NOTE 3. ACQUISITION AND DISCONTINUED OPERATIONS

Acquisition of Tectum

On January 13, 2017, in connection with the acquisition of Tectum, the $31.4 million purchase price for Tectum was allocated to the tangible and intangible 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, in connection with the Tectum acquisition was $5.9 million. The total fair value of intangible assets acquired, comprised of amortizable customer relationships and non-amortizing brand names, was $16.5 million, resulting in $9.0 million of goodwill. All of the acquired goodwill is deductible for tax purposes.

Separation and Distribution of AFI

On April 1, 2016, in connection with the separation and distribution of AFI, we entered into several agreements with AFI that, together with a plan of division, provide for the separation and allocation between AWI and AFI of the flooring assets, employees, liabilities and obligations of AWI and its subsidiaries attributable to periods prior to, at and after AFI’s separation from AWI, and govern the relationship between AWI and AFI subsequent to the completion of the separation and distribution. These agreements include a Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement, a Trademark License Agreement, a Transition Trademark License Agreement and a Campus Lease Agreement. Under the Transition Services Agreement, AWI and AFI will provide various services to each other during a transition period expiring no later than December 31, 2017. We do not expect to extend the Transition Services Agreement beyond December 31, 2017.

The following is a summary of the results of operations related to AFI, our former Resilient Flooring and Wood Flooring segments, which are presented as discontinued operations.

	Six Months Ended
	June 30,
	2016
Net sales	$	284.4
Cost of goods sold		237.2
Gross profit		47.2
Selling, general and administrative expenses		50.5
Operating (loss)		(3.3	)
Other non-operating expense, net		1.1
(Loss) from discontinued operations before income taxes		(4.4	)
Income tax expense		0.1
(Loss) from discontinued operations	$	(4.5	)

The following is a summary of total depreciation and amortization and capital expenditures related to AFI which are presented as discontinued operations and included as components of operating and investing cash flows on our consolidated statements of cash flows:

	Six Months Ended
	June 30,
	2016
Depreciation and amortization	$	11.4
Purchases of property, plant and equipment		(12.1	)

European Resilient Flooring

On December 4, 2014, our Board of Directors approved the cessation of funding to our DLW subsidiary, which at that time was our European flooring business. As a result, DLW management filed for insolvency in Germany on December 11, 2014. The German insolvency court subsequently appointed an administrator (the “Administrator”) to oversee DLW operations.

As of December 4, 2014, DLW had a net liability of $12.9 million, representing assets of $151.9 million and liabilities of $164.8 million, which were removed from our balance sheet. This net liability was recognized as a contingent liability on our consolidated balance sheet pending the closure of the insolvency proceeding. The net liability, included within Accounts payable and accrued expenses on our Condensed Consolidated Balance Sheets, was $11.9 million as of March 31, 2017. In April 2017, we entered into a settlement agreement and mutual release with the Administrator on behalf of the DLW estate to settle all claims of the Administrator related to the insolvency for a cash payment of $11.8 million. DLW was previously shown within our Resilient Flooring reporting segment.

The following is a summary of the results related to the flooring businesses which are included in discontinued operations.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Gain (loss) on disposal of discontinued business before income tax	$	-		$	0.2		$	(0.1	)	$	0.1
Income tax expense (benefit)		0.2			(0.1	)		0.5			(1.9	)
Net (loss) gain on disposal of discontinued business	$	(0.2	)	$	0.3		$	(0.6	)	$	2.0