ARMSTRONG WORLD INDUSTRIES INC 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the financial statements, the accompanying notes, the cautionary note regarding forward-looking statements and risk factors included in this report, our Annual Report on Form 10-K for the year ended December 31, 2019 and our Amendment No. 1 to the Annual Report on Form 10-K/A for the year ended December 31, 2019. 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. The impact of the COVID-19 outbreak on our future consolidated results of operations is uncertain. We experienced a significant decrease in customer demand across all our markets during the second quarter of 2020 due to COVID-19. Specifically, we noted delays in construction driven by temporary closures of non-life sustaining businesses, with the most significant impacts in major metropolitan areas impacted by COVID-19. We currently expect lower net sales for the remainder of 2020 compared to 2019, with less of a comparative decline in the third and fourth quarters of 2020 than experienced in the second quarter of 2020. In response to COVID-19, we have reduced capital expenditures and discretionary spending including compensation, travel and marketing reductions. In addition, we deferred our U.S. federal income tax payments through June 30, 2020. We expect these actions to positively impact operating income and cash flows in the second half of 2020 compared to the second half of 2019. As of June 30, 2020, all of our manufacturing facilities were operational, excluding a location which was idled prior to the COVID-19 outbreak. In an effort to operate safely and responsibly, we continue to follow guidelines from governmental and local health authorities across our facilities and have implemented preventative measures that include working remotely, providing personal protective equipment, limiting group meetings, restricting air travel, enhancing cleaning and sanitizing procedures, and social distancing. During March 2020, we borrowed an additional $100.0 million from our revolving credit facility and $30.0 million from our accounts receivable securitization facility, and temporarily suspended our share repurchase program. During the second quarter of 2020, we repaid $65.0 million of the revolving credit facility borrowings. We did not record any asset impairments, inventory charges or bad debt reserves related to COVID-19 during the second quarter and first six months of 2020 but future events may require such charges. We will continue to evaluate the nature and extent of the COVID-19 outbreak’s impact on our financial condition, results of operations and cash flows. Acquisitions In November 2019, we acquired the business and assets of MRK Industries, Inc. (“MRK”), based in Libertyville, Illinois. MRK is a manufacturer of specialty metal ceiling, wall and exterior solutions with one manufacturing facility. MRK’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment. In March 2019, we acquired the business and assets of Architectural Components Group, Inc. (“ACGI”), based in Marshfield, Missouri. ACGI is a manufacturer of custom wood ceilings and walls with one manufacturing facility. ACGI’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment. Discontinued Operations On September 30, 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”). The purchase price of $330.0 million was previously paid by Knauf to us during 2018 and was subject to certain post-closing adjustments for cash and debt as provided in the Purchase Agreement dated as of November 17, 2017, by and between us and Knauf (the “Purchase Agreement”), including adjustments based on the economic impact of any required regulatory remedies and a working capital adjustment. During the second quarter of 2020, we remitted $20.0 million to WAVE for a portion of their remaining proceeds from Knauf. As of June 30 2020, we have recorded a $5.9 million payable to WAVE for their remaining portion of the proceeds from Knauf and a $6.2 million payable to Knauf for estimated working capital and other adjustments, both of which are reflected within Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets as of June 30, 2020. The final loss amounts are subject to finalization of customary 29 Management’s Discussion and Analysis of Financial Condition and Results of Operations working capital and other adjustments, as provided in the Purchase Agreement . We are currently in negotiations with Knauf related to the valuation of certain liabilities included in the Sale totaling $11 million, which we expect to be finalized in 2020 . We have not accrued a liability for this matter as of June 30, 2020 . In 2019, we entered into a Transition Services Agreement with Knauf for its benefit and the benefit of the buyer of the divestment business, pursuant to which we are providing certain transition technology, finance and information technology support services through September 30, 2020. In connection with the closing of the Sale, we also entered into (i) a royalty-free intellectual property License Agreement with Knauf under which they license patents, trademarks and know-how from us for use in licensed territories in which the business was conducted prior to the Sale, and (ii) a Supply Agreement with Knauf under which the parties may continue to purchase certain products from each other following the closing of the Sale. WAVE also entered into similar agreements with Knauf for such purposes. The term of the granted licenses, with respect to each intellectual property right, extend until the expiration or abandonment of each such intellectual property right. The EMEA and Pacific Rim segment historical financial results for the three and six months ended June 30, 2019 have been reflected in AWI’s Condensed Consolidated Statements of Operations and Comprehensive Income as discontinued operations, while the assets and liabilities of discontinued operations were removed from AWI’s Condensed Consolidated Balance Sheet as of September 30, 2019. See Notes 4 and 5 to the Condensed Consolidated Financial Statements for additional information related to our acquisitions and discontinued operations. Manufacturing Plants As of June 30, 2020, we had 13 manufacturing plants in two countries, with 11 plants located within the U.S., which included our St. Helens, Oregon mineral fiber manufacturing facility, which closed in the second quarter of 2018. We have two plants in Canada. During the second quarter of 2020, we sold our idled plant in China, which had been classified as an asset held for sale. 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. Products offer various performance attributes such as acoustical control, rated fire protection and aesthetic appeal. 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. To a lesser extent, however, in some geographies and for some 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 and sources ceilings and walls for use in commercial settings. Products are available in numerous materials, such as metal 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 and customized products, with the majority of Architectural Specialties revenues 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. 30 Management’s Discussion and Analysis of Financial Condition and Results of Operations Unallocated Corporate - includes assets, liabilities, income and expenses that have not been allocated to our other business segments and consist 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 2020 net sales by segment, see Notes 2 and 3 to the Condensed Consolidated Financial Statements included in this Form 10-Q. Markets. We compete in the commercial and residential construction markets. 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 second quarter of 2020 compared to the second quarter of 2019, most importantly the aforementioned decrease in demand across all our markets as a result of COVID-19. For the three and six months ended June 30, 2020, we experienced significant reductions in volumes of $68 million and $60 million in comparison to the same periods in 2019. Revenues for our Architectural Specialties segment were also impacted by our 2019 acquisitions of ACGI and MRK (collectively, the “2019 Acquisitions”). The following table presents the impact of the 2019 Acquisitions on our Architectural Specialties segment’s net sales (dollar amounts in millions): 2020 2019 Three Months Ended June 30, $ 5.9 $ 6.3 Six Months Ended June 30, $ 14.2 $ 7.8 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 a measure that accounts for the varying assortment of products impacting our revenues. We estimate that unfavorable AUV decreased our Mineral Fiber and total consolidated net sales for three and six months ended June 30, 2020 by approximately $1 million and $2 million, respectively, compared to the same periods in 2019. 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 all changes in sales to volume. 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. In comparison to the prior year, sales were weaker in the second quarter of 2020. We expect sales to continue to be weaker in the second half of 2020 as compared to the prior year due to reduced demand related to COVID-19. 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 for fiberglass, perlite, starch, waste paper, wood, wood fiber, aluminum, steel, pigments and clays. 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 six months ended June 30, 2020, lower costs for raw materials and energy positively impacted operating income by $1 million and $2 million, respectively, compared to the same periods in 2019. Employees As of June 30, 2020 and December 31, 2019, we had approximately 2,500 full-time and part-time employees. 31 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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) 2020 2019 Change is (Unfavorable) Three Months Ended June 30, Total consolidated net sales $ 203.2 $ 272.0 (25.3 )% Operating income $ 62.4 $ 87.2 (28.4 )% Six Months Ended June 30, Total consolidated net sales $ 451.9 $ 514.1 (12.1 )% Operating income $ 138.4 $ 141.9 (2.5 )% Consolidated net sales for the second quarter of 2020 decreased 25.3% over the same period in 2019 due to lower volumes of $68 million and unfavorable AUV of $1 million. Mineral Fiber net sales decreased by $56 million and Architectural Specialties net sales decreased by $13 million. Consolidated net sales for the first six months of 2020 decreased 12.1% due to lower volumes of $60 million and unfavorable AUV of $2 million. Mineral Fiber net sales decreased by $55 million and Architectural Specialties net sales decreased by $7 million. As previously noted, decreases in volumes for both our Mineral Fiber and Architectural Specialties segments were a result of lower market demand due to COVID-19. Cost of goods sold in the second quarter of 2020 was 66.6% of net sales, compared to 62.0% for the same period in 2019. Cost of goods sold in the first six months of 2020 was 64.8% compared to 62.1% for the same period in 2019. The increase in cost of goods sold as a percent of net sales for the second quarter and first six months of 2020 was primarily due to unfavorable AUV, partially offset by improved manufacturing productivity and cost reduction actions. The unfavorable AUV was driven by mix, primarily due to regional weakness in major metropolitan areas impacted by COVID-19. SG&A expenses in the second quarter of 2020 were $33.0 million, or 16.2% of net sales, compared to $37.4 million, or 13.8% of net sales, for the same period in 2019. SG&A expenses in the first six months of 2020 were $67.8 million, or 15.0% of net sales, compared to $93.0 million, or 18.1% of net sales, for the same period in 2019. The decrease in SG&A expenses for the second quarter of 2020 as compared to the same period in 2019 was driven primarily by a $2 million increase in cost reimbursements, net of related expenses, earned under our Transition Services Agreement with Knauf and a $1 million reduction in incentive compensation expenses. The decrease in SG&A expenses for the first six months of 2020 in comparison to the same period in 2019 was due to a $20 million decrease in legal and professional fees, driven by expenses and attorney’s fees incurred in the first quarter of 2019 under a settlement agreement with Roxul, USA, Inc. (“Rockfon”) and a $4 million increase in cost reimbursements, net of related expenses, earned under our Transition Services Agreement with Knauf and a $2 million reduction in incentive compensation expenses. The gain on sale of fixed and intangible assets represents a $14 million gain on the sale of our idled mineral fiber plant in China, which was reported as a component of our Unallocated Corporate segment. Equity earnings from our WAVE joint venture were $13.5 million in the second quarter of 2020, compared to $21.2 million in the second quarter of 2019. Equity earnings from our WAVE joint venture were $33.0 million in the first six months of 2020 compared to $40.1 million in the first six months of 2019. The decrease in WAVE earnings in both periods was primarily related to lower volumes, partially offset by lower steel costs and a decrease in SG&A expenses. Consistent with our results, demand for WAVE’s products were significantly impacted by COVID-19 throughout the second quarter of 2020. See Note 9 to the Condensed Consolidated Financial Statements for further information. 32 Management’s Discussion and Analysis of Financial Condition and Results of Operations Interest expense was $ 5.9 million in the second quarter of 20 20 , compared to $ 9.5 million in the second quarter of 201 9 . Interest expense was $ 12.6 million in the first six months of 2020 compared to $ 19.9 million in the first six months of 2019. The decrease in both periods was primarily due to lower average borrowings outstanding and lower interest rates , which were a result of the refinancing of our credit facility on September 30, 2019. Other non-operating income, net, was $4.4 in the second quarter of 2020 compared to $5.4 million in the second quarter of 2019. The decrease primarily related to a decline in interest income. Other non-operating expense, net, was $365.0 million in the first six months of 2020, compared to $10.9 million of income, net, in the first six months of 2019. The increase in expense was primarily related to the $374.4 million settlement loss associated with our RIP. See Note 16 to the Condensed Consolidated Financial Statements for further information. Income tax expense was $11.4 million in the second quarter of 2020 compared to $19.4 million in the second quarter of 2019. The effective tax rate for the second quarter of 2020 was 18.7% as compared to 23.3% for the same period of 2019. The effective tax rate was lower primarily due to the favorable tax impact of the gain on sale of our idled mineral fiber plant in China in the second quarter of 2020. Income tax benefit was $66.1 million in the first six months of 2020 compared to $32.8 of income tax expense in the first six months of 2019. Excluding the impact of the pension settlement that occurred in the first quarter of 2020, income tax expense was $29.7 million in the first six months of 2020. The effective tax rate was 27.6% in the first six months of 2020 compared to 24.6% in the same period of 2019. The effective tax rate for the first six months of 2020 was higher than the effective tax rate for the same period in 2019 primarily due to the tax effects of the pension settlement and the gain on sale of our idled mineral fiber plant in China in the second quarter of 2020. Total Other Comprehensive Loss (“OCL”) was $2.6 million in the second quarter of 2020 compared to $4.5 million in the second quarter of 2019. Total Other Comprehensive Income (“OCI”) was $271.8 million in the first six months of 2020 compared to OCL of $1.5 million in the first six months of 2019. The change in OCL in the second quarter of 2020 compared to the same period in 2019 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 OCI. The change in OCI in the first six months of 2020 was primarily driven by pension and postretirement adjustments, primarily a $374.4 million settlement loss 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 was 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. Amounts in the second quarter and first six months of 2020 were driven primarily by changes in the Canadian dollar. Amounts in the second quarter of 2019 were primarily driven by changes in the exchange rates of the British pound and the Russian ruble. Amounts in the first six months of 2019 were driven primarily by changes in the Russian ruble and the Canadian dollar. REPORTABLE SEGMENT RESULTS Mineral Fiber (dollar amounts in millions) 2020 2019 Change is (Unfavorable) Three Months Ended June 30, Total segment net sales $ 157.9 $ 214.1 (26.2 )% Operating income $ 45.6 $ 79.4 (42.6 )% Six Months Ended June 30, Total segment net sales $ 355.6 $ 410.8 (13.4 )% Operating income $ 115.6 $ 127.0 (9.0 )% Net sales decreased in the second quarter of 2020 due to lower volumes of $55 million and unfavorable AUV of $1 million. The decrease in net sales in the first six months of 2020 was due to lower volumes of $53 million and unfavorable AUV of $2 million. The decreases in volumes were driven by a significant decrease in demand due to the COVID-19 pandemic, which impacted all of our markets. The unfavorable AUV was driven by mix, primarily due to regional weakness in major metropolitan areas impacted by COVID-19. Operating income decreased in the second quarter of 2020 primarily due to a $35 million negative impact due to lower volumes, an $8 million reduction in WAVE equity earnings and a $5 million negative impact from lower AUV. Partially offsetting these decreases to operating income was a $10 million reduction in manufacturing costs, a $2 million increase in cost reimbursements, net of related 33 Management’s Discussion and Analysis of Financial Condition and Results of Operations expenses, earned under our Transition Services Agreement with Knauf, and a $1 million reduction in incentive compensation expenses. Operating income decreased in the first six months of 2020 primarily due to a $35 million negative impact due to lower volumes, a $10 million negative impact from lower AUV and a $7 million reduction in WAVE equity earnings. Partially offsetting these decreases to operating income was a $20 million decrease in legal and professional fees incurred in the first quarter of 2019 under a settlement agreement Rockfon, a $14 million reduction in manufacturing costs, a $4 million increase in cost reimbursements, net of related expenses, earned under our Transition Services Agreement with Knauf, and a $3 million reduction in incentive compensation expenses. Architectural Specialties (dollar amounts in millions) 2020 2019 Change is (Unfavorable) Three Months Ended June 30, Total segment net sales $ 45.3 $ 57.9 (21.8 )% Operating income $ 4.3 $ 9.5 (54.7 )% Six Months Ended June 30, Total segment net sales $ 96.3 $ 103.3 (6.8 )% Operating income $ 11.8 $ 18.7 (36.9 )% Net sales in the second quarter and first half of 2020 decreased $13 million and $7 million, respectively, due to a reduction in demand across almost all product categories and geographies as a result of the COVID-19 pandemic. Net sales for the first half of 2020 increased $6 million due to the impact of the 2019 Acquisitions. Operating income in the second quarter and first six months of 2020 decreased due to the negative impact of lower sales volumes. Also contributing to the decrease in operating income was additional amortization expense related to the 2019 Acquisitions. Unallocated Corporate Unallocated corporate operating income was $13 million in the second quarter of 2020 compared to $2 million of expense in the same period of 2019. Unallocated corporate income was $11 million in the first six months of 2020 compared to $4 million of expense in the first six months of 2019. The increase in both periods was driven primarily by a $14 million gain on the sale of our idled mineral fiber plant in China. See Note 2 to the Condensed Consolidated Financial Statements for further information. FINANCIAL CONDITION AND LIQUIDITY Cash Flow The discussion that follows includes cash flows related to discontinued operations for the comparable 2019 period. Operating activities in the first six months of 2020 provided $78.7 million of cash, compared to $47.0 million in the first six months of 2019. The increase was primarily due to lower working capital changes and lower U.S. federal income tax payments. Net cash provided by investing activities was $10.3 million in the first six months of 2020, compared to $31.6 million used in the first six months of 2019. The increase in investing cash flows was a result of the acquisition of ACGI in the first six months of 2019 with no similar activity in 2020 and lower purchases of property, plant and equipment, partially offset by a reduction of investing cash flows due to the remittance of Knauf proceeds to WAVE in the second quarter of 2020. Net cash used for financing activities was $16.7 million in the first six months of 2020, compared to $102.6 million in the first six months of 2019. The favorable change of cash was primarily due to increased borrowings and lower repurchases of outstanding common stock, partially offset by increased payments of debt. 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 34 Management’s Discussion and Analysis of Financial Condition and Results of Operations a $500.0 million Term Loan A. The $1,0 0 0.0 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 subsidiar y 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 June 30, 2020 , total borrowings outstanding under our senior credit facility were $ 130.0 million under the revolving credit facility and $ 500 .0 million under Term Loan A . 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 June 30, 2020, we were in compliance with all covenants of the senior credit facility and currently do not expect any covenant violations due to the impacts of COVID-19. The Term Loan A is fully drawn and 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 13, 2016 $ 200.0 November 2016 to March 2021 USD-LIBOR 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 the November 2016 swap maturing in 2021, we receive 3-month LIBOR and pay a fixed rate over the hedged period, in addition to a basis rate swap to convert the floating rate risk under our November 2016 swap from 3-month LIBOR to 1-month LIBOR. As a result, we receive 1-month LIBOR and pay a fixed rate over the hedged period. Under the terms of the November 2018 swap maturing in 2023, we pay a fixed rate over the hedged amount and receive a 1-month LIBOR. This is inclusive of a 0% floor. Under the terms of the forward starting November 2018 swap maturing in 2025, we will pay a fixed rate monthly and receive 1-month LIBOR. This is inclusive of a 0% floor. Under the terms of the March 2020 swap maturing in 2022, we pay a fixed rate over the hedged amount and receive 1-month LIBOR. This is inclusive of a 0% floor. Under the terms of the forward starting March 2020 swaps maturing in 2024, we will pay a fixed rate monthly and receive 1-month LIBOR. These are 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. As of June 30, 2020, we had $117.1 million of cash and cash equivalents, $104.2 million in the U.S and $12.9 million in various foreign jurisdictions, primarily Canada. In March 2020, we amended and decreased our $36.2 million Accounts Receivable Securitization Facility with the Bank of Nova Scotia (the “funding entity”) to $30.0 million and we extended the maturity to September 2020. Under this facility, we sell accounts receivables to Armstrong Receivables Company, LLC (“ARC”), a Delaware entity that is consolidated in these financial statements. ARC is a 100% wholly owned single member LLC special purpose entity created specifically for this transaction; therefore, any receivables sold to ARC are not available to the general creditors of AWI. ARC can use this facility to borrow cash or issue letters of credit. When ARC borrows cash under the facility, ARC sells an undivided percentage ownership interest in the purchased accounts receivables to the funding entity. We have the unilateral right to repurchase the funding entity’s purchased interest in the accounts receivables and, as a result, borrowings under this facility are reported as debt in the Condensed Consolidated Balance Sheets. Any borrowings under this facility are obligations of ARC and not AWI. ARC contracts with and pays a servicing fee to AWI to manage, collect and service the purchased accounts receivables. All new receivables under the program are continuously purchased by ARC with the proceeds from collections of receivables previously purchased . As of June 30, 2020, total borrowings outstanding under this facility were $30.0 million, which were classified as Short-term debt in the Condensed Consolidated Balance Sheets, and no letters of 35 Management’s Discussion and Analysis of Financial Condition and Results of Operations credit were issued under this facility . There were no borrowings outstanding under this facility as of December 31, 2019. As of June 3 0 , 2020 we had a $25.0 million letter of credit facility, also known as our bi-lateral facility . We utilize lines of credit and other commercial commitments in order to ensure that adequate funds are available to meet operating requirements. Letters of credit are currently arranged through our revolving credit facility, our bi-lateral facility and our securitization 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: June 30, 2020 Financing Arrangements Limit Used Available Bi-lateral facility 25.0 10.9 14.1 Revolving credit facility 150.0 - 150.0 Total $ 175.0 $ 10.9 $ 164.1 As of June 30, 2020, we had $117.1 million of cash and cash equivalents and $370.0 million available under our revolving credit facility. We believe cash on hand and cash generated from operations, together with borrowing capacity under our credit facilities, 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 reductions in discretionary spending, capital expenditures and other costs. CONTRACTUAL OBLIGATIONS Information related to our contractual obligations at December 31, 2019 can be found in our 2019 Annual Report on Form 10-K, Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Our short-term and long-term debt obligations as of June 30, 2020 increased by $45.5 million, primarily due to additional borrowings under our revolving credit facility, net of repayments, of $15.0 million and additional borrowings under our accounts receivable securitization facility of $30.0 million. 36 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information regarding our exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our 2019 Annual Report on Form 10-K.