What changed in this filing

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Item 1. Financial Statements

2021-04-27 compared with 2020-10-27 · 220 added, 566 removed, 529 unchanged (60% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of goods sold

Selling, general and administrative expenses

Gain related to sale of fixed and intangible assets

Equity earnings from joint venture

5 unchanged sentences

Earnings (loss) from continuing operations

Net earnings from discontinued operations, net of tax

expense of $ -, $ 2.5 , $ - and $ 7.2

(Loss) from disposal of discontinued businesses, net of tax

(benefit) of $ -, ($ 5.0 ), ($ 1.4 ) and ($ 4.9 )

(Loss) from disposal of discontinued businesses, net of tax expense (benefit) of $ 1.7 and

Net (loss) from discontinued operations

Net earnings (loss)

Other comprehensive (loss) income, net of tax:

Other comprehensive income, net of tax:

Foreign currency translation adjustments

1 unchanged sentence

Pension and postretirement adjustments

Total other comprehensive (loss) income

Total other comprehensive income

Total comprehensive income

Earnings (loss) per share of common stock, continuing operations:

Earnings (loss) per share of common stock, discontinued operations:

(Loss) per share of common stock, discontinued operations:

Net earnings (loss) per share of common stock:

4 unchanged sentences

(amounts in millions, except share and per share data)

September 30, 2020

March 31, 2021

December 31, 2020

13 unchanged sentences

Intangible assets, net

Deferred income taxes

Income taxes receivable

19 unchanged sentences

Common stock, $ 0.01 par value per share, 200 million shares authorized, 62,639,609

shares issued and 47,859,751 shares outstanding as of September 30, 2020 and

shares issued and 47,828,464 shares outstanding as of March 31, 2021 and

62,599,331 shares issued and 47,913,821 shares outstanding as of December 31, 2020

1 unchanged sentence

Retained earnings

Treasury stock, at cost, 14,653,217 shares as of September 30, 2020 and 14,271,047

Treasury stock, at cost, 14,811,145 shares as of March 31, 2021 and 14,685,510

shares as of December 31, 2020

6 unchanged sentences

(amounts in millions, except share data)

Three Months Ended September 30, 2020

Treasury Stock

Comprehensive

June 30, 2020

Stock issuance, net

Cash dividends - $ 0.20 per common share

Share-based employee compensation

Other comprehensive (loss)

September 30, 2020

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Treasury Stock

6 unchanged sentences

Acquisition of treasury stock

September 30, 2020

Three Months Ended September 30, 2019

Treasury Stock

Comprehensive

June 30, 2019

Stock issuance, net

Cash dividends - $ 0.175 per common share

Share-based employee compensation

Other comprehensive income

Acquisition of treasury stock

September 30, 2019

Nine Months Ended September 30, 2019

March 31, 2021

Three Months Ended March 31, 2020

Treasury Stock

1 unchanged sentence

December 31, 2019

Cumulative effect impact of ASU 2017-12

Stock issuance, net

3 unchanged sentences

Acquisition of treasury stock

September 30, 2019

March 31, 2020

See accompanying notes to Condensed Consolidated Financial Statements beginning on page 9.

2 unchanged sentences

(amounts in millions)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

Net (loss) earnings

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:

Net earnings (loss)

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

Depreciation and amortization

Loss on disposal of discontinued operations

Write-off debt refinancing fees

Gain related to sale of fixed and intangible assets

Deferred income taxes

Share-based compensation

Loss on disposal of discontinued operations

Equity earnings from joint venture

pension cost (credit)

Other non-cash adjustments, net

7 unchanged sentences

Return of investment from joint venture

Cash paid for acquisitions

Proceeds from the sale of assets

Payments of proceeds from Knauf to investment in joint venture

Payments to Knauf upon disposal of discontinued operations

Other investing activities

Net cash (used for) investing activities

Net cash (used for) provided by investing activities

Cash flows from financing activities:

Proceeds from short-term debt

Payments of short-term debt

Payments for finance leases

Proceeds from revolving credit facility

Payments of revolving credit facility

Proceeds from long-term debt

Payments of long-term debt

Financing costs

Dividend paid

Payments from share-based compensation plans, net of tax

Dividends paid

Proceeds from share-based compensation plans, net of tax

Payments for treasury stock acquired

Payments for finance leases

Net cash (used for) financing activities

Net cash (used for) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year of discontinued operations

Cash and cash equivalents at beginning of year of continuing operations

Cash and cash equivalents at end of period of continuing operations

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of period

Supplemental Cash Flow Disclosures:

11 unchanged sentences

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, 2020.

These statements should therefore be read in conjunction with the Consolidated Financial Statements and notes that are included in the Amendment No.

1 to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2019.

These statements should therefore be read in conjunction with the Consolidated Financial Statements and notes that are included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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 2020 and 2019 included in this report are unaudited.

Operating results for the first quarter of 2021 and 2020 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.

6 unchanged sentences

Certain prior year amounts have been reclassified in the Condensed Consolidated Financial Statements to conform to the 2021 presentation.

In December 2020, we acquired all of the issued and outstanding equity of Arktura LLC (“Arktura”) and certain subsidiaries with operations in the United States and Argentina.

Arktura is a designer and fabricator of metal and felt ceilings, walls, partitions and facades with one manufacturing facility based in Los Angeles, California.

In August 2020, we acquired the business and assets of Moz Designs, Inc.

1 unchanged sentence

Moz is a designer and fabricator of custom architectural metal ceilings, walls, dividers and column covers for interior and exterior applications with one manufacturing facility.

Moz’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.

In July 2020, we acquired all the issued and outstanding capital stock of TURF Design, Inc.

1 unchanged sentence

Turf is a designer and manufacturer of acoustic felt ceilings and wall products.

Turf’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.

In November 2019, we acquired the business and assets of MRK Industries, Inc.

(“MRK”), based in Libertyville, Illinois.

MRK is a manufacturer of specialty metal ceiling, wall and exterior solutions with one manufacturing facility.

MRK’s operations, and its assets and liabilities, are included as a component of our Architectural Specialties segment.

In March 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.

The operations, assets and liabilities of these acquisitions are included in our Architectural Specialties segment.

See Note 4 for further information on our recent acquisitions.

Discontinued Operations

On September 30, 2019, we completed the 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.

In 2019, we completed the 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 2018 and was 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 three and nine months ended September 30, 2020, we remitted $ 5.9 and $ 25.9 million, respectively, to WAVE for their portion of the proceeds from Knauf.

During the nine months ended September 30, 2020, WAVE paid each of AWI and Worthington dividends of $ 13.0

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

million relating to these payments.

During the third quarter of 2020, we remitted $ 6.4 million to Knauf for working capital and other adjustments .

Final adjustments are subject to negotiations with Knauf related to the valuation of certain liabilities included in the Sale , which we expect to be finalized in 2020.

The final valuation could result in an increase to those liabilities of $ 11.0 million ;

however, we have no t accrued a liability for this matter as of September 30, 2020 as payment is not probable .

In 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 provided certain transition technology, finance and information technology support services, which are now substantially complete.

In connection with the closing of the Sale, we also entered into (i) a royalty-free intellectual property License Agreement with Knauf under which they license patents, trademarks and know-how from us for use in licensed territories in which the business was conducted prior to the Sale, 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 term of the granted licenses, with respect to each intellectual property right, extend until the expiration or abandonment of each such intellectual property right.

The EMEA and Pacific Rim segment historical financial results for the three and nine months ended September 30, 2019 have been reflected in AWI’s Condensed Consolidated Statements of Operations and Comprehensive Income as discontinued operations, while the assets and liabilities of discontinued operations were removed from AWI’s Condensed Consolidated Balance Sheet as of September 30, 2019.

In January 2021, we finalized the post-closing adjustments to purchase price related to certain pension liabilities assumed by Knauf in the Sale.

During the first quarter of 2021, we paid $ 11.8 million to Knauf related to this purchase price adjustment.

See Note 5 for additional information related to our discontinued operations.

Recently Adopted 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 uses historical and current information to estimate the amount of probable credit losses in our existing accounts receivable balances.

Effective January 1, 2020, we adopted this standard, which had no material impact on our financial condition, results of operations or 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 recognizes an impairment charge for the amount by which the carrying value of the reporting unit goodwill exceeds the fair value.

Effective January 1, 2020, we adopted this standard prospectively.

Our adoption of this standard had no impact on our financial condition or results of operations.

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.

Effective January 1, 2020, we adopted this standard, which resulted in additional disclosures for level 3 fair value measurements.

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.

Effective January 1, 2020, we adopted this standard prospectively.

Our adoption of this standard h ad no material impact on our financial condition, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) and other interbank offered rates.

This guidance is effective through December 31, 2022.

Effective the second quarter of 2020 we adopted this standard, which had no impact on our financial condition, results of operations and cash flows.

Recently Issued Accounting Standards

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

Armstrong World Industries, Inc., and Subsidiaries

1 unchanged sentence

(dollar amounts in millions, except share data)

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 December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which removes exceptions to the general principles in ASC Topic 740 – Income Taxes for allocating tax expense between financial statement components, accounting basis differences resulting from an ownership change in foreign investments and interim period income tax accounting for year-to-date losses that exceed projected losses.

This guidance is effective for fiscal years beginning after December 15, 2020.

We are evaluating the impact the adoption of this standard will have on our financial condition and results of operations.

basis differences resulting from an ownership change in foreign investments and interim period income tax accounting for year-to-date losses that exceed projected losses.

Effective January 1, 202 1 , we adopted this standard, which had no material impact on our financial condition or results of operations.

COVID-19 Considerations

3 unchanged sentences

government actions taken in response to the pandemic;

the availability and distribution of vaccinations;

the impact on construction activity;

4 unchanged sentences

states and by individual countries in the Americas.

We did not record any asset impairments, inventory charges or bad debt reserves related to COVID-19 during the third quarter and first nine months of 2020 but future events may require such charges, which could have a material adverse effect on our financial condition, liquidity or results of operations.

We did not record any asset impairments, inventory charges or material bad debt reserves related to COVID-19 during the first quarters of 2021 and 2020 but future events may require such charges, which could have a material adverse effect on our financial condition, liquidity or results of operations.

SEGMENT RESULTS

Three Months Ended

Nine Months Ended

September 30,

Mineral Fiber

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Segment operating income (loss)

3 unchanged sentences

Total consolidated operating income

The Architectural Specialties operating loss for the three months ended March 31, 2021 was driven by intangible asset amortization and other acquisition-related expenses related to our acquisitions of Turf, Moz and Arktura in 2020.

See Note 4 for additional information related to our acquisitions.

Three Months Ended

Nine Months Ended

September 30,

Total consolidated operating income

2 unchanged sentences

Earnings (loss) from continuing operations before income taxes

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

September 30, 2020

March 31, 2021

December 31, 2020

4 unchanged sentences

Total consolidated assets

During the three and nine months ended September 30, 2020, we recorded a gain related to the sale of our idled mineral fiber plant in China.

We received the majority of the proceeds in the third quarter of 2020 and the remaining receivable for the sale was $ 2.4 million as of September 30, 2020.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

Revenue Recognition

30 unchanged sentences

Net sales by major customer channel are as follows:

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.

7 unchanged sentences

Geographically, this category includes sales throughout the U.S.

The following tables provide net sales by major customer group within our Mineral Fiber and Architectural Specialties segments for the three and nine months ended September 30, 2020 and 2019:

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

The following tables provide net sales by major customer group within our Mineral Fiber and Architectural Specialties segments for the three months ended March 31, 2021 and 2020:

Three Months Ended

Nine Months Ended

September 30,

Mineral Fiber

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Architectural Specialties

1 unchanged sentence

Retailers and other

We account for acquisitions under the acquisition method and the results of operations of acquired operations are included in the condensed consolidated financial statements from the acquisition date.

We account for acquisitions under the acquisition method and the results of acquired operations are included in the Condensed Consolidated Financial Statements from the acquisition date.

Acquisition-related costs are expensed as incurred.

We allocate total consideration to the assets acquired and liabilities assumed based on their estimated fair values, with the remaining unallocated amount recorded as goodwill.

Our definite-lived intangible assets, and adjustments to the fair value of assets acquired and/or liabilities assumed, are amortized over the estimated useful life on a straight-line basis and recorded as a component of operating income (expense).

The fair value of acquired intangible assets is estimated by applying discounted cash flow models based on significant level 3 inputs not observable in the market.

Key assumptions are developed based on each acquirees’ historical experience, future projections and comparable market data including future cash flows, long-term growth rates, implied royalty rates, attrition rates and discount rates.

On August 24, 2020, we acquired the business and assets of Moz for a purchase price of $ 4.2 million and additional contingent consideration payable in 2022 not to exceed $ 4.7 million.

The total fair value of liabilities assumed, less tangible assets acquired, was $ 0.5 million.

The total fair value of identifiable intangible assets acquired was $ 3.2 million, comprised of non-amortizable tradenames of $ 1.7 million and amortizable customer relationships of $ 1.5 million, resulting in $ 4.0 million of goodwill.

All of the acquired goodwill is deductible for tax purposes .

The fair value of liabilities assumed included $ 2.5 million for contingent consideration.

Valuations for assets acquired and liabilities assumed are based on preliminary estimates that are subject to revisions and may result in adjustments to preliminary values as valuations are finalized.

The contingent consideration is payable upon achievement of certain future performance objectives through 2021.

The fair value of contingent consideration will be remeasured at each reporting period, and any future adjustments will be recorded as a component of

Acquisition-related contingent consideration that is classified as a liability is measured at fair value at the acquisition date.

Changes in the fair value of contingent consideration liabilities recorded in reporting periods after the acquisition date are recorded within selling, general and administrative (“SG&A”) expenses on our Condensed Consolidated Statements of Operations and Comprehensive Income.

On December 16, 2020, we acquired all the issued and outstanding equity of Arktura LLC (“Arktura”) and its subsidiaries with operations in the United States and Argentina for $ 90.9 million of cash paid at closing, net of $ 0.5 million of cash acquired, subject to customary post-closing adjustments for working capital.

A portion of the cash consideration paid at closing is being held in escrow to secure potential claims for indemnification under the agreement.

Under the terms of the agreement, and contingent upon continued employment with AWI, we are obligated to pay the sellers an additional $ 24.0 million in cash payments over a period of five years and issued an additional $ 6.0 million of restricted stock which will vest over a period of five years .

Contingent upon employment with AWI, we also issued an additional $ 1.4 million of restricted stock to key Arktura employees which will vest over a period of three years .

Compensation expense associated with these cash payments and restricted stock awards will be recorded over the required service and vesting periods.

Armstrong World Industries, Inc., and Subsidiaries

1 unchanged sentence

(dollar amounts in millions, except share data)

selling, general and administrative (“SG&A”) expenses in our Condensed Consolidated Statements of Operations and Comprehensive Income.

On July 27, 2020, we acquired all the issued and outstanding capital stock of Turf for a purchase price of $ 70.0 million and additional contingent consideration payable in 2022 and 2023 not to exceed $ 48.0 million.

The total fair value of tangible assets acquired, less liabilities assumed, was $ 1.8 million.

The total fair value of identifiable intangible assets acquired was $ 27.9 million, mostly comprised of non-amortizable tradenames of $ 9.6 million in addition to amortizable customer relationships of $ 7.7 million, patents of $ 5.8 million and a non-compete agreement of $ 3.3 million, resulting in $ 50.7 million of goodwill.

All of the acquired goodwill is deductible for tax purposes .

The fair value of liabilities assumed included $ 13.4 million for contingent consideration.

The acquisition resulted in $ 56.6 million of goodwill.

The following table summarizes the fair value s of identifiable intangible assets acquired , and their estimated useful lives:

Fair Value at Acquisition Date

Estimated Useful Life

Customer relationships

Non-compete agreements

Total identifiable intangible assets

Valuations for assets acquired and liabilities assumed are based on provisional estimates.

We will continue to evaluate the fair value of assets acquired and liabilities assumed related to the acquisition.

Additional information, which existed as of the acquisition date, but was at that time unknown to us, may become known during the remainder of the measurement period.

Changes to amounts recorded may result in a corresponding adjustment to these assets and liabilities, including goodwill.

The determination of the estimated fair values of all assets acquired and liabilities assumed is expected to be completed within one year from the date of acquisition.

In connection with the Arktura acquisition, we formed Arktura Ventures LLC, an incubator entity for the development and commercialization of new products and solutions in the architecture, engineering and construction space.

As of March 31, 2021, the venture entity had no funding or operations.

On August 24, 2020, we acquired the business and assets of Moz for $ 4.2 million of cash paid at closing and the potential for a contingent earn out payable in 2022 not to exceed $ 4.7 million.

We, with the assistance of an independent, third-party valuation specialist, utilized a Monte Carlo simulation to determine the estimated fair value of the contingent consideration at the acquisition date of $ 2.7 million, resulting in total acquisition consideration of $ 6.9 million.

The contingent consideration is payable upon achievement of certain future performance objectives through December 31, 2021.

See Note 15 for details related to the fair value of contingent consideration.

On July 27, 2020, we acquired all the issued and outstanding capital stock of Turf for a purchase price of $ 70.0 million of cash paid at closing and the potential for a contingent earn out payable in 2022 and 2023 not to exceed $ 48.0 million.

We, with the assistance of an independent, third-party valuation specialist, utilized a Monte Carlo simulation to determine the estimated fair value of the contingent consideration at the acquisition date of $ 14.1 million, resulting in total acquisition consideration of $ 84.1 million.

The contingent consideration is payable upon achievement of certain future performance objectives through 2022.

The contingent consideration includes up to $ 24.0 million in additional cash consideration for performance at certain revenue and EBITDA growth targets.

Full payout for target performance requires compounded annual growth rates in excess of 23 % through 2022.

The contingent consideration includes up to $ 24.0 million in additional cash consideration for performance at certain revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) growth targets.

Full payout for target performance requires compounded annual growth rates in excess of 23 % through December 31, 2022.

The contingent consideration also includes up to $ 24.0 million in additional cash consideration for performance over revenue and EBITDA growth targets.

Full payout for achievement over target performance requires compounded annual growth rates in excess of 38 % through 2022.

The fair value of contingent consideration will be remeasured at each reporting period, and any future adjustments will be recorded as a component of SG&A expenses in our Condensed Consolidated Statements of Operations and Comprehensive Income.

On November 25, 2019, we acquired the business and assets of MRK for a purchase price of $ 13.3 million.

The total fair value of tangible assets acquired, less liabilities assumed, was $ 2.9 million, resulting in $ 10.4 million of goodwill.

All of the acquired goodwill is deductible for tax purposes .

On March 4, 2019, we acquired the business and assets of ACGI for a purchase price of $ 42.9 million.

The total fair value of tangible assets acquired, less liabilities assumed, was $ 7.3 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 $ 23.6 million of goodwill.

All of the acquired goodwill is deductible for tax purposes .

The 2020 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, 2020 and 2019.

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.

During the three and nine months ended September 30, 2019, we recorded a loss on sale of $ 27.3 million and $ 31.9 million, respectively.

During the three and nine months ended September 30, 2020, we recorded a loss of $ 0.2 million and $ 5.2 million, respectively, representing working capital and other adjustments.

See Note 1 for further discussion of the Sale.

Full payout for achievement over target performance requires compounded annual growth rates in excess of 38 % through December 31, 2022.

Armstrong World Industries, Inc., and Subsidiaries

1 unchanged sentence

(dollar amounts in millions, except share data)

FLOORING BUSINESSES

Separation and Distribution of AFI

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.

European Resilient Flooring

During the second quarter of 2020, we recorded a gain of $ 0.8 million related to Accumulated Other Comprehensive Income (“AOCI”) adjustments from a previously discontinued foreign flooring entity, which was dissolved in the second quarter of 2020.

The AOCI adjustments related to accumulated foreign currency translation amounts.

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 Operations and Comprehensive Income.

PRO FORMA FINANCIAL INFORMATION

The following table summarizes aggregate unaudited pro forma information assuming the acquisitions of Arktura, Moz and Turf had occurred on January 1, 2020.

The unaudited pro forma results include the depreciation and amortization associated with the acquired assets, compensation expense related to cash payments and equity awards granted to employees of the acquired companies and adjustments to net sales for the purchase accounting effects of recording deferred revenue at fair value.

In addition, the unaudited pro forma results do not include any expected benefits of the acquisitions.

Accordingly, the unaudited pro forma results are not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of January 1, 2020.

Three Months Ended March 31,

Net sales from continuing operations, pro forma

Net sales from continuing operations, as reported

Net earnings (loss) from continuing operations, pro forma

Net earnings (loss) from continuing operations, as reported

For the three months ended March 31, 2021, net sales of $ 16.5 million and a pre-tax net loss of $ 5.7 million from Arktura, Moz and Turf were included in our Condensed Consolidated Statements of Operations and Comprehensive Income.

DISCONTINUED OPERATIONS

EMEA AND PACIFIC RIM BUSINESSES

Three Months Ended September 30, 2020

In 2019, we completed the sale of certain subsidiaries comprising our businesses in EMEA and the Pacific Rim to Knauf.

During the three months ended March 31, 2021, we recorded a loss on sale of $ 0.4 million for final purchase price adjustments related to certain pension liabilities included in the Sale.

During the three months ended March 31, 2020, we recorded a loss on sale of $ 5.0 million representing working capital and other adjustments.

See Note 1 for further discussion of the Sale.

Summarized Financial Information of Discontinued Operations

The following table details the line items that comprise discontinued operations on the Condensed Consolidated Statements of Operations and Comprehensive Income.

Three Months Ended

(Loss) from disposal of discontinued businesses, before income tax

Income tax (benefit)

(Loss) from disposal of discontinued businesses, net of tax

Income tax expense (benefit)

(Loss) from disposal of discontinued business, net of tax

Net (loss) from discontinued operations

EMEA and Pacific Rim Businesses

Nine Months Ended September 30, 2020

(Loss) gain from disposal of discontinued businesses, before income tax

Income tax (benefit)

(Loss) gain from disposal of discontinued businesses, net of tax

Net (loss) earnings from discontinued operations

EMEA and Pacific Rim Businesses

Three Months Ended September 30, 2019

Cost of goods sold

Selling, general and administrative expenses

Operating income

Other non-operating expense, net

Earnings from discontinued operations before income tax

Income tax expense

Net earnings from discontinued operations, net of tax

(Loss) from disposal of discontinued businesses, before income tax

Income tax (benefit)

(Loss) gain from disposal of discontinued business, net of tax

Net (loss) earnings from discontinued operations

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

Nine Months Ended September 30, 2019

Cost of goods sold

Selling, general and administrative expenses

Operating income

Other non-operating expense, net

Earnings from discontinued operations before income tax

Income tax expense

Net earnings from discontinued operations, net of tax

(Loss) from disposal of discontinued businesses, before income tax

Income tax (benefit)

(Loss) gain from disposal of discontinued businesses, net of tax

Net (loss) earnings from discontinued operations

The following is a summary of total gains and losses, capital expenditures and operating lease information related to our former EMEA and Pacific Rim businesses, and gains on the dissolution of our previously discontinued flooring entity, which are presented as discontinued operations and included as components of operating and investing cash flows on our Condensed Consolidated Statements of Cash Flows.

Nine Months Ended

September 30,

Loss on sale to Knauf (1)

Estimated loss on sale to Knauf (2)

Gain on dissolution of flooring entity (3)

Purchases of property, plant and equipment

Operating lease cost (4)

Right-of-use assets obtained in exchange for lease obligations (5)

Represents working capital and other adjustments.

Represents comparison of the EMEA and Pacific Rim net assets to the expected final sales proceeds.

Represents AOCI adjustments related to accumulated foreign currency translation amounts.

The amount of cash paid for amounts included in the measurement of lease liabilities was not materially different from the operating lease cost for the nine months ended September 30, 2019.

Represents initial right-of-use assets recognized upon adoption on January 1, 2019.

We did no t obtain any new right-of-use assets in exchange for lease obligations during the nine months ended September 30, 2019.

ACCOUNTS AND NOTES RECEIVABLE

September 30, 2020

March 31, 2021

December 31, 2020

3 unchanged sentences

Accounts and notes receivable, net

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.

Armstrong World Industries, Inc., and Subsidiaries

1 unchanged sentence

(dollar amounts in millions, except share data)

As of September 30, 2020, miscellaneous receivables includes $ 5.7 million related to proceeds from company-owned life insurance policies and $ 2.4 million related to proceeds from the sale of our idled plant in China.

September 30, 2020

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.

March 31, 2021

December 31, 2020

5 unchanged sentences

OTHER CURRENT ASSETS

September 30, 2020

March 31, 2021

December 31, 2020

2 unchanged sentences

Total other current assets

As of December 31, 2019, assets held for sale included the assets of our idled mineral fiber plant in China, which was sold during the second quarter of 2020.

See Note 2 for further information.

As of March 31, 2021, assets held for sale included the property, plant and equipment of our idled mineral fiber plant in St.

Helens, Oregon.

We entered into a sale agreement for the property during the first quarter of 2021, with closing expected during 2021.

EQUITY INVESTMENT

1 unchanged sentence

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, 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.

Three Months Ended

Nine Months Ended

September 30,

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.

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 Operations and Comprehensive Income .

We enter into operating and finance leases for certain manufacturing plants, warehouses, equipment and automobiles.

Our leases have remaining lease terms of 1 to 17 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 right-of-use (“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 nonlease components, which we have elected to combine to determine the ROU assets and lease liabilities.

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 and variable lease cost was not material for the three and nine months ended September 30, 2020 and 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

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

the IBR includes the transactional currency of the lease and the lease term.

We used the IBR on January 1, 2019 for operating leases that commenced prior to that date.

As of September 30, 2020 , we did no t have any material leases that had not yet commenced .

The following table presents our lease costs:

Condensed financial statement data for WAVE is summarized below.

Three Months Ended

Nine Months Ended

September 30,

Operating lease cost

Finance lease cost

Amortization of leased assets

Interest on lease liabilities

The following table presents supplemental cash flow information related to our leases:

Nine Months Ended

September 30,

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

ROU assets obtained in exchange for lease liabilities

Operating leases (1)

Finance leases

The nine months ended September 30, 2019 includes initial ROU assets of $ 29.2 million recognized upon adoption on January 1, 2019 .

The following table presents the weighted average assumptions used to compute our ROU assets and lease liabilities:

September 30, 2020

December 31, 2019

Weighted average remaining lease term (in years)

Operating leases

Finance leases

Weighted average discount rate

Operating leases

Finance leases

Undiscounted future minimum lease payments as of September 30, 2020, by year and in the aggregate, having non-cancelable lease terms in excess of one year are as follows:

Operating Leases

Finance Leases

Maturity of lease liabilities

Total lease payments

Less interest

Present value of lease liabilities

Scheduled maturities of lease liabilities represent the time period of October 1, 2020 to December 31, 2020.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

GOODWILL AND INTANGIBLE ASSETS

The following table details amounts related to our goodwill and intangible assets as of September 30, 2020 and December 31, 2019.

September 30, 2020

The following table details amounts related to our goodwill and intangible assets as of March 31, 2021 and December 31, 2020.

March 31, 2021

December 31, 2020

10 unchanged sentences

Total intangible assets

Nine Months Ended

September 30,

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

The increase in goodwill since December 31, 2020 resulted primarily from customary adjustments to valuations for Arktura assets acquired and liabilities assumed on December 16, 2020 and foreign exchange movements.

Three Months Ended

Amortization expense

The increase in goodwill and other intangible assets as of September 30, 2020 resulted from the acquisitions of Moz and Turf.

See Note 4 to the Condensed Consolidated Financial Statements for additional details.

OTHER NON-CURRENT ASSETS

September 30, 2020

December 31, 2019

Cash surrender value of Company owned life insurance policies

Total other non-current assets

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

September 30, 2020

March 31, 2021

December 31, 2020

3 unchanged sentences

Payable to Knauf for purchase price adjustments

Payable to WAVE for receipt of Knauf proceeds

Total accounts payable and accrued expenses

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

Earnings (loss) from continuing operations before income taxes

1 unchanged sentence

Effective tax rate

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

The effective tax rate in the third quarter of 2020 was higher than the same period in 2019, largely driven by the absence of the beneficial tax impact of our share of WAVE’s gain on sale of its discontinued European and Pacific Rim businesses and the absence of a benefit related to a statute closure, both recognized in 2019.

These increases were both partially offset by the current year tax benefit related to the sale of our idled mineral fiber plant in China.

The effective tax rate for the first nine months of 2020 was higher than the effective tax rate for the same period in 2019 primarily due to the tax effects of our first quarter of 2020 pension settlement and the absence of benefits related to the WAVE gain on sale and statute closure from 2019, partially offset by the benefits related to the sale of our idled mineral fiber plant in China.

See Note 16 for additional details related to our pension settlement.

Excluding the impact of the pension settlement in 2020, the effective tax rate for the first quarter of 2021 was flat compared to the same period in 2020.

It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months.

1 unchanged sentence

Changes to unrecognized tax benefits could result from the completion of ongoing examinations, the expiration of statutes of limitations or other unforeseen circumstances.

As of September 30, 2020 and December 31, 2019, our long-term debt included borrowings outstanding under our $ 1,000.0 million variable rate senior credit facility, which 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.

As of September 30, 2020 and December 31, 2019, borrowings outstanding under our revolving credit facility were $ 185.0 million and $ 115.0 million, respectively.

Our Term Loan A was fully drawn as of September 30, 2020 and December 31, 2019.

As of March 31, 2021 and December 31, 2020, our long-term debt included borrowings outstanding under our $ 1,000.0 million variable rate senior credit facility, which 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.

As of March 31, 2021 and December 31, 2020, borrowings outstanding under our revolving credit facility were $ 225.0 million.

As of March 31, 2021 and December 31, 2020, borrowings outstanding under our Term Loan A were $ 487.4 million and $ 493.7 million, respectively.

We also have a $ 25.0 million letter of credit facility, also known as our bi-lateral facility.

During the third quarter of 2020, we repaid $ 30.0 million under our Accounts Receivable Securitization Facility with the Bank of Nova Scotia (the “funding entity”) which matured in September 2020 .

Interest on borrowings under this amended facility was calculated at a 90-day commercial paper rate.

Under this facility, we sold accounts receivables to Armstrong Receivables Company, 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 were not available to the general creditors of AWI.

ARC used this facility to borrow cash or issue letters of credit.

When ARC borrowed cash under this facility, ARC sold an undivided percentage ownership interest in the purchased accounts receivables to the funding entity.

We had the unilateral right to repurchase the funding entity’s purchased interest in the accounts receivables and, as a result, borrowings under this facility were reported as debt in the Condensed Consolidated Balance Sheets.

Borrowings under this facility were obligations of ARC and not AWI.

ARC contracted with and paid a servicing fee to AWI to manage, collect and service the purchased accounts receivables.

All new receivables under the program were continuously purchased by ARC with the proceeds from collections of receivables previously purchased.

There were no borrowings outstanding under this facility as of December 31, 2019.

We utilize lines of credit and other commercial commitments in order to ensure that adequate funds are available to meet operating requirements.

2 unchanged sentences

The following table presents details related to our letters of credit facilities:

September 30, 2020

March 31, 2021

Financing Arrangements

7 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

defined benefit plans:

4 unchanged sentences

Amortization of net actuarial loss

Special termination benefits

Net periodic pension cost (credit)

Net periodic pension cost

Retiree health and life insurance benefits

Service cost of benefits earning during the period

Interest cost on projected benefit obligation

4 unchanged sentences

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, 2020 and 2019.

Net periodic pension cost for this plan was immaterial for the three months ended March 31, 2021 and 2020.

The service cost component of net benefit cost has been presented in the Condensed Consolidated Statements of Operations and Comprehensive Income within cost of goods sold and SG&A expenses for all periods presented, which are the same line items as other compensation costs arising from services rendered by the pertinent employees during the period.

The other components of net benefit cost are presented in the Condensed Consolidated Statements of Operations and Comprehensive Income separately from the service cost component within other non-operating expense (income), net.

During February 2020, we entered into agreements with Athene Annuity and Life Company (“AAIA”) and Athene Annuity & Life Assurance Company of New York (“AANY”) to transfer certain benefit obligations and assets of our U.S.

In the first quarter of 2020, we entered into agreements with Athene Annuity and Life Company (“AAIA”) and Athene Annuity & Life Assurance Company of New York (“AANY”) to transfer certain benefit obligations and assets of our U.S.

Retirement Income Plan (“RIP”) to AAIA and AANY.

Under the agreements, we effectively settled $ 1,045.3 million of retiree defined benefit pension obligations related to approximately 10,300 retirees and beneficiaries (the “Transferred Participants”), which were irrevocably transferred to AAIA and AANY and which guarantees the pension benefits of the Transferred Participants.

During the third quarter of 2020, these amounts were immaterially adjusted due to customary data reconciliations with AAIA and AANY.

As a result of the transaction, we recorded a $ 374.4 million settlement loss in the first quarter of 2020, which was reflected as a component of other non-operating expense.

The RIP’s assets and liabilities were remeasured as of the settlement date, resulting in a remaining projected benefit obligation of $ 387.5 million, which covered approximately 3,000 deferred vested and active participants, and fair value of plan assets of $ 499.6 million.

The discount rate used to determine the projected benefit obligation at the settlement date was 3.07 %, compared to 3.16 % used as of December 31, 2019.

The expected long-term return on plan assets remained at 5.25 % and did not change as a result of the settlement.

During the third quarter of 2020, we offered an early retirement incentive benefit to employees at one of our manufacturing plants who met certain age and years of service criteria.

The consideration period for eligible employees ended on September 30, 2020.

Based on eligible employee elections to participate, we recorded a charge of $ 2.0 million within other non-operating expense, which increased the projected benefit obligation of the RIP.

The enhanced retirement benefits did not result in a curtailment.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

FINANCIAL INSTRUMENTS

As a result of the transaction, we recorded a $ 374.4 million settlement loss in the first quarter of 2020, which was reflected as a component of other non-operating income (expense), net.

FINANCIAL INSTRUMENTS AND CONTINGENT CONSIDERATION

We do not hold or issue financial instruments for trading purposes.

The estimated fair values of our financial instruments are as follows:

September 30, 2020

March 31, 2021

December 31, 2020

2 unchanged sentences

Interest rate swap contracts

Contingent consideration

The carrying amounts of cash and cash equivalents, receivables, accounts payable, accrued expenses and short-term debt approximate fair value because of the short-term maturity of these instruments.

Acquisition-related contingent consideration

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 are based on quotes from a major financial institution of recently observed trading levels of our Term Loan A debt.

The fair value estimates for interest rate swap contracts are estimated by obtaining quotes from major financial institutions with verification by internal valuation models.

The fair value estimates for contingent consideration are estimated based on a Monte Carlo simulation.

We engage independent, third-party valuation specialists to determine the fair value estimates for contingent consideration, which are based on a Monte Carlo simulation.

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.

7 unchanged sentences

The fair value measurement of liabilities measured at fair value on a recurring basis and reported on the Condensed Consolidated Balance Sheets is summarized below:

September 30, 2020

March 31, 2021

December 31, 2020

1 unchanged sentence

Fair value based on

Assets/(liabilities), net:

(Liabilities), net:

Interest rate swap contracts

Contingent consideration

Acquisition-related contingent consideration

The contingent consideration liability represents estimated future contingent purchase price payments related to the Moz and Turf acquisitions.

The significant unobservable inputs used in the fair value measurement of the contingent consideration liability include the financial projections over the earn-out period, the volatility of the underlying financial metrics and estimated discount rates.

The following table summarizes the weighted-average of the significant unobservable inputs as of September 30, 2020:

The following table summarizes the weighted average of the significant unobservable inputs as of March 31, 2021:

Unobservable input

1 unchanged sentence

Unobservable inputs were weighted based on the relative fair value of the components of contingent consideration.

The fair value of the contingent consideration liability will be remeasured at each reporting period, and any future adjustments will be recorded as a

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

component of SG&A expenses in our Condensed Consolidated Statements of Operations and Comprehensive Income.

See Note 4 for further information.

The changes in fair value of the acquisition-related contingent consideration liability for the three months ended March 31, 2021 were as follows:

Three Months Ended

March 31, 2021

Balance as of beginning of period

Adjustments to fair value measurements

Balance as of end of period

DERIVATIVE FINANCIAL INSTRUMENTS

5 unchanged sentences

We use derivative financial instruments as risk management tools and not for speculative trading purposes.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

Counterparty Risk

7 unchanged sentences

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 positions and do not expect to enter into any commodity derivative products.

Currency Rate Risk – Sales and Purchases

As of September 30, 2020, our only major foreign currency exposure is to the Canadian dollar.

We currently have no outstanding positions and do not expect to enter into any foreign exchange derivative products.

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, 2020:

These swaps are designated as cash flow hedges against changes in the London Interbank Offered Rate (“LIBOR”) for a portion of our variable rate debt.

The following table summarizes our interest rate swaps as of March 31, 2021:

Coverage Period

1 unchanged sentence

November 28, 2018

November 2016 to March 2021

November 28, 2018

November 2018 to November 2023

7 unchanged sentences

March 2021 to March 2024

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.

Under the terms of the November 2018 swap maturing in 2023 , we pay a fixed rate monthly 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.

Under the terms of the November 2018 swap maturing in 2025 , we pay a fixed rate monthly and receive 1-month LIBOR.

This is inclusive of a 0 % floor.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

Under the terms of the March 2020 swap maturing in 2022 , we pay a fixed rate over the hedged amount and receive 1-month LIBOR.

Under the terms of the March 2020 swap maturing in 2022 , we pay a fixed rate monthly and receive 1-month LIBOR.

This is inclusive of a 0 % floor.

Under the terms of the forward starting March 2020 swaps maturing in 2024 , we will pay a fixed rate monthly and receive 1-month LIBOR.

Under the terms of the March 2020 swaps maturing in 2024 , we pay a fixed rate monthly and receive 1-month LIBOR.

These are inclusive of a 0 % floor.

Financial Statement Impacts

The following tables detail amounts related to our derivatives as of September 30, 2020 and December 31, 2019.

We did no t have any derivative assets or liabilities not designated as hedging instruments as of September 30, 2020 or December 31, 2019.

The derivative asset and liability amounts below are shown gross and have not been netted.

Derivative Assets

The following tables detail amounts related to our derivatives as of March 31, 2021 and December 31, 2020.

We did not have any derivative assets or liabilities not designated as hedging instruments as of March 31, 2021 or December 31, 2020.

The derivative liability amounts below are shown gross and have not been netted.

Derivative Liabilities

Balance Sheet

September 30,

Balance Sheet

September 30,

Interest rate swap contracts

Other current assets

Accounts payable and accrued expenses

Interest rate swap contracts

Other non-current assets

Other long-term liabilities

Amount of (Loss)

Amount of Gain (Loss)

Recognized in AOCI

4 unchanged sentences

from AOCI into Net Earnings (Loss)

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended

Derivatives in cash flow hedging relationships

1 unchanged sentence

Interest expense

Total gain (loss)

As of September 30, 2020, the amount of existing losses in AOCI expected to be recognized in earnings over the next twelve months was $ 8.1 million.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

As of March 31, 2021, the amount of existing losses in AOCI expected to be recognized in earnings over the next twelve months was $ 8.5 million.

OTHER LONG-TERM LIABILITIES

September 30, 2020

March 31, 2021

December 31, 2020

Long-term deferred compensation arrangements

Fair value of derivative liabilities

Fair value of contingent consideration related to acquired businesses

Acquisition-related contingent consideration

Long-term deferred compensation arrangements

Environmental insurance recoveries received in excess of cumulative expenses incurred

Total other long-term liabilities

1 unchanged sentence

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, excluding commissions.

On July 28, 2020, we announced that our Board of Directors had approved an additional $ 500.0 million authorization to repurchase shares, increasing the total authorized amount under the Program to

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

$ 1,200.0 m illion, excluding commissions, and extending the Program through December 31, 2023.

The Program was temporarily suspended in the first quarter of 2020 in response to uncertainties surrounding COVID-19.

On October 21, 2020, we elected to restart the Program and currently have $ 603.8 million remaining under the Board’s repurchase authorization.

Since July 29, 2016, our Board of Directors has approved our share repurchase program pursuant to which we are currently authorized to repurchase up to $ 1,200.0 million of our outstanding shares of common stock through December 31, 2023 (the “Program”).

We currently have $ 583.8 million remaining under the Board’s repurchase authorization as of March 31, 2021.

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.

During the nine months ended September 30, 2020, we repurchased 0.4 million shares under the Program for a total cost of $ 34.4 million, excluding commissions, or an average price of $ 89.99 per share.

Since inception, through September 30, 2020, we have repurchased 9.6 million shares under the Program for a total cost of $ 596.2 million, excluding commissions, or an average price of $ 62.13 per share.

In February, April and July 2020, our Board of Directors declared $ 0.20 per share quarterly dividends, which were paid to shareholders in March, May and August 2020 , respectively.

On October 21, 2020, our Board of Directors declared a $ 0.21 per share quarterly dividend to be paid in November 2020 .

During the three months ended March 31, 2021, we repurchased 0.1 million shares under the Program for a total cost of $ 10.0 million, excluding commissions, or an average price of $ 79.60 per share.

Since inception, through March 31, 2021, we have repurchased 9.8 million shares under the Program for a total cost of $ 616.2 million, excluding commissions, or an average price of $ 62.57 per share.

In February 2021, our Board of Directors declared a $ 0.21 per share quarterly dividend, which was paid to shareholders in March 2021 .

On April 20, 2021, our Board of Directors declared a $ 0.21 dividend per share quarterly dividend to be paid in May 2021 .

Accumulated Other Comprehensive (Loss)

2 unchanged sentences

Comprehensive

Balance, June 30, 2020

Other comprehensive (loss) income before reclassifications,

net of tax (expense) of $ -, ($ 0.9 ), ($ 0.2 ) and ($ 1.1 )

Amounts reclassified from accumulated other

comprehensive (loss)

Net current period other comprehensive (loss) income

Balance, September 30, 2020

Translation Adjustments

Pension and Postretirement Adjustments (1)

Comprehensive

Balance, December 31, 2020

Other comprehensive (loss) income before reclassifications,

net of tax (expense) benefit of $ -, $ 3.5 , ($ 3.1 ) and $ 0.4

Other comprehensive income before reclassifications,

net of tax (expense) of $-, ($ 1.7 ), $- and ($ 1.7 )

Amounts reclassified from accumulated other

comprehensive (loss)

Net current period other comprehensive (loss) income

Balance, September 30, 2020

Net current period other comprehensive income

Balance, March 31, 2021

Armstrong World Industries, Inc., and Subsidiaries

2 unchanged sentences

Translation Adjustments

Gain (Loss) (1)

Pension and Postretirement Adjustments (1)

Comprehensive

Balance, June 30, 2019

Other comprehensive (loss) income before reclassifications,

net of tax benefit (expense) of $ -, $ 1.1 , ($ 0.1 ) and $ 1.0

Amounts reclassified from accumulated other

comprehensive (loss)

Net current period other comprehensive income (loss)

Balance, September 30, 2019

Translation Adjustments

Gain (Loss) (1)

Pension and Postretirement Adjustments (1)

Comprehensive

Balance, December 31, 2019

Impact of ASU 2017-12 adoption

Other comprehensive income (loss) before reclassifications,

Other comprehensive (loss) income before reclassifications,

net of tax benefit (expense) of $ -, $ 4.0 , ($ 2.9 ) and $ 1.1

1 unchanged sentence

comprehensive (loss)

Net current period other comprehensive income (loss)

Balance, September 30, 2019

Net current period other comprehensive (loss) income

Balance, March 31, 2020

Amounts are net of tax.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

Reclassified from

5 unchanged sentences

and Comprehensive

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Derivative Adjustments:

2 unchanged sentences

Income tax expense

Total (income) loss, net of tax

Total (income), net of tax

Pension and Postretirement Adjustments:

1 unchanged sentence

Other non-operating (income) expense, net

Amortization of net actuarial (gain) loss

Amortization of net actuarial loss

Other non-operating (income) expense, net

Total (income) loss, before tax

Total loss, before tax

Income tax expense

Total (income) loss from continuing operations, net of tax

Adjustments related to Sale to Knauf (1)

Total (income) loss, net of tax

Foreign currency translation adjustments related to

Sale to Knauf (1)

Total loss, net of tax

Total reclassifications for the period

Represents estimated amounts reclassified out of AOCI as of September 30, 2019 related to the Sale and included as a component of (Loss) gain from disposal of discontinued operations on the Condensed Consolidated Statements of Operations and Comprehensive Income.

LITIGATION AND RELATED MATTERS

5 unchanged sentences

Environmental Sites

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.

We are actively involved in the investigation and 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 two domestically owned locations allegedly resulting from past industrial activity.

Armstrong World Industries, Inc., and Subsidiaries

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We are currently pursuing coverage and recoveries under those policies with respect to certain of the sites, including 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.

These efforts have inclu ded two act ive 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.

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.

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These settlements were recorded as a $ 9.2 million reduction to cost of goods sold and a $ 38.3 million reduction to SG&A expenses reflecting the same income statement categories where environmental expenditures were historically recorded.

In the first nine months of 2020, we entered into two new settlement agreements totaling $ 0.2 million.

These settlements were recorded as a reduction to SG&A expenses.

In 2020, cumulative insurance recoveries exceeded cumulative expenses to date related to the respective environmental sites and the excess $ 5.0 million was recorded within our long-term liabilities as of December 31, 2020.

The excess recoveries will be released to offset any future expenses incurred on the respective environmental sites.

During the three months ended March 31, 2021, we did not enter into any new settlement agreements and the balance of insurance recoveries in excess of cumulative expenses as of March 31, 2021 was $ 4.9 million.

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.

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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, Oregon facility, which was previously owned by Kaiser and then OC.

The Consent Order required the parties to complete a remedial investigation and feasibility study on the upland, lowland and in-water portions of the site.

Through voluntary mediation in November 2017 with ODEQ, OC and Kaiser, we reached settlement with ODEQ documented in a Public Notice and proposed consent judgment (“Consent Judgment”);

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.

We submitted the settlement payment to ODEQ and completed the remedial action for the upland area in 2019.

ODEQ approved a final Upland Operable Unit Remedial Action Construction Completion and Final Closeout Report and issued a Conditional No Further Action Determination, including the Easement and Equitable Servitude, which was recorded in Columbia County, Oregon.

On February 24, 2020, ODEQ filed the Certification of Completion for the satisfactory completion of the work conducted by us pursuant to the Consent Judgment.

As a result of the settlements with ODEQ and Kaiser, and these actions by ODEQ, we do not expect to incur any future material costs relating to this matter.

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

Armstrong World Industries, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

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 over a five-year period and our estimate of future liabilities includes these tasks.

That Plan required us to monitor the effectiveness of the WWTP Landfill response action over a five-year period.

It is probable that we will incur field investigation, engineering and oversight costs associated with a Remedial Investigation and Feasibility Study (“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”).

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The PRPs submitted a complete RI/FS work plan in the second quarter of 2019, which the EPA approved on September 11, 2019.

Investigative work on this portion of the site commenced in December 2019 and remains ongoing.

Investigative work on this portion of the site commenced in December 2019.

Ecological field work and risk evaluation remains ongoing.

We anticipate that the EPA will require significant investigative work for Operable Unit 2.

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.

The current estimate of future liability at this

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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 total costs associated with the investigation work or any resulting remediation therefrom, although such amounts may be material to any one quarter's or year's results of operations in the future.

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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.

In connection with the separation of Armstrong Flooring, Inc.

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.

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Summary of Financial Position

Total liabilities of $ 1.5 million and $ 1.6 million as of September 30, 2020 and December 31, 2019, respectively, 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, 2020 and December 31, 2019, $ 0.5 million and $ 0.1 million, respectively, of environmental liabilities were reflected within Accounts payable and accrued expenses.

During the three and nine months ended September 30, 2020, we did no t record any additional reserves for 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 for environmental liabilities.

Total liabilities of $ 0.9 million and $ 1.2 million as of March 31, 2021 and December 31, 2020, respectively, were recorded for environmental liabilities that we consider probable and for which a reasonable estimate of the probable liability could be made.

As of March 31, 2021 no portion of environmental liabilities was reflected within accounts payable and accrued expenses.

As of December 31, 2020, $ 0.3 million of environmental liabilities were reflected within accounts payable and accrued expenses.

During the three months ended March 31, 2021 and 2020, we did no t record any additional reserves for potential 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

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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.

The estimated environmental liabilities above do not take into account any claims for additional 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.

We also incur costs to pursue environmental insurance recoveries, which are expensed as incurred.

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.

We incur costs to pursue environmental insurance recoveries, which reduce the balance of insurance recoveries in excess of cumulative expenses incurred and when exhausted, will be expensed as incurred.

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.

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 six 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.

From time to time, we are involved in other various lawsuits, claims, investigations and other legal matters 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.

In connection with those matters, we may have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies.

When applicable and appropriate,

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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 any proceedings relating to these matters, 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.

EARNINGS PER SHARE

The following table is a reconciliation of earnings (loss) to earnings (loss) attributable to common shares used in our basic and diluted (Loss) Earnings Per Share (“EPS”) calculations for the three and nine months ended September 30, 2020 and 2019.

EPS components may not add due to rounding.

Three Months Ended

Nine Months Ended

September 30,

Earnings (loss) from continuing operations

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Earnings (loss) from continuing operations attributable to common shares

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Notes to Condensed Consolidated Financial Statements (unaudited)

(dollar amounts in millions, except share data)

The following table is a reconciliation of basic shares outstanding to diluted shares outstanding for the three and nine months ended September 30, 2020 and 2019 (shares in millions):

The following table is a reconciliation of basic shares outstanding to diluted shares outstanding for the three months ended March 31, 2021 and 2020 (shares in millions):

Three Months Ended

Nine Months Ended

September 30,

Basic shares outstanding

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Diluted shares outstanding

Due to the net loss for the nine months ended September 30, 2020, all common stock equivalents were considered anti-dilutive.

Anti-dilutive stock awards excluded from the computation of diluted EPS for the three and nine months ended September 30, 2020 were 26,460 and 340,750 , respectively.

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.

Anti-dilutive stock awards excluded from the computation of diluted EPS for the three months ended March 31, 2021 and 2020 were 33,643 and 702,513 , respectively.

Due to the net loss for the three months ended March 31, 2020, all common stock equivalents were considered anti-dilutive.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 1. Financial Statements