Earnings Call Presentation
3rd Quarter 2011
3rd Quarter 2011
October 31, 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 of 1995. 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," and other words of phrases of similar meaning in
connection with any discussion of future operating or financial performance. 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. Forward-
looking statements speak only as of the date they are made. 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 of 1995. 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," and other words of phrases of similar meaning in
connection with any discussion of future operating or financial performance. 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. Forward-
looking statements speak only as of the date they are made. 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 are
included within this presentation and 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 are
included within this presentation and 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 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 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 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 - Third Quarter 2011
Financial Overview
(1) As reported Net Sales: $774 million in 2011 and $740 million in 2010.
(2) As reported Operating Income: $93 million in 2011 and $45 million in 2010
(3) As reported EPS: $0.89 in 2011 and $0.42 in 2010.
2011 Actual | 2010 Actual | Variance | |
Net Sales (1) | $757 | $752 | 0.7% |
Operating Income (2) | 97 | 83 | 16.9% |
% of Sales | 12.8% | 11.0% | 180 bps |
EBITDA | 124 | 112 | 10.7% |
% of Sales | 16.4% | 14.9% | 150 bps |
Earnings Per Share (3) | $0.86 | $0.82 | 4.9% |
Free Cash Flow | 73 | 79 | (6) |
Net (Cash) Debt | 467 | (236) | 703 |
4
Third Quarter 2011 - Adjusted EBITDA to Reported Net Income
Financial Overview
2011 | 2010 | V | |
EBITDA- Adjusted | $124 | $112 | $12 |
Depreciation and Amortization | (27) | (29) | 2 |
Operating Income - Adjusted | $97 | $83 | $14 |
Foreign Exchange Movements | 2 | (1) | 3 |
Cost Reduction Initiatives | (3) | (7) | 4 |
Laminate Duty Refund | - | 7 | (7) |
Accelerated Depreciation (not included above) | - | (20) | 20 |
CEO transition costs | - | (2) | 2 |
Restructuring | (1) | (15) | 14 |
Impairments | (2) | - | (2) |
Operating Income - As Reported | $93 | $45 | $48 |
Interest (Expense) Income | (10) | - | (10) |
EBT | $83 | $45 | $38 |
Tax (Expense) Benefit | (30) | (20) | (10) |
Net Income | $53 | $25 | $28 |
5
Third Quarter Sales and EBITDA by Segment - 2011 vs. 2010
Financial Overview
6
EBITDA Bridge - Third Quarter 2011 versus Prior Year
Financial Overview
($9)
7
Free Cash Flow - Third Quarter 2011 versus Prior Year
Financial Overview
8
Key Metrics - September YTD 2011
Financial Overview
(1) As reported Net Sales: $2,207 million in 2011 and $2,124 million in 2010.
(2) As reported Operating Income: $218 million in 2011 and $111 million in 2010
(3) As reported EPS: $1.75 in 2011 and $0.55 in 2010.
2011 Actual | 2010 Actual | Variance | |
Net Sales (1) | $2,172 | $2,145 | 1.3% |
Operating Income (2) | 246 | 170 | 44.7% |
% of Sales | 11.3% | 7.9% | 340 bps |
EBITDA | 325 | 256 | 27.0% |
% of Sales | 15.0% | 11.9% | 300 bps |
Earnings Per Share (3) | $2.07 | $1.61 | 28.6% |
Free Cash Flow | 79 | 137 | (58) |
Net (Cash) Debt | 467 | (236) | 703 |
9
September YTD Sales and EBITDA by Segment - 2011 vs. 2010
Financial Overview
10
EBITDA Bridge - September YTD 2011 versus Prior Year
Financial Overview
($22)
11
Key Metrics - Guidance 2011
Financial Overview
2011 Estimate Range | 2010 | Variance | |||||||
Net Sales(1) | 2,850 | to | 2,900 | 2,766 | 3% | to | 5% | ||
Operating Income(2) | 275 | to | 295 | 189 | 46% | to | 56% | ||
EBITDA | 380 | to | 400 | 303 | 25% | to | 32% | ||
Earnings Per Share(3) | $2.25 | to | $2.45 | $1.73 | 30% | to | 42% | ||
Free Cash Flow | 80 | to | 120 | 180 | (56%) | to | (33%) | ||
(1) Sales figures include foreign exchange impact.
(2) As reported Operating Income: $235- 255 million in 2011 and $81 million 2010.
(3) As reported earnings per share: $1.86- $2.06 in 2011 and $0.19 in 2010.
12
2011 Financial Outlook
Financial Overview
¾ Raw Material & Energy Inflation $50 - $60 million increase
¾ Manufacturing Productivity* Gross Margin +150 to +200 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 Q4 Sales $645 - $695 million
EBITDA $55 - $75 million
EBITDA $55 - $75 million
¾ Capital Spending* ~$150-$170 million
¾ Exclusions from EBITDA* ~$22 - $25 million associated with already
announced actions
announced actions
* Changed from July Outlook
13
Appendix
14
September YTD- Adjusted EBITDA to Reported Net Income
Financial Overview Appendix
2011 | 2010 | V | |
EBITDA- Adjusted | $325 | $256 | $69 |
Depreciation and Amortization | (79) | (86) | 7 |
Operating Income - Adjusted | $246 | $170 | $76 |
Foreign Exchange Movements | 3 | (2) | 5 |
Cost Reduction Initiatives | (12) | (9) | (3) |
Laminate Duty refunds | - | 7 | (7) |
Accelerated Depreciation (not included above) | (9) | (19) | 10 |
CEO transition costs | - | (13) | 13 |
Restructuring | (8) | (15) | 7 |
Impairments | (2) | (8) | 6 |
Operating Income - As Reported | $218 | $111 | $107 |
Interest (Expense) Income | (36) | (6) | (30) |
EBT | $182 | $105 | $77 |
Healthcare Reform- Medicare Subsidy Elimination | - | (22) | 22 |
Tax (Expense) Benefit | (78) | (51) | (27) |
Net Income | $104 | $32 | $72 |
15
Adjusted Operating Income to Free Cash Flow
Financial Overview Appendix
2011 Estimate Range | |||
Adjusted Operating Income | 275 | to | 295 |
D&A | 105 | ||
Adjusted EBITDA | 380 | to | 400 |
Changes in Working Capital | (10) | to | 10 |
Capex | (150) | to | (170) |
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 |
16
Consolidated Results
Financial Overview Appendix
Third Quarter | ||||||||
2011 Reported | Comparability(1) Adjustments | FX(2) Adj | 2011 Adjusted | 2010 Reported | Comparability(1) Adjustments | FX(2) Adj | 2010 Adjusted | |
Net Sales | 774 | - | (17) | 757 | 740 | - | 12 | 752 |
Operating Income | 93 | 6 | (2) | 97 | 45 | 37 | 1 | 83 |
EPS | $0.89 | ($0.02) | ($0.01) | $0.86 | $0.42 | $0.40 | $ - | $0.82 |
September YTD | ||||||||
2011 Reported | Comparability(1) Adjustments | FX(2) Adj | 2011 Adjusted | 2010 Reported | Comparability(1) Adjustments | FX(2) Adj | 2010 Adjusted | |
Net Sales | 2,207 | - | (35) | 2,172 | 2,124 | - | 21 | 2,145 |
Operating Income | 218 | 31 | (3) | 246 | 111 | 59 | - | 170 |
EPS | $1.75 | $0.34 | ($0.02) | $2.07 | $0.55 | $1.06 | $- | $1.61 |
(1) See earnings press release and 10-Q for additional detail on comparability adjustments
(2) Eliminates impact of foreign exchange movements
17
Segment Operating Income (Loss)
Financial Overview Appendix
(1) Eliminates impact of foreign exchange movements and non-recurring items; see earnings press release and 10-Q for additional detail.
Third Quarter | ||||||
2011 Reported | Comparability(1) Adjustments | 2011 Adjusted | 2010 Reported | Comparability(1) Adjustments | 2010 Adjusted | |
Building Products | 72 | 1 | 73 | 59 | 10 | 69 |
Resilient Flooring | 11 | 4 | 15 | 10 | 14 | 24 |
Wood Flooring | 17 | - | 17 | (13) | 11 | (2) |
Cabinets | 2 | - | 2 | (1) | - | (1) |
Unallocated Corporate (Expense) Income | (9) | - | (9) | (10) | 4 | (6) |
September YTD | ||||||
2011 Reported | Comparability(1) Adjustments | 2011 Adjusted | 2010 Reported | Comparability(1) Adjustments | 2010 Adjusted | |
Building Products | 191 | 11 | 202 | 155 | 11 | 166 |
Resilient Flooring | 21 | 18 | 39 | 15 | 15 | 30 |
Wood Flooring | 34 | (1) | 33 | (14) | 12 | (2) |
Cabinets | 2 | - | 2 | (6) | 1 | (5) |
Unallocated Corporate (Expense) Income | (30) | - | (30) | (39) | 20 | (19) |
18
Cash Flow
Financial Overview Appendix
Third Quarter | September YTD | |||
($ millions) | 2011 | 2010 | 2011 | 2010 |
Net Cash From Operations | 98 | 85 | 130 | 141 |
Less: Net Cash from Investing | (25) | (6) | (51) | (4) |
Equals Free Cash Flow | 73 | 79 | 79 | 137 |