NOTE 4. ACQUISITION AND DISCONTINUED OPERATIONS

Acquisition of Plasterform

On May 31, 2018, we acquired the business and assets of Plasterform. The $11.6 million purchase price, which is subject to customary working capital adjustments, 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 fair value of tangible assets acquired, less liabilities assumed, was $2.0 million. The total fair value of identifiable intangible assets acquired, comprised of amortizable customer relationships was $4.0 million, resulting in $5.6 million of goodwill. These amounts are subject to adjustment as our purchase accounting analysis is completed.

Acquisition of Tectum

In January 2017, we acquired the business and assets of Tectum. The $31.2 million purchase price 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, was $4.4 million. The total fair value of intangible assets acquired, comprised of amortizable customer relationships and non-amortizing brand names, was $16.0 million, resulting in $10.8 million of goodwill.

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. Pursuant to the Purchase Agreement, prior to the closing, we and Knauf will enter into (i) an agreement relating to the mutual supply of certain products after the closing, (ii) an agreement relating to the use of certain intellectual property by Knauf after the closing, including the Armstrong trade name and (iii) an agreement relating to certain transition services to be provided by AWI to Knauf after closing for a period of up to one year. WAVE and Knauf will also enter into similar agreements for such purposes.

As of June 30, 2018, based on anticipated net sales proceeds to be received from Knauf, the fair value of EMEA and Pacific Rim net assets are less than their carrying value. As a result, we recorded impairment charges of $5.7 million and $23.4 million during the three and six months ended June 30, 2018. Impairment charges for the three and six months ended June 30, 2018 included $19.1 million and $13.9 million, respectively, of unfavorable AOCI adjustments, in addition to increases in EMEA and Pacific Rim net assets since December 31, 2017. During the fourth quarter of 2017 we recorded an impairment charge of $74.0 million, which included $51.4 million of AOCI adjustments. These AOCI adjustments related to accumulated foreign currency translation amounts that will be subsequently reclassified to earnings from discontinued operations upon sale of our EMEA and Pacific Rim businesses.

FLOORING BUSINESSES

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 provided various services to each other during a transition period that expired on December 31, 2017.

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.

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.

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 June 30, 2018:
Net sales	$	114.6		$	-		$	114.6
Cost of goods sold		87.3			-			87.3
Gross profit		27.3			-			27.3
Selling, general and administrative expenses		19.7			-			19.7
Operating income		7.6			-			7.6
Interest expense		0.5			-			0.5
Other non-operating expense, net		1.4			-			1.4
Earnings from discontinued operations before income tax		5.7			-			5.7
Income tax expense		0.2			-			0.2
Net earnings from discontinued operations, net of tax	$	5.5		$	-		$	5.5

(Loss) on disposal of discontinued businesses, before income tax	$	(5.7	)	$	-		$	(5.7	)
Income tax expense		-			0.1			0.1
(Loss) on disposal of discontinued businesses, net of tax	$	(5.7	)	$	(0.1	)	$	(5.8	)

Net (loss) from discontinued operations	$	(0.2	)	$	(0.1	)	$	(0.3	)

	EMEA and Pacific Rim Businesses			Flooring Businesses			Total
Six months ended June 30, 2018:
Net sales	$	219.0		$	-		$	219.0
Cost of goods sold		165.1			-			165.1
Gross profit		53.9			-			53.9
Selling, general and administrative expenses		41.7			-			41.7
Operating income		12.2			-			12.2
Interest expense		0.9			-			0.9
Other non-operating expense, net		0.2			-			0.2
Earnings from discontinued operations before income tax		11.1			-			11.1
Income tax expense		1.7			-			1.7
Net earnings from discontinued operations, net of tax	$	9.4		$	-		$	9.4

(Loss) on disposal of discontinued businesses, before income tax	$	(23.4	)	$	-		$	(23.4	)
Income tax (benefit)		-			(0.3	)		(0.3	)
(Loss) on disposal of discontinued businesses, net of tax	$	(23.4	)	$	0.3		$	(23.1	)

Net (loss) income from discontinued operations	$	(14.0	)	$	0.3		$	(13.7	)

	EMEA and Pacific Rim Businesses			Flooring Businesses			Total
Three months ended June 30, 2017:
Net sales	$	105.2		$	-		$	105.2
Cost of goods sold		84.4			-			84.4
Gross profit		20.8			-			20.8
Selling, general and administrative expenses		19.5			-			19.5
Operating income		1.3			-			1.3
Interest expense		0.3			-			0.3
Other non-operating (income), net		(0.5	)		-			(0.5	)
Earnings from discontinued operations before income tax		1.5			-			1.5
Income tax expense		3.7			-			3.7
(Loss) from discontinued operations, net of tax	$	(2.2	)	$	-		$	(2.2	)

(Loss) on disposal of discontinued businesses, before income tax	$	-		$	-		$	-
Income tax expense		-			0.2			0.2
(Loss) on disposal of discontinued business, net of tax	$	-		$	(0.2	)	$	(0.2	)

Net (loss) from discontinued operations	$	(2.2	)	$	(0.2	)	$	(2.4	)

	EMEA and Pacific Rim Businesses			Flooring Businesses			Total
Six months ended June 30, 2017:
Net sales	$	200.8		$	-		$	200.8
Cost of goods sold		164.1			-			164.1
Gross profit		36.7			-			36.7
Selling, general and administrative expenses		37.6			-			37.6
Operating (loss)		(0.9	)		-			(0.9	)
Interest expense		0.6			-			0.6
Other non-operating (income), net		(1.1	)		-			(1.1	)
(Loss) from discontinued operations before income tax		(0.4	)		-			(0.4	)
Income tax expense		6.5			-			6.5
(Loss) from discontinued operations, net of tax	$	(6.9	)	$	-		$	(6.9	)

(Loss) on disposal of discontinued businesses, before income tax	$	-		$	(0.1	)	$	(0.1	)
Income tax expense		-			0.5			0.5
(Loss) on disposal of discontinued business, net of tax	$	-		$	(0.6	)	$	(0.6	)

Net (loss) from discontinued operations	$	(6.9	)	$	(0.6	)	$	(7.5	)

The following is a summary of the carrying amount of major classes of assets and liabilities classified as assets and liabilities of discontinued operations as of June 30, 2018 and December 31, 2017 related to our EMEA and Pacific Rim businesses.

	June 30, 2018		December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	10.0	$	-
Accounts and notes receivable, net		62.4		61.4
Inventories, net		71.0		59.2
Income tax receivable		5.3		3.1
Other current assets		8.8		12.9
Total current assets discontinued operations		157.5		136.6
Property, plant, and equipment, less accumulated depreciation and amortization ^{(1) (2)}		103.4		131.3
Prepaid pension costs ⁽¹⁾		26.2		26.1
Goodwill and intangible assets, net ⁽¹⁾		7.1		7.2
Deferred income taxes ⁽¹⁾		2.7		4.0
Other non-current assets ⁽¹⁾		1.0		0.9
Total non-current assets of discontinued operations ⁽¹⁾		140.4		169.5
Total assets of discontinued operations ⁽¹⁾	$	297.9	$	306.1
Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	70.6	$	78.6
Income tax payable		2.8		1.3
Total current liabilities		73.4		79.9
Pension benefit liabilities ⁽³⁾		34.4		34.7
Other long-term liabilities ⁽³⁾		1.7		1.8
Deferred income taxes ⁽³⁾		5.4		12.1
Total non-current liabilities of discontinued operations ⁽³⁾		41.5		48.6
Total liabilities of discontinued operations ⁽³⁾	$	114.9	$	128.5

(1)

Presented as Current assets of discontinued operations on the Condensed Consolidated Balance Sheets.

(2)

Includes pre-tax impairment charge of $23.4 million recorded in the first six months of 2018 and $74.0 million recorded in the fourth quarter of 2017.

(3)

Presented as Current liabilities of discontinued operations on the Condensed Consolidated Balance Sheets.

The following is a summary of total depreciation and amortization and capital expenditures presented as discontinued operations and included as components of operating and investing cash flows on our Condensed Consolidated Statements of Cash Flows:

	EMEA and Pacific Rim Businesses
Three months ended June 30, 2018:
Fixed asset impairment		5.7
Purchases of property, plant and equipment		(2.0	)

Six months ended June 30, 2018:
Fixed asset impairment		23.4
Purchases of property, plant and equipment		(3.2	)

Three months ended June 30, 2017:
Depreciation and amortization		5.6
Purchases of property, plant and equipment		(2.9	)

Six months ended June 30, 2017:
Depreciation and amortization		10.8
Purchases of property, plant and equipment		(6.8	)