See accompanying notes to Condensed Consolidated Financial Statements beginning on page 8.
See accompanying notes to Condensed Consolidated Financial Statements beginning on page 8.
See accompanying notes to Condensed Consolidated Financial Statements beginning on page 8.
See accompanying notes to Condensed Consolidated Financial Statements beginning on page 8.
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
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.
On April 1, 2016, we completed our previously announced separation of Armstrong Flooring, Inc. (“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. Subsequent to the separation and distribution, AWI and AFI operate as two independent, publicly-traded companies, with AFI owning and operating the Resilient Flooring and Wood Flooring segments and AWI continuing to own and operate the Building Products (Ceilings) segment. AFI’s historical financial results have been reflected in AWI’s Consolidated Financial Statements as a discontinued operation for all periods presented. Separation costs for the three and six months ended June 30, 2016 were $3.9 million and $31.0 million, respectively. Separation costs for the three and six months ended June 30, 2015 were $5.1 million and $9.4 million, respectively. Separation costs for all periods primarily related to outside professional services and employee compensation and retention and severance accruals which were recorded within the Unallocated Corporate segment in conjunction with this initiative. Beginning in the second quarter of 2016, AFI’s historical financial results for periods prior to April 1, 2016 are reflected in our Condensed Consolidated Financial Statements as a discontinued operation. See Note 3 for additional information.
The accounting policies used in preparing the Condensed Consolidated Financial Statements in this Form 10-Q are the same as those used in preparing the Consolidated Financial Statements for the year ended December 31, 2015. These statements should therefore be read in conjunction with the Consolidated Financial Statements and notes that are included in the Form 10-K for the fiscal year ended December 31, 2015. In the opinion of management, all adjustments of a normal recurring nature have been included to provide a fair statement of the results for the reporting periods presented. Operating results for the second quarter and first six months of 2016 and 2015 included in this report are unaudited. Quarterly results are not necessarily indicative of annual earnings, primarily due to the different level of sales in each quarter of the year and the possibility of changes in general economic conditions.
These Condensed Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The statements include management estimates and judgments, where appropriate. Management utilizes estimates to record many items including certain asset values, allowances for bad debts, inventory obsolescence and lower of cost or market charges, warranty reserves, workers’ compensation, general liability and environmental claims and income taxes. When preparing an estimate, management determines the amount based upon the consideration of relevant information. Management may confer with outside parties, including outside counsel. Actual results may differ from these estimates.
Certain amounts in the prior year’s Condensed Consolidated Financial Statements have been recast to conform to the 2016 presentation.
Recently Adopted Accounting Standards
In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-12
“Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period,”
which amends Accounting Standards Codification (“ASC”) Topic 718: Compensation-Stock Compensation. This new guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and should not be reflected in the estimate of the grant-date fair value of the award. The guidance was effective for annual periods beginning after December 15, 2015. There was no impact on our financial condition, results of operations or cash flows as a result of the adoption of this guidance.
In April 2015, the FASB issued ASU 2015-03,
“Simplifying the Presentation of Debt Issuance Costs.”
This standards update amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. In August 2015, the FASB issued ASU 2015-15,
“Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,”
which was issued to address the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-03 and 2015-15 were effective for annual reporting periods beginning after December 15, 2015. We adopted ASU 2015-03 and 2015-15 retrospectively, resulting in a $4.1 million reduction to other non-current assets and a corresponding decrease to long-term debt as of March 31, 2016. As of December 31, 2015, our adoption of these ASC updates resulted in a $4.7 million reduction to other non-current assets and a corresponding decrease to long-term debt. There was no impact on results of operations as a result of the adoption of this guidance.
8
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
In April 2015, the FASB issued ASU 2015
-05,
“Customer's Accounting for Fees Paid in a Cloud Computing Arrangement
,
”
which provides guidance to determine when a customer's fees paid in a cloud computing arrangement include a software license. If a cloud computing arrangement includes a software
license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for a cloud computing
arrangement as a service contract. This new guidance was effective for annual reporting periods
beginning after December
15, 2015. There was no impact on our financial condition, results of operations or cash flows as a result of the adoption of this gu
idance.
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09,
“Revenue from Contracts with Customers.”
The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to a customer. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU 2015-14,
“Revenue from Contracts with Customers: Deferral of the Effective Date”
which defers the effective date for ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08,
“Principal versus Agent Considerations (Reporting Gross versus Net),”
which clarifies the implementation guidance in ASU 2014-09 relating to principle versus agent considerations. In April 2016, the FASB issued ASU 2016-10,
“Identifying Performance Obligations and Licensing”
which clarifies the implementation guidance in ASU 2014-09 relating to the identification of performance obligations in a contract, including how entities should account for shipping and handling services it provides after control of goods transfers to a customer. ASU 2016-10 also clarifies guidance on the timing and pattern of revenue recognition for intellectual property licenses. These ASC updates are effective for annual reporting periods beginning after December 15, 2017, but early adoption is permitted. We have not selected a transition method and are currently evaluating the impact these ASC updates would have on our financial condition, results of operations and cash flows.
In July 2015, the FASB issued ASU 2015-11,
“Simplifying the Measurement of Inventory,”
which requires inventory that is measured on a first-in, first-out or average cost basis to be measured at lower of cost and net realizable value, as opposed to the lower of cost or market. For inventory that is measured under the last-in, first-out (“LIFO”) basis or the retail recovery method, there is no change to current measurement requirements. This new guidance must be applied prospectively and is effective for annual reporting periods beginning after December 15, 2016, but early adoption is permitted. We are currently evaluating the impact the adoption of this standard would have on our financial condition, results of operations and cash flows.
In November 2015, the FASB issued ASU 2015-17,
“Balance Sheet Classification of Deferred Taxes,”
which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as non-current. This new guidance is effective for annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact the adoption of this standard would have on our financial condition and cash flows.
In January 2016, the FASB issued ASU 2016-01,
“Recognition and Measurement of Financial Assets and Financial Liabilities,”
which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, this new guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This new guidance is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact the adoption of this standard would have on our financial condition, results of operations and cash flows.
In February 2016, the FASB issued 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 will require lessees to recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term, with limited exceptions. The accounting applied by a lessor is largely unchanged from that applied under existing U.S. GAAP. This new guidance is effective for annual reporting periods beginning after December 15, 2018 and must be adopted under a modified retrospective basis. We are currently evaluating the impact the adoption of this standard would have on our financial condition, results of operations and cash flows.
In March 2016, the FASB issued ASU 2016-05,
“Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships,”
which amends ASC Topic 815: Derivatives and Hedging. This new guidance clarifies that a novation, or a change in the counterparty to a derivative instrument, by itself would not cause a hedge accounting relationship to be discontinued. This new guidance is effective for annual reporting periods beginning after December 15, 2016 and may be adopted prospectively or retroactively. We are currently evaluating the impact the adoption of this standard would have on our financial condition, results of operations and cash flows.
9
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
In March 2016, the FASB iss
ued ASU 2016-09,
“Improvements to Employee Share-Based Payment Accounting
,
”
which amends ASC Topic
718: Compensation-Stock Compensation. This new guidance simplifies accounting for share-based payments, most notably by requiring all excess tax benefits an
d tax deficiencies to be recorded as income tax benefits or expense in the income statement and by allowing entities to recognize forfeitures of awards when the
y
occur. This new guidance is effective for annual reporting periods beginning after December 1
5, 2016 and may be adopted prospectively or retroactively. We are currently evaluating the impact the adoption of this standard would have on our financial condition, results of operations and cash flows.
NOTE 2. SEGMENT RESULTS
Effective April 1, 2016 and in connection with our separation of AFI, our former Resilient Flooring and Wood Flooring segments have been excluded from our results of continuing operations. In addition, effective April 1, 2016, we disaggregated our former Building Products operating segment into the following three distinct geographical segments: Americas, Europe, Middle East and Africa (“EMEA”) and Pacific Rim.
Each of our geographical segments produces suspended fiber and metal ceilings for use in commercial and institutional settings in addition to sourcing complimentary ceiling products. Residential ceiling products are sold in the Americas primarily to wholesalers and retailers (including large home centers). Each segment also includes the results of our Worthington Armstrong Venture (“WAVE”) joint venture with Worthington Industries, Inc., which manufactures suspension system (grid) products that are invoiced by both us and WAVE.
Effective April 1, 2016, we reclassified the majority of the assets and liabilities formally reported in our Unallocated Corporate segment to our Americas segment. The assets and liabilities reclassified to our Americas segment most notably included the Armstrong trade name intangible asset, property, plant and equipment comprised primarily of Corporate campus facilities, the cash surrender value of life insurance supporting deferred compensation liabilities, income tax asset and liabilities, and pension and postretirement assets and liabilities.
Balance sheet items classified as Unallocated Corporate for all periods presented primarily include cash and cash equivalents and outstanding borrowings under our senior credit facilities.
Segment results below have been restated for all periods presented as a result of the disaggregation of our former Building Products segment and the reclassification of Unallocated Corporate assets. These revisions did not impact any previously reported consolidated revenues, gross profit, results of continuing operations, asset or liability balances.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net sales to external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
214.8
|
|
|
$
|
202.7
|
|
|
$
|
414.9
|
|
|
$
|
394.0
|
|
EMEA
|
|
|
65.6
|
|
|
|
68.6
|
|
|
|
125.2
|
|
|
|
139.1
|
|
Pacific Rim
|
|
|
33.9
|
|
|
|
34.8
|
|
|
|
61.6
|
|
|
|
65.0
|
|
Total net sales to external customers
|
|
$
|
314.3
|
|
|
$
|
306.1
|
|
|
$
|
601.7
|
|
|
$
|
598.1
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Segment operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
64.3
|
|
|
$
|
71.9
|
|
|
$
|
120.4
|
|
|
$
|
136.3
|
|
EMEA
|
|
|
(5.3
|
)
|
|
|
(6.2
|
)
|
|
|
(9.3
|
)
|
|
|
(8.3
|
)
|
Pacific Rim
|
|
|
(2.1
|
)
|
|
|
(1.5
|
)
|
|
|
(3.4
|
)
|
|
|
(4.0
|
)
|
Unallocated Corporate
|
|
|
(5.2
|
)
|
|
|
(23.0
|
)
|
|
|
(34.4
|
)
|
|
|
(48.7
|
)
|
Total consolidated operating income
|
|
$
|
51.7
|
|
|
$
|
41.2
|
|
|
$
|
73.3
|
|
|
$
|
75.3
|
|
10
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Total consolidated operating income
|
|
$
|
51.7
|
|
|
$
|
41.2
|
|
|
$
|
73.3
|
|
|
$
|
75.3
|
|
Interest expense
|
|
|
12.5
|
|
|
|
11.4
|
|
|
|
34.4
|
|
|
|
22.6
|
|
Other non-operating expense
|
|
|
-
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
2.7
|
|
Other non-operating (income)
|
|
|
(2.1
|
)
|
|
|
(3.4
|
)
|
|
|
(7.3
|
)
|
|
|
(5.4
|
)
|
Earnings from continuing operations before income taxes
|
|
$
|
41.3
|
|
|
$
|
33.0
|
|
|
$
|
46.2
|
|
|
$
|
55.4
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Segment assets
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,155.2
|
|
|
$
|
1,137.4
|
|
EMEA
|
|
|
294.7
|
|
|
|
283.3
|
|
Pacific Rim
|
|
|
144.6
|
|
|
|
154.5
|
|
Unallocated Corporate
|
|
|
102.5
|
|
|
|
237.8
|
|
Total consolidated assets
|
|
$
|
1,697.0
|
|
|
$
|
1,813.0
|
|
Impairment testing of our tangible assets occurs whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Effective January 1, 2016, in anticipation of the April 1, 2016 AFI separation, the majority of our historical corporate support functions, representing costs of approximately $16.0 million and $36.0 million for the three and six months ended June 30, 2016, respectively, were incorporated into our Americas segment. As a result, unallocated corporate support expenses have decreased significantly during the three and six months ended June 30, 2016 in comparison to the same periods in 2015.
For the three and six months ended June 30, 2016 and 2015, Unallocated Corporate segment operating (loss) was comprised of the following:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Corporate expenses
|
|
$
|
(1.3
|
)
|
|
$
|
(17.9
|
)
|
|
$
|
(3.4
|
)
|
|
$
|
(39.3
|
)
|
Separation costs
|
|
|
(3.9
|
)
|
|
|
(5.1
|
)
|
|
|
(31.0
|
)
|
|
|
(9.4
|
)
|
Total Unallocated Corporate segment operating (loss)
|
|
$
|
(5.2
|
)
|
|
$
|
(23.0
|
)
|
|
$
|
(34.4
|
)
|
|
$
|
(48.7
|
)
|
NOTE 3. DISCONTINUED OPERATIONS
Separation and Distribution of AFI
On April 1, 2016, in connection with the separation and distribution of AFI, we entered into several agreements with AFI that, together with a plan of division, provide for the separation and allocation between AWI and AFI of the flooring assets, employees, liabilities and obligations of AWI and its subsidiaries attributable to periods prior to, at and after AFI’s separation from AWI, and govern the relationship between AWI and AFI subsequent to the completion of the separation and distribution.
These agreements include a Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement, a Trademark License Agreement, a Transition Trademark Agreement and a Campus Lease Agreement.
Under the Transition Services Agreement, AWI and AFI will provide various services to each other during a transition period expiring no later than December 31, 2017, including information technology, accounts payable, payroll, and other financial functions and administrative services. We do not anticipate the Transition Service Agreement will need to be extended beyond December 31, 2017.
The Tax Matters Agreement generally governs AWI’s and AFI’s respective rights, responsibilities and obligations after the separation and distribution with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and other matters regarding taxes for any tax period ending on or before the distribution date, as well as tax
11
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
periods beginning after the distribution date. In addition, the Tax Matters Agreement provides t
hat AFI is liable for taxes incurred by AWI that may arise if AFI takes, or fails to take, certain actions that may result in the separation, the distribution or certain related transactions failing to qualify as tax-free for U.S. federal income tax purpos
es. Upon distribution, AWI received an opinion from its tax counsel that the separation and distribution qualified as a tax-free transaction for AWI and its shareholders.
The Employee Matters Agreement governs certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of AWI and AFI. Pursuant to this agreement and in connection with the distribution, AWI transferred assets and liabilities from the AWI defined benefit pension and postretirement plans to AFI that relate to active AFI employees and certain former AFI employees to mirror plans established by AFI. Based on the analyses provided by our actuaries, approximately $30.0 million and approximately $90.0 million of defined benefit pension and postretirement benefit plan net liabilities under AWI’s plans as of April 1, 2016, respectively, transferred to mirror plans established by AFI.
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.
Under the Campus Lease Agreement, certain portions of the AWI headquarters are being leased to AFI to use as its corporate headquarters for an initial term of five years, subject to certain renewal rights.
The following is a summary of the results of operations related to AFI, our former Resilient Flooring and Wood Flooring segments, which are presented as discontinued operations.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
$
|
326.6
|
|
|
$
|
284.4
|
|
|
$
|
586.0
|
|
Cost of goods sold
|
|
|
260.2
|
|
|
|
237.2
|
|
|
|
479.2
|
|
Gross profit
|
|
|
66.4
|
|
|
|
47.2
|
|
|
|
106.8
|
|
Selling, general and administrative expenses
|
|
|
44.5
|
|
|
|
50.5
|
|
|
|
83.2
|
|
Operating income (loss)
|
|
|
21.9
|
|
|
|
(3.3
|
)
|
|
|
23.6
|
|
Other non-operating (income) expense
|
|
|
(0.2
|
)
|
|
|
1.1
|
|
|
|
-
|
|
Earnings (loss) from discontinued operations before income taxes
|
|
|
22.1
|
|
|
|
(4.4
|
)
|
|
|
23.6
|
|
Income tax expense
|
|
|
7.3
|
|
|
|
0.1
|
|
|
|
10.7
|
|
Earnings (loss) from discontinued operations
|
|
$
|
14.8
|
|
|
$
|
(4.5
|
)
|
|
$
|
12.9
|
|
12
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
The following is a summary of the carrying amount of the major classes of assets and liabilities classified as assets and liabilities of discontinued operations as of December 31, 2015 related to AFI.
|
|
December 31, 2015
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35.5
|
|
Accounts and notes receivable, net
|
|
|
70.0
|
|
Inventories, net
|
|
|
242.8
|
|
Deferred income taxes
|
|
|
5.8
|
|
Other current assets
|
|
|
27.2
|
|
Total current assets discontinued operations
|
|
|
381.3
|
|
Property, plant, and equipment, less accumulated depreciation and amortization
|
|
|
448.2
|
|
Intangible assets, net
|
|
|
42.5
|
|
Deferred income taxes
|
|
|
1.3
|
|
Other non-current assets
|
|
|
7.3
|
|
Total non-current assets of discontinued operations
|
|
|
499.3
|
|
Total assets of discontinued operations
|
|
$
|
880.6
|
|
Liabilities
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
149.3
|
|
Deferred income taxes
|
|
|
0.3
|
|
Total current liabilities
|
|
|
149.6
|
|
Long-term debt, less current installments
|
|
|
14.7
|
|
Postretirement benefit liabilities
|
|
|
85.2
|
|
Pension benefit liabilities
|
|
|
45.5
|
|
Other long-term liabilities
|
|
|
3.7
|
|
Total non-current liabilities of discontinued operations
|
|
|
149.1
|
|
Total liabilities of discontinued operations
|
|
$
|
298.7
|
|
In connection with the separation and distribution of AFI, on April 1, 2016 we received a $50.0 million dividend from AFI. In addition, $56.8 million of accumulated other comprehensive losses, net of tax, were transferred to AFI, consisting of amounts related to transferred pension and postretirement liabilities, derivatives liabilities and a cumulative translation adjustment. The impact of these items, in addition to the net effect of all assets and liabilities transferred to AFI upon separation resulted in a $641.9 million reduction to additional paid-in capital as of June 30, 2016.
The following is a summary of total depreciation and amortization and capital expenditures related to AFI which are presented as discontinued operations and included as components of operating and investing cash flows on our consolidated statements of cash flows:
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Depreciation and amortization
|
|
$
|
11.4
|
|
|
$
|
19.1
|
|
Purchases of property, plant and equipment
|
|
|
(8.4
|
)
|
|
|
(26.0
|
)
|
European Resilient Flooring
On December 4, 2014, our Board of Directors approved the cessation of funding to our DLW subsidiary, which at that time was our European flooring business. As a result, DLW management filed for insolvency in Germany on December 11, 2014.
The DLW insolvency filing in December 2014 resulted in our disposal and presentation of DLW for all historical periods as a discontinued operation. However, the insolvency filing did not meet the U.S. tax criteria to be considered disposed of until the first quarter of 2015. In determining the U.S. tax impact of the disposition, the liabilities, including an unfunded pension liability of
13
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
approximately $115.0 million, were considered proceeds. However, pension deductions for tax purposes result only when the benefit payments are made. Accordingly, a deferred tax asset and non-cash income tax benefit of $43.4 million wer
e recorded in the first quarter of 2015 within discontinued operations for the tax benefit of the future pension deductions.
At deconsolidation, DLW had a net liability of $12.9 million, representing assets of $151.9 million and liabilities of $164.8 million, which were removed from our balance sheet. This net liability was recognized as a contingent liability on our consolidated balance sheet pending the closure and results of the insolvency proceedings. Any shortfall will be recognized immediately when identified and any excess will be reflected when insolvency proceedings are finalized, all through discontinued operations. The amount of the net liability was $12.0 million as of June 30, 2016.
The following is a summary of the results related to the DLW business, (previously shown within the Resilient Flooring reporting segment), which are included in discontinued operations.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Gain (loss) on disposal of discontinued business before
income tax
|
|
$
|
0.2
|
|
|
$
|
(0.3
|
)
|
|
$
|
0.1
|
|
|
$
|
(0.9
|
)
|
Income tax (benefit)
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
(1.9
|
)
|
|
|
(43.4
|
)
|
Net gain (loss) on disposal of discontinued business
|
|
$
|
0.3
|
|
|
$
|
(0.3
|
)
|
|
$
|
2.0
|
|
|
$
|
42.5
|
|
NOTE 4. ACCOUNTS AND NOTES RECEIVABLE
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Customer receivables
|
|
$
|
130.9
|
|
|
$
|
114.0
|
|
Customer notes
|
|
|
0.6
|
|
|
|
0.7
|
|
Miscellaneous receivables
|
|
|
5.0
|
|
|
|
6.4
|
|
Less allowance for warranties, discounts and losses
|
|
|
(9.6
|
)
|
|
|
(6.8
|
)
|
Accounts and notes receivable, net
|
|
$
|
126.9
|
|
|
$
|
114.3
|
|
Generally, 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.
NOTE 5. INVENTORIES
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Finished goods
|
|
$
|
75.3
|
|
|
$
|
74.2
|
|
Goods in process
|
|
|
3.5
|
|
|
|
4.2
|
|
Raw materials and supplies
|
|
|
33.8
|
|
|
|
32.0
|
|
Less LIFO and other reserves
|
|
|
(8.4
|
)
|
|
|
(9.0
|
)
|
Total inventories, net
|
|
$
|
104.2
|
|
|
$
|
101.4
|
|
NOTE 6. OTHER CURRENT ASSETS
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Prepaid expenses
|
|
$
|
15.8
|
|
|
$
|
18.2
|
|
Fair value of derivative assets
|
|
|
1.1
|
|
|
|
3.4
|
|
Other
|
|
|
3.4
|
|
|
|
12.1
|
|
Total other current assets
|
|
$
|
20.3
|
|
|
$
|
33.7
|
|
14
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 7. EQUITY INVESTMENT
Investment in joint venture as of June 30, 2016 reflected our 50% equity interest in WAVE. Condensed income statement data for WAVE is summarized below:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
$
|
104.0
|
|
|
$
|
94.1
|
|
|
$
|
197.9
|
|
|
$
|
180.7
|
|
Gross profit
|
|
|
56.6
|
|
|
|
46.7
|
|
|
|
106.9
|
|
|
|
87.5
|
|
Net earnings
|
|
|
43.0
|
|
|
|
35.6
|
|
|
|
82.2
|
|
|
|
66.1
|
|
NOTE 8. INTANGIBLE ASSETS
The following table details amounts related to our intangible assets as of June 30, 2016 and December 31, 2015.
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Estimated
Useful Life
|
|
Gross
Carrying
Amount
|
|
|
Accumulated Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated Amortization
|
|
Amortizing intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
20 years
|
|
$
|
165.4
|
|
|
$
|
80.8
|
|
|
$
|
165.4
|
|
|
$
|
76.7
|
|
Developed technology
|
|
15 years
|
|
|
82.6
|
|
|
|
52.6
|
|
|
|
82.2
|
|
|
|
49.9
|
|
Other
|
|
Various
|
|
|
14.0
|
|
|
|
2.0
|
|
|
|
14.8
|
|
|
|
1.9
|
|
Total
|
|
|
|
$
|
262.0
|
|
|
$
|
135.4
|
|
|
$
|
262.4
|
|
|
$
|
128.5
|
|
Non-amortizing intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and brand names
|
|
Indefinite
|
|
|
314.1
|
|
|
|
|
|
|
|
313.3
|
|
|
|
|
|
Total intangible assets
|
|
|
|
$
|
576.1
|
|
|
|
|
|
|
$
|
575.7
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Amortization expense
|
|
$
|
7.0
|
|
|
$
|
7.1
|
|
NOTE 9. OTHER NON-CURRENT ASSETS
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Cash surrender value of Company owned life insurance policies
|
|
$
|
54.1
|
|
|
$
|
51.6
|
|
Investment in deferred compensation plans
|
|
|
2.5
|
|
|
|
1.6
|
|
Other
|
|
|
6.7
|
|
|
|
3.8
|
|
Total other non-current assets
|
|
$
|
63.3
|
|
|
$
|
57.0
|
|
NOTE 10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Payables, trade and other
|
|
$
|
118.6
|
|
|
$
|
127.5
|
|
Employment costs
|
|
|
20.8
|
|
|
|
41.8
|
|
Current portion of pension and postretirement liabilities
|
|
|
14.2
|
|
|
|
14.3
|
|
Contingent liability related to discontinued operations
|
|
|
12.0
|
|
|
|
12.1
|
|
Other
|
|
|
36.6
|
|
|
|
35.4
|
|
Total accounts payable and accrued expenses
|
|
$
|
202.2
|
|
|
$
|
231.1
|
|
15
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 11.
SEVERANCE AND RELATED COSTS
During the first quarter of 2016, we recorded $2.4 million in Unallocated Corporate for severance and related costs as a result of our initiative to separate our flooring business from our ceiling business. These costs, along with costs incurred in the fourth quarter of 2015, reflect approximately 30 position eliminations (including our former Chief Executive Officer) and are reflected within Separation costs on the statement of earnings.
In response to China market conditions, during the fourth quarter of 2015 we recorded $2.0 million in cost of goods sold and $0.9 million in SG&A for severance and related costs related to the idling one of our plants in China effective during the fourth quarter of 2016. During the second quarter of 2016, we recorded an additional $3.0 million in cost of goods sold for severance and related costs related to the plant idling.
NOTE 12. INCOME TAX EXPENSE
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Earnings from continuing operations before income taxes
|
|
$
|
41.3
|
|
|
$
|
33.0
|
|
|
$
|
46.2
|
|
|
$
|
55.4
|
|
Income tax expense
|
|
|
24.7
|
|
|
|
17.9
|
|
|
|
36.7
|
|
|
|
34.6
|
|
Effective tax rate
|
|
|
59.8
|
%
|
|
|
54.2
|
%
|
|
|
79.4
|
%
|
|
|
62.5
|
%
|
The effective tax rate for the second quarter of 2016 and the first six months of 2016 was higher than the comparable periods of 2015 primarily due to negative tax impacts resulting from the separation of AFI, most notably the revaluation of state deferred tax assets and liabilities and, for the first six months of 2016, an increase in non-deductible costs resulting from the separation.
We do not expect to record any material changes during 2016 to unrecognized tax benefits that were claimed on tax returns covering tax years ending on or before December 31, 2015.
As of June 30, 2015, we consider foreign unremitted earnings to be permanently reinvested.
NOTE 13. DEBT
On April 1, 2016, we refinanced our $1,275.0 million senior credit facility, utilizing a $50.0 million cash dividend from AFI and cash on hand to pay down a portion of the debt outstanding. The $1,050.0 million new credit facility is composed of a $200.0 million revolving credit facility (with a $150.0 million sublimit for letters of credit), a $600.0 million Term Loan A and a $250.0 million Term Loan B. The terms of the credit facility resulted in a lower interest rate spread for both the revolving credit facility and Term Loan A (2.00% vs. 2.50%) and a higher spread for Term Loan B (3.25% vs. 2.50%). In addition, we lowered the interest rate floor on the Term Loan B from 1.00% to 0.75%. We also extended the maturity of both the revolving credit facility and Term Loan A from March 2018 to April 2021 and of Term Loan B from November 2020 to April 2023. In connection with the refinancing, we paid $9.3 million of bank, legal and other fees, of which $8.1 million were capitalized and recorded as a component of long-term debt and are being amortized into interest expense over the lives of the underlying loans. Additionally, we wrote off $1.1 million of unamortized debt financing costs, included as a component of interest expense, during the three months ended June 30, 2016 related to our previous credit facility. Finally, in connection with the refinancing, we executed new interest rate swaps. See Note 16 for additional details.
In March 2016, we amended and decreased our $100.0 million Accounts Receivable Securitization Facility with the Bank of Nova Scotia to $40.0 million to reflect a lower anticipated receivables balance in connection with the separation of AFI, and we extended the maturity date to March 2019. As of June 30, 2016, there were no outstanding borrowings on the accounts receivable securitization facility.
16
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 14. PENSIONS AND OTHER BENEFIT PROGRAMS
Following are the components of net periodic benefit costs:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
U.S. defined-benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost of benefits earned during the period
|
|
$
|
2.2
|
|
|
$
|
2.5
|
|
|
$
|
4.4
|
|
|
$
|
5.0
|
|
Interest cost on projected benefit obligation
|
|
|
16.5
|
|
|
|
12.6
|
|
|
|
33.0
|
|
|
|
25.2
|
|
Expected return on plan assets
|
|
|
(26.2
|
)
|
|
|
(21.6
|
)
|
|
|
(52.4
|
)
|
|
|
(43.3
|
)
|
Amortization of prior service cost
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
0.5
|
|
Amortization of net actuarial loss
|
|
|
11.4
|
|
|
|
11.4
|
|
|
|
22.8
|
|
|
|
22.8
|
|
Net periodic pension cost
|
|
$
|
4.3
|
|
|
$
|
5.2
|
|
|
$
|
8.6
|
|
|
$
|
10.2
|
|
Retiree health and life insurance benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost of benefits earned during the period
|
|
$
|
0.1
|
|
|
$
|
(0.2
|
)
|
|
$
|
0.2
|
|
|
$
|
(0.4
|
)
|
Interest cost on projected benefit obligation
|
|
|
1.0
|
|
|
|
(1.4
|
)
|
|
|
2.0
|
|
|
|
(2.8
|
)
|
Amortization of prior service credit
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
Amortization of net actuarial gain
|
|
|
(1.3
|
)
|
|
|
1.4
|
|
|
|
(2.6
|
)
|
|
|
3.0
|
|
Net periodic postretirement benefit (credit)
|
|
$
|
(0.3
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. defined-benefit pension plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost of benefits earned during the period
|
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
Interest cost on projected benefit obligation
|
|
|
1.8
|
|
|
|
1.9
|
|
|
|
3.5
|
|
|
|
3.7
|
|
Expected return on plan assets
|
|
|
(2.0
|
)
|
|
|
(1.9
|
)
|
|
|
(4.0
|
)
|
|
|
(3.8
|
)
|
Amortization of prior service cost
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
Amortization of net actuarial loss
|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
1.2
|
|
Net periodic pension cost
|
|
$
|
0.7
|
|
|
$
|
1.2
|
|
|
$
|
1.2
|
|
|
$
|
2.3
|
|
Prior to our separation of AFI, we expected to contribute $17.9 million to our U.S. postretirement benefit plans in 2016. For the six months ended June 30, 2016, we have contributed $6.9 million to our U.S. postretirement benefit plans and we expect to contribute an additional $5.8 million to our U.S. postretirement benefit plans during the remainder of 2016. The reduction in our expected 2016 U.S. postretirement benefit plans contributions was a result of the transfer of U.S. postretirement benefit plan liabilities to AFI. See Note 3 for additional details
.
NOTE 15. FINANCIAL INSTRUMENTS
We do not hold or issue financial instruments for trading purposes. The estimated fair values of our financial instruments are as follows:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Carrying
amount
|
|
|
Estimated
fair value
|
|
|
Carrying
amount
|
|
|
Estimated
fair value
|
|
Assets (Liabilities), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, including current portion
|
|
$
|
(873.8
|
)
|
|
$
|
(870.6
|
)
|
|
$
|
(988.3
|
)
|
|
$
|
(989.4
|
)
|
Foreign currency contracts
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
3.3
|
|
|
|
3.3
|
|
Natural gas contracts
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
Interest rate swap contracts
|
|
|
(7.6
|
)
|
|
|
(7.6
|
)
|
|
|
(10.6
|
)
|
|
|
(10.6
|
)
|
The carrying amounts of cash and cash equivalents, receivables, accounts payable, accrued expenses, and short-term debt approximate fair value because of the short-term maturity of these instruments. The fair value estimates of long-term debt were based upon quotes from a major financial institution of recently observed trading levels of our Term Loan B debt. The fair value estimates of foreign currency contract obligations are estimated from market quotes provided by a well-recognized national market data provider. The fair
17
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
value estimates of natural gas contracts are estimated using internal valuation models with verification by obtaining quotes from major financial institutions. For natural gas swap transactions,
fair value is calculated using NYMEX market quotes provided by a well-recognized national market data provider. For natural gas option based strategies, fair value is calculated using an industry standard Black-Scholes model with market based inputs, incl
uding but not limited to, underlying asset price, strike price, implied volatility, discounted risk free rate and time to expiration, provided by a well-recognized national market data provider. The fair value estimates for interest rate swap contracts ar
e estimated by obtaining quotes from major financial institutions with verification by internal valuation models.
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 at the measurement date. Three levels of inputs may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
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 fair value measurement of assets and liabilities measured at fair value on a recurring basis and reported on the consolidated balance sheets is summarized below:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Fair value based on
|
|
|
Fair value based on
|
|
|
|
Quoted,
active
markets
|
|
|
Other
observable
inputs
|
|
|
Quoted,
active
markets
|
|
|
Other
observable
inputs
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 1
|
|
|
Level 2
|
|
Assets (Liabilities), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
0.8
|
|
|
|
-
|
|
|
$
|
3.3
|
|
|
|
-
|
|
Natural gas contracts
|
|
|
-
|
|
|
$
|
0.3
|
|
|
|
-
|
|
|
$
|
(0.8
|
)
|
Interest rate swap contracts
|
|
|
-
|
|
|
|
(7.6
|
)
|
|
|
-
|
|
|
|
(10.6
|
)
|
We do not have any financial assets or liabilities that are valued using Level 3 (unobservable) inputs.
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS
We are exposed to market risk from changes in foreign exchange rates, interest rates and commodity prices that could impact our results of operations, cash flows and financial condition. We use forward swaps and option contracts to hedge these exposures. Exposure to individual counterparties is controlled and derivative financial instruments are entered into with a diversified group of major financial institutions. Forward swaps and option contracts are entered into for periods consistent with underlying exposure and do not constitute positions independent of those exposures. At inception, hedges that we designate as hedging instruments are formally documented as either (1) a hedge of a forecasted transaction or “cash flow” hedge, or (2) a hedge of the fair value of a recognized liability or asset or “fair value” hedge. We also formally assess both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer probable of occurring, we discontinue hedge accounting, and any future mark-to-market adjustments are recognized in earnings. We use derivative financial instruments as risk management tools and not for speculative trading purposes.
Counterparty Risk
We only enter into derivative transactions with established counterparties having a credit rating of BBB or better. 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
18
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
agreements can l
imit 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 conti
ngent features; however, a default under our bank credit facility would trigger a default under these agreements. Exposure to individual counterparties is controlled, and thus we consider the risk of counterparty default to be negligible.
Commodity Price Risk
We purchase natural gas for use in the manufacturing process and to heat many of our facilities. As a result, we are exposed to fluctuations in the price of natural gas. We have a policy to reduce cost volatility for North American natural gas purchases by purchasing natural gas forward contracts and swaps, purchased call options, and zero-cost collars up to 24 months forward. The contracts are based on forecasted usage of natural gas measured in mmBtu’s. There is a high correlation between the hedged item and the hedge instrument. The gains and losses on these instruments offset gains and losses on the transactions being hedged. These instruments are designated as cash flow hedges. As of June 30, 2016 and December 31, 2015, the notional amount of these hedges was $2.9 million and $9.2 million, respectively. The mark-to-market gain or loss on qualifying hedges is included in other comprehensive income to the extent effective, and reclassified into cost of goods sold in the period during which the underlying gas is consumed. The mark-to-market gains or losses on ineffective portions of hedges are recognized in cost of goods sold immediately. The earnings impact of the ineffective portion of these hedges was not material for the three and six months ended June 30, 2016 and 2015.
Currency Rate Risk – Sales and Purchases
We manufacture and sell our products in a number of countries throughout the world and, as a result, we are exposed to movements in foreign currency exchange rates. To a large extent, our global manufacturing and sales provide a natural hedge of foreign currency exchange rate movement, as foreign currency expenses generally offset foreign currency revenues. We manage our cash flow exposures on a net basis and use derivatives to hedge the majority of our unmatched foreign currency cash inflows and outflows. Our major foreign currency exposures as of June 30, 2016, based on operating profits by currency, are to the Russian ruble, Canadian dollar and the British pound.
We use foreign currency forward exchange contracts to reduce our exposure to the risk that the eventual net cash inflows and outflows resulting from the sale of products to foreign customers and purchases from foreign suppliers will be adversely affected by changes in exchange rates. These derivative instruments are used for forecasted transactions and are classified as cash flow hedges. Cash flow hedges are executed quarterly, generally up to 15 months forward, and allow us to further reduce our overall exposure to exchange rate movements, since gains and losses on these contracts offset gains and losses on the transactions being hedged. The notional amount of these hedges was $44.0 million and $38.4 million as of June 30, 2016 and December 31, 2015, respectively. Gains and losses on these instruments are recorded in other comprehensive income, to the extent effective, until the underlying transaction is recognized in earnings. The earnings impact of the ineffective portion of these hedges was not material for the three and six months ended June 30, 2016 and 2015.
Currency Rate Risk - Intercompany Loans and Dividends
Where efficient, reliable and liquid markets exist we may utilize foreign currency forward exchange contracts to hedge exposures created by cross-currency intercompany loans and dividends. The translation adjustments related to these loans and any offsetting gains or losses on the related derivative contracts are recorded in other non-operating income or expense. The notional amount of these hedges was $6.1 million at December 31, 2015. We did not have any open hedges related to intercompany loans and dividends as of June 30, 2016.
19
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
Interest Rate Risk
We utilize interest rate swaps to minimize the fluctuations in earnings caused by interest rate volatility. Interest expense on variable-rate liabilities increases or decreases as a result of interest rate fluctuations. The following table summarizes our interest rate swap as of June 30, 2016:
Trade Date
|
|
Notional
Amount
|
|
|
Interest Rate
Paid
|
|
|
Coverage Period
|
|
Risk Coverage
|
April 16, 2013
|
|
$
|
250.0
|
|
|
|
1.398
|
%
|
|
November 2015 to March 2018
|
|
Term Loan A
|
April 1, 2016
|
|
$
|
200.0
|
|
|
|
1.231
|
%
|
|
April 2016 to March 2021
|
|
Term Loan A
|
April 1, 2016
|
|
$
|
100.0
|
|
|
|
1.756
|
%
|
|
April 2016 to March 2023
|
|
Term Loan B
|
In connection with the refinancing of our credit facilities, $450.0 million of notional amount Term Loan B swaps with a trade date of March 27, 2012 were settled and $10.7 million of losses recorded as a component of accumulated other comprehensive income were reclassified to interest expense during the three months ended March 31, 2016, with the cash payment for the settlement of this swap occurring during the second quarter of 2016. Under the terms of the Term Loan A swap with trade dates of April 16, 2013 and April 1, 2016 we receive 3-month LIBOR and pay a fixed rate over the hedged period. Under the terms of our Term Loan B swap with a trade date of April 1, 2016, we receive the greater of 3-month LIBOR or a 0.75% LIBOR Floor and pay a fixed rate over the hedged period. These swaps are designated as a cash flow hedges against changes in LIBOR for a portion of our variable rate debt. Gains and losses on these instruments are recorded in other comprehensive income, to the extent effective, until the underlying transaction is recognized in earnings. The mark-to-market gains or losses on ineffective portion of hedges are recognized in interest expense. There was no earnings impact of the ineffective portion of these hedges for the three and six months ended June 30, 2016 and 2015.
See Note 13 for additional details related to our April 1, 2016 credit facility refinancing.
Financial Statement Impacts
The following tables detail amounts related to our derivatives as of June 30, 2016 and December 31, 2015. We had no derivative liabilities not designated as hedging instruments as of June 30, 2016 or December 31, 2015. The derivative asset and liability amounts below are shown in gross amounts; we have not netted assets with liabilities.
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
|
|
|
|
Fair Value
|
|
|
|
|
Fair Value
|
|
|
|
Balance Sheet
Location
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
Balance Sheet
Location
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Derivatives designated as
hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas commodity
contracts
|
|
Other current assets
|
|
$
|
0.3
|
|
|
$
|
-
|
|
|
Accounts payable and accrued expenses
|
|
$
|
-
|
|
|
$
|
0.8
|
|
Foreign exchange contracts
|
|
Other current assets
|
|
|
0.8
|
|
|
|
3.4
|
|
|
Accounts payable and accrued expenses
|
|
|
0.2
|
|
|
|
0.1
|
|
Foreign exchange contracts
|
|
Other non-current assets
|
|
|
0.2
|
|
|
|
-
|
|
|
Other long-term liabilities
|
|
|
-
|
|
|
|
-
|
|
Interest rate swap contracts
|
|
Other non-current assets
|
|
|
-
|
|
|
|
-
|
|
|
Other long-term liabilities
|
|
|
7.6
|
|
|
|
10.6
|
|
Total derivatives designated as
hedging instruments
|
|
|
|
$
|
1.3
|
|
|
$
|
3.4
|
|
|
|
|
$
|
7.8
|
|
|
$
|
11.5
|
|
20
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
|
|
Amount of (Loss) Gain
Recognized in Accumulated
Other Comprehensive
Income (“AOCI”) (Effective
Portion)
|
|
|
Location of (Loss)
Gain
Reclassified
from
AOCI into Income
(Effective Portion)
|
|
Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
|
|
|
Six Months Ended
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Derivatives in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas commodity contracts
|
|
$
|
0.3
|
|
|
$
|
(1.6
|
)
|
|
Cost of goods sold
|
|
$
|
0.5
|
|
|
$
|
(1.1
|
)
|
|
$
|
1.3
|
|
|
$
|
(2.6
|
)
|
Foreign exchange contracts – purchases
|
|
|
(0.2
|
)
|
|
|
0.9
|
|
|
Cost of goods sold
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
(0.5
|
)
|
|
|
0.2
|
|
Foreign exchange contracts – sales
|
|
|
0.6
|
|
|
|
4.0
|
|
|
Net sales
|
|
|
(0.3
|
)
|
|
|
1.7
|
|
|
|
(2.1
|
)
|
|
|
4.0
|
|
Interest rate swap contracts
|
|
|
(7.6
|
)
|
|
|
(11.9
|
)
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
10.7
|
|
|
|
-
|
|
Total
|
|
$
|
(6.9
|
)
|
|
$
|
(8.6
|
)
|
|
|
|
$
|
0.1
|
|
|
$
|
0.7
|
|
|
$
|
9.4
|
|
|
$
|
1.6
|
|
As of June 30, 2016 the amount of existing gains in AOCI expected to be recognized in earnings over the next twelve months is $0.9 million.
There was no pre-tax gain or loss recognized in income for derivative instruments not designated as hedging instruments for the three and six months ended June 30, 2016 or 2015.
NOTE 17. PRODUCT WARRANTIES
On certain products, we provide the original retail purchaser limited warranties which may cover structural integrity, wear, fade and certain other pre-installation manufacturing related defects. Our product warranties place certain requirements on the retail purchaser, including evidence of original purchase and require installation in accordance with our instructions. All of our warranties are non-transferrable. Warranty claims are most commonly experienced in the periods immediately following retail purchase and decline with the passage of time. In addition to our warranty program, under certain limited circumstances, we will occasionally and 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 cost associated with warranty repairs are provided to our independent distributors through a credit against accounts receivable from the distributor to us.
The following table summarizes the activity for the accrual of product warranties for the six months ended June 30, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Balance at January 1,
|
|
$
|
0.4
|
|
|
$
|
0.2
|
|
Reductions for payments
|
|
|
(3.5
|
)
|
|
|
(0.7
|
)
|
Current year warranty accruals
|
|
|
5.8
|
|
|
|
0.7
|
|
Balance at June 30,
|
|
$
|
2.7
|
|
|
$
|
0.2
|
|
NOTE 18. OTHER LONG-TERM LIABILITIES
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Long-term deferred compensation arrangements
|
|
$
|
17.7
|
|
|
$
|
18.7
|
|
Long-term portion of derivative liabilities
|
|
|
7.6
|
|
|
|
10.6
|
|
U.S. workers' compensation
|
|
|
1.6
|
|
|
|
1.1
|
|
Postemployment benefit liabilities
|
|
|
2.3
|
|
|
|
2.0
|
|
Environmental liabilities
|
|
|
3.5
|
|
|
|
6.0
|
|
Other
|
|
|
3.9
|
|
|
|
4.9
|
|
Total other long-term liabilities
|
|
$
|
36.6
|
|
|
$
|
43.3
|
|
21
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 19. ACCUMULATED OTHER COMPREHENSIVE (LOSS)
|
|
Foreign
Currency
Translation Adjustments
(1)
|
|
|
Derivative
(Loss) Gain
(1)
|
|
|
Pension and Postretirement Adjustments
(1)
|
|
|
Total
Accumulated
Other
Comprehensive
(Loss)
(1)
|
|
Balance, December 31, 2015
|
|
$
|
(33.8
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
(450.3
|
)
|
|
$
|
(487.4
|
)
|
Separation of AFI, net of tax (benefit) of $-,
$-, ($37.8), and ($37.8)
|
|
|
(4.6
|
)
|
|
|
(0.4
|
)
|
|
|
61.8
|
|
|
|
56.8
|
|
Other comprehensive (loss) income before reclassifications,
net of tax expense of $ -, $3.9, $0.2, and $4.1
|
|
|
(11.8
|
)
|
|
|
(6.6
|
)
|
|
|
3.1
|
|
|
|
(15.3
|
)
|
Amounts reclassified from accumulated other
comprehensive (loss)
|
|
|
-
|
|
|
|
6.1
|
|
|
|
13.9
|
|
|
|
20.0
|
|
Net current period other comprehensive (loss) income
|
|
|
(11.8
|
)
|
|
|
(0.5
|
)
|
|
|
17.0
|
|
|
|
4.7
|
|
Balance at June 30, 2016
|
|
$
|
(50.2
|
)
|
|
$
|
(4.2
|
)
|
|
$
|
(371.5
|
)
|
|
$
|
(425.9
|
)
|
|
|
Foreign
Currency
Translation Adjustments
(1)
|
|
|
Derivative
(Loss) Gain
(1)
|
|
|
Pension and Postretirement Adjustments
(1)
|
|
|
Total
Accumulated
Other
Comprehensive
(Loss)
(1)
|
|
Balance, December 31, 2014
|
|
$
|
(8.3
|
)
|
|
$
|
(4.0
|
)
|
|
$
|
(483.2
|
)
|
|
$
|
(495.5
|
)
|
Other comprehensive (loss) income before reclassifications,
net of tax expense (benefit) of $ -, $0.4, ($3.0), and ($2.6)
|
|
|
(7.9
|
)
|
|
|
(0.1
|
)
|
|
|
3.0
|
|
|
|
(5.0
|
)
|
Amounts reclassified from accumulated other
comprehensive (loss)
|
|
|
-
|
|
|
|
(1.0
|
)
|
|
|
18.1
|
|
|
|
17.1
|
|
Net current period other comprehensive (loss) income
|
|
|
(7.9
|
)
|
|
|
(1.1
|
)
|
|
|
21.1
|
|
|
|
12.1
|
|
Balance at June 30, 2015
|
|
$
|
(16.2
|
)
|
|
$
|
(5.1
|
)
|
|
$
|
(462.1
|
)
|
|
$
|
(483.4
|
)
|
(1)
|
Amounts are net of tax
|
22
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
|
|
Amounts
Reclassified from
Accumulated Other
Comprehensive
Loss
|
|
|
Affected
Line Item in the
Condensed Consolidated
Statement of Earnings
and Comprehensive
Income
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Derivative Adjustments:
|
|
|
|
|
|
|
|
|
|
|
Natural gas commodity contracts
|
|
$
|
1.3
|
|
|
$
|
2.6
|
|
|
Cost of goods sold
|
Foreign exchange contracts - purchases
|
|
|
(0.5
|
)
|
|
|
(0.2
|
)
|
|
Cost of goods sold
|
Foreign exchange contracts - sales
|
|
|
(2.1
|
)
|
|
|
(4.0
|
)
|
|
Net sales
|
Interest rate swap contracts
|
|
|
10.7
|
|
|
|
-
|
|
|
Interest expense
|
Total (loss) income before tax
|
|
|
9.4
|
|
|
|
(1.6
|
)
|
|
|
Tax impact
|
|
|
(3.3
|
)
|
|
|
0.6
|
|
|
Income tax expense
|
Total income (loss), net of tax
|
|
|
6.1
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Postretirement Adjustments:
|
|
|
|
|
|
|
|
|
|
|
Prior service cost amortization
|
|
|
0.3
|
|
|
|
0.4
|
|
|
Cost of goods sold
|
Prior service cost amortization
|
|
|
0.3
|
|
|
|
0.4
|
|
|
SG&A expense
|
Amortization of net actuarial loss
|
|
|
11.0
|
|
|
|
14.2
|
|
|
Cost of goods sold
|
Amortization of net actuarial loss
|
|
|
9.8
|
|
|
|
12.8
|
|
|
SG&A expense
|
Total expense before tax
|
|
|
21.4
|
|
|
|
27.8
|
|
|
|
Tax impact
|
|
|
(7.5
|
)
|
|
|
(9.7
|
)
|
|
Income tax expense
|
Total expense, net of tax
|
|
|
13.9
|
|
|
|
18.1
|
|
|
|
Total reclassifications for the period
|
|
$
|
20.0
|
|
|
$
|
17.1
|
|
|
|
NOTE 20. LITIGATION AND RELATED MATTERS
ENVIRONMENTAL MATTERS
Environmental Compliance
Our manufacturing and research facilities are affected by various federal, state and local requirements relating to the discharge of materials and the protection of the environment. We make expenditures necessary for compliance with applicable environmental requirements at each of our operating facilities. These regulatory requirements continually change, therefore we cannot predict with certainty future expenditures associated with compliance with environmental requirements.
Environmental Sites
Summary
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 or international Superfund and similar type environmental laws at several domestically- and internationally-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 and remediation, 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 are currently pursuing coverage and recoveries under those policies with respect to certain of the sites, including in respect of the St. Helens, OR site, the Macon, GA site and the Elizabeth City, NC site, each of which is summarized below. These efforts include two active and independent litigation matters against legacy primary and excess policy insurance carriers for recovery of fees and costs incurred by us in connection with our investigation and remediation activities for such sites. These proceedings are currently in early stages and we are unable to predict the outcome of these matters or the timing of any recoveries, whether through settlement or otherwise.
23
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
Estimates of our future liability at the environmental sites are based on evaluations of currently available facts regarding each individual site. We consider factors such as our
activities associated with the site, existing technology, presently enacted laws and regulations and prior company experience in remediating contaminated sites. Although current law imposes joint and several liability on all parties at Superfund sites, ou
r contribution to the remediation of these sites is expected to be limited by the number of other companies potentially liable for site remediation. As a result, our estimated liability reflects only our expected share. 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 reor
ganization upon the validity of the claim.
Specific Material Events
St Helens, OR
In August 2010, we entered into a Consent Order (the “Consent Order”) with the Oregon Department of Environmental Quality (“ODEQ”), along with Kaiser Gypsum Company, Inc. (“Kaiser”), and Owens Corning Sales LLC (“OC”), with respect to our St. Helens, OR Building Products facility, which was previously owned by Kaiser and then OC. The Consent Order requires that we and Kaiser complete a remedial investigation and feasibility study (“RI/FS”) on the portion of the site owned by us (“Owned Property”), which is comprised of Upland and Lowland areas. The Consent Order further requires us, Kaiser and OC to conduct an RI/FS in the In-Water area of the adjacent Scappoose Bay.
We are currently in an investigation phase for both the Owned Property and the Scappoose Bay and are working with ODEQ, Kaiser and OC to finalize the reports to move to the Feasibility Study phase. We have determined that it is probable that remedial action for certain portions of both the Upland and Lowland areas of the Owned Property will be required. The current estimate of our future liability at the site includes any remaining known investigation work required by the Consent Order and the current projected cost of possible remedies for certain portions of the Owned Property. At this time, we are unable to reasonably estimate any remediation costs that we may ultimately incur with respect to other portions of the Owned Property or the Scappoose Bay or whether the projected costs for the areas we have included in our current estimate will increase. Additional investigative or remedial action required by ODEQ could result in additional costs greater than the amounts currently estimated. We believe that our ongoing work with ODEQ and Kaiser may enable us to reasonably estimate costs in 2017, and those costs may be material. As discussed above, we are currently unable to predict the outcome or the timing of our insurance recovery proceedings. Accordingly, additional estimated costs for this matter may be incurred without regard for, and prior to, the resolution of our insurance recovery proceedings.
Costs and responsibilities for investigation, including the current RI/FS for the Owned Property continue to be shared with Kaiser pursuant to a cost sharing agreement with Kaiser. Contemporaneously with the execution of the Consent Order, we, Kaiser and OC also entered into a separate cost sharing agreement for both the investigation and possible remediation of the Scappoose Bay. Kaiser’s shares under the cost sharing agreements are being funded by certain insurance policies, which comprise substantially all of Kaiser’s assets. If Kaiser and OC are unwilling or unable to fulfill their obligations under the cost sharing agreements, or seek to contest or challenge the allocations, or if Kaiser’s insurance policies are unable to fund Kaiser’s shares, it could result in additional cost to us greater than the amounts currently estimated and those costs may be material.
The principal contaminants at the St. Helens site are arsenic and dioxin compounds from historic operations by prior owners of the plant. As part of the investigation on the site pursuant to the Consent Order, we conducted an analysis of the raw materials used in our manufacturing processes at the St. Helens facility to identify possible sources of these same contaminants. Our testing found low levels of naturally occurring dioxin in sourced clay, known as ball clay, used in the production of some of our fire-retardant products at our St. Helens manufacturing facility. Based on the data from the soil and sediment samples from our St. Helens property and the data from the ball clay, we do not believe that the presence of dioxin in our raw material will have a material impact on our ultimate liability at the site. In addition, consistent with our health and safety policies, we tested employee exposure levels at two facilities representative of our handling procedures at all plants that use this ball clay and, as a result of such testing, do not believe that the ball clay poses a hazard to our employees based on applicable regulatory standards. Based on the manufacturing process and the amount of raw material utilized, we also believe that the dioxin levels in our finished products do not pose a hazard to installers or consumers. While we have not received any claims related to this raw material or our fire-retardant products, there can be no assurance that the raw material or the finished products will not become the subject of legal claims or regulatory actions or that such claims or actions will not have a material adverse effect on our financial condition or results of operations.
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Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
Macon, GA
The U.S. Environmental Protection Agency (“EPA”) has listed two landfills located on a portion of our Building Products facility in Macon, GA, along with the former Macon Naval Ordnance Plant landfill adjacent to our property, portions of Rocky Creek, and certain tributaries leading to Rocky Creek (collectively, the “Macon Site”) as a Superfund site on the National Priorities List due to the presence of contaminants, most notably PCBs.
In September 2010, we entered into an Administrative Order on Consent for a Removal Action with the EPA to investigate PCB contamination in one of the landfills on our property, the Wastewater Treatment Plant Landfill (the “WWTP Landfill”). We concluded the investigative phase of the Removal Action for the WWTP Landfill and submitted our final Engineering Evaluation/Cost Analysis (“EE/CA”) to the EPA in 2013. The EPA subsequently approved the EE/CA and issued an Action Memorandum in July 2013 selecting our recommended remedy for the Removal Action. In July 2014, we entered into an Administrative Order on Consent for Removal Action with the EPA for the WWTP Landfill. The EPA approved the Removal Action Work Plan on March 30, 2015 and the removal work commenced in the third quarter of 2015. This work was completed early in the second quarter of 2016. Our estimate of future liability includes costs for final report preparation and monitoring for the WWTP Landfill.
It is probable that we will incur field investigation, engineering and oversight costs associated with a RI/FS with respect to the remainder of the Superfund site, which includes the other landfill on our property, as well as areas on and adjacent to Armstrong’s property and Rocky Creek (the “Remaining Site”). On September 25, 2015, AWI and six other Potentially Responsible Parties (“PRPs”) received a Special Notice Letter from the EPA under CERCLA inviting AWI and the PRPs to enter into the negotiation of a Settlement Agreement (formerly known as an Administrative Order on Consent) to conduct an RI/FS of Operable Unit 2, which is the Remaining Site. We have not yet entered into an Order with the EPA for the Remaining Site and have not yet commenced an investigation of this portion of the site. We anticipate that the EPA will require significant investigative work for the Remaining Site and that we may ultimately incur costs in remediating any contamination discovered during the RI/FS. The current estimate of future liability at this site includes our estimated share of the costs of the investigative work that, at this time, we anticipate the EPA will require the PRP team to perform. We are unable to reasonably estimate AWI’s final share of the costs or the total costs associated with the investigation work or any resulting remediation therefrom, although such amounts may be material.
Elizabeth City, NC
This site is a former cabinet manufacturing facility that was operated by Triangle Pacific Corporation, now known as Armstrong Wood Products, Inc. (“Triangle Pacific”), from 1977 until 1996. The site was formerly owned by the U.S. Navy (“Navy”) and Westinghouse, now CBS Corporation (“CBS”). We assumed ownership of the site when we acquired the stock of Triangle Pacific in 1998. Prior to our acquisition, the NC Department of Environment and Natural Resources listed the site as a hazardous waste site. In 1997, Triangle Pacific entered into a cost sharing agreement with Westinghouse whereby the parties agreed to share equally in costs associated with investigation and potential remediation. In 2000, Triangle Pacific and CBS entered into an Administrative Order on Consent to conduct an RI/FS with the EPA for the site. In 2007, we and CBS entered into an agreement with the Navy whereby the Navy agreed to pay one third of defined past and future investigative costs up to a certain amount, which has now been exhausted. Although the parties initially submitted the RI/FS work plan to the EPA in 2004, the EPA did not approve the RI/FS work plan until August 2011. In January 2014, we submitted the draft Remedial Investigation and Risk Assessment reports and conducted supplemental investigative work based upon agency comments to those reports. The supplemental reports were submitted to the agency in January 2015; in July 2015, the agency issued comments on those reports. We responded to the comments in August 2015 and have heard nothing from the agency since. We are unable to reasonably estimate any additional investigative costs or determine whether remediation will be required. If remediation is required, the related costs may be material, although we expect these costs to be shared with CBS and the Navy.
Summary of Financial Position
Liabilities of $3.5 million as of June 30, 2016 and $6.0 million as of December 31, 2015 were recorded for potential environmental liabilities, on a global basis, that we consider probable and for which a reasonable estimate of the probable liability could be made. Where existing data is sufficient to estimate the liability, that estimate has been used; where only a range of probable liabilities is available and no amount within that range is more likely than any other, the lower end of the range has been used. As assessments and remediation activities progress at each site, these liabilities are reviewed to reflect new information as it becomes available. These liabilities are undiscounted.
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Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
The estimated liabilities above do not take into account any claims for recoveries from insurance or third parties. It is our policy to record probable recoveries that are either available through settlement or anticipated to be recovered through negotiat
ion or litigation as assets in the Condensed Consolidated Balance Sheets. No material amounts were recorded for probable recoveries as of June 30, 2016 or December 31, 2015.
Actual costs to be incurred at identified sites may vary from our estimates. Based on our knowledge of the identified sites, it is not possible to reasonably estimate future costs in excess of amounts already recognized.
OTHER CLAIMS
We are involved in various 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 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 these 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 these proceedings, 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.
NOTE 21. EARNINGS PER SHARE
Earnings per share (“EPS”) components may not add due to rounding.
The following table is a reconciliation of earnings to earnings attributable to common shares used in our basic and diluted EPS calculations for the three month periods ended June 30, 2016 and 2015:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Earnings from continuing operations
|
|
$
|
16.6
|
|
|
$
|
15.1
|
|
|
$
|
9.5
|
|
|
$
|
20.8
|
|
Earnings allocated to participating non-vested share awards
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
-
|
|
|
|
(0.2
|
)
|
Earnings from continuing operations attributable to common shares
|
|
$
|
16.5
|
|
|
$
|
14.9
|
|
|
$
|
9.5
|
|
|
$
|
20.6
|
|
The following table is a reconciliation of basic shares outstanding to diluted shares outstanding for the three and six months ended June 30, 2016 and 2015 (shares in millions):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Basic shares outstanding
|
|
|
55.6
|
|
|
|
55.5
|
|
|
|
55.6
|
|
|
|
55.4
|
|
Dilutive effect of common stock equivalents
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.4
|
|
Diluted shares outstanding
|
|
|
56.0
|
|
|
|
55.8
|
|
|
|
55.9
|
|
|
|
55.8
|
|
Anti-dilutive stock options excluded from the computation of diluted EPS for the three and six months ended June 30, 2016 were 478,428 and 708,010, respectively. Anti-dilutive stock options excluded from the computation of diluted EPS for the three and six months ended June 30, 2015 were 8,175 and 142,250, respectively.
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