Discontinued Operations

9 Months Ended

Sep. 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.

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	)

	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	)