) based in Salt Lake City, Utah, from Hunter Douglas, Inc. 3form is a designer and manufacturer of architectural resin and glass products used for specialty walls, partitions and ceilings. The operations, assets and liabilities of 3form are included in our Architectural Specialties segment.
In January 2024, we entered into a strategic partnership and equity investment in Overcast Innovations LLC (“Overcast”) with McKinstry Essention, LLC whereby we contributed $
Recently Issued Accounting Standards
In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures,” which modifies the disclosure requirements for income taxes. This ASU requires disclosure of tabular statutory to effective rate reconciliation in both percentages and dollars, additional disaggregated rate reconciliation categories and disaggregation of both income taxes paid and income tax expense by jurisdiction. This guidance is effective for annual periods beginning after December 15, 2024. We expect this ASU to only impact our disclosures with no impact to our results of operations, cash flows and financial condition.
In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures,” which expands disclosure of significant costs and expenses. This ASU requires expanded disclosures of significant costs and expenditures within cost of goods sold and selling, general and administrative (“SG&A”) expenses, including amounts of inventory purchased, employee compensation, depreciation, amortization and selling expenses. This ASU also requires expanded qualitative disclosures, including a description of selling expenses and a description of non-disaggregated expenses. This guidance is effective for annual periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. We expect this ASU to only impact our disclosures with no impact to our results of operations, cash flows and financial condition.
9
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
NOTE 2. SEGMENT RESULTS
Our operating segments are as follows: Mineral Fiber, Architectural Specialties and Unallocated Corporate. Our product-based Mineral Fiber and Architectural Specialties segment net sales represent the product-based group offerings we sell to external customers.
Our Chief Operating Decision Maker (“CODM”) is our .
For the three months ended March 31, 2025 |
|
Mineral Fiber |
|
|
Architectural Specialties |
|
|
Unallocated |
|
|
Total |
|
||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
SG&A expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity (earnings) loss from unconsolidated affiliates, net |
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
( |
) |
|
Segment operating income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Purchases of property, plant and equipment |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
For the three months ended March 31, 2024 |
|
Mineral Fiber |
|
|
Architectural Specialties |
|
|
Unallocated |
|
|
Total |
|
||||
Net sales to external customers |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
SG&A expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Equity (earnings) loss from unconsolidated affiliates, net |
|
|
( |
) |
|
|
- |
|
|
|
|
|
|
( |
) |
|
Segment operating income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Purchases of property, plant and equipment |
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
The following reconciles our total segment operating income to earnings before income taxes. These items are only measured and managed on a consolidated basis:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Total segment operating income |
|
$ |
|
|
$ |
|
||
Interest expense |
|
|
|
|
|
|
||
Other non-operating (income), net |
|
|
( |
) |
|
|
( |
) |
Earnings before income taxes |
|
$ |
|
|
$ |
|
||
As of March 31, 2025 |
|
Mineral Fiber |
|
|
Architectural Specialties |
|
|
Unallocated |
|
|
Total |
|
||||
Segment assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Investment in unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
As of December 31,2024 |
|
Mineral Fiber |
|
|
Architectural Specialties |
|
|
Unallocated |
|
|
Total |
|
||||
Segment assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Investment in unconsolidated affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
||||
10
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
NOTE 3. REVENUE
Disaggregation of Revenues
Our Mineral Fiber and Architectural Specialties operating segments both manufacture and sell interior and exterior architectural applications including ceilings, specialty walls and exterior metal solutions (primarily mineral fiber, fiberglass, metal, felt, wood, architectural resin and glass, wood fiber, and glass-reinforced-gypsum) 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, online customers, major facility owners, group purchasing organizations and maintenance, repair and operating entities, and original product manufacturers. Geographically, this category includes sales throughout the U.S., 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, 2025 and 2024:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
Mineral Fiber |
|
2025 |
|
|
2024 |
|
||
Distributors |
|
$ |
|
|
$ |
|
||
Home centers |
|
|
|
|
|
|
||
Direct customers |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
Architectural Specialties |
|
2025 |
|
|
2024 |
|
||
Distributors |
|
$ |
|
|
$ |
|
||
Direct customers |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
11
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
NOTE 4. ACQUISITIONS
Zahner
In December 2024, we acquired the issued and outstanding shares of Zahner for $
|
|
Fair Value at Acquisition Date |
|
|
Estimated Useful Life |
|
Trademarks and brand names |
|
$ |
|
|
||
Customer relationships |
|
|
|
|
||
Backlog |
|
|
|
|
||
Non-compete agreements |
|
|
|
|
||
Total identifiable intangible assets |
|
$ |
|
|
|
|
Valuations for assets acquired and liabilities assumed are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized.
3form
In April 2024, we acquired the issued and outstanding membership interests in 3form for $
Goodwill from the Zahner and 3form acquisitions relates to many factors, including the technical competencies and capabilities of the acquired workforce and our strategic intent to integrate and leverage those competencies and capabilities to advance and expand our portfolio of solutions and offerings. All of the acquired goodwill is deductible for tax purposes.
Proforma Financial Information
The following table summarizes aggregate unaudited as reported and pro forma information assuming the acquisitions of Zahner and 3form had occurred on January 1, 2024. The unaudited pro forma results include the depreciation and amortization associated with the acquired assets. The unaudited pro forma results do not include any expected benefits from the Zahner and 3form acquisitions. Accordingly, the unaudited pro forma results are not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of January 1, 2024.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Net sales, pro forma |
|
$ |
|
|
$ |
|
||
Net sales, as reported |
|
|
|
|
|
|
||
Earnings before income taxes, pro forma |
|
|
|
|
|
|
||
Earnings before income taxes, as reported |
|
|
|
|
|
|
||
For the three months ended March 31, 2025, net sales of $
12
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
NOTE 5. ACCOUNTS AND NOTES RECEIVABLE
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
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.
NOTE 6. INVENTORIES
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
Finished goods |
|
$ |
|
|
$ |
|
||
Goods in process |
|
|
|
|
|
|
||
Raw materials and supplies |
|
|
|
|
|
|
||
Less LIFO reserves |
|
|
( |
) |
|
|
( |
) |
Total inventories, net |
|
$ |
|
|
$ |
|
||
NOTE 7. OTHER CURRENT ASSETS
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
Prepaid expenses |
|
$ |
|
|
$ |
|
||
Assets held for sale |
|
|
|
|
|
|
||
Fair value of derivative assets |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other current assets |
|
$ |
|
|
$ |
|
||
NOTE 8. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investments in unconsolidated affiliates include our
The following table presents equity (earnings) losses from our unconsolidated affiliates for the three months ended March 31, 2025 and 2024:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
WAVE |
|
$ |
( |
) |
|
$ |
( |
) |
Overcast |
|
|
|
|
|
|
||
Equity (earnings) from unconsolidated affiliates, net |
|
$ |
( |
) |
|
$ |
( |
) |
Condensed financial statement data for WAVE is summarized below.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Net sales |
|
$ |
|
|
$ |
|
||
Gross profit |
|
|
|
|
|
|
||
Net earnings |
|
|
|
|
|
|
||
13
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
NOTE 9. GOODWILL AND INTANGIBLE ASSETS
The following table details amounts related to our goodwill and intangible assets as of March 31, 2025 and December 31, 2024:
|
|
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||
|
|
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 |
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|||||
The net increase in goodwill as of March 31, 2025 compared to December 31, 2024 was due to changes in the purchase price allocation of Zahner.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Amortization expense |
|
$ |
|
|
$ |
|
||
NOTE 10. OTHER NON-CURRENT ASSETS
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
Cash surrender value of company-owned life insurance policies |
|
$ |
|
|
$ |
|
||
Investment in employee deferred compensation plans |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total other non-current assets |
|
$ |
|
|
$ |
|
||
NOTE 11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||
Payables, trade and other |
|
$ |
|
|
$ |
|
||
Deferred revenue |
|
|
|
|
|
|
||
Employment costs |
|
|
|
|
|
|
||
Current portion of pension and postretirement liabilities |
|
|
|
|
|
|
||
Acquisition-related contingent consideration |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accounts payable and accrued expenses |
|
$ |
|
|
$ |
|
||
NOTE 12. INCOME TAX EXPENSE
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
|
|
|
|
|
||
Earnings before income taxes |
|
$ |
|
|
$ |
|
||
Income tax expense |
|
|
|
|
|
|
||
Effective tax rate |
|
|
% |
|
|
% |
||
14
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
The decrease in the effective tax rate for the first three months of 2025 in comparison to the same period in 2024 was primarily due to the benefit of federal investment tax credits, a reduction in our valuation allowance for capital loss carryforwards and other favorable permanent adjustments.
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 companies 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, 2025 |
|
|||||||||
Financing Arrangements |
|
Limit |
|
|
Used |
|
|
Available |
|
|||
Bi-lateral facility |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Revolving credit facility |
|
|
|
|
|
- |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Other Commitments
In the ordinary course of business, we provide corporate guarantees and obtain surety bonds in support of underlying contractual commitments to our customers. As of March 31, 2025 and December 31, 2024, $
NOTE 14. PENSIONS AND OTHER BENEFIT PROGRAMS
Following are the components of net periodic benefit costs (credits):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
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 cost (credit) |
|
$ |
|
|
$ |
( |
) |
|
15
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
Excluded from the table above is the net periodic pension cost associated with an unfunded defined benefit pension plan in Germany that 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, 2025 and 2024.
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 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, 2025 |
|
|
December 31, 2024 |
|
||||||||||
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
||||
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 and accounts payable approximate fair value because of the short-term maturity of these instruments. The fair value estimates of long-term debt are based on data for our Term Loan A debt provided by a major financial institution. The fair value estimates for interest rate swap contracts are estimated with the assistance of an independent, third-party valuation expert and verified by obtaining quotes from major financial institutions. We engaged an independent, third-party valuation specialist to determine the fair value estimate for acquisition-related contingent consideration payable based on performance, which were measured primarily through the use of a Monte Carlo simulation.
As of March 31, 2025 and December 31, 2024, acquisition-related contingent consideration liabilities represented additional cash consideration payable related to our October 2023 acquisition of Insolcorp, LLC (“Insolcorp”) and July 2023 acquisition of BOK Modern, LLC (“BOK”) that will be paid upon the final achievement of certain financial and performance milestones. As of March 31, 2025 and December 31, 2024, acquisition-related contingent consideration liabilities of $
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.
16
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
The fair value measurement of liabilities measured at fair value on a recurring basis and reported on the Condensed Consolidated Balance Sheets is summarized below:
|
|
March 31, 2025 |
|
|
December 31, 2024 |
|
||||||||||
|
|
Fair value based on |
|
|
Fair value based on |
|
||||||||||
|
|
Other |
|
|
Other |
|
|
Other |
|
|
Other |
|
||||
|
|
Level 2 |
|
|
Level 3 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Liabilities, net: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap contracts |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Acquisition-related contingent consideration |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Acquisition-related contingent consideration of $
The following table summarizes the weighted-average of the significant unobservable inputs as of March 31, 2025:
|
|
BOK |
|
|
Insolcorp |
|
||
Unobservable input |
|
|
|
|
|
|
||
Volatility |
|
|
% |
|
|
% |
||
Discount rates |
|
|
% |
|
|
% |
||
The changes in fair value of the acquisition-related contingent consideration liabilities for the three months ended March 31, 2025 and 2024 were as follows:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Fair value of contingent consideration as of beginning of period |
|
$ |
|
|
$ |
|
||
Cash consideration paid |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
( |
) |
||
Fair value of contingent consideration as of end of period |
|
$ |
|
|
$ |
|
||
During the three months ended March 31, 2025, we paid $
During the three months ended March 31, 2025 and 2024, changes in fair value were primarily due to changes in financial projections over each entity’s earn-out periods and due to changes in valuation inputs. All changes in acquisition-related contingent consideration liabilities subsequent to the initial acquisition-date measurements were recorded as a component of SG&A expenses in our Condensed Consolidated Statements of Earnings and Comprehensive Income.
17
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
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 enter into derivative transactions only 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 Secured Overnight Financing Rate (“SOFR”) for a portion of our variable rate debt.
Coverage Period |
|
Notional |
|
Risk Coverage |
|
Trade Date |
|
|
$ |
|
|
||||
|
$ |
|
|
||||
|
$ |
|
|
||||
|
$ |
|
|
||||
|
$ |
|
|
||||
|
$ |
|
|
||||
|
$ |
|
|
||||
|
$ |
|
|
||||
Under the terms of the interest rate swaps above, we pay a fixed rate monthly and receive a floating rate based on the SOFR.
Financial Statement Impacts
The following tables detail amounts related to our derivatives as of March 31, 2025 and December 31, 2024. We did not have any derivative assets or liabilities not designated as hedging instruments as of March 31, 2025 or December 31, 2024. The derivative asset amounts below are shown gross and have not been netted.
|
|
Derivative Assets |
|
|
Derivative Liabilities |
|
||||||||||
|
|
|
Fair Value |
|
|
|
|
Fair Value |
|
|||||||
|
|
Balance Sheet |
|
December 31, |
|
|
Balance Sheet |
|
March 31, |
|
|
December 31, |
|
|||
Interest rate swap contracts |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
18
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
|
|
Amount of (Loss) Gain |
|
|
Location of Gain |
|
Gain Reclassified |
|
||||||||||
|
|
Three Months Ended |
|
|
|
|
Three Months Ended |
|
||||||||||
|
|
March 31, |
|
|
|
|
March 31, |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
|
|
2025 |
|
|
2024 |
|
||||
Derivatives in cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap contracts |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
$ |
|
||||
As of March 31, 2025, the amount of existing net losses 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 authorizing us to repurchase up to $
Repurchases of our common stock 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, 2025, we repurchased
Dividends
In February 2025, our Board of Directors declared a $
Accumulated Other Comprehensive (Loss)
|
|
Foreign |
|
|
Derivative |
|
|
Pension and Postretirement Adjustments (1) |
|
|
Total |
|
||||
Balance, December 31, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) before reclassifications, |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Amounts reclassified from accumulated other |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Net current period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Balance, March 31, 2025 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
19
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
|
|
Foreign |
|
|
Derivative |
|
|
Pension and Postretirement Adjustments (1) (2) |
|
|
Total |
|
||||
Balance, December 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
Other comprehensive (loss) income before reclassifications, |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Amounts reclassified from accumulated other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net current period other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance, March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
(1)
(2)
|
|
Amounts |
|
|
Affected Line Item in the |
|||||
|
|
Three Months Ended March 31, |
|
|
|
|||||
|
|
2025 |
|
|
2024 |
|
|
|
||
Derivative Adjustments: |
|
|
|
|
|
|
|
|
||
Interest rate swap contracts, before tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
Interest expense |
Tax impact |
|
|
|
|
|
|
|
Income tax expense |
||
Total (income), net of tax |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
||
Pension and Postretirement Adjustments: |
|
|
|
|
|
|
|
|
||
Amortization of prior service credit |
|
|
|
|
|
( |
) |
|
Other non-operating (income), net |
|
Amortization of net actuarial loss (gain) |
|
|
|
|
|
( |
) |
|
Other non-operating (income), net |
|
Total loss (income), before tax |
|
|
|
|
|
( |
) |
|
|
|
Tax impact |
|
|
( |
) |
|
|
|
|
Income tax expense |
|
Total loss (income), net of tax |
|
|
|
|
|
( |
) |
|
|
|
Total reclassifications for the period |
|
$ |
|
|
$ |
( |
) |
|
|
|
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, Georgia site and the Elizabeth City, North Carolina site, each of
20
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
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 into 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 and separation with Armstrong Flooring, Inc. upon the validity of the claim, if any.
Specific Material Events
Macon, Georgia
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
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 a Remedial Investigation and Feasibility Study (“RI/FS”) with respect to the remainder of the Superfund site, which included the other landfill on our property, as well as areas on and adjacent to our property and Rocky Creek (“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 an 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 a Site Characterization Summary Report (“SCSR”) for Operable Unit 2 to the EPA. The purpose of the SCSR was to demonstrate that the available data for Operable Unit 2 was adequate for the risk assessment and for the development of remedial action objectives. In the second half of 2022, the EPA and the PRPs agreed to separate all non-groundwater aspects of the site; the groundwater investigation is ongoing. In August 2022, the PRPs submitted a Human Health Baseline Risk Assessment to the EPA, and in December 2022, the PRPs submitted a final Baseline Ecological Risk Assessment for all non-groundwater aspects of Operable Unit 2 to the EPA. Both risk assessments served as exhibits to the Remedial Investigation Report (“RIR”), which the EPA approved in July 2023.
Based on findings in the RIR, the PRPs developed a draft Feasibility Study (“FS”) to identify and evaluate potential remedial alternatives for all non-groundwater elements of Operable Unit 2. The draft FS was submitted to the EPA in August 2023. The EPA and the State of Georgia provided comments in October 2023 and a revised FS was submitted in November 2023. The EPA conditionally approved the FS in April 2024 and issued a Proposed Remedial Action Plan (“Proposed Plan”) for the non-groundwater elements at the site in May 2024. The EPA held a public meeting in May 2024 to explain the Proposed Plan and start the thirty-day period for public comment, which closed on June 30, 2024. The EPA’s Proposed Plan included a total cost estimate for the non-groundwater elements at the site of approximately $
21
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
remedy outlined in the Proposed Plan. The portion of these remediation costs that AWI will bear for all non-groundwater elements of Operable Unit 2 will not be known until the PRPs resolve the final allocation of costs.
It is probable that we will incur field investigation, engineering and oversight costs associated with designing and implementing the remedy for all non-groundwater elements of Operable Unit 2 and for completing an RI/FS for the groundwater elements of Operable Unit 3. AWI and the other PRPs recently requested to the EPA that the Operable Unit 3 groundwater investigation be completed in conjunction with the groundwater investigation at the adjacent former Macon Naval Ordnance Plant landfill, since the impacts to groundwater at both sites are related. We may also ultimately incur costs in remediating contamination discovered during the RI/FS for Operable Unit 3 and 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, North Carolina
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 known as 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 an RI/FS work plan for the site in August 2011. In January 2014, we submitted draft RI 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 (“IROD”) 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 U.S. on behalf of the Navy for the remedial design and remedial action for the interim remedy. Because the U.S. does not conduct work as a PRP at Superfund sites, similar to the 2007 agreement, the U.S. 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 on November 2022 to comments received from the EPA in September 2022. The EPA approved the revised RDWP in February 2023 and in June 2023, the parties submitted a Pre-Design Investigation Work Plan. The EPA provided comments on the Pre-Design Investigation Work Plan in November 2023 and the revised document was submitted to the EPA in December 2023. In March 2024, the EPA issued a conditional approval of the Pre-Design Investigation Work Plan, subject to the Company and Paramount addressing the EPA comments on a component of the Work Plan within 60 days. In May 2024 and August 2024, AWI and Paramount submitted revisions to the Pre-Design Investigation Work Plan to address additional comments received from the EPA. In December 2024, the EPA approved the Pre-Design Investigation Work Plan and related Quality Assurance Project Plan, allowing the Pre-Design investigation work to start in March 2025. The current estimate of future liability at this site includes only our estimated share of the costs of implementing the interim remedial action under the IROD. 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 one 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
of $
22
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except per share data)
and no amount within that range is more likely than any other, the lower end of the range has been used. As assessments and remediation activities progress at each site, these liabilities are reviewed to reflect new information as it becomes available and adjusted to reflect amounts actually incurred and paid. These liabilities are undiscounted.
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 on 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 we 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
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, 2025 and 2024, were equal to net earnings on our Condensed Consolidated Statements of Earnings and Comprehensive Income. EPS components may not add due to rounding.
The following table is a reconciliation of basic shares outstanding to diluted shares outstanding for the three months ended March 31, 2025 and 2024 (shares in millions):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
|
|
|
|
|
||
Basic shares outstanding |
|
|
|
|
|
|
||
Dilutive effect of common stock equivalents |
|
|
|
|
|
|
||
Diluted shares outstanding |
|
|
|
|
|
|
||
Anti-dilutive stock awards excluded from the computation of dilutive EPS for the three months ended March 31, 2025 and 2024 were
23
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, 2024.
OVERVIEW
AWI is an Americas leader in the design, innovation and manufacture of interior and exterior architectural applications including ceilings, specialty walls and exterior metal solutions. We manufacture and source products made of numerous materials, including mineral fiber, fiberglass, metal, felt, wood, resin, wood fiber and glass-reinforced-gypsum. We also manufacture ceiling suspension system (grid) products through a joint venture with Worthington Enterprises, Inc. called Worthington Armstrong Venture (“WAVE”).
Acquisitions and Investments in Unconsolidated Affiliates
In December 2024, we acquired all the issued and outstanding stock of A. Zahner Company (“Zahner”), based in Kansas City, Missouri. Zahner is a designer and manufacturer of exterior metal architectural solutions. The operations, assets and liabilities of Zahner are included in our Architectural Specialties segment.
In April 2024, we acquired all of the issued and outstanding membership interests in 3form, LLC (“3form”) based in Salt Lake City, Utah, from Hunter Douglas, Inc. 3form is a designer and manufacturer of architectural resin and glass products used for specialty walls, partitions and ceilings. The operations, assets and liabilities of 3form are included in our Architectural Specialties segment.
In January 2024, we entered into a strategic partnership and equity investment in Overcast Innovations LLC (“Overcast”) with McKinstry Essention, LLC whereby we acquired a 19.5% ownership interest in Overcast, with future rights to increase our ownership interest. Overcast is a solutions company offering prefabricated ceiling cloud systems, modular grid platforms and engineering design services to reduce waste and inefficiencies in the built environment. Our investment and equity earnings in Overcast are included in our Unallocated Corporate segment.
Manufacturing Plants
As of March 31, 2025, we operated 20 manufacturing plants, including 18 plants located within the U.S. and two plants in Canada.
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 fiberglass ceiling systems. Our mineral fiber products offer various performance attributes such as acoustical control, rated fire protection, and energy efficiency, along with other health and sustainability features and aesthetic appeal. Ceiling products are primarily 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 system 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, including all property and related depreciation associated with our Lancaster, Pennsylvania 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 – designs, produces and sources specialty ceilings, walls, and other interior and exterior architectural applications including ceilings, specialty walls and exterior metal solutions primarily for use in commercial settings. Products are available in numerous materials, such as metal, felt, wood, resin and glass, wood fiber and glass-reinforced-gypsum in various colors, shapes and designs. These products offer a range of design options and performance attributes such as acoustical control, rated fire protection, light, aesthetic appeal, energy conservation and building performance. We sell standard, premium and customized products, a portion of which are sourced from third-party producers. Architectural Specialties products are sold primarily to resale distributors and direct customers, primarily ceiling systems contractors. This segment’s revenues are primarily project driven, which
24
Management’s Discussion and Analysis of Financial Condition and Results of Operations
can lead to more variability in sales patterns. 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, our Overcast investment and related equity earnings/losses, 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.
Factors Affecting Revenues
For information on our 2025 and 2024 net sales and disaggregated expenses by segment, see Note 2 to the Condensed Consolidated Financial Statements. For information on our segments’ 2025 and 2024 net sales disaggregated by major customer groups, see Note 3 to the Condensed Consolidated Financial Statements.
Markets. We compete in the building product markets of the Americas. We closely monitor publicly available macroeconomic data and trends that provide insight into commercial construction market activity, including, but not limited to, gross domestic product, 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 recent tariff announcements and geopolitical events, including but not limited to, conflicts in Ukraine and the Middle East, none of which had a material direct impact on our financial condition, liquidity or results of operations in the first three months of 2025 or 2024.
Several factors and trends within our markets affected our business performance during the first quarter of 2025 compared to the first quarter of 2024, most notably a $41 million increase in net sales due to our December 2024 acquisition of Zahner and April 2024 acquisition of 3form. Also contributing to the increase in net sales was a $10 million increase in organic Architectural Specialties net sales, driven primarily by increased custom project revenues, offset by a $10 million decrease in net sales due to lower sales volumes in our Mineral Fiber segment.
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.
Favorable AUV contributed approximately $16 million to our total consolidated net sales for the three months ended March 31, 2025 compared to the same period in 2024. Our Architectural Specialties segment revenues are primarily generated by 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 all changes in net sales to volume, including gross to net sales adjustments.
During the first quarter of 2025, we implemented price increases on Mineral Fiber ceiling products and WAVE implemented price increases on grid products. Future pricing actions for Mineral Fiber, Architectural Specialties and WAVE products may be implemented based on numerous factors, including the impact of announced tariffs and the rate and pace of inflation and its impact on our business.
Seasonality. Historically, our sales tend to be stronger in the second and 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, tariffs and selling, general and administrative (“SG&A”) expenses.
25
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our largest raw material expenditures are primarily for fiberglass, perlite, recycled paper, and starch. Other raw materials include clays, felt, pigment, resin and glass, wood and wood fiber. We manufacture substantially all of our mineral wool at one of our manufacturing facilities. We use aluminum and steel in the production of metal building products by us and by WAVE. Finally, natural gas and packaging materials also represent significant input costs. Fluctuations in the prices of these inputs impact our financial results. In the first quarter of 2025, higher energy and raw material costs negatively impacted operating income by $1 million compared to the same period in 2024.
Employees
As of March 31, 2025 and December 31, 2024, we had approximately 3,600 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)
|
|
2025 |
|
|
2024 |
|
|
Change is Favorable |
|
|||
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||
Total consolidated net sales |
|
$ |
382.7 |
|
|
$ |
326.3 |
|
|
|
17.3 |
% |
Operating income |
|
$ |
98.5 |
|
|
$ |
86.1 |
|
|
|
14.4 |
% |
Consolidated net sales for the first quarter of 2025 increased 17.3% over the prior-year period due to higher volumes of $41 million and favorable AUV of $16 million. Architectural Specialties net sales increased $51 million and Mineral Fiber net sales increased $6 million over the prior-year period. Architectural Specialties segment net sales improved primarily due to a $41 million contribution from the acquisitions of Zahner and 3form and increased organic custom project net sales. The increase in Mineral Fiber net sales was primarily driven by favorable AUV, partially offset by lower sales volumes.
Cost of goods sold in the first quarter of 2025 was 60.8% of net sales, compared to 61.9% for the same period in 2024. The year-over-year decrease in cost of goods sold as a percent of net sales was driven primarily by favorable AUV margin benefit, favorable inventory valuation impacts, improved manufacturing productivity and favorable margin benefits from the acquisition of Zahner and 3form.
SG&A expenses in the first quarter of 2025 were $78.0 million, or 20.4% of net sales, compared to $65.4 million, or 20.0% of net sales, for the same period in 2024. The increase in SG&A expenses was primarily driven by a $14 million increase related to the acquisitions of Zahner and 3form and a $2 million increase in selling expenses. These increases were partially offset by a $4 million increase in company-owned officer life insurance gains related to deferred compensation plans.
Equity earnings from unconsolidated subsidiaries were $26.6 million in the first quarter of 2025, compared to $27.2 million in the first quarter of 2024. WAVE equity earnings were $26.8 million in the first quarter of 2025, compared to $27.4 million in the first quarter of 2024. The decrease in WAVE equity earnings was primarily driven by the negative impact of lower sales volumes, partially offset by favorable AUV. See Note 8 to the Condensed Consolidated Financial Statements for further information.
Interest expense was $8.5 million in the first quarter of 2025 compared to $9.0 million in the first quarter of 2024. The decrease in interest expense for the first quarter of 2025 in comparison to the same period in 2024 was primarily due to lower average debt balances, partially offset by higher average effective interest rates.
Other non-operating income, net, was $0.7 million in the first quarter of 2025 compared to $3.1 million in the first quarter of 2024. The decrease in other non-operating income, net, for the first quarter 2025 in comparison to the same period in 2024 was primarily driven by the non-service cost components of pension and postretirement net periodic benefit costs.
Income tax expense was $21.6 million in the first quarter of 2025 compared to $20.3 million in the first quarter of 2024. The effective tax rate for the first quarter of 2025 was 23.8% compared to 25.3% for the same period of 2024. The decrease in the effective tax rate was primarily due to the benefit of federal investment tax credits, a reduction in our valuation allowance for capital loss carryforwards and other favorable permanent adjustments.
Total Other Comprehensive Loss (“OCL”) was $0.6 million in the first quarter of 2025 compared to $0.9 million in the first quarter of 2024. The change in OCL in the first quarter of 2025 compared to the first quarter of 2024 was due to pension and postretirement adjustments and foreign currency translation adjustments, partially offset by lower interest rate swap derivative losses in 2025.
26
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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. Foreign currency translation adjustments in 2025 and 2024 were driven primarily by changes in the Canadian dollar. Derivative losses represent the mark-to-market value fair adjustments for our derivative assets and liabilities, and the recognition of gains and losses previously deferred in Accumulated Other Comprehensive Income.
REPORTABLE SEGMENT RESULTS
Mineral Fiber
(dollar amounts in millions)
|
|
2025 |
|
|
2024 |
|
|
Change is Favorable |
|
|||
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||
Total segment net sales |
|
$ |
245.1 |
|
|
$ |
239.6 |
|
|
|
2.3 |
% |
Operating income |
|
$ |
84.5 |
|
|
$ |
79.2 |
|
|
|
6.7 |
% |
Net sales increased $6 million in the first quarter of 2025 compared to the prior-year quarter due to $16 million of favorable AUV, partially offset by $10 million of lower sales volumes. The improvement in AUV was driven by favorable like-for-like price and favorable mix. The decrease in volumes was primarily driven by softer demand from our home center customers, and the impact of one less shipping day compared to the prior year period.
Costs of goods sold during the first quarter of 2025 was $148 million, or 60.4% of net sales, compared to $146 million, or 60.8% of net sales, in the prior year period. Gross profit increased $3 million, or 3.4%, compared to the prior year period. The year-over-year increase in gross profit was driven primarily by an $8 million benefit from favorable AUV and a $2 million decrease in manufacturing costs driven primarily by improved productivity, partially offset by higher input costs. These increases were partially offset by a $7 million negative impact from lower sales volumes.
SG&A expenses during the first quarter of 2025 were $39 million, or 16.1% of net sales, compared to $42 million, or 17.6% of net sales, in the prior year period. The year-over-year decrease in SG&A expenses was primarily driven by a $4 million increase in company-owned officer life insurance gains related to deferred compensation plans, partially offset by an increase in selling expenses.
Equity earnings from our WAVE joint venture were $26.8 million in the first quarter of 2025, compared to $27.4 million in the prior year period. The decrease in WAVE earnings was primarily driven by the negative impact of lower sales volumes, partially offset by the benefits of favorable AUV.
Architectural Specialties
(dollar amounts in millions)
|
|
2025 |
|
|
2024 |
|
|
Change is Favorable |
|
|||
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||
Total segment net sales |
|
$ |
137.6 |
|
|
$ |
86.7 |
|
|
|
58.7 |
% |
Operating income |
|
$ |
14.8 |
|
|
$ |
7.7 |
|
|
|
92.2 |
% |
Net sales increased $51 million in the first quarter of 2025, driven primarily by a $41 million increase from the acquisitions of Zahner and 3form, in addition to increased organic custom project net sales.
Costs of goods sold during the first quarter of 2025 was $84 million, or 61.3% of net sales, compared to $56 million, or 64.5% of net sales, in the prior year period. Gross profit increased $22 million, or 72.7%, compared to the prior year period due to a $27 million benefit from the higher net sales, partially offset by a $5 million increase in manufacturing costs. The acquisitions of Zahner and 3form contributed a $17 million benefit to gross profit, with the remaining increase driven by improved operating leverage and custom project margins.
SG&A expenses in the first quarter of 2025 were $38 million, or 27.9% of net sales, compared to $23 million, or 26.6% of net sales, in the prior year period. The increase in SG&A expenses was primarily driven by a $14 million increase related to the acquisitions of Zahner and 3form.
Unallocated Corporate
Unallocated Corporate operating loss was $1 million in the first quarter of 2025 and 2024.
27
Management’s Discussion and Analysis of Financial Condition and Results of Operations
FINANCIAL CONDITION AND LIQUIDITY
Cash Flow
Operating activities for the first three months of 2025 provided $41.0 million, compared to $26.4 million for the first three months of 2024. The favorable change in cash from operating activities was primarily due to higher cash earnings, partially offset by unfavorable timing related working capital changes in inventories, accounts payable and accrued expenses.
Net cash provided by investing activities was $6.0 million in the first three months of 2025, compared to $5.9 million in the first three months of 2024. The change in cash in the first three months of 2025 compared to the same period in 2024 was primarily due to the prior-year first quarter investment in Overcast that did not recur in the current-year period, mostly offset by increased purchases of property, plant and equipment.
Net cash used for financing activities was $43.6 million in the first three months of 2025, compared to $33.1 million in the first three months of 2024. The unfavorable change in cash was primarily due to an increase in repurchases of outstanding common stock.
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. As of March 31, 2025, the revolving credit facility and Term Loan A were priced at 1.375% over the Secured Overnight Financing Rate (“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.
As of March 31, 2025, the total principal balances outstanding under our senior credit facility were $421.9 million under Term Loan A and $100.0 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, 2025, we were in compliance with all covenants of the senior credit facility.
The Term Loan A is currently priced on a variable interest rate basis. We use interest rate swaps to minimize the fluctuations in earnings caused by interest rate volatility associated with our senior credit facility. The following table summarizes our interest rate swaps (dollar amounts in millions):
Coverage Period |
|
Notional |
|
Risk Coverage |
|
Trade Date |
|
November 2023 to December 2025 |
|
$ |
50.0 |
|
USD-SOFR |
|
October 23, 2023 |
March 2025 to March 2026 |
|
$ |
50.0 |
|
USD-SOFR |
|
March 27, 2025 |
March 2024 to June 2026 |
|
$ |
50.0 |
|
USD-SOFR |
|
March 25, 2024 |
March 2025 to September 2026 |
|
$ |
25.0 |
|
USD-SOFR |
|
March 27, 2025 |
November 2023 to December 2026 |
|
$ |
50.0 |
|
USD-SOFR |
|
October 10, 2023 |
March 2024 to June 2027 |
|
$ |
50.0 |
|
USD-SOFR |
|
March 27, 2024 |
November 2023 to November 2027 |
|
$ |
50.0 |
|
USD-SOFR |
|
September 29, 2023 |
June 2024 to June 2028 |
|
$ |
50.0 |
|
USD-SOFR |
|
June 26, 2024 |
Under the terms of our interest rate swaps, we pay a fixed rate monthly and receive a floating rate based on the SOFR. 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 companies 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, 2025 |
|
|||||||||
Financing Arrangements |
|
Limit |
|
|
Used |
|
|
Available |
|
|||
Bi-lateral facility |
|
$ |
25.0 |
|
|
$ |
7.7 |
|
|
$ |
17.3 |
|
Revolving credit facility |
|
|
150.0 |
|
|
|
- |
|
|
|
150.0 |
|
Total |
|
$ |
175.0 |
|
|
$ |
7.7 |
|
|
$ |
167.3 |
|
28
Management’s Discussion and Analysis of Financial Condition and Results of Operations
As of March 31, 2025, we had $82.8 million of cash and cash equivalents, $68.5 million in the U.S. and $14.3 million in foreign jurisdictions, primarily Canada. As of March 31, 2025, we also had $400 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, acquisitions 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, 2024.
29
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, 2024.
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, 2025, 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, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
30
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, 2024.
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, 2025 |
|
|
75,686 |
|
|
$ |
146.31 |
|
|
|
73,603 |
|
|
$ |
651,020,119 |
|
February 1-28, 2025 |
|
|
32,698 |
|
|
$ |
151.29 |
|
|
|
27,869 |
|
|
$ |
646,795,147 |
|
March 1-31, 2025 |
|
|
48,480 |
|
|
$ |
144.62 |
|
|
|
48,404 |
|
|
$ |
639,795,215 |
|
Total |
|
|
156,864 |
|
|
|
|
|
|
149,876 |
|
|
|
|
||
On July 29, 2016, our Board of Directors approved our share repurchase program authorizing us to repurchase up to $150.0 million of our outstanding shares of common stock (the “Program”). Since inception of the Program, we have been authorized to repurchase up to an aggregate of $1,700.0 million of our outstanding shares of common stock through December 31, 2026.
Repurchases of our common stock 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, 2025, we repurchased 0.1 million shares under the Program for a total cost of $22.0 million, excluding commissions and taxes, or an average price of $146.79 per share. Since inception and through March 31, 2025, we have repurchased 14.8 million shares under the Program for a total cost of $1,060.2 million, excluding commissions and taxes, or an average price of $71.66 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
Trading Arrangements of Directors and Executive Officers
During the three months ended March 31, 2025, no director or officer of the Company
31
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 With Embedded Linkbase Documents. † |
|
|
|
104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 has been formatted in Inline XBRL. |
† Filed herewith.
†† Furnished herewith.
32
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 29, 2025
33
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.
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April 29, 2025 |
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/s/ Victor D. Grizzle |
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Victor D. Grizzle |
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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.
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April 29, 2025 |
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/s/ Christopher P. Calzaretta |
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Christopher P. Calzaretta |
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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, 2025 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 29, 2025
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, 2025 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 29, 2025
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.