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” or “us” in these notes, we are referring to AWI and its subsidiaries.
Except as disclosed in this Note, 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, 2018. 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, 2018. 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 third quarter and first nine months of 2019 and 2018 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 and net realizable value 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 and may confer with outside parties, including external counsel. Actual results may differ from these estimates.
Certain prior year amounts have been recast in the Condensed Consolidated Financial Statements to conform to the 2019 presentation.
Acquisitions
On March 4, 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. See Note 4 for further information.
On August 16, 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. See Note 4 for further information.
On May 31, 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. See Note 4 for further information.
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 (“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 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. During the third quarter of 2019, Knauf paid us an additional $2.5 million for a portion of these adjustments, net of amounts we paid Knauf under the Purchase Agreement.
On July 18, 2018, we entered into an amendment to the Purchase Agreement, pursuant to which Knauf agreed to irrevocably and unconditionally pay AWI (i) $250 million of the purchase price on August 1, 2018, and (ii) $80 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 million to a maximum of $20 million) of potential adjustments to the purchase price consideration for the transaction based on the impact of regulatory remedies required to satisfy competition conditions. Following receipt of these payments, we remitted $70 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
8
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
dividend of $35 million. We have recorded a $29.9 million payable to WAVE for their remaining portion of the proceeds from Knauf, which is reflected within Accounts payable and accrued expenses in the Condensed Consolidated Balance Sheets as of September 30, 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.
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, Turkey and the United Kingdom (“UK”). This included our sales operations in each of the relevant countries, as well as our production facilities, 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 have been reflected in AWI’s Condensed 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 Condensed Consolidated Balance Sheet as of September 30, 2019.
Revision of Previously Issued Financial Statements
During the second quarter of 2019, we revised the Condensed Consolidated Financial Statements and related notes included herein to correct an immaterial error related to the previously reported estimated loss on sale of our EMEA and Pacific Rim businesses. The immaterial correction increased the estimated loss on sale and reduced the assets held for sale by $35.2 million as of December 31, 2017. Notes 1 and 13 have been updated to reflect the restatement. The impacts of this error correction are as follows:
Balance Sheets
|
|
|
December 31, 2018
|
|
|
|
|
As Reported
|
|
|
As Adjusted
|
|
|
Current assets of discontinued operations
|
|
$
|
279.5
|
|
|
$
|
244.3
|
|
|
Total current assets
|
|
|
752.8
|
|
|
|
717.6
|
|
|
Total assets
|
|
|
1,873.5
|
|
|
|
1,838.3
|
|
|
Retained earnings
|
|
|
865.0
|
|
|
|
829.8
|
|
|
Total shareholders' equity
|
|
|
261.2
|
|
|
|
226.0
|
|
|
Total liabilities and shareholders' equity
|
|
|
1,873.5
|
|
|
|
1,838.3
|
|
Shareholders’ Equity
|
|
|
Retained Earnings
|
|
|
Total Shareholders' Equity
|
|
|
|
|
As Reported
|
|
|
As Adjusted
|
|
|
As Reported
|
|
|
As Adjusted
|
|
|
December 31, 2017
|
|
$
|
633.4
|
|
|
$
|
598.2
|
|
|
$
|
419.3
|
|
|
$
|
384.1
|
|
|
June 30, 2018
|
|
|
762.8
|
|
|
|
727.6
|
|
|
|
404.1
|
|
|
|
368.9
|
|
|
September 30, 2018
|
|
|
839.0
|
|
|
|
803.8
|
|
|
|
330.9
|
|
|
|
295.7
|
|
|
December 31, 2018
|
|
|
865.0
|
|
|
|
829.8
|
|
|
|
261.2
|
|
|
|
226.0
|
|
9
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
Accounts Payable and Accrued Expenses
|
|
|
December 31, 2018
|
|
|
|
|
As Reported
|
|
|
As Adjusted
|
|
|
Advance receipt of Knauf proceeds
|
|
$
|
237.6
|
|
|
$
|
202.4
|
|
|
Contingent liability payable to Knauf for adjustments to cash consideration
|
|
|
-
|
|
|
|
35.2
|
|
Recently Adopted Accounting Standards
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.
In January 2018, 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, 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, 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 Condensed 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 no leases that classify as financing arrangements. As required by the lease ASC updates, we expanded our disclosure of leases. See Note 10 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 is described in detail in our Annual Report on Form 10-K for the year ended December 31, 2018, and uses historical and current information to estimate the amount of probable credit losses in our existing account receivable balances. This new guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2019. We are evaluating the impact the adoption of this standard will have on our financial condition, results of operations and 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. We are evaluating the impact the adoption of this standard will have on our financial condition and results of operations.
10
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
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. We are evaluating the impact the adoption of this standard will have 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 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. We are evaluating the impact the adoption of this standard will have on our financial condition, results of operations and cash flows.
NOTE 2. SEGMENT RESULTS
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral Fiber
|
|
$
|
218.6
|
|
|
$
|
212.8
|
|
|
$
|
629.4
|
|
|
$
|
610.2
|
|
|
Architectural Specialties
|
|
|
58.5
|
|
|
|
47.7
|
|
|
|
161.8
|
|
|
|
126.2
|
|
|
Total net sales
|
|
$
|
277.1
|
|
|
$
|
260.5
|
|
|
$
|
791.2
|
|
|
$
|
736.4
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Segment operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral Fiber
|
|
$
|
103.5
|
|
|
$
|
71.8
|
|
|
$
|
230.5
|
|
|
$
|
175.0
|
|
|
Architectural Specialties
|
|
|
11.6
|
|
|
|
11.3
|
|
|
|
30.3
|
|
|
|
28.2
|
|
|
Unallocated Corporate
|
|
|
(1.8
|
)
|
|
|
(1.8
|
)
|
|
|
(5.6
|
)
|
|
|
(6.3
|
)
|
|
Total consolidated operating income
|
|
$
|
113.3
|
|
|
$
|
81.3
|
|
|
$
|
255.2
|
|
|
$
|
196.9
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Total consolidated operating income
|
|
$
|
113.3
|
|
|
$
|
81.3
|
|
|
$
|
255.2
|
|
|
$
|
196.9
|
|
|
Interest expense
|
|
|
11.7
|
|
|
|
9.9
|
|
|
|
31.6
|
|
|
|
28.9
|
|
|
Other non-operating (income), net
|
|
|
(5.1
|
)
|
|
|
(9.2
|
)
|
|
|
(16.0
|
)
|
|
|
(27.3
|
)
|
|
Earnings from continuing operations before income taxes
|
|
$
|
106.7
|
|
|
$
|
80.6
|
|
|
$
|
239.6
|
|
|
$
|
195.3
|
|
11
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Segment assets
|
|
|
|
|
|
|
|
|
|
Mineral Fiber
|
|
$
|
1,141.6
|
|
|
$
|
1,096.1
|
|
|
Architectural Specialties
|
|
|
149.6
|
|
|
|
84.7
|
|
|
Unallocated Corporate
|
|
|
218.5
|
|
|
|
413.2
|
|
|
Total consolidated assets
|
|
$
|
1,509.7
|
|
|
$
|
1,594.0
|
|
In connection with the closure of our St. Helens, Oregon Mineral Fiber manufacturing facility in the second quarter of 2018, we recorded $2.1 million and $14.1 million in the three and nine months ended September 30, 2018, respectively, in cost of goods sold related to accelerated depreciation of property, plant and equipment.
NOTE 3. REVENUE
Revenue Recognition
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 normal payment terms in most cases are 45 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 condensed 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.
Incremental costs to fulfill our customer arrangements are expensed as incurred, as the amortization period is less than one year.
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 costs. We record the costs of rebate accruals as a reduction to our revenue. Other sales discounts, including early pay promotions, are deducted immediately from the sales invoice.
Shipping and Handling
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.
Disaggregation of Revenues
Our Mineral Fiber and Architectural Specialties operating segments both manufacture and sell ceiling systems (primarily mineral fiber, fiberglass wool, metal and wood) throughout the Americas. We disaggregate revenue based on our product based segments and major customer groupings, as these categories represent the most appropriate depiction of how the nature, amount and timing of revenues and cash flows are affected by economic factors. Net sales by major customer group are as follows:
12
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
Distributors – represents net sales to building materials distributors who re-sell our products to contractors, subcontractors’ alliances, large architect and design firms, and major facility owners. Geographically, this category includes sales throughout the U.S., Canada, and Latin America.
Home centers – represents net sales to home centers, such as Lowe’s Companies, Inc. and The Home Depot, Inc.
Direct customers – represents net sales to contractors, subcontractors’ alliances, large architect and design firms, and major facility owners. This category includes sales to U.S. customers only.
Retailers and other – represents net sales to independent retailers and certain national account customers, including wholesalers who re-sell our products to dealers who service builders, contractors and consumers. Geographically, this category includes sales throughout the U.S., Canada and Latin America.
The following tables provide net sales by major customer group within the Mineral Fiber and Architectural Specialties segments for the three and nine months ended September 30, 2019 and 2018:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Mineral Fiber
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Distributors
|
|
$
|
168.0
|
|
|
$
|
164.8
|
|
|
$
|
474.0
|
|
|
$
|
459.2
|
|
|
Home centers
|
|
|
20.0
|
|
|
|
18.1
|
|
|
|
64.3
|
|
|
|
62.6
|
|
|
Direct customers
|
|
|
15.8
|
|
|
|
15.5
|
|
|
|
47.4
|
|
|
|
46.0
|
|
|
Retailers and other
|
|
|
14.8
|
|
|
|
14.4
|
|
|
|
43.7
|
|
|
|
42.4
|
|
|
Total
|
|
$
|
218.6
|
|
|
$
|
212.8
|
|
|
$
|
629.4
|
|
|
$
|
610.2
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Architectural Specialties
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Distributors
|
|
$
|
39.7
|
|
|
$
|
34.3
|
|
|
$
|
108.5
|
|
|
$
|
96.1
|
|
|
Direct customers
|
|
|
16.7
|
|
|
|
10.8
|
|
|
|
48.8
|
|
|
|
26.2
|
|
|
Retailers and other
|
|
|
2.1
|
|
|
|
2.6
|
|
|
|
4.5
|
|
|
|
3.9
|
|
|
Total
|
|
$
|
58.5
|
|
|
$
|
47.7
|
|
|
$
|
161.8
|
|
|
$
|
126.2
|
|
NOTE 4. ACQUISITIONS
ACGI
On March 4, 2019, we acquired the business and assets of ACGI. The $43.4 million purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated fair values, with the remaining unallocated amount recorded as goodwill. The total fair value of tangible assets acquired, less liabilities assumed, was $8.3 million. The total fair value of identifiable intangible assets acquired was $12.0 million, mostly comprised of amortizable customer relationships of $7.4 million and amortizable tradenames of $2.8 million, resulting in $23.1 million of goodwill. All of the acquired goodwill is deductible for tax purposes. These amounts are subject to adjustment in connection with our ongoing purchase accounting analysis.
STEEL CEILINGS
On August 16, 2018, we acquired the business and assets of Steel Ceilings. The $12.3 million purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated fair values, with the remaining amount recorded as goodwill. In October 2018, we sold certain assets related to an acquired product line to WAVE for $2.0 million. The total fair value of tangible assets acquired, less liabilities assumed, was $4.4 million. The total fair value of identifiable intangible assets acquired was mostly comprised of amortizable customer relationships of $1.4 million and tradenames of $1.3 million, resulting in $3.2 million of goodwill. All of the acquired goodwill is deductible for tax purposes.
PLASTERFORM
On May 31, 2018, we acquired the business and assets of Plasterform. The $11.9 million purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated fair values, with the remaining amount recorded as goodwill. The total
13
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
fair value of tangible assets acquired, less liabilities assumed, was $2.2 million. The total fair value of identifiable intangible assets acquired, comprised of amortizable customer relationships, was $4.8 million, resulting in $4.9 million of goodwill. All of the acquired goodwill is deductible for tax purposes.
The 2018 and 2019 acquisitions, both individually and in the aggregate, did not have a material impact on reported net sales or operating income for the three and nine months ended September 30, 2019.
NOTE 5. DISCONTINUED OPERATIONS
EMEA AND PACIFIC RIM BUSINESSES
On November 17, 2017, we agreed to sell certain subsidiaries comprising our businesses in EMEA and the Pacific Rim to Knauf. The Sale was completed on September 30, 2019.
Prior to completion of the Sale, each quarter, we compared the anticipated sales proceeds from Knauf to the carrying value of EMEA and Pacific Rim net assets. We recorded an estimated loss when the carrying value exceeded the anticipated sales proceeds. Net gains were only recorded to the extent of previous estimated losses. Upon completion of the Sale, we compared the actual proceeds we received from Knauf to the carrying value of EMEA and Pacific Rim net assets, and recorded an additional loss. In 2017, we recorded an estimated loss of $74.0 million, which included $51.4 million of unfavorable Accumulated Other Comprehensive Income (“AOCI”) adjustments. In 2018, we recorded an estimated loss of $19.3 million, which included $25.5 million of unfavorable AOCI adjustments. During the second quarter of 2019, we recorded an immaterial correction related to the previously reported estimated loss on sale of our EMEA and Pacific Rim businesses. The correction increased the estimated loss on sale and reduced the assets held for sale by $35.2 million as of December 31, 2017. During the three and nine months ended September 30, 2019, we recorded a net loss of $27.3 million and $31.9 million, respectively. During the three and nine months ended September 30, 2019, net losses included $16.3 million and $7.8 million of unfavorable AOCI adjustments, respectively. The AOCI adjustments related primarily to accumulated foreign currency translation amounts that were reclassified from AOCI as of September 30, 2019. The transaction and final gain or loss amount are subject to finalization of customary working capital and other adjustments, as provided in the Purchase Agreement.
See Note 1 for further discussion of the Sale.
FLOORING BUSINESSES
On April 1, 2016, we completed our separation of Armstrong Flooring, Inc. (“AFI”) by allocating the assets and liabilities related primarily to our Resilient 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. The income tax benefit presented in the tables below for the three and nine months ended September 30, 2019 relates primarily to the release of a reserve for the 2015 tax year.
In connection with the separation and distribution of AFI, we entered into several agreements with AFI that, together with a plan of division, provided 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 governed the relationship between AWI and AFI subsequent to the completion of the separation and distribution. These agreements included a Tax Matters Agreement, an Employee Matters Agreement, a Trademark License Agreement, a Transition Trademark License Agreement and a Campus Lease Agreement.
14
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
Summarized Financial Information of Discontinued Operations
The following tables detail the businesses and line items that comprise discontinued operations on the Condensed Consolidated Statements of Earnings and Comprehensive Income.
|
|
|
EMEA and Pacific Rim Businesses
|
|
|
Flooring
Businesses
|
|
|
Total
|
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
115.5
|
|
|
$
|
-
|
|
|
$
|
115.5
|
|
|
Cost of goods sold
|
|
|
86.8
|
|
|
|
-
|
|
|
|
86.8
|
|
|
Gross profit
|
|
|
28.7
|
|
|
|
-
|
|
|
|
28.7
|
|
|
Selling, general and administrative expenses
|
|
|
20.4
|
|
|
|
-
|
|
|
|
20.4
|
|
|
Operating income
|
|
|
8.3
|
|
|
|
-
|
|
|
|
8.3
|
|
|
Other non-operating expense, net
|
|
|
1.0
|
|
|
|
-
|
|
|
|
1.0
|
|
|
Earnings from discontinued operations before income tax
|
|
|
7.3
|
|
|
|
-
|
|
|
|
7.3
|
|
|
Income tax expense
|
|
|
2.5
|
|
|
|
-
|
|
|
|
2.5
|
|
|
Net earnings from discontinued operations, net of tax
|
|
$
|
4.8
|
|
|
$
|
-
|
|
|
$
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from disposal of discontinued businesses, before income tax
|
|
$
|
(27.3
|
)
|
|
$
|
-
|
|
|
$
|
(27.3
|
)
|
|
Income tax (benefit)
|
|
|
-
|
|
|
|
(5.0
|
)
|
|
|
(5.0
|
)
|
|
(Loss) gain from disposal of discontinued businesses, net of tax
|
|
$
|
(27.3
|
)
|
|
$
|
5.0
|
|
|
$
|
(22.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from discontinued operations
|
|
$
|
(22.5
|
)
|
|
$
|
5.0
|
|
|
$
|
(17.5
|
)
|
|
|
|
EMEA and Pacific Rim Businesses
|
|
|
Flooring
Businesses
|
|
|
Total
|
|
|
Nine Months Ended September 30, 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
|
|
|
7.2
|
|
|
|
-
|
|
|
|
7.2
|
|
|
Net earnings from discontinued operations, net of tax
|
|
$
|
3.0
|
|
|
$
|
-
|
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from disposal of discontinued businesses, before income tax
|
|
$
|
(31.9
|
)
|
|
$
|
-
|
|
|
$
|
(31.9
|
)
|
|
Income tax (benefit)
|
|
|
-
|
|
|
|
(4.9
|
)
|
|
|
(4.9
|
)
|
|
(Loss) gain from disposal of discontinued businesses, net of tax
|
|
$
|
(31.9
|
)
|
|
$
|
4.9
|
|
|
$
|
(27.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from discontinued operations
|
|
$
|
(28.9
|
)
|
|
$
|
4.9
|
|
|
$
|
(24.0
|
)
|
15
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
|
|
|
EMEA and Pacific Rim Businesses
|
|
|
Flooring
Businesses
|
|
|
Total
|
|
|
Three Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
112.7
|
|
|
$
|
-
|
|
|
$
|
112.7
|
|
|
Cost of goods sold
|
|
|
87.1
|
|
|
|
-
|
|
|
|
87.1
|
|
|
Gross profit
|
|
|
25.6
|
|
|
|
-
|
|
|
|
25.6
|
|
|
Selling, general and administrative expenses
|
|
|
20.2
|
|
|
|
-
|
|
|
|
20.2
|
|
|
Operating income
|
|
|
5.4
|
|
|
|
-
|
|
|
|
5.4
|
|
|
Interest expense
|
|
|
0.4
|
|
|
|
-
|
|
|
|
0.4
|
|
|
Other non-operating expense, net
|
|
|
0.5
|
|
|
|
-
|
|
|
|
0.5
|
|
|
Earnings from discontinued operations before income tax
|
|
|
4.5
|
|
|
|
-
|
|
|
|
4.5
|
|
|
Income tax (benefit)
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
Net earnings from discontinued operations, net of tax
|
|
$
|
5.0
|
|
|
$
|
-
|
|
|
$
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from disposal of discontinued businesses, before income tax
|
|
$
|
2.4
|
|
|
$
|
-
|
|
|
$
|
2.4
|
|
|
Income tax (benefit)
|
|
|
-
|
|
|
|
(4.6
|
)
|
|
|
(4.6
|
)
|
|
Gain from disposal of discontinued business, net of tax
|
|
$
|
2.4
|
|
|
$
|
4.6
|
|
|
$
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from discontinued operations
|
|
$
|
7.4
|
|
|
$
|
4.6
|
|
|
$
|
12.0
|
|
|
|
|
EMEA and Pacific Rim Businesses
|
|
|
Flooring
Businesses
|
|
|
Total
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
331.7
|
|
|
$
|
-
|
|
|
$
|
331.7
|
|
|
Cost of goods sold
|
|
|
252.2
|
|
|
|
-
|
|
|
|
252.2
|
|
|
Gross profit
|
|
|
79.5
|
|
|
|
-
|
|
|
|
79.5
|
|
|
Selling, general and administrative expenses
|
|
|
61.9
|
|
|
|
-
|
|
|
|
61.9
|
|
|
Operating income
|
|
|
17.6
|
|
|
|
-
|
|
|
|
17.6
|
|
|
Interest expense
|
|
|
1.3
|
|
|
|
-
|
|
|
|
1.3
|
|
|
Other non-operating expense, net
|
|
|
0.7
|
|
|
|
-
|
|
|
|
0.7
|
|
|
Earnings from discontinued operations before income tax
|
|
|
15.6
|
|
|
|
-
|
|
|
|
15.6
|
|
|
Income tax expense
|
|
|
1.2
|
|
|
|
-
|
|
|
|
1.2
|
|
|
Net earnings from discontinued operations, net of tax
|
|
$
|
14.4
|
|
|
$
|
-
|
|
|
$
|
14.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from disposal of discontinued businesses, before
income tax
|
|
$
|
(21.0
|
)
|
|
$
|
-
|
|
|
$
|
(21.0
|
)
|
|
Income tax (benefit)
|
|
|
-
|
|
|
|
(4.9
|
)
|
|
|
(4.9
|
)
|
|
(Loss) gain from disposal of discontinued businesses, net of tax
|
|
$
|
(21.0
|
)
|
|
$
|
4.9
|
|
|
$
|
(16.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from discontinued operations
|
|
$
|
(6.6
|
)
|
|
$
|
4.9
|
|
|
$
|
(1.7
|
)
|
NOTE 6. ACCOUNTS AND NOTES RECEIVABLE
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Customer receivables
|
|
$
|
85.9
|
|
|
$
|
70.4
|
|
|
Miscellaneous receivables
|
|
|
5.8
|
|
|
|
11.5
|
|
|
Less allowance for warranties, discounts and losses
|
|
|
(2.9
|
)
|
|
|
(2.0
|
)
|
|
Accounts and notes receivable, net
|
|
$
|
88.8
|
|
|
$
|
79.9
|
|
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.
16
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
Miscellaneous receivables as of December 31, 2018 included $6.5 million of insurance recoveries related to environmental matters, which were collected during the first quarter of 2019. See Note 22 for additional information.
NOTE 7. INVENTORIES
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Finished goods
|
|
$
|
39.4
|
|
|
$
|
38.8
|
|
|
Goods in process
|
|
|
5.4
|
|
|
|
4.4
|
|
|
Raw materials and supplies
|
|
|
34.9
|
|
|
|
27.8
|
|
|
Less LIFO reserves
|
|
|
(10.3
|
)
|
|
|
(9.8
|
)
|
|
Total inventories, net
|
|
$
|
69.4
|
|
|
$
|
61.2
|
|
NOTE 8. OTHER CURRENT ASSETS
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Prepaid expenses
|
|
$
|
6.5
|
|
|
$
|
4.1
|
|
|
Assets held for sale
|
|
|
6.5
|
|
|
|
-
|
|
|
Other
|
|
|
1.1
|
|
|
|
0.7
|
|
|
Total other current assets
|
|
$
|
14.1
|
|
|
$
|
4.8
|
|
As of September 30, 2019, our idle mineral fiber plant in China, reported as a component of our Unallocated Corporate segment, has met the criteria of an asset held for sale as we have entered into a sale agreement for the property during the third quarter of 2019 with closing expected in the fourth quarter of 2019.
NOTE 9. EQUITY INVESTMENT
Investment in joint venture reflects our 50% equity interest in WAVE. The WAVE joint venture is reflected within the Mineral Fiber segment in our condensed consolidated financial statements using the equity method of accounting. The European and Pacific Rim businesses of WAVE were included in the Sale to Knauf on September 30, 2019. Accordingly, beginning in 2017, WAVE’s European and Pacific Rim historical financial statement results have been reflected in WAVE’s consolidated financial statements as a discontinued operation for all periods presented. Condensed financial statement data for WAVE is summarized below on a continuing operations basis.
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Current assets
|
|
$
|
105.4
|
|
|
$
|
112.9
|
|
|
Current assets of discontinued operations
|
|
|
-
|
|
|
|
33.8
|
|
|
Nonncurrent assets
|
|
|
34.3
|
|
|
|
34.9
|
|
|
Current liabilities
|
|
|
23.7
|
|
|
|
113.6
|
|
|
Current liabilities of discontinued operations
|
|
|
-
|
|
|
|
6.9
|
|
|
Other noncurrent liabilities
|
|
|
284.3
|
|
|
|
293.6
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Net sales
|
|
$
|
99.9
|
|
|
$
|
93.1
|
|
|
$
|
302.3
|
|
|
$
|
287.5
|
|
|
Gross profit
|
|
|
56.9
|
|
|
|
50.8
|
|
|
|
168.4
|
|
|
|
160.2
|
|
|
Net earnings
|
|
|
43.9
|
|
|
|
38.7
|
|
|
|
127.3
|
|
|
|
123.5
|
|
In connection with the sale of WAVE’s European and Pacific Rim businesses and operations to Knauf on September 30, 2019, WAVE recorded a $50.9 million gain on sale, which included $10.2 million of unfavorable AOCI adjustments. As such, during the third quarter of 2019, we recorded our 50% share of WAVE’s gain on sale of discontinued operations of $25.5 million, included as a component of Equity earnings from joint venture in our Condensed Consolidated Statements of Earnings and Comprehensive Income. The transaction and final gain amount is subject to finalization of customary working capital and other adjustments, as provided in the Purchase Agreement.
Our recorded investment in WAVE was higher than our 50% share of the carrying values reported in WAVE’s consolidated financial statements by $147.0 million as of September 30, 2019, and $155.5 million as of December 31, 2018. These differences are due to our
17
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
adoption of fresh-start reporting upon emergence from Chapter 11 in October 2006, while WAVE’s consolidated financial statements do not reflect fresh-start reporting. These differences are composed of the following fair value adjustments to assets:
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Property, plant and equipment
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
|
Other intangibles
|
|
|
116.2
|
|
|
|
124.7
|
|
|
Goodwill
|
|
|
30.4
|
|
|
|
30.4
|
|
|
Total
|
|
$
|
147.0
|
|
|
$
|
155.5
|
|
Other intangibles include customer relationships, trademarks and developed technology. Customer relationships are amortized over 20 years and developed technology is amortized over 15 years. Trademarks have an indefinite life. During the third quarter of 2019, we wrote off $4.4 million of customer relationships and developed technology intangible assets attributed to WAVE’s European and Pacific Rim businesses included in the Sale. This write-off is included as a reduction to Equity earnings from joint venture in our Condensed Consolidated Statements of Earnings and Comprehensive Income.
NOTE 10. LEASES
We enter into operating leases for certain real estate, equipment and automobiles. Our leases have remaining lease terms of 1 to 14 years. Several leases include options for us to purchase leased items at fair value or 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 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 are accounted for separately. 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. Short-term lease expense was not material for the three and nine months ended September 30, 2019.
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. We used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date. As of September 30, 2019, we do not have any finance leases and we have no additional operating leases that have not yet commenced.
As noted in Note 1, effective January 1, 2019, we adopted ASC Topic 842 – Leases using the modified retrospective transition method. As such, we did not restate financial statement and lease disclosure data for all periods prior to January 1, 2019, which was prepared in accordance with ASC Topic 840 – Leases.
The following tables present our operating lease cost and supplemental cash flow information related to our operating leases:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2019
|
|
|
September 30, 2019
|
|
|
Operating lease cost
|
|
$
|
1.7
|
|
|
$
|
5.0
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30, 2019
|
|
|
ROU assets obtained in exchange for lease obligations (1)
|
|
|
|
$
|
39.4
|
|
|
|
(1)
|
Includes initial ROU assets of $29.2 million recognized upon adoption on January 1, 2019.
|
We do not believe the amount of cash paid for amounts included in the measurement of lease liabilities to be materially different from our operating lease cost for the nine months ended September 30, 2019.
18
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
The following table presents supplemental balance sheet information related to our operating leases:
|
|
|
Balance Sheet Classification
|
|
September 30, 2019
|
|
|
ROU assets
|
|
Lease right-of-use assets
|
|
$
|
35.2
|
|
|
Current lease liabilities
|
|
Accounts payable and accrued expenses
|
|
|
5.1
|
|
|
Non-current lease liabilities
|
|
Lease non-current liabilities
|
|
|
30.1
|
|
The following table presents the weighted average assumptions used to compute our ROU assets and lease liabilities:
|
|
|
|
|
September 30, 2019
|
|
|
Weighted average remaining lease term (in years)
|
|
|
|
8.9
|
|
|
Weighted average discount rate
|
|
|
|
|
4.5
|
%
|
Undiscounted future minimum lease payments as of September 30, 2019, by year and in the aggregate, having non-cancelable lease terms in excess of one year are as follows:
|
|
|
Maturities of
Lease Liabilities
|
|
|
2019 (1)
|
|
$
|
1.7
|
|
|
2020
|
|
|
6.3
|
|
|
2021
|
|
|
5.2
|
|
|
2022
|
|
|
4.7
|
|
|
2023
|
|
|
4.1
|
|
|
Thereafter
|
|
|
21.1
|
|
|
Total lease payments
|
|
|
43.1
|
|
|
Less interest
|
|
|
(7.9
|
)
|
|
Present value of lease liabilities
|
|
$
|
35.2
|
|
|
|
(1)
|
Scheduled maturities of lease liabilities represents the time period of October 1, 2019 to December 31, 2019.
|
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:
|
|
|
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
|
|
Rent expense was $6.1 million in 2018.
19
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 11. GOODWILL AND INTANGIBLE ASSETS
The following table details amounts related to our goodwill and intangible assets as of September 30, 2019 and December 31, 2018.
|
|
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
Estimated
Useful Life
|
|
Gross
Carrying
Amount
|
|
|
Accumulated Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated Amortization
|
|
|
Amortizing intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
3-20 years
|
|
$
|
188.9
|
|
|
$
|
111.8
|
|
|
$
|
181.4
|
|
|
$
|
103.0
|
|
|
Developed technology
|
|
15 years
|
|
|
84.8
|
|
|
|
70.7
|
|
|
|
84.3
|
|
|
|
66.5
|
|
|
Trademarks and brand names
|
|
5-20 years
|
|
|
3.9
|
|
|
|
0.5
|
|
|
|
1.1
|
|
|
|
0.2
|
|
|
Other
|
|
Various
|
|
|
2.1
|
|
|
|
1.4
|
|
|
|
5.6
|
|
|
|
1.2
|
|
|
Total
|
|
|
|
$
|
279.7
|
|
|
$
|
184.4
|
|
|
$
|
272.4
|
|
|
$
|
170.9
|
|
|
Goodwill and non-amortizing intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and brand names
|
|
Indefinite
|
|
|
321.5
|
|
|
|
|
|
|
|
321.3
|
|
|
|
|
|
|
Goodwill
|
|
Indefinite
|
|
|
42.6
|
|
|
|
|
|
|
|
19.2
|
|
|
|
|
|
|
Total goodwill and intangible assets
|
|
|
|
$
|
643.8
|
|
|
|
|
|
|
$
|
612.9
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Amortization expense
|
|
$
|
14.7
|
|
|
$
|
11.0
|
|
NOTE 12. OTHER NON-CURRENT ASSETS
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Cash surrender value of Company owned life insurance policies
|
|
$
|
55.2
|
|
|
$
|
54.3
|
|
|
Fair value of derivative assets
|
|
|
1.5
|
|
|
|
9.6
|
|
|
Other
|
|
|
2.9
|
|
|
|
4.6
|
|
|
Total other non-current assets
|
|
$
|
59.6
|
|
|
$
|
68.5
|
|
NOTE 13. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Payables, trade and other
|
|
$
|
74.0
|
|
|
$
|
82.2
|
|
|
Current portion of lease liabilities
|
|
|
5.1
|
|
|
|
-
|
|
|
Employment costs
|
|
|
12.4
|
|
|
|
18.6
|
|
|
Current portion of pension and postretirement liabilities
|
|
|
11.1
|
|
|
|
10.9
|
|
|
Advance receipt of Knauf proceeds
|
|
|
-
|
|
|
|
202.4
|
|
|
Contingent liability payable to Knauf for adjustments to cash consideration
|
|
|
-
|
|
|
|
35.2
|
|
|
Payable to WAVE for receipt of Knauf proceeds
|
|
|
29.9
|
|
|
|
22.4
|
|
|
Other
|
|
|
9.3
|
|
|
|
11.6
|
|
|
Total accounts payable and accrued expenses
|
|
$
|
141.8
|
|
|
$
|
383.3
|
|
NOTE 14. INCOME TAX EXPENSE
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Earnings from continuing operations before income taxes
|
|
$
|
106.7
|
|
|
$
|
80.6
|
|
|
$
|
239.6
|
|
|
$
|
195.3
|
|
|
Income tax expense
|
|
|
16.0
|
|
|
|
16.4
|
|
|
|
48.8
|
|
|
|
42.3
|
|
|
Effective tax rate
|
|
|
15.0
|
%
|
|
|
20.3
|
%
|
|
|
20.4
|
%
|
|
|
21.7
|
%
|
20
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
The decreases in the effective tax rates for the third quarter and first nine months of 2019, as compared to the same periods in 2018, were largely driven by our $25.5 million share of WAVE’s gain on sale of its European and Pacific Rim businesses in the third quarter of 2019. Although our share of WAVE’s gain on sale increased earnings from continuing operations before income taxes, the Sale resulted in an overall capital loss for us.
As of September 30, 2019, Income taxes receivable on our Condensed Consolidated Balance Sheet includes $28.0 million of previously paid income taxes we expect to be refunded in 2020 as a result of the overall capital loss on the Sale. Taxes were paid for the 2018 tax year as the gross proceeds for the sale of our EMEA and Pacific Rim businesses were received in 2018, which generated a capital gain for that tax year.
It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. However, an estimate of the range of reasonably possible outcomes cannot be reliably made at this time. Changes to unrecognized tax benefits could result from the completion of ongoing examinations, the expiration of statutes of limitations or other unforeseen circumstances.
NOTE 15. DEBT
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 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. 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%) and Term Loan A (1.75% to 1.50%). We also extended the maturity of both the revolving credit facility and Term Loan A from April 2021 to September 2024. In connection with the refinancing, we paid $3.0 million of bank, legal and other fees, of which $2.9 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 three and nine months ended September 30, 2019, we wrote off $2.7 million of unamortized debt financing costs, included as a component of interest expense, related to our previous credit facility. Finally, in connection with the refinancing, we settled a $100.0 million notional interest rate swap as of September 30, 2019. See Note 18 for additional details.
As of September 30, 2019, there was $120.0 million outstanding on our revolving credit facility. As of December 31, 2018, there were no borrowings outstanding on our revolving credit facility. As of September 30, 2019 and December 31, 2018, our outstanding long-term debt included a $35.0 million variable rate, tax-exempt industrial development bond that financed the construction of a U.S. plant in prior years. We also have a $25.0 million letter of credit facility, also known as our bi-lateral facility.
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 described below. Letters of credit are issued to third party suppliers, insurance institutions 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:
|
|
|
September 30, 2019
|
|
|
Financing Arrangements
|
|
Limit
|
|
|
Used
|
|
|
Available
|
|
|
Accounts receivable securitization facility
|
|
$
|
33.7
|
|
|
$
|
36.2
|
|
|
$
|
(2.5
|
)
|
|
Bi-lateral facility
|
|
|
25.0
|
|
|
|
11.5
|
|
|
|
13.5
|
|
|
Revolving credit facility
|
|
|
150.0
|
|
|
|
-
|
|
|
|
150.0
|
|
|
Total
|
|
$
|
208.7
|
|
|
$
|
47.7
|
|
|
$
|
161.0
|
|
As of September 30, 2019 and December 31, 2018, $2.5 million and $6.0 million, respectively, of letters of credit issued under our accounts receivable securitization facility in excess of our maximum limit were classified as restricted cash and reported as a component of Cash and cash equivalents on our Condensed Consolidated Balance Sheets.
As of September 30, 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,
21
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
LLC (“ARC”), a Delaware entity that is consolidated in these financial statements. ARC is a 100% wholly owned single member LLC 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.
NOTE 16. PENSIONS AND OTHER BENEFIT PROGRAMS
Following are the components of net periodic benefit costs (credits):
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
U.S. defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost of benefits earned during the period
|
|
$
|
1.2
|
|
|
$
|
1.4
|
|
|
$
|
3.6
|
|
|
$
|
4.3
|
|
|
Interest cost on projected benefit obligation
|
|
|
12.5
|
|
|
|
11.5
|
|
|
|
37.7
|
|
|
|
34.6
|
|
|
Expected return on plan assets
|
|
|
(20.0
|
)
|
|
|
(24.0
|
)
|
|
|
(60.1
|
)
|
|
|
(72.0
|
)
|
|
Amortization of net actuarial loss
|
|
|
4.8
|
|
|
|
5.0
|
|
|
|
14.4
|
|
|
|
15.0
|
|
|
Net periodic pension (credit)
|
|
$
|
(1.5
|
)
|
|
$
|
(6.1
|
)
|
|
$
|
(4.4
|
)
|
|
$
|
(18.1
|
)
|
|
Retiree health and life insurance benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost of benefits earned during the period
|
|
$
|
0.1
|
|
|
$
|
-
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
Interest cost on projected benefit obligation
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
1.8
|
|
|
|
1.9
|
|
|
Amortization of prior service credit
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
Amortization of net actuarial gain
|
|
|
(2.2
|
)
|
|
|
(1.4
|
)
|
|
|
(6.4
|
)
|
|
|
(4.2
|
)
|
|
Net periodic postretirement (credit)
|
|
$
|
(1.5
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(4.6
|
)
|
|
$
|
(2.2
|
)
|
We also have an unfunded defined benefit pension plan in Germany, which was not acquired by Knauf in connection with the Sale. This plan is reported as a component of our Unallocated Corporate segment. Net periodic pension cost for this plan was immaterial for the three and nine months ended September 30, 2019 and 2018.
NOTE 17. FINANCIAL INSTRUMENTS
We do not hold or issue financial instruments for trading purposes. The estimated fair values of our financial instruments are as follows:
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
Carrying
amount
|
|
|
Estimated
fair value
|
|
|
Carrying
amount
|
|
|
Estimated
fair value
|
|
|
Assets/(liabilities), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, including current portion
|
|
$
|
(650.5
|
)
|
|
$
|
(650.5
|
)
|
|
$
|
(819.8
|
)
|
|
$
|
(811.3
|
)
|
|
Interest rate swap contracts
|
|
|
(17.0
|
)
|
|
|
(17.0
|
)
|
|
|
3.5
|
|
|
|
3.5
|
|
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 based on current market conditions. The fair value estimates for interest rate swap contracts are estimated by obtaining quotes from major financial institutions with verification by internal valuation models.
22
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
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; or
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 interest rate swap contracts measured at fair value on a recurring basis and reported on the Condensed Consolidated Balance Sheets were valued using Level 2 (other observable) inputs as of September 30, 2019 and December 31, 2018. We do not have any financial assets or liabilities that are valued using Level 1 (quoted, active market) or Level 3 (unobservable) inputs as of September 30, 2019 and December 31, 2018.
NOTE 18. 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 swaps to hedge interest rate exposures. At inception, derivatives 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 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.
Commodity Price Risk
We purchase natural gas and other various commodities for use in the manufacturing process. Although we are exposed to fluctuations in commodity pricing, we currently have no outstanding commodity derivative hedge positions.
Currency Rate Risk – Sales and Purchases
As of September 30, 2019, our only major foreign currency exposure is to the Canadian dollar. We manage our Canadian cash flow exposures on a net basis. We currently do not expect to enter into any foreign exchange derivative products.
23
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. These swaps are designated as cash flow hedges against changes in LIBOR for a portion of our variable rate debt. The following table summarizes our interest rate swaps as of September 30, 2019:
|
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 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.
In connection with the refinancing of our credit facility, the immaterial liability related to a $100.0 million notional interest rate swap was settled on September 30, 2019. See Note 15 for additional details related to our credit facility refinancing.
Financial Statement Impacts
The following tables detail amounts related to our derivatives as of September 30, 2019 and December 31, 2018. We had no derivative assets or liabilities not designated as hedging instruments as of September 30, 2019 or December 31, 2018. The derivative asset and liability amounts below are shown in gross amounts and we have not netted assets with liabilities.
|
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
Fair Value
|
|
|
|
|
Balance Sheet
Location
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
Balance Sheet
Location
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
Interest rate swap contracts
|
|
Other non-current assets
|
|
$
|
1.5
|
|
|
$
|
9.6
|
|
|
Other long-term liabilities
|
|
$
|
18.5
|
|
|
$
|
6.1
|
|
|
|
|
Amount of Gain (Loss)
Recognized in AOCI
|
|
|
Location of (Loss)
Reclassified from
AOCI into Income
|
|
(Loss) Reclassified
from AOCI into Income
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Derivatives in cash flow hedging relationships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas commodity contracts
|
|
$
|
-
|
|
|
$
|
0.2
|
|
|
Cost of goods sold
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(0.4
|
)
|
|
Foreign exchange contracts – purchases
|
|
|
-
|
|
|
|
0.1
|
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Foreign exchange contracts – sales
|
|
|
-
|
|
|
|
0.4
|
|
|
Net sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.3
|
)
|
|
Interest rate swap contracts
|
|
|
(22.9
|
)
|
|
|
4.6
|
|
|
Interest expense
|
|
|
(0.5
|
)
|
|
|
(0.3
|
)
|
|
|
(1.5
|
)
|
|
|
(1.1
|
)
|
|
Total
|
|
$
|
(22.9
|
)
|
|
$
|
5.3
|
|
|
Total (loss) from continuing operations
|
|
$
|
(0.5
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total gain from discontinued operations
|
|
|
-
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (loss)
|
|
$
|
(0.5
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
(1.8
|
)
|
24
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
As of September 30, 2019, the amount of existing losses in AOCI expected to be recognized in earnings over the next twelve months was $2.5 million.
NOTE 19. OTHER LONG-TERM LIABILITIES
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Long-term deferred compensation arrangements
|
|
$
|
14.1
|
|
|
$
|
14.0
|
|
|
Environmental liabilities
|
|
|
1.6
|
|
|
|
11.7
|
|
|
Fair value of derivative liabilities
|
|
|
18.5
|
|
|
|
6.1
|
|
|
Other
|
|
|
7.0
|
|
|
|
6.2
|
|
|
Total other long-term liabilities
|
|
$
|
41.2
|
|
|
$
|
38.0
|
|
NOTE 20. SHAREHOLDERS’ EQUITY
Common Stock Repurchase Plan
On July 29, 2016, we announced that our Board of Directors had approved a share repurchase program pursuant to which we were authorized to repurchase up to $150.0 million of our outstanding shares of common stock through July 31, 2018 (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.
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.
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, 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 the three months ended September 30, 2019, we repurchased 0.3 million shares under the Program for a total cost of $33.1 million, or an average price of $95.26 per share. During the nine months ended September 30, 2019, we repurchased 1.0 million shares under the Program for a total cost of $81.2 million, or an average price of $81.58 per share. Since inception, through September 30, 2019, including the ASR, we have repurchased 8.7 million shares under the Program for a total cost of $511.8 million, or an average price of $58.94 per share.
Dividends
In February, April and July 2019, our Board of Directors declared $0.175 per share quarterly dividends, which were paid to shareholders in March, May and August 2019, respectively. On October 23, 2019, our Board of Directors declared a $0.20 per share quarterly dividend to be paid in November 2019.
25
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 21. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
Foreign
Currency
Translation Adjustments
|
|
|
Derivative
Gain (Loss) (1)
|
|
|
Pension and Postretirement Adjustments (1)
|
|
|
Total
Accumulated
Other
Comprehensive
(Loss) (1)
|
|
|
Balance, June 30, 2019
|
|
$
|
(68.7
|
)
|
|
$
|
(7.8
|
)
|
|
$
|
(384.5
|
)
|
|
$
|
(461.0
|
)
|
|
Other comprehensive income (loss) before reclassifications,
net of tax expense (benefit) of $ -, $1.1, ($0.1) and $1.0
|
|
|
(2.6
|
)
|
|
|
(3.1
|
)
|
|
|
0.1
|
|
|
|
(5.6
|
)
|
|
Amounts reclassified from accumulated other
comprehensive (loss)
|
|
|
81.2
|
|
|
|
0.4
|
|
|
|
5.4
|
|
|
|
87.0
|
|
|
Net current period other comprehensive income (loss)
|
|
|
78.6
|
|
|
|
(2.7
|
)
|
|
|
5.5
|
|
|
|
81.4
|
|
|
Balance, September 30, 2019
|
|
$
|
9.9
|
|
|
$
|
(10.5
|
)
|
|
$
|
(379.0
|
)
|
|
$
|
(379.6
|
)
|
|
|
|
Foreign
Currency
Translation Adjustments
|
|
|
Derivative
Gain (Loss) (1)
|
|
|
Pension and Postretirement Adjustments (1)
|
|
|
Total
Accumulated
Other
Comprehensive
(Loss) (1)
|
|
|
Balance, December 31, 2018
|
|
$
|
(74.7
|
)
|
|
$
|
5.3
|
|
|
$
|
(390.2
|
)
|
|
$
|
(459.6
|
)
|
|
Impact of ASU 2017-12 adoption
|
|
|
-
|
|
|
|
0.1
|
|
|
|
-
|
|
|
|
0.1
|
|
|
Other comprehensive income (loss) before reclassifications,
net of tax expense (benefit) of $ -, $5.9, ($1.1) and $4.8
|
|
|
3.4
|
|
|
|
(17.1
|
)
|
|
|
1.5
|
|
|
|
(12.2
|
)
|
|
Amounts reclassified from accumulated other
comprehensive (loss)
|
|
|
81.2
|
|
|
|
1.2
|
|
|
|
9.7
|
|
|
|
92.1
|
|
|
Net current period other comprehensive income (loss)
|
|
|
84.6
|
|
|
|
(15.9
|
)
|
|
|
11.2
|
|
|
|
79.9
|
|
|
Balance, September 30, 2019
|
|
$
|
9.9
|
|
|
$
|
(10.5
|
)
|
|
$
|
(379.0
|
)
|
|
$
|
(379.6
|
)
|
|
|
|
Foreign
Currency
Translation Adjustments
|
|
|
Derivative
Gain (1)
|
|
|
Pension and Postretirement Adjustments (1)
|
|
|
Total
Accumulated
Other
Comprehensive
(Loss) (1)
|
|
|
Balance, June 30, 2018
|
|
$
|
(62.0
|
)
|
|
$
|
10.0
|
|
|
$
|
(352.4
|
)
|
|
$
|
(404.4
|
)
|
|
Other comprehensive (loss) before reclassifications,
net of tax expense (benefit) of $ -, ($0.7), $0.1 and ($0.6)
|
|
|
(7.0
|
)
|
|
|
(0.7
|
)
|
|
|
(0.3
|
)
|
|
|
(8.0
|
)
|
|
Amounts reclassified from accumulated other
comprehensive (loss)
|
|
|
-
|
|
|
|
0.2
|
|
|
|
3.0
|
|
|
|
3.2
|
|
|
Net current period other comprehensive (loss) income
|
|
|
(7.0
|
)
|
|
|
(0.5
|
)
|
|
|
2.7
|
|
|
|
(4.8
|
)
|
|
Balance, September 30, 2018
|
|
$
|
(69.0
|
)
|
|
$
|
9.5
|
|
|
$
|
(349.7
|
)
|
|
$
|
(409.2
|
)
|
|
|
|
Foreign
Currency
Translation Adjustments
|
|
|
Derivative
Gain (1)
|
|
|
Pension and Postretirement Adjustments (1)
|
|
|
Total
Accumulated
Other
Comprehensive
(Loss) (1)
|
|
|
Balance, December 31, 2017
|
|
$
|
(47.1
|
)
|
|
$
|
3.5
|
|
|
$
|
(302.3
|
)
|
|
$
|
(345.9
|
)
|
|
Impact of ASU 2018-02 adoption
|
|
|
-
|
|
|
|
0.7
|
|
|
|
(55.0
|
)
|
|
|
(54.3
|
)
|
|
Other comprehensive (loss) income before reclassifications,
net of tax (benefit) expense of $ -, ($1.5), $0.3 and ($1.2)
|
|
|
(21.9
|
)
|
|
|
3.9
|
|
|
|
(1.2
|
)
|
|
|
(19.2
|
)
|
|
Amounts reclassified from accumulated other
comprehensive (loss)
|
|
|
-
|
|
|
|
1.4
|
|
|
|
8.8
|
|
|
|
10.2
|
|
|
Net current period other comprehensive (loss) income
|
|
|
(21.9
|
)
|
|
|
5.3
|
|
|
|
7.6
|
|
|
|
(9.0
|
)
|
|
Balance, September 30, 2018
|
|
$
|
(69.0
|
)
|
|
$
|
9.5
|
|
|
$
|
(349.7
|
)
|
|
$
|
(409.2
|
)
|
|
|
(1)
|
Amounts are net of tax
|
26
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
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
Derivative Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas commodity contracts
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
0.4
|
|
|
Cost of goods sold
|
|
Foreign exchange contracts - purchases
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Cost of goods sold
|
|
Foreign exchange contracts - sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.3
|
|
|
Net sales
|
|
Interest rate swap contracts
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
1.5
|
|
|
|
1.1
|
|
|
Interest expense
|
|
Total loss, before tax
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
1.5
|
|
|
|
1.8
|
|
|
|
|
Tax impact
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
(0.3
|
)
|
|
|
(0.4
|
)
|
|
Income tax expense
|
|
Total loss, net of tax
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Postretirement Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost amortization
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
Other non-operating (income), net
|
|
Amortization of net actuarial loss
|
|
|
2.7
|
|
|
|
3.6
|
|
|
|
8.0
|
|
|
|
10.8
|
|
|
Other non-operating (income), net
|
|
Total expense, before tax
|
|
|
2.6
|
|
|
|
3.6
|
|
|
|
7.9
|
|
|
|
10.8
|
|
|
|
|
Tax impact
|
|
|
(0.7
|
)
|
|
|
(0.8
|
)
|
|
|
(1.7
|
)
|
|
|
(2.3
|
)
|
|
Income tax expense
|
|
Total expense from continuing operations, net of tax
|
|
|
1.9
|
|
|
|
2.8
|
|
|
|
6.2
|
|
|
|
8.5
|
|
|
|
|
Total expense from discontinued operations, net of tax expense of $-, ($0.1), $- and ($0.1)
|
|
|
-
|
|
|
|
0.2
|
|
|
|
-
|
|
|
|
0.3
|
|
|
|
|
Adjustments related to Sale to Knauf (2)
|
|
|
3.5
|
|
|
|
-
|
|
|
|
3.5
|
|
|
|
-
|
|
|
|
|
Total expense, net of tax
|
|
|
5.4
|
|
|
|
3.0
|
|
|
|
9.7
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments related to
Sale to Knauf (2)
|
|
|
81.2
|
|
|
|
-
|
|
|
|
81.2
|
|
|
|
-
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
87.0
|
|
|
$
|
3.2
|
|
|
$
|
92.1
|
|
|
$
|
10.2
|
|
|
|
|
|
(2)
|
Represents estimated amounts reclassified out of Accumulated other comprehensive loss as of September 30, 2019 concurrent with the Sale and included as a component of (Loss) gain from disposal of discontinued operations on the Condensed Consolidated Statement of Earnings and Comprehensive Income. A portion of these amounts were included in our previously reported estimated loss on sale. See Note 5 for additional details.
|
NOTE 22. 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. While these expenditures are not typically material, the applicable regulatory requirements continually change and, as a result, we cannot predict with certainty the amount, nature or timing of future expenditures associated with environmental compliance.
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 Superfund and similar environmental laws at three domestically owned locations allegedly resulting from past industrial activity.
27
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
In each location, we are one of multiple 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 the St. Helens, OR site, the Macon, GA site and the Elizabeth City, NC site, each of which is summarized below. These efforts have included 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. As described below, the litigation matter in Oregon relating to the St. Helens, OR site was dismissed in the second quarter of 2019 in connection with our settlement with the State of Oregon. Other than disclosed below, we are unable to predict the outcome of these matters or the timing of any recoveries, whether through settlement or otherwise. We are also unable to predict the extent to which any recoveries might cover our final share of investigation and remediation 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.
In 2017 and 2018, we entered settlement agreements totaling $37.5 million with certain legacy insurance carriers to resolve ongoing litigation and recover fees and costs previously incurred by us in connection with certain environmental sites. These settlements were recorded as a $9.2 million reduction to cost of goods sold and a $28.3 million reduction to selling, general and administrative (“SG&A”) expenses reflecting the same income statement categories where environmental expenditures were historically recorded. All of these cash settlements have been released to us from escrow, including $6.5 million received in the first nine months of 2019. In the first nine months of 2019, we entered into one new settlement agreement for $1.7 million and received additional $0.2 million payments related to previous settlements with different carriers. These settlements were recorded as a $1.9 million reduction to SG&A expenses. We anticipate that we may enter into additional settlement agreements in the future, which may or may not be material, with other legacy insurers to obtain reimbursement or contribution for environmental site expenses.
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, our 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 reorganization upon the validity of the claim, if any.
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 facility, which was previously owned by Kaiser and then OC. The Consent Order required 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 required us, Kaiser and OC to conduct an RI/FS in the in-water area of the adjacent Scappoose Bay. On September 14, 2016, the parties submitted a Feasibility Study to the ODEQ proposing remedial action options for the Upland area.
On September 30, 2016, Kaiser filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Western District of North Carolina (Case No. 16-31602) (the “Bankruptcy Court”). AWI, OC and the ODEQ have all been included on the master list of potential creditors filed with the Bankruptcy Court for notice purposes. By order dated October 14, 2016, the Bankruptcy Court formed a statutory committee of unsecured creditors, to which we were appointed to serve, along with OC and The Boeing Company. Noticed parties submitted claims to the Bankruptcy Court on September 13, 2017.
In November 2017, we participated in voluntary mediation with ODEQ, OC and Kaiser to negotiate a resolution that would discharge Potentially Responsible Parties (“PRPs”) liability for the site. As a result of the mediation, on February 1, 2018, ODEQ issued a Public Notice and a proposed consent judgment (“Consent Judgment”) recommending that, in exchange for a release from ODEQ for all contamination claims against us, we would pay $8.6 million to the State of Oregon and perform a previously scoped remedial action for the Upland area. During the fourth quarter of 2017, we increased our reserve for environmental liabilities by $8.6 million as a result of this pending settlement with the State of Oregon.
Kaiser filed objections to the ODEQ proof of claim and AWI’s proof of claim and sought discovery related to the determination of costs incurred by the parties at the site. On November 26, 2018, Kaiser filed a complaint against AWI seeking monetary damages and declaratory relief including cost recovery and/or contributions from AWI in connection with the environmental costs incurred by Kaiser at St. Helens. On March 1, 2019, we entered into a settlement agreement with Kaiser resolving all claims between us. In exchange for a payment of $1.0 million, Kaiser agreed to withdraw its appeal of the automatic stay imposed by the bankruptcy as it
28
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
applies to the Consent Judgment, dismiss its complaint against AWI, and refrain from filing any objections to the Consent Judgment once filed with the Columbia County Circuit Court. The Bankruptcy Court approved our settlement with Kaiser on March 14, 2019. Our settlement with Kaiser was also conditioned on the effectiveness of a pending settlement between ODEQ and Kaiser, which was approved on May 2, 2019. Kaiser subsequently dismissed its complaints against us.
On April 5, 2018, ODEQ issued Public Notice of the Remedial Action for the Upland area and subsequently responded to public comments. On June 26, 2018, ODEQ published its Record of Decision confirming the selected remedial action required for the Upland area. The Consent Judgment was entered by the Columbia County Circuit Court on June 19, 2019. We completed the remedial action for the Upland area as set forth in the Record of Decision and negotiated work plan, and we submitted payment of $8.6 million payment to the State of Oregon in the third quarter of 2019. We will complete the final administrative steps required by the Consent Judgment in the fourth quarter of 2019. These steps will complete our obligations under the Consent Judgment and effectively resolve and conclude the matter with ODEQ.
Macon, GA
The U.S. Environmental Protection Agency (the “EPA”) has listed two landfills located on a portion of our 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 polychlorinated biphenyls (“PCBs”).
In September 2010, we entered into an Administrative Order on Consent for a Removal Action (the “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,” also known as “Operable Unit 1”). After completing an investigation of the WWTP Landfill and submitting our final Engineering Evaluation/Cost Analysis, the EPA issued an Action Memorandum in July 2013 selecting our recommended remedy for the Removal Action. The Operable Unit 1 response action for the WWTP Landfill is complete and the final report was submitted to the EPA on October 11, 2016. The EPA approved the final report on November 28, 2016, and a Post-Removal Control Plan (the “Plan”) was submitted to the EPA on March 28, 2017. That Plan will monitor the effectiveness of the WWTP Landfill response action and our estimate of future liabilities includes these tasks.
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 our property and Rocky Creek (the “Remaining Site,” also known as “Operable Unit 2”). On September 25, 2015, AWI and other PRPs received a Special Notice Letter from the EPA under CERCLA inviting AWI and the PRPs to enter into the negotiation of an agreement to conduct an RI/FS of Operable Unit 2. We and the other PRPs entered into a settlement agreement with the EPA effective September 18, 2018, in response to the Special Notice Letter to conduct the RI/FS. The PRPs submitted a complete RI/FS work plan in the second quarter of 2019, which EPA approved on September 11, 2019. While the investigative work on this portion of the site has not yet commenced, we anticipate that the EPA will require significant investigative work for Operable Unit 2 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 only our estimated share of the costs of the investigative work that, at this time, we anticipate the EPA will require the PRPs to perform. We are unable to reasonably estimate our 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” or “AWP”), 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. The EPA approved the RI/FS work plan in 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. In connection with the separation of AFI in 2016, we agreed to retain any legacy environmental liabilities associated with the AWP site. The EPA published an Interim Action Proposed Plan for the site in April 2018 seeking public comment through June 7, 2018. The EPA has evaluated comments, including ours, and has published its Interim Record Of Decision selecting an interim
29
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
cleanup approach. On September 25, 2018, AWI and CBS received a Special Notice Letter from the EPA under CERCLA inviting AWI and CBS to enter into the negotiation of a settlement agreement to conduct or finance the response action at the site. During the third quarter of 2018, we increased our reserve for the cost of the interim cleanup, which we expect to be shared with CBS and the Navy. In response to the September 2018 Special Notice Letter, AWI and CBS submitted a good faith offer to EPA on May 28, 2019.
Summary of Financial Position
Total liabilities of $2.1 million as of September 30, 2019 and $12.4 million as of December 31, 2018 were recorded for environmental liabilities that we consider probable and for which a reasonable estimate of the probable liability could be made. As of September 30, 2019 and December 31, 2018, $0.6 million and $0.7 million, respectively, were reflected within Accounts payable and accrued expenses with respect to environmental liabilities. During the three months ended September 30, 2019, we did not record any additional reserves for environmental liabilities. During the nine months ended September 30, 2019 we recorded $1.0 million of additional reserves. During the three and nine months ended September 30, 2018, we recorded $0.5 million of additional reserves for environmental liabilities. 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 and adjusted to reflect amounts actually incurred and paid. These liabilities are undiscounted.
The estimated liabilities above do not take into account any claims for recoveries from insurance or third parties. It is our policy to record insurance recoveries as assets in the Condensed Consolidated Balance Sheets when probable. For insurance recoveries that are reimbursements of prior environmental expenditures, the income statement impact is recorded within cost of goods sold and SG&A expenses, which are the same income statement categories within which environmental expenditures were historically recorded. Insurance recoveries in excess of historical environmental spending are recorded on the balance sheet as a part of other long-term liabilities and released as future environmental spending occurs or the liability is settled.
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
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, 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 the first nine months of 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 other 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.
30
Armstrong World Industries, Inc., and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(dollar amounts in millions, except share data)
NOTE 23. EARNINGS PER SHARE
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 and nine months ended September 30, 2019 and 2018. Earnings per share (“EPS”) components may not add due to rounding.
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Earnings from continuing operations
|
|
$
|
90.7
|
|
|
$
|
64.2
|
|
|
$
|
190.8
|
|
|
$
|
153.0
|
|
|
Earnings allocated to participating non-vested share awards
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.4
|
)
|
|
|
(0.5
|
)
|
|
Earnings from continuing operations attributable to common shares
|
|
$
|
90.5
|
|
|
$
|
64.0
|
|
|
$
|
190.4
|
|
|
$
|
152.5
|
|
The following table is a reconciliation of basic shares outstanding to diluted shares outstanding for the three and nine months ended September 30, 2019 and 2018 (shares in millions):
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Basic shares outstanding
|
|
|
48.7
|
|
|
|
50.7
|
|
|
|
48.8
|
|
|
|
51.9
|
|
|
Dilutive effect of common stock equivalents
|
|
|
0.8
|
|
|
|
1.2
|
|
|
|
0.8
|
|
|
|
0.9
|
|
|
Diluted shares outstanding
|
|
|
49.5
|
|
|
|
51.9
|
|
|
|
49.6
|
|
|
|
52.8
|
|
Anti-dilutive stock awards excluded from the computation of diluted EPS for the three and nine months ended September 30, 2019 were 549 and 10,313, respectively. There were no anti-dilutive stock awards excluded from the computation of diluted EPS for the three and nine months ended September 30, 2018.
31