Core Insights - Armstrong World Industries, Inc. (AWI) has formed a strategic partnership with McKinstry, investing in Overcast Innovations to enhance integrated building solutions, aiming to reduce waste and inefficiencies in the construction industry [1][2] - The collaboration focuses on addressing industry challenges such as skilled labor shortages, energy efficiency, and complex installations through Overcast's modular ceiling systems [1][2] - Armstrong has acquired a 20% stake in Overcast, with potential for future increments, and both companies have established strategic partnership agreements to improve supply chains and marketing efforts [2] Company Performance - Armstrong's shares have increased by 35.1% over the past six months, outperforming the Zacks Building Products - Miscellaneous industry's growth of 18.1%, the Construction sector's 12.8% increase, and the S&P 500 Index's rise of 6.9% [4] - In Q3 2023, Armstrong's earnings per share (EPS) exceeded the Zacks Consensus Estimate by 23.1% and grew 17.6% year-over-year, with a trailing four-quarter earnings surprise of 7.9% on average [4] - EPS estimates for 2024 indicate a growth of 6.8% from the previous year, with the estimate moving up to $5.48 per share from $5.45 in the past 60 days, reflecting strong fundamentals and positive market trends [4]

3rd Quarter 2023 Earnings Presentation Safe Harbor Statement Disclosures in this presentation contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, those relating to future financial and operational results, expected savings from cost management ...

Financial Data and Key Metrics Changes - Total company adjusted EBITDA increased by 19% on a 7% increase in net sales, reaching a record $125 million, with an adjusted EBITDA margin expansion of 380 basis points [6][19] - Adjusted diluted earnings per share increased by 18% compared to the prior year [19] - Adjusted free cash flow increased by $26 million or 39% year-over-year [19] Business Line Data and Key Metrics Changes - Mineral Fiber segment reported 7% sales growth and 18% adjusted EBITDA growth, with adjusted EBITDA reaching $105 million and a margin of nearly 42% [7][16] - Architectural Specialties segment achieved record sales and adjusted EBITDA growth of 30%, with adjusted EBITDA exceeding $20 million and margins expanding to over 20% [11][18] Market Data and Key Metrics Changes - Overall market activity in the Architectural Specialties segment showed positive quoting activity, although some new orders experienced delays [12] - Demand in the office vertical remains pressured, but there are signs of stabilization in other sectors such as education and healthcare [24][25] Company Strategy and Development Direction - The company is focused on growth initiatives, particularly through the Canopy platform, which has doubled sales year-over-year and contributed positively to EBITDA growth [8][9] - Investments in expanding capacity and capabilities within the Architectural Specialties metal category are expected to enhance production efficiency and reduce lead times [14] Management's Comments on Operating Environment and Future Outlook - Management noted that market demand has stabilized at lower levels, with ongoing uncertainty in discretionary spending, particularly in the office sector [23][24] - The company remains optimistic about achieving long-term growth targets, with expectations of returning to 2019 volume levels in the Mineral Fiber segment [66] Other Important Information - The company repurchased $40 million of shares in the third quarter and announced a 10% increase in its quarterly dividend [21] - Full-year guidance has been improved based on better-than-expected market conditions, with increased midpoints for adjusted EBITDA and free cash flow [22] Q&A Session Summary Question: Demand and Project Delays - Management acknowledged ongoing uncertainty in the market, particularly affecting discretionary renovation work, and noted that project delays are common in the Architectural Specialties business [28][30] Question: Sustainability of Margin Improvements - Management expressed confidence in the sustainability of margin improvements due to operational efficiencies and effective management of SG&A expenses [31][32] Question: Volume Trends in Mineral Fiber - Management indicated that the home center channel did not experience the expected destocking, and they anticipate more volume growth from growth initiatives like Canopy [34][36][39] Question: Fourth Quarter Guidance - Management provided insights into expected volume declines in the fourth quarter, driven by retail home center volume and higher SG&A expenses [41][42] Question: Inventory Revaluation Impact - Management discussed the positive impact of inventory revaluation in the third quarter and its anticipated benefits for the fourth quarter [53][56] Question: Market Mix and Growth Initiatives - Management highlighted the ability to shift end market mix effectively due to strong relationships with architects and ongoing innovation in product offerings [60][63]

FORM 10-Q General Information [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section provides a standard disclaimer that forward-looking statements are subject to various risks and uncertainties, potentially causing actual results to differ materially from expectations - Forward-looking statements are subject to **various risks and uncertainties**, including expectations concerning markets, economic conditions, dividends, and the ability to increase revenues and earnings[12](index=12&type=chunk) - **Key risk categories** include changes in customer relationships, availability and costs of manufacturing inputs, labor, joint venture financial contribution, ESG objectives, digitalization, strategic transactions, tax consequences, indebtedness, liquidity, legal/regulatory matters, economic conditions, construction activity, market competition, and cybersecurity breaches[13](index=13&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk) PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including earnings, balance sheets, equity, and cash flows, highlighting strong financial performance with increased net sales, operating income, and net earnings [Condensed Consolidated Statements of Earnings and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings%20and%20Comprehensive%20Income) Consolidated Statements of Earnings and Comprehensive Income Highlights | Metric | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Sales | $347.3 | $325.0 | $982.9 | $928.6 | | Gross Profit | $141.4 | $117.5 | $377.5 | $337.6 | | Operating Income | $100.2 | $73.3 | $257.4 | $208.1 | | Net Earnings | $69.5 | $57.5 | $177.0 | $154.1 | | Diluted EPS (Continuing Ops) ($) | $1.56 | $1.18 | $3.93 | $3.23 | | Diluted EPS (Net Earnings) ($) | $1.56 | $1.25 | $3.93 | $3.29 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights | Metric | Sep 30, 2023 (millions) | Dec 31, 2022 (millions) | | :--------------------------------- | :---------------------- | :---------------------- | | Total Assets | $1,713.8 | $1,687.2 | | Total Current Assets | $350.1 | $356.5 | | Total Current Liabilities | $185.8 | $182.7 | | Long-term Debt (less current) | $604.8 | $651.1 | | Total Shareholders' Equity | $585.5 | $535.0 | [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' Equity Changes (9 Months Ended Sep 30, 2023) | Metric | Amount (millions) | | :--------------------------------- | :------------------ | | Total Shareholders' Equity (Dec 31, 2022) | $535.0 | | Net Earnings | $177.0 | | Acquisition of Treasury Stock | $(98.0) | | Cash Dividends | $(34.7) | | Total Shareholders' Equity (Sep 30, 2023) | $585.5 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Highlights (9 Months Ended Sep 30) | Metric | 2023 (millions) | 2022 (millions) | | :--------------------------------- | :-------------- | :-------------- | | Net cash provided by operating activities | $176.4 | $119.2 | | Net cash (used for) provided by investing activities | $(10.6) | $8.1 | | Net cash (used for) financing activities | $(175.1) | $(137.6) | | Net (decrease) in cash and cash equivalents | $(9.4) | $(11.3) | | Cash and cash equivalents at end of period | $96.6 | $86.8 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1. BUSINESS AND BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201.%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) - **Armstrong World Industries, Inc. (AWI)** is a Pennsylvania corporation incorporated in 1891[36](index=36&type=chunk) - In **July 2023**, AWI acquired **BOK Modern, LLC**, a designer of metal facade architectural solutions, integrating its operations into the **Architectural Specialties segment**[39](index=39&type=chunk) - In **November 2022**, AWI acquired **GC Products, Inc.**, a designer and manufacturer of glass-reinforced-gypsum, glass-reinforced-cement, molded ceiling, and specialty wall products, also integrated into the **Architectural Specialties segment**[39](index=39&type=chunk) [NOTE 2. SEGMENT RESULTS](index=9&type=section&id=NOTE%202.%20SEGMENT%20RESULTS) Segment Net Sales (in millions) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Mineral Fiber | $249.7 | $233.7 | $712.1 | $671.4 | | Architectural Specialties | $97.6 | $91.3 | $270.8 | $257.2 | | Total Net Sales | $347.3 | $325.0 | $982.9 | $928.6 | Segment Operating Income (in millions) | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Mineral Fiber | $85.5 | $70.8 | $224.8 | $199.8 | | Architectural Specialties | $15.5 | $3.4 | $34.9 | $11.0 | | Unallocated Corporate | $(0.8) | $(0.9) | $(2.3) | $(2.7) | | Total Consolidated Operating Income | $100.2 | $73.3 | $257.4 | $208.1 | [NOTE 3. REVENUE](index=10&type=section&id=NOTE%203.%20REVENUE) - Revenue is disaggregated by product-based segments (**Mineral Fiber** and **Architectural Specialties**) and major customer channels (**Distributors**, **Home centers**, **Direct customers**, **Other**)[45](index=45&type=chunk)[46](index=46&type=chunk) Mineral Fiber Net Sales by Customer Channel (in millions) | Customer Channel | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Distributors | $182.0 | $173.8 | $516.4 | $495.0 | | Home centers | $25.5 | $24.0 | $80.0 | $75.6 | | Direct customers | $15.7 | $16.1 | $45.6 | $46.6 | | Other | $26.5 | $19.8 | $70.1 | $54.2 | | Total | $249.7 | $233.7 | $712.1 | $671.4 | Architectural Specialties Net Sales by Customer Channel (in millions) | Customer Channel | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Distributors | $57.4 | $44.7 | $142.5 | $129.4 | | Direct customers | $36.4 | $45.3 | $122.8 | $125.0 | | Other | $3.8 | $1.3 | $5.5 | $2.8 | | Total | $97.6 | $91.3 | $270.8 | $257.2 | [NOTE 4. ACQUISITIONS](index=11&type=section&id=NOTE%204.%20ACQUISITIONS) - On **July 17, 2023**, AWI acquired **BOK Modern, LLC** for a purchase price of **$13.8 million cash** and additional contingent consideration not to exceed **$3.3 million**, with an estimated fair value of **$0.8 million**[52](index=52&type=chunk) - In **May 2023**, AWI acquired a co-ownership interest in certain software-related intellectual property for a total purchase price of **$11.0 million**[53](index=53&type=chunk) - On **November 4, 2022**, AWI acquired the business and assets of **GC Products, Inc.** for **$2.8 million cash**[54](index=54&type=chunk) [NOTE 5. DISCONTINUED OPERATIONS](index=11&type=section&id=NOTE%205.%20DISCONTINUED%20OPERATIONS) - During the three and nine months ended **September 30, 2022**, AWI recorded a **$1.0 million tax benefit** related to federal tax statute of limitation closures for the separation of Armstrong Flooring, Inc[55](index=55&type=chunk) - During the three and nine months ended **September 30, 2022**, AWI recorded a **$2.0 million tax benefit** related to federal tax statute of limitation closures for the sale of EMEA and Pacific Rim businesses[57](index=57&type=chunk) Net Earnings from Discontinued Operations (in millions) | Metric | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net earnings from discontinued operations | $3.0 | $3.0 | [NOTE 6. ACCOUNTS AND NOTES RECEIVABLE](index=12&type=section&id=NOTE%206.%20ACCOUNTS%20AND%20NOTES%20RECEIVABLE) Accounts and Notes Receivable, Net (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Customer receivables | $112.8 | $107.4 | | Miscellaneous receivables | $7.0 | $8.2 | | Less allowance for warranties, discounts and losses | $(3.1) | $(3.2) | | Accounts and notes receivable, net | $116.7 | $112.4 | - All outstanding **Employee Retention Credit (ERC) receivables** of **$4.8 million** as of **December 31, 2022**, were collected during the **first quarter of 2023**[59](index=59&type=chunk) [NOTE 7. INVENTORIES](index=12&type=section&id=NOTE%207.%20INVENTORIES) Inventories, Net (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Finished goods | $58.8 | $60.9 | | Goods in process | $4.5 | $6.5 | | Raw materials and supplies | $68.1 | $63.0 | | Less LIFO reserves | $(24.2) | $(20.4) | | Total inventories, net | $107.2 | $110.0 | [NOTE 8. OTHER CURRENT ASSETS](index=12&type=section&id=NOTE%208.%20OTHER%20CURRENT%20ASSETS) Other Current Assets (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Prepaid expenses | $15.1 | $16.6 | | Assets held for sale | $6.6 | $4.6 | | Fair value of derivative assets | $3.2 | $3.7 | | Other | $2.7 | $1.4 | | Total other current assets | $27.6 | $26.3 | - Assets held for sale as of **September 30, 2023**, included the idled **Mineral Fiber plant in St. Helens, Oregon**, and an **Architectural Specialties design center in Chicago, Illinois**[60](index=60&type=chunk) [NOTE 9. EQUITY INVESTMENT](index=13&type=section&id=NOTE%209.%20EQUITY%20INVESTMENT) - The investment in **WAVE joint venture** is a **50% equity interest** reflected within the **Mineral Fiber segment**[62](index=62&type=chunk) WAVE Joint Venture Financial Data (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $117.8 | $116.9 | $343.4 | $356.3 | | Gross profit | $68.5 | $64.0 | $200.9 | $180.1 | | Net earnings | $49.1 | $46.7 | $144.5 | $130.0 | [NOTE 10. LEASES](index=13&type=section&id=NOTE%2010.%20LEASES) - During **Q1 2023**, AWI entered a new operating lease for a manufacturing facility, recognizing an initial ROU asset and lease liability of **$13.0 million**[64](index=64&type=chunk) - During **Q3 2023**, AWI modified a lease for an existing manufacturing facility, recognizing an additional ROU asset and lease liability of **$8.6 million**[64](index=64&type=chunk) Weighted-Average Discount Rate for Leases | Metric | Sep 30, 2023 (%) | Dec 31, 2022 (%) | | :--------------------------------- | :--------------- | :--------------- | | Operating leases | 4.9% | 3.8% | | Finance leases | 4.6% | 3.7% | [NOTE 11. GOODWILL AND INTANGIBLE ASSETS](index=14&type=section&id=NOTE%2011.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill and Intangible Assets (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Goodwill | $174.8 | $167.3 | | Total intangible assets | $658.2 | $640.9 | | Amortization expense (9 months) | $11.0 | $12.8 | - The increase in goodwill as of **September 30, 2023**, resulted from the **acquisition of BOK**[70](index=70&type=chunk) [NOTE 12. OTHER NON-CURRENT ASSETS](index=14&type=section&id=NOTE%2012.%20OTHER%20NON-CURRENT%20ASSETS) Other Non-Current Assets (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Cash surrender value of company-owned life insurance policies | $40.7 | $42.8 | | Investment in employee deferred compensation plans | $7.8 | $7.7 | | Fair value of derivative assets | $3.0 | $7.7 | | Other | $1.0 | $1.2 | | Total other non-current assets | $52.5 | $59.4 | [NOTE 13. ACCOUNTS PAYABLE AND ACCRUED EXPENSES](index=15&type=section&id=NOTE%2013.%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20EXPENSES) Accounts Payable and Accrued Expenses (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Payables, trade and other | $95.3 | $105.0 | | Employment costs | $20.8 | $20.0 | | Current portion of pension and postretirement liabilities | $9.9 | $9.9 | | Acquisition-related contingent consideration | $0 | $15.2 | | Other | $24.3 | $22.4 | | Total accounts payable and accrued expenses | $150.3 | $172.5 | [NOTE 14. INCOME TAX EXPENSE](index=15&type=section&id=NOTE%2014.%20INCOME%20TAX%20EXPENSE) Income Tax Expense and Effective Tax Rate | Metric | 3 Months Ended Sep 30, 2023 (millions) | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2023 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Earnings from continuing operations before income taxes | $93.7 | $67.7 | $237.6 | $194.3 | | Income tax expense | $24.2 | $13.2 | $60.6 | $43.2 | | Effective tax rate (%) | 25.8% | 19.5% | 25.5% | 22.2% | - The effective tax rate for both the three and nine months ended **September 30, 2023**, was **higher** primarily due to the benefits recognized from federal and state statute closures and the reduction in valuation allowance for capital loss carryforwards in the prior year[74](index=74&type=chunk) [NOTE 15. DEBT](index=15&type=section&id=NOTE%2015.%20DEBT) - AWI's long-term debt includes a **$950.0 million** variable rate senior credit facility, comprising a **$500.0 million** revolving credit facility and a **$450.0 million** Term Loan A[76](index=76&type=chunk) Debt Balances (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Principal balance of Term Loan A | $450.0 | $450.0 | | Borrowings outstanding under revolving credit facility | $175.0 | $205.0 | | Long-term debt, less current installments | $604.8 | $651.1 | Letters of Credit Facilities (in millions) | Financing Arrangement | Limit | Sep 30, 2023 Used | Available | | :---------------------- | :---- | :---------------- | :-------- | | Bi-lateral facility | $25.0 | $7.7 | $17.3 | | Revolving credit facility | $150.0 | $0 | $150.0 | | Total | $175.0 | $7.7 | $167.3 | [NOTE 16. PENSIONS AND OTHER BENEFIT PROGRAMS](index=16&type=section&id=NOTE%2016.%20PENSIONS%20AND%20OTHER%20BENEFIT%20PROGRAMS) Net Periodic Benefit Costs (Credits) (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net periodic pension credit | $0 | $0 | $0 | $0 | | Net periodic postretirement credit | $(0.8) | $(0.4) | $(2.4) | $(1.2) | [NOTE 17. FINANCIAL INSTRUMENTS AND CONTINGENT CONSIDERATION](index=16&type=section&id=NOTE%2017.%20FINANCIAL%20INSTRUMENTS%20AND%20CONTINGENT%20CONSIDERATION) Fair Values of Financial Instruments and Contingent Consideration (in millions) | Metric | Sep 30, 2023 Carrying Amount | Sep 30, 2023 Estimated Fair Value | Dec 31, 2022 Carrying Amount | Dec 31, 2022 Estimated Fair Value | | :--------------------------------- | :----------------------------- | :-------------------------------- | :----------------------------- | :-------------------------------- | | Total long-term debt, including current portion | $(621.7) | $(616.2) | $(651.1) | $(645.3) | | Interest rate swap contracts | $6.2 | $6.2 | $11.4 | $11.4 | | Acquisition-related contingent consideration | $(0.8) | $(0.8) | $(15.2) | $(15.2) | - Acquisition-related contingent consideration of **$15.2 million** related to the Turf acquisition was paid in **Q1 2023**[91](index=91&type=chunk) - The remaining acquisition-related contingent consideration of **$0.8 million** as of **September 30, 2023**, relates to the BOK acquisition, measured at fair value using a Monte Carlo simulation[87](index=87&type=chunk)[88](index=88&type=chunk) [NOTE 18. DERIVATIVE FINANCIAL INSTRUMENTS](index=18&type=section&id=NOTE%2018.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) - AWI uses **interest rate swaps** as **cash flow hedges** to manage exposure to interest rate volatility on variable rate debt[94](index=94&type=chunk) - In **March 2023**, interest rate swaps were amended to change the hedged interest rate from **LIBOR** to the **Secured Overnight Financing Rate (SOFR)**[94](index=94&type=chunk)[176](index=176&type=chunk) - As of **September 30, 2023**, **$6.3 million** of existing gains in **Accumulated Other Comprehensive Income (AOCI)** are expected to be recognized in net earnings over the next twelve months[103](index=103&type=chunk) [NOTE 19. SHAREHOLDERS' EQUITY](index=19&type=section&id=NOTE%2019.%20SHAREHOLDERS'%20EQUITY) - During the three months ended **September 30, 2023**, AWI repurchased **0.5 million shares** for **$40.0 million** (average price **$74.80 per share**)[106](index=106&type=chunk) - During the nine months ended **September 30, 2023**, AWI repurchased **1.3 million shares** for **$97.0 million** (average price **$72.09 per share**)[106](index=106&type=chunk) - As of **September 30, 2023**, **$751.8 million** remained under the Board's share repurchase authorization[104](index=104&type=chunk) - On **October 18, 2023**, the Board declared a **$0.28 per share** quarterly dividend, an **increase** from the previous **$0.254 per share**[108](index=108&type=chunk) [NOTE 20. OTHER LONG-TERM LIABILITIES](index=21&type=section&id=NOTE%2020.%20OTHER%20LONG-TERM%20LIABILITIES) Other Long-Term Liabilities (in millions) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Long-term deferred compensation arrangements | $17.0 | $15.4 | | Environmental insurance recoveries received in excess of cumulative expenses incurred | $2.7 | $3.5 | | Acquisition-related contingent consideration | $0.8 | $0 | | Other | $7.9 | $6.9 | | Total other long-term liabilities | $28.4 | $25.8 | [NOTE 21. LITIGATION AND RELATED MATTERS](index=21&type=section&id=NOTE%2021.%20LITIGATION%20AND%20RELATED%20MATTERS) - AWI is actively involved in the investigation and remediation of existing or potential environmental contamination at **two domestically owned Superfund sites: Macon, GA, and Elizabeth City, NC**[116](index=116&type=chunk) - Total environmental liabilities recorded were **$0.8 million** as of **September 30, 2023**, and **$0.5 million** as of **December 31, 2022**, reflected within other long-term liabilities[127](index=127&type=chunk) - Insurance recoveries in excess of cumulative expenses were **$2.7 million** as of **September 30, 2023**, and **$3.5 million** as of **December 31, 2022**[119](index=119&type=chunk) [NOTE 22. NET EARNINGS PER SHARE](index=25&type=section&id=NOTE%2022.%20NET%20EARNINGS%20PER%20SHARE) Net Earnings Per Share (Continuing Operations) | Metric | 3 Months Ended Sep 30, 2023 ($) | 3 Months Ended Sep 30, 2022 ($) | 9 Months Ended Sep 30, 2023 ($) | 9 Months Ended Sep 30, 2022 ($) | | :--------------------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Basic EPS | $1.56 | $1.18 | $3.93 | $3.24 | | Diluted EPS | $1.56 | $1.18 | $3.93 | $3.23 | | Basic Shares Outstanding (millions) | 44.5 | 46.1 | 45.0 | 46.6 | | Diluted Shares Outstanding (millions) | 44.6 | 46.1 | 45.0 | 46.7 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting strong consolidated net sales and operating income growth driven by favorable average unit value and increased sales volumes across key segments, alongside cash flow and liquidity [Overview](index=26&type=section&id=Overview) - AWI is a **leader** in the design, innovation, and manufacture of ceiling and wall solutions in the Americas[137](index=137&type=chunk) - The company operates **16 manufacturing plants** (**14 in the U.S., 2 in Canada**) and manufactures ceiling suspension systems through the WAVE joint venture[138](index=138&type=chunk)[139](index=139&type=chunk) - Reportable segments include **Mineral Fiber**, **Architectural Specialties**, and **Unallocated Corporate**. Recent acquisitions of **BOK Modern (July 2023)** and **GC Products (November 2022)** are included in the Architectural Specialties segment[138](index=138&type=chunk)[140](index=140&type=chunk) [Factors Affecting Revenues](index=27&type=section&id=Factors%20Affecting%20Revenues) - Consolidated net sales for the three and nine months ended **September 30, 2023**, **increased** by approximately **$20 million** and **$43 million**, respectively, due to favorable Average Unit Value (AUV)[146](index=146&type=chunk) - Sales volumes **increased** by **$2 million** (three months) and **$11 million** (nine months), partly driven by contributions from the acquisitions of GC Products and BOK[145](index=145&type=chunk) - **Price increases** were implemented on Mineral Fiber ceiling products and grid products during the first half and third quarter of 2023[147](index=147&type=chunk) - Sales are historically **stronger** in the second and third quarters due to favorable weather, customer business cycles, and timing of renovation/new construction projects[147](index=147&type=chunk) [Factors Affecting Operating Costs](index=27&type=section&id=Factors%20Affecting%20Operating%20Costs) - In the three months ended **September 30, 2023**, operating income **benefited** by **$2 million** from lower energy costs, which more than offset higher raw material costs[149](index=149&type=chunk) - For the nine months ended **September 30, 2023**, operating income was **negatively impacted** by **$4 million** from higher raw material costs, partially offset by lower energy costs[149](index=149&type=chunk) Acquisition-Related Expenses and Losses (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Loss related to change in fair value of contingent consideration | $0 | $7.1 | $0 | $13.3 | | Deferred cash and restricted stock expenses | $1.4 | $1.9 | $4.1 | $5.9 | | Net negative impact to operating income | $1.4 | $9.0 | $4.1 | $19.2 | - The **decrease** in acquisition-related expenses is primarily due to the completion of the contingent consideration earn-out period for the Turf acquisition on **December 31, 2022**[152](index=152&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Consolidated Results (in millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (%) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (%) | | :--------------------------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Total consolidated net sales | $347.3 | $325.0 | 6.9% | $982.9 | $928.6 | 5.8% | | Operating income | $100.2 | $73.3 | 36.7% | $257.4 | $208.1 | 23.7% | - Cost of goods sold as a percentage of net sales **decreased** to **59.3%** in **Q3 2023** (from **63.8%** in Q3 2022) and to **61.6%** for the nine months (from **63.6%** in 9 months 2022), driven by favorable AUV margin, lower input costs, and improved manufacturing productivity[157](index=157&type=chunk)[158](index=158&type=chunk) - Equity earnings from the WAVE joint venture **increased** to **$23.4 million** in **Q3 2023** (from **$22.2 million**) and to **$69.1 million** for the nine months (from **$61.7 million**), primarily due to lower steel costs and higher volumes[160](index=160&type=chunk) - Interest expense **increased** due to higher interest rates on floating rate debt, partially offset by lower average debt balances[161](index=161&type=chunk) - The effective tax rate **increased** to **25.8%** in **Q3 2023** (from **19.5%**) and to **25.5%** for the nine months (from **22.2%**), primarily due to the absence of prior-year tax benefits from federal and state statute closures and valuation allowance reductions[162](index=162&type=chunk) [Financial Condition and Liquidity](index=31&type=section&id=Financial%20Condition%20and%20Liquidity) - Net cash provided by operating activities **significantly increased** to **$176.4 million** for the first nine months of **2023**, up from **$119.2 million** in the prior-year period, driven by favorable working capital changes[172](index=172&type=chunk) - Net cash used in investing activities was **$10.6 million** for the first nine months of **2023**, a **shift** from **$8.1 million provided** in the prior year, primarily due to cash paid for acquisitions and increased capital expenditures[172](index=172&type=chunk) - Net cash used for financing activities **increased** to **$175.1 million** for the first nine months of **2023**, compared to **$137.6 million** in the prior year, mainly due to lower proceeds from revolving credit facility borrowings[173](index=173&type=chunk) - AWI has a **$950.0 million** variable rate senior credit facility, including a **$500.0 million** revolving credit facility and a **$450.0 million** Term Loan A[174](index=174&type=chunk) - As of **September 30, 2023**, AWI had **$96.6 million** in cash and cash equivalents and **$325.0 million** available under its revolving credit facility, and was **in compliance** with all debt covenants[175](index=175&type=chunk)[181](index=181&type=chunk) [Critical Accounting Estimates](index=32&type=section&id=Critical%20Accounting%20Estimates) - There have been **no material changes** to the critical accounting estimates disclosed in the Annual Report on Form 10-K for the year ended **December 31, 2022**[182](index=182&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers readers to the company's Annual Report on Form 10-K for a comprehensive discussion of its exposure to various market risks - For information regarding exposure to certain market risks, refer to **Item 7A, 'Quantitative and Qualitative Disclosures About Market Risk,'** in the Annual Report on Form 10-K for the year ended **December 31, 2022**[183](index=183&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive officer and chief financial officer, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023. No material changes in internal control over financial reporting occurred during the fiscal quarter - Disclosure controls and procedures were **effective** as of **September 30, 2023**, based on management's evaluation with the participation of the principal executive officer and chief financial officer[184](index=184&type=chunk) - There have been **no material changes** in internal control over financial reporting during the fiscal quarter ended **September 30, 2023**[184](index=184&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 21 of the Condensed Consolidated Financial Statements for detailed information regarding legal proceedings, primarily focusing on environmental matters - Information regarding legal proceedings is incorporated by reference from **Note 21** to the Condensed Consolidated Financial Statements[186](index=186&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been **no material changes** to the risk factors disclosed in the Annual Report on Form 10-K for the year ended **December 31, 2022**[186](index=186&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company continued its share repurchase program, acquiring 0.5 million shares for $40.0 million during the third quarter of 2023. A significant authorization amount remains for future repurchases - During the three months ended **September 30, 2023**, AWI repurchased **534,736 shares** under its program for a total cost of **$40.0 million**, at an average price of **$74.80 per share**[187](index=187&type=chunk)[189](index=189&type=chunk) - As of **September 30, 2023**, **$751.8 million** remained under the Board's share repurchase authorization, which extends through **December 31, 2026**[187](index=187&type=chunk)[188](index=188&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - There were **no defaults** upon senior securities[190](index=190&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is **not applicable**[190](index=190&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) This section discloses that the President and CEO, Victor D. Grizzle, entered into a new 10b5-1 plan for the exercise and sale of stock options in December 2023 - On **August 31, 2023**, CEO **Victor D. Grizzle** entered into a new **10b5-1 plan** for the exercise and sale of **22,914 stock options** at market price on **December 28, 2023**[191](index=191&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, primarily consisting of Inline XBRL documents and certifications - The exhibits include **Inline XBRL Instance Document**, **Taxonomy Extension Schema**, **Calculation Linkbase**, **Definition Linkbase**, **Label Linkbase**, and **Presentation Linkbase**[192](index=192&type=chunk) Signatures [Signatures](index=36&type=section&id=Signatures) The report was duly signed on behalf of Armstrong World Industries, Inc. by its Senior Vice President and Chief Financial Officer, and its Vice President and Controller - The report was signed by **Christopher P. Calzaretta**, Senior Vice President and Chief Financial Officer, and **James T. Burge**, Vice President and Controller, on **October 24, 2023**[195](index=195&type=chunk)

Financial Data and Key Metrics Changes - The company achieved a 10% year-over-year adjusted EBITDA growth on 1% net sales growth in Q2 2023, despite challenging market conditions [5] - Year-to-date adjusted free cash flow reached $103 million, a 60% increase from 2022 [5][19] - Adjusted diluted net earnings per share increased by 7% compared to the prior year [19] - Consolidated adjusted EBITDA margin expanded by 260 basis points, with adjusted EBITDA up 10% [19] Business Line Data and Key Metrics Changes - **Mineral Fiber Segment**: Sales were essentially flat compared to 2022, with a 7% increase in average unit value (AUV) offset by lower sales volumes [6][14] - **Architectural Specialties Segment**: Sales increased by 6% from a strong 2022 level, with order intake reaching a historical high [10][18] - Mineral Fiber adjusted EBITDA grew by $6 million or 7%, with adjusted EBITDA margin expanding by 260 basis points [15] Market Data and Key Metrics Changes - Mixed indicators for primary sectors in Q2, with Dodge bidding activity softening and ABI declining but remaining positive [6] - Office vacancies continued to rise, but commercial leasing activity improved for the first time in four quarters [6] - The office vertical, which represents about 30% of sales, is expected to remain soft in the second half of the year [36] Company Strategy and Development Direction - The company is focused on leveraging its diverse verticals to cushion against cyclical swings, with a strong emphasis on operational excellence and productivity gains [7][9] - The acquisition of BOK Modern aims to enhance the company's capabilities in architectural metal solutions, extending its reach into exterior building applications [28][79] - The company is committed to investing in high-return opportunities and strategic acquisitions while maintaining a robust share repurchase program [21][66] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the second half of 2023, noting improved visibility and removing worst-case market downturn scenarios from expectations [22][24] - The company anticipates continued inflationary pressures on raw materials, with a forecast of high single-digit inflation on raw materials for the year [34] - Management highlighted the positive trends supporting the healthy spaces growth initiative, particularly in light of new regulatory proposals [25][26] Other Important Information - The company reported a significant increase in sales through its online marketplace, Canopy, which doubled from 2022 levels [8] - The company has increased its share repurchase authorization by an additional $500 million, reflecting confidence in its cash flow generation capabilities [21][27] Q&A Session Summary Question: Input costs outlook for the second half of the year - Management indicated flat total input costs in Q2, with continued inflation on raw materials and deflationary benefits from energy and freight expected [34] Question: Demand trends in the office vertical - Management expects the office segment to remain softer in the second half, influenced by rising vacancy rates and economic uncertainty [36][40] Question: Pricing strategy moving forward - Management expressed confidence in maintaining pricing power, with expectations to price ahead of inflation despite market softness [44] Question: Guidance for Mineral Fiber volumes - Management anticipates high mid-single-digit declines in Mineral Fiber volumes for the second half, with caution due to macroeconomic uncertainties [47] Question: Architectural Specialties segment growth sustainability - Management is optimistic about achieving a world-class EBITDA margin of over 20% in the Architectural Specialties segment, driven by operating leverage and larger project opportunities [62] Question: M&A pipeline and capital allocation - Management remains active in pursuing acquisitions to enhance capabilities, with a balanced approach to capital allocation between investments, acquisitions, and share repurchases [66]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $0.01 par value per share AWI New York Stock Exchange FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission ...

Financial Data and Key Metrics Changes - Consolidated net sales increased by 10% year-over-year, adjusted EBITDA grew by 9%, and adjusted free cash flow increased by more than 50% [5][22][23] - Adjusted diluted net earnings per share increased by 10% compared to the prior year [22] Business Line Data and Key Metrics Changes - Mineral Fiber segment sales growth was 12%, driven by 9% volume growth and 3% average unit value (AUV) growth [16][18] - Architectural Specialties segment experienced a slower start with 3% year-over-year sales growth and a $1 million decline in adjusted EBITDA [7][21] Market Data and Key Metrics Changes - The first quarter saw a recovery in sales following a challenging first quarter of 2022, with a return to more normal inventory levels [6][10] - Bidding activity turned positive across all verticals, with notable strength in transportation and healthcare markets [10][26] Company Strategy and Development Direction - The company remains focused on executing strategic initiatives and controlling costs amid economic uncertainty [5][11] - Continued investment in digital initiatives and product innovation, including the expansion of the automated design service, Project Works [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed caution for the remainder of the year, anticipating a mild recession in the second half and challenges in the commercial construction market [9][10] - The company expects to maintain its full-year guidance, projecting sales growth of 2% to 6% and adjusted EBITDA growth of 3% to 9% [24] Other Important Information - The company has returned over $1 billion in dividends and share repurchases since 2016, with a commitment to return excess cash to shareholders [30] - The company has hedged about 50% of its natural gas exposure to stabilize its cost structure [20][55] Q&A Session Summary Question: Clarification on volume growth and end markets - Management confirmed that the 9% volume growth was supported by growth initiatives and an extra shipping day, with overall market conditions stable compared to the previous quarter [33][34][35] Question: Impact of destocking normalization - Management believes destocking has normalized, with no additional downturn observed [37] Question: Pricing strategy and inflation - Management is on track with regular price increases and expects to continue addressing inflation through pricing initiatives [41] Question: Geographic differences in office market activity - Management noted that all regions experienced growth, with variations based on back-to-office activity levels [45][46] Question: Impact of natural gas hedging - Management hedged about half of its natural gas exposure, which is expected to provide stability but not significantly alter cost guidance [55][86] Question: Volume outlook for the remainder of the year - Management anticipates negative volume growth in the second quarter, with a continued deceleration expected for the rest of the year [57] Question: AUV dynamics and mix impact - Management does not expect a significant trade-down in mix, maintaining a positive outlook for AUV growth driven by innovation and product offerings [64][66]

1st Quarter 2023 Earnings Presentation April 25, 2023 Safe Harbor Statement Disclosures in this presentation contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, those relating to future financial and operational results, expected savings from cost management initiatives, the performance of our WAVE1 joint venture, market and broader economic conditions and guidance. Those statements provide our future expectations or fo ...

[Filing Information](index=1&type=section&id=Filing%20Information) [Form 10-Q Details](index=1&type=section&id=Form%2010-Q%20Details) This section details the company's Form 10-Q filing for Q1 2023, including its NYSE listing, filer status, and outstanding shares - Filing Type: Quarterly Report on Form 10-Q for the period ended March 31, 2023[1](index=1&type=chunk) - Registrant: Armstrong World Industries, Inc. (AWI), a Pennsylvania corporation[2](index=2&type=chunk) - Exchange: Common Stock ($0.01 par value per share) is traded on the New York Stock Exchange (Symbol: AWI)[1](index=1&type=chunk) - Filer Status: Large accelerated filer[3](index=3&type=chunk) - Outstanding Shares: **45,118,873 common shares** outstanding as of April 20, 2023[3](index=3&type=chunk) [Table of Contents](index=2&type=section&id=TABLE%20OF%20CONTENTS) [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, which could cause actual results to differ materially from expectations - Forward-looking statements are based on management's current expectations and beliefs, but actual results may differ due to various factors[12](index=12&type=chunk) - Key risk categories include[12](index=12&type=chunk) - **Operational Risks:** Changes in customer relationships, availability/costs of inputs, WAVE joint venture contribution, labor, cost savings initiatives, ESG objectives[13](index=13&type=chunk) - **Strategic Risks:** Digitalization initiatives, product innovation, integration of strategic transactions[14](index=14&type=chunk) - **Financial Risks:** Tax consequences, indebtedness, liquidity, debt covenants, defined benefit plan obligations[14](index=14&type=chunk) - **Legal and Regulatory Risks:** Environmental liability, claims/litigation, intellectual property, international operations[14](index=14&type=chunk) - **General Economic and Other Factors:** Economic conditions, construction activity, market competition, customer consolidation, IT disruptions, cybersecurity, third-party dependence, geographic concentration, dividend/repurchase ability, public health epidemics[15](index=15&type=chunk) [PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Armstrong World Industries, Inc. and its subsidiaries for Q1 2023, including earnings, balance sheets, equity, cash flows, and notes [Condensed Consolidated Statements of Earnings and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings%20and%20Comprehensive%20Income) This section provides the company's unaudited condensed consolidated statements of earnings and comprehensive income for the three months ended March 31, 2023 and 2022 | Metric (in millions, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $310.2 | $282.6 | | Gross profit | $112.1 | $102.2 | | Operating income | $70.2 | $63.2 | | Net earnings | $47.3 | $44.4 | | Basic EPS | $1.04 | $0.94 | | Diluted EPS | $1.04 | $0.94 | | Total comprehensive income | $45.2 | $56.3 | - Net sales increased by **$27.6 million (9.8%)** year-over-year[18](index=18&type=chunk) - Net earnings increased by **$2.9 million (6.5%)** year-over-year[18](index=18&type=chunk) - Total comprehensive income decreased significantly from **$56.3 million in Q1 2022 to $45.2 million in Q1 2023**, primarily due to derivative losses[18](index=18&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's unaudited condensed consolidated balance sheets as of March 31, 2023, and December 31, 2022 | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------------------- | :------------- | :---------------- | | Total assets | $1,687.9 | $1,687.2 | | Total current assets | $362.0 | $356.5 | | Cash and cash equivalents | $96.0 | $106.0 | | Total current liabilities | $166.3 | $182.7 | | Long-term debt | $660.6 | $651.1 | | Total shareholders' equity | $544.8 | $535.0 | - Total assets remained relatively stable, increasing slightly from **$1,687.2 million to $1,687.9 million**[20](index=20&type=chunk)[22](index=22&type=chunk) - Cash and cash equivalents decreased by **$10.0 million** from year-end 2022[20](index=20&type=chunk) - Total current liabilities decreased by **$16.4 million**, primarily due to a reduction in accounts payable and accrued expenses and acquisition-related contingent consideration[21](index=21&type=chunk)[56](index=56&type=chunk) - Total shareholders' equity increased by **$9.8 million**[22](index=22&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This section presents the company's unaudited condensed consolidated statements of shareholders' equity for the three months ended March 31, 2023 and 2022 - Shareholders' equity increased from **$535.0 million** at December 31, 2022, to **$544.8 million** at March 31, 2023[24](index=24&type=chunk) - Key changes include net earnings of **$47.3 million**, share-based employee compensation of **$3.6 million**, offset by cash dividends of **$11.7 million** and acquisition of treasury stock of **$27.3 million**[24](index=24&type=chunk) - Accumulated other comprehensive loss increased from **$(100.1) million to $(102.2) million**[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2023 and 2022 | Cash Flow Activity (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash from operating activities | $26.2 | $16.7 | | Net cash from investing activities | $(1.5) | $0.2 | | Net cash from financing activities | $(34.7) | $(39.2) | | Net (decrease) in cash | $(10.0) | $(22.0) | | Cash and cash equivalents (end) | $96.0 | $76.1 | - Net cash provided by operating activities increased by **$9.5 million** year-over-year, primarily due to favorable working capital changes, notably in inventory[27](index=27&type=chunk)[136](index=136&type=chunk) - Net cash used in investing activities shifted from a **$0.2 million inflow in Q1 2022 to a $1.5 million outflow in Q1 2023**, driven by increased purchases of property, plant, and equipment[27](index=27&type=chunk)[136](index=136&type=chunk) - Net cash used for financing activities decreased by **$4.5 million**, mainly due to decreased payments on borrowings and fewer stock repurchases, partially offset by higher acquisition-related contingent consideration payments[27](index=27&type=chunk)[137](index=137&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes to the unaudited condensed consolidated financial statements, offering further context and breakdowns of various accounts and transactions [NOTE 1. BUSINESS AND BASIS OF PRESENTATION](index=9&type=section&id=NOTE%201.%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) This note outlines the company's identity, confirms the consistency of accounting policies with the prior annual report, and mentions the acquisition of GC Products, Inc. - AWI is a Pennsylvania corporation incorporated in 1891[30](index=30&type=chunk) - Accounting policies are consistent with the December 31, 2022, Form 10-K, with minor reclassifications for 2023 presentation[31](index=31&type=chunk)[32](index=32&type=chunk) - Acquisition: GC Products, Inc. (designer/manufacturer of glass-reinforced-gypsum, glass-reinforced-cement, molded ceiling, and specialty wall products) was acquired in November 2022 and is included in the Architectural Specialties segment[33](index=33&type=chunk) [NOTE 2. SEGMENT RESULTS](index=9&type=section&id=NOTE%202.%20SEGMENT%20RESULTS) This note provides a breakdown of net sales, operating income, and segment assets by the company's two product-based segments: Mineral Fiber and Architectural Specialties, along with Unallocated Corporate | Segment | Three Months Ended March 31, 2023 (Net Sales in millions) | Three Months Ended March 31, 2022 (Net Sales in millions) | | :---------------------- | :-------------------------------------------- | :-------------------------------------------- | | Mineral Fiber | $228.4 | $203.2 | | Architectural Specialties | $81.8 | $79.4 | | Total net sales | $310.2 | $282.6 | | Segment | Three Months Ended March 31, 2023 (Operating Income in millions) | Three Months Ended March 31, 2022 (Operating Income in millions) | | :---------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Mineral Fiber | $63.8 | $57.6 | | Architectural Specialties | $7.2 | $6.5 | | Unallocated Corporate | $(0.8) | $(0.9) | | Total operating income | $70.2 | $63.2 | | Segment | March 31, 2023 (Segment Assets in millions) | December 31, 2022 (Segment Assets in millions) | | :---------------------- | :------------------------------ | :--------------------------------- | | Mineral Fiber | $1,118.9 | $1,096.9 | | Architectural Specialties | $385.3 | $387.5 | | Unallocated Corporate | $183.7 | $202.8 | | Total assets | $1,687.9 | $1,687.2 | - Mineral Fiber net sales increased by **12.4%** and operating income increased by **10.8%** year-over-year[34](index=34&type=chunk)[35](index=35&type=chunk) - Architectural Specialties net sales increased by **3.0%** and operating income increased by **10.8%** year-over-year[34](index=34&type=chunk)[35](index=35&type=chunk) [NOTE 3. REVENUE](index=10&type=section&id=NOTE%203.%20REVENUE) This note disaggregates revenue by major customer channels within the Mineral Fiber and Architectural Specialties segments, providing insight into sales distribution - Revenue is disaggregated by product-based segments and major customer channels (Distributors, Home centers, Direct customers, Other) to reflect how economic factors affect revenue and cash flows[39](index=39&type=chunk) | Mineral Fiber Customer Channel | Three Months Ended March 31, 2023 (Net Sales in millions) | Three Months Ended March 31, 2022 (Net Sales in millions) | | :----------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Distributors | $159.8 | $143.5 | | Home centers | $31.1 | $28.1 | | Direct customers | $14.7 | $14.3 | | Other | $22.8 | $17.3 | | Total | $228.4 | $203.2 | | Architectural Specialties Customer Channel | Three Months Ended March 31, 2023 (Net Sales in millions) | Three Months Ended March 31, 2022 (Net Sales in millions) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Distributors | $39.2 | $38.8 | | Direct customers | $42.0 | $39.4 | | Other | $0.6 | $1.2 | | Total | $81.8 | $79.4 | [NOTE 4. ACCOUNTS AND NOTES RECEIVABLE](index=11&type=section&id=NOTE%204.%20ACCOUNTS%20AND%20NOTES%20RECEIVABLE) This note details the composition of accounts and notes receivable, net, including customer and miscellaneous receivables, and the allowance for warranties, discounts, and losses | Receivable Type (in millions) | March 31, 2023 | December 31, 2022 | | :---------------------------------------- | :------------- | :---------------- | | Customer receivables | $118.7 | $107.4 | | Miscellaneous receivables | $6.9 | $8.2 | | Less allowance for warranties, discounts, and losses | $(3.7) | $(3.2) | | Accounts and notes receivable, net | $121.9 | $112.4 | - All outstanding Employee Retention Credit (ERC) receivables of **$4.8 million** were collected during the first quarter of 2023[46](index=46&type=chunk) [NOTE 5. INVENTORIES](index=11&type=section&id=NOTE%205.%20INVENTORIES) This note provides a breakdown of inventories, net, by finished goods, goods in process, raw materials and supplies, and LIFO reserves | Inventory Type (in millions) | March 31, 2023 | December 31, 2022 | | :--------------------------- | :------------- | :---------------- | | Finished goods | $59.8 | $60.9 | | Goods in process | $6.8 | $6.5 | | Raw materials and supplies | $69.4 | $63.0 | | Less LIFO reserves | $(22.6) | $(20.4) | | Total inventories, net | $113.4 | $110.0 | - Total inventories, net, increased by **$3.4 million** from December 31, 2022, to March 31, 2023[47](index=47&type=chunk) [NOTE 6. OTHER CURRENT ASSETS](index=11&type=section&id=NOTE%206.%20OTHER%20CURRENT%20ASSETS) This note details the components of other current assets, including prepaid expenses, fair value of derivative assets, assets held for sale, and other miscellaneous items | Other Current Assets (in millions) | March 31, 2023 | | :--------------------------------- | :------------- | | Prepaid expenses | $18.2 | | Fair value of derivative assets | $6.5 | | Assets held for sale | $4.6 | | Other | $1.1 | | Total other current assets | $30.4 | - Assets held for sale include the property, plant, and equipment of the idled Mineral Fiber plant in St. Helens, Oregon[48](index=48&type=chunk) [NOTE 7. EQUITY INVESTMENT](index=11&type=section&id=NOTE%207.%20EQUITY%20INVESTMENT) This note provides condensed financial data for WAVE, the 50% equity method joint venture with Worthington Industries, Inc., reflected within the Mineral Fiber segment - WAVE is a **50% equity interest joint venture** with Worthington Industries, Inc., accounted for using the equity method and reflected in the Mineral Fiber segment[49](index=49&type=chunk) | WAVE Financial Data (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $109.5 | $110.4 | | Gross profit | $62.3 | $54.8 | | Net earnings | $43.8 | $38.2 | - WAVE's net earnings increased by **$5.6 million (14.7%)** year-over-year[50](index=50&type=chunk) [NOTE 8. LEASES](index=12&type=section&id=NOTE%208.%20LEASES) This note discloses a new operating lease for a manufacturing facility in the Architectural Specialties segment, which will commence in Q2 2023 - A new operating lease for an Architectural Specialties manufacturing facility, with an estimated **$13 million right-of-use asset** and corresponding lease liability, will be recognized in Q2 2023[53](index=53&type=chunk) [NOTE 9. GOODWILL AND INTANGIBLE ASSETS](index=12&type=section&id=NOTE%209.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) This note provides a detailed breakdown of amortizing and non-amortizing intangible assets, including their estimated useful lives and accumulated amortization, as well as goodwill | Intangible Asset Type (in millions) | Estimated Useful Life | March 31, 2023 (Gross Carrying Amount) | March 31, 2023 (Accumulated Amortization) | December 31, 2022 (Gross Carrying Amount) | December 31, 2022 (Accumulated Amortization) | | :---------------------------------- | :-------------------- | :------------------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------------------------------- | | **Amortizing Intangible Assets:** | | | | | | | Customer relationships | 6-20 years | $182.1 | $144.4 | $182.1 | $142.0 | | Developed technology | 13-20 years | $94.1 | $83.6 | $93.8 | $83.3 | | Software | 7 years | $9.1 | $2.9 | $9.1 | $2.6 | | Trademarks and brand names | 3-10 years | $4.0 | $2.8 | $4.0 | $2.6 | | Non-compete agreements | 3-5 years | $5.8 | $2.9 | $5.8 | $2.6 | | Other | Various | $1.1 | $0.1 | $1.1 | $0.1 | | Total Amortizing Intangible Assets | | $296.2 | $236.7 | $295.9 | $233.2 | | **Non-Amortizing Intangible Assets:** | | | | | | | Trademarks and brand names | Indefinite | $345.1 | - | $345.0 | - | | Total Intangible Assets | | $641.3 | | $640.9 | | | Goodwill | Indefinite | $167.3 | - | $167.3 | - | | Amortization Expense (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Amortization expense | $3.5 | $4.8 | - Goodwill remained constant at **$167.3 million**[55](index=55&type=chunk) [NOTE 10. OTHER NON-CURRENT ASSETS](index=12&type=section&id=NOTE%2010.%20OTHER%20NON-CURRENT%20ASSETS) This note details the components of other non-current assets, including cash surrender value of company-owned life insurance policies, investment in employee deferred compensation plans, and fair value of derivative assets | Other Non-Current Assets (in millions) | March 31, 2023 | December 31, 2022 | | :------------------------------------- | :------------- | :---------------- | | Cash surrender value of COLI policies | $42.1 | $42.8 | | Investment in employee deferred comp. | $7.4 | $7.7 | | Fair value of derivative assets | $1.9 | $7.7 | | Other | $0.8 | $1.2 | | Total other non-current assets | $52.2 | $59.4 | - Total other non-current assets decreased by **$7.2 million** from December 31, 2022, to March 31, 2023, primarily due to a decrease in the fair value of derivative assets[55](index=55&type=chunk) [NOTE 11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES](index=12&type=section&id=NOTE%2011.%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20EXPENSES) This note provides a breakdown of accounts payable and accrued expenses, highlighting trade and other payables, employment costs, and acquisition-related contingent consideration | Accounts Payable & Accrued Expenses (in millions) | March 31, 2023 | December 31, 2022 | | :------------------------------------------------ | :------------- | :---------------- | | Payables, trade and other | $96.9 | $105.0 | | Employment costs | $11.9 | $20.0 | | Current portion of pension and postretirement | $9.9 | $9.9 | | Acquisition-related contingent consideration | $- | $15.2 | | Other | $18.6 | $22.4 | | Total accounts payable and accrued expenses | $137.3 | $172.5 | - Total accounts payable and accrued expenses decreased by **$35.2 million**, largely due to the payment of acquisition-related contingent consideration[56](index=56&type=chunk)[72](index=72&type=chunk) [NOTE 12. INCOME TAX EXPENSE](index=13&type=section&id=NOTE%2012.%20INCOME%20TAX%20EXPENSE) This note details the income tax expense and effective tax rate for the quarter, explaining the primary driver for the year-over-year change | Income Tax Metric (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Earnings before income taxes | $63.9 | $59.4 | | Income tax expense | $16.6 | $15.0 | | Effective tax rate | 26.0% | 25.3% | - The effective tax rate increased to **26.0% in Q1 2023 from 25.3% in Q1 2022**, primarily due to an increase in the valuation allowance for capital loss carryforwards[59](index=59&type=chunk) [NOTE 13. DEBT](index=13&type=section&id=NOTE%2013.%20DEBT) This note describes the company's long-term debt, consisting of a senior credit facility and a bi-lateral letter of credit facility, and provides details on outstanding borrowings and available credit - Long-term debt includes a **$950.0 million variable rate senior credit facility** ($500.0 million revolving credit, $450.0 million Term Loan A) and a **$25.0 million bi-lateral letter of credit facility**[61](index=61&type=chunk) | Debt Component (in millions) | March 31, 2023 (Outstanding) | December 31, 2022 (Outstanding) | | :--------------------------- | :--------------------------- | :------------------------------ | | Term Loan A | $450.0 | $450.0 | | Revolving credit facility | $220.0 | $205.0 | | Financing Arrangement (in millions) | Limit | March 31, 2023 (Used) | Available | | :---------------------------------- | :---- | :-------------------- | :-------- | | Bi-lateral facility | $25.0 | $8.1 | $16.9 | | Revolving credit facility | $150.0| $- | $150.0 | | Total | $175.0| $8.1 | $166.9 | [NOTE 14. PENSIONS AND OTHER BENEFIT PROGRAMS](index=13&type=section&id=NOTE%2014.%20PENSIONS%20AND%20OTHER%20BENEFIT%20PROGRAMS) This note details the components of net periodic benefit costs (credits) for U.S. defined benefit pension plans and retiree health and life insurance benefits | Net Periodic Benefit Costs (Credits) (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | **U.S. defined benefit plans:** | | | | Net periodic pension cost | $- | $- | | **Retiree health and life insurance benefits:** | | | | Net periodic postretirement (credit) | $(0.8) | $(0.4) | - Service cost components are presented in cost of goods sold and SG&A expenses, while other components are in other non-operating income, net[65](index=65&type=chunk) [NOTE 15. FINANCIAL INSTRUMENTS AND CONTINGENT CONSIDERATION](index=14&type=section&id=NOTE%2015.%20FINANCIAL%20INSTRUMENTS%20AND%20CONTINGENT%20CONSIDERATION) This note provides fair value estimates for financial instruments and acquisition-related contingent consideration, explaining valuation methodologies and impact of changes | Financial Instrument (in millions) | March 31, 2023 (Carrying Amount) | March 31, 2023 (Estimated Fair Value) | December 31, 2022 (Carrying Amount) | December 31, 2022 (Estimated Fair Value) | | :--------------------------------- | :------------------------------- | :------------------------------------ | :---------------------------------- | :--------------------------------------- | | Total long-term debt | $(666.2) | $(645.5) | $(651.1) | $(645.3) | | Interest rate swap contracts | $8.4 | $8.4 | $11.4 | $11.4 | | Acquisition-related contingent consideration | $- | $- | $(15.2) | $(15.2) | - Fair value estimates for long-term debt are based on quotes from financial institutions, while interest rate swaps use quotes and internal models[67](index=67&type=chunk) - Acquisition-related contingent consideration for Turf was paid out in Q1 2023, resulting in a zero balance at period end[72](index=72&type=chunk) | Contingent Consideration (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Fair value at beginning of period | $15.2 | $12.8 | | Cash consideration paid | $(15.2) | $(8.6) | | Loss related to change in fair value | $- | $0.1 | | Fair value at end of period | $- | $4.3 | [NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS](index=15&type=section&id=NOTE%2016.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This note describes the company's use of interest rate derivatives to manage market risk, specifically hedging variable rate debt, and addresses counterparty risk and the transition from LIBOR to SOFR - AWI uses interest rate swaps as cash flow hedges to manage interest rate volatility on variable rate debt, not for speculative trading[73](index=73&type=chunk)[75](index=75&type=chunk) - Counterparty risk is managed by engaging only with investment-grade financial institutions and utilizing netting arrangements[74](index=74&type=chunk) - In March 2023, interest rate swaps were amended to change the hedged interest rate from LIBOR to SOFR, in accordance with ASU 2020-04[75](index=75&type=chunk) | Derivative Assets (in millions) | Balance Sheet Location | March 31, 2023 (Fair Value) | December 31, 2022 (Fair Value) | | :--------------------------------- | :--------------------------- | :-------------------------- | :----------------------------- | | Interest rate swap contracts | Other current assets | $6.5 | $3.7 | | Interest rate swap contracts | Other non-current assets | $1.9 | $7.7 | - As of March 31, 2023, **$8.8 million** of existing gains in Accumulated Other Comprehensive Income (AOCI) are expected to be recognized in net earnings over the next twelve months[80](index=80&type=chunk) [NOTE 17. SHAREHOLDERS' EQUITY](index=16&type=section&id=NOTE%2017.%20SHAREHOLDERS'%20EQUITY) This note details the company's common stock repurchase program, dividend declarations, and the components of accumulated other comprehensive (loss) - The Board approved a share repurchase program of up to **$1,200.0 million** through December 31, 2023, with **$321.8 million** remaining as of March 31, 2023[81](index=81&type=chunk) - During Q1 2023, AWI repurchased **0.4 million shares for $27.0 million** at an average price of **$73.51 per share**[82](index=82&type=chunk) - Quarterly dividends of **$0.254 per share** were declared in February and April 2023[84](index=84&type=chunk) | Accumulated Other Comprehensive (Loss) (in millions) | December 31, 2022 | March 31, 2023 | | :------------------------------------------------- | :---------------- | :------------- | | Foreign Currency Translation Adjustments | $0.5 | $0.4 | | Derivative (Loss) | $9.5 | $7.3 | | Pension and Postretirement Adjustments | $(110.1) | $(109.9) | | Total Accumulated Other Comprehensive (Loss) | $(100.1) | $(102.2) | - Total accumulated other comprehensive loss increased from **$(100.1) million to $(102.2) million**, primarily due to derivative losses[85](index=85&type=chunk) [NOTE 18. LITIGATION AND RELATED MATTERS](index=18&type=section&id=NOTE%2018.%20LITIGATION%20AND%20RELATED%20MATTERS) This note details the company's environmental liabilities and ongoing litigation, including remediation efforts at Superfund sites and the financial impact of these matters - AWI is involved in the investigation and remediation of environmental contamination at two domestically owned locations (Macon, GA, and Elizabeth City, NC) under CERCLA and state laws[88](index=88&type=chunk) - Settlement agreements with legacy insurance carriers between 2017-2021 totaled **$53.0 million**, recorded as reductions to cost of goods sold and SG&A expenses[90](index=90&type=chunk) - As of March 31, 2023, insurance recoveries in excess of cumulative expenses were **$3.4 million**, which will offset future expenses[90](index=90&type=chunk) - Total environmental liabilities recorded were **$0.5 million** as of March 31, 2023 and December 31, 2022, for probable liabilities with reasonable estimates[98](index=98&type=chunk) - The company does not expect the total future costs for environmental matters to have a material adverse effect on liquidity or financial condition, as payments may be made over many years[95](index=95&type=chunk)[97](index=97&type=chunk) [NOTE 19. NET EARNINGS PER SHARE](index=20&type=section&id=NOTE%2019.%20NET%20EARNINGS%20PER%20SHARE) This note provides a reconciliation of net earnings to net earnings attributable to common shares and basic to diluted shares outstanding for EPS calculations | EPS Calculation (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Net earnings | $47.3 | $44.4 | | Net earnings attributable to common shares | $47.3 | $44.3 | | Shares Outstanding (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Basic shares outstanding | 45.4 | 47.1 | | Dilutive effect of common stock equivalents | 0.1 | 0.1 | | Diluted shares outstanding | 45.5 | 47.2 | - Anti-dilutive stock awards excluded from diluted EPS computation were **74,629 in Q1 2023**, significantly higher than **7,676 in Q1 2022**[104](index=104&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's Q1 2023 financial condition and results, analyzing revenues, costs, segment performance, and liquidity [Overview](index=22&type=section&id=OVERVIEW) AWI leads in ceiling and wall solutions across the Americas, operating 16 plants and segmenting operations into Mineral Fiber, Architectural Specialties, and Unallocated Corporate - AWI is a leader in the design, innovation, and manufacture of ceiling and wall solutions in the Americas[107](index=107&type=chunk) - Operates **16 manufacturing plants** (14 U.S., 2 Canada), excluding an idled plant in St. Helens, Oregon, classified as an asset held for sale[109](index=109&type=chunk) - WAVE, a joint venture with Worthington Industries, Inc., operates seven additional plants for suspension system products[109](index=109&type=chunk) - Reportable segments: Mineral Fiber, Architectural Specialties, and Unallocated Corporate[110](index=110&type=chunk) - The acquisition of GC Products in November 2022 did not materially impact Q1 2023 results[108](index=108&type=chunk) [Factors Affecting Revenues](index=23&type=section&id=Factors%20Affecting%20Revenues) Q1 2023 revenue was influenced by rising interest rates, lower inflation, and easing supply chain constraints, with increased sales volumes and favorable AUV driving net sales growth - Market conditions in Q1 2023 were characterized by rising interest rates, lower inflation on certain input costs, and easing supply chain/labor constraints, resulting in uneven market demand[116](index=116&type=chunk) - Increased sales volumes contributed **$21 million** to net sales in Q1 2023 compared to Q1 2022, primarily in the Mineral Fiber segment[116](index=116&type=chunk) - Favorable Average Unit Value (AUV) increased total consolidated net sales by approximately **$6 million** in Q1 2023[117](index=117&type=chunk) - Price increases were implemented on Mineral Fiber ceiling, grid products, and certain Architectural Specialties products in Q1 2023[118](index=118&type=chunk) - Sales are historically stronger in Q2 and Q3 due to favorable weather, customer business cycles, and project timing[118](index=118&type=chunk) [Factors Affecting Operating Costs](index=23&type=section&id=Factors%20Affecting%20Operating%20Costs) Operating costs are driven by raw materials, labor, energy, manufacturing overhead, freight, and SG&A, with higher raw material and energy costs negatively impacting Q1 2023 operating income - Operating expenses include direct production costs (raw materials, labor, energy), manufacturing overhead, freight, sourced product costs, and SG&A expenses[119](index=119&type=chunk) - Higher costs for raw materials and energy negatively impacted operating income by **$4 million** in Q1 2023 compared to Q1 2022[119](index=119&type=chunk) | Acquisition-Related Expenses (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------------- | :-------------------------------- | :-------------------------------- | | Loss related to change in fair value of contingent consideration | $- | $0.1 | | Deferred cash and restricted stock expenses | $1.3 | $2.0 | | Net negative impact to operating income | $1.3 | $2.1 | - Acquisition-related expenses decreased from **$2.1 million in Q1 2022 to $1.3 million in Q1 2023**, as the earn-out period for Turf acquisition was completed[122](index=122&type=chunk) - The company had approximately **3,000 full-time and part-time employees** as of March 31, 2023[123](index=123&type=chunk) [Results of Operations](index=24&type=section&id=RESULTS%20OF%20OPERATIONS) Consolidated net sales increased by 9.8% in Q1 2023, driven by higher volumes and favorable AUV, with operating income growing despite increased costs, supported by strong equity earnings from WAVE | Metric (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (%) | | :------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Total consolidated net sales | $310.2 | $282.6 | 9.8% | | Operating income | $70.2 | $63.2 | 11.1% | - Consolidated net sales increased by **$27.6 million (9.8%)** year-over-year, with **$21 million from higher volumes** and **$6 million from favorable AUV**[125](index=125&type=chunk) - Cost of goods sold as a percentage of net sales slightly increased to **63.9% in Q1 2023 from 63.8% in Q1 2022**, due to raw material/energy inflation and inventory valuation impacts, partially offset by AUV and productivity[126](index=126&type=chunk) - SG&A expenses increased by **$5.6 million to $62.7 million**, driven by higher selling expenses (Architectural Specialties investments, digital initiatives) and **$3 million in severance costs**, partially offset by a **$1 million reduction in acquisition-related expenses**[126](index=126&type=chunk) - Equity earnings from WAVE joint venture increased to **$20.8 million in Q1 2023 from $18.2 million in Q1 2022**, driven by lower steel costs and sales volume recovery[127](index=127&type=chunk) - Interest expense increased to **$8.7 million from $5.1 million** due to higher interest rates on floating rate debt[128](index=128&type=chunk) - Total Other Comprehensive Loss was **$2.1 million in Q1 2023**, a significant change from OCI of **$11.9 million in Q1 2022**, primarily due to derivative gains/losses[129](index=129&type=chunk) [Reportable Segment Results](index=25&type=section&id=REPORTABLE%20SEGMENT%20RESULTS) Mineral Fiber segment saw significant net sales and operating income growth from higher volumes and favorable AUV, while Architectural Specialties also grew sales and operating income from product expansion and project mix | Mineral Fiber Segment (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (%) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Total segment net sales | $228.4 | $203.2 | 12.4% | | Operating income | $63.8 | $57.6 | 10.8% | - Mineral Fiber net sales increased by **$25 million**, with **$19 million from higher volumes** and **$6 million from favorable AUV**[130](index=130&type=chunk) - Mineral Fiber operating income increased due to higher sales volumes (**$12 million benefit**), favorable AUV (**$5 million benefit**), and increased equity earnings (**$3 million**), partially offset by higher manufacturing costs (**$8 million**) and increased selling/severance expenses (**$6 million**)[131](index=131&type=chunk) | Architectural Specialties Segment (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (%) | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Total segment net sales | $81.8 | $79.4 | 3.0% | | Operating income (loss) | $7.2 | $6.5 | 10.8% | - Architectural Specialties net sales increased by **$2 million**, driven by growth across most product categories, despite lower metal product sales and timing of custom project sales[132](index=132&type=chunk) - Architectural Specialties operating income increased due to a **$2 million margin benefit** from increased sales and favorable project mix, and a **$1 million reduction in acquisition-related expenses**, partially offset by a **$2 million increase in selling expenses**[133](index=133&type=chunk) [Financial Condition and Liquidity](index=26&type=section&id=FINANCIAL%20CONDITION%20AND%20LIQUIDITY) Liquidity is supported by cash from operations and a $950.0 million senior credit facility, with increased operating cash flow, cash used in investing, and reduced financing outflows, while remaining in compliance with debt covenants - Operating activities provided **$26.2 million of cash in Q1 2023**, up from **$16.7 million in Q1 2022**, primarily due to favorable working capital changes in inventory[136](index=136&type=chunk) - Net cash used in investing activities was **$1.5 million in Q1 2023**, compared to **$0.2 million provided in Q1 2022**, mainly due to increased capital expenditures[136](index=136&type=chunk) - Net cash used for financing activities decreased to **$34.7 million in Q1 2023 from $39.2 million in Q1 2022**, driven by lower debt payments and stock repurchases, partially offset by higher contingent consideration payments[137](index=137&type=chunk) - The company has a **$950.0 million variable rate senior credit facility** ($500.0 million revolving credit, $450.0 million Term Loan A) and a **$25.0 million bi-lateral letter of credit facility**[138](index=138&type=chunk) - As of March 31, 2023, total borrowings outstanding were **$450.0 million** under Term Loan A and **$220.0 million** under the revolving credit facility[138](index=138&type=chunk) - AWI was in compliance with all covenants of the senior credit facility as of March 31, 2023[139](index=139&type=chunk) - Interest rate swaps were amended in March 2023 to transition from LIBOR to SOFR[140](index=140&type=chunk) - As of March 31, 2023, AWI had **$96.0 million in cash and cash equivalents** and **$280.0 million available** under its revolving credit facility[144](index=144&type=chunk) [Critical Accounting Estimates](index=27&type=section&id=Critical%20Accounting%20Estimates) There have been no material changes to the critical accounting estimates previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to critical accounting estimates since the December 31, 2022 Annual Report on Form 10-K[145](index=145&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the Annual Report on Form 10-K for detailed information regarding the company's exposure to market risks - For detailed information on market risk exposure, refer to Item 7A of the Annual Report on Form 10-K for the year ended December 31, 2022[146](index=146&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of March 31, 2023[147](index=147&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended March 31, 2023[147](index=147&type=chunk) [PART II - OTHER INFORMATION](index=29&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 18 of the Condensed Consolidated Financial Statements for details on legal proceedings, primarily environmental matters - Legal proceedings information is incorporated by reference from Note 18 to the Condensed Consolidated Financial Statements[149](index=149&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors since the December 31, 2022 Annual Report on Form 10-K[150](index=150&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's common stock repurchase activities under its approved program, including the number of shares purchased, average price, and remaining authorization | Period | Total Number of Shares Purchased (1) | Average Price per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Approximate Value of Shares that may yet be Purchased under the Plans or Programs | | :--------------------- | :----------------------------------- | :---------------------- | :------------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------- | | January 1 – 31, 2023 | 137,225 | $72.87 | 137,225 | $338,788,146 | | February 1 – 28, 2023 | 55,467 | $79.63 | 50,252 | $334,788,244 | | March 1 – 31, 2023 | 189,463 | $72.25 | 179,792 | $321,788,971 | | Total | 382,155 | | 367,269 | | - The Board approved a share repurchase program of up to **$1,200.0 million** through December 31, 2023[152](index=152&type=chunk) - As of March 31, 2023, **$321.8 million** remained under the repurchase authorization[151](index=151&type=chunk)[153](index=153&type=chunk) - During Q1 2023, **0.4 million shares were repurchased for $27.0 million** at an average price of **$73.51 per share**[153](index=153&type=chunk) [Item 3. Defaults Upon Senior Securities](index=29&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - No defaults upon senior securities[154](index=154&type=chunk) [Item 4. Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[154](index=154&type=chunk) [Item 5. Other Information](index=29&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - None[154](index=154&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, primarily consisting of Inline XBRL documents for financial data tagging - Exhibits include Inline XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase[155](index=155&type=chunk) - The cover page is formatted in Inline XBRL[155](index=155&type=chunk) [Signatures](index=31&type=section&id=Signatures) [Report Signatures](index=31&type=section&id=Report%20Signatures) The report is signed by Christopher P. Calzaretta, Senior Vice President and Chief Financial Officer, and James T. Burge, Vice President and Controller, on April 25, 2023 - Signed by Christopher P. Calzaretta, Senior Vice President and Chief Financial Officer (Principal Financial Officer)[158](index=158&type=chunk) - Signed by James T. Burge, Vice President and Controller (Principal Accounting Officer)[158](index=158&type=chunk) - Date of signature: April 25, 2023[158](index=158&type=chunk)

4th Quarter & Full Year 2022 Earnings Presentation February 21, 2023 Safe Harbor Statement 2 Disclosures in this release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, those relating to future financial and operational results, expected savings from cost management initiatives, the performance of our WAVE(1) joint venture, market and broader economic conditions and guidance and the impacts of COVID-19 on our busine ...