ARMSTRONG WORLD INDUSTRIES INC

Previous wording

AWI is a leader in the design, innovation and manufacture of ceiling and wall solutions in the Americas. We manufacture and source products made of numerous materials, including mineral fiber, fiberglass wool, metal, wood, felt, wood fiber, and glass-reinforced-gypsum. We also manufacture ceiling suspension system (grid) products through a joint venture with Worthington Enterprises, Inc. (“Worthington”) called Worthington Armstrong Venture (“WAVE”).

Current wording

AWI is a leader in the design, innovation and manufacture of ceiling and wall solutions in the Americas. We manufacture and source products made of numerous materials, including mineral fiber, fiberglass wool, metal, wood, felt, wood fiber, architectural resin and glass, and glass-reinforced-gypsum. We also manufacture ceiling suspension system (grid) products through a joint venture with Worthington Enterprises, Inc. (“Worthington”) called Worthington Armstrong Venture (“WAVE”).

Previous wording

In January 2024, we entered into a strategic partnership and equity investment in Overcast Innovations LLC (“Overcast”) with McKinstry Essention, LLC whereby we contributed $5.5 million in exchange for a 19.5% ownership interest in Overcast, with future rights to increase our ownership interest. Overcast is a solutions company offering prefabricated ceiling cloud systems, modular grid platforms and engineering design services to reduce waste and inefficiencies in the built environment. Our investment and equity earnings in Overcast are included in our Unallocated Corporate segment.

Current wording

In January 2024, we entered into a strategic partnership and equity investment in Overcast Innovations LLC (“Overcast”) with McKinstry Essention, LLC whereby we acquired a 19.5% ownership interest in Overcast, with future rights to increase our ownership interest. Overcast is a solutions company offering prefabricated ceiling cloud systems, modular grid platforms and engineering design services to reduce waste and inefficiencies in the built environment. Our investment and equity earnings in Overcast are included in our Unallocated Corporate segment.

Previous wording

In October 2023, we acquired a portion of the business and certain assets of Insolcorp, LLC (“Insolcorp”), based in Albemarle, NC, used to develop, test and manufacture energy saving products deployed in building and roofing installations. The acquired operations, assets and liabilities of Insolcorp are included in our Mineral Fiber segment.

Current wording

In October 2023, we acquired a portion of the business and certain assets of Insolcorp, LLC (“Insolcorp”), based in Albemarle, North Carolina, used to develop, test and manufacture energy saving products deployed in building and roofing installations. The acquired operations, assets and liabilities of Insolcorp are included in our Mineral Fiber segment.

Previous wording

In July 2023, we acquired all of the issued and outstanding stock of BOK Modern, LLC (“BOK”), based in San Rafael, CA. BOK is a designer of metal facade architectural solutions. The acquired operations, assets and liabilities of BOK are included in our Architectural Specialties segment.

Current wording

In July 2023, we acquired all of the issued and outstanding stock of BOK Modern, LLC (“BOK”), based in San Rafael, California. BOK is a designer of metal facade architectural solutions. The acquired operations, assets and liabilities of BOK are included in our Architectural Specialties segment.

Previous wording

As of March 31, 2024, we operated 16 manufacturing plants, including 14 plants located within the U.S. and two plants in Canada. This excludes our St. Helens, Oregon mineral fiber manufacturing plant, which was closed in the second quarter of 2018 and was classified as an asset held for sale as of March 31, 2024.

Current wording

As of June 30, 2024, we operated 19 manufacturing plants, including 17 plants located within the U.S. and two plants in Canada. This excludes our St. Helens, Oregon mineral fiber manufacturing plant, which was closed in the second quarter of 2018 and was classified as an asset held for sale as of June 30, 2024.

Previous wording

Architectural Specialties – produces, designs and sources ceilings, walls and facades primarily for use in commercial settings. Products are available in numerous materials, such as metal, wood and felt, in addition to various colors, shapes and designs. These products offer various performance attributes such as acoustical control, rated fire protection and aesthetic appeal. We sell standard, premium and customized products, a portion of which are sourced from third-party producers. Architectural Specialties products are sold primarily to resale distributors and direct customers, primarily ceiling systems contractors. The majority of this segment’s revenues are project driven, which can lead to more variability in sales patterns. Operating results for the Architectural Specialties segment include a portion of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations.

Current wording

Architectural Specialties – produces, designs and sources ceilings, walls and facades primarily for use in commercial settings. Products are available in numerous materials, such as metal, wood and felt, in addition to various colors, shapes and designs. These products offer various performance attributes such as acoustical control, rated fire protection, light and aesthetic appeal. We sell standard, premium and customized products, a portion of which are sourced from third-party producers. Architectural Specialties products are sold primarily to resale distributors and direct customers, primarily ceiling systems contractors. The majority of this segment’s revenues are project driven, which can lead to more variability in sales patterns. Operating results for the Architectural Specialties segment include a portion of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations.

Previous wording

Markets. We compete in the building product markets of the Americas. We closely monitor publicly available macroeconomic data and trends that provide insight into commercial construction market activity, including, but not limited to, gross domestic product, office vacancy rates, the Architecture Billings Index, new commercial construction starts, state and local government spending, corporate profits, and retail sales. The Company continues to monitor the impacts of geopolitical events, none of which had a material direct impact on our financial condition, liquidity or results of operations the first three months of 2024 or 2023.

Current wording

Markets. We compete in the building product markets of the Americas. We closely monitor publicly available macroeconomic data and trends that provide insight into commercial construction market activity, including, but not limited to, gross domestic product, office vacancy rates, the Architecture Billings Index, new commercial construction starts, state and local government spending, corporate profits, and retail sales. The Company also continues to monitor the impacts of geopolitical events, none of which had a material direct impact on our financial condition, liquidity or results of operations in the first six months of 2024 or 2023.

Previous wording

Favorable AUV contributed approximately $20 million to our total consolidated net sales for the three months ended March 31, 2024 compared to the same period in 2023. Our Architectural Specialties segment revenues are primarily earned based on individual contracts that include a mix of products, both manufactured by us and sourced from third parties, which varies by project. As such, we do not track AUV performance for this segment, but rather attribute most changes in net sales to volume.

Current wording

Favorable AUV increased our total consolidated net sales for the three and six months ended June 30, 2024 by approximately $13 million and $33 million, respectively, compared to the same periods in 2023. Our Architectural Specialties segment revenues are primarily generated by individual contracts that include a mix of products, both manufactured by us and sourced from third parties, that varies by project. As such, we do not track AUV performance for this segment, but rather attribute most changes in net sales to volume.

Previous wording

During the first quarter of 2024, we implemented price increases on Mineral Fiber ceiling products and WAVE implemented price increases on grid products. Future pricing actions may be implemented based on numerous factors, including the rate and pace of inflation and its impact on our business.

Current wording

During the first quarter of 2024, we implemented price increases on Mineral Fiber ceiling products and WAVE implemented price increases on grid products. In the second quarter of 2024, WAVE announced and implemented price increases on certain grid products, while we announced price increases on Mineral Fiber products that will become effective in the third quarter of 2024. Future pricing actions may be implemented based on numerous factors, including the rate and pace of inflation and its impact on our business.

Previous wording

Our largest raw material expenditures are primarily for fiberglass, perlite, recycled paper, and starch. Other raw materials include clay, felt, pigment, wood, and wood fiber. We manufacture most of our mineral wool at one of our manufacturing facilities. We use aluminum and steel in the production of metal ceilings by us and by WAVE. Finally, natural gas and packaging materials are also significant input costs. Fluctuations in the prices of these inputs impact our financial results. In the first quarter of 2024, lower energy and freight costs positively impacted operating income by $2 million compared to the same period in 2023.

Current wording

Our largest raw material expenditures are primarily for fiberglass, perlite, recycled paper, and starch. Other raw materials include clay, felt, pigment, wood, and wood fiber. We manufacture substantially all of our mineral wool at one of our manufacturing facilities. We use aluminum and steel in the production of metal ceilings by us and by WAVE. Finally, natural gas and packaging materials are also significant input costs. Fluctuations in the prices of these inputs impact our financial results. In the second quarter and first half of 2024, lower energy and freight costs positively impacted operating income by $1 million and $4 million, respectively, compared to the same periods in 2023.

Previous wording

In connection with our acquisitions of Insolcorp in October 2023, BOK in July 2023 and Arktura LLC (“Arktura”) in December 2020, we recorded certain acquisition-related expenses, gains and losses to operating income in the three months ended March 31, 2024 and 2023, summarized as follows (dollar amounts in millions):

Current wording

In connection with our acquisitions of 3form in April 2024, Insolcorp in October 2023, BOK in July 2023 and Arktura LLC (“Arktura”) in December 2020, we recorded certain acquisition-related expenses and losses to operating income during the three and six months ended June 30, 2024 and 2023, summarized as follows (dollar amounts in millions):

Previous wording

The change in fair value of contingent consideration was related to our BOK and Insolcorp acquisitions, and was remeasured quarterly during each acquisition's earn-out periods. See Note 14 to the Condensed Consolidated Financial Statements for further information. Expenses related to the deferred cash and restricted stock awards for Arktura’s former owners and employees were recorded over their respective service periods, as such payments were subject to the awardees’ continued employment with AWI. The Company and the former owners of Arktura mutually agreed upon the separation of their service effective in the fourth quarter of 2023. Depreciation of fixed assets acquired and amortization of intangible assets acquired have been excluded from the table above.

Current wording

The inventory amounts above reflect the post-acquisition expenses associated with recording inventory at fair value as part of purchase accounting for the 3form acquisition. Expenses related to the deferred cash and restricted stock awards were related to our Arktura acquisition and represented expenses for Arktura’s former owners and employees that were recorded over their respective service periods, as such payments were subject to the awardees’ continued employment with AWI. The Company and the former owners of Arktura mutually agreed upon the separation of their service effective in the fourth quarter of 2023. Acquisition costs above reflect certain contingent third-party professional fees incurred due to the 3form acquisition. The change in fair value of contingent consideration was related to our BOK and Insolcorp acquisitions and is remeasured quarterly during each acquisition's earn-out periods. See Note 15 to the Condensed Consolidated Financial Statements for further information. Depreciation of fixed assets acquired and amortization of intangible assets acquired have been excluded from the table above.

Previous wording

As of March 31, 2024 and December 31, 2023, we had approximately 3,100 full-time and part-time employees.

Current wording

As of June 30, 2024 we had approximately 3,500 full-time and part-time employees, compared to 3,100 full-time and part-time employees as of December 31, 2023. The increase in employees since December 31, 2023 was primarily driven by our April 2024 acquisition of 3form.

Previous wording

Consolidated net sales for the first quarter of 2024 increased 5.2% over the prior-year period primarily due to favorable AUV of $20 million, partially offset by lower volumes of $4 million. Mineral Fiber net sales increased $11 million and Architectural Specialties net sales increased $5 million over the prior-year period. The increase in Mineral Fiber net sales was primarily driven by favorable AUV, partially offset by lower sales volumes. Architectural Specialties segment net sales improved primarily due to contributions from the acquisition of BOK and increased custom metal project net sales.

Current wording

Consolidated net sales for the first six months of 2024 increased 8.8% compared to the prior-year period primarily due to favorable AUV of $33 million and higher volumes of $23 million. Architectural Specialties net sales increased $28 million and Mineral Fiber net sales increased $27 million over the prior-year period. Architectural Specialties segment net sales improved primarily due to contributions from the acquisitions of 3form and BOK. The increase in Mineral Fiber net sales was primarily driven by favorable AUV, partially offset by lower sales volumes.

Previous wording

Cost of goods sold in the first quarter of 2024 was 61.9% of net sales, compared to 63.9% for the same period in 2023. The year-over-year decrease in cost of goods sold as a percent of net sales was driven primarily by favorable AUV performance, improved manufacturing productivity and lower input costs.

Current wording

Cost of goods sold in the second quarter of 2024 was 59.1% of net sales, compared to 61.9% for the same period in 2023. Cost of goods sold in the first six months of 2024 was 60.4% of sales, compared to 62.9% for the same period in 2023. The decreases in cost of goods sold as a percent of net sales for the second quarter and first six months of 2024 compared to the same periods in 2023 were driven primarily by favorable AUV performance, improved manufacturing productivity and lower input costs.

Previous wording

SG&A expenses in the first quarter of 2024 were $65.7 million, or 20.1% of net sales, compared to $62.7 million, or 20.2% of net sales, for the same period in 2023. The year-over-year increase in SG&A expenses was driven primarily by a $2 million increase in selling expenses related to the acquisition of BOK and investments in our Architectural Specialties segment, in addition to an increase in deferred compensation related charges. The prior-year period also included severance costs of $3 million that did not repeat in the current-year period.

Current wording

SG&A expenses in the first six months of 2024 were $145.6 million, or 21.1% of net sales, compared to $124.6 million, or 19.6% of net sales, for the same period in 2023. The year-over-year increase in SG&A expenses was primarily driven by a $10 million increase related to the acquisitions of 3form and BOK, a $4 million increase in incentive compensation, a $2 million increase in selling expenses and a $2 million increase in business development expenses, as well as an increase in deferred compensation related charges.

Previous wording

Equity earnings from unconsolidated subsidiaries were $27.2 million in the first quarter of 2024, compared to $20.8 million in the first quarter of 2023. WAVE equity earnings were $27.4 million in the first quarter of 2024, while Overcast equity losses were $0.2 million. The $6.6 million increase in WAVE equity earnings was primarily driven by the benefit from higher sales volumes and favorable AUV. See Note 7 to the Condensed Consolidated Financial Statements for further information.

Current wording

Equity earnings from unconsolidated subsidiaries were $26.3 million in the second quarter of 2024, compared to $24.9 million in the second quarter of 2023, and were $53.5 million in the first six months of 2024 compared to $45.7 million in the same period in 2023. WAVE equity earnings were $26.5 million in the second quarter of 2024, while Overcast equity losses were $0.2 million. WAVE equity earnings were $53.9 million in the first six months of 2024, while Overcast equity losses were $0.4 million. The increases in WAVE equity earnings for both the second quarter and first six months of 2024 compared to the same periods in 2023 were primarily driven by the benefit from favorable AUV and higher sales volumes, partially offset by increased employee compensation and benefits. See Note 8 to the Condensed Consolidated Financial Statements for further information.

Previous wording

Interest expense was $9.0 million in the first quarter of 2024 compared to $8.7 million in the first quarter of 2023. The increase in interest expense was primarily due to higher interest rates on floating rate debt and increases in finance lease liabilities, partially offset by lower average debt balances.

Current wording

Interest expense was $11.1 million in the second quarter of 2024 compared to $9.2 million in the second quarter of 2023. Interest expense was $20.1 million in the first six months of 2024 compared to $17.9 million in the first six months of 2023. The increases for the second quarter and first six months of 2024 in comparison to the same periods in 2023 were primarily due to higher average effective interest rates, partially offset by lower average debt balances.

Previous wording

Other non-operating income, net, was $3.1 million in the first quarter of 2024 compared to $2.4 million in the first quarter of 2023. The increase in other non-operating income, net, was primarily driven by the non-service cost components of postretirement net periodic benefit costs.

Current wording

Other non-operating income, net, was $3.2 million in the second quarter of 2024 compared to $2.2 million in the second quarter of 2023. Other non-operating income, net, was $6.3 million in the first six months of 2024 compared to $4.6 million in the first six months of 2023. The increases in other non-operating income, net, for the second quarter and first six months of 2024 in comparison to the same periods in 2023 were primarily driven by the non-service cost components of pension and postretirement net periodic benefit costs.

Previous wording

Total Other Comprehensive Loss (“OCL”) was $0.9 million in the first quarter of 2024 compared to $2.1 million in the first quarter of 2023. The change in OCL in the first quarter of 2024 compared to the same period in 2023 was primarily driven by derivative gains/losses. Derivative gain/loss represents the mark-to-market value adjustments of our derivative assets and liabilities, and the recognition of gains and losses previously deferred in Accumulated Other Comprehensive Income. Partially offsetting the reduction in OCL due to the change in derivative gains/losses was an increase in OCL from pension and postretirement adjustments and foreign currency translation adjustments. Pension and postretirement adjustments represent the amortization of actuarial gains and losses related to our defined benefit pension and postretirement plans. Foreign currency translation adjustments represent the change in the U.S. dollar value of assets and liabilities denominated in foreign currencies. Amounts in the first quarter of 2024 and 2023 were driven primarily by changes in the Canadian dollar.

Current wording

Total Other Comprehensive Loss (“OCL”) was $0.9 million in the second quarter of 2024 compared to Other Comprehensive Income ("OCI") of $0.4 million in the second quarter of 2023. OCL was $1.8 million in the first six months of 2024 compared to $1.7 million in the first six months of 2023. The change in OCL in the second quarter and first six months of 2024 compared to the same periods in 2023 were primarily driven by foreign currency translation adjustments and pension and postretirement adjustments. Foreign currency translation adjustments represent the change in the U.S. dollar value of assets and liabilities denominated in foreign currencies. Foreign currency translation adjustments in 2024 and 2023 were driven primarily by changes in the Canadian dollar. Pension and postretirement adjustments represent the amortization of actuarial gains and losses related to our defined benefit pension and postretirement plans. Partially offsetting OCL in the second quarter and first six months of 2024 compared to the same periods in 2023 was OCI from derivative gains/losses. Derivative gain/loss represents the mark-to-market value adjustments of our derivative assets and liabilities, and the recognition of gains and losses previously deferred in Accumulated Other Comprehensive Income.

Previous wording

Net sales increased $11 million in the first quarter of 2024 due to $19 million of favorable AUV, partially offset by $8 million of lower sales volumes. The improvement in AUV was driven by favorable like-for-like price and favorable mix. The decrease in volumes was primarily driven by prior-year period inventory level increases at our home center customers that did not occur in the current-year period.

Current wording

For the first six months of 2024, net sales improved by $27 million from the prior-year period, primarily due to $32 million of favorable AUV, partially offset by lower sales volumes of $5 million. The favorable AUV was driven primarily by positive like-for-like pricing, and to a lesser extent, favorable mix. The decrease in volumes for the first six months of 2024 was driven primarily by prior-year first quarter inventory level increases at our home center customers that did not repeat in the first half of 2024, partially offset by stabilizing demand and the impact from our growth initiatives compared to the prior-year period.

Previous wording

Operating income increased in the first quarter of 2024 primarily 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, partially offset by a $5 million decrease from lower sales volumes. Operating income was also negatively impacted by a $2 million increase in SG&A expenses, which included increases in deferred compensation related charges and higher depreciation, partially offset by the benefit from severance expense recorded in the prior-year period.

Current wording

Operating income for the first six months of 2024 increased primarily due to a $22 million benefit from favorable AUV, an $8 million increase in WAVE equity earnings and a $6 million decrease in manufacturing and input costs, partially offset by a $3 million decrease from lower sales volumes. Operating income was also negatively impacted by an $11 million increase in SG&A expenses, that resulted from increases in deferred compensation related charges, an increase in incentive compensation, an increase in employee costs due to inflationary pressures, higher depreciation and amortization expense and an increase in accruals for environmental remediation matters.

Previous wording

Operating income increased in first quarter of 2024 primarily due to a $4 million margin benefit from increased sales, driven primarily by improved custom project margins, and a $1 million reduction in acquisition-related expenses. These increases were partially offset by higher manufacturing costs and selling expenses due in part to the acquisition of BOK and additional investments in selling capabilities.

Current wording

Operating income increased in the second quarter of 2024 primarily due to a $14 million margin benefit from increased sales, driven primarily by the acquisitions of 3form and BOK, and partially due to improved project margins. This increase was partially offset by a $9 million increase in SG&A expenses primarily due to the acquisitions of 3form and BOK, as well as a $3 million increase in manufacturing costs.

Previous wording

Unallocated Corporate operating loss was $1 million in the first quarter of 2024 and 2023.

Current wording

Unallocated Corporate operating loss was $1 million in the second quarter of 2024 and 2023. Unallocated Corporate operating loss was $2 million in the first six months of 2024 and 2023.

Previous wording

Net cash provided by investing activities was $5.9 million in the first three months of 2024, compared to $1.5 million of cash used in the first three months of 2023. The favorable change in the first quarter of 2024 compared to the same period in 2023 was due to decreased purchases of property, plant and equipment, proceeds received from company owned life-insurance policies, and an increase in WAVE dividends. These increases were partially offset by cash paid for our first quarter of 2024 equity investment in Overcast.

Current wording

Net cash used in investing activities was $81.4 million in the first six months of 2024, compared to $6.0 million in the first six months of 2023. The unfavorable change in cash was primarily due to $94 million of cash paid for the 3form acquisition, partially offset by decreased purchases of property, plant and equipment in comparison to the prior year period.

Previous wording

Net cash used for financing activities was $33.1 million in the first three months of 2024, compared to $34.7 million in the first three months of 2023. The favorable change in the first quarter of 2024 compared to the same period in 2023 was primarily due to a decrease in repurchases of outstanding common stock and lower payments of acquisition-related contingent consideration, partially offset by increased repayments on borrowings under our credit facility.

Current wording

Net cash provided by financing activities was $1.1 million in the first six months of 2024, compared to $92.6 million cash used in the first six months of 2023. The favorable change in cash was primarily due to increased net borrowings under our credit facility due primarily to the 3form acquisition, a decrease in repurchases of outstanding common stock, and lower payments of acquisition-related contingent consideration.

Previous wording

As of March 31, 2024, the total principal balances outstanding under our senior credit facility were $444.4 million under Term Loan A and $140.0 million under the revolving credit facility.

Current wording

As of June 30, 2024, the total principal balances outstanding under our senior credit facility were $438.7 million under Term Loan A and $208.0 million under the revolving credit facility.

Previous wording

Under the terms of our interest rate swaps above, on a monthly basis, we pay a fixed rate and receive a floating rate based on SOFR.

Current wording

Under the terms of the interest rate swap with a November 28, 2018 trade date above, we pay a fixed rate monthly and receive a floating rate based on the Secured Overnight Financing Rate (“SOFR”), inclusive of a 0% floor. Under the terms of all remaining interest rate swaps above, we pay a fixed rate monthly and receive a floating rate based on SOFR.

Previous wording

As of March 31, 2024, we had $69.6 million of cash and cash equivalents, $52.2 million in the U.S. and $17.4 million in foreign jurisdictions, primarily Canada. As of March 31, 2024, we also had $360.0 million available under our revolving credit facility. We believe cash on hand and cash generated from operations, together with borrowing capacity under our credit facility, will be adequate to address our near-term liquidity needs based on current expectations of our business operations, capital expenditures, acquisitions and scheduled payments of debt obligations.

Current wording

As of June 30, 2024, we had $73.6 million of cash and cash equivalents, $60.3 million in the U.S. and $13.3 million in foreign jurisdictions, primarily Canada. As of June 30, 2024, we also had $292.0 million available under our revolving credit facility. We believe cash on hand and cash generated from operations, together with borrowing capacity under our credit facility, will be adequate to address our near-term liquidity needs based on current expectations of our business operations, capital expenditures, acquisitions and scheduled payments of debt obligations.