Earnings Call Presentation
2nd Quarter 2011
2nd Quarter 2011
August 1, 2011
1
Safe Harbor Statement
Our disclosures in this presentation and in our other public documents and comments
contain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act. Those statements provide our future expectations or forecasts and can be
identified by our use of words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe," "outlook," etc. in discussions of future operating or financial performance
or the outcome of contingencies such as liabilities or legal proceedings. Forward-looking
statements, by their nature, address matters that are uncertain and involve risks because
they relate to events and depend on circumstances that may or may not occur in the
future. A more detailed discussion of the risks and uncertainties that may affect our ability
to achieve the projected performance is included in the “Risk Factors” and “Management’s
Discussion and Analysis” sections of our recent reports on Forms 10-K and 10-Q filed with
the SEC. As a result, our actual results may differ materially from our expected results and
from those expressed in our forward looking statements. We undertake no obligation to
update any forward-looking statements beyond what is required under applicable
securities law.
contain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act. Those statements provide our future expectations or forecasts and can be
identified by our use of words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe," "outlook," etc. in discussions of future operating or financial performance
or the outcome of contingencies such as liabilities or legal proceedings. Forward-looking
statements, by their nature, address matters that are uncertain and involve risks because
they relate to events and depend on circumstances that may or may not occur in the
future. A more detailed discussion of the risks and uncertainties that may affect our ability
to achieve the projected performance is included in the “Risk Factors” and “Management’s
Discussion and Analysis” sections of our recent reports on Forms 10-K and 10-Q filed with
the SEC. As a result, our actual results may differ materially from our expected results and
from those expressed in our forward looking statements. We undertake no obligation to
update any forward-looking statements beyond what is required under applicable
securities law.
In addition, we will be referring to non-GAAP financial measures within the meaning of
SEC Regulation G. A reconciliation of the differences between these measures with the
most directly comparable financial measures calculated in accordance with GAAP is
available on the Investor Relations page of our website at www.armstrong.com.
SEC Regulation G. A reconciliation of the differences between these measures with the
most directly comparable financial measures calculated in accordance with GAAP is
available on the Investor Relations page of our website at www.armstrong.com.
2
Basis of Presentation Explanation
Comparable Dollars | Other Adjustments | |
Net Sales | Yes | No |
Gross Profit | Yes | Yes |
SG&A Expense | Yes | Yes |
Equity Earnings | Yes | Yes |
Operating Income | Yes | Yes |
Net Income | Yes | Yes |
Cash Flow | No | No |
Return on Capital | Yes | Yes |
EBITDA | Yes | Yes |
• We report in comparable dollars to
remove the effects of currency
translation on the P&L. The budgeted
exchange rate for the current year is
used for all currency translations in the
current year and prior years.
remove the effects of currency
translation on the P&L. The budgeted
exchange rate for the current year is
used for all currency translations in the
current year and prior years.
• We remove the impact of major, discrete
expenses and income. Examples
include plant closures, restructuring
actions, and other large unusual items.
expenses and income. Examples
include plant closures, restructuring
actions, and other large unusual items.
• Taxes for normalized Net Income and
EPS for all periods presented are
calculated using a constant 42%, which
is based on the full year historical tax
rate.
EPS for all periods presented are
calculated using a constant 42%, which
is based on the full year historical tax
rate.
When reporting our financial results within this presentation, we make several adjustments. Management uses
the adjusted non-GAAP measures below in managing the business and believes the adjustments provide
meaningful comparisons of operating performance between periods. As reported results will be footnoted
throughout the presentation.
the adjusted non-GAAP measures below in managing the business and believes the adjustments provide
meaningful comparisons of operating performance between periods. As reported results will be footnoted
throughout the presentation.
What Items Are Adjusted
All figures throughout the presentation are in $ millions unless otherwise noted. Figures may
not add due to rounding.
not add due to rounding.
3
Key Metrics - Second Quarter 2011
Financial Overview
(1) As reported Net Sales: $749 million in 2011 and $725 million in 2010.
(2) As reported Operating Income: $73 million in 2011 and $53 million in 2010
(3) As reported EPS: $0.64 in 2011 and $0.46 in 2010.
2011 Actual | 2010 Actual | Variance | |
Net Sales (1) | $733 | $733 | 0% |
Operating Income (2) | 82 | 60 | 36.7% |
% of Sales | 11.2% | 8.2% | 300 bps |
EBITDA | 109 | 88 | 23.9% |
% of Sales | 14.9% | 12.0% | 290 bps |
Earnings Per Share (3) | $0.70 | $0.57 | 22.8% |
Free Cash Flow | 50 | 89 | (39) |
Net (Cash) Debt | 542 | (141) | 683 |
4
Q2 2011 - Adjusted EBITDA to Reported Net Income
Financial Overview
2011 | 2010 | V | |
EBITDA- Adjusted | $109 | $88 | $21 |
Depreciation and Amortization | (27) | (28) | 1 |
Operating Income - Adjusted | $82 | $60 | $22 |
Foreign Exchange Movements | 1 | - | 1 |
Cost Reduction Initiatives | (5) | (2) | (3) |
Accelerated Depreciation (not included above) | (3) | - | (3) |
Restructuring | (2) | - | (2) |
Impairments | - | (5) | 5 |
Operating Income - As Reported | $73 | $53 | $20 |
Interest (Expense) Income | (12) | (4) | (8) |
EBT | $61 | $49 | $12 |
Tax (Expense) Benefit | (23) | (22) | (1) |
Net Income | $38 | $27 | $11 |
5
Q2 Sales and EBITDA by Segment - 2011 vs. 2010
Financial Overview
6
EBITDA Bridge - Q2 2011 versus Prior Year
Financial Overview
($11)
($1)
7
Free Cash Flow - Second Quarter 2011 versus Prior Year
Financial Overview
8
Key Metrics - 1st Half 2011
Financial Overview
(1) As reported Net Sales: $1,434 million in 2011 and $1,384 million in 2010.
(2) As reported Operating Income: $125 million in 2011 and $66 million in 2010
(3) As reported EPS: $0.87 in 2011 and $0.13 in 2010.
2011 Actual | 2010 Actual | Variance | |
Net Sales (1) | $1,414 | $1,393 | 1.5% |
Operating Income (2) | 149 | 87 | 71.3% |
% of Sales | 10.5% | 6.3% | 430 bps |
EBITDA | 202 | 144 | 40.3% |
% of Sales | 14.3% | 10.3% | 400 bps |
Earnings Per Share (3) | $1.21 | $0.80 | 51.3% |
Free Cash Flow | 6 | 59 | (53) |
Net (Cash) Debt | 542 | (141) | 683 |
9
1H Sales and EBITDA by Segment - 2011 vs. 2010
Financial Overview
10
EBITDA Bridge - 1H 2011 versus Prior Year
Financial Overview
($13)
11
Key Metrics - Guidance 2011
Financial Overview
2011 Estimate Range | 2010 | Variance | |||||||
Net Sales(1) | 2,900 | to | 3,000 | 2,766 | 5% | to | 8% | ||
Operating Income(2) | 280 | to | 310 | 189 | 48% | to | 64% | ||
EBITDA | 385 | to | 415 | 303 | 27% | to | 37% | ||
Earnings Per Share(3) | $2.29 | to | $2.58 | $1.73 | 32% | to | 49% | ||
Free Cash Flow | 80 | to | 120 | 180 | (56%) | to | (33%) | ||
(1) Sales figures include foreign exchange impact.
(2) As reported Operating Income: $255- 285 million in 2011 and $81 million 2010.
(3) As reported earnings per share: $2.01 - $2.32 in 2011 and $0.19 in 2010.
12
$165 Million Savings Program
$165M savings from manufacturing and SG&A, net of inflation.
Manufacturing savings driven by plant closures and LEAN.
Manufacturing savings driven by plant closures and LEAN.
Cumulative Savings $35M $125M $165M
Financial Overview
13
2011 Financial Outlook
Financial Overview
¾ Raw Material & Energy Inflation* $50 - $60 million increase
¾ Manufacturing Productivity* Gross Margin +175 to +225 bps vs. 2010
¾ U.S. Pension Credit ~$25 million, down ~$25 million vs. 2010
60% manufacturing, 40% SG&A
60% manufacturing, 40% SG&A
¾ Earnings from WAVE $5 - $10 million vs. 2010
¾ Cash Taxes/ETR* ~$25 million. Adjusted ETR of 42%
¾ Q3 Sales $780 - $830 million
EBITDA $115 - $130 million
EBITDA $115 - $130 million
¾ Capital Spending ~$180-$200 million
¾ Exclusions from EBITDA* ~$18 - $22 million associated with already
announced actions
announced actions
* Changed from April Outlook
14
Appendix
15
1H 2011 - Adjusted EBITDA to Reported Net Income
Financial Overview Appendix
2011 | 2010 | V | |
EBITDA- Adjusted | $202 | $144 | $58 |
Depreciation and Amortization | (53) | (57) | 4 |
Operating Income - Adjusted | $149 | $87 | $62 |
Foreign Exchange Movements | (1) | - | (1) |
Cost Reduction Initiatives | (25) | (13) | (12) |
Accelerated Depreciation (not included above) | 9 | - | 9 |
Restructuring | (7) | - | (7) |
Impairments | - | (8) | 8 |
Operating Income - As Reported | $125 | $66 | $59 |
Interest (Expense) Income | (26) | (6) | (20) |
EBT | $99 | $60 | $39 |
Healthcare Reform- Medicare Subsidy Elimination | - | (22) | 22 |
Tax (Expense) Benefit | (48) | (31) | (17) |
Net Income | $51 | $7 | $44 |
16
Adjusted Operating Income to Free Cash Flow
Financial Overview Appendix
2011 Estimate Range | |||
Adjusted Operating Income | 280 | to | 310 |
D&A | 105 | ||
Adjusted EBITDA | 385 | to | 415 |
Changes in Working Capital | 5 | to | 25 |
Capex | (180) | to | (200) |
Pension Credit | (25) | ||
Interest Expense | (50) | ||
Cash Taxes | (25) | ||
Other, including cash payments for restructuring and one-time items | (30) | ||
Free Cash Flow | 80 | to | 120 |
17
Consolidated Results
Financial Overview Appendix
Second Quarter | ||||||||
2011 Reported | Comparability(1 ) Adjustments | FX(2) Adj | 2011 Adjusted | 2010 Reported | Comparability(1 ) Adjustments | FX(2) Adj | 2010 Adjusted | |
Net Sales | 749 | - | (16) | 733 | 725 | - | 8 | 733 |
Operating Income | 73 | 10 | (1) | 82 | 53 | 7 | - | 60 |
EPS | $0.64 | $0.07 | ($0.01) | $0.70 | $0.46 | $0.11 | $ - | $0.57 |
Full Year 2011 | ||||||||
2011 Reported | Comparability(1 ) Adjustments | FX(2) Adj | 2011 Adjusted | 2010 Reported | Comparability(1 ) Adjustments | FX(2) Adj | 2010 Adjusted | |
Net Sales | 1,434 | - | (20) | 1,414 | 1,384 | - | 9 | 1,393 |
Operating Income | 125 | 25 | (1) | 149 | 66 | 21 | - | 87 |
EPS | $0.87 | $0.35 | ($0.01) | $1.21 | $0.13 | $0.67 | $- | $0.80 |
(1) See earnings press release and 10-Q for additional detail on comparability adjustments
(2) Eliminates impact of foreign exchange movements
18
Segment Operating Income (Loss)
Financial Overview Appendix
(1) Eliminates impact of foreign exchange movements and non-recurring items; see earnings press release and 10-Q for additional detail.
Second Quarter | ||||||
2011 Reported | Comparability(1) Adjustments | 2011 Adjusted | 2010 Reported | Comparability(1) Adjustments | 2010 Adjusted | |
Building Products | 57 | 4 | 61 | 53 | 2 | 55 |
Resilient Flooring | 11 | 6 | 17 | 10 | 2 | 12 |
Wood Flooring | 14 | (1) | 13 | 1 | - | 1 |
Cabinets | 1 | - | 1 | - | - | - |
Unallocated Corporate (Expense) Income | (10) | - | (10) | (11) | 3 | (8) |
Full Year 2011 | ||||||
2011 Reported | Comparability(1) Adjustments | 2011 Adjusted | 2010 Reported | Comparability(1) Adjustments | 2010 Adjusted | |
Building Products | 119 | 10 | 129 | 95 | 2 | 97 |
Resilient Flooring | 10 | 14 | 24 | 5 | 1 | 6 |
Wood Flooring | 17 | (1) | 16 | (1) | 1 | - |
Cabinets | - | - | - | (4) | - | (4) |
Unallocated Corporate (Expense) Income | (21) | 1 | (20) | (29) | 17 | (12) |
19
Cash Flow
Financial Overview Appendix
Second Quarter | Full Year | |||
($-millions) | 2011 | 2010 | 2011 | 2010 |
Net Cash From Operations | 68 | 84 | 32 | 56 |
Plus / (Minus) Net Cash from Investing | (18) | 5 | (26) | 3 |
Equals Free Cash Flow | 50 | 89 | 6 | 59 |