1
Armstrong World
Industries
Investor Presentation
Industries
Investor Presentation
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
Company Overview
4
Armstrong at a Glance
Leading global manufacturer of floors and ceilings
for use in renovation and new construction.
Significant U.S. cabinets’ business.
for use in renovation and new construction.
Significant U.S. cabinets’ business.
¾ $2.8 billion in sales in 2010
§ Market leader in businesses representing 80% of sales
¾ Serving global customers from seven countries
¾ 31 manufacturing locations
¾ Approximately 9,300 employees
¾ Approximately $2.6 billion market capitalization
§ Strong balance sheet - $540 million of net debt
§ Significant NOL carry forward
¾ 58 million diluted shares outstanding
§ 300K average daily trading volume
§ 64% owned by Armstrong Asbestos Trust and Armor TPG
¾ ‘AWI’ on the NYSE
§ Since October 2006 emergence from asbestos-related bankruptcy
Company Overview
5
§Emerge from
bankruptcy
bankruptcy
§Initiate strategic
review and sale
process
review and sale
process
§Idle: Nashville
History
2006 2007 2008 2009 2010
Company Overview
$3.50B
$407M
11.6%
§Cancel Strategic
sale process
sale process
§Sell Desseaux textile &
sports flooring business
sports flooring business
•Sales
•EBITDA
$3.54B
$439M
12.4%
$3.21B
$384M
12.0%
$2.85B
$296M
10.4%
$2.83B
$303M
10.7%
§$250M special
dividend
dividend
§TPG invests in
Armstrong
Armstrong
§Idle: Montreal
Mobile
§Close: Auburn
Nashville
§New CEO and CFO
§Leverage recap.
and $800M special
dividend
and $800M special
dividend
§Investing in
emerging markets
emerging markets
§Announce $150M
cost out initiative
cost out initiative
§Close: St. Gallen
Oneida
Center
Montreal
Teeside
Housing starts
6
§Approve second
flooring plant in China
flooring plant in China
§New leader of
Ceilings business
Ceilings business
§Approve new ceilings
plant in China
plant in China
§Cost out initiative
raised to $165 million
raised to $165 million
§Idle: Statesville
§Close: Beaver Falls
Holmsund
Present / Future
2011 2012 2013 2014
Company Overview
§Competitive cost structure in place
§$165 million cost reduction initiative, ongoing LEAN efforts
§Fix underperforming businesses
§European flooring products profitable in 2012
§Dramatic growth in priority emerging markets
§Three new Chinese manufacturing facilities on-line
§Significant increase is sales and marketing resources across emerging markets
§Profitable growth in core markets
§Focus on product innovation, design and environmental leadership
§Build a winning team and a global organization
§Implement Organization Vitality and create a globally aligned organization
•Sales
•EBITDA
$2.85-2.95B
$385-$415M
~13.8%
ROIC > Cost of Capital
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Key Investment Highlights
¾ New senior leadership team to execute strategy
¾ $165M cost savings program to achieve competitive cost structure
¾ Investments in emerging markets to continue to win and maintain
market leader strategy
market leader strategy
¾ ROIC targets to return at least the cost of capital by 2013 with ~1M
housing starts
housing starts
¾ Efficient balance sheet and sufficient liquidity to manage operations,
execute capital spending and restructuring plans
execute capital spending and restructuring plans
Company Overview
8
2010 Business Segment and End-Use Profile
Majority of business is renovation - dampens cycles.
Company Overview
N.A. >75% renovation
¾ 9% of Sales from Emerging Markets
9
Business Segment Profile
Building Products delivers the bulk of worldwide income and has
remained profitable through the economic cycle.
remained profitable through the economic cycle.
2010 EBITDA
- Excludes unallocated corporate expense
Company Overview
10
Industry Structure/Competitive Position
U.S. Resilient | European Resilient | Hardwood | Building Products | Cabinets | |
Market Leadership | |||||
Competitor Concentration | |||||
Industry Capacity Utilization | |||||
Low-Cost Manufacturer |
Armstrong continuously focused on competitive dynamics.
Key | Favorable | Neutral | Unfavorable |
Company Overview
11
Business Segment Overview
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Worldwide Business Overview - Building Products
Worldwide market leader in suspended ceilings.
Business Segment Overview - Building Products
North America | ||
Mkt Size (B ft2) | AWI Rank | |
Commercial | 1.4 | 1 |
Residential | 0.4 | 1 |
Europe, Africa, Middle- East | ||
Mkt Size (B ft2) | AWI Rank | |
Western | 1.2 | 1 |
Eastern | 0.5 | 1 |
Africa / Mid- East | 0.3 | 1 |
Asia, Australia | ||
Mkt Size (B ft2) | AWI Rank | |
China | 0.2 | 1 |
Australia | <0.1 | 1 |
India | <0.1 | 1 |
SE Asia | <0.1 | 1 |
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ABP Key Strategies
1 | Broadest Product Portfolio |
¾ Complete product offering ¾ New product pipeline (Metal, Wood) ¾ Win versus soft fiber in Europe | |
2 | Emerging Market Growth |
¾ Plant #2 in China ¾ Distribution in Russia, Middle East ¾ Grid plant in India | |
Business Segment Overview - Building Products
4 | Best-in-Class Service/Quality |
¾ Best on-time delivery performance ¾ Lowest claims rate ¾ Best product availability | |
3 | Innovation Leadership |
¾ “Sustainability” leadership ¾ Custom solutions (Metal, Wood) ¾ Recycling program | |
14
Building Products (ABP) Sales by Geography
($-Millions)
Contribution of WAVE JV Profit to Operating Margin | 4% |
Worldwide EBITDA Margin | 22% |
Adding new engines to accelerate global growth.
Business Segment Overview - Building Products
¾ Global market leader
§ Broadest Product Line
§ Innovation
§ Go-to-Market
§ Best cost, quality, service
n >90% sales commercial
n Grid - 50/50 joint venture
Ceilings & Grid
¾ 15% of Sales from Emerging Markets
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Worldwide Business Overview - Floor Products *
Business Segment Overview - Worldwide Floor Products
Global presence with market leadership in most regions.
Asia, Australia | ||
Mkt Size (B ft2) | AWI Rank | |
China | 0.4 | 3 |
Australia | 0.1 | 2 |
India | <0.1 | 1 |
SE Asia | 0.1 | 1 |
Europe, Africa, Middle-East | ||
Mkt Size (B ft2) | AWI Rank | |
Central | 0.3 | 1 |
Eastern / Africa / Mid-East | 0.3 | 5 |
Western Europe | 0.9 | 4 |
North America | ||
Mkt Size (B ft2) | AWI Rank | |
Commercial | 1.0 | 1 |
Residential | 2.0 | 1 |
Wood | 0.6 | 1 |
* Market figures exclude segments in which we do not participate.
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AFP Key Strategies
Business Segment Overview - Worldwide Floor Products
1 | Best Product Portfolio |
¾ Offer broadest assortment ¾ Drive mix ¾ Quality leadership | |
2 | Complete Market Coverage |
¾ Brand leadership ¾ Merchandising presence ¾ Sales coverage effectiveness | |
3 | Low-Cost Manufacturing |
¾ Lean deployment ¾ Capability investment, e.g., glass, wood automation ¾ Rationalize footprint | |
4 | Innovation Leadership |
¾ Environmental solutions ¾ Design, performance, and installation | |
5 | Drive China Growth |
¾ Focus on market development ¾ Plant investments to support growth | |
6 | Restructure Europe |
¾ Exited Residential ¾ Simplify Commercial participation ¾ Cost-out … plants and SG&A | |
17
Floor Products (AFP) Sales by Geography
($-Millions)
Worldwide Adjusted EBITDA Margin excluding Europe | 5% 7% |
Continued profitability through bottom of residential downturn.
Business Segment Overview - Worldwide Floor Products
Resilient & Wood
Wood
Worldwide Resilient
¾ 4% of Sales from Emerging Markets
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European Floor Products
Commercial
87%
Residential
13%
2009 | |
Sales (1) | $330M |
EBITDA(2) | ($ 15M) |
Business Segment Overview - European Floor Products
(1) Includes intercompany sales, (2) Excludes restructuring expense
¾ Exited Residential segment
¾ Simplified Commercial business … country and product participation
¾ Closed Teesside and Holmsund plants
¾ SG&A restructuring … 38% decrease in headcount
EBITDA break even in 2011… Profitable in 2012.
2011 | |
Sales | $280M |
EBITDA(2) | $ 0M |
Commercial
100%
Transform the business
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Cabinets
¾ Small player…<5% share
¾ Focus on small-/medium-size builder
¾ Go-to-Market
Current Situation
2010 Sales = $150M
¾ Niche player… both new and remodel
¾ Restructure costs to reflect market reality
¾ Non-core business
Strategy
% of Sales | |
Company-Owned Service Centers | 51% |
Distribution | 27% |
Multi-Family | 22% |
Business Segment Overview - Cabinets
20
Financial Overview
21
Profitable and cash flow positive through downturn
¾ Focus on cost control / productivity
¾ Strong free cash flow
¾ ROIC greater than cost of capital in 2013, with new home starts at
one million
one million
¾ Continuing to fully invest in businesses
¾ Strong balance sheet: leverage, liquidity and maturity profile
¾ Overfunded US pension plan
¾ Positioned for considerable operational leverage on modest market
recovery
recovery
Financial Summary
Financial Overview
22
Figures rounded to nearest $5 million
Financial Overview
Cost reduction and improved price / mix significantly offset
dramatic volume declines.
dramatic volume declines.
EBITDA Bridge (2006-2009)
23
(Millions)
Figures rounded to nearest $1 million
Financial Overview
Cost reduction offsets volume and input cost headwinds.
EBITDA Bridge (2009-2010)
24
EBITDA Bridge -1H 2011 versus Prior Year
Financial Overview
($13)
25
$165 Million Savings Program
$165M savings from manufacturing and SG&A, net of inflation.
Manufacturing savings driven by plant closures and LEAN.
Cumulative Savings $35M $125M $165M
Financial Overview
26
Balance Sheet 6/30/2011
(2%)
(14%)
Financial Overview
$580
(Millions)
Maturity Profile
¾ No significant maturities until 2015
¾ Considerable covenant flexibility
Liquidity
¾ Sufficient liquidity to manage
operations, and execute capital
spend and restructuring plans
operations, and execute capital
spend and restructuring plans
27
Financial Overview Appendix
28
Key Metrics - Guidance 2011
Financial Overview Appendix
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.
Guidance provided as of August 1, 2011.
We undertake no obligation to update guidance, beyond what is required by securities law.
29
2011 Financial Outlook
Financial Overview Appendix
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
30
Full Year 2010 - Adjusted Operating Income to
Reported Net Income
Financial Overview Appendix
2010 | 2009 | V | |
Operating Income - Adjusted | $188 | $157 | $31 |
Foreign Exchange Movements | 2 | - | 2 |
Laminate Duty Refund | 7 | - | 7 |
Cost Reduction Initiatives | (50) | (16) | (34) |
Asset Impairments | (31) | (18) | (13) |
Restructuring | (22) | - | (22) |
Executive Transition | (15) | - | (15) |
Gain on Settlement of Note Receivable | 2 | - | 2 |
Accelerated Vesting | - | (32) | 32 |
Operating Income - As Reported | $81 | $91 | ($10) |
Interest (Expense) Income | (14) | (16) | 2 |
EBT | $67 | $75 | ($8) |
Tax (Expense) Benefit | (56) | 3 | (59) |
Net Income | $11 | $78 | ($67) |