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 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. COVID-19 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 experienced less of a comparative decline in net sales during the third quarter of 2020 compared to the second quarter of 2020, as construction resumed across many parts of the U.S. We currently expect lower net sales for the fourth quarter of 2020 compared to 2019, with less of a comparative decline than experienced in the second and third quarters of 2020. In response to COVID-19, we continue to reduce capital expenditures and discretionary spending including compensation, travel and marketing expenses. We expect these actions to positively impact operating income and cash flows in the fourth quarter of 2020 compared to the fourth quarter of 2019. As of September 30, 2020, all of our manufacturing facilities were operational, excluding the St. Helens, Oregon facility 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 the first quarter of 2020, we borrowed an additional $100.0 million from our revolving credit facility and $30.0 million from our accounts receivable securitization facility. During the second quarter of 2020, we repaid $65.0 million of the revolving credit facility borrowings and during the third quarter of 2020 we repaid $30.0 million in connection with the maturity of our accounts receivable securitization facility. Our share repurchase program was temporarily suspended in the first quarter of 2020 in response to uncertainties surrounding COVID-19. On October 21, 2020, we elected to restart the Program and currently have $603.8 million remaining under the Board’s repurchase authorization. We did not record any asset impairments, inventory charges or bad debt reserves related to COVID-19 during the third quarter and first nine 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 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. Moz’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment. 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. Turf’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment. 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. 31 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 three and nine months ended September 30, 2020, we remitted $5.9 million and $25.9 million, respectively, to WAVE for their portion of the proceeds from Knauf. During the nine months ended September 30, 2020, WAVE paid each of AWI and Worthington dividends of $13.0 million relating to these payments. During the third quarter of 2020, we remitted $6.4 million to Knauf for working capital and other adjustments. Final adjustments are subject to the valuation of certain liabilities included in the Sale, which we expect to be finalized in 2020. The final valuation could result in an increase to those liabilities of $11.0 million; however, we have not accrued a liability for this matter as of September 30, 2020 as payment is not probable. 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 provided certain transition technology, finance and information technology support services, which are now substantially complete. 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 nine months ended September 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 September 30, 2020, we had 15 manufacturing plants in two countries, with 13 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 32 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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. 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 third quarter of 2020 compared to the third quarter of 2019, most importantly the aforementioned decrease in demand across all our markets as a result of COVID-19. For the three and nine months ended September 30, 2020, we experienced significant reductions in volumes of $28 million and $88 million in comparison to the same periods in 2019. Revenues for our Architectural Specialties segment were also positively impacted by our 2019 acquisitions of ACGI and MRK (collectively, the “2019 Acquisitions”) and our 2020 acquisitions of Turf and Moz (collectively, the “2020 Acquisitions”). The following table presents the impact of the 2019 Acquisitions and the 2020 Acquisitions on our Architectural Specialties segment’s net sales (dollar amounts in millions): 2020 2019 Three Months Ended September 30, 2019 Acquisitions $ 7.8 $ 7.1 2020 Acquisitions $ 7.7 $ - Total $ 15.5 $ 7.1 Nine Months Ended September 30, 2019 Acquisitions $ 22.0 $ 14.9 2020 Acquisitions $ 7.7 $ - Total $ 29.7 $ 14.9 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 nine months ended September 30, 2020 by approximately $3 million and $5 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. 33 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 third quarter of 2020. We expect sales to continue to be weaker in the fourth quarter 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 nine months ended September 30, 2020, lower costs for raw materials and energy positively impacted operating income by $1 million and $3 million, respectively, compared to the same periods in 2019. Employees As of September 30, 2020 and December 31, 2019, we had approximately 2,500 full-time and part-time employees. 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 September 30, Total consolidated net sales $ 246.3 $ 277.1 (11.1 )% Operating income $ 72.3 $ 113.3 (36.2 )% Nine Months Ended September 30, Total consolidated net sales $ 698.2 $ 791.2 (11.8 )% Operating income $ 210.7 $ 255.2 (17.4 )% Consolidated net sales for the third quarter of 2020 decreased 11.1% over the same period in 2019 due to lower volumes of $28 million and unfavorable AUV of $3 million. Mineral Fiber net sales decreased by $32 million and Architectural Specialties net sales increased by $1 million. Consolidated net sales for the first nine months of 2020 decreased 11.8% due to lower volumes of $88 million and unfavorable AUV of $5 million. Mineral Fiber net sales decreased by $86 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, partially offset by the impact of our 2020 Acquisitions and 2019 Acquisitions in the Architectural Specialties Segment. Cost of goods sold in the third quarter of 2020 was 63.0% of net sales, compared to 59.7% for the same period in 2019. Cost of goods sold in the first nine months of 2020 was 64.2% compared to 61.3% for the same period in 2019. The increase in cost of goods sold as a percent of net sales for the third quarter and first nine months of 2020 was primarily due to unfavorable AUV and the impact of the 2020 Acquisitions and 2019 Acquisitions, partially offset by improved manufacturing productivity and cost reduction actions. The unfavorable AUV was partially driven lower mix due to regional weakness in major metropolitan areas impacted by COVID-19. SG&A expenses in the third quarter of 2020 were $41.0 million, or 16.6% of net sales, compared to $41.3 million, or 14.9% of net sales, for the same period in 2019. SG&A expenses in the first nine months of 2020 were $108.8 million, or 15.6% of net sales, compared to $134.3 million, or 17.0% of net sales, for the same period in 2019. The decrease in SG&A expenses for the third quarter 34 Management’s Discussion and Analysis of Financial Condition and Results of Operations of 2020 as compared to the same period in 2019 was driven primarily by a $3 million reduction in incentive based compensation and lower selling expenses, offset by an increase in SG&A expenses due to the impact of the 2020 Acquisitions and 2019 Acquisitions . The decrease in SG&A expenses for the first nine 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”), a $5 million reduction in incentive based compensation and $4 million increase in cost reimbursements, net of related expenses, earned under our Transition Services Agreement with Knauf. These decreases in SG&A expenses were partially offset by an increase in SG&A expenses due to the impact of the 2020 Acquisitions and 2019 Acquisitions. The gain related to the sale of fixed and intangible assets in the third quarter and first nine months of 2020 was due to the sale of our idled mineral fiber plant in China, which was reported within our Unallocated Corporate segment. Equity earnings from our WAVE joint venture were $15.2 million in the third quarter of 2020, compared to $42.9 million in the third quarter of 2019. Equity earnings from our WAVE joint venture were $48.2 million in the first nine months of 2020 compared to $83.0 million in the first nine months of 2019. Consistent with our results, demand for WAVE’s products were significantly impacted by COVID-19 throughout the third quarter of 2020. The decrease in WAVE earnings in both periods was primarily related to lower volumes and unfavorable AUV, partially offset by lower steel costs. Also contributing to the decrease in equity earnings was a $25.5 million increase in WAVE equity earnings in the third quarter of 2019, representing our 50% share of WAVE’s gain on sale of its discontinued European and Pacific Rim businesses, net of a $4 million write-off related to our WAVE fresh-start reporting for customer relationships and developed technology intangible assets, and an increase in selling and administrative charges from AWI and Worthington Industries, Inc for the three and nine months ended September 30, 2020. See Note 9 to the Condensed Consolidated Financial Statements for further information. Interest expense was $6.1 million in the third quarter of 2020, compared to $11.7 million in the third quarter of 2019. Interest expense was $18.7 million in the first nine months of 2020 compared to $31.6 million in the first nine 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 $3.2 in the third quarter of 2020 compared to $5.1 million in the third quarter of 2019. The decrease primarily related to a $2 million special termination benefit charge recorded in the third quarter of 2020 related to our RIP. Other non-operating expense, net, was $361.8 million in the first nine months of 2020, compared to $16.0 million of income, net, in the first nine months of 2019. The increase in expense was primarily related to the $374.4 million settlement loss and the $2 million special termination benefit charge, both related to our RIP. See Note 16 to the Condensed Consolidated Financial Statements for further information. Income tax expense was $15.2 million in the third quarter of 2020 compared to $16.0 million in the third quarter of 2019. The effective tax rate for the third quarter of 2020 was 21.9% as compared to 15.0% for the same period of 2019. The effective tax rate was higher primarily due to the absence of a beneficial tax impact of our share of WAVE’s gain on sale of its discontinued European and Pacific Rim businesses and the absence of a benefit related to a statute closure, both recognized in 2019. These rate increases were both partially offset by the current year tax benefit related to the sale of our mineral fiber plant in China. Income tax benefit was $50.9 million in the first nine months of 2020 compared to $48.8 million of income tax expense in the first nine months of 2019. Excluding the impact of the pension settlement that occurred in the first quarter of 2020, income tax expense was $45.0 million in the first nine months of 2020. The effective tax rate was 30.0% in the first nine months of 2020 compared to 20.4% in the same period of 2019. The effective tax rate was higher than the same period in 2019 primarily due to the tax effects of our first quarter of 2020 pension settlement and the absence of benefits related to the WAVE gain on sale and statute closure from 2019, partially offset by the benefits recognized on the sale of our mineral fiber plant in China. Total Other Comprehensive Loss (“OCL”) was $5.5 million in the third quarter of 2020 compared to Total Other Comprehensive Income (“OCI”) of $81.4 million in the third quarter of 2019. Total OCI was $266.3 million in the first nine months of 2020 compared to $79.9 million in the first nine months of 2019. The change in OCI in the third quarter of 2020 compared to the same period in 2019 was primarily driven by foreign currency translation adjustments, primarily $81.2 million of foreign currency translation adjustments that were reclassified out of Accumulated Other Comprehensive Income (“AOCI”) concurrent with the Sale in third quarter of 2019. 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 2020 was primarily driven by pension and postretirement adjustments, primarily a $374.4 million partial settlement loss related to our RIP, partially offset by the absence of the aforementioned reclassification of foreign currency translation adjustments related to the Sale in the third quarter of 2019. Pension and postretirement adjustments represent the amortization of actuarial gains and losses related to our defined benefit pension and postretirement plans. 35 Management’s Discussion and Analysis of Financial Condition and Results of Operations Also impacting the change in OCI in both periods w ere 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. REPORTABLE SEGMENT RESULTS Mineral Fiber (dollar amounts in millions) 2020 2019 Change is (Unfavorable) Three Months Ended September 30, Total segment net sales $ 187.3 $ 218.6 (14.3 )% Operating income $ 58.1 $ 103.5 (43.9 )% Nine Months Ended September 30, Total segment net sales $ 542.9 $ 629.4 (13.7 )% Operating income $ 173.7 $ 230.5 (24.6 )% Net sales decreased in the third quarter of 2020 due to lower volumes of $29 million and unfavorable AUV of $3 million. The decrease in net sales in the first nine months of 2020 was due to lower volumes of $81 million and unfavorable AUV of $5 million. The decreases in volumes were driven by a significant decrease in demand due to the COVID-19 pandemic. The unfavorable AUV was partially driven by lower mix due to regional weakness in major metropolitan areas impacted by COVID-19. Operating income decreased in the third quarter of 2020 primarily due to a $28 million reduction in WAVE equity earnings, a $20 million negative impact due to lower volumes, and a $5 million impact from lower AUV. Partially offsetting these decreases to operating income was a $6 million reduction in manufacturing costs and a $2 million reduction in incentive compensation expenses. Operating income decreased in the first nine months of 2020 primarily due to a $56 million negative impact due to lower volumes, a $35 million reduction in WAVE equity earnings and a $15 million impact from lower AUV. 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 with Rockfon, a $19 million reduction in manufacturing costs, a $6 million reduction in incentive compensation expenses and a $4 million increase in cost reimbursements, net of related expenses, earned under our Transition Services Agreement with Knauf. Architectural Specialties (dollar amounts in millions) 2020 2019 Change is Favorable/(Unfavorable) Three Months Ended September 30, Total segment net sales $ 59.0 $ 58.5 0.9 % Operating income $ 9.1 $ 11.6 (21.6 )% Nine Months Ended September 30, Total segment net sales $ 155.3 $ 161.8 (4.0 )% Operating income $ 20.9 $ 30.3 (31.0 )% Net sales increased $1 million in the third quarter of 2020 and decreased $7 million for the first nine months of 2020. Net sales in both periods were negatively impacted by a reduction in demand across almost all product categories and geographies as a result of the COVID-19 pandemic. Net sales for the third quarter and first nine months of 2020 increased $8 million and $15 million, respectively, due to the impact of the 2020 Acquisitions and 2019 Acquisitions. Operating income in the third quarter and first nine months of 2020 decreased due to the impact of lower sales, excluding the impact of the 2020 Acquisitions and 2019 Acquisitions. Also contributing to the decrease in operating income was additional amortization expense related to the 2020 Acquisitions and the 2019 Acquisitions. Unallocated Corporate Unallocated corporate operating income was $5 million in the third quarter of 2020 compared to $2 million of operating loss in the same period of 2019. Unallocated corporate operating income was $16 million in the first nine months of 2020 compared to $6 million 36 Management’s Discussion and Analysis of Financial Condition and Results of Operations of operating loss in the first nine months of 2019. The increase in both periods was primarily due to the gain related to th e 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 nine months of 2020 provided $148.4 million of cash, compared to $121.4 million in the first nine months of 2019. The increase was primarily due to higher cash earnings, partially offset by lower tax payments. Net cash used for investing activities was $52.2 million in the first nine months of 2020, compared to $70.9 million in the first nine months of 2019. Cash used for investing activities decreased in comparison to 2019 due to lower payments to Knauf, proceeds from the sale of our idled mineral fiber plant in China in the first nine months of 2020 and lower purchases of property, plant and equipment, partially offset by the remittance of Knauf proceeds to WAVE in the first nine months of 2020 and an increase in cash paid for acquisitions. Net cash used for financing activities was $2.5 million in the first nine months of 2020, compared to $289.0 million in the first nine months of 2019. The favorable change of cash was primarily due to decreased debt payments and lower repurchases of outstanding common stock, partially offset by a reduction in proceeds from borrowings. 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, 2020, total borrowings outstanding under our senior credit facility were $185.0 million under the revolving credit facility and $500.0 million under Term Loan A. As of September 30, 2020, we had 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, 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. 37 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 September 30, 2020, we had $138.8 million of cash and cash equivalents, $127.1 million in the U.S and $11.7 million in various foreign jurisdictions, primarily Canada. During the third quarter of 2020, we repaid $30.0 million under our Accounts Receivable Securitization Facility with the Bank of Nova Scotia (the “funding entity”) which matured in September 2020. Interest on borrowings under this amended facility was calculated at a 90-day commercial paper rate. Under this facility, we sold 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 were not available to the general creditors of AWI. ARC used this facility to borrow cash or issue letters of credit. When ARC borrowed cash under this facility, ARC sold an undivided percentage ownership interest in the purchased accounts receivables to the funding entity. We had the unilateral right to repurchase the funding entity’s purchased interest in the accounts receivables and, as a result, borrowings under this facility were reported as debt in the Condensed Consolidated Balance Sheets. Borrowings under this facility were obligations of ARC and not AWI. ARC contracted with and paid a servicing fee to AWI to manage, collect and service the purchased accounts receivables. All new receivables under the program were continuously purchased by ARC with the proceeds from collections of receivables previously purchased. There were no borrowings outstanding under this facility as of December 31, 2019. 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 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: September 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 September 30, 2020, we had $138.8 million of cash and cash equivalents and $315.0 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 Amendment No. 1 to the Annual Report on Form 10-K/A for the year ended December 31, 2019, Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Our long-term debt obligations as of September 30, 2020 increased by $70.7 million, primarily due to additional borrowings under our revolving credit facility, net of repayments. During the third quarter of 2020, we recorded $15.9 million of contingent consideration payable related to the acquisitions of Moz and Turf which will be paid out upon achievement of future performance objectives. See Note 4 to the Condensed Consolidated Financial Statements for further information. 38 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 Amendment No. 1 to the Annual Report on Form 10-K/A for the year ended December 31, 2019.