Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ ☐No No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter time period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the Common Stock of Armstrong World Industries, Inc. held by non-affiliates based on the closing price ($~~97.20~~74.96 per share) on the New York Stock Exchange (trading symbol AWI) as of June ~~28, 2019~~30, 2022 was approximately ~~$4.7~~$3.4 billion. As of February ~~18, 2020,~~15, 2023, the number of shares outstanding of the registrant's Common Stock was ~~47,987,627.~~45,438,268.

Armstrong World Industries, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (this “Form 10-K/A”) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed on February 25, 2020 (the “Original Form 10-K”). The Company is filing this Form 10-K/A to label our financial statements for the year ended December 31, 2017 as restated and provide additional disclosures on discontinued operations and internal controls.

During the second quarter of 2019, we discovered a $35.2 million error in our estimated loss on sale of our international operations that initially should have been recorded in the fourth quarter of 2017. This error was corrected and disclosed in our Form 10-Q for the second quarter of 2019 as a correction of an immaterial error that occurred in 2017. Within our Form 10-K for the year ended December 31, 2019, we provided adjusted 2017 financial statements to reflect the revised financial statements as a correction of an immaterial error.

Based on discussions with the staff of the Securities and Exchange Commission in 2020 and further evaluation, we have determined that the error identified during the second quarter of 2019 was material to the 2017 financial statements.

Accordingly, we are filing this Form 10-K/A to correct the Consolidated Statements of Earnings and Comprehensive Income, Consolidated Statements of Shareholders’ Equity and Consolidated Statements of Cash Flows to label the 2017 fiscal year as Restated.

~~Since the amounts in these statements were already corrected in the Original Form 10-K, no numbers have changed.~~

We are also revising our disclosures in Item 6 – Selected Financial Data, Note 2 – Summary of Significant Accounting Policies, Note 7 – Discontinued Operations and Item 9A – Controls and Procedures to not refer to the correction of an immaterial error and to discuss the material weakness in internal controls that resulted in the material error. We have added Note 3 – Restatement of Previously Issued Financial Statements to present the restated amounts in a separate footnote, as the information was previously included in Note 2 in the Original Form 10-K. In adding Note 3, footnote references have been updated throughout this filing. Our independent accountant, KPMG LLP, has also revised its audit opinion accordingly. We are also revising Item 15 – Exhibits and Financial Statement Schedules to include an updated consent from KPMG LLP and updated Certifications of our Chief Executive and Chief Financial Officers required by rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act and Rule 13a and 18 U.S.C. Section 1350.

~~Except as described above, no other changes have been made to the Original Form 10-K, nor does this Form 10-K/A reflect events occurring after the date of the Original Form 10-K.~~

When we refer to “AWI,” the “Company,” “we,” “our” and “us”, we are referring to Armstrong World Industries, Inc. and its subsidiaries.

Certain statements in this Annual Report on Form 10-K and the documents incorporated by reference may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, our expectations concerning our ~~residential and commercial~~ markets and their effect on our operating results; the impacts of COVID-19 on our business; our expectations regarding the payment of dividends; and our ability to increase revenues, earnings and earnings before interest, taxes, depreciation and amortization (as discussed below). Words such as “anticipate,” “expect,” “intend,” “plan,” “target,” “project,” “predict,” “believe,” “may,” “will,” “would,” “could,” “should,” “seek,” “estimate” and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors that could have a material adverse effect on our financial condition, liquidity, results of operations or future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to:

Such forward-looking statements speak only as of the date they are made. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

Armstrong World Industries, Inc. (“AWI” or the “Company”) is a Pennsylvania corporation incorporated in 1891. When we refer to “we,” “our” and “us” in this report, we are referring to AWI and its subsidiaries.

~~We are~~
AWI is a ~~leading producer of ceiling systems for use~~leader in the ~~construction~~design, innovation and ~~renovation~~manufacture of ~~commercial and residential buildings. We design, manufacture and sell~~ ceiling and wall ~~systems (primarily~~solutions in the Americas. Our products primarily include mineral fiber, fiberglass wool, metal, wood, wood fiber, glass-reinforced-gypsum and ~~felt) throughout the Americas.~~

~~In November 2019, we acquired the business and assets of MRK~~felt. We also manufacture ceiling suspension system (grid) products through a joint venture with Worthington Industries, Inc. (“~~MRK”~~Worthington”)~~, based~~ called Worthington Armstrong Venture (“WAVE”).

Our operating segments are as follows: Mineral Fiber, Architectural Specialties and Unallocated Corporate.

Mineral Fiber – produces suspended mineral fiber and soft fiber ceiling systems. Our mineral fiber products offer various performance attributes such as acoustical control, rated fire protection, aesthetic appeal, and health and sustainability features. Ceiling products are sold to resale distributors, ceiling systems contractors and 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 ~~Libertyville, Illinois. MRK is a manufacturer~~the joint venture. Ceiling component products consist of ~~specialty metal~~ ceiling ~~wall~~perimeters and ~~exterior solutions with one manufacturing facility. MRK’s operations, and~~trim, in addition to grid products that support drywall ceiling systems. 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 ~~are included as a component of~~not specifically allocated to our Architectural Specialties ~~segment.~~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, designs and ~~assets of Architectural Components Group, Inc. (“ACGI”), based in Marshfield, Missouri. ACGI is a manufacturer of custom wood~~sources ceilings and walls ~~with one manufacturing facility. ACGI’s operations,~~for use in commercial settings. Products are available in numerous materials, such as metal, felt 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, premium and customized products, a portion of which are derived from sourced products. Architectural Specialties products are sold primarily to resale distributors and direct customers, primarily ceiling systems contractors. The majority of this segment's 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 certain assets, liabilities, income and ~~liabilities, are included as a component~~expenses that have not been allocated to our other business segments and consists of: cash and cash equivalents, the net funded status of our ~~Architectural Specialties segment.~~

~~In August 2018, we acquired~~U.S. Retirement Income Plan (“RIP”), the ~~business~~estimated fair value of interest rate swap contracts, outstanding borrowings under our senior secured credit facility and ~~assets of Steel Ceilings, Inc.~~income tax balances. Our Unallocated Corporate segment also includes all expenses related to our German defined benefit pension plan that was formerly reported in our Europe, Middle East and Africa (including Russia) (“~~Steel Ceilings”~~EMEA”)~~, based~~ and Pacific Rim segments and was not included in Johnstown, Ohio. Steel Ceilings is a manufacturer of aluminum and stainless metal ceilings that include architectural, radiant and security solutions with one manufacturing facility. Steel Ceilings’ operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.

~~In May 2018, we acquired~~ the business and assets of Plasterform, Inc. (“Plasterform”), based in Mississauga, Ontario, Canada. Plasterform is a manufacturer of architectural cast ceilings, walls, facades, columns and moldings with one manufacturing facility. Plasterform’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.

~~In January 2017, we acquired the business and assets of Tectum, Inc. (“Tectum”), based in Newark, Ohio. Tectum is a~~ ~~manufacturer of acoustical ceiling, wall and structural solutions for commercial building applications with two manufacturing facilities.~~ ~~Tectum’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.~~

~~On September 30, 2019, we completed the previously announced~~ sale of certain subsidiaries comprising our businesses and operations in ~~Europe, the Middle East and Africa (including Russia) (“EMEA”)~~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~~WAVE (collectively, the “Sale”), to Knauf International GmbH (“Knauf”)~~. The purchase price of $330.0 million was previously paid by Knauf to us during the third quarter of 2018 and is subject to certain post-closing adjustments for cash and debt as provided~~ in ~~the Share Purchase Agreement dated as of November 17, 2017, by and between us and Knauf (the “Purchase Agreement”), including adjustments based~~2019.

Our business has been built on ~~the economic impact of any required regulatory remedies and~~providing high-quality, innovative products through a ~~working capital adjustment.~~

On July 18, 2018, we entered into an amendment to the Purchase Agreement, pursuant to which Knauf irrevocably and unconditionally paid AWI (i) $250.0 million of the purchase price on August 1, 2018, and (ii) $80.0 million of the purchase price on September 15, 2018, which payments were credited against the aggregate consideration payable at closing. The amendment also provided for the reduction (from a maximum of $35.0 million to a maximum of $20.0 million) of potential adjustments to the purchase price consideration for the transaction based on the impact of remedies required to satisfy competition conditions. Following receipt of these payments, we remitted $70.0 million to WAVE in partial consideration of the purchase price payable in respect of the businesses and operations of WAVE under the transaction. WAVE subsequently paid each of AWI and Worthington a dividend of $35.0 million. We have recorded a $25.9 million payable to WAVE for their remaining portion of the proceeds from Knauf, which is reflected within Accounts payable and accrued expenses in the Consolidated Balance Sheets as of December 31, 2019. The transaction and final gain or loss amounts are subject to finalization of customary working capital and other adjustments, as provided in the Purchase Agreement. For the year ended December 31, 2019, payments to Knauf included $61.0 million of adjustments to cash consideration, estimated working capital adjustments and remedies, offset by $13.1 million of additional cash in international WAVE entities.

third party of certain mineral fiber and grid businesses and operations in Austria, Estonia, Germany, Ireland, Italy, Latvia, Lithuania, Portugal, Spain, Turkey and the United Kingdom (“UK”). This included our sales operations in each of the relevant countries,highly focused service model as well as ~~our production facilities,~~by maintaining strong brand awareness and ~~those of WAVE, located in Team Valley, UK.~~

On May 23, 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 during the period between March 18, 2019 and September 30, 2020.

~~On September 23, 2019, the European Commission approved the Sale, as well as the terms of the sale of the divestment business by Knauf and the identity of the purchaser.~~

In connection with the closing of the Sale, we also entered into (i) an intellectual property License Agreement with Knauf for its benefit (and, under sublicense, to the buyer of the divestment business) under which they license certain patents, trademarks and know-how from us for use in certain licensed territories, 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 EMEA and Pacific Rim segment historical financial results through September 30, 2019 have been reflected in AWI’s Consolidated Statements of Earnings and Comprehensive Income as discontinued operations for all periods presented, while the assets and liabilities of discontinued operations have been removed from AWI’s Consolidated Balance Sheet as of December 31, 2019.

~~See Notes 6 and 7 to the Consolidated Financial Statements for additional information related to our acquisitions and discontinued operations.~~

trust. We are ~~focused on driving~~committed to delivering profitable topline growth and sustainable shareholder value by ~~consistently delivering profitable~~strengthening our core Mineral Fiber segment and expanding our Architectural Specialties segment into new, adjacent business categories and sectors. Through this strategy, we have delivered consistent growth in mineral fiber sales ~~and earnings growth, while maintaining a balanced approach to capital allocation. Through~~dollars per unit sold through product innovation, including our ~~expanding architectural specialties offerings, bolstered by our acquisitions of Tectum, Plasterform, Steel Ceilings, ACGI and MRK, our innovative core ceilings portfolio, including our~~Healthy Spaces products, Total Acoustics® solutions and Sustain® family of products, and ~~digitally enabled systems~~we have built a broad portfolio of architectural specialties products for ceilings and ~~tools,~~walls in our markets. Our primary focus is on growth initiatives that further leverage innovation and digitalization (including the movement toward healthier and sustainable indoor environments in order to accelerate renovation), in addition to expansion of our Architectural Specialties segment through acquisitions, and overall strong cash flow generation.

In November 2022, we acquired the business and assets of GC Products, Inc. (“GC Products”), based in Lincoln, CA. GC Products is a designer and manufacturer of glass-reinforced-gypsum, glass-reinforced-cement, molded ceiling and specialty wall products with one manufacturing facility.

In December 2020, we acquired all the issued and outstanding equity of Arktura LLC (“Arktura”) and certain subsidiaries with operations in the United States and Argentina. Arktura is a designer and fabricator of metal and felt ceilings, walls, partitions and facades with one manufacturing facility based in Los Angeles, California.

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.

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.

The operations, assets and liabilities of these acquisitions are ~~expanding~~included in our ~~capabilities to sell into more spaces and sell more into every space.~~ Architectural Specialties segment.

We primarily operate in the United States, Canada and Latin America. We believe we are well positioned in the industry sectors and categories in which we operate, often holding a leadership position. Our products compete against mineral fiber and fiberglass products from other manufacturers, as well as drywall and a wide range of specialty ceiling products. We compete directly with other domestic and international suppliers of these products. The major markets in which we compete are:

Commercial Construction. Our revenue opportunities come from new construction as well as renovation of existing buildings. ~~Renovation work (also known as replacement/remodel) is estimated to represent the majority of the commercial market opportunity.~~ Most of our revenue comes from the following sectors of commercial construction – office, education, transportation, healthcare ~~government~~ and retail. We monitor U.S. construction starts and project activity. Our revenue from new construction can lag behind construction starts by as much as ~~18 to~~ 24 months. We also monitor office vacancy rates, the Architecture Billings Index, state and local government spending, gross domestic product (“GDP”) and general employment levels, which can indicate movement in renovation and new construction opportunities. We believe that these statistics, taking into account the time-lag effect, provide a reasonable indication of our future revenue opportunity from commercial renovation and new construction. Additionally, we believe that customer preferences for product type, style, color, performance attributes (such as acoustics, sustainability and ~~sustainability)~~health attributes), availability, affordability and ease of installation also affect our revenue.

In our Mineral Fiber segment, we estimate that a majority of our commercial construction market sales are used for existing building renovation purposes by end-users of our products. We differentiate renovation opportunities between major renovation projects, which tend to be larger in scope, versus repair projects that generally involve the replacement of old products with new. In our Architectural Specialties segment, we estimate that a majority of our commercial market sales are used for new building construction ~~and remodel purposes~~ by end-users of our products. The end-use of our products is based on management estimates as such information is not easily determinable.

Residential Construction. WeWhile a smaller portion of our business, we also sell mineral fiber products for use in single and multi-family housing. We estimate that existing home renovation work represents the majority of the residential construction market opportunity. Key U.S. statistics that indicate market opportunity include existing home sales (a key indicator for renovation opportunity), housing starts, housing completions, home prices, interest rates and consumer confidence.

We use our reputation, capabilities, service, innovation and brand recognition to develop long-standing relationships with our customers. We principally sell commercial products to building materials distributors, who re-sell our products to contractors, subcontractors’ alliances, large architect and design firms, and major facility owners. We have important relationships with national home centers such as Lowe’s Companies, Inc. and The Home Depot, Inc., with wholesalers who re-sell our products to dealers who service builders, ~~contractors~~ and ~~consumers, and also with~~direct customers, which include sales to contractors, architects and designers who specify products.

~~Approximately 73%~~In 2022, approximately 70% of our consolidated net sales ~~are~~were to distributors. Sales to large home centers ~~account~~accounted for ~~slightly less than~~nearly 10% of our consolidated net sales. Our remaining sales ~~are~~were primarily to direct customers and retailers.

Gross sales to ~~two commercial~~ distributors ~~totaling $428.7~~Foundation Building Materials, Inc. and GMS, Inc. totaled $547.8 million ~~included within our Mineral Fiber~~ and ~~Architectural Specialties segments,~~ individually exceeded 10% of our consolidated gross sales in ~~2019.~~ 2022. Sales to these customers contributed to both our Mineral Fiber and Architectural Specialties segment net sales.

We produce goods for inventory and sell on credit to our customers. Generally, our distributors carry inventory as needed to meet local or rapid delivery requirements. We sell our products to select, pre-approved customers using customary trade terms that allow for payment in the future. These practices are typical within the industry.

The markets in which our products are sold are highly competitive. Principal attributes of competition include product performance, product styling, service and price. Competition comes from both domestic and international manufacturers. Additionally, some of our products compete with alternative products or finishing solutions, namely, drywall and exposed structure (also known as open plenum). Excess industry capacity exists for certain products, which tends to increase price competition. The following companies are our primary competitors:

CertainTeed Corporation (a subsidiary of Saint-Gobain), Chicago Metallic Corporation (owned by Rockwool International A/S), Georgia-Pacific Corporation, Rockfon A/S (owned by Rockwool International A/S), USG Corporation (owned by Gebr. Knauf KG), Ceilings Plus (owned by USG Corporation), Hunter Douglas, Rulon International, and 9Wood.

We purchase raw materials from numerous suppliers worldwide in the ordinary course of business. The principal raw materials ~~include: clays,~~are fiberglass, perlite, recycled paper and starch. Other raw materials include clays, felt, pigment, ~~starch, waste paper,~~ wood and wood fiber. We manufacture most of ~~the production needs for~~our mineral wool needs at one of our manufacturing facilities. Finally, we use aluminum and steel in the production of metal ceilings by us and by WAVE, our joint venture that manufactures ~~ceiling grid.~~grid products.

We also purchase significant amounts of packaging materials and consume substantial amounts of energy, such as electricity and natural gas, and water.

In general, adequate supplies of raw materials are available to all of our operations. However, availability can change for a number of reasons, including environmental conditions, laws and regulations, shifts in demand by other industries competing for the same materials, transportation disruptions and/or business decisions made by, or events that affect, our suppliers. There is no assurance that these raw materials will remain in adequate supply to us.

Prices for certain high usage raw materials can fluctuate dramatically. Cost increases for these materials can have a significant adverse impact on our manufacturing costs. Given the competitiveness of our markets, we may not be able to recover the increased manufacturing costs through increasing selling prices to our customers.

Some of the products ~~that~~ we sell are sourced from third parties. Our primary sourced products include specialty ceiling products. We purchase some of our sourced products from suppliers that are located outside of the U.S., primarily from Europe and the Pacific Rim. Sales of sourced products represented approximately ~~12%~~10% of our total consolidated revenue in ~~2019.~~2022.

In general, we believe we have adequate supplies of sourced products. However, we cannot guarantee that the supply will remain adequate.

Generally, our sales tend to be stronger in the second and third quarters of our fiscal year due to more favorable weather conditions, customer business cycles and the timing of renovation and new construction.

Patent protection is important to our business. Our competitive position has been enhanced by patents on products and processes developed or perfected within AWI or obtained through acquisitions and licenses. In addition, we benefit from our trade secrets for certain products and processes.

Patent protection extends for varying periods according to the date of patent filing or grant and the legal term of a patent in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies. Although we consider that, in the aggregate, our patents, licenses and trade secrets constitute a valuable asset of material importance to our business, we do not believe we are materially dependent upon any single patent or trade secret, or any group of related patents or trade secrets.

Certain of our trademarks, including without limitation,

, Armstrong®, ~~ACOUSTIBuilt™~~24/7 Defend™, ~~Airtite™~~ACOUSTIBuilt®, AirAssure®, Airtite®, Arktura®, Calla®, Cirrus®, Cortega®, ~~DESIGNFlex™~~DESIGNFlex®, Dune™, Feltworks®, Humiguard®, Infusions®, InvisAcoustics™, Kanopi™, Lyra®, MetalWorks™, Moz™, Optima®, Plasterform™, Soundscapes®, Sustain®, Tectum®, Total Acoustics®, Turf®, Ultima®, and WoodWorks®, are important to our business because of their significant brand name recognition. Registrations are generally for fixed, but renewable, terms.

In connection with the separation and distribution of our former flooring business into a separate publicly-traded company, Armstrong Flooring, Inc. (“AFI”), in 2016, we entered into several agreements with AFI that, together with a plan of division, provided for the separation and allocation of assets between AWI and AFI. These agreements include a Trademark License Agreement and a Transition Trademark License Agreement. Pursuant to the Trademark License Agreement, AWI provided AFI with a perpetual, royalty-free license to utilize the “Armstrong” trade name and logo. Pursuant to the Transition Trademark License Agreement, AFI provided us with a ~~five-year~~ royalty-free license to utilize the “Inspiring Great Spaces” tagline, logo and related color ~~scheme.~~scheme, which expired December 31, 2022. Further, in 2022, as part of the AFI bankruptcy and with AWI consent, all rights, obligations and protections that existed as part of the arrangement with AFI were transferred to AHF Products in North America, Zhejiang GIMIG Tech Co., Ltd. in China, and to Braeside Mills Investments Pty Ltd in Australia/New Zealand. None of these transactions had or are expected to have any material impact on the integrity of the Armstrong trademark.

In connection with the closing of the Sale of our businesses and operations in EMEA and Pacific Rim to Knauf, we entered into ana royalty-free intellectual property License Agreement with Knauf for its benefit (and, under sublicense, to the ~~buyer~~buyers of ~~the divestment business)~~certain businesses divested by Knauf) under which they license certain patents, trademarks and know-how from us for use in certain licensed territories.

We review the carrying value of indefinite-lived trademarks at least annually for potential impairment. See the “Critical Accounting Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K for further information.

As of December 31, 2019, we had approximately 2,500 full time and part time employees. As of December 31, 2018, we had approximately 4,000 full-time and part-time employees, including 1,800 employees as part of our EMEA and Pacific Rim businesses. These employees were retained by Knauf and/or the buyer of the divestment business as a result of the Sale. The increase in employees, after taking into account the attrition from the Sale, is primarily attributable to the acquisitions of ACGI and MRK during 2019.

As of December 31, 2019, approximately 62% of our approximately 1,300 production employees in the U.S. were represented by labor unions. A collective bargaining agreement covering approximately 230 employees at one U.S. plant will expire during 2020. We believe that our relations with our employees are satisfactory.

Research and development (“R&D”) activities are important and necessary in helping us improve our products’ competitiveness. Principal R&D functions include the development and improvement of products and manufacturing processes.

As a leading building products manufacturer, we are committed to operating sustainably across all areas of our business. This commitment is reflected in our ongoing initiatives to design and develop sustainable ceiling and wall products and solutions for every indoor space. Our sustainability focus reflects our mission to make a difference in the lives of people where they live, work, learn, heal and play. Our approach to sustainability is designed to support our strategic priorities, align with stakeholder interests, and be visible and measurable.

Our sustainability program is organized around three program “pillars”: People, Planet and Product.

Under the People pillar, we are broadly focused on creating a safe working environment for our employees, increasing our engagement in the communities where we operate, evaluating our benefits and compensation structure for all levels of the organization, promoting and maintaining a diverse, talented and growing workforce, and encouraging and protecting human rights.

Our Planet pillar broadly focuses on reducing our greenhouse gas footprint, reducing or reclaiming water in our operations, and reducing waste in our operations. These efforts include our ceilings recycling program, which diverts reclaimed ceiling tiles from landfills, and reducing our environmental operating footprint. Additionally, we are committed to complying with all environmental laws and regulations that are applicable to our operations.

Under the Product pillar, we are broadly focused on ensuring our products are free of chemicals of concern, reducing our products’ water and greenhouse gas footprint, improving the circularity of our products so they can be recycled, reused or repurposed, and

continuing to invest in solutions that meet customer demand for building products that align with their sustainability goals. We expect that there will be increased demand over time for products, systems and services that meet evolving regulatory and customer sustainability standards and preferences and decreased demand for products that produce significant greenhouse gas emissions. We also believe that our ability to continue to provide these products, systems and services to our customers, including through our Sustain® portfolio, will be necessary to maintain our competitive position in the marketplace.

The adoption of environmentally responsible building codes and standards such as the Leadership in Energy and Environmental Design (“LEED”) rating system established by the U.S. Green Building Council, has the potential to increase demand for products, systems and services that contribute to building sustainable spaces. Many of our products meet the requirements for the award of

LEED credits, and we are continuing to develop new products, systems and services to address market demand for products that enable construction of buildings that require fewer natural resources to build, operate and maintain. Our competitors also have developed and introduced to the market products with an increased focus on sustainability.

In 2022, we published our second Sustainability Report, which reaffirms and measures our progress towards achieving our 2030 sustainability goals. We expect ~~that there~~to update our progress regularly. The report is available in the "Sustainability" section of our website, which is listed below. Information in the 2022 Sustainability Report or the Company's website is not incorporated herein by reference.

Workforce Demographics. As of December 31, 2022 and 2021, we had approximately 3,000 and 2,800 full time and part time employees, respectively. During 2022, our total voluntary and involuntary turnover rates were approximately 12% and 2%, respectively, for non-production employees and 20% and 5%, respectively, for production employees.

As of December 31, 2022, approximately 55% of our approximately 1,400 production employees in the U.S. were represented by labor unions. Collective bargaining agreements covering approximately 200 employees at one U.S. plant will be increased demand over time for products, systems and services that meet evolving regulatory and customer sustainability standards and preferences and decreased demand for products that produce significant greenhouse gas emissions.expire during 2023. We ~~also~~ believe that our ~~ability~~relations with our employees are constructive and positive.

Employee Health and Safety. Safety is a core value at AWI and our culture is committed to making safety a personal core value for every employee. Our overall goal is to eliminate workplace injuries. We promote and foster an environment of empowerment and sharing throughout the company at all levels and in all locations. We engage our employees on safety with a focus on risk identification and elimination and through tracking various leading indicators. We track Occupational Safety and Health Administration (“OSHA”) recordable injuries and lost time rates by location monthly. We establish safety targets annually, which are tracked and reported to leadership monthly and reviewed with our Board of Directors.

We offer competitive health and wellness benefits to eligible employees and periodically conduct analyses of plan utilization to further tailor our employee benefits to meet their ongoing needs. In response to COVID-19, we continue to ~~provide these products, systems~~follow guidelines from governmental and ~~services~~health authorities.

Diversity and Inclusion. We continue to take steps to champion diversity and inclusion within our organization, as we believe it is a key to our ~~customers will be necessary to maintain our competitive position in the marketplace. We are committed to complying with all environmental laws and regulations that are applicable to our operations.~~

~~As a leading building products manufacturer, we are committed to operating as a strong corporate citizen across all areas of our business.~~continued success. This commitment is reflected in the goals of the People Pillar of our ~~ongoing initiatives~~Sustainability program, which is being led by our Vice President of Talent Sustainability. We routinely measure gender and racial/ethnic representation and are focusing on increasing diversity within the company through new hires and development and advancement of existing talent. In addition, we are committed to ~~design~~engaging in events and ~~develop sustainable ceiling~~outreach that support enhanced diversity and ~~wall~~inclusion. Our strategy to grow our diversity over time includes (1) providing annual training to employees on diversity and inclusion topics, (2) demonstrating year-over-year improvement in the diversity of our organization measured by representation of female, minorities and veterans at every level of the organization, and (3) providing employees an opportunity to share their views on topics that matter to them. To support this strategy, we take an active approach to attracting, retaining, and engaging diverse talent through internships, employee resource groups, professional development programs and employee feedback. As of December 31, 2022 and 2021, our executive leadership team, defined as the chief executive officer and direct reports to the chief executive officer, included 43% gender diversity and 14% racial/ethnic diversity.

Product innovation activities are important and necessary in helping us improve our products’ competitiveness. Principal product innovation functions include the development and improvement of products and ~~solutions for every space.~~manufacturing processes.

Regulatory activities of particular importance to our operations include proceedings under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), and state Superfund and similar type environmental laws governing existing or potential environmental contamination at ~~three~~two domestically owned locations allegedly resulting from past industrial activity. We are one of several potentially responsible parties in these matters and have agreed to jointly fund the required investigation, while preserving our defenses to the liability. We may also have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies.

Most of our facilities are affected by various federal, state and local environmental requirements relating to the discharge of materials or the protection of the environment. We make expenditures necessary for compliance with applicable environmental requirements at each of our operating facilities. We have not experienced a material adverse effect upon our capital expenditures or competitive position as a result of environmental control legislation and regulations.

On September 8, 2017, Roxul USA, Inc. (d/b/a Rockfon) (“Rockfon”) filed litigation against us in the United States District Court for the District of Delaware (the “Court”) alleging anticompetitive conduct seeking remedial measures and unspecified damages. Roxul USA, Inc. is a significant ceilings systems competitor with global headquarters in Europe and expanding operations in the Americas. On April 3, 2019,From time to time, we entered into a confidential settlement agreement with Rockfon to fully resolve the litigation between us, and Rockfon filed a Stipulation of Dismissal with Prejudice (“Dismissal”) with the Court. Pursuant to the Dismissal, Rockfon formally dismissed all claims it had against AWI with prejudice. All claims in the litigation have been fully and finally dismissed and released with AWI making a payment to Rockfon for its costs, expenses and attorneys’ fees. Pursuant to the settlement, both parties acknowledged that (a) AWI denies all claims of wrongdoing and makes no admission of wrongdoing or of the truth of any of the claims or allegations contained in Rockfon’s complaint or otherwise alleged in the litigation; (b) all AWI exclusive distribution locations (i.e., any location where a reseller has agreed to sell only AWI ceiling system products) will remain exclusive to AWI under their respective distribution agreements, and (c) in all other non-exclusive or “open” distribution locations, resellers are free to purchase and resell ceiling systems products of any manufacturer at their discretion. During 2019, we incurred $19.7 million of expenses in connection with the matter, primarily relating to legal and professional fees incurred by us in connection with the litigation, including expenses and attorney’s fees paid under the settlement agreement. As a result of the settlement and Dismissal, we do not expect to incur additional future costs or expenses relating to the matter.

We are involved in various other lawsuits, claims, investigations and other legal matters ~~from time to time~~ that arise in the ordinary course of business, including matters involving our products, intellectual property, relationships with suppliers, relationships with distributors, relationships with competitors, employees and other matters. From time to time, for example, we may be a party to various litigation matters that involve product liability, tort liability and other claims under various allegations, including illness due to exposure to certain chemicals used in the workplace, or medical conditions arising from exposure to product ingredients or the presence of trace contaminants. Such allegations may involve multiple defendants and relate to legacy products that we and other defendants purportedly manufactured or sold. We believe that any current claims are without merit and intend to defend them vigorously. For theseIn connection with those matters, we ~~also~~ may have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies. When applicable and appropriate, we will pursue coverage and recoveries under those policies, but are unable to predict the outcome of those demands. While complete assurance cannot be given to the outcome of any proceedings relating to these ~~proceedings,~~matters, we do not believe that any current claims, individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations.

Liabilities of ~~$1.6~~$0.5 million and ~~$12.4~~$0.7 million as of December 31, ~~2019~~2022 and ~~December 31, 2018,~~2021, respectively, were recorded for environmental liabilities that we consider probable and for which a reasonable estimate of the probable liability could be made. See

Note 2827 to the Consolidated Financial Statements and Risk Factors in Item 1A of this Form 10-K, for information regarding the possible effects that compliance with environmental laws and regulations may have on our businesses and operating results.

We maintain a website at http://www.armstrongceilings.com. Information contained on our website is not incorporated into this document. Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, all amendments to those reports and other information about us are available free of charge through this website as soon as reasonably practicable after the reports are electronically filed with the SEC. We also file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC at http://sec.gov. Reference in this Form 10-K to our website and the SEC’s website is an inactive text reference only.

~~Unstable market and economic conditions could have a material adverse impact on our financial condition, liquidity or results of operations.~~

Our business is influenced by market and economic conditions, including inflation, deflation, interest rates, availability and cost of capital, consumer spending rates, energy availability and the effects of governmental initiatives to manage economic conditions. Volatility in financial markets and the continued softness or further deterioration of national and global economic conditions could have a material adverse effect on our financial condition, liquidity or results of operations, including as follows:

~~Continued or sustained deterioration of economic conditions would likely exacerbate and prolong these adverse effects.~~

~~Our business is dependent on construction activity. Downturns in construction activity could have a material adverse effect on our financial condition, liquidity or results of operations.~~

Our businesses have greater sales opportunities when construction activity is strong and, conversely, have fewer opportunities when such activity declines. The cyclical nature of commercial and residential construction activity, including construction activity funded by the public sector, tends to be influenced by prevailing economic conditions, including the rate of growth in gross domestic product, prevailing interest rates, government spending patterns, business, investor and consumer confidence and other factors beyond our control. Prolonged downturns in construction activity could have a material adverse effect on our financial condition, liquidity or results of operations.

Our markets are highly competitive. Competition could reduce demand for our products or negatively affect our sales mix or price realization. Failure to compete effectively by meeting consumer preferences, developing and marketing innovative solutions, maintaining strong customer service and distribution relationships, and expanding our solutions capabilities and reach could adversely affect our results.

Our customers consider our products’ performance, product styling, customer service and price when deciding whether to purchase our products. Shifting consumer preference in our highly competitive markets, from acoustical solutions to other ceiling and wall products, for example, whether for performance or styling preferences or our inability to develop and offer new competitive performance features could have an adverse effect on our sales. Similarly, our ability to identify, protect and market new and innovative solutions is critical to our long-term growth strategy, namely to sell into more spaces and sell more solutions in every space. If our competitors offer discounts on certain products or provide new or alternative offerings that the marketplace perceives as more cost-effective, it could adversely affect our price realization. Any broad-based change to our price realization could cause our revenues and margins to decline.

Sales fluctuations to and changes in our relationships with key customers could have ~~a material~~an adverse effect on our financial condition, liquidity or results of operations.

The loss, reduction, or fluctuation of sales to key customers, including independent distributors or national home center customers, or any adverse change in our business relationship with them, whether as a result of changing customer demands and expectations, reduced demand, supply chain constraints, competition, industry consolidation or otherwise, could have a material adverse effect on our financial condition, liquidity or results of operations.

~~Customer consolidation, and competitive, economic and other pressures facing our customers, may negatively impact our operating margins and profitability.~~

A number of our customers, including distributors and contractors, have consolidated in recent years and consolidation could continue. Further consolidation could impact margin growth and profitability as larger customers may realize certain operational and other benefits of scale. The economic and competitive landscape for our customers is constantly changing, and our customers' responses to those changes could impact our business. These factors and others could have a material adverse impact on our business, financial condition or results of operations.

If the availability of ~~raw materials~~our manufacturing inputs or ~~energy~~sourced products decreases, or the ~~costs increase,~~cost of those inputs or sourced products increases, and we are unable to pass along increased costs resulting from supply chain or inflationary pressures, our financial condition, liquidity or results of operations could be adversely affected.

The availability and cost of raw materials, packaging materials, energy and sourced products are critical to our operations and our results of operations. For example, we use substantial quantities of natural gas and some petroleum-based raw materials in our manufacturing operations. ~~The cost of some of these items has been volatile in recent years and availability has been limited at times.~~ We source some materials from a limited number of suppliers, which, among other things, increases the risk of unavailability. Limited availability could ~~cause~~require us to reformulate products or limit our production. ~~Decreased~~Supply chain disruptions could decrease access to ~~raw materials and energy~~manufacturing inputs or ~~significant increased~~sourced products or significantly increase the cost to purchase these ~~items~~items. The cost of some inputs has been volatile in recent years and availability has been limited at times due to a number of factors, most notably the

impact of the COVID-19 pandemic and subsequent recovery, in addition to the impact of global events, including the conflict in Ukraine. A decrease in availability or increases in costs of manufacturing inputs or sourced products, and any ~~corresponding~~ inability to pass along such costs through price increases, could have a material adverse effect on our financial condition, liquidity or results of operations.

The performance of our WAVE joint venture is important to our financial results. Changes in the demand for, or quality of, WAVE products, or in the operational or financial performance of the WAVE joint venture, could have ~~a material~~an adverse effect on our financial condition, liquidity or results of operations. Similarly, if there is a change with respect to our joint venture partner that adversely impacts its relationship with us, WAVE’s performance could be adversely impacted.

Our equity investment in our WAVE joint venture remains important to our financial results. WAVE’s markets are highly competitive and changes in the demand for, or quality of, WAVE products, or in the operational or financial performance of the WAVE joint venture, could have a material adverse effect on its financial condition, liquidity or results of operations. Similarly, the availability and cost of raw materials, packaging materials, energy and sourced products, and the ability to pass along increased costs, are critical to WAVE’s operations and its results of operations.

We believe ~~another~~the relationship with our partner, Worthington, is an important element in the success of this joint ~~venture~~venture. In September 2022, Worthington announced a plan to separate into two independent, publicly-traded companies (the “Worthington Separation"). One company is expected to be comprised of Worthington’s Steel Processing operating segment, and the ~~relationship with our partner,~~other company, which will include Worthington’s investment in WAVE, is expected to be comprised of Worthington’s Consumer Products, Building Products and Sustainable Energy Solutions operating segments. The Worthington ~~Industries, Inc.~~Separation transaction is expected to be completed by early 2024, but is subject to certain conditions, including, among other things, general market conditions, finalization of the capital structure of the two companies, completion of steps necessary to qualify the separation as a tax-free transaction, receipt of regulatory approvals and final approval from the Worthington’s board of directors. If ~~there is a~~the Worthington Separation or any other change in ownership, a change of control, a change in management or management philosophy, a change in business strategy or another ~~event~~change with respect to our partner ~~that~~ adversely impacts our relationship, WAVE’s performance could be adversely impacted. In addition, our partner may ~~have~~develop economic or business interests or goals that are different from or inconsistent with our interests or goals, which may impact our ability to influence or align WAVE’s strategy and ~~operations.~~operations with our interests or goals.

~~The geographic concentration of our business~~Increased labor costs, labor disputes, work stoppages or union organizing activity, as well as increased labor shortages, or an inability to attract and retain talented employees could ~~subject us to greater risk than our competitors~~delay or impede production and could have ~~a material~~an adverse effect on our financial condition, liquidity or results of operations.

We rely on our employees to manufacture and sell our products. Labor disputes, which may result in work stoppages or union organizing activities, can directly impact production levels. As ~~a result~~the majority of our manufacturing employees are represented by unions and covered by collective bargaining or similar agreements, we often incur costs attributable to periodic renegotiation of those agreements, which may be difficult to project. Collective bargaining agreements covering approximately 200 employees at one U.S. plant will expire during 2023. We are also subject to the risk that strikes or other conflicts with organized personnel may arise or that we may become the subject of union organizing activity at our facilities that do not currently have union representation. Prolonged negotiations, conflicts or related activities could also lead to costly work stoppages and loss of productivity. Our overall labor costs, which includes costs of the ~~recent divestiture of~~activities described above and employee benefit plans, directly impact our ~~Europe, Middle East~~business and ~~Africa (including Russia)~~financial results.

Our success is also dependent upon our ability to attract and ~~Pacific Rim businesses to Knauf International GmbH,~~retain a qualified and diverse workforce. In many cases, we ~~primarily operate in the United States, Canada and Latin America. Our concentrated operations in the Americas could subject us to a greater~~rely upon our employees’ high degree of ~~risk relative~~technical knowledge and industry experience. There can be no assurance that we will continue to attract and retain talented employees, particularly during times of increased labor costs or labor shortages. An inability to attract and retain a sufficient number of employees could adversely impact our ~~global, diversified competitors.~~ business, financial condition or results of operations.

We continuously pursue productivity initiatives and periodically engage in cost-saving initiatives. Our inability to execute these initiatives may result in lower-than-expected savings in our operating cost structure or may not improve our operating results.

We aggressively seek ways to make our operations more efficient and effective. We may reduce, move, modify or expand our plants and operations, as well as our sourcing and supply chain arrangements, and invest in technology, as needed, to control costs and improve productivity. Such actions involve substantial planning, often require capital investments and may result in charges for fixed asset impairments or obsolescence and substantial severance costs. Our ability to achieve cost savings and other benefits within expected time frames is subject to many estimates and assumptions. These estimates and assumptions are ~~particularly vulnerable~~subject to ~~adverse~~significant economic, competitive and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays resulting from equipment failures or other interruptions in production, or if other unforeseen events (including acts of terrorism, natural disasters, weather conditions, labor market disruptions and government actions) and economic conditions in the United States, Canada and Latin America. Adverse events or conditions in these geographic areas could have a material adverse effect onoccur, our financial condition, liquidity or results of operations could be materially and adversely affected.

Our pursuit of environmental, social and governance ("ESG") and sustainability objectives, including those related to climate change, may not achieve the anticipated benefits we expect or may not align with new regulations or expectations of stakeholders, including investors, which could have an adverse effect on our business, financial condition or results of operations.

In recent years, governmental and societal attention on ESG topics has increased. These ESG topics include greenhouse gas emissions and climate-related risks, renewable energy, water stewardship, waste management, diversity, equity and inclusion, responsible sourcing and supply chain, human rights, and social responsibility. Evolving government and societal expectations around these issues and our efforts to manage and report on them, as well as accomplish our ESG goals present numerous operational, regulatory, reputational, financial, legal, and other risks, any of which could have a material adverse impact.

In November 2022, we published our second Sustainability Report, which includes certain 2030 ESG and sustainability goals and our progress towards meeting those goals. We may not achieve the anticipated benefits we expect from these or other ESG and sustainability goals, which may damage our reputation, or these efforts may not align with new regulations or expectations of stakeholders Efforts to achieve these goals may result in higher or unforeseen costs. In addition, we may encounter challenges measuring our progress towards the achievement of our ESG goals.

In recent years, there has been an increased focus by governmental organizations on ESG and sustainability issues, which may result in new legislation and regulations that could negatively affect our business. New legislation and regulations in the United States and in the foreign countries in which we operate could impose restrictions, caps, taxes, or other controls on emissions of greenhouse gases, which could adversely affect our operations and financial results.

Further, domestic and foreign legislative or regulatory actions and changing customer policies relating to climate change, such as new environmentally responsible building codes and standards, could adversely impact our business by increasing our energy costs and/or reducing fuel efficiency which could result in the creation of substantial additional capital expenditures and operating costs in the form of taxes, emissions allowances, or required equipment upgrades or require that we modify our products or processes in a manner that increases our costs and/or reduces our profitability. Any of the foregoing factors could impair our operating efficiency and productivity and result in higher operating costs.

We may not experience the anticipated benefits from our strategic initiatives, including investments in digitalization, Healthy Spaces and innovation.

We continue to evaluate and may pursue strategic initiatives involving the development or utilization of new or innovative products, solutions and tools, including those related to Healthy Spaces, as well as the expansion of our digital capabilities. These initiatives are designed to grow revenue, improve profitability and increase shareholder value. Our results of operations and financial position could be materially and adversely affected if we are unable to successfully identify, execute and integrate these initiatives or if we are unable to complete these initiatives in a timely and efficient manner to realize competitive advantages and opportunities.

We may pursue strategic transactions, including mergers, acquisitions, joint ventures, strategic alliances or other investments, which could create risks and present unforeseen integration obstacles or costs, any of which could have ~~a material~~an adverse effect on our financial condition, liquidity or results of operations.

We regularly evaluate potential mergers, acquisitions, joint ventures, strategic alliances or other investments that we believe could complement, enhance or expand our current businesses or product lines or that might otherwise offer us growth ~~opportunities.~~opportunities, particularly in our Architectural Specialties segment for which we have completed four acquisitions since July 2020. Any such strategic transaction involves a number of risks, including potential disruption of our ongoing business and distraction of management, difficulty with integrating or separating personnel and business operations and infrastructure, and increasing or decreasing the scope, geographic diversity and complexity of our operations. Strategic transactions could involve payment by us of a substantial amount of cash, assumption of liabilities and indemnification obligations, regulatory requirements, incurrence of a substantial amount of debt or issuance of a substantial amount of equity. Certain strategic opportunities may not result in the consummation of a transaction or may fail to realize the intended benefits and synergies. If we fail to identify, consummate and integrate our strategic transactions in a timely and cost-effective manner, our financial condition, liquidity or results of ~~operation~~operations could be materially and adversely affected.

Negative tax consequences can have an unanticipated effect on our financial results.

We are subject to the tax laws of the many jurisdictions in which we operate. The tax laws are complex, and the manner in which they apply to our operations and results is sometimes open to interpretation. Our income tax expense (benefit) and reported net income

(loss) may fluctuate significantly, and may be materially different than forecasted or experienced in the past. Our financial condition, liquidity or results of operations ~~or tax liability~~ could be adversely affected by changes in effective tax rates, changes in our overall profitability, changes in tax legislation, the results of examinations of previously filed tax returns, and ongoing assessments of our tax exposures.

Our financial condition, liquidity or results of operations ~~or tax liability~~ could also be adversely affected by changes in the valuation of deferred tax assets and liabilities. We have substantial deferred tax assets related to ~~U.S. domestic foreign tax credits (“FTCs”), a~~ capital loss ~~carryforward,~~carryforwards and state net operating losses (“NOLs”), which are available to reduce our U.S. income tax liability and to offset future state taxable income. However, our ability to utilize the current carrying value of these deferred tax assets may be impacted as a result of certain future events, such as changes in tax legislation and insufficient future taxable income prior to expiration of the ~~FTCs,~~ capital loss carryforwards and NOLs.

Our indebtedness may adversely affect our ability to operate and invest in our business, execute on our strategic initiatives, and return cash to shareholders.

We may ~~be subject~~also incur additional indebtedness, which could exacerbate the risks described above. We cannot guarantee future access to ~~liability under,~~capital markets, which may limit our ability to obtain new debt financing or refinance existing debt obligations. In addition, to the extent that our indebtedness bears interest at floating rates, our sensitivity to interest rate fluctuations will increase. In the past year, the U.S. Federal Reserve increased its benchmark federal funds rate 425 basis points due to inflationary pressures driven primarily by the COVID-19 pandemic and ongoing recovery. This has resulted in an increase in market interest rates, including the interest rates associated with our indebtedness. Interest rates may ~~make substantial~~continue to increase in the future ~~expenditures to comply with, environmental laws~~depending on actions by the U.S. Federal Reserve and ~~regulations, which~~overall inflation.

Any of the above-listed factors could have a material adverse effect on our financial condition, liquidity or results of operations.

We ~~are actively involved in environmental investigation and remediation activities relating~~require a significant amount of liquidity to several domestically owned, formerly owned and non-owned locations allegedly resulting from past industrial activity, for which our ultimate liability may exceed the currently estimated and accrued amounts. See Note 28 to the Consolidated Financial Statements for further information related to our current environmental matters and the potential liabilities associated therewith. It is also possible that we could become subject to additional environmental matters and corresponding liabilities in the future.

The building materials industry has been subject to claims relating to raw materials such as silicates, polychlorinated biphenyl (“PCB”), PVC, formaldehyde, fire-retardants and claims relating to other issues such as mold and toxic fumes, as well as claims for incidents of catastrophic loss, such as building fires. We have not received any significant claims involving our raw materials or our product performance; however, product liability insurance coverage may not be available or adequate in all circumstances to cover claims that may arise in the future.

~~In addition,~~fund our operations ~~are subject~~and our indebtedness exposes us to ~~various environmental, health,~~materially negative unforeseen events.

Our liquidity needs vary throughout the year. If our business experiences materially negative unforeseen events, we may be unable to generate sufficient cash flow from operations to fund our needs or maintain sufficient liquidity to operate and ~~safety laws~~remain in compliance with our debt covenants, which could result in reduced or delayed planned capital expenditures and ~~regulations. These laws~~other investments and regulations not only govern our current operations and products, but also impose potential liability on us for our past operations. Our costs to comply with these laws and regulations may increase as these requirements become more stringent in the future, and these increased costs may have a material adverse effect on our financial condition ~~liquidity~~ or results of operations.

~~Our operating and information systems may experience a failure, a compromise of security, or a violation of data privacy laws or regulations, which could interrupt or damage our operations.~~

In the conduct of our business, we collect, use, transmit and store data on information systems, which are vulnerable to disruption and an increasing threat of continually evolving cybersecurity risks. These information systems may be disrupted or fail as a result of ~~events that are wholly or partially beyond our control, including events such as natural disasters, power loss, software “bugs”, hardware defects, hacking, computer viruses, malware, ransomware or other cyber-attacks.~~ ~~All of these risks are also applicable where we rely on outside vendors to provide services, which may operate in a cloud environment. We are dependent on third-party vendors~~

to operate secure and reliable systems which may include data transfers over the internet. Any events which deny us use of vital operating or information systems may seriously disrupt our normal business operations.

We also compete through our use of information technology. We strive to provide customers with timely, accurate, easy-to-access information about product availability, orders and delivery status using state-of-the-art systems. While we have processes for short-term failures and disaster recovery capability, a prolonged disruption of systems or other failure to meet customers’ expectations regarding the capabilities and reliability of our systems may have a material adverse effect on our operating results.

We could also experience a compromise of our information security due to technical system flaws, clerical, data input or record-keeping errors, or tampering or manipulation of our systems by employees or unauthorized third parties. Information security risks also exist with respect to the use of portable ~~electronic devices, such as laptops and smartphones, which are particularly vulnerable to loss and theft.~~ Any security breach or compromise of our information systems could significantly damage our reputation, cause the disclosure of confidential customer, employee, supplier or company information, including our intellectual property, and result in significant losses, litigation, fines and costs. The security measures we have implemented to protect against unauthorized access to our information systems and data may not be sufficient to prevent breaches. The regulatory environment related to information security, data collection and privacy is evolving, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs.

Additionally, our key partners, distributors or suppliers could experience a compromise of their information security due to technical system flaws, clerical, data input or record-keeping errors, or tampering or manipulation of their respective systems by employees or third parties, which may have an impact on our commercial sales, vendor, partner or other relationships.

~~Adverse results caused by regulatory actions, product claims, environmental claims and other litigation could be costly. Insurance coverage may not be available or adequate in all circumstances.~~

In the ordinary course of business, we are subject to various claims and litigation. Any such claims, whether with or without merit, could be time consuming and expensive to defend and could divert management’s attention and resources. While we strive to ensure that our products comply with applicable government regulatory standards and internal requirements, and that our products perform effectively and safely, customers from time to time could claim that our products do not meet warranty or contractual requirements, and users could claim to be harmed by use or misuse of our products. These claims could give rise to breach of contract, warranty or recall claims, or claims for negligence, product liability, strict liability, personal injury or property damage. They could also result in negative publicity.

In addition, claims and investigations may arise related to patent infringement, distributor relationships, commercial contracts, antitrust or competition law requirements, employment matters, employee benefits issues, and other compliance and regulatory matters, including anti-corruption and anti-bribery matters. While we have processes and policies designed to mitigate these risks and to investigate and address such claims as they arise, we cannot predict or, in some cases, control the costs to defend or resolve such claims.

We currently maintain insurance against some, but not all, of these potential claims. In the future, we may not be able to maintain insurance at commercially acceptable premium levels. In addition, the levels of insurance we maintain may not be adequate to fully cover any and all losses or liabilities. If any significant judgment or claim is not fully insured or indemnified against, it could have a material adverse impact. We cannot assure that the outcome of all current or future litigation will not have a material adverse effect on our financial condition, liquidity or results of operations.

~~We may not experience the anticipated benefits from our strategic initiatives, including investments in digitalization and new technology.~~

We continue to evaluate and may pursue strategic initiatives involving the development or utilization of new or innovative products, solutions and tools, as well as the expansion of our capabilities through digitalization. These initiatives are designed to grow revenue, improve profitability and increase shareholder value. Our results of operations and financial position could be materially and adversely affected if we are unable to successfully identify, execute and integrate these initiatives or if we are unable to complete these initiatives in a timely and efficient manner to realize competitive advantages and opportunities.

The agreements that govern our indebtedness contain a number of covenants that impose significant operating and financial restrictions, including restrictions on our ability to engage in activities that may be in our best long-term interests.

The agreements that govern our indebtedness include covenants that among other things, may impose significant operating and financial restrictions, including restrictions on our ability to engage in activities that may be in our best long-term interests. These covenants may restrict our ability to:

Under the terms of our senior secured credit facility, we are required to maintain specified leverage and interest coverage ratios. Our ability to meet these ratios could be affected by events beyond our control, and we cannot assure that we will meet them. A breach of any of the restrictive covenants or ratios would result in a default under the senior secured credit facility. If any such default occurs, the lenders under the senior secured credit facility may be able to elect to declare all outstanding borrowings under our ~~facilities,~~facility, together with accrued interest and other fees, to be immediately due and payable, or enforce their security interest. The lenders may also have the right in these circumstances to terminate commitments to provide further borrowings.

~~Our indebtedness may adversely affect our cash flow and our ability to operate our business, make payments on our indebtedness and declare dividends on our capital stock.~~

We may also incur additional indebtedness, which could exacerbate the risks described above. In addition, to the extent that our indebtedness bears interest at floating rates, our sensitivity to interest rate fluctuations will increase.

~~Any of the above listed factors could have a material adverse effect on our financial condition, liquidity or results of operations.~~

~~We require a significant amount of liquidity to fund our operations, and borrowing has increased our exposure to negative unforeseen events.~~

Significant changes in factors and assumptions used to measure our defined benefit plan obligations, actual investment returns on pension assets and other factors could negatively impact our operating results and cash flows.

We maintain ~~significant~~ pension and postretirement plans in the U.S. The recognition of costs and liabilities associated with these plans for financial reporting purposes is affected by assumptions made by management and used by actuaries engaged by us to calculate the benefit obligations and the expenses recognized for these plans.

The inputs used in developing the required estimates are calculated using ~~a number of~~multiple assumptions ~~which~~and represent management’s best estimate of the future. The assumptions that have the most significant impact on reported results are the discount rate, the estimated long-term return on plan assets for the funded plans, retirement rates, and mortality rates and, for postretirement plans, the estimated inflation in health care costs. These assumptions are generally updated annually.

~~Our~~In the aggregate, our U.S. pension plans were overfunded by ~~$47.0~~$54.6 million as of December 31, ~~2019.~~2022. Our unfunded U.S. postretirement plan liabilities were ~~$77.5~~$61.9 million as of December 31, ~~2019.~~2022. If our cash flows and capital resources are insufficient to fund our pension and postretirement plans obligations, we could be forced to reduce or delay investments and capital expenditures, seek additional capital, or restructure or refinance our indebtedness.

We may be subject to liability under, and may make substantial future expenditures to comply with, environmental laws and regulations, which could have an adverse effect on our financial condition, liquidity or results of operations.

We are actively involved in environmental investigation and remediation activities relating to two domestically owned locations allegedly resulting from past industrial activity, for which our ultimate liability may exceed the currently estimated and accrued amounts. See Note 27 to the Consolidated Financial Statements for further information related to our current environmental matters and the potential liabilities associated therewith. It is also possible that we could become subject to additional environmental matters and corresponding liabilities in the future.

The building materials industry has been subject to claims relating to raw materials such as silicates, polychlorinated biphenyl (“PCB”), polyvinyl chloride (“PVC”), formaldehyde, fire-retardants and claims relating to other issues such as mold and toxic fumes, as well as claims for incidents of catastrophic loss, such as building fires. We have not received any significant claims involving our raw materials or our product performance; however, product liability insurance coverage may not be available at commercially acceptable premium levels or at all, or such coverage may not be adequate in all circumstances to cover claims that may arise in the future.

In addition, our operations are subject to various environmental, health, and safety laws and regulations. These laws and regulations not only govern our current operations and products, but may also impose potential liability on us for our past operations and past operations at sites on which we operate. Our costs to comply with these laws and regulations may increase as these requirements become more stringent in the future.

Potential regulatory actions, product and service claims, environmental claims and other litigation could be costly and have an adverse effect on our financial condition, liquidity or results of operations. Insurance coverage may not be available or adequate in all circumstances.

In the ordinary course of business, we are subject to various claims and litigation. Any such claims, whether with or without merit, could be time-consuming and expensive to defend and could divert management’s attention and resources. While we strive to ensure that our products and services comply with applicable government regulatory standards and internal requirements, and that our products and services perform effectively and safely, customers from time to time could claim that our products and services do not meet warranty or contractual requirements, and users could claim to be harmed by use or misuse of our products and services. These claims could give rise to breach of contract, warranty or recall claims, or claims for negligence, product liability, strict liability, personal injury or property damage. They could also result in negative publicity.

We currently maintain insurance against some, but not all, of these potential claims. In the future, we may not be able to maintain insurance at commercially acceptable premium levels. In addition, the levels of insurance we maintain may not be adequate to fully cover any and all losses or liabilities. If any significant judgment or claim is not fully insured or indemnified against, it could have a material adverse effect on our financial condition, liquidity or results of operations.

Our intellectual property rights may not provide meaningful commercial protection for our products or brands, which could adversely impact our financial condition, liquidity or results of operations.

We rely on our proprietary intellectual property, including numerous patents and registered trademarks, as well as our licensed intellectual property to market, promote and sell our products. We monitor and protect against activities that might infringe, dilute, or otherwise harm our patents, trademarks and other intellectual property and rely on the patent, trademark and other laws of the U.S. and other countries. However, we may be unable to prevent third parties from using our intellectual property without our authorization. In addition, the laws of some non-U.S.jurisdictions, particularly those of certain emerging markets, provide less protection for our proprietary rights than the laws of the U.S. and present greater risks of counterfeiting and other infringement. To the extent we cannot protect our intellectual property, unauthorized use and misuse of our intellectual property could harm our competitive position and have a material adverse effect on our financial condition, liquidity or results of operations.

Increased focus by governmental and non-governmental organizations, customers, consumers and investors on sustainability issues, including those related to climate change, may have a material adverse effect on our business, financial condition and results of operations and damage our reputation. As climate change, land use, water use, deforestation, recyclability or recoverability of products, and other sustainability concerns become more prevalent, governmental and non-governmental organizations, customers, consumers and investors are increasingly focusing on these issues. This increased focus on environmental issues and sustainability may result in new or increased regulations and customer and investor demands that could cause us to incur additional costs or to make changes to our operations to comply with any such regulations and demands.

If the separation and distribution of Armstrong Flooring, Inc. (“AFI”) fails to qualify as a tax-free transaction for U.S. federal income tax purposes, then AFI, AWI and AWI’s shareholders could be subject to significant tax liability or tax indemnity obligations.

On April 1, 2016, we completed our previously announced separation of AFI by allocating the assets and liabilities related primarily to the Resilient Flooring and Wood Flooring segments to AFI and then distributing the common stock of AFI to our shareholders at a ratio of one share of AFI common stock for every two shares of AWI common stock. In connection with the distribution, we received an opinion from our special tax counsel, on the basis of certain facts, representations, covenants and assumptions set forth in such opinion, substantially to the effect that, for U.S. federal income tax purposes, the separation and distribution should qualify as a transaction that generally is tax-free to us and our shareholders under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code.

Notwithstanding the tax opinion, the Internal Revenue Service (“IRS”) could determine on audit that the distribution should be treated as a taxable transaction if it determines that any of the facts, assumptions, representations or covenants set forth in the tax opinion is not correct or has been violated, or that the distribution should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the distribution, or if the IRS were to disagree with the conclusions of the tax opinion. If the distribution is ultimately determined to be taxable, the distribution could be treated as a taxable dividend to each U.S. holder of our common shares who receives shares of AFI in connection with the spinoff for U.S. federal income tax purposes, and such shareholders could incur significant U.S. federal income tax liabilities. In addition, we and/or AFI could incur significant U.S. federal income tax

liabilities or tax indemnification obligations, whether under applicable law or the Tax Matters Agreement that we entered into with AFI, if it is ultimately determined that certain related transactions undertaken in anticipation of the distribution are taxable.

We are subject to risks associated with our international operations in Canada and Latin America. Legislative, political, regulatory and economic volatility, as well as vulnerability to infrastructure and labor disruptions, could have ~~a material~~an adverse effect on our financial condition, liquidity or results of operations.

A portion of our ~~products move in~~sales are generated through international trade. ~~See Note 4 to the Consolidated Financial Statements for further information. Our international trade is~~These sales are subject to currency exchange fluctuations, trade regulations, import duties, logistics costs, delays and other related risks. Our international operations are also subject to various tax rates, credit risks in emerging markets, political risks, uncertain legal systems, and loss of sales to local competitors following currency devaluations in countries where we import products for sale. In addition, a part of our ~~international~~ growth strategy depends ~~in part,~~ on our ability to expand our operations in Canada and Latin ~~America. However, some~~America, including emerging markets that have greater political and economic volatility and greater vulnerability to infrastructure and labor disruptions than established markets. Similarly, our efforts to enhance the profitability or accelerate the growth of our operations in certain markets depends largely on the economic and geopolitical conditions in those local or regional markets.

In addition, in ~~many~~ countries outside of the United States, particularly in those with developing economies, it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act or similar local anti-corruption or anti-bribery laws. These laws generally prohibit companies and their employees, contractors or agents from making improper payments to government officials for the purpose of obtaining or retaining business. Failure to comply with these laws, as well as U.S. and foreign export and trading laws, could subject us to civil and criminal penalties. As we continue to expand our business, we may have difficulty anticipating and effectively managing these and other risks that our operations may face, which may adversely affect our business outside the United States and our financial condition, liquidity or results of operations.

~~From time~~Risks Related to ~~time, we engage in cost-saving~~General Economic and ~~productivity initiatives. Any such initiatives may not achieve expected savings in our operating costs or improved operating results.~~Other Factors

~~We aggressively look for ways to make our operations more efficient~~Unstable market and effective. We may reduce, move, modify and expand our plants and operations, as well as our sourcing and supply chain arrangements, as needed, to control costs and improve productivity. Such actions involve substantial planning, often require capital investments and may result in charges for fixed asset impairments or obsolescence and substantial severance costs. Our ability to achieve cost savings and other benefits within expected time frames is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic ~~competitive and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur,~~conditions could have an adverse impact on our financial condition, liquidity or results of ~~operations could be materially~~operations.

~~Increased costs~~economic conditions, including inflation, deflation, interest rates, availability and cost of ~~labor, labor disputes, work stoppages~~capital, consumer spending rates, energy availability and the effects of government stimulus. Volatility in financial markets and the continued softness or ~~union organizing activity could delay or impede production~~further deterioration of national and global economic conditions could have a material adverse effect on our financial condition, liquidity or results of ~~operations.~~operations, including as follows:

Continued or sustained deterioration of economic conditions would likely exacerbate and prolong these adverse effects.

~~Increased costs~~Our business is dependent on construction activity in North America. Downturns or delays in construction activity could have an adverse effect on our financial condition, liquidity or results of operations.

Our business has greater sales opportunities when construction activity, including both new building construction and renovation of existing buildings, is strong and, conversely, has fewer opportunities when such activity declines. The cyclical nature of construction activity, including construction activity funded by the public sector, tends to be influenced by prevailing economic conditions, including the rate of growth in gross domestic product, prevailing interest rates, government spending patterns, business, investor and consumer confidence, inflation, availability of labor, adequately functioning supply chains and other factors beyond our control. Our revenue opportunities come from new construction as well as renovation of existing buildings. Most of our revenue comes from the following sectors of commercial construction – office, education, transportation, healthcare and retail. Commercial construction activity for these sectors can be influenced by the changing needs for spaces, including ~~the costs~~potential declines in demand for office space as a result of ~~employee benefits plans, labor disputes,~~sustained remote or hybrid work ~~stoppages~~models. Prolonged downturns or ~~union organizing~~delays in construction activity could ~~delay or impede production and~~ have a material adverse effect on our financial condition, liquidity or results of operations. As

Our customers consider product performance attributes, product styling, customer service and price when deciding whether to purchase our products. Shifting consumer preference in our highly competitive markets, from acoustical solutions to other ceiling and wall products, for example, whether for performance attributes, such as acoustics and sustainability, and health attributes, or styling preferences or our inability to develop and offer new competitive performance features could have an adverse effect on our sales. Similarly, our ability to identify, protect and market new and innovative solutions is critical to our long-term growth strategy, namely to sell into more spaces and sell more solutions in every space. If our competitors offer discounts on certain products or provide new or alternative offerings that the ~~majority~~marketplace perceives as more cost-effective, it could adversely affect our price realization. Any broad-based change to our price realization could materially impact our financial condition, liquidity or results of operations.

Customer consolidation, and competitive, economic and other pressures facing our customers, and our potential failure to attract new customers in our markets, may negatively impact our operating margins and profitability.

A number of our ~~manufacturing employees~~customers, including distributors and contractors, have consolidated in recent years and consolidation could continue. Further consolidation could impact margin growth and profitability as larger customers may realize certain operational and other benefits of scale. The economic and competitive landscape for our customers is constantly changing, and our customers' responses to those changes could impact our business. The demand for our products can also be impacted by the buying patterns of certain customers and how they manage their inventory levels. These factors could have a material adverse impact on our business, financial condition or results of operations.

Our operating and information systems may experience a failure, a compromise of security, or a violation of data privacy laws or regulations, which could interrupt or damage our operations.

In the conduct of our business, we collect, use, transmit and store data on information systems, which are ~~represented by unions~~vulnerable to disruption and ~~covered by collective bargaining~~an increasing threat of continually evolving cybersecurity risks. These information systems may be disrupted or ~~similar agreements,~~fail as a result of events that are wholly or partially beyond our control, including events such as power loss, software or hardware defects, or hacking, computer viruses, malware, ransomware or other cyber-attacks. All of these risks are also applicable where we ~~often incur costs attributable~~rely on outside vendors to ~~periodic renegotiation of those agreements,~~provide services, which may ~~be difficult to project.~~operate in a cloud environment. We are dependent on third-party vendors to operate secure and reliable systems which may include data transfers over the internet. Any events which deny us use of vital operating or information systems may seriously disrupt our normal business operations.

We also ~~subject~~compete through our use of information technology. We strive to provide customers with timely, accurate, easy-to-access information about product availability, orders and delivery status using state-of-the-art systems. While we have processes for short-term failures and disaster recovery capability, a prolonged disruption of system or other failures in the reliability of our systems may have a material adverse effect on our operating results.

We could also experience a disruption of service or a compromise of our information security due to technical system flaws, clerical, data input or record-keeping errors, migration to new systems, or tampering or manipulation of our systems by employees or unauthorized third parties. Information security risks also exist with respect to the ~~risk that strikes~~use of portable electronic devices, such as laptops

and smartphones, which are particularly vulnerable to loss and theft. Any security breach or compromise of our information systems could significantly damage our reputation, cause the disclosure of confidential customer, employee, supplier or company information, including our intellectual property, and result in significant losses, litigation, fines and costs. The security measures we have implemented to protect against unauthorized access to our information systems and data may not be sufficient to prevent breaches. The regulatory environment related to information security, data collection and privacy is evolving, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs.

Our business is dependent upon third-party vendors and suppliers whose failure to perform adequately could have an adverse effect on our financial condition, liquidity or results of operations.

We source a significant portion of raw materials and sourced products from third parties. Our ability to select and retain reliable vendors and suppliers who provide timely deliveries of quality raw materials and sourced products will impact our success in meeting customer demand for timely delivery of quality products.

The ability of third-party suppliers to timely deliver raw materials and sourced products may be affected by events beyond their control, such as inability of shippers to timely deliver merchandise due to work stoppages or slowdowns, demand volatility or port congestion, unavailability of shipping containers or other equipment, or significant weather and health conditions affecting manufacturers and/or shippers. Any adverse change in our relationships with ~~organized personnel~~our third-party suppliers, the financial condition of third-party suppliers, the ability of third-party suppliers to manufacture and deliver outsourced raw materials or sourced products on a timely basis could have a material adverse effect on our business, financial condition or results of operations.

In addition, the financial condition of our vendors and suppliers may ~~arise~~be adversely affected by general economic conditions, such as credit difficulties and the uncertain macroeconomic environment. Any inability of our vendors and suppliers to timely deliver quality raw materials and sourced products or any unanticipated change in supply, quality or pricing of products could have a material adverse effect on our business, financial condition or results of operations.

The geographic concentration of our business could subject us to risks, including those associated with climate change, that we may ~~become~~be greater than our competitors and could have an adverse effect on our financial condition, liquidity or results of operations.

We primarily operate in the United States, Canada and Latin America. Our concentrated operations in the Americas could subject us to a greater degree of ~~union organizing activity at~~risk relative to our global, diversified competitors. We are particularly vulnerable to adverse events (including acts of terrorism, natural disasters, weather conditions, labor market disruptions and government actions) and economic conditions in the United States, Canada and Latin America. Adverse events or conditions in these geographic areas could have a material adverse effect on our financial condition, liquidity or results of operations.

Climate change and related extreme weather events in these geographic areas could result in:

We may not ~~currently~~be able to forecast the likelihood or severity of any of these impacts. Any of these could have ~~union representation. Prolonged negotiations, conflicts~~a material adverse effect on our business, financial condition, or ~~related activities could also lead to costly work stoppages and loss~~results of ~~productivity.~~operations.

We cannot provide any ~~guarantee~~guarantees of future cash dividend payments or ~~that we will be able to repurchase~~future repurchases of our common stock pursuant to a share repurchase program.

Since December 2018, our Board of Directors has declared a quarterly dividend on our common stock. The payment of any future cash dividends to our shareholders is not guaranteed and will depend on decisions that will be made by our Board of Directors ~~and will be~~ based upon our financial condition, results of operations, cash flows, business requirements and ~~our Board of Directors’ conclusion~~a determination that the declaration of cash dividends is in the best interest of our shareholders and is in compliance with all laws and agreements applicable to the payment of dividends.

Since July 2016, our Board of Directors has approved share repurchases up to a total of ~~$700.0~~$1,200.0 million. Repurchases under the program may be made through open market, block and ~~privately-negotiated~~privately negotiated transactions, including Rule 10b5-1 plans, at times and in

amounts as management deems appropriate, subject to market and business conditions, regulatory requirements and other factors. The program does not obligate the company to repurchase any particular amount of common stock and may be suspended or discontinued at any time without notice. Furthermore, there can be no assurance that we will be able to repurchase our common stock and we may discontinue plans to repurchase common stock at any time.

We own a 100-acre, multi-building campus in Lancaster, Pennsylvania comprising the site of our corporate headquarters and most of our non-manufacturing operations.

As of December 31, ~~2019,~~2022, we ~~had 14~~operated 17 manufacturing plants, ~~in three countries, with 11~~including 15 plants located ~~throughout~~within the U.S.~~, which included~~ and two plants in Canada. This includes our St. Helens, Oregon mineral fiber manufacturing ~~facility,~~plant, which was closed in the second quarter of 2018. During 2019, as part of our acquisitions of ACGI and MRK, we acquired two additional plants located in Missouri and Illinois, respectively. We have two plants in Canada and one idle mineral fiber plant in China. The ~~idle plant in China is reported as a component of our Unallocated Corporate segment and is~~facility was classified as an asset held for sale as of December 31, ~~2019, as we entered into a sale agreement for the property during the third quarter of 2019 with closing expected in the second quarter of 2020.~~2022.

WAVE operates ~~five~~seven additional plants in the U.S. to produce suspension system (grid) products, which we use and sell in our ceiling systems.

~~Five~~Nine of our plants are leased and the remaining ~~nine~~eight are owned.

Sales and administrative offices are leased and/or owned, ~~worldwide,~~ and leased facilities are utilized to supplement our owned warehousing facilities.

Production capacity and the extent of utilization of our facilities are difficult to quantify with certainty. In any one facility, utilization of our capacity varies periodically depending upon demand for the product that is being manufactured. We believe our facilities are adequate and suitable to support the business. Additional incremental investments in plant facilities are made as appropriate to balance capacity with anticipated demand, improve quality and service, and reduce costs.

See the “Specific Material Events” section of the “Environmental Matters” section of Note 27 to the Consolidated Financial Statements, which is incorporated herein by reference, for a description of our significant legal proceedings. We are party to various other lawsuits, claims, investigations and other legal matters that arise in the ordinary course of business, including matters involving our products, intellectual property, relationships with suppliers, relationships with distributors, other customers or end users,

AWI’s common shares trade on the New York Stock Exchange under the ticker symbol “AWI.” As of February ~~18, 2020,~~15, 2023, there were ~~approximately 230~~225 holders of record of AWI’s common stock.

Dividends are payable when declared by our Board of Directors and in accordance with restrictions set forth in our debt agreements. In general, our debt agreements allow us to make “restricted payments,” which include dividends and stock repurchases, subject to certain limitations and other restrictions and provided that we are in compliance with the financial and other covenants of our debt agreements and meet certain liquidity requirements after giving effect to the restricted payment. We declared dividends on a quarterly basis, totaling ~~$0.725~~$0.947 per share in ~~2019.~~ 2022. On February ~~19, 2020,~~14, 2023, our Board of Directors declared a dividend of ~~$0.20~~$0.254 per common share outstanding. The dividend will be paid on March ~~20, 2020,~~16, 2023, to shareholders of record as of the close of business on March ~~5, 2020.~~ 2, 2023. For further discussion of the debt agreements, see the Financial Condition and Liquidity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Risk Factors in Item 1A in this Form 10-K.

Period

Total Number
of Shares
Purchased ⁽¹⁾

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Approximate Value
of Shares that may
yet be Purchased
under the Plans or
Programs

October 1 – 31, 2019

35,684

$
94.65

34,179

$
185,003,673

November 1 – 30, 2019

299,194

$
94.12

298,872

$
156,874,100

December 1 – 31, 2019

197,864

$
94.69

197,516

$
138,171,417

Total

532,742

530,567

(1)

Includes shares reacquired through the withholding of shares to pay employee tax obligations upon the exercise of options or vesting of restricted shares previously granted under our long-term incentive plans. For more information regarding securities authorized for issuance under our equity compensation plans, see Note 22 to the Consolidated Financial Statements included in this Form 10-K.

~~(1)~~

Includes shares reacquired through the withholding of shares to pay employee tax obligations upon the exercise of options or vesting of restricted shares previously granted under our long term incentive plans. For more information regarding securities authorized for issuance under our equity compensation plans, see Note 23 to the Consolidated Financial Statements included in this Form 10-K.

On July 29, 2016, ~~we announced that~~ our Board of Directors ~~had~~ approved aour share repurchase program pursuant to which we ~~were~~are authorized to repurchase up to ~~$150.0~~$1,200.0 million of our outstanding shares of common stock through ~~July~~December 31, ~~2018~~2023 (the “Program”). On October 30, 2017, we announced that our Board of Directors had approved an additional $250.0 million authorization to repurchase shares under the Program. The Program was also extended through October 31, 2020. On July 31, 2018, we announced that our Board of Directors had approved an additional $300.0 million authorization to repurchase shares, increasing the total authorized amount under the Program to $700.0 million, excluding commissions.

Repurchases under the Program may be made through open market, block and ~~privately-negotiated~~privately negotiated transactions, including Rule 10b5-1 plans, at such times and in such amounts as management deems appropriate, subject to market and business conditions, regulatory requirements and other factors. The Program does not obligate AWI to repurchase any particular amount of common stock and may be suspended or discontinued at any time without notice.

On August 2, 2018, we entered into an accelerated share repurchase (“ASR”) agreement with Deutsche Bank AG under the Program. The ASR included a pre-payment of $150.0 million to Deutsche Bank AG, at which time we received 1,766,004 shares. The ASR terminated on October 8, 2018, with an additional 389,825 shares returned on that day to complete the ASR.

During ~~2019,~~2022, we repurchased ~~1.5~~1.9 million shares under the Program for a total cost of ~~$131.2~~$165.0 million, excluding commissions, or an average price of ~~$86.02~~$87.31 per share. Since inception, ~~including the ASR,~~through December 31, 2022, we have repurchased ~~9.2~~12.4 million shares under the Program for a total cost of ~~$561.8~~$851.2 million, excluding commissions, or an average price of ~~$60.98~~$68.66 per share.

ITEM 6. [RESERVED]

~~SELECTED FINANCIAL DATA~~

The following selected historical consolidated financial data should be read in conjunction with our audited consolidated financial statements, the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-K. The selected historical consolidated financial data for the periods presented have been derived from our audited consolidated financial statements.

2019

2018

2017

2016

2015

(amounts in millions, except for per-share data)

Income statement data

Net sales

$
1,038.1

$
975.3

$
893.6

$
837.3

$
805.1

Operating income

317.4

249.4

243.8

195.9

166.6

Earnings from continuing operations

242.3

189.6

220.6

99.3

57.9

Per common share - basic (a)

$
4.97

$
3.68

$
4.12

$
1.79

$
1.04

Per common share - diluted (a)

$
4.88

$
3.63

$
4.08

$
1.78

$
1.03

Cash dividends per share of common stock

$
0.725

$
0.175

$
-

$
-

$
-

Balance sheet data (end of period)

Total assets (b)

$
1,493.3

$
1,838.3

$
1,838.3

$
1,758.0

$
2,687.2

Long-term debt

604.5

764.8

817.7

848.6

936.1

Total shareholders' equity (b)

364.9

226.0

384.1

266.4

768.8

~~Notes:~~20

~~(a)~~

~~See definition of basic and diluted earnings per share in Note 2 to the Consolidated Financial Statements.~~

~~(b)~~

~~During 2019~~, we revised the Consolidated Financial Statements and related notes included herein to correct a material error related to the previously reported estimated loss on sale of our EMEA and Pacific Rim businesses. The correction of the error increased the estimated loss on sale and reduced the assets held for sale by $35.2 million as of December 31, 2017. See Note 3 to the Consolidated Financial Statements for further discussion.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~ITEM 7.~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Armstrong World Industries, Inc. (“AWI”) is a Pennsylvania corporation incorporated in 1891.

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 Form 10-K.

Overview

~~We are~~AWI is a ~~leading producer of ceiling systems for use~~leader in the ~~construction~~design, innovation and ~~renovation~~manufacture of ~~commercial and residential buildings. We design, manufacture and sell~~ ceiling and wall ~~systems (~~solutions in the Americas. Our products primarily include mineral fiber, fiberglass wool, metal, wood, wood fiber, glass-reinforced-gypsum and ~~felt) throughout the Americas.~~

~~Acquisitions~~

~~In November 2019, we acquired the business and assets of MRK Industries, Inc. (“MRK”), based in Libertyville, Illinois. MRK is~~felt. We also manufacture ceiling suspension system (grid) products through 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.

In August 2018, we acquired the business and assets of Steel Ceilings, Inc. (“Steel Ceilings”), based in Johnstown, Ohio. Steel Ceilings is a manufacturer of aluminum and stainless metal ceilings that include architectural, radiant and security solutions with one manufacturing facility. Steel Ceilings’ operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.

In May 2018, we acquired the business and assets of Plasterform, Inc. (“Plasterform”), based in Mississauga, Ontario, Canada. Plasterform is a manufacturer of architectural cast ceilings, walls, facades, columns and moldings ~~with one manufacturing facility. Plasterform’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.~~

In January 2017, we acquired the business and assets of Tectum, Inc. (“Tectum”), based in Newark, Ohio. Tectum is a manufacturer of acoustical ceiling, wall and structural solutions for commercial building applications with two manufacturing facilities. Tectum’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 previously announced 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~~called Worthington Armstrong Venture (“~~Knauf”~~WAVE”).

COVID-19

The purchase price of $330.0 million was previously paid by Knauf to us during the third quarter of 2018 and is subject to certain post-closing adjustments for cash and debt as provided in the Share 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.

On July 18, 2018,the COVID-19 pandemic on our future consolidated results of operations remains uncertain. During 2020, we ~~entered into an amendment~~noted delays in construction driven by temporary closures of non-essential businesses, with the most significant impacts in certain major metropolitan areas impacted by COVID-19. Beginning in 2021, market conditions began to the Purchase Agreement, pursuant to which Knauf irrevocably and unconditionally paid AWI (i) $250.0 million of the purchase price on August 1, 2018, and (ii) $80.0 million of the purchase price on September 15, 2018, which payments were credited against the aggregate consideration payable at closing. The amendment also provided for the reduction (from a maximum of $35.0 million to a maximum of $20.0 million) of potential adjustments to the purchase price consideration for the transaction based onimprove as the impact of ~~remedies required~~the pandemic lessened. Throughout 2022, our results of operations continued to ~~satisfy competition conditions. Following receipt~~be impacted by delays in construction starts and extended project timelines, in addition to higher inflation, all of ~~these payments,~~which were related, in part, to the pandemic and subsequent recovery. We continue to monitor and manage the impact of COVID-19 and its potential impacts to our business.

In an effort to operate safely and responsibly, we ~~remitted $70.0 million~~continue to WAVE in partial consideration of the purchase price payable in respect of the businesses and operations of WAVE under the transaction. WAVE subsequently paid each of AWI and Worthington a dividend of $35.0 million. We have recorded a $25.9 million payable to WAVE for their remaining portion of the proceedsfollow guidelines from ~~Knauf, which is reflected within Accounts payable and accrued expenses in the Consolidated Balance Sheets as~~governmental health authorities across all our facilities. As of December 31, ~~2019. The transaction and final gain or loss amounts are subject to finalization~~2022, all of ~~customary working capital and other adjustments, as provided~~our manufacturing facilities were operational, excluding our St. Helens, Oregon facility which was idled in the ~~Purchase Agreement.~~ ~~For the year ended~~second quarter of 2018.

~~December 31, 2019, payments~~We did not record any asset impairments, inventory charges or material bad debt reserves related to ~~Knauf included $61.0 million of adjustments~~COVID-19 during 2022, 2021 or 2020, although future events may require such charges. We will continue to ~~cash consideration, estimated working capital adjustments~~evaluate the nature and ~~remedies, offset by $13.1 million of additional cash in international WAVE entities.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~On December 7, 2018, the European Commission granted conditional clearance~~extent of the ~~transaction, subject to~~COVID-19 pandemic’s impact on our financial condition, results of operations and cash flows.

Acquisitions

In December 2020, we acquired all issued and outstanding equity of Arktura LLC (“Arktura”) and certain commitments intended to address concerns regarding the overlap between the activities of AWI and Knauf, including the divestment by Knauf to a third party of certain mineral fiber and grid businesses andsubsidiaries with operations in ~~Austria, Estonia, Germany, Ireland, Italy, Latvia, Lithuania, Portugal, Spain, Turkey and~~ the United ~~Kingdom (“UK”). This included our sales operations~~States and Argentina. Arktura is a designer and fabricator of metal and felt ceilings, walls, partitions and facades with one manufacturing facility based in ~~each of the relevant countries, as well as our production facilities, and those of WAVE, located in Team Valley, UK.~~Los Angeles, California.

~~On May 23, 2019,~~In August 2020, we ~~entered into~~acquired the business and assets of Moz Designs, Inc. (“Moz”), based in Oakland, California. Moz is a ~~Transition Services Agreement~~designer and fabricator of custom architectural metal ceilings, walls, dividers and column covers for interior and exterior applications with ~~Knauf for its benefit~~one manufacturing facility.

In July 2020, we acquired all issued and ~~the benefit~~outstanding capital stock of ~~the buyer~~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 ~~the divestment business, pursuant to which we are providing certain transition technology, finance~~acoustic felt ceilings and ~~information technology support services during the period between March 18, 2019 and September 30, 2020.~~wall products.

~~On September 23, 2019, the European Commission approved the Sale, as well as the terms of the sale of the divestment business by Knauf and the identity of the purchaser.~~

The ~~EMEA and Pacific Rim segment historical financial results through September 30, 2019 have been reflected in AWI’s Consolidated Statements of Earnings and Comprehensive Income as discontinued~~ operations, ~~for all periods presented, while the~~ assets and liabilities of ~~discontinued operations have been removed from AWI’s Consolidated Balance Sheet as of December 31, 2019.~~

~~See Notes 6 and 7 to the Consolidated Financial Statements for additional information related to~~these acquisitions are included in our ~~acquisitions and discontinued operations.~~Architectural Specialties segment.

Manufacturing Plants

As of December 31, ~~2019,~~2022, we ~~had 14~~operated 17 manufacturing plants, ~~in three countries, with 11~~including 15 plants located within the ~~U.S, which included~~U.S. and two plants in Canada. This includes our St. Helens, Oregon mineral fiber manufacturing ~~facility,~~plant, which was closed in the second quarter of 2018. During 2019, as part of our acquisitions of ACGI and MRK, we acquired two additional plants located in Missouri and Illinois, respectively. We have two plants in Canada and one idle mineral fiber plant in China. The ~~idle plant in China is reported as a component of our Unallocated Corporate segment and is~~facility was classified as an asset held for sale as of December 31, ~~2019, as we entered into a sale agreement for the property during the third quarter of 2019 with closing expected in the second quarter of 2020.~~2022.

WAVE operates ~~five~~seven 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~~systems. Our mineral fiber products offer various performance attributes such as acoustical control, rated fire protection, aesthetic appeal, and ~~aesthetic appeal. Commercial ceiling~~health and sustainability features. Ceiling products are sold to resale distributors, ~~and to~~ ceiling systems ~~contractors. Residential ceiling products are sold primarily to~~contractors and 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~~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.

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

such as acoustical control, rated fire protection and aesthetic appeal. We sell standard, premium and customized products, ~~with the majority~~a portion of ~~Architectural Specialties revenues~~which are derived from sourced products. Architectural Specialties products are sold primarily to resale distributors and direct customers, primarily ceiling systems contractors. The majority of this segment's 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 ~~minor~~ portion of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations.

Unallocated Corporate -– includes certain assets, liabilities, income and expenses that have not been allocated to our other business segments and ~~consist~~consists 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 secured credit facility and income tax balances. Our Unallocated Corporate segment also includes all ~~assets, liabilities, income and~~ expenses related to our German defined benefit pension plan that was formerly reported in our ~~EMEA~~Europe, Middle East and Africa (including Russia) (“EMEA”) and Pacific Rim segments ~~that were~~and was not included in the ~~Sale.~~sale of certain subsidiaries comprising our businesses and operations in EMEA and the Pacific Rim, including the corresponding businesses and operations conducted by WAVE (collectively, the "Sale") to Knauf International GmbH (“Knauf”) in 2019.

Factors Affecting Revenues

For information on our segments’ ~~2019~~2022 net sales by geography, see Note 3 to the Consolidated Financial Statements included in this Form 10-K. For information on our segments’ 2022 net sales disaggregated by major customer groups, see Note 4 to the Consolidated Financial Statements included in this Form 10-K.

Markets. We compete in the ~~commercial and residential~~building product construction ~~markets.~~markets of the Americas. We closely monitor publicly available macroeconomic trends that provide insight into commercial ~~and residential~~construction market activity, including, but not limited to, GDP, office vacancy rates, the Architecture Billings Index, new commercial construction starts, state and local government spending, corporate profits and retail sales. The company continues to monitor the impacts of global events, including the conflict in Ukraine, which due to our Americas-only geography, had minimal direct impact on our results of operations in 2022.

We noted several factors and trends within our markets that directly affected our business performance during ~~2019.~~ In2022 compared to 2021, most importantly the elongated economic recovery from the COVID-19 pandemic combined with on-going challenges to global supply chains and labor availability, as well as to the impact of higher inflation. During the second half of 2022, we experienced market demand weakening and further project delays. These impacts were most pronounced for our Mineral Fiber segment, ~~softer demand for lower end products exceeded increased demand for high end products. In~~while our results benefited from improved performance within our Architectural Specialties segment, ~~we experienced strong growth due~~primarily driven by our 2020 acquisitions. During 2022, increased sales volumes contributed $33 million to the impact of the 2018 acquisitions of Plasterform and Steel Ceilings (collectively, the “2018 Acquisitions”) and the 2019 acquisitions of ACGI and MRK (collectively, the “2019 Acquisitions”). Our Architectural Specialties segment also experienced increased market penetration as a result of an expanded range of product offerings, and new construction activity.revenue compared to 2021.

~~The following table presents the impact of the 2018 Acquisitions and the 2019 Acquisitions on our Architectural Specialties segment (dollar amounts in millions):~~

Net sales

2019

2018

2018 Acquisitions

$
21.4

$
8.6

2019 Acquisitions

24.3

-

Total

$
45.7

$
8.6

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,~~Typically, realized price increases are less than ~~the~~ announced price increases because of project pricing, competitive ~~reactions~~adjustments 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 and like-for-like pricing impacting our revenues. We

estimate that favorable AUV increased our ~~Mineral Fiber and~~ total consolidated net sales for ~~2019~~2022 by approximately ~~$44~~$94 million compared to ~~2018.~~2021. Our Architectural Specialties segment ~~generates~~ revenues ~~that~~ are ~~generally~~primarily earned based on individual contracts that include a mix of products, both manufactured by us and sourced from third parties, ~~that vary~~which varies by project. As such, we do not track AUV performance for this segment, but rather attribute ~~all~~most changes in sales to volume.

~~In the first and third quarters~~During each quarter of ~~2019,~~2022, we implemented price increases on ~~certain~~ Mineral Fiber ceiling, ~~tile~~grid products and certain Architectural Specialties products. In the fourth quarter of ~~2019,~~2022, we also announced a price ~~increase~~increases on Mineral Fiber ceiling, ~~tile and~~ grid products ~~to be~~and certain Architectural Specialties products that became effective in the first quarter of ~~2020.~~2023. We may implement future pricing actions based on numerous ~~factors.~~factors, namely the rate and pace of inflation impact on our business.

Seasonality. ~~Generally,~~Historically, our sales ~~tend to be~~have been 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.

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

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 ~~individual~~ raw material expenditures are primarily for fiberglass, perlite, ~~starch, waste~~recycled paper and starch. Other raw materials include aluminum, clays, felt, pigment, steel, wood and wood ~~fiber, aluminum, steel, pigments and clays.~~ fiber. We manufacture most of ~~the production needs for~~our mineral wool needs 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. Global supply chain and labor disruptions have contributed to raw material, energy and transportation cost inflation. In ~~2019,~~2022, higher costs for raw materials and energy negatively impacted operating income by $1$34 million compared to ~~2018.~~2021. In addition, higher costs to transport goods to customers in 2022 resulted in a $6 million negative impact to operating income compared to 2021.

2020 Acquisition-Related Expenses and Losses (Gains)

In connection with our 2020 acquisitions of Turf, Moz and Arktura, we recorded certain acquisition-related expenses and losses (gains) to operating income in 2022, 2021 and 2020, summarized as follows (dollar amounts in millions):


	2022		2021			2020		Affected Line Item in the Consolidated Statements of Operations and Comprehensive Income
Deferred revenue	$	-	$	0.7		$	0.7	Net sales
Loss (gain) related to change in fair value of contingent consideration		11.0		(4.1	)		0.1	Loss (gain) related to change in fair value of contingent consideration
Deferred cash and restricted stock expenses		7.9		12.8			0.5	SG&A expenses
Inventory		-		0.3			0.1	Cost of goods sold
Net negative impact to operating income	$	18.9	$	9.7		$	1.4

The deferred revenue and inventory amounts above reflect the post-acquisition expenses associated with recording these liabilities and assets at fair value as part of purchase accounting. The change in fair value of contingent consideration is related to our Moz and Turf acquisitions and was remeasured quarterly during each acquisition's respective earn-out period. See Note 19 to the Consolidated Financial Statements for further information. Expenses related to the deferred cash and restricted stock awards for Arktura’s former owners and employees are recorded over their respective service periods, as such payments are subject to the awardees’ continued employment with AWI. Depreciation of fixed assets acquired and amortization of intangible assets acquired have been excluded from the table above. See Note 5 to the Consolidated Financial Statements for further information.

RESULTS OF OPERATIONS

This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

Please refer to Notes 3 and 6 to the Consolidated Financial Statements for a reconciliation of segment operating income to consolidated earnings from continuing operations before income taxes and additional financial information related to discontinued operations.

2022 COMPARED TO 2021

CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS

(dollar amounts in millions)


	2022		2021		Change is Favorable
Total consolidated net sales	$	1,233.1	$	1,106.6		11.4	%
Operating income	$	278.7	$	260.0		7.2	%

Consolidated net sales increased 11.4% with favorable AUV contributing $94 million and higher volumes contributing $33 million. Mineral Fiber net sales increased $69 million year-over-year and Architectural Specialties net sales increased $58 million. The increase in Mineral Fiber segment net sales was driven by improved AUV which was partially offset by lower volumes. Favorable AUV was driven by increased like-for-like pricing, partially offset by negative customer channel mix. Lower volumes resulted primarily from a reduction of inventory levels at certain customers in the first half of 2022, in addition to weakening market demand in the second half of the year. Architectural Specialties segment net sales increased due to broad based growth across our product categories.

Cost of goods sold was 63.6% of net sales in 2022, compared to 63.3% in 2021. The increase in cost of goods sold as a percent of net sales was driven by higher raw material, energy and freight inflation, partially offset by favorable AUV performance and improved manufacturing productivity.

SG&A expenses in 2022 were $237.0 million, or 19.2% of net sales, compared to $237.4 million, or 21.5% of net sales, in 2021. SG&A expense in 2022 included a $19 million decrease in intangible asset amortization and acquisition-related expenses related to the Architectural Specialties segment, which was offset by a $18 million increase in selling expenses primarily related to investments in capabilities and incentive compensation in support of increased Architectural Specialties sales and partially related to growth initiative investments.

In 2022 and 2021, we recorded $11.0 million of remeasurement losses for changes in the fair value of contingent consideration related to the acquisition of Turf. In 2021, we recorded $4.1 million of remeasurement gains for changes in the fair value of contingent consideration related to the acquisitions of Turf and Moz. See Note 19 to the Consolidated Financial Statements for further information.

Equity earnings from our WAVE joint venture were $77.6 million in 2022, compared to $87.7 million in 2021. The decrease in WAVE earnings resulted primarily from lower volumes and higher steel cost, partially offset by favorable AUV. WAVE volumes throughout 2022 were negatively impacted by a reduction of inventory levels at certain customers in addition to weakening market conditions in the second half of the year. See Note 11 to the Consolidated Financial Statements for further information.

Interest expense was $27.1 million in 2022, compared to $22.9 million in 2021. The increase in interest expense was primarily due to higher interest rates on floating rate debt.

Other non-operating income, net, was $6.0 million in 2022, compared to $5.6 million in 2021. Other non-operating income, net, is primarily comprised of the non-service cost components of pension and postretirement net period benefit costs. See Note 18 and Note 25 to the Consolidated Financial Statements for further information.

Income tax expense was $57.7 million in 2022, compared to $57.4 million in 2021. The effective tax rate for 2022 was 22.4% compared to a rate of 23.7% for 2021. The effective tax rate for 2022 decreased in comparison to 2021 due to an increase in benefits recognized from statute closures, in addition to a 2022 reduction in our valuation allowance for capital loss carryforwards.

Total Other Comprehensive Income (“OCI”) was $9.5 million in 2022, compared to Total Other Comprehensive Loss (“OCL”) of $0.3 million in 2021. The change in OCI was primarily driven by derivative gains. Derivative gain represents the adjustments to fair value of our derivative assets and liabilities and the recognition of gains and losses previously deferred in OCI. Also impacting the change in OCI were pension and postretirement adjustments and foreign currency translation adjustments. Pension and postretirement adjustments represent the amortization of actuarial gains and losses related to our defined benefit pension and postretirement plans. Foreign currency translation adjustments represent the change in the U.S. dollar value of assets and liabilities denominated in foreign currencies. Amounts in 2022 were driven primarily by changes in the Canadian dollar.

REPORTABLE SEGMENT RESULTS

Mineral Fiber

(dollar amounts in millions)


	2022		2021		Change is Favorable/ (Unfavorable)
Total segment net sales	$	887.4	$	818.5		8.4	%
Operating income	$	260.9	$	261.2		(0.1	)%

Net sales increased due to $95 million of favorable AUV, partially offset by a negative impact of $26 million from lower volumes. The improvement in AUV was driven by like-for-like pricing benefits, partially offset by negative customer channel mix. Volumes were negatively impacted by a reduction of inventory levels at certain customers in the first half of 2022 in addition to weakening market conditions in the second half of the year.

Operating income was unchanged from the prior year due to a $76 million benefit from favorable AUV, offset by a $40 million increase in manufacturing costs, primarily driven by increased raw material, energy and freight costs partially offset by improved manufacturing productivity, an $18 million decrease from lower sales volumes, a $10 million decrease in equity earnings and an $8 million increase in selling expenses, primarily due to investments in growth initiatives.

Architectural Specialties

(dollar amounts in millions)


	2022		2021		Change is Favorable
Total segment net sales	$	345.7	$	288.1		20.0	%
Operating income	$	21.7	$	4.2		416.7	%

Net sales increased $58 million, driven by broad based growth across our product categories.

Operating income increased due to a $30 million margin benefit from increased sales and a $14 million reduction in intangible asset amortization, partially offset by a $10 million increase in selling expenses, primarily related to investments in capabilities and incentive compensation, and a $6 million increase in manufacturing costs. Segment operating income also included a $9 million increase in acquisition-related expenses and losses, primarily due to the change in the fair value of contingent consideration.

Unallocated Corporate

Unallocated Corporate operating loss was $4 million in 2022 compared to $5 million in 2021.

FINANCIAL CONDITION AND LIQUIDITY

Cash Flow

Operating activities for 2022 provided $182.4 million of cash, compared to $187.2 million in 2021. The decrease was primarily due to negative timing-related working capital changes in accounts payable and accrued expenses, inventory and income tax payments, partially offset by a positive timing-related change in accounts receivable. These changes were partially offset by higher cash earnings.

Net cash provided by investing activities was $28.2 million for 2022, compared to $13.9 million used in 2021. The favorable change in cash was primarily due to an increase in dividends from our WAVE joint venture, the absence of purchase price adjustments paid to Knauf, and lower purchases of property, plant and equipment.

Net cash used for financing activities was $201.9 million in 2022, compared to $212.1 million in 2021. The favorable change in cash was primarily due to an increase in net borrowings under our revolving credit facility, partially offset by an increase in repurchases of outstanding common stock, payments of acquisition-related contingent consideration in 2022, and financing costs paid in connection with the amendment and restatement of our credit facility in December of 2022.

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.

On December 7, 2022, we amended and restated our $1,000.0 million variable rate senior secured credit facility. The $950.0 million amended senior secured credit facility is comprised of a $500.0 million revolving credit facility (with a $150.0 million sublimit for

letters of credit) and a $450.0 million Term Loan A. The terms of the amended senior secured credit facility resulted in a higher interest rate spread for both the revolving credit facility and Term Loan A (1.50% over the London Interbank Offered Rate (“LIBOR”) to initially 1.625% over the Secured Overnight Financing Rate (“SOFR”), plus a 10-basis point SOFR adjustment). The interest rate can fluctuate based upon our election of the floating rate, with applicable margin subject to adjustment based on our consolidated net leverage ratio. We also extended the maturity of both the revolving credit facility and Term Loan A from September 2024 to December 2027. In connection with the refinancing, we paid $3.1 million of bank, legal and other fees, of which $3.0 million were capitalized. These fees are reflected as a component of long-term debt and amortized into interest expense over the lives of the underlying debt. Additionally, during the fourth quarter of 2022, we wrote off $0.6 million of unamortized debt financing costs, included as a component of interest expense, related to our previous credit facility. We also have a $25.0 million bi-lateral letter of credit facility separate from the senior secured credit facility.

As of December 31, 2022, total borrowings outstanding under our senior secured credit facility were $205.0 million under the revolving credit facility and $450.0 million under Term Loan A.

The amended senior secured 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 (subject to certain exceptions for certain acquisitions). As of December 31, 2022, we were in compliance with all covenants of the senior secured credit facility.

The Term Loan A 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 28, 2018	$	200.0	November 2018 to November 2023	USD-LIBOR
September 19, 2022	$	25.0	September 2022 to December 2023	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
November 28, 2018	$	100.0	March 2021 to March 2025	USD-LIBOR

Under the terms of our interest rate swaps above, we pay a fixed rate monthly and receive 1-month LIBOR, 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.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to replace LIBOR rates with the SOFR effective in mid-2023. The Alternative Reference Rates Committee (“ARRC”) has proposed that the SOFR rate represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. In the second quarter of 2020, we adopted Accounting Standards Update 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of LIBOR. We have elected practical expedients available under Accounting Standards Update 2020-04 to allow for different reference rates in our senior secured credit facility and interest rate hedges.

We utilize lines of credit and other commercial commitments 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 (dollar amounts in millions):


	December 31, 2022
Financing Arrangements	Limit		Used		Available
Bi-lateral facility	$	25.0	$	8.1	$	16.9
Revolving credit facility		150.0		-		150.0
Total	$	175.0	$	8.1	$	166.9

The table below reflects future payments of long-term debt, excluding $3.9 million of unamortized debt financing costs, and the related interest payments, which are projected based on market-based interest rate swap curves (dollar amounts in millions):


	2023		2024		2025		2026		2027		Thereafter		Total
Long-term debt	$	-	$	22.5	$	22.5	$	22.5	$	587.5	$	-	$	655.0
Scheduled interest payments		33.5		33.0		28.5		27.2		24.7		-		146.9

As of December 31, 2022, we had $106.0 million of cash and cash equivalents, $89.3 million in the U.S. and $16.7 million in various foreign jurisdictions, primarily Canada. As of December 31, 2022, we also had $295.0 million available under our revolving credit facility. We believe cash on hand and cash generated from operations, together with borrowing capacity under our credit facility, will be adequate to address our near-term liquidity needs based on current expectations of our business operations, capital expenditures and scheduled payment of debt obligations. In 2023, we expect to spend approximately $75 million to $85 million on capital expenditures and approximately $45 million on dividends.

On July 29, 2016, our Board of Directors approved our share repurchase program pursuant to which we are authorized to repurchase up to $1,200.0 million of our outstanding shares of common stock through December 31, 2023 (the “Program”). We had $348.8 million remaining under the Board’s repurchase authorization as of December 31, 2022.

Repurchases under the Program may be made through open market, block and privately negotiated transactions, including Rule 10b5-1 plans, at such times and in such amounts as management deems appropriate, subject to market and business conditions, regulatory requirements and other factors. The Program does not obligate AWI to repurchase any particular amount of common stock and may be suspended or discontinued at any time without notice.

CRITICAL ACCOUNTING ESTIMATES

In preparing our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), we are required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on an on-going basis, using relevant internal and external information. We believe that our estimates and assumptions are reasonable. However, actual results may differ from what was estimated and could have a significant impact on the financial statements.

We have identified the following as our critical accounting estimates. We have discussed these critical accounting estimates with our Audit Committee.

U.S. Pension Credit and Postretirement Benefit Costs – We maintain significant pension and postretirement plans in the U.S. Our defined benefit pension and postretirement benefit costs are developed from actuarial valuations. These valuations are calculated using a number of assumptions, which represent management’s best estimate of the future. The assumptions that have the most significant impact on reported results are the discount rate, the estimated long-term return on plan assets and the estimated inflation in health care costs. These assumptions are generally updated annually.

Management utilizes the Aon Hewitt AA only above median yield curve, which is a hypothetical AA yield curve comprised of a series of annualized individual discount rates, as the primary basis for determining discount rates. As of December 31, ~~2019~~2022 and ~~2018,~~2021, we assumed discount rates of ~~3.16%~~5.21% and ~~4.30%~~2.98%, respectively, for ~~the~~our U.S. defined benefit pension plans. As of December 31, ~~2019~~2022 and ~~2018,~~2021, we assumed a discount rates of ~~3.14%~~5.12% and ~~4.31%~~2.72%, respectively, for ~~the~~our U.S. postretirement plan. The effects of the change in discount rate will be amortized into earnings as described below. Absent any other changes, a one-quarter percentage point increase or decrease in the discount rates for the U.S. pension and postretirement plans would ~~not have a material~~ impact ~~on 2020 operating or~~2023 non-operating ~~income.~~income by $0.4 million.

We manage two U.S. defined benefit pension plans, our RIP, which is a qualified funded plan, and a nonqualified unfunded plan. For the RIP, the expected long-term return on plan assets represents a long-term view of the future estimated investment return on plan assets. This estimate is determined based on the target allocation of plan assets among asset classes and input from investment professionals on the expected performance of the asset classes over 10 to 30 years. Historical asset returns are monitored and considered when we develop our expected long-term return on plan assets. An incremental component is added for the expected return from active management based on historical information obtained from the plan’s investment consultants. These forecasted gross returns are reduced by estimated management fees and expenses. Over the 10-year period ended December 31, ~~2019,~~2022, the historical annualized return was approximately ~~7.9%~~2.97% compared to an average expected return of ~~6.5%~~5.80%. The actual ~~gain~~loss on plan assets incurred

for ~~2019~~2022 was ~~16.6%~~20.71%, net of fees. The difference between the actual and expected rate of return on plan assets will be amortized into earnings as described below.

The expected long-term return on plan assets used in determining our ~~2019~~2022 U.S. pension cost was ~~5.75%~~3.75%. We have assumed a return on plan assets for ~~2020~~2023 of ~~5.25%~~6.50%. The ~~2020~~2023 expected return on assets was calculated in a manner consistent with ~~2019. A~~2022. Absent any other changes, a one-quarter percentage point increase or decrease in this assumption would ~~increase or decrease 2020~~impact 2023 non-operating income by ~~approximately $3.7~~$1.0 million.

Contributions to the unfunded pension plan were ~~$4.0~~$2.8 million in ~~2019~~2022 and were made on a monthly basis to fund benefit payments. We estimate the ~~2020~~2023 contributions will be approximately ~~$3.9~~$2.8 million. See Note 1918 to the Consolidated Financial Statements for more information.

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

The estimated inflation in health care costs represents a 5-10 year view of the expected inflation in our postretirement health care costs. We separately estimate expected health care cost increases for pre-65 retirees and post-65 retirees due to the influence of Medicare coverage at age 65, as illustrated below:

Assumptions

Actual

Post-65

Pre-65

Post-65

Pre-65

2018

9.2
%

8.0
%

9.0
%

2.5
%
2019

8.7
%

7.6
%

(9.7
)%

24.8
%
2020

8.2
%

7.2
%


	Assumptions						Actual
	Post-65			Pre-65			Post-65			Pre-65
2021		7.6	%		6.7	%		12.8	%		(48.1	)%
2022		7.1	%		6.6	%		7.4	%		22.7	%
2023		7.8	%		7.3	%

The difference between the actual and expected health care costs is amortized into earnings as described below. As of December 31, ~~2019,~~2022, health care cost increases are estimated to decrease ratably until ~~2026,~~2030, after which they are estimated to be constant at 4.50%. ~~A one percentage point increase or decrease in the assumed health care cost trend rate would not have a material impact on 2020 operating or non-operating income.~~ See Note 1918 to the Consolidated Financial Statements for more information.

Actual results that differ from our various pension and postretirement plan estimates are captured as actuarial gains/losses. When certain thresholds are met, the gains and losses are amortized into future earnings over the remaining life expectancy of participants. Changes in assumptions could have significant effects on earnings in future years.

Total net actuarial losses related to our U.S. pension benefit plans ~~decreased~~as of December 31, 2022 increased by ~~$36.6~~$19.8 million in ~~2019~~2022 primarily due to a ~~better~~less favorable than expected return on assets, partially offset by changes in actuarial assumptions (most significantly a ~~114 basis~~223-basis point ~~decrease~~increase in the discount rate). The ~~$36.6~~$19.8 million actuarial ~~gain~~loss impacting our U.S. pension plans is reflected as a component of other comprehensive income in our Consolidated ~~Statement~~Statements of ~~Earnings~~Operations and Comprehensive Income along with actuarial gains and losses from our foreign pension plan and our U.S. postretirement benefit plan.

On February 20, 2020, we entered into a commitment agreement with a third-party insurance company to partially settle approximately $1.0 billion of retiree benefit obligations under our RIP. See Note 19 to the Consolidated Financial Statements for further information.

Income Taxes – Our effective tax rate is primarily determined based on our pre-tax income, statutory income tax rates in the jurisdictions in which we operate, and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred income tax assets and liabilities. Deferred income tax assets are also recorded for state net operating losses (“NOL”), and capital loss ~~carryforwards, and foreign tax credit (“FTC”)~~ carryforwards.

Deferred income tax assets and liabilities are recognized by applying enacted tax rates to temporary differences that exist as of the balance sheet date. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, capital gain income, and foreign source income (“FSI”), the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.

As of December 31, ~~2019,~~2022, we have recorded valuation allowances totaling ~~$75.5~~$48.7 million for various federal and state deferred tax assets. While we have considered future taxable income in assessing the need for the valuation allowances based on our best available projections, if these estimates and assumptions change in the future or if actual results differ from our projections, we may be required to adjust our valuation allowances accordingly. Such adjustments could be material to our Consolidated Financial Statements.

As further described in Note 1716 to the Consolidated Financial Statements, our Consolidated Balance Sheet as of December 31, ~~2019~~2022 includes deferred income tax ~~assets~~liabilities of ~~$155.8 million. Included in this amount are~~$169.4 million, net of $112.6 million of deferred ~~federal income~~ tax ~~assets for FTC carryforwards of $13.1 million, federal and state capital loss carryforwards of $16.0 million, and state NOL deferred income tax assets of $54.8 million.~~assets. We have established $48.7 million of valuation allowances ~~in the amount of $75.5 million~~ consisting of ~~$13.1 million for federal deferred tax assets related to FTC carryovers, $46.4~~$31.3 million for state deferred tax assets, primarily operating loss ~~carryovers,~~carryforwards, and ~~$16.0~~$17.4 million for federal and state deferred tax assets related to capital loss ~~carryovers.~~carryforwards. Inherent in determining our effective tax rate are

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

judgments regarding business plans and expectations about future operations. These judgments include the amount and geographic mix of future taxable income, ~~the amount of FSI,~~ limitations on usage of NOL carryforwards, the impact of ongoing or potential tax audits, and other future tax consequences.

As of December 31, 2022 and 2021, we had $675.5 million and $700.9 million, respectively, of gross state NOL carryforwards expiring between 2023 and 2042. We estimate we will need to generate future U.S. taxable income of approximately ~~$681.6~~$360.1 million for state income tax purposes during the respective realization periods (ranging from ~~2020~~2023 to ~~2039) in order~~2042) to be able to fully realize the net state NOL deferred income tax assets.

Our ability to utilize deferred tax assets may be impacted by certain future events, such as changes in tax legislation and insufficient future taxable income prior to expiration of certain deferred tax assets.

We recognize the tax benefits of an uncertain tax position if those benefits are more likely than not to be sustained based on existing tax law. Additionally, we establish a reserve for tax positions that are more likely than not to be sustained based on existing tax law, but uncertain in the ultimate benefit to be sustained upon examination by the relevant taxing authorities. Unrecognized tax benefits are subsequently recognized at the time the more likely than not recognition threshold is met, the tax matter is effectively settled or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, whichever is earlier.

Impairments of ~~Long-Lived~~ Tangible Assets, Intangible Assets and Goodwill – Our indefinite-lived assets include goodwill and other intangibles, primarily trademarks and brand names. ~~Trademarks~~Those trademarks and brand names are integral to our corporate identity and expected to contribute indefinitely to our corporate cash flows. Accordingly, they have been assigned an indefinite life. We conduct our annual impairment tests for these indefinite-lived intangible assets and goodwill during the fourth quarter. These assets undergo more frequent tests if an indication of possible impairment exists. We conduct impairment tests for tangible assets and definite-lived intangible assets when indicators of impairment exist for the asset group, such as operating losses and/or negative cash flows.

In connection with the performance of an impairment test for tangible assets and definite-lived intangible assets, we compare the carrying amount of the asset group to the estimated undiscounted future cash flows expected to be generated by the assets. If the undiscounted cash flows of the asset group/reporting unit are less than the carrying value, an estimate of an asset group’s/reporting unit’s fair value is based on discounted future cash flows expected to be generated by the asset group/reporting unit, or based on management’s estimated exit price assuming the assets could be sold in an orderly transaction between market participants or estimated salvage value if no sale is assumed. If the fair value is less than the carrying value of the asset group/reporting unit, we record an impairment charge equal to the difference between the fair value and carrying value of the asset group/reporting unit.

In connection with the performance of an impairment test for indefinite-lived intangible assets and goodwill, we compare the carrying amount of the asset (when testing indefinite-lived intangible assets) and reporting unit (when testing goodwill) to the estimated fair value. For indefinite-lived intangible assets, the estimated fair value is based on discounted future cash flows using the relief from royalty method. For goodwill, the estimated fair value is based on discounted future cash flows expected to be generated by the reporting unit. If the fair value is less than the carrying value of the asset/reporting unit, we record an impairment charge equal to the difference between the fair value and carrying value of the asset/reporting unit.

The principal assumptions used in our impairment tests for definite-lived intangible assets is operating profit adjusted for depreciation and amortization and, if required to estimate the fair value, the discount rate. The principal assumptions used in our impairment tests for indefinite-lived intangible assets include revenue growth ~~rate,~~rates, discount rate and royalty rate. The principal assumptions utilized in our impairment tests for goodwill include after-tax cash flows growth rates and discount rate. Revenue growth rates, after-tax cash flows growth rates and operating profit assumptions are derived from those used in our operating plan and strategic planning processes. The discount rate assumption is calculated based upon an estimated weighted average cost of capital which reflects the overall level of inherent risk and the rate of return a market participant would expect to achieve. The royalty rate assumption represents the estimated contribution of the intangible assets to the overall profits of the related businesses. Methodologies used for valuing our intangible assets did not change from prior periods.

In ~~2019,~~2022, indefinite-lived intangibles and goodwill were tested for impairment based on the identified asset (for indefinite-lived intangibles) or on our identified ~~asset groups/~~reporting ~~units.~~units (for goodwill). There were no ~~material~~ impairment charges recorded in ~~2019, 2018~~2022, 2021 or ~~2017~~2020 related to intangible assets. We did not test tangible assets within our continuing operations for impairment in ~~2019, 2018~~2022, 2021 or ~~2017~~2020 as no indicators of impairment existed.

The revenue and cash flow estimates used in applying our impairment tests are based on management’s analysis of information available at the time of the impairment ~~test.~~test and represent a market participant view. Actual cash flows lower than the estimate could lead to significant future impairments. If subsequent testing indicates that fair values have declined, the carrying values would be reduced and our future statements of ~~income~~operations would be affected.

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

We cannot predict the occurrence of certain events that might lead to material impairment charges in the future. Such events may include, but are not limited to, the impact of economic environments, particularly related to the commercial and residential construction industries, material adverse changes in relationships with significant customers, or strategic decisions made in response to economic and competitive conditions. See Notes 43 and 1413 to the Consolidated Financial Statements for further information.

Environmental Liabilities – We are actively involved in the investigation, closure and/or remediation of existing or potential environmental contamination under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), and state Superfund and similar ~~type~~ environmental laws at ~~several~~two domestically owned ~~formerly owned and non-owned~~ locations allegedly resulting from past industrial activity. In a few cases, we are one of several potentially responsible parties and have agreed to jointly fund the required investigation, while preserving our defenses to the liability. We may also have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies.

We provide for environmental remediation costs and penalties when the responsibility to remediate is probable and the amount of associated costs is reasonably determinable. Accruals are estimates based on the judgment of management related to ongoing proceedings. Estimates of our future liability at the environmental sites are based on evaluations of currently available facts regarding each individual site. In determining the probability of contribution, we consider the solvency of other parties, the site activities of other parties, whether liability is being disputed, the terms of any existing agreements and experience with similar matters, and the effect of our October 2006 Chapter 11 reorganization upon the validity of the claim.

We evaluate the measurement of recorded liabilities each reporting period based on current facts and circumstances specific to each matter. The ultimate losses incurred upon final resolution may materially differ from the estimated liability recorded. Changes in estimates are recorded in earnings in the period in which such changes occur.

We are unable to predict the extent to which any recoveries from other parties or coverage under insurance policies might cover our final share of costs for these sites. Our final share of investigation and remediation costs may exceed any such recoveries, and such amounts net of insurance recoveries may be material. However, we do not expect the total future costs to have a material adverse effect on our liquidity or financial condition as the cash payments may be made over many years.

Business Combinations and Contingent Consideration – Acquired businesses are accounted for using the acquisition method of accounting, which requires that the purchase price be allocated to the assets acquired and liabilities assumed at their respective fair

values. Any excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed is recorded as goodwill. The estimated fair value of contingent consideration is recorded as a liability on the balance sheet at the date of acquisition. The purchase price allocation requires us to make significant estimates and assumptions, especially at the acquisition date, with respect to intangible assets and contingent consideration. Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience and information obtained from the management of the acquired companies. We engage independent, third-party valuation specialists to assist in determining the fair values of acquired intangible assets and contingent consideration.

Both the Moz and Turf acquisitions in 2020 included the potential for contingent earn-out payments based on the financial performance of the acquired companies. We estimated the fair value of these contingent consideration liabilities upon acquisition and are required to measure the liability at fair value each reporting period until the contingency is resolved, with changes in the fair value after the acquisition date affecting earnings in the period of the estimated fair value change. See Notes 5 and 19 to the Consolidated Financial Statements for further information.

The principal assumptions used in valuing certain intangible assets and contingent consideration include future expected cash flows from sales and acquired developed technologies, the acquired company's trade names and customer relationships as well as assumptions about the period of time the acquired trade names and customer relationships will continue to be used in the combined company's portfolio, the probability of meeting the future revenue and EBITDA growth targets and discount rates used to determine the present value of estimated future cash flows.

These estimates are inherently uncertain and unpredictable, and if different estimates were used, the total consideration including the estimated fair value of the contingent consideration, could be allocated to the acquired assets and liabilities differently from the allocation that we have made. In addition, unanticipated events and circumstances may occur, which may affect the accuracy or validity of such estimates, and if such events occur we may be required to record a charge against the value assigned to an acquired asset or an increase in the amounts recorded for assumed liabilities.

ACCOUNTING PRONOUNCEMENTS EFFECTIVE IN FUTURE PERIODS

~~See Note 2~~There were no new accounting pronouncements issued or effective during the fiscal year which have had or are expected to have a material impact on the Consolidated Financial ~~Statements for further information.~~

~~RESULTS OF OPERATIONS~~

This section of this Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.

Unless otherwise indicated, net sales in these results of operations are reported based upon the AWI location where the sale was made. Please refer to Notes 3 and 6 to the Consolidated Financial Statements for a reconciliation of segment operating income to consolidated earnings from continuing operations before income taxes and additional financial information related to discontinued operations.

~~2019 COMPARED TO 2018~~Statements.

~~CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS~~

~~(dollar amounts in millions)~~

2019

2018

Change is Favorable

Total consolidated net sales

$
1,038.1

$
975.3

6.4
%
Operating income

$
317.4

$
249.4

27.3
%

Consolidated net sales increased due to favorable AUV of $44 million and higher volumes of $19 million. Mineral Fiber net sales increased by $25 million and Architectural Specialties net sales increased by $38 million.

Cost of goods sold was 61.9% of net sales in 2019, compared to 65.8% in 2018. The decrease in cost of goods sold as a percent of net sales in comparison to 2018 was driven primarily by a $27 million reduction in cost of goods sold due to savings from the closure of

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

our St. Helens manufacturing plant during the second quarter of 2018, combined with the absence of accelerated depreciation and related costs attributable to the closed facility, and increased price realization in excess of inflation.

SG&A expenses in 2019 were $174.3 million, or 16.8% of net sales, compared to $159.0 million, or 16.3% of net sales, in 2018. The increase in SG&A expenses was primarily due to a $13 million increase in legal and professional fees, including expenses and attorney’s fees paid under our litigation settlement agreement with Roxul USA, Inc. (“Rockfon”). Also contributing to the increase in SG&A expenses was the impact of the 2018 Acquisitions and the 2019 Acquisitions. Partially offsetting the impact of these increases in SG&A expenses was $5 million of cost reimbursements, net of expenses, earned in 2019 under our Transition Services Agreement with Knauf and a $4 million reduction in share-based compensation expense.

Equity earnings from our WAVE joint venture were $96.6 million in 2019, compared to $74.9 million in 2018. During 2019 and as a result of the Sale, we recorded a $21 million increase in WAVE equity earnings, representing our 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 relationship and developed technology intangible assets. Excluding the impact of our portion of WAVE’s gain on the Sale and the write-off, WAVE equity earnings increased as a result of increases in AUV, partially offset by investments in manufacturing and lower volumes. Negatively impacting WAVE equity earnings for 2019 was a $1 million partial pension settlement charge. See Note 12 to the Consolidated Financial Statements for further information.

Interest expense was $38.4 million in 2019, compared to $39.2 million in 2018. The decrease in interest expense in 2019 was driven primarily by lower interest rates and the refinancing of our credit facility on September 30, 2019. In connection with the refinancing~~, we wrote off $2.7 million of unamortized debt financing costs, included as a component of interest expense, related to our previous credit facility.~~

Other non-operating income was $20.4 million in 2019, compared to $32.5 million in 2018. The decrease was primarily related to lower credits from non-service cost components associated with our RIP. See Note 19 to the Consolidated Financial Statements for further information.

Income tax expense was $57.1 million in 2019, compared to $53.1 million in 2018. The effective tax rate for 2019 was 19.1% as compared to a rate of 21.9% for 2018. The effective tax rate was lower in 2019 as a result of our share of WAVE’s gain on sale of its EMEA and Pacific Rim businesses having no related income tax expense, in addition to a favorable impact of state deferred tax asset adjustments.

Total other comprehensive income (loss) (“OCI”) was $83.4 million of income in 2019, compared to a $59.4 million loss for 2018. The change was driven by $83.8 million of Accumulated Other Comprehensive Income (“AOCI”) adjustments related primarily to foreign currency translation adjustments that were reclassified out of AOCI concurrent with the Sale. Foreign currency translation adjustments represent the change in the U.S. dollar value of assets and liabilities denominated in foreign currencies. Also impacting the change in OCI in both periods was pension and postretirement adjustments and derivative losses. Pension and postretirement adjustments represent the amortization of actuarial gains and losses related to our defined benefit pension and postretirement plans. 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~~30

~~(dollar amounts in millions)~~

2019

2018

Change is Favorable

Total segment net sales

$
826.6

$
801.6

3.1
%
Operating income

$
289.6

$
223.8

29.4
%

Net sales increased due to favorable AUV of $44 million, partially offset by lower volumes of $19 million. The favorable AUV was due to favorable price and improved mix from the sale of higher end ceiling tile products.

Operating income increased due primarily to a $21 million increase in WAVE equity earnings relating to the Sale. Also contributing to the increase was $31 million of favorable AUV and a $27 million increase in operating income due to savings from the closure of our St. Helens manufacturing plant during the second quarter of 2018, combined with the absence of accelerated depreciation and related costs attributable to the closed facility. Partially offsetting the operating income increase was a $13 million increase in costs

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

associated with the Rockfon litigation settlement, a $12 million negative impact from lower volumes, $5 million of cost reimbursements, net of related expenses, earned in 2019 under our Transition Services Agreement with Knauf, and a $4 million reduction in share-based compensation expense.

~~Architectural Specialties~~

~~(dollar amounts in millions)~~

2019

2018

Change is Favorable

Total segment net sales

$
211.5

$
173.7

21.8
%
Operating income

$
35.9

$
34.3

4.7
%

Net sales increased due to the full year impact of the 2018 Acquisitions, and the 2019 Acquisitions (see table in Factors Affecting Revenue), in addition to higher volumes from increased market penetration as a result of an expanded range of product offerings, and new construction activity.

Operating income increased due to the positive impact of higher sales volume, partially offset by additional investments in selling and design capacities and intangible asset amortization expense related to the 2018 Acquisitions and the 2019 Acquisitions.

~~Unallocated Corporate~~

~~Unallocated Corporate expense of $8 million decreased from $9 million in the prior year primarily due to lower service cost associated with our RIP.~~

~~FINANCIAL CONDITION AND LIQUIDITY~~

~~Cash Flow~~

~~The discussion that follows includes cash flows related to discontinued operations, primarily operations sold in the Sale.~~

Operating activities for 2019 provided $182.7 million of cash, compared to $203.2 million of cash provided in 2018. The decrease was primarily due to an increase in working capital, most notably a decrease in receipts of environmental insurance settlements, partially offset by higher cash earnings.

Net cash used for investing activities was $89.1 million for 2019, compared to $309.6 million of cash provided in 2018. The decrease resulted primarily from $47.9 million of payments to Knauf as a result of the Sale combined with the absence of $330.0 million of proceeds received from Knauf in 2018 related to the sale of our EMEA and Pacific Rim businesses, partially offset by $70.0 million of payments to WAVE. Also contributing to the decrease was the cash paid for the acquisitions of ACGI and MRK, and a decrease in dividends from our WAVE joint venture.

Net cash used for financing activities was $384.9 million in 2019, compared to $329.3 million in 2018. The unfavorable change in use of cash was primarily due to higher net debt payments as a result of our September 2019 debt refinancing, higher share tax withholdings from employee stock awards and the payment of dividends, partially offset by a lower repurchases of outstanding common stock.

~~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 generally lower during the first and fourth quarters of our fiscal year.

As of June 30, 2019, total debt outstanding under our $1,050.0 million variable rate senior credit facility was $525.0 million under Term Loan A and $241.9 million under Term Loan B, with no borrowings outstanding under the revolving credit facility. On July 3, 2019, we used cash on hand to make a voluntary prepayment of $100.0 million of the debt outstanding under Term Loan B. Term Loan B was priced at 2.75% over the London Interbank Offered Rate (“LIBOR”). On September 30, 2019, we refinanced our $1,050.0 million variable rate senior credit facility, using cash on hand to pay down a portion of the debt outstanding, including the debt outstanding under Term Loan B. The $1,000.0 million amended senior credit facility is composed 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 terms of the amended credit facility resulted in a lower interest rate spread for both the revolving credit facility (2.00% to 1.50% over LIBOR) and Term Loan A (1.75% to 1.50% over LIBOR). We also extended the maturity of both the revolving credit facility and Term Loan A from April 2021

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

~~to September 2024.~~ 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 subsidiaries, primarily 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 December 31, 2019, total borrowings outstanding under our senior credit facility were $115.0 million under the revolving credit facility and $500.0 million under Term Loan A.~~

The refinanced 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 December 31, 2019, we were in compliance with all covenants of the senior credit facility.

~~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

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.~~

~~These swaps are designated as cash flow hedges against changes in LIBOR for a portion of our variable rate debt.~~

During the fourth quarter of 2019, we used proceeds from our revolving credit facility to pay off a $35.0 million variable rate, tax exempt industrial development bond that financed the construction of a plant in prior years. The bond was remarketed by an agent on a regular basis at a market-clearing interest rate.

~~As of December 31, 2019, we had $45.3 million of cash and cash equivalents, $29.8 million in the U.S and $15.5 million in various foreign jurisdictions, primarily Canada.~~

As of December 31, 2019, we had a $36.2 million Accounts Receivable Securitization Facility with the Bank of Nova Scotia (the “funding entity”) that matures in March 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 limited liability company special purpose entity created specifically for this transaction; therefore, any receivables sold to ARC are not available to the general creditors of AWI. ARC then sells an undivided interest in the purchased accounts receivables to the funding entity. This undivided interest acts as collateral for drawings on the facility. 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. During the first quarter of 2020, we expect to amend the facility to reduce the purchase limit from $36.2 million to $30.0 million and to extend its maturity to March 2021.

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

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 (dollar amounts in millions):

December 31, 2019

Financing Arrangements

Limit

Used

Available

Accounts receivable securitization facility

$
36.2

$
-

$
36.2

Bi-lateral facility

25.0

11.4

13.6

Revolving credit facility

150.0

-

150.0

Total

$
211.2

$
11.4

$
199.8

As of December 31, 2019, there was no restricted cash under our accounts receivable securitization facility for letters of credit issued in excess of our maximum limit. As of December 31, 2018, $6.0 million of letters of credit issued under our accounts receivable securitization facility in excess of our maximum limit was classified as restricted cash and reported as a component of Cash and cash equivalents on our Consolidated Balance Sheets.

We believe that cash on hand and cash generated from operations, together with lines of credit, availability under our revolving credit facility, will be adequate to address our foreseeable liquidity needs based on current expectations of our business operations, capital expenditures and scheduled payments of debt obligations.

~~OFF-BALANCE SHEET ARRANGEMENTS~~

~~No disclosures are required pursuant to Item 303(a)(4) of Regulation S-K.~~

~~CONTRACTUAL OBLIGATIONS~~

As part of our normal operations, we enter into numerous contractual obligations that require specific payments during the term of the various agreements. The following table includes amounts ongoing under contractual obligations existing as of December 31, 2019. Only known payments that are dependent solely on the passage of time are included. Obligations under contracts that contain minimum payment amounts are shown at the minimum payment amount. Contracts that contain variable payment structures without minimum payments are excluded. Purchase orders that are entered into in the normal course of business are also excluded because they are generally cancelable and not legally binding. Amounts are presented below based upon the currently scheduled payment terms. Actual future payments may differ from the amounts presented below due to changes in payment terms or events affecting the payments.

(dollar amounts in millions)

2020

2021

2022

2023

2024

Thereafter

Total

Long-term debt ⁽¹⁾

$
6.3

$
25.0

$
25.0

$
25.0

$
533.7

$
-

$
615.0

Scheduled interest payments⁽²⁾

18.5

19.4

18.8

17.8

11.6

0.3

86.4

Operating lease obligations, net of sublease
income⁽³⁾

6.6

5.8

5.1

4.4

3.6

17.5

43.0

Unconditional purchase obligations⁽⁴⁾

23.6

9.9

4.2

1.2

0.2

-

39.1

Pension contributions ⁽⁵⁾

3.9

3.8

3.7

3.6

3.5

-

18.5

Total contractual obligations

$
58.9

$
63.9

$
56.8

$
52.0

$
552.6

$
17.8

$
802.0

⁽¹⁾	~~Excludes $4.2 million of unamortized debt financing costs as of December 31, 2019.~~

⁽²⁾	~~For debt with variable interest rates and interest rate swaps, we projected future interest payments based on market-based interest rate swap curves.~~

⁽³⁾	Lease obligations include the undiscounted lease payments due under existing agreements with non-cancelable lease terms in excess of one year. Reasonably certain renewal periods are included and non-lease components are excluded.

⁽⁴⁾

Unconditional purchase obligations include (a) purchase contracts whereby we must make guaranteed minimum payments of a specified amount regardless of how little material is actually purchased (“take or pay” contracts) and (b) service agreements. Unconditional purchase obligations exclude contracts entered into during the normal course of business that are non-cancelable and have fixed per unit fees, but where the monthly commitment varies based upon usage. Cellular phone contracts are an example.

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

⁽⁵⁾	Pension contributions include estimated contributions for our unfunded U.S. Retirement Benefit Equity Plan. We are not presenting estimated payments in the table above beyond 2024 as funding can vary from year to year based upon changes in funding regulations and actuarial assumptions.

~~The table above excludes $34.7 million of unrecognized tax benefit liabilities under ASC 740~~ ~~“Income Taxes.”~~ Due to the uncertainty relating to these positions, we are unable to reasonably estimate the ultimate amount or timing of the settlement of these issues. See Note 17 to the Consolidated Financial Statements for more information.

This table excludes obligations related to postretirement benefits (retiree health care and life insurance) since we voluntarily provide these benefits. The amount of benefit payments we made in 2019 was $9.4 million. See Note 19 to the Consolidated Financial Statements for additional information regarding future expected cash payments for postretirement benefits.

Letters of credit are currently arranged through 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 summarizes the commitments we have available for use as of December 31, 2019.

Other Commercial Commitments
(dollar amounts in millions)

Total Amounts Committed

Less
Than 1
Year

1 – 3
Years

4 – 5
Years

Over 5
Years

Letters of credit

$
11.4

$
11.4

$
-

$
-

$
-

In connection with our disposition of certain assets through a variety of unrelated transactions, we have entered into contracts that included various indemnity provisions, some of which are customary for such transactions, while others hold the acquirer of the assets harmless with respect to liabilities relating to such matters as taxes, environmental and other litigation. Some of these provisions include exposure limits, but many do not. Due to the nature of the indemnities, it is not possible to estimate the potential maximum exposure under these contractual provisions. As of December 31, 2019, we had no liabilities recorded for which an indemnity claim had been received.

~~ITEM 7A.~~

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Our primary exposure to market risk is from changes in interest rates that could impact our results of operations, cash flows and financial condition. We use ~~forward swap contracts~~interest rate derivatives to ~~hedge these exposures. The Company utilizes~~manage our exposures to interest rates. We utilize derivative financial instruments as risk management tools and not for speculative trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage our exposure to potential nonperformance on such instruments. ~~We regularly monitor developments in the capital markets.~~

In ~~July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to replace LIBOR rates with the Secured Overnight Financing Rate ("SOFR") effective in late 2021.~~December 2022, we amended and restated our senior secured credit facility. The Alternative Reference Rates Committee ("ARRC") has proposed that the SOFR rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposedsenior secured credit facility is initially priced on a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. The Company will monitor the new SOFR rates and regulation related to our debt,variable interest rate ~~hedging instruments~~of 1.625% over SOFR, plus a 10-basis point SOFR adjustment. The interest rate can fluctuate based upon our election of the floating rate, with applicable margin subject to adjustment based on our consolidated net leverage ratio. We have elected practical expedients available under U.S. GAAP to allow for different reference rates in our senior secured credit facility and ~~other contracts that are indexed to USD-LIBOR.~~interest rate hedges.

Counterparty Risk

We only enter into derivative transactions with established financial institution counterparties having an investment-grade credit rating. We monitor counterparty ~~credit default swap levels and~~ credit ratings on a regular basis. All of our derivative transactions with counterparties are governed by master International Swap and Derivatives Association agreements (“ISDAs”) with netting arrangements. These agreements can limit our exposure in situations where we have gain and loss positions outstanding with a single counterparty. We do not post nor do we receive cash collateral with any counterparty for our derivative transactions. These ISDAs do not have any credit contingent features; however, a default under our bank credit facility would trigger a default under these agreements. Exposure to individual counterparties is controlled and we consider the risk of counterparty default to be negligible.

Interest Rate Sensitivity

We are subject to interest rate variability on our Term Loan A and revolving credit facility. A hypothetical increase of one-quarter percentage point in ~~LIBOR~~SOFR interest rates from December 31, ~~2019~~2022 levels would increase ~~2020~~2023 interest expense by approximately ~~$2.2~~$0.7 million. We ~~also~~ have ~~$400.0 million of~~ active interest rate swaps outstanding, which effectively fix the interest rates for a portion of our debt. These ~~active~~ interest rate swaps are included in this calculation.

As of December 31, ~~2019,~~2022, we had interest rate swaps outstanding ~~on Term Loan A,~~ with notional amounts of ~~$500.0~~$425.0 million. We utilize interest rate swaps to minimize the fluctuations in earnings caused by interest rate volatility. Under the terms of ~~the Term Loan A~~these swaps, we receive 1-month LIBOR and pay a fixed rate over the hedged period. The following table summarizes our interest rate swaps as of December 31, ~~2019~~2022 (dollar amounts in millions):

Trade Date

Notional

Amount

Coverage Period

Risk Coverage

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

200.0

November 2018 to November 2023

USD-LIBOR

September 19, 2022

25.0

September 2022 to December 2023

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

November 28, 2018

100.0

March 2021 to March 2025

USD-LIBOR

100.0

March 2021 to March 2025

USD-LIBOR

These swaps are designated as cash flow hedges against changes in LIBOR for a portion of our variable rate debt. The net ~~liability~~asset measured at fair value was ~~$14.3~~$11.4 million atas of December 31, ~~2019.~~2022.

The table below provides information about our long-term debt obligations as of December 31, ~~2019,~~2022, including payment requirements and related weighted-average interest rates by scheduled maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve and are exclusive of our interest rate swaps.


Scheduled maturity date (dollar amounts in millions)	2020			2021			2022			2023			2024			After 2025		Total			2023			2024			2025			2026			2027			After 2027		Total
Variable rate principal payments	$	6.3		$	25.0		$	25.0		$	25.0		$	533.7		$	-	$	615.0		$	-		$	22.5		$	22.5		$	22.5		$	587.5		$	-	$	655.0
Average interest rate		3.15	%		3.07	%		3.11	%		3.18	%		2.51	%		-		2.59	%		4.73	%		3.50	%		2.75	%		2.70	%		2.75	%		-		2.77	%

Variable rate ~~principle~~principal payments reflected in the preceding table exclude ~~$4.2~~$3.9 million of unamortized debt financing costs as of December 31, ~~2019.~~ 2022.

~~ITEM 8.~~

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SUPPLEMENTARY DATA

Quarterly Financial Information for the ~~Years~~Quarter Ended December 31, ~~2019 and 2018~~2022 (Unaudited)

The following consolidated financial statements are filed as part of this Annual Report on Form 10-K:

Reports of Independent Registered Public Accounting Firm.

Consolidated Statements of ~~Earnings~~Operations and Comprehensive Income for the Years Ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017.~~2020.

Consolidated Balance Sheets as of December 31, ~~2019~~2022 and ~~2018.~~2021.

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017.~~2020.

Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017.~~2020.

Notes to Consolidated Financial Statements.

Schedule II for the Years Ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017.~~2020.

Armstrong World Industries, Inc., and Subsidiaries

Quarterly Financial Information (unaudited)

(dollar amounts in millions, except for per share data)

First

Second

Third

Fourth

2019

Net sales

$
242.1

$
272.0

$
277.1

$
246.9

Gross profit

91.4

103.4

111.7

88.6

Earnings from continuing operations

Per share of common stock:

Basic

$
0.75

$
1.30

$
1.86

$
1.06

Diluted

$
0.73

$
1.28

$
1.83

$
1.04

Price range of common stock - high

$
79.53

$
99.27

$
104.50

$
103.66

Price range of common stock - low

$
57.38

$
79.77

$
91.16

$
89.58

Cash dividend per common share

$
0.175

$
0.175

$
0.175

$
0.200

2018

Net sales

$
227.3

$
248.6

$
260.5

$
238.9

Gross profit

70.8

82.7

97.9

82.1

Earnings from continuing operations

41.2

47.6

64.2

36.6

Per share of common stock:

Basic

$
0.78

$
0.91

$
1.26

$
0.74

Diluted

$
0.76

$
0.90

$
1.23

$
0.73

Price range of common stock - high

$
64.60

$
65.00

$
73.45

$
71.50

Price range of common stock - low

$
55.65

$
54.45

$
62.15

$
54.34

Cash dividend per common share

$
-

$
-

$
-

$
0.175

Note: The net sales and gross profit amounts above are reported on a continuing operations basis. The sum of the quarterly earnings per share data may not equal the total year amounts due to changes in the average shares outstanding and, for diluted data, the exclusion of the anti-dilutive effect in certain quarters.

~~Armstrong World Industries, Inc., and Subsidiaries~~

~~Quarterly Financial Information (unaudited)~~

~~(dollar amounts in millions, except for per share data)~~

Fourth Quarter ~~2019~~2022 Compared ~~With~~To Fourth Quarter ~~2018~~2021 – Continuing Operations

Consolidated fourth-quarter 2022 net sales of ~~$246.9~~$304.5 million inincreased 7.8% compared to the ~~fourth~~prior year quarter, ~~of 2019 increased 3.3% due to~~driven by favorable AUV of $9$29 million which was partially offset by lower volumes of $1$7 million.

Mineral Fiber net sales increased ~~3.0%~~4.2% due to favorable AUV of $9$30 million which was partially offset by lower volumes of $3$21 million. Architectural Specialties net sales increased ~~4.6%~~17.5% due to ~~higher volumes, primarily as a result of the impact of the 2019 Acquisitions, partially offset by unfavorable project timing and extended lead times from a third party supplier.~~broad based growth across our product categories.

For the fourth quarter of ~~2019,~~2022, cost of goods sold was ~~64.1%~~63.4% of net sales, compared to ~~65.6%~~63.7% in ~~2018.~~the fourth quarter of 2021. The year-over-year decrease in cost of goods sold as a percent of net sales ~~in comparison to 2018~~ was driven ~~primarily~~ by ~~the absence of $2 million of costs attributable to the closure of our St. Helens, Oregon facility in addition to increased price realization in excess of inflation,~~favorable AUV and improved manufacturing productivity which was partially offset by ~~increases in cost of goods sold related to the 2019 Acquisitions.~~higher raw material, energy and freight inflation.

SG&A expenses ~~for~~in the fourth quarter of ~~2019~~2022 were ~~$40.0~~$59.1 million, or ~~16.2%~~19.4% of net sales compared to ~~$45.3~~$60.9 million, or ~~19.0%~~21.6% of net sales, ~~for~~in the fourth quarter of ~~2018.~~2021. The decrease in SG&A expenses was driven primarily by a $4 million decrease in ~~legal~~intangible asset amortization and professional fees, $3 million of cost reimbursements, net of expenses, earned in 2019 under our Transition Services Agreement with Knauf and a $3 million reduction in share-based compensation expense. These decreases in SG&A expenses were partially offset by higheracquisition-related expenses related to the ~~impact of the 2019 Acquisitions.~~ Architectural Specialties segment and a $1 million decrease in incentive and deferred compensation expense, which was partially offset by a $4 million increase in selling expenses.

~~Equity earnings in~~In the fourth quarter of ~~2019 were $13.6~~2022, the changes in the fair value of contingent consideration resulted in $2.3 million ~~compared~~of remeasurement gains for changes in the fair value of contingent consideration related to ~~$15.7 million for~~the acquisition of Turf. In the fourth quarter of ~~2018. During the fourth quarter of 2019 and as a result of the Sale,~~2021, we recorded ~~a $5~~$5.6 million ~~decrease~~of remeasurement losses for changes in ~~WAVE equity earnings, representing our share~~the fair value of ~~WAVE’s fourth quarter~~contingent consideration related to the acquisitions of ~~2019 loss on sale of its discontinued European~~Turf and Pacific Rim businesses. Excluding the impact of our portion of WAVE’s fourth quarter loss on the Sale, WAVE equity earnings increased due to higher sales volumes and lower input costs, particularly steel.Moz. See Note 1219 to the Consolidated Financial Statements for further information.

~~Operating income was $62.2~~Equity earnings in the fourth quarter of 2022 were $15.9 million compared to $19.6 million in the fourth quarter of ~~2019 compared~~2021. The decrease in WAVE earnings resulted primarily from lower volumes which were partially offset by favorable AUV. See Note 11 to ~~$52.5~~the Consolidated Financial Statements for further information.

Operating income increased 27.2% to $70.6 million in the fourth quarter of ~~2018.~~2022 compared to $55.5 million in the fourth quarter of 2021.

Interest expense in the fourth quarter of ~~2019 decreased to $6.8~~2022 was $9.2 million compared to ~~$10.3~~$5.5 million in the fourth quarter of ~~2018~~2021. The increase in interest expense was primarily due to ~~lower borrowings, a reduced cost of~~higher interest rates on floating rate debt, ~~as a result of our September 30, 2019 refinancing and a decrease in LIBOR.~~coupled with slightly higher average debt balances.

Fourth quarter income tax expense was ~~$8.3~~$14.5 million on pre-tax earnings ~~from continuing operations~~ of ~~$59.8~~$63.3 million in ~~2019~~2022 compared to ~~income tax expense of $10.8~~$9.4 million on a pre-tax earnings ~~from continuing operations~~ of ~~$47.4~~$51.3 million in ~~2018.~~2021. The effective tax rate for the fourth quarter of ~~2019~~2022 was ~~lower~~higher than the same period in ~~2018~~2021 primarily due to ~~discrete tax benefits~~a lower benefit from statute closures.

Basic and diluted earnings per share were $1.07 in the fourth quarter of ~~2019 related~~2022, compared to ~~federal stock compensation deductions~~basic and ~~state deferred tax benefits~~diluted earnings per share of $0.88 in the fourth quarter of 2021..

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation and the criteria in the COSO framework, our management concluded that our internal control over financial reporting was effective as of December 31, ~~2019.~~2022.

KPMG LLP, an independent registered public accounting firm, audited our internal control over financial reporting as of December 31, ~~2019,~~2022, as stated in their report included herein.

/s/ Victor D. Grizzle

Victor D. Grizzle

Director, President and Chief Executive Officer

/s/ ~~Brian L. MacNeal~~Christopher P. Calzaretta

~~Brian L. MacNeal~~Christopher P. Calzaretta

Senior Vice President and Chief Financial Officer

/s/ ~~Stephen F. McNamara~~James T. Burge

~~Stephen F. McNamara~~James T. Burge

Vice President and Corporate Controller

February ~~25, 2020~~21, 2023

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Armstrong World Industries, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Armstrong World Industries, Inc. and ~~subsidiaries’~~subsidiaries' (the Company) internal control over financial reporting as of December 31, ~~2019,~~2022, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2019,~~2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, ~~2019~~2022 and ~~2018,~~2021, the related consolidated statements of ~~earnings~~operations and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, ~~2019,~~2022, and the related notes andfinancial statement schedule II (collectively, the consolidated financial statements), and our report dated February ~~25, 2020~~21, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying ~~Management’s~~Management's Report on Internal Control over Financial ~~Reporting~~.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Philadelphia, Pennsylvania
February ~~25, 2020~~21, 2023

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Armstrong World Industries, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Armstrong World Industries, Inc. and subsidiaries (the Company) as of December 31, ~~2019~~2022 and ~~2018,~~2021, the related consolidated statements of ~~earnings~~operations and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, ~~2019,~~2022, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2019~~2022 and ~~2018,~~2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, ~~2019,~~2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, ~~2019,~~2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February ~~25, 2020~~21, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

~~Change in Accounting Principle~~

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue as of January 1, 2018 due to the adoption of Accounting Standards Codification Topic 606, ~~Revenue from Contracts with Customers, and the related amendments.~~

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, ~~Leases, and the related amendments.~~

~~Correction of a Misstatement~~

~~As discussed in Note 3 to the consolidated financial statements, the 2017 financial statements have been restated to correct a misstatement.~~

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidatedfinancial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidatedfinancial statements and (2) involved our especially challenging, subjective, or complex ~~judgment.~~judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

~~Evaluation of~~Pension and postretirement benefit obligations

As discussed in Notes 2 and 1918 to the consolidated financial statements, the Company’s pension projected benefit obligations and the fair value of plan assets for the U.S. plans were ~~$1,431.4~~$337.1 million and ~~$1,478.4~~$391.7 million, respectively, as of December 31, ~~2019,~~2022, resulting in a funded status of ~~$47.0~~$54.6 million. Additionally, the Company’s accumulated postretirement benefit obligation was ~~$76.6~~$61.3 million, which is an unfunded liability.

We identified the evaluation of the Company’s measurement of the benefit obligations to be a critical audit ~~matter because~~matter. Subjective auditor judgment was required to evaluate the discount rates, as minor changes in the rates could have a significant impact on the benefit obligations. Additionally, the assessment of the discount rates required specialized actuarial skills ~~required to understand~~and knowledge.

The following are the ~~Company’s actuarial models and assumptions. In addition, the benefit obligations were sensitive to changes in key assumptions used, in particular the discount rate.~~

~~The~~ primary procedures we performed to address this critical audit ~~matter included~~matter. We evaluated the ~~following. We~~design and tested the operating effectiveness of certain internal controls over the Company’s benefit obligations process, including controls related to the ~~development~~actuarial determination of the discount ~~rates. We~~rates used in the valuation of the benefit obligations. Additionally, we involved an actuarial professional with specialized skill and knowledge, who assisted ~~in:~~in the evaluation of the Company’s discount rates by:

•

assessing changes in the discount rates from the prior year against changes in published indices;

•

assessing the discount rates based on the plan type, plan provisions and pattern of cash flows; and

•

evaluating the selected yield curve, the consistency of the yield curve with the prior year, and the spot rates.

•

~~understanding and assessing the actuarial models and assumptions used by the Company to estimate the benefit obligations;~~

•

the evaluation of Company’s discount rates, by assessing changes in the discount rates from the prior year against changes in published indices, assessing the discount rates based on the plan type, plan provisions and pattern of cash flows; and

•

~~evaluating the selected yield curve, the consistency of the yield curve with the prior year, and the spot rates, to further assess the discount rates.~~

/s/ KPMG LLP

We have served as the Company’s auditor since 1929.

Philadelphia, Pennsylvania
February ~~25, 2020, except for Notes 2, 3 and 7 as to which the date is July 28, 2020~~21, 2023

Armstrong World Industries, Inc., and Subsidiaries

Consolidated Statements of ~~Earnings~~Operations and Comprehensive Income

(amounts in millions, except per share data)


	Years Ended December 31,
							Restated			Years Ended December 31,
	2019			2018			2017			2022			2021			2020
Net sales	$	1,038.1		$	975.3		$	893.6		$	1,233.1		$	1,106.6		$	936.9
Cost of goods sold		643.0			641.8			578.2			784.0			701.0			603.8
Gross profit		395.1			333.5			315.4			449.1			405.6			333.1
Selling, general and administrative expenses		174.3			159.0			138.6			237.0			237.4			163.2
Equity earnings from joint venture		(96.6	)		(74.9	)		(67.0	)
Loss (gain) related to change in fair value of contingent consideration											11.0			(4.1	)		0.1
(Gain) related to sale of fixed and intangible assets											-			-			(21.0	)
Equity (earnings) from joint venture											(77.6	)		(87.7	)		(64.0	)
Operating income		317.4			249.4			243.8			278.7			260.0			254.8
Interest expense		38.4			39.2			35.4			27.1			22.9			24.1
Other non-operating (income), net		(20.4	)		(32.5	)		(13.7	)
Earnings from continuing operations before income taxes		299.4			242.7			222.1
Income tax expense		57.1			53.1			1.5
Earnings from continuing operations		242.3			189.6			220.6
Net (loss) earnings from discontinued operations, net of tax expense of $12.0, $8.2 and $3.6		(1.8	)		9.6			4.2
(Loss) from disposal of discontinued businesses, net of tax (benefit) of ($5.2), ($6.0) and ($4.1)		(26.0	)		(13.3	)		(105.2	)
Net (loss) from discontinued operations		(27.8	)		(3.7	)		(101.0	)
Net earnings	$	214.5		$	185.9		$	119.6
Other non-operating (income) expense, net											(6.0	)		(5.6	)		357.4
Earnings (loss) from continuing operations before income taxes											257.6			242.7			(126.7	)
Income tax expense (benefit)											57.7			57.4			(42.6	)
Earnings (loss) from continuing operations											199.9			185.3			(84.1	)
Gain (loss) from disposal of discontinued businesses, net of tax (benefit) expense of ($3.0), $1.7 and ($1.4)											3.0			(2.1	)		(15.0	)
Net earnings (loss) from discontinued operations											3.0			(2.1	)		(15.0	)
Net earnings (loss)										$	202.9		$	183.2		$	(99.1	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		84.1			(27.6	)		24.5			(1.8	)		-			(7.1	)
Derivative (loss) gain, net		(13.9	)		1.1			(0.3	)
Derivative gain (loss), net											18.6			9.9			(10.5	)
Pension and postretirement adjustments		13.2			(32.9	)		33.7			(7.3	)		(10.2	)		284.4
Total other comprehensive income (loss)		83.4			(59.4	)		57.9			9.5			(0.3	)		266.8
Total comprehensive income	$	297.9		$	126.5		$	177.5		$	212.4		$	182.9		$	167.7
Earnings per share of common stock, continuing operations:
Earnings (loss) per share of common stock, continuing operations:
Basic	$	4.97		$	3.68		$	4.12		$	4.31		$	3.88		$	(1.76	)
Diluted	$	4.88		$	3.63		$	4.08		$	4.30		$	3.86		$	(1.76	)
(Loss) per share of common stock, discontinued operations:
Earnings (loss) per share of common stock, discontinued operations:
Basic	$	(0.57	)	$	(0.07	)	$	(1.89	)	$	0.07		$	(0.04	)	$	(0.31	)
Diluted	$	(0.56	)	$	(0.07	)	$	(1.87	)	$	0.07		$	(0.04	)	$	(0.31	)
Net earnings per share of common stock:
Net earnings (loss) per share of common stock:
Basic	$	4.40		$	3.61		$	2.23		$	4.38		$	3.84		$	(2.07	)
Diluted	$	4.32		$	3.56		$	2.21		$	4.37		$	3.82		$	(2.07	)
Average number of common shares outstanding:
Basic		48.7			51.3			53.3			46.3			47.6			47.9
Diluted		49.5			52.1			53.9			46.4			47.9			47.9

See accompanying notes to consolidated financial statements beginning on page ~~44.~~42.

Armstrong World Industries, Inc., and Subsidiaries

Consolidated Balance Sheets

(amounts in millions, except share data)



	December 31, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	106.0		$	98.1
Accounts and notes receivable, net		112.4			109.1
Inventories, net		110.0			90.2
Income taxes receivable		1.8			1.4
Other current assets		26.3			23.1
Total current assets		356.5			321.9
Property, plant, and equipment, net		554.4			542.8
Operating lease assets		18.8			21.0
Finance lease assets		16.0			18.4
Prepaid pension costs		83.2			109.0
Investment in joint venture		23.9			50.0
Goodwill		167.3			167.0
Intangible assets, net		407.7			421.4
Income taxes receivable		-			0.6
Other non-current assets		59.4			57.9
Total assets	$	1,687.2		$	1,710.0
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt	$	-		$	25.0
Accounts payable and accrued expenses		172.5			174.9
Operating lease liabilities		5.9			5.6
Finance lease liabilities		2.2			2.2
Income taxes payable		2.1			1.9
Total current liabilities		182.7			209.6
Long-term debt, less current installments		651.1			606.4
Operating lease liabilities		13.2			15.6
Finance lease liabilities		14.6			16.8
Postretirement benefit liabilities		54.8			71.1
Pension benefit liabilities		27.6			36.9
Other long-term liabilities		25.8			46.7
Income taxes payable		13.1			20.3
Deferred income taxes		169.3			166.9
Total non-current liabilities		969.5			980.7
Shareholders' equity:
Common stock, $0.01 par value per share, 200 million shares authorized, 62,936,820 shares issued and 45,572,185 shares outstanding as of December 31, 2022 and 62,775,155 shares issued and 47,302,299 shares outstanding as of December 31, 2021		0.6			0.6
Capital in excess of par value		573.6			561.3
Retained earnings		1,169.9			1,011.4
Treasury stock, at cost, 17,364,635 shares as of December 31, 2022 and 15,472,856 shares as of December 31, 2021		(1,109.0	)		(944.0	)
Accumulated other comprehensive (loss)		(100.1	)		(109.6	)
Total shareholders' equity		535.0			519.7
Total liabilities and shareholders' equity	$	1,687.2		$	1,710.0

December 31, 2019

December 31, 2018

Assets

Current assets:

Cash and cash equivalents

$
45.3

$
325.7

Accounts and notes receivable, net

85.1

79.9

Inventories, net

68.5

61.2

Assets of discontinued operations

-

244.3

Income taxes receivable

30.0

1.7

Other current assets

15.5

4.8

Total current assets

244.4

717.6

Property, plant, and equipment, less accumulated depreciation and amortization of
   $447.5 and $412.9, respectively

524.6

501.0

Lease right-of-use assets

35.3

-

Prepaid pension costs

94.8

52.8

Investment in joint venture

58.5

40.8

Goodwill

53.0

19.2

Intangible assets, net

411.9

422.8

Deferred income taxes

10.4

14.8

Income taxes receivable

2.5

0.8

Other non-current assets

57.9

68.5

Total assets

$
1,493.3

$
1,838.3

Liabilities and Shareholders' Equity

Current liabilities:

Current installments of long-term debt

$
6.3

$
55.0

Accounts payable and accrued expenses

148.7

383.3

Liabilities of discontinued operations

-

110.3

Income taxes payable

0.2

0.9

Total current liabilities

155.2

549.5

Long-term debt, less current installments

604.5

764.8

Lease non-current liabilities

30.1

-

Postretirement benefit liabilities

71.0

58.8

Pension benefit liabilities

46.6

50.3

Other long-term liabilities

37.8

38.0

Income taxes payable

19.3

26.5

Deferred income taxes

163.9

124.4

Total non-current liabilities

973.2

1,062.8

Shareholders' equity:

Common stock, $0.01 par value per share, 200 million shares authorized, 62,263,395
   shares issued and 47,992,348 shares outstanding as of December 31, 2019 and
   61,553,724, shares issued and 48,808,239 shares outstanding as of December 31, 2018

0.6

0.6

Capital in excess of par value

555.7

547.4

Retained earnings

1,008.2

829.8

Treasury stock, at cost, 14,271,047 shares as of December 31, 2019 and 12,745,485
   shares as of December 31, 2018

(823.5
)

(692.2
)
Accumulated other comprehensive (loss)

(376.1
)

(459.6
)
Total shareholders' equity

364.9

226.0

Total liabilities and shareholders' equity

$
1,493.3

$
1,838.3

See accompanying notes to consolidated financial statements beginning on page ~~44.~~42.

Armstrong World Industries, Inc., and Subsidiaries

Consolidated Statements of Shareholders’ Equity

(amounts in millions, except share data)

																Accumulated
						Additional										Other																								Accumulated
	Common Stock					Paid-In		Retained			Treasury Stock					Comprehensive												Additional												Other
	Shares			Amount		Capital		Earnings			Shares		Amount			(Loss)				Total			Common Stock					Paid-In			Retained			Treasury Stock						Comprehensive
December 31, 2016		54,428,233		$	0.6	$	504.9	$	469.9			6,168,907	$	(305.2	)	$	(403.8	)		$	266.4
Cumulative effect impact of ASU 2016-09 adoption		-			-		-		8.7												8.7
																							Shares			Amount		Capital			Earnings			Shares			Amount			(Loss)			Total
December 31, 2019																								47,992,348		$	0.6	$	555.7		$	1,008.2			14,271,047		$	(823.5	)	$	(376.1	)	$	364.9
Stock issuance, net		185,596			-		-		-			-		-			-				-			335,936			-		-			-			-			-			-			-
Cash dividends - $0.810 per common share																								-			-		-			(39.3	)		-			-			-			(39.3	)
Share-based employee compensation		-			-		11.4		-			-		-			-				11.4			-			-		2.0			-			-			-			-			2.0
Net earnings, as restated		-			-		-		119.6			-		-			-				119.6
Net (loss)																								-			-		-			(99.1	)		-			-			-			(99.1	)
Other comprehensive income		-			-		-		-			-		-			57.9				57.9			-			-		-			-			-			-			266.8			266.8
Separation of Armstrong Flooring, Inc.		-			-		0.5														0.5
Restricted stock issued to employees in connection with acquisition																								94,230			-		(4.0	)		-			(94,230	)		4.0			-			-
Acquisition of treasury stock		(1,841,690	)		-		-		-			1,841,690		(80.4	)		-				(80.4	)		(508,693	)		-		-			-			508,693			(44.4	)		-			(44.4	)
December 31, 2017, as restated		52,772,139		$	0.6	$	516.8	$	598.2			8,010,597	$	(385.6	)	$	(345.9	)		$	384.1
December 31, 2020																								47,913,821		$	0.6	$	553.7		$	869.8			14,685,510		$	(863.9	)	$	(109.3	)	$	450.9

Cumulative effect impact of ASU 2018-02 adoption		-			-		-		54.3			-		-			(54.3	)			-
Stock issuance, net		770,988			-		-		-			-		-			-				-			173,379			-		0.1			-			2,445			(0.1	)		-			-
Cash dividends - $0.175 per common share		-			-		-		(8.6	)		-		-			-				(8.6	)
Cash dividends - $0.861 per common share																								-			-		-			(41.6	)		-			-			-			(41.6	)
Share-based employee compensation		-			-		30.6		-			-		-			-				30.6			-			-		7.5			-			-			-			-			7.5
Net earnings		-			-		-		185.9			-		-			-				185.9			-			-		-			183.2			-			-			-			183.2
Other comprehensive (loss)		-			-		-		-			-		-			(59.4	)			(59.4	)		-			-		-			-			-			-			(0.3	)		(0.3	)
Acquisition of treasury stock		(4,734,888	)		-		-		-			4,734,888		(306.6	)		-				(306.6	)		(784,901	)		-		-			-			784,901			(80.0	)		-			(80.0	)
December 31, 2018		48,808,239		$	0.6	$	547.4	$	829.8			12,745,485	$	(692.2	)	$	(459.6	)		$	226.0
December 31, 2021																								47,302,299		$	0.6	$	561.3		$	1,011.4			15,472,856		$	(944.0	)	$	(109.6	)	$	519.7

Cumulative effect impact of ASU 2017-12 adoption		-			-		-		(0.1	)		-		-			0.1				-
Stock issuance, net		709,671			-		-		-			-		-			-				-			159,628			-		-			-			2,037			-			-			-
Cash dividends - $0.725 per common share		-			-		-		(36.0	)		-		-			-		��		(36.0	)
Cash dividends - $0.947 per common share																								-			-		-			(44.4	)		-			-			-			(44.4	)
Share-based employee compensation		-			-		8.3		-			-		-			-				8.3			-			-		12.3			-			-			-			-			12.3
Net earnings		-			-		-		214.5			-		-			-				214.5			-			-		-			202.9			-			-			-			202.9
Other comprehensive income		-			-		-		-			-		-			83.4				83.4			-			-		-			-			-			-			9.5			9.5
Acquisition of treasury stock		(1,525,562	)		-		-		-			1,525,562		(131.3	)		-				(131.3	)		(1,889,742	)		-		-			-			1,889,742			(165.0	)		-			(165.0	)
December 31, 2019		47,992,348		$	0.6	$	555.7	$	1,008.2			14,271,047	$	(823.5	)	$	(376.1	)		$	364.9
December 31, 2022																								45,572,185		$	0.6	$	573.6		$	1,169.9			17,364,635		$	(1,109.0	)	$	(100.1	)	$	535.0

See accompanying notes to consolidated financial statements beginning on page ~~44.~~42.

Armstrong World Industries, Inc., and Subsidiaries

Consolidated Statements of Cash Flows

(amounts in millions)

	Years Ended December 31,
							Restated				Years Ended December 31,
	2019			2018			2017				2022			2021			2020
Cash flows from operating activities:
Net earnings	$	214.5		$	185.9		$	119.6
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net earnings (loss)											$	202.9		$	183.2		$	(99.1	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:										Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization		72.1			79.4			89.2				83.7			96.5			84.0
Write-off of debt refinancing fees												0.6			-			-
Loss on disposal of discontinued operations		31.2			19.3			109.3				-			0.4			16.4
Write-off debt refinancing fees		2.7			-			-
Gain related to sale of fixed and intangible assets												-			-			(21.0	)
Deferred income taxes		14.0			(3.8	)		(12.3	)			(1.6	)		8.7			(89.3	)
Share-based compensation		9.5			14.0			10.2				14.3			11.3			6.8
Equity earnings from joint venture		(96.6	)		(74.9	)		(67.0	)			(77.6	)		(87.7	)		(64.0	)
U.S. pension (credit)		(7.5	)		(26.3	)		(4.5	)
U.S. pension (credit) cost												(0.7	)		0.1			367.7
Loss (gain) from change in fair value of contingent consideration												11.0			(4.1	)		0.1
Payments of contingent consideration in excess of acquisition date fair value												(1.9	)		-			-
Other non-cash adjustments, net		2.5			2.9			(0.4	)			1.0			0.9			0.9
Changes in operating assets and liabilities:
Receivables		(1.1	)		13.2			(37.1	)			(12.4	)		(30.9	)		12.7
Inventories		(7.2	)		(8.9	)		3.6				(19.7	)		(10.6	)		(7.7	)
Other current assets		(6.9	)		9.4			2.2
Other non-current assets		2.1			(5.5	)		(1.6	)
Accounts payable and accrued expenses		(19.9	)		5.4			(20.0	)			(1.8	)		38.6			(11.9	)
Income taxes receivables and payables, net		(8.4	)		7.5			(18.8	)
Other long-term liabilities		(15.6	)		(14.4	)		(1.2	)
Other, net		(2.7	)		-			(0.8	)
Income taxes receivable and payable, net												(6.9	)		(2.0	)		35.2
Other assets and liabilities												(8.5	)		(17.2	)		(12.0	)
Net cash provided by operating activities		182.7			203.2			170.4				182.4			187.2			218.8
Cash flows from investing activities:
Purchases of property, plant and equipment		(71.3	)		(71.9	)		(89.7	)			(74.8	)		(79.8	)		(55.4	)
Return of investment from joint venture		85.2			141.7			69.1				104.5			78.3			81.5
Cash paid for acquisitions		(56.4	)		(22.2	)		(31.2	)
Cash consideration received from Knauf		-			330.0			-
Cash paid for acquisitions, net of cash acquired												(2.8	)		(0.7	)		(164.6	)
Proceeds from the sale of assets												-			0.1			21.7
Payments of proceeds from Knauf to investment in joint venture		-			(70.0	)		-				-			-			(25.9	)
Payments to Knauf upon disposal of discontinued operations		(47.9	)		-			-				-			(11.8	)		(6.4	)
Other investing activities		1.3			2.0			(2.4	)
Net cash (used for) provided by investing activities		(89.1	)		309.6			(54.2	)
Proceeds from company-owned life insurance, net												1.3			-			8.0
Net cash provided by (used for) investing activities												28.2			(13.9	)		(141.1	)
Cash flows from financing activities:
Proceeds from short-term debt												-			-			30.0
Payments of short-term debt												-			-			(30.0	)
Proceeds from revolving credit facility		185.0			-			103.0				355.0			95.0			290.0
Payments of revolving credit facility		(70.0	)		-			(103.0	)			(315.0	)		(155.0	)		(180.0	)
Proceeds from long-term debt		500.0			-			-				450.0			-			-
Payments of long-term debt		(825.4	)		(32.5	)		(25.0	)			(468.7	)		(25.0	)		(6.3	)
Financing costs		(2.9	)		-			(0.6	)			(3.1	)		-			-
Dividend paid		(35.6	)		(8.6	)		-
(Payments) proceeds from share-based compensation plans, net of tax		(4.7	)		18.4			3.3
Payment for treasury stock acquired		(131.3	)		(306.6	)		(80.4	)
Net cash (used for) financing activities		(384.9	)		(329.3	)		(102.7	)
Dividends paid												(44.2	)		(41.4	)		(39.2	)
Payments from share-based compensation plans, net of tax												(2.0	)		(3.6	)		(4.8	)
Payments for finance leases												(2.2	)		(2.1	)		(1.8	)
Payments of acquisition related contingent consideration												(6.7	)		-			-
Payments for treasury stock acquired												(165.0	)		(80.0	)		(44.4	)
Net cash (used for) provided by financing activities												(201.9	)		(212.1	)		13.5
Effect of exchange rate changes on cash and cash equivalents		0.9			(7.4	)		4.2				(0.8	)		-			0.4
Net (decrease) increase in cash and cash equivalents		(290.4	)		176.1			17.7
Cash and cash equivalents at beginning of year of discontinued operations		10.0			-			-
Cash and cash equivalents at beginning of year of continuing operations		325.7			159.6			141.9
Cash and cash equivalents at end of period		45.3			335.7			159.6
Cash and cash equivalents at end of period of discontinued operations		-			10.0			-
Cash and cash equivalents at end of period of continuing operations	$	45.3		$	325.7		$	159.6
Net increase (decrease) in cash and cash equivalents												7.9			(38.8	)		91.6
Cash and cash equivalents at beginning of year												98.1			136.9			45.3
Cash and cash equivalents at end of year											$	106.0		$	98.1		$	136.9
Supplemental Cash Flow Disclosures:
Interest paid	$	33.1		$	29.9		$	30.7			$	26.9		$	21.5		$	24.1
Income tax payments, net		58.4			51.6			32.1				63.2			52.5			10.9
Amounts in accounts payable for capital expenditures		1.9			1.9			2.6				2.8			0.3			1.0

See accompanying notes to consolidated financial statements beginning on page ~~44.~~42.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

NOTE 1. BUSINESS

Armstrong World Industries, Inc. (“AWI”) is a Pennsylvania corporation incorporated in 1891. When we refer to “AWI,” the “Company,” “we,” “our” and “us” in these notes, we are referring to AWI and its subsidiaries.

Acquisitions

In November ~~2019,~~2022, we acquired the business and assets of ~~MRK Industries,~~GC Products, Inc. (“~~MRK”~~GC Products”), based in ~~Libertyville, Illinois. MRK~~Lincoln, CA. GC Products is a designer and manufacturer of glass-reinforced-gypsum, glass-reinforced-cement, molded ceiling and specialty ~~metal ceiling,~~ wall ~~and exterior solutions~~products with 1one manufacturing facility. ~~MRK’s~~

In December 2020, we acquired all of the issued and outstanding equity of Arktura LLC (“Arktura”) and certain subsidiaries with operations in the United States and ~~its assets~~Argentina. Arktura is a designer and ~~liabilities, are included as a component~~fabricator of ~~our Architectural Specialties segment.~~metal and felt ceilings, walls, partitions and facades with one manufacturing facility based in Los Angeles, California.

In ~~March 2019,~~August 2020, we acquired the business and assets of ~~Architectural Components Group,~~Moz Designs, Inc. (“~~ACGI”~~Moz”), based in ~~Marshfield, Missouri. ACGI~~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.

In July 2020, we acquired all of 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 ~~custom wood~~acoustic felt ceilings and ~~walls with 1 manufacturing facility. ACGI’s~~wall products.

The operations, ~~and its~~ assets and liabilities of these acquisitions are included ~~as a component of~~in our Architectural Specialties segment.

In August 2018, we acquired the business and assets of Steel Ceilings, Inc. (“Steel Ceilings”), based in Johnstown, Ohio. Steel Ceilings is a manufacturer of aluminum and stainless metal ceilings that include architectural, radiant and security solutions with 1 manufacturing facility. Steel Ceilings’ operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.

In May 2018, we acquired the business and assets of Plasterform, Inc. (“Plasterform”), based in Mississauga, Ontario, Canada. Plasterform is a manufacturer of architectural cast ceilings, walls, facades, columns and moldings ~~with 1 manufacturing facility. Plasterform’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.~~

In January 2017, we acquired the business and assets of Tectum, Inc. (“Tectum”), based in Newark, Ohio. Tectum is a manufacturer of acoustical ceiling, wall and structural solutions for commercial building applications with2 manufacturing facilities. Tectum’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.

See Note 65 for further information on our ~~recent~~ acquisitions.

~~Discontinued Operations~~COVID-19 Considerations

~~On September 30, 2019,~~The impact of the COVID-19 pandemic on our future consolidated results of operations is uncertain. The extent to which COVID-19 impacts our employees, operations, customers, suppliers and financial results depends on numerous evolving factors that we ~~completed~~may not be able to accurately predict, including: the ~~previously announced sale~~duration and scope 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 holdspandemic (and whether there is 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 the third quarter of 2018 and is subject to certain post-closing adjustments for cash and debt as providedresurgence or multiple resurgences in the ~~Share Purchase Agreement dated as of November 17, 2017, by and between us and Knauf (the “Purchase Agreement”),~~future, including ~~adjustments based on the economic impact of any required regulatory remedies and a working capital adjustment.~~

On July 18, 2018, we entered into an amendment to the Purchase Agreement, pursuant to which Knauf irrevocably and unconditionally paid AWI (i) $250.0 million of the purchase price on August 1, 2018, and (ii) $80.0 million of the purchase price on September 15, 2018, which payments were credited against the aggregate consideration payable at closing. The amendment also provided for the reduction (from a maximum of $35.0 million to a maximum of $20.0 million) of potential adjustments to the purchase price consideration for the transaction based on the impact of ~~remedies~~new variants); government actions taken in response to the pandemic, including required shutdowns; the availability, acceptance, distribution and continued effectiveness of vaccines; the impact on construction activity; supply chain disruptions; rising inflation; labor shortages; sustained remote or hybrid work models; our ability to ~~satisfy competition conditions.Following receipt of these payments, we remitted $70.0 million to WAVE in partial consideration of the purchase price payable in respect of the businesses~~manufacture and operations of WAVE under the transaction. WAVE subsequently paid each of AWI and Worthington a dividend of $35.0 million. We have recorded a $25.9 million payable to WAVE for their remaining portion of the proceeds from Knauf, which is reflected within Accounts payable and accrued expenses in the Consolidated Balance Sheets as of December 31, 2019. The transaction and final gain or loss amounts are subject to finalization of customary working capital and other adjustments, as provided in the Purchase Agreement. For the year ended December 31, 2019, payments to Knauf included $61.0 million of adjustments to cash consideration, estimated working capital adjustments and remedies, offset by $13.1 million of additional cash in international WAVE entities.

~~Armstrong World Industries, Inc., and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(dollar amounts in millions, except share data)~~

On December 7, 2018, the European Commission granted conditional clearance of the transaction, subject to certain commitments intended to address concerns regarding the overlap between the activities of AWI and Knauf, including the divestment by Knauf to a third party of certain mineral fiber and grid businesses and operations in Austria, Estonia, Germany, Ireland, Italy, Latvia, Lithuania, Portugal, Spain, Turkeysell our products; and the ~~United Kingdom (“UK”). This included~~ability of our ~~sales operations in each~~customers to pay for our products. We did not record any asset impairments, inventory charges or material bad debt reserves related to COVID-19 during 2022, 2021 or 2020, but future events may require such charges, which could have a material adverse effect on our financial condition, liquidity or results of ~~the relevant countries, as well as our production facilities, and those of WAVE, located in Team Valley, UK.~~operations.

~~On September 23, 2019, the European Commission approved the Sale, as well as the terms of the sale of the divestment business by Knauf and the identity of the purchaser.~~

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation Policy. The consolidated financial statements and accompanying data in this report include the accounts of AWI and its majority-owned subsidiaries. All significant intercompany transactions have been eliminated from the consolidated financial statements.

Use of Estimates. We prepare our financial statements in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), which requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. When preparing an estimate, management determines the amount based upon the consideration of relevant internal and external information. Actual results may differ from these estimates.

~~Reclassifications. Certain amounts in the prior year’s Consolidated Financial Statements and related notes have been recast to conform to the 2019 presentation.~~

Revenue ~~Recognition.~~Recognition~~On January 1, 2018, we adopted~~ ~~Accounting Standards Codification (“ASC”)~~ 606 - Revenue from Contracts with Customers and all the related amendments using the modified retrospective transition method. This adoption did not have a material impact on our financial condition, results of operations or cash flows as the amount and timing of substantially all of our revenues are recognized at a point in time.

. We recognize revenue upon transfer of control of our products to the customer, which typically occurs upon shipment. Our main performance obligation to our customers is the delivery of products in accordance with purchase orders. Each purchase order confirms the transaction price for the products purchased under the arrangement. Direct sales to building materials distributors, home centers, direct customers and retailers represent the majority of our sales. Our standard sales terms are Free On Board (“FOB”) shipping point. We have some sales terms that are FOB destination. At the point of shipment, the customer is required to pay under normal sales terms. ~~Our~~In most cases our normal payment terms ~~in most cases~~ are4545 days or less and our sales arrangements do not have any material financing components. In addition, our customer arrangements do not produce contract assets or liabilities that are material to our ~~consolidated financial statements.~~Consolidated Financial Statements. Within our Architectural Specialties segment, the majority of revenues are customer project driven, which includes a minority of revenues derived from the sale of customer specified customized products that have no alternative use to us. The manufacturing cycle for these custom products is typically short.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Incremental costs to fulfill our customer arrangements are expensed as incurred, as the amortization period is less than one year.

~~Armstrong World Industries, Inc., and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(dollar amounts in millions, except share data)~~

Our products are sold with normal and customary return provisions. We provide limited warranties for defects in materials or factory workmanship, sagging and warping, and certain other manufacturing defects. Warranties are not sold separately to customers. Our product warranties place certain requirements on the purchaser, including installation and maintenance in accordance with our written instructions. In addition to our warranty program, under certain limited circumstances, we will occasionally at our sole discretion provide a customer accommodation repair or replacement. Warranty repairs and replacements are most commonly made by professional installers employed by or affiliated with our independent distributors. Reimbursement for costs associated with warranty repairs are provided to our independent distributors through a credit against accounts receivable from the distributor to us. Sales returns and warranty claims have historically not been material and do not constitute separate performance obligations.

We often offer incentive programs to our customers, primarily volume rebates and promotions. The majority of our rebates are designated as a percentage of annual customer purchases. We estimate the amount of rebates based on actual sales for the period and accrue for the projected incentive ~~programs~~programs’ costs. We record the costs of rebate accruals as a reduction to the transaction price. ~~Other sales discounts, including early pay promotions, are deducted immediately from the sales invoice.~~

See Note 54 to the Consolidated Financial Statements for additional information related to our revenues.

Shipping and Handling ~~Costs.~~Costs. We account for product shipping and handling costs as fulfillment activities and present the associated costs in costs of goods sold in the period in which we sell our product.

Advertising Costs. We recognize advertising expenses as they are incurred.

Research and Development Costs. We expense research and development costs as they are incurred.

Business Combinations. We account for acquisitions under the acquisition method and the results of acquired operations are included in the Consolidated Financial Statements from the acquisition date. Acquisition related costs are expensed as incurred. We allocate total consideration to the assets acquired and liabilities assumed based on their estimated fair values, with the remaining unallocated amount recorded as goodwill. Our definite-lived intangible assets are amortized over each respective asset's estimated useful life on a straight-line basis and recorded as a component of operating income (expense). The fair value of acquired intangible assets is estimated by applying discounted cash flow models based on significant inputs not observable in the market. Key assumptions are developed based on each acquirees’ historical experience, future projections and comparable market data including future cash flows, long-term growth rates, implied royalty rates, attrition rates and discount rates. Acquisition-related contingent consideration that is classified as a liability is measured at fair value at the acquisition date. Changes in the fair value of contingent consideration liabilities in reporting periods after the acquisition date are recorded within our Consolidated Statements of Operations and Comprehensive Income.

Pension and Postretirement Benefits. We have benefit plans that provide for pension, medical and life insurance benefits to certain eligible employees when they retire from active service. See Note 1918 to the Consolidated Financial Statements for disclosures on pension and postretirement benefits.

Taxes. The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes to reflect the expected future tax consequences of events recognized in the financial statements. Deferred income tax assets and liabilities are recognized by applying enacted tax rates to temporary differences that exist as of the balance sheet date, which result from differences in the timing of reported taxable income between tax and financial reporting.

We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses and forecasts of future profitability, ~~and foreign source income,~~ the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are generally not used as positive evidence related to the realization of the deferred tax assets in the assessment.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

but uncertain in the ultimate benefit to be sustained upon examination by the relevant taxing authorities. Unrecognized tax benefits are subsequently recognized at the time the more likely than not recognition threshold is met, the tax matter is effectively settled or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, whichever is ~~earlier.~~earliest.

Taxes collected from customers and remitted to governmental authorities are reported on a net basis.

Earnings per Share. Basic earnings per share is computed by dividing the earnings attributable to common shares by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflects the potential dilution of securities that could share in the ~~earnings.~~

~~Armstrong World Industries, Inc.,~~earnings and ~~Subsidiaries~~is calculated using the treasury stock method.

~~Notes to Consolidated Financial Statements~~

~~(dollar amounts in millions, except share data)~~

Cash and Cash Equivalents. Cash and cash equivalents include cash on hand and short-term investments that have maturities of three months or less when ~~purchased and restricted cash.~~purchased.

Concentration of Credit. We principally sell products to customers in building products ~~industries in various geographic regions.~~industries. We monitor the creditworthiness of our customers and generally do not require collateral. Revenues from two commercial distributors, included within our Mineral Fiber and Architectural Specialties segments, individually exceeded ~~10%~~10% of our revenues in ~~2019.~~2022, 2021 and 2020. Gross sales to these 2two customers totaled ~~$428.7~~$547.8 million, $495.8 million and $370.3 million in ~~2019. Revenues from 3 commercial distributors individually exceeded 10% of our revenues in 2018~~2022, 2021 and ~~2017. Gross sales to these 3 customers totaled $459.3 million and $426.1 million in 2018 and 2017,~~2020, respectively. ~~We monitor the creditworthiness of our customers and generally do not require collateral.~~

Receivables. We sell our products to select, pre-approved customers using customary trade terms that allow for payment in the future. Customer trade ~~receivables, customer notes receivable~~ and miscellaneous receivables (which include supply related rebates and other), net of allowances for doubtful accounts, customer credits and warranties, are reported in accounts and notes receivable, net. Cash flows from the collection of receivables are classified as operating cash flows on the ~~consolidated statements~~Consolidated Statements of ~~cash flows.~~Cash Flows.

We establish ~~credit-worthiness~~creditworthiness prior to extending credit. We estimate the recoverability of receivables each period. This estimate is based upon new information in the period, which can include the review of any available financial statements and forecasts, as well as discussions with legal counsel and the management of the debtor company. AsWhen events occur ~~which~~that impact the collectability of the receivable, all or a portion of the receivable is reserved. Account balances are charged off against the allowance when the potential for recovery is considered remote. We do not have any off-balance sheet credit exposure related to our customers.

Inventories. Inventories are valued at the lower of cost and net realizable value. See Note 98 to the Consolidated Financial Statements for further information on our accounting for inventories.

Property Plant and Equipment. Property plant and equipment is recorded at cost reduced by accumulated ~~depreciation.~~depreciation and amortization. Depreciation and amortization expense is recognized on a straight-line basis over the assets’ estimated useful lives. Machinery and equipment includes manufacturing equipment (depreciated over 32 to 15 ~~years)~~years), computer equipment (depreciated over 3 to 5 ~~years)~~years) and office furniture and equipment (depreciated over 5 to 7 ~~years)~~years). Within manufacturing equipment, assets that are subject to accelerated obsolescence or wear out quickly, such as dryer components, are generally depreciated over shorter periods ~~(3 to 7 years). Heavy~~while heavy production equipment, such as conveyors and production presses, are generally depreciated over longer ~~periods (13 to 15 years).~~periods. Buildings are depreciated over 15 to 30 years, depending on factors such as type of construction and use. Computer software is ~~depreciated~~amortized over 3 to 7 ~~years.~~years.

Property, plant and equipment is tested for impairment by asset group when indicators of impairment are present, such as operating losses and/or negative cash ~~flows.~~flows for each identified asset group. If an indication of impairment exists, we compare the carrying amount of the asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. ~~The estimate of an asset group’s~~If the carrying value exceeds the undiscounted future cash flows, we determine the fair value isof the asset group based on discounted future cash flows expected to be generated by the asset group, or based on management’s estimated exit price assuming the assets could be sold in an orderly transaction between market participants, or estimated salvage value if no sale is assumed. If the fair value is less than the carrying value of the asset group, we record an impairment charge equal to the difference between the fair value and carrying value of the asset group. Impairments of assets related to our manufacturing operations are recorded in cost of goods sold. We did not test tangible assets within our continuing operations for impairment in 2022, 2021 or 2020 as no indicators of impairment existed.

When assets are disposed of or retired, their costs and related depreciation or amortization are removed from the financial statements, and any resulting gains or losses are normally ~~are~~ reflected in cost of goods sold or selling, general and administrative (“SG&A”) expenses depending on the nature of the asset.

Leases. We enter into operating and finance leases for certain manufacturing plants, warehouses, equipment and automobiles. Our leases have remaining lease terms of up to 15 years. Several leases include options for us to purchase leased items at fair value or

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

renew for up to 5 years, or multiple 5-year renewal periods. Some of our leases include early termination options. We consider all of these options in determining the lease term used to establish our right-of-use (“ROU”) assets and lease liabilities when it is reasonably certain that we will exercise that option. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

We have lease agreements with lease and non-lease components, which we have elected to combine to determine the ROU assets and lease liabilities. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.

As most of our leases do not provide an implicit rate, we use our Incremental Borrowing Rate (“IBR”) based on information that is available at the lease commencement date to compute the present value of lease payments. Relevant information used in determining the IBR includes the transactional currency of the lease and the lease term.

Asset Retirement Obligations. We recognize the fair value of obligations associated with the retirement of tangible long-lived assets in the period in which they are incurred. Upon initial recognition of a liability, the discounted cost is capitalized as part of the related long-lived asset and depreciated over the corresponding asset’s useful life. Over time, accretion of the liability is recognized as an operating expense to reflect the change in the liability’s present value.

Goodwill and Intangible Assets. Our definite-lived intangible assets are primarily customer relationships (amortized over 32 to 20 ~~years) and~~years), developed technology (amortized over 1513 to 20 years) and acquired internally-developed software (amortized over 7 years). We review ~~significant~~ definite-lived intangible assets for impairment by asset group when indicators of impairment ~~exist. We review our businesses for indicators of impairment~~are present, such as operating losses and/or negative cash ~~flows.~~flows for the respective asset group. If an indication of impairment exists, we compare the carrying amount of the asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying value exceeds the undiscounted future cash flows, we determine the fair value of the asset group ~~is determined. The estimate of an asset group’s fair value is~~ based on discounted future cash flows

~~Armstrong World Industries, Inc., and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(dollar amounts in millions, except share data)~~

expected to be generated by the asset group or based on management’s estimated exit price assuming the assets could be sold in an orderly transaction between market participants. If the fair value is less than the carrying value of the asset group, we record an impairment charge equal to the difference between the fair value and carrying value of the asset group. We did not test definite-lived intangible assets within our continuing operations for impairment in 2022, 2021 or 2020 as no indicators of impairment existed.

Our indefinite-lived assets include goodwill and other intangibles, primarily trademarks and brand names, with Armstrong representing our primary trademark. Trademarks and brand names are integral to our corporate identity and are expected to contribute indefinitely to our cash flows. Accordingly, they have been assigned an indefinite life. We conduct our annual impairment tests on these indefinite-lived intangible assets and goodwill during the fourth quarter. These assets undergo more frequent tests if an indication of possible impairment exists. When performing an impairment test for indefinite-lived intangible assets and goodwill, we compare the carrying amount of the asset (when testing indefinite-lived intangible assets) and reporting unit (when testing goodwill) to the estimated fair value. For indefinite-lived intangible assets, the estimated fair value is based on discounted future cash flows using the relief from royalty method. For goodwill, the estimated fair value is based on discounted future cash flows expected to be generated by the reporting unit. If the fair value is less than the carrying value of the asset/reporting unit, we record an impairment charge equal to the difference between the fair value and carrying value of the asset/reporting unit.

The principal assumptions used in our impairment tests for definite-lived intangible assets is operating profit adjusted for depreciation and amortization and, if required to estimate the fair value, the discount rate. The principal assumptions used in our impairment tests for We did not test indefinite-lived intangible assets ~~include revenue growth rate, discount rate~~within our continuing operations for impairment during any interim periods during 2022, as no indicators of impairment existed. We completed our annual impairment test in the fourth quarter of 2022 and ~~royalty rate. The principal assumptions utilized~~no impairment charges were recorded in our impairment tests for goodwill include after-tax cash flows growth rates and discount rate. Revenue growth rates, after-tax cash flows growth rates and operating profit assumptions are derived from those used in our operating plan and strategic planning processes. The discount rate assumption is calculated based upon an estimated weighted average cost of capital which reflects the overall level of inherent risk and the rate of return a market participant would expect to achieve. The royalty rate assumption represents the estimated contribution of the intangible assets to the overall profits of the related businesses. Methodologies used for valuing our intangible assets did not change from prior periods.2022, 2021 or 2020.

See Note 1413 to the Consolidated Financial Statements for disclosure on intangible assets.

Foreign Currency Transactions. Assets and liabilities of our subsidiaries operating outside the United States ~~which~~that are accounted in a functional currency other than U.S. dollars are translated using the period end exchange rate. Revenues and expenses are translated at exchange rates effective during each month. Foreign currency translation gains or losses are included as a component of accumulated other comprehensive (loss) within shareholders' equity. Gains or losses on foreign currency transactions are recognized through ~~earnings.~~earnings.

Financial Instruments and Derivatives. ~~From time to time, we~~We use derivatives and other financial instruments to offset the effect of interest rate variability. Derivatives are recognized on the balance sheet at fair value. For derivatives that meet the criteria as designated cash flow hedges, the changes in the fair value of the derivative are recognized in other comprehensive (loss) income until the hedged item is recognized in operations. See Notes 2019 and 2120 to the Consolidated Financial Statements for further discussion.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Share-based Employee Compensation. We generally recognize share-based compensation expense on a straight-line basis over the vesting period for the entire award. Compensation expense for performance-based awards with non-market-based conditions are also recognized over the vesting period for the entire award, however, compensation expense may vary based on the expectations for actual performance relative to defined performance measures. We estimate forfeitures based on actual historical forfeitures. See Note 2322 to the Consolidated Financial Statements for additional information on share-based employee compensation.

~~Subsequent Events.~~Treasury Stock ~~On February 19, 2020, our Board~~. Common shares repurchased by AWI are recorded on the settlement date at cost as treasury shares and result in a reduction of ~~Directors declared a dividend of $0.20 per common share outstanding.~~equity. We may reissue these treasury shares. When treasury shares are reissued, we determine the cost using the First-in, first-out cost method (“FIFO”). The ~~dividend will be paid on March 20, 2020, to shareholders of record as~~difference between the cost of the ~~close of business on March 5, 2020.~~

On February 20, 2020, we entered into a commitment agreement with a third-party insurance company to partially settle approximately $1.0 billion of retiree benefit obligations under our Retirement Income Plan (“RIP”). See Note 19 to the Consolidated Financial Statements for further information.

~~Recently Adopted Accounting Standards~~treasury shares and reissuance price is included in additional paid-in capital or retained earnings.

~~In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,~~ ~~“Leases,”~~ which amends accounting for leases, most notably by requiring a lessee to recognize the assets and liabilities that arise from a lease agreement. Specifically, this new guidance requires lessees to recognize a liability to make lease payments and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term, with limited exceptions.

~~Armstrong World Industries, Inc., and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(dollar amounts in millions, except share data)~~

~~In January 2018, the FASB issued ASU 2018-01,~~ ~~“Land Easement Practical Expedient for Transition to Topic 842,”~~ which permits an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist at transition or expired before the adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. In July 2018, the FASB issued ASU 2018-10, ~~“Codification Improvements to Topic 842, Leases,”~~ ~~which affects narrow aspects of the guidance issued in the amendments in Update 2016-02. In July 2018, the FASB also issued ASU 2018-11,~~ ~~“Targeted Improvements,”~~ which allows companies to adopt ASC Topic 842 without revising comparative period reporting or disclosures and provides an optional practical expedient for lessors to not separate lease and non-lease components of a contract when certain criteria are met.

Effective January 1, 2019, we adopted these standards using the modified retrospective transition method and have applied all practical expedients related to leases existing at the date of initial application. Upon adoption, the most significant change was to the Consolidated Balance Sheet related to the recognition of new ROU assets and lease liabilities on a continuing operations basis. Upon adoption we recognized ROU assets and lease liabilities of $29.2 million, based on the present value of the future minimum rental payments for existing operating leases. We have 0 leases that classify as financing arrangements. As required by the lease ASC updates, we expanded our disclosure of leases. See Note 13 for additional information.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~“Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,”~~ which amends the financial reporting of hedging relationships in order to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the guidance simplifies the application of current hedge accounting guidance. Effective January 1, 2019, we adopted the guidance, which had no material impact on our financial condition, results of operations or cash flows.

~~In June 2018, the FASB issued ASU 2018-07,~~ ~~“Improvements to Nonemployee Share-Based Payment Accounting,”~~ which simplifies the aspects of accounting for nonemployee share-based payment transactions resulting from expanding the scope of ASC Topic 718 – Compensation – Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Effective January 1, 2019, we adopted this standard using the modified retrospective transition method. Our adoption of this standard ~~had no material impact on our financial condition, results of operations or cash flows.~~

~~Recently Issued Accounting Standards~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~"Measurement of Credit Losses on Financial Instruments,"~~ which requires immediate recognition of estimated credit losses that are expected to occur over the remaining life of many financial assets. This standard applies to all financial assets, including trade receivables. Our current accounts receivable policy uses historical and current information to estimate the amount of probable credit losses in our existing accounts receivable balances. This new guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2019. The adoption of this standard will not have a material impact on our financial condition, results of operations or cash flows.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~“Intangibles – Goodwill and Other,”~~ which simplifies the subsequent measurement of goodwill by eliminating the second step from the current goodwill impairment test. Under this standard, an entity would recognize an impairment charge for the amount by which the carrying value of the reporting unit goodwill exceeds the fair value. This new guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2019. The adoption of this standard will not have a material impact on our financial condition or results of operations.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~“Changes to the Disclosure Requirements for Fair Value Measurement.”~~ This standard eliminates the current requirement to disclose the amount or reason for transfers between level 1 and level 2 of the fair value hierarchy and the requirement to disclose the valuation methodology for level 3 fair value measurements. The standard includes additional disclosure requirements for level 3 fair value measurements, including the requirement to disclose the changes in unrealized gains and losses in other comprehensive income during the period and permits the disclosure of other relevant quantitative information for certain unobservable inputs. This new guidance is effective for annual and interim periods beginning after December 15, 2019. ~~The adoption of this standard will not have a material impact on our disclosures.~~

~~In August 2018, the FASB issued ASU 2018-14,~~ “~~Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans,”~~ which amends ASC 715-20, Compensation – Retirement Benefits – Defined Benefit Plans. The ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The disclosure requirements to be removed include the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year, the amount and timing of plan assets expected to be returned to the employer and the effect of a one

~~Armstrong World Industries, Inc., and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(dollar amounts in millions, except share data)~~

percentage point change in assumed health care cost trend rates on the aggregate service cost and benefit obligation for postretirement health care benefits. The new disclosure requirements include the interest crediting rates for cash balance plans, and an explanation of significant gains and losses related to changes in benefit obligations. This guidance is effective for fiscal years ending after December 15, 2020. We are evaluating the impact the adoption of this standard will have on our disclosures.

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~“Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract,”~~ which amends ASC 350-40 Intangibles – Goodwill and Other – Internal-Use Software. The ASU requires implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if these costs were capitalized by the customer in a software licensing arrangement. This guidance is effective for fiscal years beginning after December 15, 2019. ~~The adoption of this standard will not have a material impact on our financial condition, results of operations or cash flows.~~

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~“Simplifying the Accounting for Income Taxes,”~~ which removes exceptions to the general principles in ASC Topic 740 – Income Taxes for allocating tax expense between financial statement components, accounting basis differences resulting from an ownership change in foreign investments and interim period income tax accounting for year-to-date losses that exceed projected losses. This guidance is effective for fiscal years beginning after December 15, 2020. We are evaluating the impact the adoption of this standard will have on our financial condition and results of operations.

~~NOTE 3. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS~~

We have restated the 2017 financial statements to correct a material error related to the previously reported estimated loss on sale of our EMEA and Pacific Rim businesses. The correction increased the estimated loss on sale recorded in 2017 and reduced the assets held for sale by $35.2 million as of December 31, 2017. Notes 2 and 7 have been updated to reflect the restatement. The impacts of this error correction are as follows:

~~Statements of Earnings and Comprehensive Income~~

Year Ended

December 31, 2017

As Reported

As Restated

Loss on disposal of discontinued businesses, net of tax (benefit) of ($4.1)

$
(70.0
)

$
(105.2
)
Net loss from operations

(65.8
)

(101.0
)
Net earnings

154.8

119.6

Total comprehensive income

212.7

177.5

(Loss) per share of common stock, discontinued operations:

Basic

$
(1.23
)

$
(1.89
)
Diluted

$
(1.22
)

$
(1.87
)
Net earnings per share of common stock:

Basic

$
2.89

$
2.23

Diluted

$
2.86

$
2.21

~~Statements of Shareholders’ Equity~~

Retained Earnings

Total Shareholders' Equity

As Reported

As Restated

As Reported

As Restated

December 31, 2017

$
633.4

$
598.2

$
419.3

$
384.1

~~Statements of Cash Flows~~

Year Ended

December 31, 2017

As Reported

As Restated

Net earnings

$
154.8

$
119.6

Loss on disposal of discontinued operations

74.1

109.3

~~Armstrong World Industries, Inc., and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(dollar amounts in millions, except share data)~~

~~Discontinued Operations~~

Year Ended

December 31, 2017

As Reported

As Restated

EMEA and Pacific Rim Businesses

(Loss) from disposal of discontinued businesses, before income tax

$
(74.0
)

$
(109.2
)
(Loss) gain from disposal of discontinued businesses, net of tax

(74.0
)

(109.2
)
Net (loss) earnings from discontinued operations

(69.8
)

(105.0
)
Total

(Loss) from disposal of discontinued businesses, before income tax

$
(74.1
)

$
(109.3
)
(Loss) gain from disposal of discontinued businesses, net of tax

(70.0
)

(105.2
)
Net (loss) earnings from discontinued operations

(65.8
)

(101.0
)

Year Ended

December 31, 2017

As Reported

As Restated

Estimated loss on sale to Knauf

$
74.0

$
109.2

NOTE 4.3. NATURE OF OPERATIONS

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~~systems. Our mineral fiber products offer various performance attributes such as acoustical control, rated fire protection, aesthetic appeal, and ~~aesthetic appeal. Commercial ceiling~~health and sustainability features. Ceiling products are sold to resale distributors, ~~and to~~ ceiling systems ~~contractors. Residential ceiling products are sold primarily to~~contractors and wholesalers and retailers (including large home centers). The Mineral Fiber segment also includes the results of ~~WAVE,~~our Worthington Armstrong Venture (“WAVE”) joint venture with Worthington Industries, Inc., 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%~~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~~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, designs and sources ceilings and walls for use in commercial settings. Products are available in numerous materials, such as metal, felt 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, premium and customized products, ~~with the majority~~a portion of ~~Architectural Specialties revenues~~which are derived from sourced products. Architectural Specialties products are sold primarily to resale distributors and direct customers, primarily ceiling systems contractors. The majority of this segment's 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 ~~minor~~ portion of allocated Corporate administrative expenses that represent a reasonable allocation of general services to support its operations.

Unallocated Corporate – includes certain assets, liabilities, income and expenses that have not been allocated to our other business segments and ~~consist~~consists 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 secured credit facility and income tax balances. Our Unallocated Corporate segment also includes all ~~assets, liabilities, income and~~ expenses related to our German defined benefit pension plan that was formerly reported in our ~~EMEA~~Europe, Middle East and Africa (including Russia) (“EMEA”) and Pacific Rim segments ~~that were~~and was not included in the ~~Sale.~~sale of certain subsidiaries comprising our businesses and operations in EMEA and the Pacific Rim, including the corresponding businesses and operations conducted by WAVE (collectively, the “Sale”) to Knauf International GmbH (“Knauf”).

5146

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

For the year ended 2019	Mineral Fiber			Architectural Specialties		Unallocated Corporate			Total

For the year ended 2022												Mineral Fiber			Architectural Specialties		Unallocated Corporate			Total
Net sales to external customers	$	826.6		$	211.5	$	-		$	1,038.1		$	887.4		$	345.7	$	-		$	1,233.1
Equity (earnings) from joint venture		(96.6	)		-		-			(96.6	)		(77.6	)		-		-			(77.6	)
Segment operating income (loss)		289.6			35.9		(8.1	)		317.4			260.9			21.7		(3.9	)		278.7
Segment assets		1,139.9			161.8		191.6			1,493.3			1,096.9			387.5		202.8			1,687.2
Depreciation and amortization		62.9			8.8		0.4			72.1			69.5			14.2		-			83.7
Investment in joint venture		58.5			-		-			58.5			23.9			-		-			23.9
Purchases of property, plant and equipment ⁽¹⁾		59.5			8.8		-			68.3
Purchases of property, plant and equipment													63.8			11.0		-			74.8

For the year ended 2018	Mineral Fiber			Architectural Specialties		Unallocated Corporate			Total
For the year ended 2021												Mineral Fiber			Architectural Specialties		Unallocated Corporate			Total
Net sales to external customers	$	801.6		$	173.7	$	-		$	975.3		$	818.5		$	288.1	$	-		$	1,106.6
Equity (earnings) from joint venture		(74.9	)		-		-			(74.9	)		(87.7	)		-		-			(87.7	)
Segment operating income (loss)		223.8			34.3		(8.7	)		249.4			261.2			4.2		(5.4	)		260.0
Segment assets		1,096.1			84.7		413.2			1,594.0			1,133.9			366.3		209.8			1,710.0
Depreciation and amortization		75.3			3.5		0.6			79.4			69.9			26.6		-			96.5
Investment in joint venture		40.8			-		-			40.8			50.0			-		-			50.0
Purchases of property, plant and equipment ⁽¹⁾		60.5			4.1		-			64.6
Purchases of property, plant and equipment													64.8			15.0		-			79.8

For the year ended 2017	Mineral Fiber			Architectural Specialties		Unallocated Corporate			Total
For the year ended 2020												Mineral Fiber			Architectural Specialties		Unallocated Corporate			Total
Net sales to external customers	$	756.4		$	137.2	$	-		$	893.6		$	726.0		$	210.9	$	-		$	936.9
Equity (earnings) from joint venture		(67.0	)		-		-			(67.0	)		(64.0	)		-		-			(64.0	)
Segment operating income (loss)		233.5			27.7		(17.4	)		243.8
Segment operating income													218.7			22.3		13.8			254.8
Segment assets		1,193.5			53.2		320.7			1,567.4			1,101.1			357.7		259.7			1,718.5
Depreciation and amortization⁽¹⁾		59.2			1.8		6.0			67.0
Depreciation and amortization													71.8			12.2		-			84.0
Investment in joint venture		107.3			-		-			107.3			41.2			-		-			41.2
Purchases of property, plant and equipment ⁽¹⁾		76.1			1.6		-			77.7
Purchases of property, plant and equipment													45.5			9.9		-			55.4

Segment operating income (loss) is the measure of segment profit or loss reviewed by the chief operating decision maker. The sum of the segments’ operating income (loss) equals the total consolidated operating income as reported on our Consolidated Statements of ~~Earnings~~Operations and Comprehensive Income. The following reconciles our total consolidated operating income to earnings (loss) from continuing operations before income taxes. These items are only measured and managed on a consolidated basis:

Accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Our product-based Mineral Fiber and Architectural Specialties segment net sales represent the product-based group offerings we sell to external customers.

~~Impairment testing~~During 2020, we recorded a $21.0 million gain related to the sale of our ~~tangible assets occurs whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable.~~

In connection with the 2018 closing of our St. Helens, Oregon Mineral Fiber manufacturing facility we recorded $14.1 million in 2018 in cost of goods sold related to accelerated depreciation of property, plant and equipment. In 2017, we recorded $4.0 million in cost of goods sold related to accelerated depreciation of property, plant and equipment within our Mineral Fiber segment.

~~In September 2017, we made the decision to permanently close a previously~~ idled mineral fiber plant in ~~China. As a result, during 2017 we recorded $5.6 million in cost~~China, inclusive of ~~goods sold for accelerated depreciation of machinery and equipment.~~accumulated foreign currency translation gains.

We sell our products to select, pre-approved customers whose businesses are affected by changes in economic and market conditions. We consider these factors and the financial condition of each customer when establishing our allowance for losses from doubtful accounts.

~~Miscellaneous receivables as~~As of December 31, ~~2018~~2022 and 2021, miscellaneous receivables included ~~$6.5~~$4.8 million and $5.9 million of ~~insurance recoveries related~~Employee Retention Credit (“ERC”) receivables, respectively, representing a refundable payroll tax credit for eligible wages paid to ~~environmental matters, which were collected during~~our employees in 2020 and 2021 under the Coronavirus Aid, Relief, and Economic Recovery Act (“CARES Act”). During the first quarter of ~~2019.~~2023, we received $4.1 million of outstanding ERC receivables. See Note 2816 to the Consolidated Financial Statements for ~~additional~~further information.

Approximately ~~73%~~58% and ~~76%~~66% of our total inventory in ~~2019~~2022 and ~~2018,~~2021, respectively, were valued on a Last-in, first-out (“LIFO”) basis.

The distinction between the use of different methods of inventory valuation is primarily based on type of inventory, legal entities and/or geographical locations. The following table summarizes the amount of inventory that is not accounted for under the LIFO method.

U.S. locations above generally use the weighted average cost method of inventory valuation and primarily represent certain finished goods sourced from third party suppliers and certain entities within our Architectural Specialties segment, most notably recent acquisitions, that also use the weighted average cost method given the nature of the inventory.

Our Canadian locations use the ~~First-in, first-out (“FIFO”)~~FIFO method of inventory valuation (or other methods which closely approximate the FIFO method) primarily because the LIFO method is not permitted for local tax ~~and/or statutory~~ reporting purposes. In these situations, a conversion to LIFO would be highly complex and involve excessive cost and effort to achieve under local tax ~~and/or statutory~~ reporting requirements. ~~U.S. locations that use the FIFO method of inventory valuation primarily represent certain finished goods sourced from third party suppliers~~

~~The following table presents supplemental balance sheet information related to our operating leases:~~

The following table presents the weighted average assumptions used to compute our ROU assets and lease liabilities:

Undiscounted future minimum lease payments as of December 31, ~~2019,~~2022, by year and in the aggregate, having non-cancelable lease terms in excess of one year are as follows:

~~Future minimum lease payments as of December 31, 2018, by year and in the aggregate, having non-cancelable lease terms in excess of one year were expected to be as follows:~~

We conduct our annual impairment testing of goodwill and non-amortizing intangible assets during the fourth quarter. The ~~2019, 2018~~2022, 2021 and ~~2017~~2020 reviews concluded that 0no impairment charges were necessary. See Note 2 to the Consolidated Financial Statements for a discussion of our accounting policy for goodwill and intangible assets.

The expected annual amortization expense for the years ~~2020~~2023 through ~~2024~~2027 are as follows:

NOTE ~~17.~~16. INCOME TAXES

The tax effects of principal temporary differences between the carrying amounts of assets and liabilities and their tax basis are summarized below. Management believes it is more likely than not that the results of future operations will generate sufficient taxable income in the appropriate jurisdiction to realize deferred tax assets, net of valuation allowances. In arriving at this conclusion, we considered the profit before tax generated for the years ~~2017~~2020 through ~~2019,~~2022, future reversals of existing taxable temporary differences, and projections of future profit before tax.

We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard for all periods, we ~~give appropriate consideration to~~consider all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses and forecasts of future profitability, the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.

As of December 31, ~~2019~~2022 and ~~2018,~~2021, we had ~~$897.3~~$675.5 million and ~~$954.5~~$700.9 million, respectively, of gross state net operating loss (“NOL”) carryforwards expiring between ~~2020~~ 2023 and ~~2039.~~2042. As of December 31, ~~2019,~~2022, we ~~also~~ had ~~foreign tax credits (“FTC”)~~capital loss carryforwards of ~~$13.1~~$18.8 million that expire between ~~2020~~2024 and ~~2028.~~2036. Capital loss carryforwards as of December 31, 2021 were $18.8 million. As of December 31, 2022, we did not have any foreign tax credit (“FTC”) carryforwards. U.S. FTC carryforwards as of December 31, ~~2018~~2021 were ~~$19.1~~$0.6 million.

As of December 31, ~~2019, we also had capital loss carryforwards of $16.0 million that expire between 2024~~2022 and ~~2034.~~

~~As of December 31, 2019 and 2018,~~2021, we had valuation allowances of ~~$75.5~~$48.7 million and ~~$79.6~~$60.6 million, respectively. As of December 31, ~~2019,~~2022, our valuation allowance consisted of ~~$13.1 million for federal deferred tax assets related to FTC carryforwards, $46.4~~$28.0 million for state deferred tax assets related to operating loss carryforwards, ~~and $16.0~~$17.4 million for federal and state deferred tax assets related to capital loss ~~carryovers.~~carryforwards and $3.3 million for state deferred tax assets related to state tax credits.

~~We estimate we will need to generate future federal taxable foreign source income of $62.4 million to fully realize FTC carryforwards before they expire in 2028.~~ We estimate we will need to generate future taxable income of approximately ~~$681.6~~$360.1 million for state income tax purposes during the respective realization periods (ranging from ~~2020~~2023 to ~~2039) in order~~2042) to be able to fully realize the net deferred income tax assets discussed above. We estimate we will need to generate capital gain income of ~~$56.2~~$66.4 million to fully realize our federal capital loss carryforwards before they expire ~~in 2034.~~between 2024 and 2026. We estimate we will need to generate capital gain income of $184.6 million to fully realize our state capital loss carryforwards before they expire between 2024 and 2036. Our ability to utilize deferred tax assets may be impacted by certain future events, such as changes in tax legislation or insufficient future taxable income prior to expiration of certain deferred tax assets.

6456

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	December 31, 2022			December 31, 2021
Deferred income tax assets (liabilities)
Net operating losses	$	34.2		$	42.5
Postretirement benefits		16.7			20.7
Pension benefit liabilities		8.2			11.0
Deferred compensation		7.1			7.9
Foreign tax credit carryforwards		-			0.6
State tax credit carryforwards		4.7			8.7
Capital loss carryforwards		18.8			18.8
Capitalized research expenses		9.4			-
Lease right-of-use liabilities		9.7			9.8
Other		3.8			12.3
Total deferred income tax assets		112.6			132.3
Valuation allowances		(48.7	)		(60.6	)
Net deferred income tax assets		63.9			71.7
Intangibles		(85.1	)		(87.4	)
Partnerships and investments		(25.5	)		(26.4	)
Accumulated depreciation		(86.4	)		(80.4	)
Prepaid pension costs		(21.2	)		(27.8	)
Inventories		(4.9	)		(4.9	)
Lease right-of-use assets		(9.9	)		(10.1	)
Other		(0.3	)		(1.6	)
Total deferred income tax liabilities		(233.3	)		(238.6	)
Net deferred income tax liabilities	$	(169.4	)	$	(166.9	)

December 31, 2019

December 31, 2018

Deferred income tax assets (liabilities)

Net operating losses

$
54.8

$
58.7

Postretirement benefits

21.2

18.2

Pension benefit liabilities

12.9

14.3

Deferred compensation

10.5

11.8

Undistributed foreign earnings

-

32.5

Foreign tax credit carryforwards

13.1

19.1

State tax credit carryforwards

9.3

9.8

Capital loss carryforwards

16.0

-

Lease right-of-use liabilities

9.0

-

Other

9.0

17.1

Total deferred income tax assets

155.8

181.5

Valuation allowances

(75.5
)

(79.6
)
Net deferred income tax assets

80.3

101.9

Intangibles

(126.2
)

(132.3
)
Accumulated depreciation

(69.7
)

(62.0
)
Prepaid pension costs

(24.2
)

(11.5
)
Inventories

(4.5
)

(5.5
)
Lease right-of-use assets

(9.0
)

-

Other

(0.2
)

(0.2
)
Total deferred income tax liabilities

(233.8
)

(211.5
)
Net deferred income tax liabilities

$
(153.5
)

$
(109.6
)
Deferred income taxes have been classified in the Consolidated Balance
Sheet as:

Deferred income tax assets - non-current

$
10.4

$
14.8

Deferred income tax liabilities - non-current

(163.9
)

(124.4
)
Net deferred income tax liabilities

$
(153.5
)

$
(109.6
)


	2022			2021		2020
Details of taxes
Earnings (loss) from continuing operations before income taxes
Domestic	$	251.7		$	239.3	$	(130.0	)
Foreign		5.9			3.4		3.3
Total	$	257.6		$	242.7	$	(126.7	)

Income tax expense (benefit):
Current:
Federal	$	46.3		$	39.4	$	40.8
Foreign		1.3			0.6		1.0
State		11.3			8.7		5.6
Total current		58.9			48.7		47.4

Deferred:
Federal		(1.9	)		3.6		(75.5	)
Foreign		(0.2	)		0.6		-
State		0.9			4.5		(14.5	)
Total deferred		(1.2	)		8.7		(90.0	)

Total income tax expense (benefit)	$	57.7		$	57.4	$	(42.6	)

6557

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

2019

2018

2017

Details of taxes

Earnings (loss) from continuing operations before income taxes:

Domestic

$
299.7

$
234.0

$
224.1

Foreign

(0.3
)

8.7

(2.0
)
Total

$
299.4

$
242.7

$
222.1

Income tax expense (benefit):

Current:

Federal

$
31.4

$
45.7

$
26.2

Foreign

0.8

2.1

1.4

State

6.3

8.0

4.7

Total current

38.5

55.8

32.3

Deferred:

Federal

15.1

(3.7
)

(36.6
)
Foreign

(0.3
)

-

(0.1
)
State

3.8

1.0

5.9

Total deferred

18.6

(2.7
)

(30.8
)

Total income tax expense

$
57.1

$
53.1

$
1.5

~~We reviewed our position with regards to foreign~~The unremitted earnings of our foreign subsidiaries are not permanently reinvested. Accordingly, at December 31 2022 and ~~determined that unremitted earnings will not be permanently reinvested as a result of the Sale. Accordingly, in 2019,~~2021, we ~~had~~have recorded deferred income taxes for foreign withholding taxes of ~~$0.8~~$0.9 million and $0.7 million on approximately ~~$14.0~~$17.7 million and $13.0 million of net undistributed earnings of foreign ~~subsidiaries. In 2018, we had foreign withholding taxes accrued of $2.2 million on approximately $208.0 million of net undistributed earnings of foreign subsidiaries.~~subsidiaries, respectively.

2019

2018

2017

Reconciliation to U.S. statutory tax rate

Continuing operations tax at statutory rate

$
62.9

$
51.0

$
77.7

Increase in valuation allowances on deferred
domestic income tax assets

0.1

10.0

9.1

State income tax expense, net of federal benefit

12.4

9.2

7.9

Domestic production activities

-

-

(5.8
)
Statute closures

(3.8
)

(9.6
)

(2.3
)
State deferred tax adjustments

(1.9
)

-

-

Capital loss utilization on WAVE earnings

(4.4
)

-

-

2017 Tax Act ⁽¹⁾

-

(1.2
)

(82.5
)
Excess tax benefits on share-based compensation

(3.2
)

(3.8
)

-

Tax on foreign and foreign-source income

(1.9
)

(4.4
)

-

Other

(3.1
)

1.9

(2.6
)
Tax expense at effective rate

$
57.1

$
53.1

$
1.5


	2022			2021			2020
Reconciliation to U.S. statutory tax rate
Continuing operations tax expense (benefit) at statutory rate	$	54.1		$	51.0		$	(26.6	)
Decrease in valuation allowances on deferred income tax assets		(1.7	)		(17.8	)		(0.1	)
Expiration of deferred income tax assets		0.7			18.3			-
State income tax expense (benefit), net of federal impact		11.0			11.0			(7.3	)
Capital loss on sale of investment		-			-			(4.6	)
Statute closures		(5.1	)		(3.8	)		(1.3	)
State deferred tax adjustments		-			-			(1.5	)
Excess tax benefits on share-based compensation		(0.5	)		(0.8	)		(0.9	)
U.S. permanent differences		(0.8	)		(1.3	)		(2.2	)
Other		-			0.8			1.9
Tax expense (benefit) at effective rate	$	57.7		$	57.4		$	(42.6	)

~~(1)~~

On December 22, 2017, the U.S. federal government enacted the 2017 Tax Act, resulting in significant changes from existing U.S. tax laws that impact us, including, but not limited to, reducing the U.S. federal corporate income tax rate from 35% to 21%, allowing immediate 100% deduction for the cost of qualified property, eliminating the domestic production activities deduction, and imposing a one-time transition tax in 2017 on the cumulative earnings and profits of certain foreign subsidiaries that were previously not repatriated and therefore not taxed for U.S. income tax purposes. Our federal income tax expense is based on the new 21% rate for periods beginning in 2018.

We recognize the tax benefits of an uncertain tax position only if those benefits are more likely than not to be sustained based on existing tax law. Additionally, we establish a reserve for tax positions that are more likely than not to be sustained based on existing tax law, but uncertain in the ultimate benefit to be sustained upon examination by the relevant taxing authorities. Unrecognized tax benefits are subsequently recognized at the time the more likely than not recognition threshold is met, the tax matter is effectively settled or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, whichever is earlier.

~~Armstrong World Industries, Inc., and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(dollar amounts in millions, except share data)~~

We ~~have $34.7~~had $27.3 million of Unrecognized Tax Benefits (“UTB”) as of December 31, ~~2019, $17.2~~2022, $11.5 million ($~~16.1~~10.6 million, net of federal benefit) of this amount, if recognized in future periods, would impact the reported effective tax rate.

It is reasonably possible that certain UTB’s may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities. Over the next twelve months we estimate that UTB’s may decrease by ~~$0.6~~$0.1 million related to state statutes ~~expiring and increase by $1.8 million due to uncertain tax positions expected to be taken on domestic tax returns.~~expiring.

We account for all interest and penalties on uncertain income tax positions as income tax expense. We have ~~$2.2~~$1.7 million of interest and penalties accrued in ~~noncurrent~~non-current income tax payable in the Consolidated Balance Sheet as of December 31, ~~2019.~~2022.

We had the following activity for UTB’s for the years ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017:~~2020:


	2019			2018			2017			2022			2021			2020
Unrecognized tax benefits balance at January 1,	$	42.6		$	53.4		$	86.9		$	35.6		$	41.7		$	34.7
Gross change for current year positions		2.2			3.6			(2.2	)		0.4			1.7			2.3
Increases for prior period positions		-			1.1			2.9
Increase for prior period positions											0.2			-			8.7
Decrease for prior period positions		(2.1	)		(2.0	)		(0.1	)		(1.4	)		(3.6	)		-
Decrease due to statute expirations		(8.0	)		(13.5	)		(34.1	)		(7.5	)		(4.2	)		(4.0	)
Unrecognized tax benefits balance at December 31,	$	34.7		$	42.6		$	53.4		$	27.3		$	35.6		$	41.7

We file income tax returns in the U.S., and various states and international jurisdictions. In the normal course of business, we are subject to examination by taxing authorities in Canada and the United States. Generally, we have open tax years subject to tax audit on average of between three years and six ~~years.~~years. The statute of limitations is no longer open for U.S. federal returns before ~~2016.~~2018. However, the U.S. federal return remains subject to examination by taxing authorities for 2017, specifically as it relates to the Section 965 Transition Tax incurred related to the Tax Cuts and Jobs Act of 2017. With few exceptions, the statute of limitations is no longer open for state or non-U.S. income tax examinations for ~~the~~ years before ~~2014. We~~2018. With the exception of extending the 2018 and 2019 statute of limitations to July 31, 2023 as a result of ongoing U.S. federal income tax audits, we have not significantly extended any open statutes of limitation for any major jurisdiction and have reviewed and accrued for, where necessary, tax liabilities for open periods.

2019

2018

2017

Other taxes

Payroll taxes

$
16.0

$
15.6

$
14.2

Property, franchise and capital stock taxes

3.8

3.7

4.0

~~NOTE 18. DEBT~~58

December 31, 2019

December 31, 2018

Revolving credit facility due 2024

$
115.0

$
-

Term loan A due 2021

-

547.5

Term loan A due 2024

500.0

-

Term loan B due 2023

-

243.1

Tax exempt bonds due 2041

-

35.0

Principal debt outstanding

615.0

825.6

Unamortized debt financing costs

(4.2
)

(5.8
)
Long-term debt

610.8

819.8

Less current portion and short-term debt

6.3

55.0

Total long-term debt, less current portion

$
604.5

$
764.8

As of June 30, 2019, total principal debt outstanding under our $1,050.0 million variable rate senior credit facility was $525.0 million under Term Loan A and $241.9 million under Term Loan B, with 0 borrowings outstanding under the revolving credit facility. On July 3, 2019, we used cash on hand to make a voluntary prepayment of $100.0 million of the debt outstanding under Term Loan B. Term Loan B was priced at 2.75% over the London Interbank Offered Rate (“LIBOR”). On September 30, 2019, we refinanced our $1,050.0 million variable rate senior credit facility, using cash on hand to pay down a portion of the debt outstanding, including the debt outstanding under Term Loan B. The $1,000.0 million amended senior credit facility is composed of a $500.0 million revolving

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	2022		2021		2020
Other taxes
Payroll taxes	$	18.3	$	13.4	$	15.6
Property, franchise and capital stock taxes		4.5		4.4		4.2

In 2021, we recorded a $5.9 million ERC benefit, representing a refundable payroll tax credit for eligible wages paid to our employees in 2020 and 2021 under the CARES Act. We accounted for the ERC by applying the grant model. Based on our evaluation, we recognized the ERC benefit during 2021, primarily as an offset to payroll tax expenses within cost of goods sold and SG&A expenses in our Consolidated Statements of Operations and Comprehensive Income.

For ~~2019, 2018~~2022, 2021 and ~~2017,~~2020, actuarial gains and losses were amortized over the remaining life expectancy of plan participants, which was approximately 1726 years for ~~2019, 18~~2022, 27 years for ~~2018~~2021 and 1928 years for ~~2017~~2020 for our U.S. defined benefit pension plans.

The RIP’s primary investment objective is to maintain the funded status of the plan such that the likelihood ~~that~~ we will be required to make significant contributions to the plan is limited. This objective is expected to be achieved by (a) investing a substantial portion of the plan assets in high quality corporate bonds whose duration is at least equal to that of the plan’s liabilities, (b) investing in publicly traded equities in order to increase the ratio of plan assets to liabilities over time, (c) limiting investment return volatility by diversifying among additional asset classes with differing expected rates of return and return correlations, ~~and~~and/or (d) using derivatives to either implement investment positions efficiently or to hedge risk but not to create investment leverage.

Pension plan assets are required to be reported and disclosed at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Three levels of inputs may be used to measure fair value:

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

~~RIP Level 3 assets remained relatively unchanged from December 31, 2018 to December 31, 2019, with the change in Level 3 assets during 2019 due primarily to fees, expenses and benefits paid.~~

The RIP has investments in alternative investment funds as of December 31, ~~2019~~2022 and ~~2018~~2021 which are reported at fair value. These investments that are measured at fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the tables above are intended to permit reconciliation of the fair value hierarchy to the total fair value of plan assets. We have concluded that the NAV reported by the underlying fund approximates the fair value of the investment. These investments are redeemable at NAV under agreements with the underlying funds. However, it is possible that these redemption rights may be restricted or eliminated by the funds in the future in accordance with the underlying fund agreements. Due to the nature of the investments held by the funds, changes in market conditions and the economic environment may significantly impact the NAV of the funds and, consequently, the fair value of the U.S. defined benefit pension plan asset’s interest in the funds. Furthermore, changes to the liquidity provisions of the funds may significantly impact the fair value of the U.S. defined benefit pension plan asset’s interest in the funds. As of December 31, ~~2019,~~2022, there were no restrictions on redemption of these investments.

Following is a description of the valuation methodologies used for assets measured at fair value and at NAV.

~~Bonds:~~Collective trust funds – bonds: Consists primarily of collective trust funds, in addition to registered investment funds and common ~~and collective~~ trust funds, ~~investing~~which invest in fixed income securities tailored to institutional investors. There are no readily available market quotations for registered investment company funds. The fair value of collective trust funds, registered investment funds and common ~~and collective~~ trust funds have been classified as Level 2 assets above ~~as their values were derived~~ based on the ~~underlying securities~~determination that the funds have quoted prices in non-active markets. The funds are priced on a daily basis by their trustee and therefore have a readily determinable fair value; however, the ~~fund’s portfolio which~~number of trades occurring is ~~typically the amount which the fund might reasonably expect to receive~~not sufficient for the ~~security upon a current sale.~~market to be considered active. Investments ~~in individual bonds were measured at fair value based on the closing price reported in the active market in which the bond is traded and investments~~ in pooled funds traded in a non-active market were valued at bid price and classified as Level 2 assets above.

Collective trust ~~fund:~~funds – equities:Represents collective trust and funds holding equity investments, fixed income securities, commodity futures contracts, cash and other short-term securities. The fair value of collective trust funds have been classified as Level 2 assets above ~~as their values were derived~~ based on the ~~underlying securities~~determination that the funds have quoted prices in non-active markets. The funds are priced on a daily basis by their trustee and therefore have a readily determinable fair value; however, the ~~fund’s portfolio which~~number of trades occurring is ~~typically the amount which the fund might reasonably expect to receive~~not sufficient for the ~~security upon a current sale.~~

~~Real estate:~~ ~~Consists of both open-end and closed-end funds. There are no readily available~~ market ~~quotations for these real estate funds. These investments were measured at fair value using the NAV practical expedient.~~

~~Other investments~~: Consists of investments in a group insurance annuity contract and a limited partnership. Investments in the group insurance annuity contract were classified as Level 3 assets and measured at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations while considering the credit-worthiness of the issuer. The investments in the limited partnership were measured at fair value using the NAV practical expedient.to be considered active.

Cash, other short-term investments and payables: ~~Consist~~ Consists primarily of cash and cash equivalents, and plan receivables/payables. The carrying amounts of cash and cash equivalents and receivables/payables approximate fair value due to the short-term nature of these instruments. Other payables and receivables consist primarily of ~~margin on an account for a fund,~~ accrued fees and receivables related to investment positions liquidated for which proceeds had not been received as of December 31.

~~On February 20, 2020, we entered into a commitment agreement (“~~Real estate: Consists of both open-end and closed-end real estate funds. There are no readily available market quotations for these real estate funds. These investments were measured at fair value using the Agreement”), by and among AWI, Athene Annuity and Life Company (“AAIA”), Athene Annuity & Life Assurance Company of New York (“AANY”) and State Street Global Advisors Trust Company (“State Street”), acting solely in its capacity as independent fiduciary of the RIP in connection with the transfer of pension obligations and administration to AAIA and AANY. Under the Agreement, the RIP will use RIP assets to purchase a single premium group annuity contract from each of AAIA and AANY. The annuity contracts will irrevocably transfer approximatelyNAV practical expedient.$1.0 billion of retiree defined benefit pension obligations related to approximately 10,000 retirees and beneficiaries (“the Transferred Participants”) to AAIA and AANY, which will guarantee the pension benefits of the Transferred Participants.

Under the Agreement, each of AAIA and AANY is required to pay and administer the retirement benefits owed to the Transferred Participants covered by the applicable contract. The Agreement has no impact on the amount or timing of the monthly retirement benefit payments received by the Transferred Participants. We will not have to make any cash contributions to the RIP as a result of the Agreement.

The Agreement is subject to customary closing conditions for a transaction of this nature. Under the Agreement, all Transferred Participants will receive their first annuity payment from either AAIA or AANY on May 1, 2020.

As a result of the transaction, we expect to record a non-cash expense in the range of $350 million and $400 million in the first quarter of 2020 as a component of non-operating expense to reflect a partial plan settlement charge.

After the transaction is complete, we anticipate the RIP will have projected benefit obligations of approximately $370 million covering approximately 3,000 deferred vested and active participants. Benefits payable to participants who will remain in the RIP after the transaction are not being reduced as a result of the transaction.

We fund postretirement benefits on a pay-as-you-go basis, with the retiree paying a portion of the cost for health care benefits by means of deductibles and contributions.

The following tables summarize the balance sheet impact of the ~~U.S.~~ postretirement benefit pension plan, as well as the related benefit obligations, funded status and rate assumptions. We use a December 31 measurement date for all our defined benefit postretirement benefit plans.

For measurement purposes, an average rate of annual increase in the per capita cost of covered health care benefits of ~~7.2%~~7.3% for pre-65 retirees and ~~8.1% to 8.2%~~7.8% for post-65 retirees ~~(depending on plan type)~~ was assumed for ~~2019,~~2022, decreasing ratably to an ultimate rate of ~~4.5%~~4.5% in 2026. Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects:2030.

Amounts recognized in assets (liabilities) on the consolidated balance sheets at year end consist of:

Pre-tax amounts recognized in accumulated other comprehensive (loss) income at year end consist of:

~~For U.S. pension plans, we expect to amortize $20.5 million of previously unrecognized net actuarial losses into pension cost in 2020 and expect to contribute $3.9 million in 2020.~~

For our U.S. postretirement benefit plans, we expect to amortize $5.9 million of previously unrecognized net actuarial gains and prior service credits into postretirement benefit cost in 2020 and expect to contribute $6.5 million in 2020.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten years for our U.S. plans:

We do not hold or issue financial instruments for trading purposes. The estimated fair values of our financial instruments and contingent consideration are as follows:

The carrying amounts of cash and cash equivalents, receivables, accounts payable, and accrued expenses approximate fair value because of the short-term maturity of these instruments. The fair value estimates of long-term debt ~~were primarily~~are based on ~~current market conditions.~~quotes from a major financial institution of recently observed trading levels of our Term Loan A debt. The fair value estimates for interest rate swap contracts are estimated by obtaining quotes from major financial institutions with verification by internal valuation models. We

engaged independent, third-party valuation specialists to determine the fair value estimates for acquisition-related contingent consideration payable based on performance, which were measured using a Monte Carlo simulation. As of December 31, 2022 and 2021, $15.2 million and $8.6 million, respectively, of the carrying amount of contingent consideration liabilities payable, related to final achievement of certain financial and performance milestones through December 31, 2022 and 2021, respectively, for the acquisitions of Moz and Turf, was equal to fair value as milestone achievements were known.

As of December 31, 2021, the acquisition-related contingent consideration liability included $8.6 million related to the final achievement of certain financial and performance milestones through December 31, 2021, for the Moz and Turf acquisitions, which was paid in the first quarter 2022.

Acquisition-related contingent consideration of $4.2 million as of December 31, 2021 was measured with the use of significant unobservable inputs, which included financial projections over the earn-out period, the volatility of the underlying financial metrics and estimated discount rates. All changes in the contingent consideration liability subsequent to the initial acquisition-date measurements were ~~valued using Level 2 (other observable)~~recorded as a component of operating income on our Consolidated Statements of Operations and Comprehensive Income.

As of December 31, ~~2019~~2022, the acquisition-related contingent consideration liability represents the additional cash consideration payable related to our acquisition of Turf upon the final achievement of certain financial and ~~2018.~~performance milestones through December 31, 2022, which we paid in the first quarter of 2023 and is classified as a current liability. During 2022, the change in fair value was due to changes in Turf actual results over the earn out period. During 2021 and 2020, the change in fair value was primarily due to changes in Turf and Moz actual results or financial projections over the earn out period. During 2022, we paid $8.6 million of

additional cash consideration, which represented the final achievement of certain financial and performance milestones through December 31, 2021 for the acquisitions of Moz and Turf. The additional cash consideration paid was classified as cash flows from financing activities in our Consolidated Statements of Cash Flows, up to the acquisition date fair value. The portions of additional cash consideration paid in excess of the acquisition date fair value was classified as cash flows from operating activities in our Consolidated Statements of Cash Flows.

As of December 31, ~~2019,~~2022, the amount of existing ~~losses~~gains in AOCI expected to be recognized in earnings over the next twelve months ~~is $2.6~~was $10.4 million.

~~As a result of our adoption of~~ ~~ASU 2017-07~~, defined contribution and defined benefit pension plan expense, net, included above includes non-service cost components of net periodic pension costs that are reflected as a component of other non-operating income on the Consolidated Statements of Earnings and Comprehensive Income for all years presented. See Note 19 for details related to our components of net periodic pension costs.

The following table summarizes the activity, by component, related to the change in AOCI for December 31, ~~2019~~2022 and ~~2018:~~2021:

During the second quarter of 2019, we discovered a $35.2 million error in our estimated loss on sale of our international operations that initially should have been recorded in the fourth quarter of 2017. Based on discussions with the staff of the Securities and Exchange Commission in 2020 and further evaluation, we have determined that the error was material to the 2017 financial statements. This error was the result of a material weakness in our internal controls over financial reporting.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness related to the controls over the review of the loss on sale calculation for the sale of our international businesses that originated in the 2017 fiscal year and was recorded within discontinued operations. Specifically, we did not review the proper design of the controls related to the loss on sale calculation, including management’s review of the loss on sale calculation in each subsequent quarter. This resulted in all items defined as debt within the purchase agreement to be omitted from the calculation. Following our policy to independently review the design of all new controls, we remediated this material weakness during 2019 by requiring that the design of any new control be reviewed by a second employee before the operation of the control. The remediated control was tested in 2019 and we concluded that it was designed and operating effectively.

We had previously concluded that our internal controls over financial reporting for the annual periods ended December 31, 2017 and December 31, 2018 were effective and that our disclosure controls and procedures for the annual period ended December 31, 2017, each interim period within and the annual period ended December 31, 2018, and each interim period in 2019 through the third quarter were also effective. In light of the restatement and material weakness discussed above, the conclusions are no longer appropriate for the periods referenced.

While we corrected and disclosed the financial statement impacts of the error in our originally filed Form 10-K for the year ended December 31, 2019, we have updated the disclosures in the Form 10-K/A and labeled the 2017 results of operations and cash flows as restated.

Our management, with the participation of our chief executive officer and our chief financial officer, performed an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)) as of December 31, ~~2019.~~2022. Our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures were effective insofar as they are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

~~Other than the change described above, there~~There have been no material changes in our internal control over financial reporting that occurred during the quarter ended December 31, ~~2019~~2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. During the second quarter of 2022, we changed our enterprise resource planning system. In connection with this change, we have updated the processes that comprise the Company's internal control over financial reporting, as necessary, to accommodate related changes in the Company's systems and business processes. To date, this change has not had, and the Company does not believe it will have in the future, an adverse effect on the Company's internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm are incorporated by reference to Item 8 to this Annual Report on Form 10-K.

Information about our Executive Officers (as of February ~~25, 2020)~~21, 2023):

* Information in parenthesis regarding previously held positions indicates the duration the Executive Officer held the position.

All executive officers are elected by the Board of Directors to serve in their respective capacities until their successors are elected and qualified or until their earlier resignation or removal.

We have adopted a Code of Business Conduct that applies to all employees, executives and directors, specifically including our Chief Executive Officer, our Chief Financial Officer and our Controller. We have also adopted a Code of Ethics for Financial Professionals (together with the Code of Business Conduct, the “Codes of Ethics”) that applies to all professionals in our finance and accounting functions worldwide, including our Chief Financial Officer and our Controller.

The Codes of Ethics are available at http://www.armstrongceilings.com/corporate/codes-policies.html and in print free of charge. Any waiver of the Company’s Code of Business Conduct, particularly its conflicts-of-interest provisions, which may be proposed to apply to any director or executive officer, must be reviewed in advance by the Nominating, Governance and ~~Governance~~Social Responsibility Committee of the Board of Directors, which would be responsible for making a recommendation to the Board of Directors for approval or disapproval. The Board of Directors’ decision on any such matter would be disclosed publicly in compliance with applicable legal standards and the rules of the New York Stock Exchange. We intend to satisfy these requirements by making disclosures concerning such matters available on the “For Investors” page of our website. There were no waivers or exemptions from the Code of Business Conduct in ~~2019~~2022 applicable to any director or executive officer.

Other information required by Item 10 is incorporated by reference to the sections entitled “Election of Directors,” “Corporate Governance,” and ~~“Section 16(a)~~“Security Ownership of Certain Beneficial ~~Ownership Reporting Compliance”~~Owners, Management and Directors” in the Company’s proxy statement for its ~~2020~~2023 annual meeting of shareholders to be filed no later than ~~April 29, 2020.~~May 1, 2023.

The information required by Item 11 is incorporated by reference to the sections entitled “Compensation Discussion and Analysis,” “Compensation Committee Report,” ~~“Summary~~“2022 Summary Compensation Table,” “Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End,” ~~“Option Exercises~~“Options Exercised and Stock Vested,” “Pension Benefits,” “Nonqualified Deferred Compensation,” “Potential Payments Upon Termination or Change in Control,” ~~“Board of Directors – Board’s~~“Board’s Role in Risk Management Oversight,” “Compensation Committee Interlocks and Insider Participation” and “Compensation of Directors” in the Company’s proxy statement for its ~~2020~~2023 annual meeting of shareholders to be filed no later than ~~April 29, 2020.~~May 1, 2023.

The information required by Item 12 is incorporated by reference to the sections entitled “Security Ownership of Certain Beneficial Owners,~~” “Security Ownership of~~ Management” and ~~“Equity~~Directors" and “Securities Authorized for Issuance Under Equity Compensation ~~Plan Information”~~Plans” in the Company’s proxy statement for its ~~2020~~2023 annual meeting of shareholders to be filed no later than ~~April 29, 2020.~~May 1, 2023.

The information required by Item 13 is incorporated by reference to the sections entitled ~~“Certain Relationships and~~“Review of Related Person Transactions” and “Director Independence” in the Company’s proxy statement for its ~~2020~~2023 annual meeting of shareholders to be filed no later than ~~April 29, 2020.~~May 1, 2023.

The information required by Item 14 is incorporated by reference to the sections entitled ~~“Audit Committee Report” and “Relationship with~~“Fees Paid to Independent ~~Auditors”~~Registered Public Accounting Firm” in the Company’s proxy statement for its ~~2020~~2023 annual meeting of shareholders to be filed no later than ~~April 29, 2020.~~May 1, 2023.

Worthington Armstrong Venture consolidated financial statements for the years ended December 31, ~~2019, 2018,~~2022, 2021, and ~~2017~~2020 (filed ~~with the~~herewith as Exhibit 99.1).

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


2500 Columbia Avenue, Lancaster, Pennsylvania		17603
(Address of principal executive offices)		(Zip Code)


		PAGE

	Cautionary Note Regarding Forward-Looking Statements	43

	PART I
Item 1.	Business	5
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	1718
Item 2.	Properties	1718
Item 3.	Legal Proceedings	1718
Item 4.	Mine Safety Disclosures	1719

	PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1820
Item 6.	~~Selected Financial Data~~[Reserved]	1920
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2021
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	3231
Item 8.	Financial Statements and Supplementary Data	3332
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	8877
Item 9A.	Controls and Procedures	8877
Item 9B.	Other Information	8877
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	77

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	8978
Item 11.	Executive Compensation	9079
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	9079
Item 13.	Certain Relationships and Related Transactions, and Director Independence	9079
Item 14.	Principal Accountant Fees and Services	9079

	PART IV
Item 15.	Exhibits and Financial Statement Schedules	9180
Item 16.	Form 10-K Summary	9582

Signatures		9683


Operating Segment	Number of Plants	Location of Principal Facilities

Mineral Fiber	6	U.S. (Florida, Georgia, Ohio, Oregon, Pennsylvania and West Virginia)
Architectural Specialties	711	U.S. ~~(Illinois,~~(California (3), Illinois (2), Missouri and Ohio ~~and Missouri)~~(3)), Canada (Quebec and Ontario)
~~Unallocated Corporate~~	1	~~China~~


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Approximate Value of Shares that may yet be Purchased under the Plans or Programs
October 1 – 31, 2022		175,683	$	80.75		175,683	$	354,602,234
November 1 – 30, 2022		77,322	$	75.22		77,292	$	348,788,133
December 1 – 31, 2022		1,824	$	72.30		-	$	348,788,133
Total		254,829				252,975


	Fair Value at Acquisition Date		Estimated Useful Life
Tradenames	$	12.1	Indefinite
Software		9.1	7 years
Backlog		5.5	1 year
Customer relationships		3.6	1 year
Non-compete agreements		2.1	5 years
Patents		0.6	13-19 years
Total identifiable intangible assets	$	33.0


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


Auditor Name: KPMG LLP	Auditor Location: Philadelphia, PA	Auditor Firm ID: 185

Period	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Approximate Value of Shares that may yet be Purchased under the Plans or Programs
October 1 – 31, 2019		35,684	$	94.65		34,179	$	185,003,673
November 1 – 30, 2019		299,194	$	94.12		298,872	$	156,874,100
December 1 – 31, 2019		197,864	$	94.69		197,516	$	138,171,417
Total		532,742				530,567

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

	First		Second		Third		Fourth
2019
Net sales	$	242.1	$	272.0	$	277.1	$	246.9
Gross profit		91.4		103.4		111.7		88.6

Earnings from continuing operations
Per share of common stock:
Basic	$	0.75	$	1.30	$	1.86	$	1.06
Diluted	$	0.73	$	1.28	$	1.83	$	1.04

Price range of common stock - high	$	79.53	$	99.27	$	104.50	$	103.66
Price range of common stock - low	$	57.38	$	79.77	$	91.16	$	89.58

Cash dividend per common share	$	0.175	$	0.175	$	0.175	$	0.200

2018
Net sales	$	227.3	$	248.6	$	260.5	$	238.9
Gross profit		70.8		82.7		97.9		82.1

Earnings from continuing operations		41.2		47.6		64.2		36.6
Per share of common stock:
Basic	$	0.78	$	0.91	$	1.26	$	0.74
Diluted	$	0.76	$	0.90	$	1.23	$	0.73

Price range of common stock - high	$	64.60	$	65.00	$	73.45	$	71.50
Price range of common stock - low	$	55.65	$	54.45	$	62.15	$	54.34

Cash dividend per common share	$	-	$	-	$	-	$	0.175

	Year Ended
	December 31, 2017
	As Reported			As Restated
Loss on disposal of discontinued businesses, net of tax (benefit) of ($4.1)	$	(70.0	)	$	(105.2	)
Net loss from operations		(65.8	)		(101.0	)
Net earnings		154.8			119.6
Total comprehensive income		212.7			177.5
(Loss) per share of common stock, discontinued operations:
Basic	$	(1.23	)	$	(1.89	)
Diluted	$	(1.22	)	$	(1.87	)
Net earnings per share of common stock:
Basic	$	2.89		$	2.23
Diluted	$	2.86		$	2.21

	2019		2018
Property, plant and equipment, net at December 31,
Mineral Fiber:
United States	$	496.6	$	487.5
Total Mineral Fiber		496.6		487.5

Architectural Specialties:
United States	$	22.2	$	5.9
Canada		5.8		4.5
Total Architectural Specialties		28.0		10.4

Unallocated Corporate ⁽¹⁾		-		3.1
Total property, plant and equipment, net	$	524.6	$	501.0


	2020
Net sales from continuing operations, pro forma (unaudited)	$	1,009.0
Net sales from continuing operations, as reported		936.9
Net loss from continuing operations, pro forma (unaudited)		(69.2	)
Net loss from continuing operations, as reported		(84.1	)

	EMEA and Pacific Rim Businesses			Flooring Businesses			Total
2019
Net sales	$	319.1		$	-		$	319.1
Cost of goods sold		245.7			-			245.7
Gross profit		73.4			-			73.4
Selling, general and administrative expenses		61.6			-			61.6
Operating income		11.8			-			11.8
Other non-operating expense, net		1.6			-			1.6
Earnings from discontinued operations before income tax		10.2			-			10.2
Income tax expense		12.0			-			12.0
Net (loss) from discontinued operations, net of tax	$	(1.8	)	$	-		$	(1.8	)

(Loss) from disposal of discontinued businesses, before income tax	$	(31.2	)	$	-		$	(31.2	)
Income tax (benefit)		-			(5.2	)		(5.2	)
(Loss) gain from disposal of discontinued businesses, net of tax	$	(31.2	)	$	5.2		$	(26.0	)

Net (loss) earnings from discontinued operations	$	(33.0	)	$	5.2		$	(27.8	)


	2021		2020
Loss on sale to Knauf (1)	$	0.4	$	17.2
Gain on dissolution of flooring entity (2)		-		(0.8	)

	December 31, 2019			December 31, 2018
Customer receivables	$	82.4		$	70.4
Miscellaneous receivables		5.0			11.5
Less allowance for warranties, discounts and losses		(2.3	)		(2.0	)
Accounts and notes receivable, net	$	85.1		$	79.9


	December 31, 2022		December 31, 2021
U.S. locations	$	43.2	$	28.0
Canada locations		3.1		2.7
Total	$	46.3	$	30.7

	December 31, 2019			December 31, 2018
Land	$	32.6		$	32.4
Buildings		239.5			232.5
Machinery and equipment		624.8			575.4
Computer software		33.4			23.8
Construction in progress		41.8			49.8
Less accumulated depreciation and amortization		(447.5	)		(412.9	)
Net property, plant and equipment	$	524.6		$	501.0


	December 31, 2022		December 31, 2021
Current assets	$	100.8	$	119.7
Non-current assets (1)		86.3		42.1
Current liabilities (1)		31.3		37.1
Other non-current liabilities (1)		372.3		297.4

	2019
Operating lease cost	$	6.8
ROU assets obtained in exchange for lease obligations ⁽¹⁾	$	41.6

	Balance Sheet Classification	December 31, 2019
ROU assets	Lease right-of-use assets	$	35.3
Current lease liabilities	Accounts payable and accrued expenses		5.2
Non-current lease liabilities	Lease non-current liabilities		30.1


	December 31, 2022			December 31, 2021
Weighted average remaining lease term (in years)
Operating leases	5.1			5.4
Finance leases		9.4			9.9
Weighted average discount rate
Operating leases		3.8	%		3.4	%
Finance leases		3.7	%		3.6	%

	~~December 31, 2019~~
~~Weighted average remaining lease term (in years)~~	~~8.6~~
~~Weighted average discount rate~~		~~4.4~~	%


	Operating Leases			Finance Leases
Maturity of lease liabilities
2023	$	6.5		$	2.8
2024		4.8			2.6
2025		2.9			2.3
2026		1.7			2.4
2027		1.6			2.5
Thereafter		3.9			7.6
Total lease payments		21.4			20.2
Less interest		(2.3	)		(3.4	)
Present value of lease liabilities	$	19.1		$	16.8

	Maturities of Lease Liabilities
2020	$	6.6
2021		5.8
2022		5.1
2023		4.4
2024		3.6
Thereafter		17.5
Total lease payments		43.0
Less interest		(7.7	)
Present value of lease liabilities	$	35.3

	Total Minimum Lease Payments
2019	$	5.3
2020		4.7
2021		4.2
2022		3.7
2023		2.2
Thereafter		4.7
Total	$	24.8


	December 31, 2022		December 31, 2021
Cash surrender value of company-owned life insurance policies	$	42.8	$	47.2
Investment in employee deferred compensation plans		7.7		9.7
Fair value of derivative assets		7.7		-
Other		1.2		1.0
Total other non-current assets	$	59.4	$	57.9

	December 31, 2019		December 31, 2018
Cash surrender value of Company owned life insurance policies	$	53.5	$	54.3
Fair value of derivative assets		1.3		9.6
Other		3.1		4.6
Total other non-current assets	$	57.9	$	68.5

	December 31, 2019		December 31, 2018
Payables, trade and other	$	79.4	$	82.2
Current portion of lease liabilities		5.2		-
Employment costs		16.5		18.6
Current portion of pension and postretirement liabilities		10.5		10.9
Advance receipt of Knauf proceeds		-		202.4
Payable to Knauf for purchase price adjustments		1.2		-
Contingent liability payable to Knauf for adjustments to cash consideration		-		35.2
Payable to WAVE for receipt of Knauf proceeds		25.9		22.4
Other		10.0		11.6
Total accounts payable and accrued expenses	$	148.7	$	383.3

	December 31, 2019			December 31, 2018
Revolving credit facility due 2024	$	115.0		$	-
Term loan A due 2021		-			547.5
Term loan A due 2024		500.0			-
Term loan B due 2023		-			243.1
Tax exempt bonds due 2041		-			35.0
Principal debt outstanding		615.0			825.6
Unamortized debt financing costs		(4.2	)		(5.8	)
Long-term debt		610.8			819.8
Less current portion and short-term debt		6.3			55.0
Total long-term debt, less current portion	$	604.5		$	764.8


	December 31, 2022			December 31, 2021
Revolving credit facility due 2027	$	205.0		$	-
Revolving credit facility due 2024		-			165.0
Term loan A due 2027		450.0			-
Term loan A due 2024		-			468.7
Principal debt outstanding		655.0			633.7
Unamortized debt financing costs		(3.9	)		(2.3	)
Long-term debt		651.1			631.4
Less current portion		-			25.0
Total long-term debt, less current portion	$	651.1		$	606.4

	2019			2018
Change in benefit obligation:
Benefit obligation as of beginning of period	$	1,359.7		$	1,500.1
Service cost		4.8			5.7
Interest cost		50.3			46.1
Actuarial loss (gain)		117.0			(90.0	)
Benefits paid		(100.4	)		(102.2	)
Benefit obligation as of end of period	$	1,431.4		$	1,359.7


	2022			2021
Change in benefit obligations:
Benefit obligations as of beginning of period	$	435.1		$	441.7
Service cost		3.7			4.8
Interest cost		10.5			9.0
Actuarial (gain)		(99.8	)		(10.9	)
Benefits paid		(12.4	)		(9.5	)
Benefit obligations as of end of period	$	337.1		$	435.1


	2022			2021
Change in plan assets:
Fair value of plan assets as of beginning of period	$	506.7		$	520.7
Actual return on plan assets		(105.4	)		(7.4	)
Employer contributions		2.8			2.9
Benefits paid		(12.4	)		(9.5	)
Fair value of plan assets as of end of period	$	391.7		$	506.7
Funded status	$	54.6		$	71.6


	2022			2021
Weighted-average assumptions used to determine benefit obligations at end of period:
Discount rate		5.21	%		2.98	%
Rate of compensation increase		3.33	%		3.05	%
Weighted-average assumptions used to determine net periodic benefit cost for the period:
Discount rate		2.97	%		2.67	%
Expected return on plan assets		3.75	%		3.25	%
Rate of compensation increase		3.05	%		3.05	%