```markdown [FORM 10-Q General Information](index=1&type=section&id=FORM%2010-Q%20General%20Information) This section provides essential company identification and filing status details for the quarterly report - Company: **Armstrong World Industries, Inc. (AWI)**[2](index=2&type=chunk) - Filing Type: **Quarterly Report on Form 10-Q** for the quarterly period ended **March 31, 2024**[1](index=1&type=chunk) - Common Stock is registered on the **New York Stock Exchange** under the symbol **AWI**[1](index=1&type=chunk) Company Filing Status and Shares Outstanding | Metric | Value | | :---------------------------------- | :------------------- | | Filer Status | Large accelerated filer | | Common Stock Outstanding (April 25, 2024) | 43,758,250 shares | [TABLE OF CONTENTS](index=3&type=section&id=TABLE%20OF%20CONTENTS) This section provides an organized listing of all major sections and subsections within the report [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=4&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section outlines various categories of risks that could impact the company's future performance and financial condition [Risks Related to Our Operations](index=4&type=section&id=Risks%20Related%20to%20Our%20Operations) This section outlines operational risks that could materially affect the company's financial condition, liquidity, results of operations, or future prospects - Key operational risks include changes in key customer relationships, availability and costs of manufacturing inputs or sourced products, financial contribution of the **WAVE** joint venture, labor issues, and progress towards ESG and sustainability objectives[13](index=13&type=chunk) [Risks Related to Our Strategy](index=4&type=section&id=Risks%20Related%20to%20Our%20Strategy) This section details strategic risks that could impact the company's ability to achieve benefits from its initiatives and successfully integrate transactions - Strategic risks involve the realization of benefits from strategic initiatives (e.g., digitalization, product innovation) and the successful identification, completion, and integration of strategic transactions[14](index=14&type=chunk) [Risks Related to Financial Matters](index=4&type=section&id=Risks%20Related%20to%20Financial%20Matters) This section addresses financial risks, including those related to liquidity, indebtedness, dividend payments, stock repurchases, tax consequences, and defined benefit plan obligations - Financial risks include liquidity needs and indebtedness, ability to make dividend payments and stock repurchases, unanticipated negative tax consequences, and defined benefit plan obligations[14](index=14&type=chunk) [Risks Related to Legal and Regulatory Matters](index=4&type=section&id=Risks%20Related%20to%20Legal%20and%20Regulatory%20Matters) This section covers legal and regulatory risks, such as environmental liability exposure, claims and litigation, intellectual property protection, and international operations - Legal and regulatory risks encompass environmental liability exposure, claims and litigation, effectiveness of intellectual property rights protection, and operations in Canada and Latin America[14](index=14&type=chunk) [Risks Related to General Economic and Other Factors](index=4&type=section&id=Risks%20Related%20to%20General%20Economic%20and%20Other%20Factors) This section highlights broader economic and external factors that could impact the company, including general economic conditions, construction activity, market competition, and cybersecurity threats - General economic and other factors include economic conditions, construction activity, market competition, customer consolidation, information technology disruptions and cybersecurity breaches, dependence on third-party vendors, geographic concentration, and public health epidemics[14](index=14&type=chunk)[15](index=15&type=chunk) [PART I - FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis [ITEM 1. FINANCIAL STATEMENTS](index=6&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2024, including statements of earnings, balance sheets, shareholders' equity, and cash flows, along with detailed notes explaining accounting policies, segment results, revenue disaggregation, and other financial details [Condensed Consolidated Statements of Earnings and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings%20and%20Comprehensive%20Income) This section presents the company's financial performance, including net sales, gross profit, operating income, and earnings per share for the period Condensed Consolidated Statements of Earnings and Comprehensive Income (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | Change (YoY) | | :------------------------------------------- | :------------------ | :------------------ | :----------- | | Net Sales | $326.3 | $310.2 | +5.2% | | Gross Profit | $124.3 | $112.1 | +10.9% | | Operating Income | $86.1 | $70.2 | +22.6% | | Net Earnings | $59.9 | $47.3 | +26.6% | | Basic EPS | $1.37 | $1.04 | +31.7% | | Diluted EPS | $1.36 | $1.04 | +30.8% | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity at period-end Condensed Consolidated Balance Sheets (As of March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | Change | | :------------------------------------------- | :---------------------------- | :------------------------------- | :----- | | Total Assets | $1,691.5 | $1,672.4 | +$19.1 | | Total Current Assets | $330.7 | $313.0 | +$17.7 | | Total Current Liabilities | $184.4 | $194.5 | -$10.1 | | Total Liabilities and Shareholders' Equity | $1,691.5 | $1,672.4 | +$19.1 | | Total Shareholders' Equity | $626.8 | $591.8 | +$35.0 | [Condensed Consolidated Statements of Shareholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) This section details changes in the company's equity, including net earnings, dividends, and stock repurchases over the period Condensed Consolidated Statements of Shareholders' Equity (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | | :------------------------------------------- | :------------------ | :------------------ | | Beginning Balance (December 31) | $591.8 | $535.0 | | Net Earnings | $59.9 | $47.3 | | Cash Dividends Paid | $(12.4) | $(11.7) | | Acquisition of Treasury Stock | $(15.2) | $(27.3) | | Ending Balance (March 31) | $626.8 | $544.8 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the period Condensed Consolidated Statements of Cash Flows (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | Change | | :------------------------------------------- | :------------------ | :------------------ | :----- | | Net Cash Provided by Operating Activities | $26.4 | $26.2 | +$0.2 | | Net Cash Provided by (Used for) Investing Activities | $5.9 | $(1.5) | +$7.4 | | Net Cash Used for Financing Activities | $(33.1) | $(34.7) | +$1.6 | | Net (Decrease) in Cash and Cash Equivalents | $(1.2) | $(10.0) | +$8.8 | | Cash and Cash Equivalents at End of Period | $69.6 | $96.0 | -$26.4 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, segment results, and other financial notes [NOTE 1. BUSINESS AND BASIS OF PRESENTATION](index=11&type=section&id=NOTE%201.%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) This note describes the company's business, its basis of financial statement presentation, and details recent acquisitions and investments - **Armstrong World Industries, Inc. (AWI)** is a Pennsylvania corporation incorporated in **1891**, referring to **AWI** and its subsidiaries[28](index=28&type=chunk) - The Condensed Consolidated Financial Statements are prepared in accordance with **U.S. GAAP** and include management estimates and judgments[28](index=28&type=chunk) - Quarterly results are unaudited and not necessarily indicative of annual earnings, primarily due to sales seasonality and potential changes in general economic conditions[28](index=28&type=chunk) [Acquisitions and Investments in Unconsolidated Affiliates](index=11&type=section&id=Acquisitions%20and%20Investments%20in%20Unconsolidated%20Affiliates) This section details the company's recent strategic acquisitions and equity investments in unconsolidated affiliates - In **January 2024**, **AWI** invested **$5.5 million** for a **19.5%** ownership interest in **Overcast Innovations LLC**, a solutions company offering prefabricated ceiling cloud systems[29](index=29&type=chunk) - In **October 2023**, **AWI** acquired a portion of **Insolcorp, LLC**, which develops and manufactures energy-saving products for building and roofing installations, integrated into the **Mineral Fiber** segment[29](index=29&type=chunk) - In **July 2023**, **AWI** acquired **BOK Modern, LLC**, a designer of metal facade architectural solutions, integrated into the **Architectural Specialties** segment[29](index=29&type=chunk) [Subsequent Event](index=11&type=section&id=Subsequent%20Event) This section discloses significant events occurring after the reporting period but before the financial statements were issued - In **April 2024**, **AWI** acquired **3form, LLC** for **$95.0 million**. **3form** is a designer and manufacturer of architectural resin and glass products, with **2023 revenues** of approximately **$96 million**[30](index=30&type=chunk) [NOTE 2. SEGMENT RESULTS](index=11&type=section&id=NOTE%202.%20SEGMENT%20RESULTS) This note provides financial performance data for the company's reportable segments, including net sales, operating income, and assets Net Sales by Segment (3 Months Ended March 31) | Segment | 2024 (Millions USD) | 2023 (Millions USD) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Mineral Fiber | $239.6 | $228.4 | +4.9% | | Architectural Specialties | $86.7 | $81.8 | +6.0% | | **Total Net Sales** | **$326.3** | **$310.2** | **+5.2%** | Segment Operating Income (Loss) (3 Months Ended March 31) | Segment | 2024 (Millions USD) | 2023 (Millions USD) | Change (YoY) | | :------------------------------------------- | :------------------ | :------------------ | :----------- | | Mineral Fiber | $79.2 | $63.8 | +24.1% | | Architectural Specialties | $7.7 | $7.2 | +6.9% | | Unallocated Corporate | $(0.8) | $(0.8) | 0% | | **Total Consolidated Operating Income** | **$86.1** | **$70.2** | **+22.6%** | Segment Assets (As of March 31, 2024 vs. December 31, 2023) | Segment | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | Change | | :-------------------------- | :---------------------------- | :------------------------------- | :----- | | Mineral Fiber | $1,097.9 | $1,091.9 | +$6.0 | | Architectural Specialties | $430.0 | $421.1 | +$8.9 | | Unallocated Corporate | $163.6 | $159.4 | +$4.2 | | **Total Consolidated Assets** | **$1,691.5** | **$1,672.4** | **+$19.1** | [NOTE 3. REVENUE](index=12&type=section&id=NOTE%203.%20REVENUE) This note disaggregates the company's net sales by product-based segments and major customer channels [Disaggregation of Revenues](index=12&type=section&id=Disaggregation%20of%20Revenues) This section breaks down the company's total net sales by its primary segments and customer channels - Revenue is disaggregated based on product-based segments (**Mineral Fiber**, **Architectural Specialties**) and major customer channels (Distributors, Home centers, Direct customers, Other)[36](index=36&type=chunk) Net Sales by Major Customer Channel (3 Months Ended March 31) | Segment | Customer Channel | 2024 (Millions USD) | 2023 (Millions USD) | Change (YoY) | | :-------------------------- | :--------------- | :------------------ | :------------------ | :----------- | | Mineral Fiber | Distributors | $169.3 | $159.8 | +$9.5 | | Mineral Fiber | Home centers | $31.0 | $31.1 | -$0.1 | | Mineral Fiber | Direct customers | $13.1 | $14.7 | -$1.6 | | Mineral Fiber | Other | $26.2 | $22.8 | +$3.4 | | **Mineral Fiber Total** | | **$239.6** | **$228.4** | **+$11.2** | | Architectural Specialties | Distributors | $53.8 | $39.2 | +$14.6 | | Architectural Specialties | Direct customers | $30.0 | $42.0 | -$12.0 | | Architectural Specialties | Other | $2.9 | $0.6 | +$2.3 | | **Architectural Specialties Total** | | **$86.7** | **$81.8** | **+$4.9** | [NOTE 4. ACCOUNTS AND NOTES RECEIVABLE](index=13&type=section&id=NOTE%204.%20ACCOUNTS%20AND%20NOTES%20RECEIVABLE) This note details the composition of the company's accounts and notes receivable, net of allowances Accounts and Notes Receivable, Net (As of March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :------------------------------------------- | :---------------------------- | :------------------------------- | | Customer receivables | $120.5 | $102.1 | | Miscellaneous receivables | $8.1 | $11.8 | | Less allowance for warranties, discounts and losses | $(3.2) | $(2.9) | | **Accounts and notes receivable, net** | **$125.4** | **$111.0** | [NOTE 5. INVENTORIES](index=13&type=section&id=NOTE%205.%20INVENTORIES) This note provides a breakdown of the company's inventory components, including finished goods, work-in-process, and raw materials Inventories, Net (As of March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :------------------------------------------- | :---------------------------- | :------------------------------- | | Finished goods | $58.9 | $55.1 | | Goods in process | $6.2 | $5.1 | | Raw materials and supplies | $66.6 | $66.7 | | Less LIFO reserves | $(25.3) | $(22.9) | | **Total inventories, net** | **$106.4** | **$104.0** | [NOTE 6. OTHER CURRENT ASSETS](index=13&type=section&id=NOTE%206.%20OTHER%20CURRENT%20ASSETS) This note details the components of other current assets, including prepaid expenses and assets held for sale Other Current Assets (As of March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :------------------------------------------- | :---------------------------- | :------------------------------- | | Prepaid expenses | $17.3 | $15.9 | | Assets held for sale | $6.7 | $6.7 | | Fair value of derivative assets | $1.9 | $1.1 | | Other | $3.0 | $2.7 | | **Total other current assets** | **$28.9** | **$26.4** | - Assets held for sale include the idled **Mineral Fiber** plant in St. Helens, Oregon, and an **Architectural Specialties** design center in Chicago, Illinois[42](index=42&type=chunk) [NOTE 7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES](index=13&type=section&id=NOTE%207.%20INVESTMENTS%20IN%20UNCONSOLIDATED%20AFFILIATES) This note provides financial information and equity earnings from the company's investments in unconsolidated affiliates - Investments include a **50%** equity interest in **Worthington Armstrong Venture (WAVE)** and a **19.5%** equity interest in **Overcast Innovations LLC**, both accounted for using the equity method[43](index=43&type=chunk)[45](index=45&type=chunk) WAVE Condensed Financial Data (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | | :-------------------------- | :------------------ | :------------------ | | Net Sales | $125.8 | $109.5 | | Gross Profit | $76.7 | $62.3 | | Net Earnings | $57.0 | $43.8 | Equity (Earnings) from Unconsolidated Affiliates, Net (3 Months Ended March 31) | Affiliate | 2024 (Millions USD) | 2023 (Millions USD) | | :------------------------------------------- | :------------------ | :------------------ | | WAVE | $(27.4) | $(20.8) | | Overcast | $0.2 | $- | | **Total Equity (earnings) from unconsolidated affiliates, net** | **$(27.2)** | **$(20.8)** | [NOTE 8. GOODWILL AND INTANGIBLE ASSETS](index=15&type=section&id=NOTE%208.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) This note details the company's goodwill and intangible assets, including amortization expense and changes due to foreign exchange Goodwill and Intangible Assets (As of March 31, 2024 vs. December 31, 2023) | Asset Type | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :------------------------------------------- | :---------------------------- | :------------------------------- | | Total Amortizing Intangible Assets (Gross) | $315.7 | $315.7 | | Total Non-amortizing Intangible Assets (Gross) | $345.2 | $345.2 | | **Total Intangible Assets (Gross)** | **$660.9** | **$660.9** | | **Goodwill** | **$175.3** | **$175.5** | - The decrease in goodwill as of **March 31, 2024**, compared to **December 31, 2023**, was due to foreign exchange movements[49](index=49&type=chunk) - Amortization expense for the three months ended **March 31, 2024**, was **$4.1 million**, up from **$3.5 million** in the prior year[50](index=50&type=chunk) [NOTE 9. OTHER NON-CURRENT ASSETS](index=15&type=section&id=NOTE%209.%20OTHER%20NON-CURRENT%20ASSETS) This note outlines the components of other non-current assets, such as cash surrender value of life insurance and deferred compensation investments Other Non-Current Assets (As of March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :------------------------------------------- | :---------------------------- | :------------------------------- | | Cash surrender value of company-owned life insurance policies | $38.4 | $40.3 | | Investment in employee deferred compensation plans | $10.8 | $8.3 | | Fair value of derivative assets | $- | $1.8 | | Other | $1.0 | $0.9 | | **Total other non-current assets** | **$50.2** | **$51.3** | [NOTE 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES](index=17&type=section&id=NOTE%2010.%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20EXPENSES) This note provides a breakdown of the company's current liabilities, including trade payables, employment costs, and other accrued expenses Accounts Payable and Accrued Expenses (As of March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :------------------------------------------- | :---------------------------- | :------------------------------- | | Payables, trade and other | $87.2 | $91.0 | | Employment costs | $9.0 | $33.6 | | Current portion of pension and postretirement liabilities | $8.0 | $8.0 | | Other | $26.9 | $27.3 | | **Total accounts payable and accrued expenses** | **$131.1** | **$159.9** | [NOTE 11. INCOME TAX EXPENSE](index=17&type=section&id=NOTE%2011.%20INCOME%20TAX%20EXPENSE) This note details the company's income tax expense and effective tax rate, explaining key drivers of changes Income Tax Expense and Effective Tax Rate (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | | :------------------------------------------- | :------------------ | :------------------ | | Earnings before income taxes | $80.2 | $63.9 | | Income tax expense | $20.3 | $16.6 | | **Effective tax rate** | **25.3%** | **26.0%** | - The effective tax rate for **Q1 2024** was lower compared to **Q1 2023**, primarily due to an increase in the valuation allowance for capital loss carryforwards recorded in **Q1 2023**[54](index=54&type=chunk) [NOTE 12. DEBT](index=17&type=section&id=NOTE%2012.%20DEBT) This note describes the company's long-term debt, including its senior credit facility and outstanding borrowings - Long-term debt is comprised of borrowings outstanding under a **$950.0 million** variable rate senior credit facility, consisting of a **$500.0 million** revolving credit facility and a **$450.0 million** Term Loan A[55](index=55&type=chunk) - As of **March 31, 2024**, the principal balance of Term Loan A was **$444.4 million**, and borrowings outstanding under the revolving credit facility were **$140.0 million**[55](index=55&type=chunk) Letters of Credit Facilities (As of March 31, 2024) | Financing Arrangement | Limit (Millions USD) | Used (Millions USD) | Available (Millions USD) | | :------------------------------------------- | :------------------- | :------------------ | :----------------------- | | Bi-lateral facility | $25.0 | $7.7 | $17.3 | | Revolving credit facility | $150.0 | $- | $150.0 | | **Total** | **$175.0** | **$7.7** | **$167.3** | [NOTE 13. PENSIONS AND OTHER BENEFIT PROGRAMS](index=18&type=section&id=NOTE%2013.%20PENSIONS%20AND%20OTHER%20BENEFIT%20PROGRAMS) This note details the company's net periodic benefit costs and credits for its pension and postretirement plans Net Periodic Benefit Costs (Credits) (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | | :------------------------------------------- | :------------------ | :------------------ | | Net periodic pension cost (U.S. defined benefit plans) | $- | $- | | Net periodic postretirement credit (Retiree health and life insurance benefits) | $(1.7) | $(0.8) | - The service cost component of net benefit cost is presented in cost of goods sold and SG&A expenses, while other components are in other non-operating income, net[59](index=59&type=chunk) [NOTE 14. FINANCIAL INSTRUMENTS AND CONTINGENT CONSIDERATION](index=18&type=section&id=NOTE%2014.%20FINANCIAL%20INSTRUMENTS%20AND%20CONTINGENT%20CONSIDERATION) This note provides fair value disclosures for the company's financial instruments and acquisition-related contingent consideration liabilities - The company does not hold or issue financial instruments for trading purposes[60](index=60&type=chunk) Fair Values of Financial Instruments and Contingent Consideration (As of March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :------------------------------------------- | :---------------------------- | :------------------------------- | | Total long-term debt, including current portion | $(581.4) | $(586.8) | | Interest rate swap contracts | $1.0 | $(0.4) | | Acquisition-related contingent consideration | $(1.3) | $(1.6) | Changes in Fair Value of Acquisition-Related Contingent Consideration Liabilities (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | | :------------------------------------------- | :------------------ | :------------------ | | Fair value of contingent consideration as of beginning of period | $1.6 | $15.2 | | Cash consideration paid | $- | $(15.2) | | Gain related to change in fair value of contingent consideration | $(0.3) | $- | | **Fair value of contingent consideration as of end of period** | **$1.3** | **$-** | [NOTE 15. DERIVATIVE FINANCIAL INSTRUMENTS](index=21&type=section&id=NOTE%2015.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This note describes the company's use of derivative financial instruments to manage interest rate risk and their financial statement impacts [Counterparty Risk](index=21&type=section&id=Counterparty%20Risk) This section addresses the company's policies and practices for managing credit risk with derivative counterparties - The company enters into derivative transactions only with established financial institution counterparties having an investment-grade credit rating[69](index=69&type=chunk) - All derivative transactions are governed by master International Swap and Derivatives Association (**ISDA**) agreements with netting arrangements to limit exposure[69](index=69&type=chunk) [Interest Rate Risk](index=21&type=section&id=Interest%20Rate%20Risk) This section details the company's strategies and instruments used to mitigate exposure to interest rate fluctuations - The company utilizes interest rate swaps to minimize fluctuations in earnings caused by interest rate volatility, designating them as cash flow hedges against changes in interest rates for a portion of variable rate debt[70](index=70&type=chunk) Interest Rate Swaps (As of March 31, 2024) | Coverage Period | Notional Amount (Millions USD) | Risk Coverage | Trade Date | | :------------------------------------------- | :----------------------------- | :------------ | :------------------- | | November 2023 to June 2024 | $50.0 | USD-SOFR | September 18, 2023 | | March 2021 to March 2025 | $100.0 | USD-SOFR | November 28, 2018 | | November 2023 to December 2025 | $50.0 | USD-SOFR | October 23, 2023 | | March 2024 to June 2026 | $50.0 | USD-SOFR | March 25, 2024 | | 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 | [Financial Statement Impacts](index=21&type=section&id=Financial%20Statement%20Impacts) This section outlines how derivative assets, liabilities, and reclassifications from AOCI affect the company's financial statements Derivative Assets and Liabilities (As of March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :------------------------------------------- | :---------------------------- | :------------------------------- | | Derivative Assets (Current) | $1.9 | $1.1 | | Derivative Assets (Non-current) | $- | $1.8 | | Derivative Liabilities (Current) | $- | $0.1 | | Derivative Liabilities (Non-current) | $0.9 | $3.2 | - As of **March 31, 2024**, **$3.4 million** of existing gains in Accumulated Other Comprehensive Income (**AOCI**) are expected to be recognized in net earnings over the next twelve months[76](index=76&type=chunk) Amounts Reclassified from AOCI into Net Earnings (3 Months Ended March 31) | Reclassification from AOCI | 2024 (Millions USD) | 2023 (Millions USD) | Affected Line Item | | :------------------------------------------- | :------------------ | :------------------ | :----------------- | | Interest rate swap contracts, before tax | $(2.1) | $(2.4) | Interest expense | | Pension and Postretirement Adjustments, before tax | $(0.9) | $(0.2) | Other non-operating (income), net | | **Total reclassifications for the period, net of tax** | **$(2.3)** | **$(2.1)** | | [NOTE 16. SHAREHOLDERS' EQUITY](index=23&type=section&id=NOTE%2016.%20SHAREHOLDERS%27%20EQUITY) This note details changes in shareholders' equity, including common stock repurchases, dividends, and accumulated other comprehensive loss components [Common Stock Repurchase Plan](index=23&type=section&id=Common%20Stock%20Repurchase%20Plan) This section outlines the company's authorized share repurchase program and recent repurchase activities - The **Board of Directors** authorized a share repurchase program up to an aggregate of **$1,700.0 million** through **December 31, 2026**[77](index=77&type=chunk) - As of **March 31, 2024**, **$701.8 million** remained under the **Board's** repurchase authorization[77](index=77&type=chunk) - During **Q1 2024**, the company repurchased **0.1 million shares** for a total cost of **$15.0 million**, at an **average price of $105.20 per share**[77](index=77&type=chunk) [Dividends](index=23&type=section&id=Dividends) This section reports on the company's declared and paid quarterly cash dividends to shareholders - In **February 2024**, the **Board** declared a **$0.28 per share** quarterly dividend, paid in **March 2024**[78](index=78&type=chunk) - On **April 24, 2024**, another **$0.28 per share** quarterly dividend was declared, to be paid on **May 23, 2024**[78](index=78&type=chunk) [Accumulated Other Comprehensive (Loss)](index=24&type=section&id=Accumulated%20Other%20Comprehensive%20%28Loss%29) This section details the components of accumulated other comprehensive loss, including foreign currency adjustments and pension changes Accumulated Other Comprehensive (Loss) Components (As of March 31, 2024 vs. December 31, 2023) | Metric | December 31, 2023 (Millions USD) | March 31, 2024 (Millions USD) | | :------------------------------------------- | :------------------------------- | :---------------------------- | | Foreign Currency Translation Adjustments | $1.0 | $0.2 | | Derivative Gain | $0.5 | $1.0 | | Pension and Postretirement Adjustments | $(106.2) | $(106.8) | | **Total Accumulated Other Comprehensive (Loss)** | **$(104.7)** | **$(105.6)** | [NOTE 17. LITIGATION AND RELATED MATTERS](index=24&type=section&id=NOTE%2017.%20LITIGATION%20AND%20RELATED%20MATTERS) This note provides information on the company's legal proceedings, including environmental matters and other claims [ENVIRONMENTAL MATTERS](index=24&type=section&id=ENVIRONMENTAL%20MATTERS) This section details the company's environmental compliance efforts and liabilities related to specific environmental sites [Environmental Compliance](index=24&type=section&id=Environmental%20Compliance) This section describes the company's expenditures and ongoing efforts to comply with environmental regulations - The company makes expenditures for compliance with federal, state, and local environmental requirements at its operating facilities, which are not typically material but are subject to change[86](index=86&type=chunk) [Environmental Sites](index=24&type=section&id=Environmental%20Sites) This section provides an overview of the company's involvement in the investigation and remediation of specific environmental sites [Summary](index=24&type=section&id=Summary) This section summarizes the company's involvement in Superfund sites, settlement agreements, and insurance recoveries - **AWI** is actively involved in the investigation and remediation of two domestically owned **Superfund sites** under **CERCLA** and state laws, as one of multiple potentially responsible parties[87](index=87&type=chunk) - Between **2017 and 2021**, **AWI** entered settlement agreements totaling **$53.0 million** with legacy insurance carriers to resolve litigation and recover incurred fees and costs[89](index=89&type=chunk) - As of **March 31, 2024**, and **December 31, 2023**, insurance recoveries in excess of cumulative expenses were **$2.6 million**[89](index=89&type=chunk) [Specific Material Events](index=26&type=section&id=Specific%20Material%20Events) This section details the progress and financial implications of specific material environmental remediation events [Macon, GA](index=26&type=section&id=Macon%2C%20GA) This section provides an update on the remediation activities and estimated liabilities at the Macon, GA Superfund site - At the Macon, GA **Superfund site**, the Removal Action for Operable Unit **1** is complete with ongoing operation and maintenance[90](index=90&type=chunk) - For Operable Unit **2**, a Remedial Investigation Report was approved in **July 2023**, and a revised Feasibility Study was submitted in **November 2023**, with the **EPA** currently reviewing it[90](index=90&type=chunk) - The current estimate of future liability includes only the estimated share of investigative work costs, and while final remediation costs are uncertain, they are not expected to materially affect liquidity or financial condition[91](index=91&type=chunk)[92](index=92&type=chunk) [Elizabeth City, NC](index=28&type=section&id=Elizabeth%20City%2C%20NC) This section provides an update on the remedial design and action for the Elizabeth City, NC environmental site - **AWI**, **Paramount**, and the **U.S. Navy** entered a Partial Consent Decree in **January 2022** for the remedial design and action for an interim remedy at the Elizabeth City, NC site[93](index=93&type=chunk) - The Pre-Design Investigation Work Plan for the site received conditional approval from the **EPA** in **March 2024**[93](index=93&type=chunk) - The current estimate of future liability includes only the estimated share of interim remedial action costs, and while final costs are uncertain, they are not expected to materially affect liquidity or financial condition[93](index=93&type=chunk) [Summary of Financial Position](index=28&type=section&id=Summary%20of%20Financial%20Position) This section summarizes the company's recorded environmental liabilities and related insurance recoveries - Total environmental liabilities considered probable and estimable were **$0.5 million** as of **March 31, 2024**, and **December 31, 2023**[94](index=94&type=chunk) - No additional reserves for potential environmental liabilities were recorded during the three months ended **March 31, 2024**[94](index=94&type=chunk) - Insurance recoveries are recorded as assets when realizable, and costs to pursue them are expensed as incurred[94](index=94&type=chunk) [OTHER CLAIMS](index=30&type=section&id=OTHER%20CLAIMS) This section addresses other various lawsuits, claims, and legal matters encountered in the ordinary course of business - The company is involved in various lawsuits, claims, and other legal matters in the ordinary course of business[96](index=96&type=chunk) - Management does not believe that any current claims, individually or in the aggregate, will have a material adverse effect on the company's financial condition, liquidity, or results of operations[96](index=96&type=chunk) [NOTE 18. NET EARNINGS PER SHARE](index=30&type=section&id=NOTE%2018.%20NET%20EARNINGS%20PER%20SHARE) This note provides the reconciliation of basic to diluted shares outstanding for the calculation of net earnings per share Reconciliation of Basic to Diluted Shares Outstanding (3 Months Ended March 31) | Metric | 2024 (Millions) | 2023 (Millions) | | :------------------------------------------- | :-------------- | :-------------- | | Basic shares outstanding | 43.8 | 45.4 | | Dilutive effect of common stock equivalents | 0.3 | 0.1 | | **Diluted shares outstanding** | **44.1** | **45.5** | - Anti-dilutive stock awards excluded from the computation of dilutive EPS were **34,851** in **Q1 2024** and **74,629** in **Q1 2023**[98](index=98&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=31&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2024, discussing key performance drivers, segment results, liquidity, and critical accounting estimates [OVERVIEW](index=31&type=section&id=OVERVIEW) This section provides a general introduction to the company's business, recent acquisitions, and operational structure - **AWI** is a leader in the design, innovation, and manufacture of ceiling and wall solutions in the Americas, utilizing various materials and operating a joint venture (**WAVE**) for ceiling suspension systems[101](index=101&type=chunk) [Acquisitions and Investments in Unconsolidated Affiliates](index=31&type=section&id=Acquisitions%20and%20Investments%20in%20Unconsolidated%20Affiliates) This section details recent strategic acquisitions and equity investments, outlining their integration and impact on the company's segments - In **January 2024**, **AWI** entered a strategic partnership and equity investment in **Overcast Innovations LLC** for **$5.5 million**, acquiring a **19.5%** ownership interest[102](index=102&type=chunk) - In **October 2023**, **AWI** acquired a portion of **Insolcorp, LLC**, which develops and manufactures energy-saving products, integrated into the **Mineral Fiber** segment[102](index=102&type=chunk) - In **July 2023**, **AWI** acquired **BOK Modern, LLC**, a designer of metal facade architectural solutions, integrated into the **Architectural Specialties** segment[102](index=102&type=chunk) [Manufacturing Plants](index=31&type=section&id=Manufacturing%20Plants) This section describes the company's manufacturing footprint, including its owned plants and joint venture operations - As of **March 31, 2024**, **AWI** operated **16 manufacturing plants** (**14** in the U.S. and **2** in Canada), excluding an idled plant[103](index=103&type=chunk) - **WAVE**, the joint venture, operates **seven additional plants** in the U.S. to produce suspension system (grid) products[103](index=103&type=chunk) [Reportable Segments](index=31&type=section&id=Reportable%20Segments) This section defines the company's primary reportable segments: Mineral Fiber, Architectural Specialties, and Unallocated Corporate - **Mineral Fiber** segment produces suspended mineral fiber and soft fiber ceiling systems, including results from the **WAVE** joint venture[104](index=104&type=chunk) - **Architectural Specialties** segment produces, designs, and sources ceilings, walls, and facades, primarily for commercial settings, with revenues being project-driven[105](index=105&type=chunk) - **Unallocated Corporate** includes cash, the **Overcast** investment, U.S. Retirement Income Plan status, interest rate swap contracts, senior secured credit facility borrowings, and income tax balances[106](index=106&type=chunk) [Factors Affecting Revenues](index=33&type=section&id=Factors%20Affecting%20Revenues) This section analyzes the key drivers influencing the company's net sales, including market conditions, average unit value, and seasonality [Markets](index=33&type=section&id=Markets) This section discusses market-specific factors impacting sales volumes, such as customer inventory levels and acquisition contributions - Sales volumes decreased by **$4 million** in **Q1 2024** compared to **Q1 2023**, primarily due to prior-year inventory level increases at home center customers that did not recur[108](index=108&type=chunk) - The **July 2023** acquisition of **BOK** contributed **$3 million**, partially offsetting the volume decrease[108](index=108&type=chunk) [Average Unit Value](index=33&type=section&id=Average%20Unit%20Value) This section explains the impact of pricing strategies and product mix on the company's average unit value and consolidated net sales - Favorable Average Unit Value (**AUV**) contributed approximately **$20 million** to total consolidated net sales for **Q1 2024** compared to **Q1 2023**[109](index=109&type=chunk) - Price increases were implemented on **Mineral Fiber** ceiling products and **WAVE** grid products during **Q1 2024**[109](index=109&type=chunk) [Seasonality](index=33&type=section&id=Seasonality) This section describes the historical seasonal patterns affecting the company's sales volumes and business cycles - Historically, sales tend to be stronger in the second and third quarters due to more favorable weather conditions, customer business cycles, and the timing of renovation and new construction projects[110](index=110&type=chunk) [Factors Affecting Operating Costs](index=33&type=section&id=Factors%20Affecting%20Operating%20Costs) This section examines the primary components influencing the company's operating expenses, including production costs, freight, and SG&A [Operating Expenses](index=33&type=section&id=Operating%20Expenses) This section details the various operating expenses, highlighting the impact of energy and freight costs on operating income - Operating expenses include direct production costs (raw materials, labor, energy), manufacturing overhead, freight, costs to purchase sourced products, and selling, general and administrative (**SG&A**) expenses[111](index=111&type=chunk) - Lower energy and freight costs positively impacted operating income by **$2 million** in **Q1 2024** compared to **Q1 2023**[111](index=111&type=chunk) [Acquisition-Related Expenses and Losses](index=34&type=section&id=Acquisition-Related%20Expenses%20and%20Losses) This section outlines the financial impact of acquisition-related expenses, including changes in contingent consideration fair value Acquisition-Related Expenses and Losses (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | Affected Line Item | | :------------------------------------------- | :------------------ | :------------------ | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | | (Gain) related to change in fair value of contingent consideration | $(0.3) | $- | (Gain) related to change in fair value of contingent consideration | | Deferred cash and restricted stock expenses | $- | $1.3 | SG&A expenses | | **Net (positive) negative impact to operating income** | **$(0.3)** | **$1.3** | | - The change in fair value of contingent consideration was related to the **BOK** and **Insolcorp** acquisitions and was remeasured quarterly[114](index=114&type=chunk) [Employees](index=34&type=section&id=Employees) This section provides information on the company's total number of full-time and part-time employees - As of **March 31, 2024**, and **December 31, 2023**, the company had approximately **3,100 full-time and part-time employees**[115](index=115&type=chunk) [RESULTS OF OPERATIONS](index=34&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's consolidated and segment-specific financial performance for the reporting period Consolidated Financial Performance (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | Change (YoY) | | :------------------------------------------- | :------------------ | :------------------ | :----------- | | Total consolidated net sales | $326.3 | $310.2 | +5.2% | | Operating income | $86.1 | $70.2 | +22.6% | - Consolidated net sales increased **5.2%** primarily due to **$20 million** of favorable **AUV**, partially offset by **$4 million** of lower volumes[117](index=117&type=chunk) - Cost of goods sold as a percent of net sales decreased from **63.9%** in **Q1 2023** to **61.9%** in **Q1 2024**, driven by favorable **AUV**, improved manufacturing productivity, and lower input costs[117](index=117&type=chunk) - Equity earnings from unconsolidated subsidiaries increased to **$27.2 million** in **Q1 2024** from **$20.8 million** in **Q1 2023**, primarily due to a **$6.6 million** increase in **WAVE** equity earnings[117](index=117&type=chunk) [REPORTABLE SEGMENT RESULTS](index=36&type=section&id=REPORTABLE%20SEGMENT%20RESULTS) This section presents a detailed breakdown of net sales and operating income for each of the company's reportable segments [Mineral Fiber](index=36&type=section&id=Mineral%20Fiber) This section details the net sales and operating income performance of the Mineral Fiber segment, highlighting key drivers of change Mineral Fiber Segment Performance (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | Change (YoY) | | :------------------------------------------- | :------------------ | :------------------ | :----------- | | Total segment net sales | $239.6 | $228.4 | +4.9% | | Operating income | $79.2 | $63.8 | +24.1% | - Net sales increased by **$11 million** due to **$19 million** of favorable **AUV**, partially offset by **$8 million** of lower sales volumes, primarily from prior-year home center inventory increases not recurring[119](index=119&type=chunk) - Operating income increased due to a **$13 million** benefit from favorable **AUV**, a **$7 million** increase in **WAVE** equity earnings, and a **$3 million** decrease in manufacturing and input costs[119](index=119&type=chunk) [Architectural Specialties](index=36&type=section&id=Architectural%20Specialties) This section details the net sales and operating income performance of the Architectural Specialties segment, highlighting key drivers of change Architectural Specialties Segment Performance (3 Months Ended March 31) | Metric | 2024 (Millions USD) | 2023 (Millions USD) | Change (YoY) | | :------------------------------------------- | :------------------ | :------------------ | :----------- | | Total segment net sales | $86.7 | $81.8 | +6.0% | | Operating income | $7.7 | $7.2 | +6.9% | - Net sales increased by **$5 million**, primarily driven by the contribution of the **BOK** acquisition and increased custom metal project net sales[120](index=120&type=chunk) - Operating income increased due to a **$4 million** margin benefit from increased sales (improved custom project margins) and a **$1 million** reduction in acquisition-related expenses[121](index=121&type=chunk) [Unallocated Corporate](index=36&type=section&id=Unallocated%20Corporate) This section reports on the operating loss and financial items attributed to the Unallocated Corporate segment - **Unallocated Corporate** operating loss remained consistent at **$1 million** in both **Q1 2024** and **Q1 2023**[122](index=122&type=chunk) [FINANCIAL CONDITION AND LIQUIDITY](index=38&type=section&id=FINANCIAL%20CONDITION%20AND%20LIQUIDITY) This section assesses the company's financial health, including cash flow performance, debt structure, and available liquidity [Cash Flow](index=38&type=section&id=Cash%20Flow) This section analyzes the company's cash generation and usage across operating, investing, and financing activities - Operating activities provided **$26.4 million** in **Q1 2024**, a slight increase from **$26.2 million** in **Q1 2023**, driven by higher cash earnings and the absence of contingent consideration payments[124](index=124&type=chunk) - Net cash provided by investing activities was **$5.9 million** in **Q1 2024**, a favorable change from **$1.5 million** used in **Q1 2023**, due to decreased capital expenditures, life insurance proceeds, and increased **WAVE** dividends[124](index=124&type=chunk) - Net cash used for financing activities was **$33.1 million** in **Q1 2024**, a favorable change from **$34.7 million** used in **Q1 2023**, primarily due to decreased repurchases of common stock and lower acquisition-related contingent consideration payments[124](index=124&type=chunk) [Liquidity](index=38&type=section&id=Liquidity) This section discusses the company's available financial resources, including its credit facilities and compliance with debt covenants - The company has 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, maturing in **December 2027**[125](index=125&type=chunk) - As of **March 31, 2024**, **$444.4 million** was outstanding under Term Loan A and **$140.0 million** under the revolving credit facility[125](index=125&type=chunk) - The company was in compliance with all covenants of the senior credit facility as of **March 31, 2024**, and had **$360.0 million** available under its revolving credit facility[125](index=125&type=chunk)[129](index=129&type=chunk) Letters of Credit Facilities (As of March 31, 2024) | Financing Arrangement | Limit (Millions USD) | Used (Millions USD) | Available (Millions USD) | | :------------------------------------------- | :------------------- | :------------------ | :----------------------- | | Bi-lateral facility | $25.0 | $7.7 | $17.3 | | Revolving credit facility | $150.0 | $- | $150.0 | | **Total** | **$175.0** | **$7.7** | **$167.3** | [CRITICAL ACCOUNTING ESTIMATES](index=39&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) This section confirms the consistency of critical accounting estimates with those disclosed in the prior annual report - 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, 2023**[130](index=130&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=40&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section refers to the company's Annual Report on Form 10-K for detailed information regarding its exposure to market risks - For information regarding exposure to 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, 2023**[131](index=131&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=40&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, and reported no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were effective as of **March 31, 2024**, as concluded by management, including the principal executive officer and chief financial officer[132](index=132&type=chunk) - There have been no material changes in internal control over financial reporting during the fiscal quarter ended **March 31, 2024**[132](index=132&type=chunk) [PART II - OTHER INFORMATION](index=41&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This part includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and equity security sales [ITEM 1. LEGAL PROCEEDINGS](index=41&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section refers to the detailed disclosures on legal proceedings provided in the notes to the financial statements - Information on legal proceedings is incorporated by reference from Note **17** to the Condensed Consolidated Financial Statements[133](index=133&type=chunk) [ITEM 1A. RISK FACTORS](index=41&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section confirms no material changes to the risk factors previously disclosed in the company's annual report - 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, 2023**[134](index=134&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=41&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section details the company's common stock repurchases during the quarter ended March 31, 2024, under its authorized program, with $701.8 million remaining for repurchases Issuer Purchases of Equity Securities (3 Months Ended March 31, 2024) | 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, 2024 | 102,324 | $98.29 | 101,730 | $706,794,542 | | February 1-29, 2024 | 3,322 | $118.48 | - | $706,794,542 | | March 1-31, 2024 | 43,384 | $122.31 | 40,852 | $701,794,654 | | **Total** | **149,030** | | **142,582** | | - During **Q1 2024**, the company repurchased **0.1 million shares** under its program for a total cost of **$15.0 million**, at an **average price of $105.20 per share**[137](index=137&type=chunk) - As of **March 31, 2024**, **$701.8 million** remained under the **Board's** repurchase authorization, which extends through **December 31, 2026**[137](index=137&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=41&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This section confirms that there were no defaults on senior securities during the reporting period - There were no defaults upon senior securities[138](index=138&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=41&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[138](index=138&type=chunk) [ITEM 5. OTHER INFORMATION](index=41&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section reports that no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the first quarter of 2024 - No director or officer of the company adopted or terminated a '**Rule 10b5-1 trading arrangement**' or 'non-**Rule 10b5-1 trading arrangement**' during the three months ended **March 31, 2024**[139](index=139&type=chunk) [ITEM 6. EXHIBITS](index=42&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including an offer letter and various Inline XBRL documents - Exhibits filed include an Offer Letter to Dawn Kirchner-King and various **Inline XBRL** documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbases)[140](index=140&type=chunk) [SIGNATURES](index=43&type=section&id=SIGNATURES) This section contains the official signatures of the company's authorized officers, certifying the report's accuracy - 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 30, 2024**[143](index=143&type=chunk) ```

Armstrong Exhibit 99.1 Armstrong World Industries Reports Record-Setting First-Quarter 2024 Results • Net sales up 5% with mid-single digit growth in both Mineral Fiber and Architectural Specialties segments versus the prior-year period • Operating income increased 23% and diluted net earnings per share increased 31% versus the prior-year period • Adjusted EBITDA up 16% and adjusted diluted net earnings per share up 23% versus the prioryear period • Recently announced acquisition of 3form, LLC to expand Arc ...

Armstrong World Industries, Inc. (NYSE:AWI) Q4 2023 Earnings Conference Call February 20, 2024 10:00 AM ET Company Participants Theresa Womble - Vice President, Investor Relations and Corporate Communications Vic Grizzle - President and Chief Executive Officer Chris Calzaretta - Senior Vice President and Chief Financial Officer Conference Call Participants Garik Shmois - Loop Capital Markets Philip Ng - Jefferies John Lovallo - UBS Susan Maklari - Goldman Sachs Keith Hughes - Truist Rafe Jadrosich - Bank of ...

4th Quarter & Full Year 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 ...

Employment and Workforce - The company had approximately 3,100 full-time and part-time employees as of December 31, 2023, with a voluntary turnover rate of about 8% for non-production employees and 11% for production employees [45]. - The executive leadership team included 33% gender diversity and 33% racial/ethnic diversity as of December 31, 2023 [48]. - The company has collective bargaining agreements covering approximately 470 employees at two U.S. plants that will expire during 2024 [45]. Financial Management - As of December 31, 2023, the company had interest rate swaps outstanding with notional amounts totaling $400 million to manage interest rate volatility [187]. - A hypothetical increase of 0.25% in SOFR interest rates would raise the company's 2024 interest expense by approximately $0.7 million [187]. - The average interest rate for variable rate principal payments is 3.31% as of December 31, 2023 [190]. Environmental and Sustainability Initiatives - The company reported liabilities for environmental matters of $0.5 million as of December 31, 2023 [53]. - The company is committed to sustainability, focusing on reducing greenhouse gas emissions and improving product circularity [42]. - The company’s sustainability program is organized around three pillars: People, Planet, and Product [40]. Innovation and Growth - The company has engaged in product innovation activities to enhance competitiveness and support growth [49].

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 ...