ARMSTRONG WORLD INDUSTRIES INC 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS O F FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the financial statements, the accompanying notes, the cautionary note regarding forward-looking statements and risk factors included in this report and our Annual Report on Form 10-K for the year ended December 31, 2020. OVERVIEW We are a leading producer of ceiling systems for use in the construction and renovation of commercial and residential buildings. We design, manufacture and sell ceiling and wall systems ( primarily mineral fiber, fiberglass wool, metal, wood, wood fiber, glass-reinforced-gypsum and felt ) throughout the Americas. COVID-19 The impact of the COVID-19 pandemic on our future consolidated results of operations remains uncertain. In 2020, we experienced a significant decrease in customer demand throughout our business during the second through fourth quarters due to COVID-19. Specifically, we noted delays in construction driven by temporary closures of non-essential businesses, with the most significant impacts in the major metropolitan areas impacted by COVID-19. In response to COVID-19, we temporarily reduced capital expenditures and discretionary spending including compensation, travel and marketing expenses in 2020. Customer demand continued to improve in the first nine months of 2021 but remained lower than pre-pandemic levels. We continue to monitor and manage the impact of COVID-19 and its potential impacts to our business, most notably global supply chain and labor disruptions, which have contributed to raw material and transportation cost inflation, in addition to construction activity delays. As of September 30, 2021, all of our manufacturing facilities were operational, excluding the St. Helens, Oregon facility which was idled in the second quarter of 2018. In an effort to operate safely and responsibly, we continue to follow guidelines from governmental health authorities across all our facilities and have implemented preventative measures that include working remotely, providing personal protective equipment, limiting group meetings, enhancing cleaning and sanitizing procedures, and social distancing. We did not record any asset impairments, inventory charges or material bad debt reserves related to COVID-19 during the first nine months of 2021 or the full year of 2020, although future events may require such charges. We will continue to evaluate the nature and extent of the COVID-19 pandemic’s impact on our financial condition, results of operations and cash flows. Acquisitions In December 2020, we acquired all issued and outstanding equity of Arktura LLC (“Arktura”) and certain subsidiaries with operations in the United States and Argentina. Arktura is a designer and fabricator of metal and felt ceilings, walls, partitions and facades with one manufacturing facility based in Los Angeles, California. In August 2020, we acquired the business and assets of Moz Designs, Inc. (“Moz”), based in Oakland, California. Moz is a designer and fabricator of custom architectural metal ceilings, walls, dividers and column covers for interior and exterior applications with one manufacturing facility. In July 2020, we acquired all the issued and outstanding capital stock of TURF Design, Inc. (“Turf”), with one manufacturing facility in Elgin, Illinois and a design center in Chicago, Illinois. Turf is a designer and manufacturer of acoustic felt ceilings and wall products. The operations, assets and liabilities of these acquisitions are included in our Architectural Specialties segment. See Note 4 to the Condensed Consolidated Financial Statements for additional information related to our acquisitions. Discontinued Operations In 2019, we completed the sale of certain subsidiaries comprising our businesses and operations in Europe, the Middle East and Africa (including Russia) (“EMEA”) and the Pacific Rim, including the corresponding businesses and operations conducted by Worthington Armstrong Venture (“WAVE”), our joint venture with Worthington Industries, Inc. (“Worthington”) in which AWI holds a 50% interest (collectively, the “Sale”), to Knauf International GmbH (“Knauf”). In January 2021, we finalized post-closing adjustments to the purchase price related to certain pension liabilities assumed by Knauf in the Sale. During the first quarter of 2021, we paid $11.8 million to Knauf as a result of this purchase price adjustment. See Note 5 to the Condensed Consolidated Financial Statements for additional information related to our discontinued operations. 27 Management’s Discussion and Analysis of Financial Condition and Results of Operations Manufacturing Plants As of September 30, 2021, we operated 16 manufacturing plants in two countries, with 14 plants located within the U.S. and two plants in Canada. We closed our St. Helens, Oregon mineral fiber manufacturing plant in the second quarter of 2018, and the facility was classified as an asset held for sale as of September 30, 2021. We entered into a sale agreement for the property during the first quarter of 2021, with closing expected in the fourth quarter of 2021. WAVE operates six additional plants in the U.S. to produce suspension system (grid) products, which we use and sell in our ceiling systems. Reportable Segments Our operating segments are as follows: Mineral Fiber, Architectural Specialties and Unallocated Corporate. Mineral Fiber – produces suspended mineral fiber and soft fiber ceiling systems for use in commercial and residential settings. Our mineral fiber products offer various performance attributes such as acoustical control, rated fire protection, aesthetic appeal, and health and sustainability features. Commercial ceiling products are sold to resale distributors and to ceiling systems contractors. Residential ceiling products are sold primarily to wholesalers and retailers (including large home centers). The Mineral Fiber segment also includes the results of WAVE, which manufactures and sells suspension system (grid) products and ceiling component products that are invoiced by both AWI and WAVE. Segment results relating to WAVE consist primarily of equity earnings and reflect our 50% equity interest in the joint venture. Ceiling component products consist of ceiling perimeters and trim, in addition to grid products that support drywall ceiling systems. For a limited number of geographies and customers, WAVE sells its suspension systems products to AWI for resale to customers. Mineral Fiber segment results reflect those sales transactions. The Mineral Fiber segment also includes all assets and liabilities not specifically allocated to our Architectural Specialties or Unallocated Corporate segment, including all property and related depreciation associated with our Lancaster, PA headquarters. Operating results for the Mineral Fiber segment include a significant majority of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations. Architectural Specialties – produces, designs and sources ceilings and walls for use in commercial settings. Products are available in numerous materials, such as metal, felt and wood, in addition to various colors, shapes and designs. Products offer various performance attributes such as acoustical control, rated fire protection and aesthetic appeal. We sell standard, premium and customized products, a portion of which are derived from sourced products. Architectural Specialties products are sold primarily to resale distributors and ceiling systems contractors. The majority of revenues are project driven, which can lead to more volatile sales patterns due to project scheduling uncertainty. Operating results for the Architectural Specialties segment include a portion of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations. Unallocated Corporate – includes assets, liabilities, income and expenses that have not been allocated to our other business segments and consists of: cash and cash equivalents, the net funded status of our U.S. Retirement Income Plan (“RIP”), the estimated fair value of interest rate swap contracts, outstanding borrowings under our senior credit facility and income tax balances. Our Unallocated Corporate segment also includes all assets, liabilities, income and expenses formerly reported in our EMEA and Pacific Rim segments that were not included in the Sale. Factors Affecting Revenues For information on our 2021 net sales by segment, see Notes 2 and 3 to the Condensed Consolidated Financial Statements. Markets. We compete in the commercial and residential construction markets of the Americas. We closely monitor publicly available macroeconomic trends that provide insight into commercial and residential market activity, including GDP, office vacancy rates, the Architecture Billings Index, new commercial construction starts, state and local government spending, corporate profits and retail sales. We noted several factors and trends within our markets that directly affected our business performance during the third quarter of 2021 compared to the third quarter of 2020, most importantly an increase in demand as the negative financial impacts of the COVID-19 pandemic lessened. Although the magnitude of year-over-year volume growth lessened compared to the second quarter of 2021, it remains a key factor for the nine-month period ended September 30, 2021. For the three and nine months ended September 30, 2021, increases in sales volumes contributed $4 million and $28 million, respectively, to revenue growth from the 2020 periods. In addition, our 2020 acquisitions of Turf, Moz and Arktura (collectively, the “2020 Acquisitions”) benefited revenues by $24 million and $58 million, for the three and nine months ended September 30, 2021, respectively. The 2020 Acquisitions contributed $8 million of revenues for the three and nine months ended September 30, 2020. 28 Management’s Discussion and Analysis of Financial Condition and Results of Operations Average Unit Value . We periodically modify sales prices of our products due to changes in costs for raw materials and energy, market conditions and the competitive environment. In certain cases, realized price increases are less than the announced price increases because of project pricing, competitive reactions and changing market conditions. We also offer a wide assortment of products that are differentiated by style, design and performance attributes. Pricing and margins for products within the assortment vary. In addition, changes in the relative quantity of products purchased at different price points can impact year-to-year comparisons of net sales and operating income. Within our Mineral Fiber segment, we focus on improving sales dollars per unit sold, or average unit value (“AUV”), as this measure accounts for the varying assortment of products impacting our revenues. We estimate that favorable AUV increased our total consolidated net sales for the three and nine months ended September 30, 2021, by approximately $26 million and $48 million, compared to the same periods in 2020. Our Architectural Specialties segment generates revenues that are generally earned based on individual contracts that include a mix of products, both manufactured by us and sourced from third parties that vary by project. As such, we do not track AUV performance for this segment, but rather attribute most changes in sales to volume. During the first, second and third quarters of 2021, we implemented price increases on certain Mineral Fiber ceiling, grid products and certain Architectural Specialties products. We may implement future pricing actions based on numerous factors, namely the rate and pace of inflation impact on our business. Seasonality . Historically, our sales tend to be stronger in the second and the third quarters of our fiscal year due to more favorable weather conditions, customer business cycles and the timing of renovation and new construction. Factors Affecting Operating Costs Operating Expenses. Our operating expenses are comprised of direct production costs (principally raw materials, labor and energy), manufacturing overhead costs, freight, costs to purchase sourced products and selling, general, and administrative (“SG&A”) expenses. Our largest raw material expenditures are primarily for fiberglass, perlite and starch. Other raw materials include aluminum, clays, felt, pigment, recycled paper, steel, wood and wood fiber. We manufacture most of the production needs for mineral wool at one of our manufacturing facilities. Natural gas and packaging materials are also significant input costs. Fluctuations in the prices of these inputs are generally beyond our control and have a direct impact on our financial results. For the three and nine months ended September 30, 2021, higher costs for raw materials and energy negatively impacted operating income by $5 million and $8 million, respectively, compared to the same periods in 2020. 2020 Acquisition-Related Impacts In connection with the 2020 Acquisitions, we recorded certain acquisition-related gains and losses to operating income in the three and nine months ended September 30, 2021, summarized as follows (dollar amounts in millions): Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 Affected Line Item in the Condensed Consolidated Statement of Operations and Comprehensive Income Deferred revenue $ - $ 0.7 Net sales Change in fair value of contingent consideration (0.3 ) (9.8 ) Change in fair value of contingent consideration Deferred cash and restricted stock expenses 3.3 9.8 SG&A expenses Inventory - 0.3 Cost of goods sold Net negative (positive) impact to operating income $ 3.0 $ 1.0 The deferred revenue and inventory amounts above reflect the post-acquisition charges associated with recording these liabilities and assets at fair value as part of purchase accounting. The estimated fair value of contingent consideration is related to our Moz and Turf acquisitions and is remeasured and recorded quarterly during each acquisition's respective earn-out period. See Note 15 to the Condensed Consolidated Financial Statements for further information. Expenses related to the deferred cash and restricted stock awards for Arktura’s former owners and employees are recorded over their respective service periods, as such payments are subject to the former awardees’ continued employment with AWI. Purchase accounting expenses related to depreciation of fixed asset fair value adjustments and intangible asset amortization expenses have been excluded from the table above. See Note 4 to the Condensed Consolidated Financial Statements for further information. 29 Management’s Discussion and Analysis of Financial Condition and Results of Operations Employees As of September 30, 2021 and December 31, 2020, we had approximately 2,800 and 2,700 full-time and part-time employees, respectively. RESULTS OF CONTINUING OPERATIONS Please refer to Notes 2 and 5 to the Condensed Consolidated Financial Statements for a reconciliation of operating income to consolidated earnings from continuing operations before income taxes and additional financial information related to discontinued operations. CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS (dollar amounts in millions) 2021 2020 Change is Favorable/(Unfavorable) Three Months Ended September 30, Total consolidated net sales $ 292.2 $ 246.3 18.6 % Operating income $ 72.1 $ 72.3 (0.3 )% Nine Months Ended September 30, Total consolidated net sales $ 824.1 $ 698.2 18.0 % Operating income $ 204.5 $ 210.7 (2.9 )% Consolidated net sales for the third quarter of 2021 increased 18.6% over the prior-year period. Improved AUV contributed $26 million of favorability and higher volumes, primarily due to the impact of the 2020 Acquisitions, contributed $20 million. Mineral Fiber net sales increased $27 million and Architectural Specialties net sales increased $19 million from the third-quarter 2020 results. The increase in Mineral Fiber segment net sales was primarily driven by positive like-for-like pricing and favorable customer channel mix. The increase in Architectural Specialties net sales was driven by a $16 million contribution from our 2020 Acquisitions and a lower COVID-19 impact when compared to the prior period. Consolidated net sales for the first nine months of 2021 increased 18.0% as higher volumes, including the impact of the 2020 Acquisitions, contributed $78 million and favorable AUV contributed $48 million. Mineral Fiber net sales increased $68 million year-over-year and Architectural Specialties net sales increased $58 million. The increase in Mineral Fiber segment net sales was driven by improved AUV and both segments experienced improved sales volumes as market demand continued to recover from COVID-19 impacts. The Architectural Specialties segment net sales also benefited $50 million from the 2020 Acquisitions. Cost of goods sold in the third quarter of 2021 was 62.1% of net sales, compared to 63.0% for the same period in 2020. Cost of goods sold in the first nine months of 2021 was 63.2% compared to 64.2% for the same period in 2020. The decrease in cost of goods sold as a percent of net sales for the third quarter of 2021 resulted from favorable AUV performance, which more than offset higher raw material, energy and freight inflation and the impact of cost increases that were curtailed in 2020 at the height of the COVID-19 pandemic. For the first nine months of 2021, the decrease in cost of goods sold as a percent of net sales was due to favorable AUV performance and improved manufacturing productivity, which was partially offset by higher inflation and the impact of cost increases that we reduced in 2020 at the height of the COVID-19 pandemic. SG&A expenses in the third quarter of 2021 were $62.3 million, or 21.3% of net sales, compared to $41.0 million, or 16.6% of net sales, for the same period in 2020. SG&A expenses in the first nine months of 2021 were $176.5 million, or 21.4% of net sales, compared to $108.8 million, or 15.6% of net sales, for the 2020 period. The third-quarter 2021 increase in SG&A expenses was driven primarily by an $8 million increase in SG&A expenses due to the impact of the 2020 Acquisitions, a $5 million increase in incentive and deferred compensation expenses and a $2 million increase in spending related to continued digital growth initiatives. Also contributing to the increase in SG&A expenses was a resumption of more normalized spending that was curtailed in 2020 at the height of the COVID-19 pandemic. The increase in SG&A expenses for the first nine months of 2021 compared to the same period in 2020 was driven by a $33 million increase in SG&A expenses due to the 2020 Acquisitions, including intangible asset amortization of $13 million, a $15 million increase in incentive and deferred compensation expenses, a $6 million decrease in cost reimbursements, net of related expenses, earned under our Transition Services Agreement with Knauf ("Knauf TSA") in 2020 and a $3 million increase in spending related to digital growth initiatives. Also contributing to the increase in SG&A expenses was an increase in discretionary spending. 30 Management’s Discussion and Analysis of Financial Condition and Results of Operations During the third quarter and nine months ended September 30, 2021, we recorded $0.3 million and $9.8 million, respectively, of income from a change in the fair value of contingent consideration related to the acquisitions of Turf and Moz. See Note 15 to the Condensed Consolidated Financial Statements for further information. During the third quarter and nine months ended September 30, 2020, we recorded $6.9 million and $21.0 million of gains, respectively, related to the sale of fixed and intangible assets from the sale of our idled Mineral Fiber plant in China, which was reported as a component of our Unallocated Corporate segment. There was no similar activity in 2021. Equity earnings from our WAVE joint venture were $23.4 million in the third quarter of 2021, compared to $15.2 million in the third quarter of 2020. Equity earnings from our WAVE joint venture were $68.1 million in the first nine months of 2021 compared to $48.2 million in the first nine months of 2020. The increase in WAVE earnings for the third quarter of 2021 compared to the same period in 2020 was primarily related to favorable AUV which was partially offset by increased steel costs. The increase in WAVE earnings for the first nine months of 2021 compared to the same period in 2020 was related to favorable AUV and higher volumes, which was partially offset by increased steel costs and SG&A expenses. See Note 9 to the Condensed Consolidated Financial Statements for further information. Interest expense was $6.1 million in both the third quarter of 2021 and the third quarter of 2020. Interest expense was $17.4 million in the first nine months of 2021 compared to $18.7 million in the first nine months of 2020. The decrease in interest expense in the first nine months of 2021 compared to the prior period was due to lower interest rates, partially offset by an increase in average borrowings. Other non-operating income, net, was $1.4 million in the third quarter of 2021 compared to $3.2 million in the third quarter of 2020. Other non-operating income, net, was $4.3 million in the first nine months of 2021, compared to $361.8 million of expense, net, in the first nine months of 2020. The decrease in income for the third quarter of 2021 compared to the same period in 2020 was primarily due to lower credits from non-service cost components of pension and postretirement net period benefit costs. The change in other non-operating income, net, for the first nine months of 2021 compared to the same period in 2020 was primarily related to a $374.4 million settlement loss related to our RIP that was recorded in the first quarter of 2020, partially offset by lower credits from non-service cost components of pension and postretirement net period benefit costs. See Note 14 to the Condensed Consolidated Financial Statements for further information. Income tax expense was $16.6 million in the third quarter of 2021 compared to $15.2 million in the third quarter of 2020. The effective tax rate for the third quarter of 2021 was 24.6% compared to 21.9% for the same period of 2020. The effective tax rate for the third quarter of 2021 was higher compared to the same period in 2020, due primarily to the absence of a benefit related to the sale of our idled Mineral Fiber plant in China recognized in 2020. Income tax expense was $48.0 million in the first nine months of 2021 compared to $50.9 million of income tax benefit in the first nine months of 2020. The effective tax rate was 25.1% in the first nine months of 2021 compared to 30.0% in the same period of 2020. Excluding the impact of our pension settlement and the gain on sale of our idled Mineral Fiber plant in China recorded in the first nine months of 2020, the effective tax rate for the first nine months of 2021 was higher compared to the same period in 2020 due to state law changes enacted in 2021 and a reduction in favorable permanent adjustments. Total Other Comprehensive Income (“OCI”) was $0.1 million in the third quarter of 2021 compared to Total Other Comprehensive Loss (“OCL”) of $5.5 million in the third quarter of 2020. OCI was $6.5 million in the first nine months of 2021 compared to OCI of $266.3 million in the first nine months of 2020. The change in OCI in the third quarter of 2021 compared to the same period in 2020 was primarily driven by foreign currency translation adjustments. Foreign currency translation adjustments represent the change in the U.S. dollar value of assets and liabilities denominated in foreign currencies. The change in OCI in the first nine months of 2021 compared to the same period in 2020 was driven by pension and postretirement adjustments, primarily related to the absence of the $278.6 settlement loss, net of taxes, related to our RIP. Pension and postretirement adjustments represent the amortization of actuarial gains and losses related to our defined benefit pension and postretirement plans. Also impacting the change in OCI in both periods were derivative gains/losses. Derivative gain/loss represents the mark-to-market value adjustments of our derivative assets and liabilities and the recognition of gains and losses previously deferred in OCI. 31 Management’s Discussion and Analysis of Financial Condition and Results of Operations REPORTABLE SEGMENT RESULTS Mineral Fiber (dollar amounts in millions) 2021 2020 Change is Favorable Three Months Ended September 30, Total segment net sales $ 214.5 $ 187.3 14.5 % Operating income $ 68.5 $ 58.1 17.9 % Nine Months Ended September 30, Total segment net sales $ 611.3 $ 542.9 12.6 % Operating income $ 201.2 $ 173.7 15.8 % Third-quarter 2021 net sales increased $27 million primarily due to favorable AUV. The improvement in AUV was driven by favorable price and customer channel mix. For the first nine months of 2021, net sales improved $68 million from the prior-year period due to $47 million of favorable AUV and $21 million due to higher sales volumes. For the nine-month period, increased volumes were driven by comparison against a prior-year period that was negatively impacted by the pandemic. Third-quarter 2021 operating income increased 17.9% year-over-year primarily due to a $20 million benefit from favorable AUV, an $8 million increase in WAVE equity earnings and a $4 million benefit related to a 2020 Coronavirus Aid, Relief, and Economic Recovery Act Employee Retention Credit ("ERC benefit"), partially offset by a $10 million increase in manufacturing costs, a $4 million increase in incentive and deferred compensation expenses and a $2 million increase in spending related to digital growth initiatives. In addition, operating income was impacted by more normalized discretionary spending that had been curtailed in 2020 at the height of the COVID-19 pandemic. Operating income increased in the first nine months of 2021 primarily due to a $35 million benefit from favorable AUV, a $20 million increase in WAVE equity earnings, a $12 million benefit from higher volumes and a $4 million ERC benefit, partially offset by a $14 million increase in manufacturing costs, a $13 million increase in incentive and deferred compensation expenses, a $6 million decrease related to our Knauf TSA, a $3 million increase in spending related to digital growth initiatives and an increase in discretionary spending. Architectural Specialties (dollar amounts in millions) 2021 2020 Change is Favorable/(Unfavorable) Three Months Ended September 30, Total segment net sales $ 77.7 $ 59.0 31.7 % Operating income $ 5.0 $ 9.1 (45.1 )% Nine Months Ended September 30, Total segment net sales $ 212.8 $ 155.3 37.0 % Operating income $ 7.5 $ 20.9 (64.1 )% Net sales increased $19 million and $58 million in the third quarter and the first nine months of 2021, respectively. Net sales from 2020 Acquisitions in the third quarter and the first nine months of 2021 contributed $16 million and $50 million to these increases, respectively. An improvement in sales volumes due to a rebound in economic activity compared to the prior year when negative COVID-19 impacts were significantly higher contributed to year-over-year net sales growth for both periods. Third-quarter 2021 operating income decreased primarily due to an $8 million increase in SG&A expenses, including a $1 million increase in amortization expense, related to the 2020 Acquisitions and the negative margin impact of delays from custom project driven revenues, partially offset by the positive impact of increased sales. Operating income decreased in the first nine months of 2021 primarily due to a $13 million increase in amortization expense related to the 2020 Acquisitions, an $11 million increase in acquisition-related charges, an increase in manufacturing costs and SG&A expenses resulting primarily from additional investments in manufacturing capacity and selling and design capabilities and the negative margin impact of delays from custom project driven revenues. These costs were partially offset by the positive impact of higher sales volumes and a $10 million gain due to a change in the fair value of contingent consideration related to Moz and Turf. 32 Management’s Discussion and Analysis of Financial Condition and Results of Operations Unallocated Corporate Unallocated Corporate operating loss was $1 million in the third quarter of 2021, compared to income of $5 million in the third quarter of 2020. Unallocated Corporate operating loss was $4 million in the first nine months of 2021, compared to income of $16 million in the first nine months of 2020. The change in Unallocated Corporate operating loss in both periods was primarily related to the absence of the gain on the sale of our idled Mineral Fiber plant in China. FINANCIAL CONDITION AND LIQUIDITY Cash Flow Operating activities for the first nine months of 2021 provided $137.9 million of cash, compared to $148.4 million in the first nine months of 2020. The decrease was primarily due to lower cash earnings and an increase in income tax payments, partially offset by positive working capital changes. Net cash used for investing activities was $5.4 million in the first nine months of 2021, compared to $52.2 million of cash used in the first nine months of 2020. The favorable change in cash used in 2021 compared to 2020 was primarily due to a decrease in cash paid for acquisitions and the absence of the remittance of Knauf proceeds to WAVE, partially offset by a decrease in proceeds from the sale of fixed assets and an increase in purchases of property, plant and equipment. Net cash used for financing activities was $175.1 million in the first nine months of 2021, compared to $2.5 million in the first nine months of 2020. The unfavorable change of cash was primarily due to a decrease in proceeds from borrowings, higher debt payments in 2021 and higher repurchases of outstanding common stock. Liquidity Our liquidity needs for operations vary throughout the year. We retain lines of credit to facilitate our seasonal cash flow needs, since cash flow is historically lower during the first and fourth quarters of our fiscal year. We have a $1,000.0 million variable rate senior credit facility, which is comprised of a $500.0 million revolving credit facility (with a $150.0 million sublimit for letters of credit) and a $500.0 million Term Loan A. The $1,000.0 million senior credit facility is secured by the capital stock of material U.S. subsidiaries and a pledge of 65% of the stock of our material first-tier foreign subsidiary in Canada. The unpaid balances of the revolving credit facility and Term Loan A may be prepaid without penalty at the maturity of their respective interest reset periods. Any principal amounts paid on the Term Loan A may not be re-borrowed. As of September 30, 2021, total borrowings outstanding under our senior credit facility were $155.0 million under the revolving credit facility and $475.0 million under Term Loan A. Additionally, we have a $25.0 million letter of credit facility, also known as our bi-lateral facility. The senior credit facility includes two financial covenants that require the ratio of consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) to consolidated cash interest expense minus cash consolidated interest income to be greater than or equal to 3.0 to 1.0 and requires the ratio of consolidated funded indebtedness, minus AWI and domestic subsidiary unrestricted cash and cash equivalents up to $100 million, to EBITDA to be less than or equal to 3.75 to 1.0. As of September 30, 2021, we were in compliance with all covenants of the senior credit facility. The Term Loan A is currently priced on a variable interest rate basis. The following table summarizes our interest rate swaps (dollar amounts in millions): Trade Date Notional Amount Coverage Period Risk Coverage November 28, 2018 $ 200.0 November 2018 to November 2023 USD-LIBOR November 28, 2018 $ 100.0 March 2021 to March 2025 USD-LIBOR March 6, 2020 $ 50.0 March 2020 to March 2022 USD-LIBOR March 10, 2020 $ 50.0 March 2021 to March 2024 USD-LIBOR March 11, 2020 $ 50.0 March 2021 to March 2024 USD-LIBOR Under the terms of our interest rate swaps above, we pay a fixed rate monthly and receive 1-month LIBOR, inclusive of a 0% floor. These swaps are designated as cash flow hedges against changes in LIBOR for a portion of our variable rate debt. 33 Management’s Discussion and Analysis of Financial Condition and Results of Operations We utilize lines of credit and other commercial commitments to ensure that adequate funds are available to meet operating requirements. Letters of credit are currently arranged through our revolving credit facility and our bi-lateral facility. Letters of credit may be issued to third party suppliers, insurance and financial institutions and typically can only be drawn upon in the event of AWI’s failure to pay its obligations to the beneficiary. The following table presents details related to our letters of credit facilities (dollar amounts in millions): September 30, 2021 Financing Arrangements Limit Used Available Bi-lateral facility $ 25.0 $ 8.4 $ 16.6 Revolving credit facility 150.0 - 150.0 Total $ 175.0 $ 8.4 $ 166.6 As of September 30, 2021, we had $94.3 million of cash and cash equivalents, $80.4 million in the U.S. and $13.9 million in various foreign jurisdictions, primarily Canada. As of September 30, 2021, we also had $345.0 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. The impacts of COVID-19 could create volatility in financial markets which may impact the terms under which we access capital. We continue to evaluate our discretionary spending, capital expenditures and other costs in light of the uncertainty related to the COVID-19 pandemic. 34 ITEM 3. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK For information regarding our exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2020.