ARMSTRONG WORLD INDUSTRIES INC (Form: 10-K, Received: 02/22/2016 08:18:45)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-2116

ARMSTRONG WORLD INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania

23-0366390

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


2500 Columbia Avenue, Lancaster, Pennsylvania		17603
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (717) 397-0611

Securities registered pursuant to Section 12(b) of the Act:


Title of each class
Common Stock ($0.01 par value)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter time period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the Common Stock of Armstrong World Industries, Inc. held by non-affiliates based on the closing price ($53.28 per share) on the New York Stock Exchange (trading symbol AWI) of June 30, 2015 was approximately $2,941 million. As of February 16, 2016, the number of shares outstanding of registrant’s Common Stock was 55,396,836.

Documents Incorporated by Reference

Certain sections of Armstrong World Industries, Inc.’s definitive Proxy Statement for use in connection with its 2016 annual meeting of shareholders, to be filed no later than April 29, 2016 (120 days after the last day of our 2015 fiscal year), are incorporated by reference into Part III of this Form 10-K Report where indicated.

TABLE OF CONTENTS


	SECTION	PAGES
	Cautionary Note Regarding Forward-Looking Statements		3

	PART I
Item 1.	Business		5
Item 1A.	Risk Factors		10
Item 1B.	Unresolved Staff Comments		17
Item 2.	Properties		17
Item 3.	Legal Proceedings		18
Item 4.	Mine Safety Disclosures		18

	PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		19
Item 6.	Selected Financial Data		20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		40
Item 8.	Financial Statements and Supplementary Data		42
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		99
Item 9A.	Controls and Procedures		99
Item 9B.	Other Information		99

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance		100
Item 11.	Executive Compensation		101
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		101
Item 13.	Certain Relationships and Related Transactions, and Director Independence		102
Item 14.	Principal Accountant Fees and Services		102

	PART IV
Item 15.	Exhibits and Financial Statement Schedules		103

Signatures			111

When we refer to “we,” “our” and “us”, we are referring to Armstrong World Industries, Inc. and its subsidiaries.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10-K and the documents incorporated by reference may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements are subject to various risks and uncertainties and include all statements that are not historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, our expectations concerning our residential and commercial markets and their effect on our operating results; our expectations regarding the payment of dividends, and our ability to increase revenues, earnings and EBITDA (as such terms are defined by documents incorporated by reference herein). Words such as “anticipate,” “expect,” “intend,” “plan,” “target,” “project,” “predict,” “believe,” “may,” “will,” “would,” “could,” “should,” “seek,” “estimate” and similar expressions are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of factors that could lead to actual results materially different from those described in the forward-looking statements. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors that could have a material adverse effect on our financial condition, liquidity, results of operations or future prospects or which could cause actual results to differ materially from our expectations include, but are not limited to:

•

global economic conditions;

•

construction activity;

•

our announced plan to separate our flooring business from our ceilings (buildings products) business, and our ability to successfully complete such separation;

•

competition;

•

key customers;

•

availability and costs of raw materials and energy;

•

international operations;

•

covenants in our debt agreements;

•

our indebtedness;

•

our liquidity;

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our WAVE joint venture;

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environmental matters;

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strategic transactions;

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plant construction projects;

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negative tax consequences;

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defined benefit plan obligations;

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claims and litigation;

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labor;

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our intellectual property rights;

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costs savings and productivity initiatives; and

•

other risks detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”), press releases and other communications, including those set forth under “Risk Factors” included elsewhere in this Annual Report on Form 10-K and in the documents incorporated by reference.

Such forward-looking statements speak only as of the date they are made. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.

PART I

ITEM 1.

BUSINESS

Armstrong World Industries, Inc. (“AWI” or the “Company”) is a Pennsylvania corporation incorporated in 1891. When we refer to “we,” “our” and “us” in this report, we are referring to AWI and its subsidiaries.

We are a leading global producer of flooring products and ceiling systems for use primarily in the construction and renovation of residential, commercial and institutional buildings. We design, manufacture and sell flooring products (primarily resilient and wood) and ceiling systems (primarily mineral fiber, fiberglass and metal) around the world.

On February 23, 2015, we announced that our board of directors unanimously approved a plan to separate our Resilient Flooring and Wood Flooring segments from our Building Products (Ceilings) segment. The separation will be effected by allocating the assets and liabilities related primarily to the Resilient Flooring and Wood Flooring segments to Armstrong Flooring, Inc. (“AFI”) and then distributing the common stock of AFI to AWI’s shareholders. The separation and distribution will result in AWI and AFI becoming two independent, publicly-traded companies, with AFI owning and operating the Resilient Flooring and Wood Flooring segments and AWI continuing to own and operate the Building Products (Ceilings) segment. In 2015, we recorded $34.3 million of separation costs, primarily related to outside professional services and employee compensation and severance accruals. We expect the effective date of the separation to be near the end of the first quarter of 2016.

In October 2006, the Armstrong World Industries, Inc. Asbestos Personal Injury Settlement Trust (“Asbestos PI Trust”) was created to address AWI’s personal injury (including wrongful death) asbestos-related liability and received a distribution of 37,000,000 shares of our common stock. All present and future asbestos-related personal injury claims against AWI, including contribution claims of co-defendants but excluding certain foreign claims against subsidiaries, arising directly or indirectly out of AWI’s pre-filing use of, or other activities involving, asbestos are channeled to the Asbestos PI Trust.

From the fourth quarter of 2012 through the fourth quarter of 2014, the Asbestos PI Trust sold 20,448,362 shares of our common stock. In 2015, the Asbestos Trust sold 4,281,884 shares of our common stock. We did not sell any shares and did not receive any proceeds from these transactions. As a result of these transactions, the Asbestos PI Trust currently holds approximately 9% of our outstanding shares as of December 31, 2015.

Reportable Segments

We operate four business segments - Building Products, Resilient Flooring, Wood Flooring and Unallocated Corporate. See Note 3 to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K for additional financial information on our reportable segments.

Markets

We are well positioned in the industry segments and markets in which we operate - often holding a leadership or significant market share position. The major markets in which we compete are:

North American Residential. Our Building Products, Resilient Flooring and Wood Flooring segments sell products for use in single and multi-family housing. Our ceiling products compete against mineral fiber and fiberglass products from other manufacturers, as well as drywall. Homeowners, builders, and property management firms can choose from our innovative resilient and wood flooring products, for which we are North America’s largest provider, or from our laminate flooring products. We compete directly with other domestic and international suppliers of these products. Our flooring products also compete with carpet, stone and ceramic products, which we do not offer.

Our products are used in new home construction and existing home renovation work. We estimate that existing home renovation (also known as replacement / remodel) work represents the majority of the total North American residential market opportunity. Key U.S. statistics that indicate market opportunity include existing home sales (a key indicator for renovation opportunity), housing starts, housing completions, home prices, interest rates and consumer confidence. We believe there is some longer-term correlation between

these statistics and our revenue after reflecting a lag period of several months between a change in construction activity and our operating results. However, we believe that consumers’ preferences for product type, style, color, availability, affordability and ease of installation also significantly affect our revenue. Further, changes in inventory levels and/or product focus at national home centers and independent building materials distributors can significantly affect our revenue.

North American Commercial. Many of our products, primarily ceilings and resilient flooring, are used in commercial and institutional buildings. Our revenue opportunities come from new construction as well as renovation of existing buildings. Renovation work is estimated to represent the majority of the total North American commercial market opportunity. Most of our revenue comes from four major segments of commercial building – office, education, retail and healthcare. We monitor U.S. construction starts and follow project activity. Our revenue from new construction can lag behind construction starts by as much as 18 to 24 months. We also monitor office vacancy rates, gross domestic product (“GDP”) and general employment levels, which can indicate movement in renovation and new construction opportunities. We believe that these statistics, taking into account the time-lag effect, provide a reasonable indication of our future revenue opportunity from commercial renovation and new construction. However, we believe that consumers’ preferences for product type, style, color, availability, affordability and ease of installation also affect our revenue.

Outside of North America. About 20% of our 2015 consolidated sales were in Europe and the Pacific Rim and almost all were commercial in nature. For the countries in which we have significant revenue, we monitor various national statistics (such as GDP) as well as construction data (starts and project-related information). Revenues come primarily from new construction and renovation work.

The following table provides an estimate of our segments’ 2015 net sales, by major markets.


(Estimated percentages of individual segment’s sales)	North American Residential		North American Commercial		Outside of North America
	New	Renovation	New	Renovation	New	Renovation	Total
Building Products	—	5%	10%	50%	20%	15%	100%
Resilient Flooring	5%	40%	5%	40%	5%	5%	100%
Wood Flooring	35%	65%	—	—	—	—	100%

Management has used estimates in creating the table above because the end-use of our products is not easily determinable.

Geographic Areas

See Note 3 to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K for additional financial information by geographic areas.

Customers

We use our reputation, capabilities, service and brand recognition to develop long-standing relationships with our customers. We principally sell products through independent building materials distributors, who re-sell our products to retailers, builders, contractors, installers and others. In the commercial sector, we also sell to several contractors and to subcontractors’ alliances, large architect and design firms, and major facility owners. In the North American retail channel, which sells to end-users in the residential and light commercial segments, we have important relationships with national home centers such as The Home Depot, Inc. and Lowe’s Companies, Inc. In the North American residential sector, we have important relationships with major home builders and retail buying groups. Additionally, when market conditions and available capacity warrant, we also provide resilient and wood flooring products on an original equipment manufacturer (“OEM”) basis to other flooring companies.

Approximately two-thirds of our consolidated net sales are to distributors. Sales to large home centers account for approximately 15% of our consolidated sales. Our remaining sales are to contractors and retailers.

No customer accounted for 10% or more of our total consolidated net sales during the last three years.

Working Capital

We produce goods for inventory and sell on credit to our customers. Generally, our distributors carry inventory as needed to meet local or rapid delivery requirements. We sell the vast majority of our products to select, pre-approved customers using customary trade terms that allow for payment in the future. These practices are typical within the industry. Our wood flooring business generally purchases green lumber which is held in inventory during the drying process for approximately three months.

Competition

We face strong competition in all of our businesses. Principal attributes of competition include product performance, product styling, service and price. Competition in North America comes from both domestic and international manufacturers. Additionally, some of our products compete with alternative products or finishing solutions. Our ceiling products compete with drywall and exposed structure (also known as open plenum) and our resilient, laminate and wood flooring products compete with carpet, stone and ceramic products. There is excess industry capacity for certain products in some geographies, which tends to increase price competition. The following companies are our primary competitors:

Building Products – CertainTeed Corporation (a subsidiary of Saint-Gobain), Chicago Metallic Corporation (owned by Rockwool International), Georgia-Pacific Corporation, Knauf AMF GmbH & Co. KG, Lafarge SA, Odenwald Faserplattenwerk GmbH, Rockfon A/S (owned by Rockwool International), Saint-Gobain and USG Corporation.

Flooring segments – Beaulieu International Group, N.V., Boa-Franc, Inc., Congoleum Corporation, Forbo Holding AG, Gerflor Group, IVC Group, Krono Holding AG, Lauzon Ltd, LG Floors, Mannington Mills, Inc., Mercier Wood Flooring, Inc., Metroflor Corporation, Mirage Hardwood Floors (a division of Boa-Franc Inc.), Mohawk Industries, Inc., Mullican Flooring, L.P., Nora Systems GmbH, Pfleiderer AG, Shaw Industries, Inc., Somerset Hardwood Flooring, Tarkett AG and USFloors, Inc.

Raw Materials

We purchase raw materials from numerous suppliers worldwide in the ordinary course of business. The principal raw materials used in each business include the following:


Business		Principal Raw Materials
Building Products		Mineral fiber, fiberglass, perlite, waste paper, pigments, clays, starches and steel, which is used in the production of metal ceilings and by WAVE, our joint venture that manufactures ceiling grid

Resilient Flooring		Polyvinylchloride (“PVC”) resins and films, plasticizers, fiberglass and felt backings, limestone, pigments, inks and stabilizers

Wood Flooring		Hardwood lumber, veneer, coatings and stains

We also purchase significant amounts of packaging materials and consume substantial amounts of energy, such as electricity and natural gas, and water.

In general, adequate supplies of raw materials are available to all of our businesses. However, availability can change for a number of reasons, including environmental conditions, laws and regulations, shifts in demand by other industries competing for the same materials, transportation disruptions and/or business decisions made by, or events that affect, our suppliers. There is no assurance that these raw materials will remain in adequate supply to us.

Prices for certain high usage raw materials can fluctuate dramatically. Cost increases for these materials can have a significant adverse impact on our manufacturing costs. Given the competitiveness of our markets, we may not be able to recover the increased manufacturing costs through increasing selling prices to our customers.

Sourced Products

Some of the products that we sell are sourced from third parties. Our primary sourced products include various flooring products (laminate, wood, vinyl sheet, and luxury vinyl tile “LVT” products), specialty ceiling products and installation-related products, as well as accessories for some of our manufactured products. We purchase some of our sourced products from suppliers that are located outside of the U.S., primarily from the Pacific Rim and Europe. Sales of sourced products represented approximately 15% of our total consolidated revenue in each of 2015, 2014, and 2013.

In general, we believe we have adequate supplies of sourced products. However, we cannot guarantee that the supply will remain adequate.

Seasonality

Generally, our sales in North America and Europe tend to be stronger in the second and third quarters of our fiscal year due to more favorable weather conditions, customer business cycles, the timing of renovation, home sales and new construction. We see similar patterns with respect to our sales in the Pacific Rim, though the timing of the Chinese New Year can affect buying behaviors.

Patent and Intellectual Property Rights

Patent protection is important to our business. Our competitive position has been enhanced by U.S. and foreign patents on products and processes developed or perfected within AWI or obtained through acquisitions and licenses. In addition, we benefit from our trade secrets for certain products and processes.

Patent protection extends for varying periods according to the date of patent filing or grant and the legal term of a patent in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies. Although we consider that, in the aggregate, our patents, licenses and trade secrets constitute a valuable asset of material importance to our business, we do not regard any of our businesses as being materially dependent upon any single patent or trade secret, or any group of related patents or trade secrets.

Certain of our trademarks, including without limitation, LOGO , Armstrong ^® , Alterna ^® , American Scrape ^® , BBT ^® , BioBased Tile ^® , BioGuard™, Bruce ^® , Cirrus ^® , Cortega ^® , Diamond 10™, Dundee ^® , Dune™, Excelon ^® , Huiyi™, Humiguard ^® , Imperial ^® , Initiator™, Inspiring Great Spaces ^® , Laurel™, Lock & Fold ^® , Luxe Plank ^® , Manchester ^® , Medintech ^® , Memories™, MetalWorks™, Natural Creations ^® , Optima ^® , Perla™, Plano ^® , Stonetex ^® , Station Square™, StrataMax ^® , Timberline ^® , ToughGuard ^® , Ultima ^® , Vivero™, and WoodWorks ^® , are important to our business because of their significant brand name recognition. Trademark protection continues in some countries as long as the mark is used, and continues in other countries as long as the mark is registered. Registrations are generally for fixed, but renewable, terms.

We review the carrying value of trademarks annually for potential impairment. See the “Critical Accounting Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K for further information.

Employees

As of December 31, 2015, we had approximately 7,600 full-time and part-time employees worldwide. Approximately 53% of our 3,500 production and maintenance employees in the U.S. are represented by labor unions. Outside the U.S., most of our production employees are covered by either industry-sponsored and/or state-sponsored collective bargaining mechanisms. We believe that our relations with our employees are satisfactory.

Research & Development

Research and development (“R&D”) activities are important and necessary in helping us improve our products’ competitiveness. Principal R&D functions include the development and improvement of products and manufacturing processes. We spent $31.1 million in 2015, $30.6 million in 2014 and $29.3 million in 2013 on R&D activities worldwide.

Sustainability and Environmental Matters

The adoption of environmentally responsible building codes and standards such as the Leadership in Energy and Environmental Design, or LEED, rating system established by the U.S. Green Building Council, has the potential to increase demand for products, systems and services that contribute to building sustainable spaces. Many of our products meet the requirements for the award of LEED credits, and we are continuing to develop new products, systems and services to address market demand for products that enable construction of buildings that require fewer natural resources to build, operate and maintain. Our competitors also have developed and introduced to the market products with an increased focus on sustainability.

We expect that there will be increased demand over time for products, systems and services that meet evolving regulatory and customer sustainability standards and preferences and decreased demand for products that produce significant greenhouse gas emissions. We also believe that our ability to continue to provide these products, systems and services to our customers will be necessary to maintain our competitive position in the marketplace. We are committed to complying with all environmental laws and regulations that are applicable to our operations.

Legal and Regulatory Proceedings

Regulatory activities of particular importance to our operations include proceedings under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), and state or international Superfund and similar type environmental laws governing several domestically- and internationally owned, formerly owned and non-owned locations allegedly resulting from past industrial activity. In a few cases, we are one of several potentially responsible parties (“PRPs”) and have agreed to jointly fund the required investigation and remediation, while preserving our defenses to the liability.

We may also have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies. Most of our manufacturing and certain of our research facilities are affected by various federal, state and local environmental requirements relating to the discharge of materials or the protection of the environment. We make expenditures necessary for compliance with applicable environmental requirements at each of our operating facilities.

We are involved in various lawsuits, claims, investigations and other legal matters from time to time that arise in the ordinary course of conducting business, including matters involving our products, intellectual property, relationships with suppliers, distributors, relationships with competitors, employees and other matters. For example, we are currently a party to various litigation matters that involve product liability, tort liability and other claims under a wide range of 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. In some cases, these allegations involve multiple defendants and relate to legacy products that we and other defendants purportedly manufactured or sold. We believe these claims and allegations to be without merit and intend to defend them vigorously. While complete assurance cannot be given to the outcome of these proceedings, we do not believe that any of these matters, individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations.

We have not experienced a material adverse effect upon our capital expenditures or competitive position as a result of environmental control legislation and regulations. Liabilities of $6.0 million and $4.4 million at December 31, 2015 and December 31, 2014, respectively, were recorded for potential environmental liabilities, on a global basis, that we consider probable and for which a reasonable estimate of the probable liability could be made. See Note 27 to the Consolidated Financial Statements and Risk Factors in Item 1A of this Form 10-K, for information regarding the possible effects that compliance with environmental laws and regulations may have on our businesses and operating results.

Website

We maintain a website at http://www.armstrong.com. Information contained on our website is not incorporated into this document. Reference in this Form 10-K to our website is an inactive text reference only. Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, all amendments to those reports and other information about us are available free of charge through this website as soon as reasonably practicable after the reports are electronically filed with the SEC. These materials are also available from the SEC’s website at www.sec.gov.

ITEM 1A.

RISK FACTORS

Worldwide economic conditions could have a material adverse impact on our financial condition, liquidity or results of operations.

Our business is influenced by conditions in domestic and foreign economies, including inflation, deflation, interest rates, availability and cost of capital, consumer spending rates, energy availability and the effects of governmental initiatives to manage economic conditions. Volatility in financial markets and the continued softness or further deterioration of national and global economic conditions could have a material adverse effect on our financial condition, liquidity or results of operations, including as follows:

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the financial stability of our customers or suppliers may be compromised, which could result in additional bad debts for us or non-performance by suppliers;

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commercial and residential consumers of our products may postpone spending in response to tighter credit, negative financial news and/or stagnation or further declines in income or asset values, which could have a material adverse impact on the demand for our product;

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the net asset value of the investment funds underlying our defined benefit pension plans may decline, which could result in negative plan investment performance and additional charges which may involve significant cash contributions to such plans, to meet obligations or regulatory requirements; and

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our asset impairment assessments and underlying valuation assumptions may change, which could result from changes to estimates of future sales and cash flows that may lead to substantial impairment charges.

Continued or sustained deterioration of economic conditions would likely exacerbate and prolong these adverse effects.

Our business is dependent on construction activity. Downturns in construction activity could adversely affect our financial condition, liquidity or results of operations.

Our businesses have greater sales opportunities when construction activity is strong and, conversely, have fewer opportunities when such activity declines. The cyclical nature of commercial and residential construction activity, including construction activity funded by the public sector, tends to be influenced by prevailing economic conditions, including the rate of growth in gross domestic product, prevailing interest rates, government spending patterns, business, investor and consumer confidence and other factors beyond our control. Prolonged downturns in construction activity could have a material adverse effect on our financial condition, liquidity or results of operations.

Our plan to separate into two independent publicly-traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.

On February 23, 2015, we announced that our board of directors unanimously approved a plan to separate our Resilient Flooring and Wood Flooring segments from our Building Products (Ceilings) segment. The separation will be effected by allocating the assets and liabilities related primarily to the Resilient Flooring and Wood Flooring segments to Armstrong Flooring, Inc. (“AFI”) and then distributing the common stock of AFI to AWI’s shareholders. The separation and distribution will result in AWI and AFI becoming two independent, publicly-traded companies, with AFI owning and operating the Resilient Flooring and Wood Flooring segments and AWI continuing to own and operate the Building Products (Ceilings) segment. Completion of the separation will be contingent upon customary closing conditions, including, among other things, authorization and approval of our board of directors of the final terms of the separation, receipt of a

legal opinion regarding the tax-free status of the transaction, execution of intercompany agreements, the effectiveness of a registration statement on Form 10 with the SEC, and market and certain other conditions. For these and other reasons, the separation may not be completed during the first quarter of 2016, as currently anticipated, if at all.

Regardless of whether or not the separation is completed, our ongoing businesses may be adversely affected and we may be subject to certain risks and consequences, including, among others, the following:

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execution of the separation will require significant time and attention from management, which may distract management from the operation of our businesses and the execution of other initiatives that may have been beneficial to us;

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we may experience unanticipated competitive developments, including changes in the conditions of our flooring and ceilings business’s respective markets;

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we may experience increased difficulties in attracting, retaining and motivating employees during the pendency of the separation and following its completion;

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we will be required to pay certain costs and expenses relating to the transaction, such as legal, accounting and other professional fees, and may be required to pay certain non-U.S. tax costs resulting from internal restructurings whether or not the spinoff is completed; and

•

we may experience negative reactions from the financial markets if we fail to complete the transaction.

Any of these factors could have a material adverse effect on our business, financial condition, results of operations and the price of our common stock.

The separation may not be beneficial.

We may not realize strategic, financial, operational or other benefits from the separation. As independent publicly-traded companies, the Company and AFI will be smaller, less diversified companies with a narrower business focus and may be more vulnerable to changing market conditions, which could materially and adversely affect their respective business, financial condition and results of operations.

Further, there can be no assurance that the combined value of the common stock of the two publicly-traded companies will be equal to or greater than what the value of our common stock would have been had the separation not occurred.

The separation may result in disruptions to, and negatively impact our relationships with, our customers and other business partners and the relationships with the customers and other business partners of AFI.

Uncertainty related to the separation may lead customers and other parties with which we currently do business or with which we and AFI may do business in the future to terminate or attempt to negotiate changes in existing business relationships, or consider entering into business relationships with parties other than us or AFI. These disruptions could have a material and adverse effect on our or AFI’s businesses, financial condition, results of operations and prospects. The effect of such disruptions could be exacerbated by any delays in the completion of the separation.

If the separation and distribution fails to qualify as a tax-free transaction for U.S. federal income tax purposes, then AFI, AWI and AWI’s shareholders could be subject to significant tax liability or tax indemnity obligations.

It is a condition to the distribution that we receive an opinion from our special tax counsel, on the basis of certain facts, representations, covenants and assumptions set forth in such opinion, substantially to the effect that, for U.S. federal income tax purposes, the separation and distribution should qualify as a transaction that generally is tax-free to us and our shareholders, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code.

Notwithstanding the tax opinion, the Internal Revenue Service (“IRS”) could determine on audit that the distribution should be treated as a taxable transaction if it determines that any of the facts, assumptions, representations or covenants set forth in the tax opinion is not correct or has been violated, or that the distribution should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the distribution, or if the IRS were to disagree with the conclusions of the tax opinion. If the distribution is ultimately determined to be taxable, the distribution could be treated as a taxable dividend to each U.S. holder of our common shares who receives shares of AFI in connection with the spinoff for U.S. federal income tax purposes, and such shareholders could incur significant U.S. federal income tax liabilities. In addition, we and/or AFI could incur significant U.S. federal income tax liabilities or tax indemnification obligations, whether under applicable law or the tax matters agreement that we will enter into with AFI, if it is ultimately determined that certain related transactions undertaken in anticipation of the distribution are taxable.

Our markets are highly competitive. Competition can reduce demand for our products or cause us to lower prices. Failure to compete effectively by meeting consumer preferences and maintaining market share could adversely affect our results.

Our markets are highly competitive. Competition can reduce demand for our products, negatively affect our product sales mix or cause us to lower prices. Failure to compete effectively by meeting consumer preferences and maintaining market share could have a material adverse effect on our financial condition, liquidity or results of operations. Our customers consider our products’ performance, product styling, customer service and price when deciding whether to purchase our products. Shifting consumer preference in our highly competitive markets, from residential resilient products to other flooring products, for example, whether for performance or styling preferences or our inability to develop and offer new competitive performance features could have an adverse effect on our sales. In addition, excess industry capacity for certain products in several geographic markets could lead to industry consolidation and/or increased price competition. We are also subject to potential increased price competition from overseas competitors which may have lower cost structures.

Sales fluctuations to and changes in our relationships with key customers could have a material adverse effect on our financial condition, liquidity or results of operations.

Some of our business lines and markets are dependent on a few key customers, including independent distributors. We generally do not enter into written or long-term agreements with our independent distributors. The loss, reduction, or fluctuation of sales to one of these major customers, or any adverse change in our business relationship with any one of them, could have a material adverse effect on our financial condition, liquidity or results of operations.

If the availability of raw materials or energy decreases, or the costs increase, and we are unable to pass along increased costs, our financial condition, liquidity or results of operations could be adversely affected.

The availability and cost of raw materials, packaging materials, energy and sourced products are critical to our operations. For example, we use substantial quantities of natural gas, petroleum-based raw materials and hardwood lumber in our manufacturing operations. The cost of some of these items has been volatile in recent years and availability has been limited at times. We source some materials from a limited number of suppliers, which, among other things, increases the risk of unavailability. Limited availability could cause us to reformulate products or limit our production. Decreased access to raw materials and energy or significant increased cost to purchase these items and any corresponding inability to pass along such costs through price increases could have a material adverse effect on our financial condition, liquidity or results of operations.

We are subject to risks associated with our international operations in both established and emerging markets. Legislative, political, regulatory and economic volatility, as well as vulnerability to infrastructure and labor disruptions, could have an adverse effect on our financial condition, liquidity or results of operations.

A significant portion of our products move in international trade, with approximately 20% of our revenues from operations outside the United States and Canada in 2015. See Note 3 to the Consolidated Financial Statements for further information. Our international trade is subject to currency exchange fluctuations, trade regulations, import duties, logistics costs, delays and other related risks. Our international operations are also subject to various tax rates, credit risks in emerging markets, political risks, uncertain legal

systems, high costs in repatriating profits to the United States from some countries, and loss of sales to local competitors following currency devaluations in countries where we import products for sale. In addition, our international growth strategy depends in part on our ability to expand our operations in certain emerging markets. However, some emerging markets have greater political and economic volatility and greater vulnerability to infrastructure and labor disruptions than established markets.

In addition, in many countries outside of the United States, particularly in those with developing economies, it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act or similar local anti-corruption or anti-bribery laws. These laws generally prohibit companies and their employees, contractors or agents from making improper payments to government officials for the purpose of obtaining or retaining business. Failure to comply with these laws, as well as U.S. and foreign export and trading laws, could subject us to civil and criminal penalties. As we continue to expand our business globally, including in emerging markets, we may have difficulty anticipating and effectively managing these and other risks that our international operations may face, which may adversely affect our business outside the United States and our financial condition, liquidity or results of operations.

The agreements that govern our indebtedness contain a number of covenants that impose significant operating and financial restrictions, including restrictions on our ability to engage in activities that may be in our best long-term interests.

The agreements that govern our indebtedness include covenants that, among other things, may impose significant operating and financial restrictions, including restrictions on our ability to engage in activities that may be in our best long-term interests. These covenants may restrict our ability to:

•

incur additional debt;

•

pay dividends on or make other distributions in respect of our capital stock or redeem, repurchase or retire our capital stock or subordinated debt or make certain other restricted payments;

•

make certain acquisitions;

•

sell certain assets;

•

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

•

create liens on certain assets to secure debt.

Under the terms of our senior secured credit facility, we are required to maintain specified leverage and interest coverage ratios. Our ability to meet these ratios could be affected by events beyond our control, and we cannot assure that we will meet them. A breach of any of the restrictive covenants or ratios would result in a default under the senior secured credit facility. If any such default occurs, the lenders under the senior secured credit facility may be able to elect to declare all outstanding borrowings under our facilities, together with accrued interest and other fees, to be immediately due and payable, or enforce their security interest. The lenders may also have the right in these circumstances to terminate commitments to provide further borrowings.

Our indebtedness may adversely affect our cash flow and our ability to operate our business, make payments on our indebtedness and declare dividends on our capital stock.

Our level of indebtedness and degree of leverage could:

•

make it more difficult for us to satisfy our obligations with respect to our indebtedness;

•

make us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

•

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•

place us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, more able to take advantage of opportunities that our leverage prevents us from exploiting;

•

limit our ability to refinance existing indebtedness or borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other purposes;

•

restrict our ability to pay dividends on our capital stock; and

•

adversely affect our credit ratings.

We may also incur additional indebtedness, which could exacerbate the risks described above. In addition, to the extent that our indebtedness bears interest at floating rates, our sensitivity to interest rate fluctuations will increase.

Any of the above listed factors could materially adversely affect our financial condition, liquidity or results of operations.

We require a significant amount of liquidity to fund our operations, and borrowing has increased our vulnerability to negative unforeseen events.

Our liquidity needs vary throughout the year. If our business experiences materially negative unforeseen events, we may be unable to generate sufficient cash flow from operations to fund our needs or maintain sufficient liquidity to operate and remain in compliance with our debt covenants, which could result in reduced or delayed planned capital expenditures and other investments and adversely affect our financial condition or results of operations.

Our WAVE joint venture is important to our financial results, and if there is a change with respect to our partner that adversely impacts its relationship with us, WAVE’s performance could be adversely impacted.

Our equity investment in our WAVE joint venture remains important to our financial results. We believe an important element in the success of this joint venture is the relationship with our partner, Worthington Industries, Inc. If there is a change in ownership, a change of control, a change in management or management philosophy, a change in business strategy or another event with respect to our partner that adversely impacts our relationship, WAVE’s performance could be adversely impacted. In addition, our partner may have economic or business interests or goals that are different from or inconsistent with our interests or goals, which may impact our ability to influence or align WAVE’s strategy and operations.

We may be subject to liability under and may make substantial future expenditures to comply with environmental laws and regulations, which could materially adversely affect our financial condition, liquidity or results of operations.

We are involved with environmental investigation and remediation activities for which our ultimate liability may exceed the currently estimated and accrued amounts. It is possible that we could become subject to additional environmental matters and corresponding liabilities in the future. See Note 27 to the Consolidated Financial Statements for further information related to our environmental matters.

The building materials industry has been subject to claims relating to raw materials such as silicates, polychlorinated biphenyl (“PCB”), PVC, formaldehyde, fire-retardants and claims relating to other issues such as mold and toxic fumes, as well as claims for incidents of catastrophic loss, such as building fires. We have not received any significant claims involving our raw materials or our product performance; however, product liability insurance coverage may not be available or adequate in all circumstances to cover claims that may arise in the future.

In addition, our operations are subject to various domestic and foreign environmental, health, and safety laws and regulations. These laws and regulations not only govern our current operations and products, but also impose potential liability on us for our past operations. Our costs to comply with these laws and regulations may increase as these requirements become more stringent in the future, and these increased costs may materially adversely affect our financial condition, liquidity or results of operations.

We may pursue strategic transactions that could create risks and present unforeseen integration obstacles or costs, any of which could materially adversely affect our financial condition, liquidity or results of operations.

We have evaluated, and expect to continue to evaluate, potential strategic transactions as opportunities arise. We routinely engage in discussions with third parties regarding potential transactions, including joint ventures, which could be significant. Any such strategic transaction involves a number of risks, including potential disruption of our ongoing business and distraction of management, difficulty with integrating or separating personnel and business operations and infrastructure, and increasing or decreasing the scope, geographic diversity and complexity of our operations. Strategic transactions could involve payment by us of a substantial amount of cash, assumption of liabilities and indemnification obligations, regulatory requirements, incurrence of a substantial amount of debt or issuance of a substantial amount of equity. Certain strategic opportunities may not result in the consummation of a transaction or may fail to realize the intended benefits and synergies. If we fail to consummate and integrate our strategic transactions in a timely and cost-effective manner, our financial condition, liquidity or results of operation could be materially and adversely affected.

Our plant construction projects may adversely impact our results.

We recently completed several large plant construction projects, including two resilient flooring plants and one mineral fiber ceilings plant in China and, in the first quarter of 2015, a mineral fiber ceilings plant in Russia. In addition, we are adding manufacturing capability to our Lancaster, PA flooring plant to manufacture LVT in North America. Economic and competitive advantages and returns expected from these projects may not fully materialize as a result of changes in market conditions. In addition, there can be no assurance that the actual cost of building and operating our LVT plant in North America will not exceed our projections, and we may experience delays in this project for many reasons, including unavailability of raw materials, labor or equipment or regulatory matters.

Negative tax consequences can have an unanticipated effect on our financial results.

We are subject to the tax laws of the many jurisdictions in which we operate. The tax laws are complex, and the manner in which they apply to our operations and results is sometimes open to interpretation. Because our income tax expense for any period depends heavily on the mix of income derived from the various taxing jurisdictions, our income tax expense and reported net income may fluctuate significantly, and may be materially different than forecasted or experienced in the past. Our financial condition, liquidity, results of operations or tax liability could be adversely affected by changes in the effective tax rate as a result of a change in the mix of earnings in countries with differing statutory tax rates, changes in our overall profitability, changes in tax legislation and rates, changes in the amount of earnings permanently reinvested offshore, the results of examinations of previously filed tax returns, and ongoing assessments of our tax exposures.

Our financial condition, liquidity, results of operations or tax liability could also be adversely affected by changes in the valuation of deferred tax assets and liabilities. We have substantial deferred tax assets related to United States domestic foreign tax credits, or FTCs, and state net operating losses, or NOLs, which are available to reduce our U.S. income tax liability and to offset future state taxable income. However, our ability to utilize the current carrying value of these deferred tax assets may be impacted as a result of certain future events, such as changes in tax legislation and insufficient future taxable income prior to expiration of the FTCs and NOLs.

Significant changes in factors and assumptions used to measure our defined benefit plan obligations, actual investment returns on pension assets and other factors could negatively impact our operating results and cash flows.

We maintain pension and postretirement plans throughout the world, with the most significant plans located in the U.S. The recognition of costs and liabilities associated with these plans for financial reporting purposes is affected by assumptions made by management and used by actuaries engaged by us to calculate the benefit obligations and the expenses recognized for these plans.

The inputs used in developing the required estimates are calculated using a number of assumptions, which represent management’s best estimate of the future. The assumptions that have the most significant impact on reported results are the discount rate, the estimated long-term return on plan assets for the funded plans, retirement rates, and mortality rates and, for postretirement plans, the estimated inflation in health care costs. These assumptions are generally updated annually.

Our pension plans were underfunded by approximately $104.0 million as of December 31, 2015. Our unfunded postretirement plan liabilities were approximately $190.3 million as of December 31, 2015. In recent years, the declining interest rates and changes to mortality assumptions have negatively impacted the funded status of our pension and postretirement plans. In addition, volatile asset performance, most notably since 2008, has also negatively impacted the funded status of our pension plans. Funding requirements for our pension plans may become more significant. If our cash flows and capital resources are insufficient to fund our pension and postretirement plans obligations, we could be forced to reduce or delay investments and capital expenditures, seek additional capital, or restructure or refinance our indebtedness.

Adverse judgments in regulatory actions, product claims, environmental claims and other litigation could be costly. Insurance coverage may not be available or adequate in all circumstances.

In the ordinary course of business, we are subject to various claims and litigation. Any such claims, whether with or without merit, could be time consuming and expensive to defend and could divert management’s attention and resources. While we strive to ensure that our products comply with applicable government regulatory standards and internal requirements, and that our products perform effectively and safely, customers from time to time could claim that our products do not meet warranty or contractual requirements, and users could claim to be harmed by use or misuse of our products. These claims could give rise to breach of contract, warranty or recall claims, or claims for negligence, product liability, strict liability, personal injury or property damage. They could also result in negative publicity.

In addition, claims and investigations may arise related to patent infringement, distributor relationships, commercial contracts, antitrust or competition law requirements, employment matters, employee benefits issues, and other compliance and regulatory matters, including anti-corruption and anti-bribery matters. For example, we are currently a party to various litigation matters that involve product liability, tort liability and other claims under a wide range of 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. In some cases, these allegations involve multiple defendants and relate to legacy products that we and other defendants purportedly manufactured or sold. While we have processes and policies designed to mitigate these risks and to investigate and address such claims as they arise, we cannot predict or, in some cases, control the costs to defend or resolve such claims.

We currently maintain insurance against some, but not all, of these potential claims. In the future, we may not be able to maintain insurance at commercially acceptable premium levels. In addition, the levels of insurance we maintain may not be adequate to fully cover any and all losses or liabilities. If any significant judgment or claim is not fully insured or indemnified against, it could have a material adverse impact. We cannot assure that the outcome of all current or future litigation will not have a material adverse effect on our financial condition, liquidity or results of operations.

Increased costs of labor, labor disputes, work stoppages or union organizing activity could delay or impede production and could have a material adverse effect on our financial condition, liquidity or results of operations.

Increased costs of U.S. and international labor, including the costs of employee benefits plans, labor disputes, work stoppages or union organizing activity could delay or impede production and have a material adverse effect on our financial condition, liquidity or results of operations. As the majority of our manufacturing employees are represented by unions and covered by collective bargaining or similar agreements, we often incur costs attributable to periodic renegotiation of those agreements, which may be difficult to project. We are also subject to the risk that strikes or other conflicts with organized personnel may arise or that we may become the subject of union organizing activity at our facilities that do not currently have union representation. Prolonged negotiations, conflicts or related activities could also lead to costly work stoppages and loss of productivity.

Our intellectual property rights may not provide meaningful commercial protection for our products or brands, which could adversely impact our financial condition, liquidity or results of operations.

We rely on our proprietary intellectual property, including numerous patents and registered trademarks, as well as our licensed intellectual property to market, promote and sell our products. We monitor and protect against activities that might infringe, dilute, or otherwise harm our patents, trademarks and other intellectual property and rely on the patent, trademark and other laws of the United States and other countries. However, we may be unable to prevent third parties from using our intellectual property without our authorization. In addition, the laws of some non-United States jurisdictions, particularly those of certain emerging markets, provide less protection for our proprietary rights than the laws of the United States and present greater risks of counterfeiting and other infringement. To the extent we cannot protect our intellectual property, unauthorized use and misuse of our intellectual property could harm our competitive position and have a material adverse effect on our financial condition, liquidity or results of operations.

Our cost saving initiatives may not achieve expected savings in our operating costs or improved operating results.

We aggressively look for ways to make our operations more efficient and effective. We reduce, move and expand our plants and operations as needed. Such actions involve substantial planning, often require capital investments and may result in charges for fixed asset impairments or obsolescence and substantial severance costs. Our ability to achieve cost savings and other benefits within expected time frames is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our financial condition, liquidity or results of operations could be materially and adversely affected.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

Our world headquarters is in Lancaster, Pennsylvania. We own a 100-acre, multi-building campus comprising the site of our corporate headquarters, most of our operational headquarters, our U.S. R&D operations and marketing, and customer service headquarters.

We produce and market Armstrong products and services throughout the world, operating 32 manufacturing plants in nine countries as of December 31, 2015. Four of our plants are leased and the remaining 28 are owned. We operate 20 plants located throughout the United States. In addition, our WAVE joint venture operates 10 additional plants in five countries.


Business Segment	Number of Plants	Location of Principal Facilities
Building Products	15	U.S. (Florida, Georgia, Ohio, Oregon, Pennsylvania and West Virginia), Austria, Canada, China, France, Germany, Russia and the U.K.

Resilient Flooring	9	U.S. (California, Illinois, Mississippi, Oklahoma and Pennsylvania), Australia and China

Wood Flooring	8	U.S. (Arkansas, Kentucky, Mississippi, Missouri, Pennsylvania, Tennessee and West Virginia)

During the first quarter of 2015 we completed the construction of a mineral fiber ceiling plant in Russia. During the fourth quarter of 2015, we decided to idle one of our Buildings Products facilities in China in 2016.

Sales and administrative offices are leased and/or owned worldwide, and leased facilities are utilized to supplement our owned warehousing facilities.

Production capacity and the extent of utilization of our facilities are difficult to quantify with certainty. In any one facility, utilization of our capacity varies periodically depending upon demand for the product that is being manufactured. We believe our facilities are adequate and suitable to support the business. Additional incremental investments in plant facilities are made as appropriate to balance capacity with anticipated demand, improve quality and service, and reduce costs.

ITEM 3.

LEGAL PROCEEDINGS

See the “Specific Material Events” section of the “Environmental Matters” section of Note 27 to the Consolidated Financial Statements, which is incorporated herein by reference, for a description of our significant legal proceedings.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

AWI’s common shares trade on the New York Stock Exchange under the ticker symbol “AWI.” As of February 17, 2016, there were approximately 320 holders of record of AWI’s common stock.


	First		Second		Third		Fourth		Total Year
2015
Price range of common stock - high	$	58.42	$	58.96	$	60.70	$	52.33	$	60.70
Price range of common stock - low	$	48.60	$	52.94	$	46.47	$	44.43	$	44.43

2014
Price range of common stock - high	$	61.90	$	58.00	$	59.90	$	56.03	$	61.90
Price range of common stock - low	$	51.31	$	50.98	$	48.35	$	44.00	$	44.00

The above figures represent the high and low intra-day sale prices for our common stock as reported by the New York Stock Exchange.

There were no dividends declared during 2015 or 2014.

Dividends are paid when declared by our Board of Directors and in accordance with restrictions set forth in our debt agreements. In general, our debt agreements allow us to make “restricted payments,” which include dividends and stock repurchases, subject to certain limitations and other restrictions and provided that we are in compliance with the financial and other covenants of our debt agreements and meet certain liquidity requirements after giving effect to the restricted payment. For further discussion of the debt agreements, see the financial condition and liquidity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Risk Factors in Item 1A in this Form 10-K.

Issuer Purchases of Equity Securities


Period	Total Number of Shares Purchased ¹		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ²	Maximum Number of Shares that may yet be Purchased under the Plans or Programs
October 1 – 31, 2015		158	$	51.17	—	—
November 1 – 30, 2015		—		—	—	—
December 1 – 31, 2015		—		—	—	—

Total		158			N/A	N/A

¹	Shares reacquired through the withholding of shares to pay employee tax obligations upon the exercise of options or vesting of restricted shares previously granted under the 2011 Long Term Incentive Plan.

²	The Company does not presently have a share buy-back program.

For more information regarding securities authorized for issuance under our equity compensation plans, see Note 21 to the Consolidated Financial Statements included in this Form 10-K.

ITEM 6.

SELECTED FINANCIAL DATA

The following selected historical consolidated financial data should be read in conjunction with our audited consolidated financial statements, the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-K. The selected historical consolidated financial data for the periods presented have been derived from our audited consolidated financial statements.


	2015		2014		2013		2012		2011
(amounts in millions, except for per-share data)
Income statement data
Net sales	$	2,420.0	$	2,515.3	$	2,527.4	$	2,428.7	$	2,482.9
Operating income		187.4		239.1		265.6		284.9		268.5
Earnings from continuing operations		52.6		102.0		127.3		158.6		141.6
Per common share - basic (a)	$	0.95	$	1.85	$	2.19	$	2.67	$	2.41
Per common share - diluted (a)	$	0.94	$	1.83	$	2.17	$	2.65	$	2.39

Dividends declared per share of common stock		—		—		—	$	8.55		—

Balance sheet data (end of period)
Total assets	$	2,691.9	$	2,606.2	$	2,916.6	$	2,854.3	$	2,994.7
Long-term debt		950.9		1,003.0		1,042.6		1,038.0		822.9
Total shareholders’ equity		768.8		649.1		673.2		719.1		1,130.2

Notes:

(a)	See definition of basic and diluted earnings per share in Note 2 to the Consolidated Financial Statements.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Armstrong World Industries, Inc. (“AWI”) is a Pennsylvania corporation incorporated in 1891.

This discussion should be read in conjunction with the financial statements, the accompanying notes, the cautionary note regarding forward-looking statements and risk factors included in this Form 10-K.

Overview

On February 23, 2015, we announced that our board of directors unanimously approved a plan to separate our Resilient Flooring and Wood Flooring segments from our Building Products (Ceilings) segment. The separation will be effected by allocating the assets and liabilities related primarily to the Resilient Flooring and Wood Flooring segments to Armstrong Flooring, Inc. (“AFI”) and then distributing the common stock of AFI to AWI’s shareholders. The separation and distribution will result in AWI and AFI becoming two independent, publicly-traded companies, with AFI owning and operating the Resilient Flooring and Wood Flooring segments and AWI continuing to own and operate the Building Products (Ceilings) segment. The effective date of the separation is expected to be near the end of the first quarter of 2016.

On December 4, 2014, our Board of Directors approved the cessation of funding to our former DLW subsidiary, which was our former European Resilient Flooring business. This decision followed a comprehensive evaluation of the strategic alternatives for the business. As a result of this decision, DLW management concluded that its operations could not be financed and sustained without funding from us and filed for insolvency in Germany on December 11, 2014. See Note 4 to the Consolidated Financial Statements for more information.

During 2015 we opened a mineral fiber ceiling plant in Russia. As of December 31, 2015, we operated 32 manufacturing plants in nine countries, including 20 plants located throughout the U.S.

Worthington Armstrong Venture (“WAVE”), our joint venture with Worthington Industries, Inc., operates 10 additional plants in five countries to produce suspension system (grid) products which we use in our ceiling systems.

We report our financial results through the following segments: Building Products, Resilient Flooring, Wood Flooring, and Unallocated Corporate. See “Results of Operations” and “Reportable Segment Results” for additional financial information on our consolidated company and our segments.

Factors Affecting Revenues

For information on our segments’ 2015 net sales by geography, see Note 3 to the Consolidated Financial Statements included in this Form 10-K.

Markets. We compete in building material markets around the world. The majority of our sales are in North America. We closely monitor publicly available macroeconomic trends that provide insight to commercial and residential market activity including Gross Domestic Product, the Architecture Billings Index and the Consumer Confidence Index. In addition, we noted several factors and trends within our markets that directly affected our business performance during 2015, including:

Americas

For Building Products, we experienced growth from new construction and a decline in renovation activity. However, we continue to see some regional softness in the U.S. commercial office markets and weakness in retail markets, particularly in Canada as devaluation of the Canadian Dollar impacted market growth. Our Resilient commercial flooring markets saw improvement in education demand but continuing weakness in healthcare, while retail markets showed a slight decline.

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

Residential markets continued to show improvement in both builder activity and renovation activity. However, due to market conditions, we experienced continued competitive pricing actions in our Wood and Resilient Flooring businesses.

Europe, Middle East and Africa (“EMEA”)

We experienced continued softness in commercial sectors, such as office, education and healthcare. Overall market softness was exacerbated by the decline in global oil prices which heavily impacted market growth opportunities in economies closely linked to oil, such as Russia and the Middle East. These factors combined with the significant volatility in the Russian Ruble and its overall market impact contributed to mixed results across EMEA. These trends impacted our Building Products business.

Pacific Rim

Commercial markets for our Building Products businesses grew throughout the Pacific Rim with the exception of China where the office market continues to be soft. Commercial markets grew throughout the Pacific Rim for our Resilient Flooring business including slight growth in China, driven by the healthcare and education market segments.

Pricing Initiatives . We periodically modify prices in each of our business segments due to changes in costs for raw materials and energy, and to market conditions and the competitive environment. In certain cases, realized price increases are less than the announced increases because of competitive reactions and changing market conditions. We estimate that pricing actions increased our 2015 consolidated net sales by approximately $10 million, compared to 2014.

In the fourth quarter of 2015, we implemented price increases in our Building Products business in the Pacific Rim and on select products in our Resilient and Wood Flooring businesses in Canada to offset currency devaluations. We also announced price increases on select Resilient Flooring products in Canada and in our Building Products businesses in the Americas, EMEA, and the Pacific Rim effective in the first quarter of 2016. We may implement additional pricing actions based upon future movements in raw materials prices or foreign currency valuations.

Mix. Each of our businesses offers a wide assortment of products that are differentiated by style, design and performance attributes. Pricing and margins for products within the assortment vary. Changes in the relative quantity of products purchased at the different price points can impact year-to-year comparisons of net sales and operating income. We estimate that mix improvements increased our 2015 consolidated net sales by approximately $23 million, compared to 2014.

Factors Affecting Operating Costs

Operating Expenses. Our operating expenses are comprised of direct production costs (principally raw materials, labor and energy), manufacturing overhead costs, freight, costs to purchase sourced products and selling, general and administrative (“SG&A”) expenses.

Our largest individual raw material expenditures include lumber and veneers, PVC resins and plasticizers. Natural gas is also a significant input cost. Fluctuations in the prices of these inputs are generally beyond our control and have a direct impact on our financial results. In 2015, the costs for raw materials, sourced products and energy positively impacted operating income by approximately $53 million, compared to 2014.

During 2015, we incurred approximately $9 million of severance and other charges associated with cost reduction actions in EMEA and our decision to idle one of our Building Products plants in China in 2016.

We continue to evaluate the efficiency of our manufacturing footprint and may take additional actions in support of our cost and standardization initiatives. The charges associated with any additional cost reduction initiatives could include severance and related termination benefits, fixed asset write-downs, asset impairments and accelerated depreciation and may be material to our financial statements.

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

See also “Results of Operations” for further discussion of other significant items affecting operating costs.

Employees

As of December 31, 2015, we had approximately 7,600 full-time and part-time employees worldwide, compared to approximately 7,400 employees as of December 31, 2014. The majority of the increase related to staff additions at our Alabuga, Russia mineral fiber ceiling plant, which began operating in 2015, along with higher staffing levels in our Americas flooring business.

During 2015, we negotiated collective bargaining agreements covering approximately 500 employees at two U.S. plants. Collective bargaining agreements covering approximately 150 employees at two North American plants will expire during 2016.

CRITICAL ACCOUNTING ESTIMATES

In preparing our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), we are required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on an on-going basis, using relevant internal and external information. We believe that our estimates and assumptions are reasonable. However, actual results may differ from what was estimated and could have a significant impact on the financial statements.

We have identified the following as our critical accounting estimates. We have discussed these critical accounting estimates with our Audit Committee.

U.S. Pension Credit and Postretirement Benefit Costs – We maintain pension and postretirement plans throughout the world, with the most significant plans located in the U.S. Our defined benefit pension and postretirement benefit costs are developed from actuarial valuations. These valuations are calculated using a number of assumptions, which represent management’s best estimate of the future. The assumptions that have the most significant impact on reported results are the discount rate, the estimated long-term return on plan assets and the estimated inflation in health care costs. These assumptions are generally updated annually.

The discount rate is used to determine retirement plan liabilities and to determine the interest cost component of net periodic pension and postretirement cost. Management utilizes the Aon Hewitt AA only above median yield curve, which is a hypothetical AA yield curve comprised of a series of annualized individual discount rates, as the primary basis for determining the discount rate. As of December 31, 2015 and 2014, we assumed discount rates of 4.40% and 4.05%, respectively, for the U.S. defined benefit pension plans. As of December 31, 2015, we assumed a discount rate of 4.25% compared with a discount rate of 3.90% as of December 31, 2014 for the U.S. postretirement plans. The effects of the change in discount rate will be amortized into earnings as described below. Absent any other changes, a one-quarter percentage point decrease in the discount rates for the U.S. pension and postretirement plans would decrease 2016 operating income by $6.1 million and a one-quarter percentage point increase in the discount rates would increase 2016 operating income by $5.8 million.

We manage two U.S. defined benefit pension plans, a qualified funded plan and a nonqualified unfunded plan. For the qualified funded plan, the expected long-term return on plan assets represents a long-term view of the future estimated investment return on plan assets. This estimate is determined based on the target allocation of plan assets among asset classes and input from investment professionals on the expected performance of the asset classes over 10 to 30 years. Historical asset returns are monitored and considered when we develop our expected long-term return on plan assets. An incremental component is added for the expected return from active management based on historical information obtained from the plan’s investment consultants. These forecasted gross returns are reduced by estimated management

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

fees and expenses. Over the 10 year period ended December 31, 2015, the historical annualized return was approximately 5.8% compared to an average expected return of 7.4%. The actual loss on plan assets achieved for 2015 was 1.4%. The difference between the actual and expected rate of return on plan assets will be amortized into earnings as described below.

The expected long-term return on plan assets used in determining our 2015 U.S. pension credit was 7.0%. We have assumed a return on plan assets during 2016 of 6.75%. The 2016 expected return on assets was calculated in a manner consistent with 2015. A one-quarter percentage point increase or decrease in this assumption would increase or decrease 2016 operating income by approximately $4.7 million.

Contributions to the unfunded plan were $3.6 million in 2015 and were made on a monthly basis to fund benefit payments. We estimate the 2016 contributions will be approximately $4.0 million. See Note 16 to the Consolidated Financial Statements for more information.

The estimated inflation in health care costs represents a 5-10 year view of the expected inflation in our postretirement health care costs. We separately estimate expected health care cost increases for pre-65 retirees and post-65 retirees due to the influence of Medicare coverage at age 65, as illustrated below:


	Assumptions						Actual
	Post 65			Pre 65			Post 65			Pre 65
2014		7.0	%		8.0	%		12.6	%		4.2	%
2015		6.8	%		7.5	%		0.2	%		(10.3	)%
2016		9.0	%		7.5	%

The difference between the actual and expected health care costs is amortized into earnings as described below. As of December 31, 2015, health care cost increases are estimated to decrease ratably until 2024, after which they are estimated to be constant at 4.5%. A one percentage point increase or decrease in the assumed health care cost trend rate would not have a material impact on 2016 operating income. See Note 16 to the Consolidated Financial Statements for more information.

Actual results that differ from our various pension and postretirement plan estimates are captured as actuarial gains/losses. When certain thresholds are met, the gains and losses are amortized into future earnings over the expected remaining service period of plan participants, which is approximately eight years for our U.S. pension plans and our U.S. postretirement plans. Changes in assumptions could have significant effects on earnings in future years.

We recognized a decrease in net actuarial losses related to our U.S. pension benefit plans of $28.7 million in 2015 primarily due to changes in actuarial assumptions (most significantly a 35 basis point increase in the discount rate). The $28.7 million actuarial gain impacting our U.S. pension plans is reflected as a component of other comprehensive income in our Consolidated Statement of Earnings and Comprehensive Income along with actuarial gains and losses from our foreign pension plans and our U.S. postretirement benefit plans.

Income Taxes – Our effective tax rate is primarily determined based on our pre-tax income and the statutory income tax rates in the jurisdictions in which we operate. The effective tax rate also reflects the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred income tax assets and liabilities. Deferred income tax assets are also recorded for net operating loss (“NOL”) and foreign tax credit (“FTC”) carryforwards.

Deferred income tax assets and liabilities are recognized by applying enacted tax rates to temporary differences that exist as of the balance sheet date. We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly.

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

In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability and foreign source income (“FSI”), the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.

Specifically with respect to the domestic FTC carryforward deferred tax asset of $27.1 million at December 31, 2015, we considered the following positive and negative evidence in assessing the need for a valuation allowance and concluded that a valuation allowance is not required:

Positive Evidence

•

Our emergence from bankruptcy in 2006 created significant NOLs. The last portion of these NOLs was completely utilized during 2012. Starting in 2013, we had domestic taxable income which allowed us to begin utilizing the FTCs;

•

Under U.S. tax law, approximately $43.1 million of our domestic source income in future years can be characterized as FSI to enable the utilization of our FTCs. This amount primarily represents prior year intercompany dividends associated with the FTC carryforwards. These dividends created domestic taxable income that was reduced by the utilization of domestic NOLs; and

•

Forecasts of future profitability and FSI.

Negative Evidence

•

Our history of FTC expirations as a result of the carryback and carryforward of the NOLs generated upon emergence from bankruptcy. All FTCs were fully utilized before the bankruptcy NOL carryback. The NOL carryback reduced the taxable income (a portion of which is considered FSI) to zero and thus the FTCs were carried forward along with the remaining portion of the NOL. The utilization of the remaining NOL carryforward reduced taxable income to zero, which caused the expiration of the FTCs; and

•

Our stated position to permanently reinvest unremitted earnings of our foreign subsidiaries.

The ability to fully utilize the FTC carryforwards may be affected by the following factors:

•

FSI of $77.4 million is needed to fully utilize the FTC carryforward of $27.1 million before they expire in 2022. In addition to the $43.1 million of domestic source income that can be characterized as FSI in future years, $34.3 million of additional foreign source income is needed.

•

The main factor that could result in our inability to re-characterize domestic source income to foreign source income is a U.S. tax law change.

•

The main factors that could contribute to lower FSI are decreased export sales and increased allocable expenses.

As of December 31, 2015, we have recorded valuation allowances totaling $69.1 million for various federal, state, and foreign deferred tax assets. While we have considered future taxable income in assessing the need for the valuation allowances based on our best available projections, if these estimates and assumptions change in the future or if actual results differ from our projections, we may be required to adjust our valuation allowances accordingly. Such adjustments could be material to our Consolidated Financial Statements.

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

As further described in Note 14 to the Consolidated Financial Statements, our Consolidated Balance Sheet as of December 31, 2015 includes net deferred income tax assets of $282.3 million. Included in this amount are deferred federal income tax assets for FTC carryforwards of $27.1 million, state NOL deferred income tax assets of $31.2 million, and foreign NOL deferred tax assets of $52.5 million. We have established valuation allowances in the amount of $69.1 million consisting of $13.8 million for state deferred tax assets, primarily operating loss carryovers, and $55.3 million for foreign deferred tax assets, primarily foreign operating loss carryovers.

Inherent in determining our effective tax rate are judgments regarding business plans and expectations about future operations. These judgments include the amount and geographic mix of future taxable income, the amount of FSI, limitations on usage of NOL carryforwards, the impact of ongoing or potential tax audits, earnings repatriation plans, and other future tax consequences.

We estimate we will need to generate future U.S. taxable income of approximately $971.1 million for state income tax purposes during the respective realization periods (ranging from 2016 to 2035) in order to fully realize the net deferred income tax assets.

As previously disclosed in prior SEC filings, our ability to utilize deferred tax assets may be impacted by certain future events, such as changes in tax legislation and insufficient future taxable income prior to expiration of certain deferred tax assets.

We recognize the tax benefits of an uncertain tax position if those benefits are more likely than not to be sustained based on existing tax law. Additionally, we establish a reserve for tax positions that are more likely than not to be sustained based on existing tax law, but uncertain in the ultimate benefit to be sustained upon examination by the relevant taxing authorities. Unrecognized tax benefits are subsequently recognized at the time the more likely than not recognition threshold is met, the tax matter is effectively settled or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, whichever is earlier.

Inventories – Inventories are valued at the lower of cost or market, with cost for U.S. inventories determined principally on the LIFO (last-in, first-out) basis and cost for non-U.S. inventories valued on the FIFO (first-in, first-out) basis. We establish reserves for LIFO valuation adjustments and for inventory obsolescence, excess inventory and inventory expected to be sold below cost.

Approximately 77% and 73% of our total inventory in 2015 and 2014, respectively, was valued on a LIFO basis. The calculation of LIFO reserves is affected by inflation and deflation in inventory components. In recent years, our Wood Flooring business has been most susceptible to LIFO valuation volatility due to the high volatility of lumber prices and long production cycles. LIFO reserves as of December 31, 2015 declined in comparison to December 31, 2014, primarily due to declines in lumber costs.

Reserves for inventory obsolescence, excess inventory and inventory expected to be sold below cost are established when the estimated market value of inventory is below its cost. Market value is represented as the replacement cost or net realizable value of inventory. We continuously review our inventory values to determine if there are any indicators that costs exceed market values. Historically, significant indicators requiring increases to inventory valuation reserves have been the age of inventory, an anticipated decrease in demand, a shift in customer preferences and overall economic conditions. Our reserves for inventory obsolescence as of December 31, 2015 and 2014 were $3.2 million and $2.4 million, respectively. Management believes that our inventory reserves as of December 31, 2015 and 2014 are adequate, however, actual results could differ from assumptions used to value obsolete inventory, excess inventory or inventory expected to be sold below cost and additional reserves may be required.

Impairments of Long-Lived Tangible and Intangible Assets – Our indefinite-lived intangibles are primarily trademarks and brand names, which are integral to our corporate identity and expected to contribute indefinitely to our corporate cash flows. Accordingly, they have been assigned an indefinite life. We conduct our annual impairment test for non-amortizable intangible assets during the fourth quarter, although we conduct interim impairment tests if events or circumstances indicate the asset might be

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

impaired. We conduct impairment tests for tangible assets and amortizable intangible assets when indicators of impairment exist, such as operating losses and/or negative cash flows. If an indication of impairment exists, we compare the carrying amount of the asset group to the estimated undiscounted future cash flows expected to be generated by the assets. The estimate of an asset group’s fair value is based on discounted future cash flows expected to be generated by the asset group, or based on management’s estimated exit price assuming the assets could be sold in an orderly transaction between market participants or estimated salvage value if no sale is assumed. If the fair value is less than the carrying value of the asset group, we record an impairment charge equal to the difference between the fair value and carrying value of the asset group.

The principal assumption utilized in our impairment tests for definite-lived intangible assets is operating profit adjusted for depreciation and amortization. The principal assumptions utilized in our impairment tests for indefinite-lived intangible assets include revenue growth rate, discount rate and royalty rate. Revenue growth rate and operating profit assumptions are derived from those utilized in our operating plan and strategic planning processes. The discount rate assumption is calculated based upon an estimated weighted average cost of equity which reflects the overall level of inherent risk and the rate of return a market participant would expect to achieve. Methodologies used for valuing our intangible assets did not change from prior periods.

The cash flow estimates used in applying our impairment tests are based on management’s analysis of information available at the time of the impairment test. Actual cash flows lower than the estimate could lead to significant future impairments. If subsequent testing indicates that fair values have declined, the carrying values would be reduced and our future statements of income would be affected.

During the fourth quarter of 2014, we recorded a non-cash impairment charge of $10.0 million to reduce the carrying amount of a Wood Flooring trademark to its estimated fair value based on the results of our annual impairment test. The fair value was negatively affected by lower expected sales and profits due to the competitive environment in the U.S. residential housing market. The remaining carrying value of the Wood Flooring trademarks at December 31, 2015 was $31.9 million. Continued competitive pressure beyond our expectations could lead to future material impairments of the Wood Flooring intangible assets.

There were no impairment charges in 2015 or 2013 related to intangible assets.

We tested the tangible assets within the following reporting units for impairment:


Reporting Unit	2015	2014	2013
ABP Americas	—	X	—
Wood Flooring	—	X	—
AFP – Pacific Rim	—	X	—

Based upon the impairment testing in 2014, the carrying value of the tangible assets for each of these asset groups was determined to be recoverable (except as discussed below) because the related undiscounted cash flows and/or fair value exceeded the carrying value of assets.

During the third quarter of 2014, we recorded an impairment charge of $11.9 million on the tangible assets of the European Resilient Flooring business as a result of disappointing operating results. This charge was reflected within Discontinued Operations due to DLW’s insolvency filing. See Note 4 to the Consolidated Financial Statements for further information.

During the second quarter of 2014, we decided to close our resilient flooring plant in Thomastown, Australia and our engineered wood flooring plant in Kunshan, China. During 2014, we recorded $2.2 million in cost of goods sold for accelerated depreciation due to the closure of the resilient flooring plant in Australia. We sold this facility in January 2015. We also recorded $4.0 million in 2014 in cost of goods sold for accelerated depreciation due to the closure of the wood flooring plant in China.

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

During 2014, we also made the decision to dispose of certain idle equipment at five of our wood flooring manufacturing facilities and as a result we recorded a $4.4 million impairment charge in cost of goods sold.

We cannot predict the occurrence of certain events that might lead to material impairment charges in the future. Such events may include, but are not limited to, the impact of economic environments, particularly related to the commercial and residential construction industries, material adverse changes in relationships with significant customers, or strategic decisions made in response to economic and competitive conditions.

See Notes 3 and 10 to the Consolidated Financial Statements for further information.

ACCOUNTING PRONOUNCEMENTS EFFECTIVE IN FUTURE PERIODS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers.” The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to a customer. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date” which defers the effective date for ASU 2014-09 by one year to January 1, 2018, however, public business entities would be permitted to adopt the standard as of the original effective date. We have not selected a transition method and are currently evaluating the impact this guidance will have on our financial condition, results of operations and cash flows.

In June 2014, the FASB issued ASU 2014-12 “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” which is part of ASC 718: Compensation-Stock Compensation. The guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and should not be reflected in the estimate of the grant-date fair value of the award. The guidance is effective for annual periods beginning after December 15, 2015. The guidance can be applied prospectively for all awards granted or modified after the effective date or retrospectively to all awards with performance targets outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. We do not expect a material impact on our financial condition, results of operations or cash flows from the adoption of this guidance.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs .” This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. The new guidance is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. In August 2015, the FASB issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, ” which was issued to address the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. We are currently evaluating the impact the adoption of these standards will have on our financial condition and cash flows.

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” which provides guidance to determine when a customer’s fees paid in a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer should account for a cloud computing arrangement as a service contract. The new guidance is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. We are currently evaluating the impact the adoption of this standard would have on our financial condition, results of operations and cash flows.

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

last-in, first-out (“LIFO”) basis or the retail recovery method, there is no change to current measurement requirements. This new guidance is effective for annual reporting periods beginning after December 15, 2016, but early adoption is permitted. We are currently evaluating the impact the adoption of this standard would have on our financial condition, results of operations and cash flows.

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. This new guidance is effective for annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact the adoption of this standard would have on our financial condition and cash flows.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, this new guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This new guidance is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact the adoption of this standard would have on our financial condition, results of operations and cash flows.

RESULTS OF OPERATIONS

Unless otherwise indicated, net sales in these results of operations are reported based upon the AWI location where the sale was made. Please refer to Notes 3 and 4 to the Consolidated Financial Statements for a reconciliation of segment operating income to consolidated earnings from continuing operations before income taxes and additional financial information related to discontinued operations.

2015 COMPARED TO 2014

CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS

(dollar amounts in millions)


					Change is
	2015		2014		(Unfavorable)
Net sales:
Americas	$	1,904.6	$	1,930.2		(1.3	)%
EMEA		290.0		353.4		(17.9	)%
Pacific Rim		225.4		231.7		(2.7	)%

Total consolidated net sales	$	2,420.0	$	2,515.3		(3.8	)%
Operating income	$	187.4	$	239.1		(21.6	)%

The decrease in consolidated net sales was driven by the unfavorable impact of foreign exchange of approximately $95 million. Lower volumes of $33 million were offset by $33 million of favorable price and mix.

The decrease in net sales in the Americas was driven by the unfavorable impact from foreign exchange of approximately $21 million and lower volumes, which were only partially offset by improvements in price and mix.

The decrease in net sales in the EMEA region was driven by the unfavorable impact from foreign exchange of approximately $58 million and lower volumes which were only partially offset by improvements in price and mix.

Excluding unfavorable foreign exchange impact of approximately $16 million, net sales in the Pacific Rim increased 4% as improvements in volumes and price were partially offset by unfavorable mix.

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

Cost of goods sold was 75.1% of net sales in 2015, compared to 76.8% in 2014. Compared to the prior year, the reduction was caused by lower input costs, primarily lumber, PVC resins and plasticizers, partially offset by higher manufacturing and U.S. pension costs. The comparison was also impacted by $9 million of severance and other charges associated with cost reduction actions in EMEA and the idling of a Building Products plant in China in 2015, and approximately $15 million of charges in 2014 associated with the closure of our Thomastown, Australia resilient flooring plant and the closure of our Kunshan, China engineered wood flooring plant.

SG&A expenses in 2015 were $447.2 million, or 18.5% of net sales, compared to $398.5 million, or 15.8% of net sales, in 2014. The increase was primarily due to higher promotional spending in both flooring businesses and an increase in employee compensation and benefits, mostly notably higher incentive compensation accruals and U.S. pension costs. See Reportable Segment Results for additional information.

Separation costs of $34.3 million were primarily related to outside professional services and employee compensation and severance accruals incurred in conjunction with our initiative to separate our flooring business from our ceilings business.

Equity earnings from our WAVE joint venture were $66.1 million in 2015, compared to $65.1 million in 2014. See Note 9 to the Consolidated Financial Statements for further information.

Interest expense was $45.3 million in 2015, compared to $46.0 million in 2014.

Other non-operating expenses were $23.5 million in 2015, compared to $10.5 million in 2014. The increase in 2015 was primarily due to foreign exchange rate losses on the translation of unhedged cross-currency intercompany loans denominated in Russian Rubles, related to the construction of our Russian mineral fiber ceiling plant that was completed in the first quarter of 2015. Where efficient, reliable and liquid markets exist we may utilize foreign currency forward exchange contracts to hedge exposures created by cross-currency intercompany loans and dividends. Our largest unhedged foreign currency exposures are in Chinese Renminbi and Russian Rubles. As of December 31, 2015, total unhedged foreign currency-denominated intercompany loan exposures in Chinese Renminbi and Russian Rubles were $161.6 million and $49.0 million, respectively.

Income tax expense was $71.3 million and $83.2 million in 2015 and 2014, respectively. The effective tax rate for 2015 was 57.5% as compared to a rate of 44.9% for 2014. The effective tax rate for 2015 was higher than 2014 primarily due to lower pre-tax income causing a higher rate impact of unbenefitted foreign operating losses, non-deductible separation costs, a decrease in research and development tax credits as 2014 included the benefit of multiple years of such credits, and state net operating loss write-offs resulting from a change in ownership under Section 382 of the Internal Revenue Code.

Total other comprehensive income (“OCI”) was $8.1 million for 2015 compared to a $123.9 million loss for 2014. Foreign currency translation adjustments represent the change in the U.S. dollar value of assets and liabilities denominated in foreign currencies. Amounts in 2015 and 2014 were driven primarily by changes in the exchange rate of the Euro, the Australian dollar and the British pound. Derivative gain/loss represents the mark to market value adjustments of our derivative assets and liabilities and the recognition of gains and losses previously deferred in OCI. The period changes are primarily due to the mark to market changes related to our natural gas hedges in both 2015 and 2014. Pension and postretirement adjustments represent actuarial gains and losses related to our defined-benefit pension and postretirement plans. The amounts in all periods primarily related to the U.S. pension plans.

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

REPORTABLE SEGMENT RESULTS

Building Products

(dollar amounts in millions)


					Change is Favorable/
	2015		2014		(Unfavorable)
Net sales:
Americas	$	805.0	$	798.3		0.8	%
EMEA		290.0		353.4		(17.9	)%
Pacific Rim		136.3		142.6		(4.4	)%

Total segment net sales	$	1,231.3	$	1,294.3		(4.9	)%
Operating income	$	264.8	$	264.7		0.0	%

Excluding the unfavorable impact from foreign exchange of approximately $76 million, Building Products net sales increased 1%, resulting from $49 million of favorable price and mix which more than offset lower volumes of $35 million.

Excluding the unfavorable impact from foreign exchange of approximately $9 million, net sales in the Americas increased 2% as favorable price and mix more than offset the impact of lower volumes.

Excluding the unfavorable impact from foreign exchange of approximately $58 million, net sales in EMEA markets decreased 2% as lower volumes were only partially offset by improvements in price and mix.

Excluding the unfavorable impact from foreign exchange of approximately $10 million, net sales in the Pacific Rim increased 2% as favorable mix and price more than offset lower volumes.

Operating income was flat but gross margin improved driven by the benefits of positive price and mix of $28 million, lower manufacturing and input costs of $8 million and higher earnings from WAVE of $1 million, which offset the margin impact of lower volumes of $22 million and higher SG&A expenses of $10 million primarily to support go-to-market investments in the Americas. Operating income was also negatively impacted by cost reduction actions in international markets including $9 million of severance and other charges associated with cost reduction actions in EMEA and our decision to idle of one of our Building Products plants in China in 2016 compared to $1 million of severance to support cost reduction actions in EMEA during 2014.

Resilient Flooring

(dollar amounts in millions)


					Change is Favorable/
	2015		2014		(Unfavorable)
Net sales:
Americas	$	624.2	$	623.8		0.1	%
Pacific Rim		89.1		89.1		0.0	%

Total segment net sales	$	713.3	$	712.9		0.1	%
Operating income	$	42.2	$	61.6		(31.5	)%

Excluding the unfavorable impact from foreign exchange of approximately $14 million, Resilient Flooring net sales were up 2% driven by $30 million of higher volumes which were partially offset by unfavorable price and mix of $17 million.

Excluding the unfavorable impact from foreign exchange of approximately $8 million, Americas net sales increased 1%. Higher volumes contributed 4% to this increase, driven by both the commercial and residential markets. The increase from volumes was partially offset by unfavorable price and mix, which each contributed a reduction to net sales of approximately 1%.

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

Excluding the unfavorable impact from foreign exchange of approximately $6 million, net sales in the Pacific Rim increased 7% as volume growth across the region was partially offset by unfavorable mix.

Operating income declined primarily due to higher SG&A expenses of $31 million and unfavorable price and mix of $19 million partially offset by lower manufacturing and input costs of $18 million and the margin impact of higher volumes of $13 million. The increase in SG&A expenses was primarily due to ongoing promotional spending to support go-to-market initiatives in the Americas and higher employee compensation and benefits. The comparison was also impacted by approximately $6 million of charges in 2014 associated with the closure of our Thomastown, Australia resilient flooring plant and by a $2 million gain on the sale of the plant in 2015.

Wood Flooring

(dollar amounts in millions)


						Change is Favorable/
	2015		2014			(Unfavorable)
Total segment net sales	$	475.4	$	508.1			(6.4	)%
Operating income (loss)	$	19.2	($	14.9	)		Favorable

Excluding the unfavorable impact of foreign exchange of $4 million, Wood Flooring net sales declined by $28 million. Lower volumes contributed $28 million to the decline. Favorable mix was mostly offset by negative net pricing.

The improvement in operating income was driven by a decline in lumber costs that resulted in a $37 million benefit, partially offset by the margin impact of lower volumes of $10 million, higher SG&A expenses to support go-to-market activities of $4 million and unfavorable price and mix of $2 million. The comparison was also impacted by $4 million of multilayered hardwood flooring import duties recorded in 2015. Additionally, 2014 results included approximately $9 million of severance, idle equipment and other charges associated with the closure of our Kunshan, China engineered wood flooring plant, $3 million of other idle equipment charges and a non-cash impairment charge of $10 million to reduce the carrying value of a Wood Flooring trademark to its estimated fair value.

Unallocated Corporate

Unallocated corporate expense of $138.8 million increased from $72.3 million in the prior year, primarily due to separation costs of $34 million recorded in 2015 and an increase in employee compensation and benefits, most notably higher U.S. pension costs of $25 million and a $4 million increase in environmental reserves related to our Macon, Georgia facility.

FINANCIAL CONDITION AND LIQUIDITY

Cash Flow

Operating activities for 2015 provided $203.7 million of cash, compared to $208.8 million of cash provided in 2014. Lower cash earnings in 2015 were partially offset by favorable changes in working capital, primarily due to favorable timing of accounts payable and accrued expenses.

Net cash used for investing activities was $101.5 million for 2015, compared to $149.3 million in 2014. This change was primarily due to decreased purchases of property, plant and equipment.

Net cash used by financing activities was $32.3 million for 2015, compared to $3.3 million provided during 2014. Net cash used in 2015 was primarily driven by payments on long-term debt. Net cash provided in 2014 was driven by proceeds from exercised stock options and excess tax benefits from share-based awards, partially offset by payments of long-term debt.

Liquidity

Our liquidity needs for operations vary throughout the year. We retain lines of credit to facilitate our seasonal cash flow needs, since cash flow is generally lower during the first and fourth quarters of our fiscal year. We have a $1.3 billion senior credit facility which is composed of a $250 million revolving credit

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

facility (with a $150 million sublimit for letters of credit), a $550 million Term Loan A and a $475 million Term Loan B. This $1.3 billion senior credit facility is secured by U.S. personal property, the capital stock of material U.S. subsidiaries and a pledge of 65% of the stock of our material first tier foreign subsidiaries.

Under the senior credit facility we are subject to year-end leverage tests that may trigger mandatory prepayments. If our ratio of consolidated funded indebtedness minus AWI and domestic subsidiary unrestricted cash and cash equivalents up to $100 million to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) (“Consolidated Net Leverage Ratio”) is greater than 3.5 to 1.0, the prepayment amount would be based on a computation of 50% of consolidated annual excess cash flows, as defined by the credit agreement. These annual payments would be made in the first quarter of the following year. No payment will be required in 2016.

The senior credit facility includes two financial covenants that require the ratio of consolidated EBITDA to consolidated cash interest expense minus cash consolidated interest income to be greater than or equal to 3.0 to 1.0 and requires the Consolidated Net Leverage Ratio to be less than or equal to 3.75 to 1.0. As of December 31, 2015, we were in compliance with all covenants of the senior credit facility.

The Revolving Credit and Term Loan A portions are currently priced at a spread of 2.50% over LIBOR and the Term Loan B portion is priced at 2.50% over LIBOR with a 1.00% LIBOR floor for its entire term. The Term Loan A and Term Loan B were both fully drawn and are currently priced on a variable interest rate basis. The following table summarizes our interest rate swaps (dollar amounts in millions):


Trade Date	Notional Amount	Interest Rate Paid	Coverage Period	Risk Coverage
March 27, 2012	$250.0	1.928%	March 2012 to March 2018	Term Loan B
March 27, 2012	$200.0	2.810%	November 2015 to March 2018	Term Loan B
April 16, 2013	$250.0	1.398%	November 2015 to March 2018	Term Loan A

These swaps are designated as cash flow hedges against changes in LIBOR for a portion of our variable rate debt. The unpaid balances of Term Loan A, the Revolving Credit Facility and Term Loan B of the credit facility may be prepaid without penalty at the maturity of their respective interest reset periods. Any amounts prepaid on the Term Loan A or Term Loan B may not be re-borrowed. As of December 31, 2015, there was no outstanding balance on the Revolving Credit Facility.

As of December 31, 2015 our outstanding long-term debt included two variable rate, tax-exempt industrial development bonds totaling $45.1 million that financed the construction of plants in prior years. These bonds have scheduled final maturities ranging from 2025 to 2041 and are remarketed by an agent on a regular basis at a market-clearing interest rate. Any portion of the bonds that are not successfully remarketed by the agent are required to be repurchased. These bonds are backed by letters of credit which will be drawn if a portion of the bond is not successfully remarketed. We have not had to repurchase any of the bonds. Prior to the planned separation of the flooring business, we intend on discharging a $10.0 million bond by providing the necessary funds to the trustee in anticipation of a planned redemption at the next interest payment date of April 1, 2016.

As a result of our planned separation of the flooring business, we intend to refinance our existing credit facilities, and may modify certain interest rate hedges. We intend to use cash on hand as well as a planned $50.0 million cash dividend from AFI to reduce total debt outstanding. The new credit facility is expected to be for $1,050 million, including $200.0 million of an undrawn revolving credit facility. We anticipate concluding this transaction contemporaneously with our separation of the flooring business.

Due to the significant decline in the value of the Russian Ruble, we received $30.0 million in cash in 2014 as a result of settling Russian Ruble forward contracts utilized to hedge the currency impact associated with intercompany loans to our Russian subsidiary. Our exposure to changes in the Ruble due to the intercompany loans is unhedged at December 31, 2015.

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

As of December 31, 2015, we had $244.8 million of cash and cash equivalents, $122.5 million in various foreign jurisdictions and $122.3 million in the U.S.

On December 18, 2014, we amended and increased our $75 million Accounts Receivable Securitization Facility with the Bank of Nova Scotia, under which AWI and its subsidiary, Armstrong Hardwood Flooring Company, sell their U.S. receivables to Armstrong Receivables Company LLC (“ARC”), a Delaware entity that is consolidated in these financial statements. The facility reflects a seasonality clause changing to $100 million from March through September, and $90 million from October through February. The maturity date has been extended from March 2016 to December 2017. As of December 31, 2015, there was no outstanding balance on the accounts receivable securitization facility. In connection with the planned separation of AFI, we intend to amend this facility, resulting in lower purchase and letter of credit commitments under the program.

On December 31, 2015, we had outstanding letters of credit totaling $68.2 million, of which $7.7 million was issued under the revolving credit facility, $60.3 million was issued under the securitization facility, and $0.2 million was issued by other banks of international subsidiaries. Letters of credit are issued to third party suppliers, insurance and financial institutions and typically can only be drawn upon in the event of AWI’s failure to pay its obligations to the beneficiary.


	As of December 31, 2015
Foreign Financing Arrangements (dollar amounts in millions)	Limit		Used		Available
Lines of Credit Available for Borrowing	$	19.8		—	$	19.8
Lines of Credit Available for Letters of Credit		0.2	$	0.2		—

Total	$	20.0	$	0.2	$	19.8

These lines of credit are uncommitted, and poor operating results or credit concerns at the related foreign subsidiaries could result in the lines being withdrawn by the lenders. We have historically been able to maintain and, as needed, replace credit facilities to support our non-U.S. operations.

Since 2012, our Board of Directors has approved the construction of a mineral fiber ceiling plant in Russia (completed in the first quarter of 2015) and the expansion of our Lancaster, PA flooring plant to include the manufacture of LVT. Through December 31, 2015, we have incurred approximately $150 million related to these projects. We do not anticipate incurring any additional material spending related to these construction projects in 2016.

We believe that cash on hand and cash generated from operations, together with lines of credit, availability under our securitization facility and the availability under our $250 million revolving credit facility, will be adequate to address our foreseeable liquidity needs based on current expectations of our business operations, capital expenditures and scheduled payments of debt obligations.

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

2014 COMPARED TO 2013

CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS

(dollar amounts in millions)


					Change is Favorable/
	2014		2013		(Unfavorable)
Net sales:
Americas	$	1,930.2	$	1,959.3		(1.5	)%
EMEA		353.4		349.9		1.0	%
Pacific Rim		231.7		218.2		6.2	%

Total consolidated net sales	$	2,515.3	$	2,527.4		(0.5	)%
Operating income	$	239.1	$	265.6		(10.0	)%

The decrease in consolidated net sales was driven by the unfavorable impact of foreign exchange of approximately $19 million. Lower volumes of $100 million were more than offset by $106 million of favorable price and mix.

The decrease in net sales in the Americas was driven by lower volumes, which were only partially offset by improvements in price and mix.

The increase in net sales in the EMEA region was driven primarily by improvements in price, partially offset by the impact of unfavorable mix.

Excluding unfavorable foreign exchange impact of approximately $6 million, net sales in the Pacific Rim increased 9% as improvements in volumes and price were partially offset by unfavorable mix.

Cost of goods sold was 76.8% of net sales in 2014, compared to 76.5% in 2013. Compared to the prior year, lower manufacturing costs were more than offset by higher input costs. The comparison was impacted by approximately $15 million of charges in 2014 associated with the closure of our Thomastown, Australia resilient flooring plant and the closure of our Kunshan, China engineered wood flooring plant, and approximately $4 million of charges primarily associated with cost reduction actions in the Resilient Flooring business in Australia in 2013.

SG&A expenses in 2014 were $398.5 million, or 15.8% of net sales, compared to $386.9 million, or 15.3% of net sales in 2013. The increase was primarily due to higher promotional spending in both flooring businesses. See Reportable Segment Results for additional information.

Equity earnings from our WAVE joint venture were $65.1 million in 2014, compared to $59.4 million in 2013.

Interest expense was $46.0 million in 2014, compared to $68.7 million in 2013. The decrease was due to the write-off of unamortized debt financing costs associated with the refinancing of our senior credit facility that occurred during the first quarter of 2013.

Income tax expense was $83.2 million and $71.4 million in 2014 and 2013, respectively. The effective tax rate for 2014 was 44.9% as compared to a rate of 35.9% for 2013. The effective tax rate for 2014 was higher than 2013 primarily due to higher unbenefitted foreign operating losses, lower income in foreign subsidiaries with profits, and an increase in the state valuation allowance for NOLs.

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

REPORTABLE SEGMENT RESULTS

Building Products

(dollar amounts in millions)


	2014		2013		Change is Favorable
Net sales:
Americas	$	798.3	$	780.9		2.2	%
EMEA		353.4		349.9		1.0	%
Pacific Rim		142.6		133.8		6.6	%

Total segment net sales	$	1,294.3	$	1,264.6		2.3	%
Operating income	$	264.7	$	263.1		0.6	%

The improvement in Building Products net sales was driven by $46 million of favorable price and mix which more than offset the unfavorable impact of foreign exchange of approximately $10 million and lower volumes of $6 million.

Net sales in the Americas increased driven by favorable mix and price which more than offset the impact of lower volumes.

Net sales in EMEA markets increased driven by improvements in price which more than offset the impact of unfavorable mix.

Net sales in the Pacific Rim increased as volume, mix and price all improved.

Operating income increased slightly driven by the benefits of price and mix of $11 million and higher earnings from WAVE of $6 million, which offset the impact of lower volumes of $5 million, higher manufacturing and input costs of $7 million and higher SG&A expenses of $3 million. The increase in manufacturing costs was primarily associated with the construction of our plant in Russia.

Resilient Flooring

(dollar amounts in millions)


					Change is Favorable/
	2014		2013		(Unfavorable)
Net sales:
Americas	$	623.8	$	644.4		(3.2	)%
Pacific Rim		89.1		84.4		5.6	%

Total segment net sales	$	712.9	$	728.8		(2.2	)%
Operating income	$	61.6	$	69.8		(11.7	)%

The decline in Resilient Flooring net sales was driven by $24 million of lower volume and the unfavorable impact from foreign exchange of $6 million which more than offset favorable price and mix of $13 million.

Net sales in the Americas decreased as improvements in mix were unable to offset commercial and residential volume declines.

Net sales in the Pacific Rim increased as strong volume growth in China and India was partially offset by market driven sales declines in Australia.

Operating income declined primarily due to the margin impact of lower volumes of $10 million and higher SG&A expenses of $8 million driven by higher promotional and marketing expense. These negative impacts were only partially offset by positive mix and price of $2 million and lower manufacturing and input costs of $8 million as strong productivity more than offset higher input costs. The comparison was also impacted by approximately $6 million of charges in 2014 associated with the closure of our Thomastown, Australia resilient flooring plant and $4 million of charges in 2013 associated with cost reduction actions in Australia.

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

Wood Flooring

(dollar amounts in millions)


						Change is
	2014			2013		(Unfavorable)
Total segment net sales	$	508.1		$	534.0		(4.9	)%
Operating (loss) income	($	14.9	)	$	6.0		Unfavorable

The decrease in Wood Flooring net sales was driven primarily by lower volumes of $69 million which more than offset favorable price and mix of $47 million. Volume declines reflected sales lost to competition.

The decline in operating income was driven by approximately $9 million of charges primarily associated with the closure of our Kunshan, China engineered wood flooring plant and a non-cash impairment charge of $10 million to reduce the carrying value of a Wood Flooring trademark to its estimated fair value. Gross profit improved driven by the benefit of price and mix of $55 million which more than offset the impact of lower volumes of $27 million, higher SG&A expenses of $3 million and higher manufacturing and input costs of $24 million, as improvements in productivity were more than offset by higher lumber costs.

Unallocated Corporate

Unallocated corporate expense of $72.3 million decreased from $73.3 million in the prior year, due to lower incentive compensation expense, partially offset by increased spending on outside professional services and higher foreign and domestic pension expenses.

Cash Flow

Operating activities for 2014 provided $208.8 million of cash, compared to $213.7 million of cash provided in 2013. The decrease was primarily due to changes in working capital, partially offset by higher cash earnings. The working capital change was primarily driven by accounts payable and accrued expenses due to timing of payments.

Net cash used for investing activities was $149.3 million for 2014, compared to $145.8 million in 2013. This change was primarily due to increased purchases of property, plant and equipment, partially offset by higher distributions received from our WAVE joint venture.

Net cash provided by financing activities was $3.3 million for 2014, compared to $263.7 million used during 2013. Net cash provided in 2014 was driven by proceeds from exercised stock options and excess tax benefits from share-based awards, partially offset by payments of long-term debt. Net cash used in 2013 included the $261.4 million repurchase of common stock, including associated fees.

OFF-BALANCE SHEET ARRANGEMENTS

No disclosures are required pursuant to Item 303(a)(4) of Regulation S-K.

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

CONTRACTUAL OBLIGATIONS

As part of our normal operations, we enter into numerous contractual obligations that require specific payments during the term of the various agreements. The following table includes amounts ongoing under contractual obligations existing as of December 31, 2015. Only known payments that are dependent solely on the passage of time are included. Obligations under contracts that contain minimum payment amounts are shown at the minimum payment amount. Contracts that contain variable payment structures without minimum payments are excluded. Purchase orders that are entered into in the normal course of business are also excluded because they are generally cancelable and not legally binding. Amounts are presented below based upon the currently scheduled payment terms. Actual future payments may differ from the amounts presented below due to changes in payment terms or events affecting the payments.


(dollar amounts in millions)	2016		2017		2018		2019		2020		Thereafter		Total
Long-term debt	$	52.1	$	55.3	$	402.9	$	4.8	$	487.9		—	$	1,003.0
Scheduled interest payments ⁽¹⁾		40.4		41.0		31.3		22.5		22.4	$	18.0		175.6
Operating lease obligations, net of sublease income ⁽²⁾		7.5		5.1		3.4		2.6		1.6		3.2		23.4
Unconditional purchase obligations ⁽³⁾		75.1		30.7		22.4		0.7		0.2		0.9		130.0
Pension contributions ⁽⁴⁾		7.1		—		—		—		—		—		7.1
Other obligations ^{(5), (6)}		11.0		0.2		—		—		—		—		11.2

Total contractual obligations	$	193.2	$	132.3	$	460.0	$	30.6	$	512.1	$	22.1	$	1,350.3

⁽¹⁾	For debt with variable interest rates and interest rate swaps, we projected future interest payments based on market-based interest rate swap curves.

⁽²⁾	Lease obligations include the minimum payments due under existing agreements with non-cancelable lease terms in excess of one year.

⁽³⁾

Unconditional purchase obligations include (a) purchase contracts whereby we must make guaranteed minimum payments of a specified amount regardless of how little material is actually purchased (“take or pay” contracts) and (b) service agreements. Unconditional purchase obligations exclude contracts entered into during the normal course of business that are non-cancelable and have fixed per unit fees, but where the monthly commitment varies based upon usage. Cellular phone contracts are an example.

⁽⁴⁾

Pension contributions include estimated contributions for our defined benefit pension plans. We are not presenting estimated payments in the table above beyond 2016 as funding can vary significantly from year to year based upon changes in the fair value of plan assets, funding regulations and actuarial assumptions.

⁽⁵⁾	Other obligations include payments under severance agreements.

⁽⁶⁾

Other obligations, does not include $150.6 million of liabilities under ASC 740 “ Income Taxes.” Due to the uncertainty relating to these positions, we are unable to reasonably estimate the ultimate amount or timing of the settlement of these issues. See Note 14 to the Consolidated Financial Statements for more information.

This table excludes obligations related to postretirement benefits (retiree health care and life insurance) since we voluntarily provide these benefits. The amount of benefit payments we made in 2015 was $17.4 million. See Note 16 to the Consolidated Financial Statements for additional information regarding future expected cash payments for postretirement benefits.

We are party to supply agreements, some of which require the purchase of inventory remaining at the supplier upon termination of the agreement. The last such agreement will expire in 2018. Had these agreements terminated at December 31, 2015, we would have been obligated to purchase approximately $5.3 million of inventory. Historically, due to production planning, we have not had to purchase material amounts of product at the end of similar contracts. Accordingly, no liability has been recorded for these guarantees.

We utilize lines of credit and other commercial commitments in order to ensure that adequate funds are available to meet operating requirements. Letters of credit are issued to third-party suppliers, insurance and financial institutions and typically can only be drawn upon in the event of our failure to pay our

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

obligations to the beneficiary. This table summarizes the commitments we have available in the U.S. for use as of December 31, 2015. Letters of credit are currently arranged through our revolving credit facility or our securitization facility.

Other Commercial

Commitments

(dollar amounts in millions)

Total
Amounts
Committed

Less
Than 1
Year

1 – 3
Years

4 – 5
Years

Over 5
Years

Letters of credit

68.2

—

In addition, our foreign subsidiaries had available lines of credit totaling $20.0 million of which $0.2 million was available only for letters of credit and guarantees. There were $0.2 million of letters of credit and guarantees issued under these credit lines as of December 31, 2015, leaving no additional letter of credit availability. There were no borrowings under these lines of credit as of December 31, 2015, leaving $19.8 million of unused lines of credit available for foreign borrowings.

On December 31, 2015, we had a $250 million revolving credit facility with a $150 million sublimit for letters of credit, of which $7.7 million was outstanding. There were no borrowings under the revolving credit facility. Availability under this facility totaled $242.3 million as of December 31, 2015. We also have the $90 million securitization facility which as of December 31, 2015 had letters of credit outstanding of $60.3 million and no borrowings against it. Maximum capacity under this facility was $67.4 million (of which $7.1 million was available), subject to accounts receivable balances and other collateral adjustments.

In connection with our disposition of certain assets through a variety of unrelated transactions, we have entered into contracts that included various indemnity provisions, some of which are customary for such transactions, while others hold the acquirer of the assets harmless with respect to liabilities relating to such matters as taxes, environmental and other litigation. Some of these provisions include exposure limits, but many do not. Due to the nature of the indemnities, it is not possible to estimate the potential maximum exposure under these contractual provisions. As of December 31, 2015, we had no liabilities recorded for which an indemnity claim had been received.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are exposed to market risk from changes in foreign currency exchange rates, interest rates and commodity prices that could impact our results of operations, cash flows and financial condition. We use forward swaps and option contracts to hedge these exposures. Forward swap and option contracts are entered into for periods consistent with underlying exposure and do not constitute positions independent of those exposures. We use derivative financial instruments as risk management tools and not for speculative trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage our exposure to potential nonperformance on such instruments. We regularly monitor developments in the capital markets.

Counterparty Risk

We only enter into derivative transactions with established counterparties having a credit rating of BBB or better. We monitor counterparty credit default swap levels and credit ratings on a regular basis. All of our derivative transactions with counterparties are governed by master International Swap and Derivatives Association agreements (“ISDAs”) with netting arrangements. These agreements can limit our exposure in situations where we have gain and loss positions outstanding with a single counterparty. We do not post nor receive cash collateral with any counterparty for our derivative transactions. As of December 31, 2015 we had no cash collateral posted or received for any of our derivative transactions. These ISDAs do not contain any credit contingent features other than those contained in our bank credit facility. Exposure to individual counterparties is controlled, and thus we consider the risk of counterparty default to be negligible.

Interest Rate Sensitivity

We are subject to interest rate variability on our Term Loan A, Term Loan B, revolving credit facility and other borrowings. A hypothetical increase of one-quarter percentage point in LIBOR interest rates from December 31, 2015 levels would increase 2016 interest expense by approximately $0.7 million. A significant portion of our debt has a 1% LIBOR floor which would not be affected by a one-quarter percentage point move in LIBOR given the current interest rate environment. We also have $700 million of interest rate swaps outstanding, which fix a portion of our debt. The current portion of the interest rate swaps is included in this calculation.

As of December 31, 2015, we had interest rate swaps outstanding on Term Loan A and on Term Loan B, with notional amounts of $250 million and $450 million, respectively. We utilize interest rate swaps to minimize the fluctuations in earnings caused by interest rate volatility. Interest expense on variable-rate liabilities increases or decreases as a result of interest rate fluctuations. Under the terms of Term Loan A swap, we receive 3-month LIBOR and pay a fixed rate over the hedged period. Under the terms of the Term Loan B swaps, we receive the greater of 3-month LIBOR or the 1% LIBOR Floor and pay a fixed rate over the hedged period. The following table summarizes our interest rate swaps:


Trade Date	Notional Amount	Interest Rate Paid	Coverage Period	Risk Coverage
March 27, 2012	$250.0	1.928%	March 2012 to March 2018	Term Loan B
March 27, 2012	$200.0	2.810%	November 2015 to March 2018	Term Loan B
April 16, 2013	$250.0	1.398%	November 2015 to March 2018	Term Loan A

These swaps are designated as cash flow hedges against changes in LIBOR for a portion of our variable rate debt. The mark-to-market liability was $10.6 million at December 31, 2015.

The table below provides information about our long-term debt obligations as of December 31, 2015, including payment requirements and related weighted-average interest rates by scheduled maturity dates. Weighted average variable rates are based on implied forward rates in the yield curve and are exclusive of our interest rate swaps.


Scheduled maturity date (dollar amounts in millions)	2016			2017			2018			2019			2020			After 2020		Total
Variable rate principal payments	$	52.1		$	55.3		$	402.9		$	4.8		$	487.9			—	$	1,003.0
Avg. interest rate		3.04	%		3.71	%		4.30	%		4.61	%		4.50	%		—		4.30	%

Exchange Rate Sensitivity

We manufacture and sell our products in a number of countries throughout the world and, as a result, are exposed to movements in foreign currency exchange rates. To a large extent, our global manufacturing and sales provide a natural hedge of foreign currency exchange rate movement. We use foreign currency forward exchange contracts to reduce our remaining exposure. At December 31, 2015, our major foreign currency exposures are to the Canadian Dollar, Chinese Renminbi and Australian Dollar. A 10% strengthening of all currencies against the U.S. dollar compared to December 31, 2015 levels would increase our 2016 earnings before income taxes by approximately $4.6 million, including the impact of current foreign currency forward exchange contracts.

We also use foreign currency forward exchange contracts to hedge exposures created by cross-currency intercompany loans.

The table below details our outstanding currency instruments as of December 31, 2015, all of which mature in 2016.


On balance sheet foreign exchange related derivatives (dollar amounts in millions)	Total
Notional amounts	$	79.4
Assets at fair value		6.2

Natural Gas Price Sensitivity

We purchase natural gas for use in the manufacture of ceiling tiles and other products, as well as to heat many of our facilities. As a result, we are exposed to fluctuations in the price of natural gas. We have a policy of reducing North American natural gas volatility through derivative instruments, including forward contracts and swaps, purchased call options, and zero-cost collars up to 24 months forward. As of December 31, 2015, we had contracts to hedge approximately $9.2 million (notional amounts) of natural gas. All of these contracts mature by August 2016. A 10% increase in North American natural gas prices compared to December 31, 2015 prices would increase our 2016 expenses by approximately $0.6 million including the impact of current hedging contracts. At December 31, 2015 we had recorded net liabilities of $0.8 million related to these contracts.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SUPPLEMENTARY DATA

Quarterly Financial Information for the Years Ended December 31, 2015 and 2014 (Unaudited)

The following consolidated financial statements are filed as part of this Annual Report on Form 10-K:


Reports of Independent Registered Public Accounting Firm.

Consolidated Statements of Earnings and Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and 2013.

Consolidated Balance Sheets as of December 31, 2015 and 2014.

Consolidated Statements of Equity for the Years Ended December 31, 2015, 2014 and 2013.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013.

Notes to Consolidated Financial Statements.

Schedule II for the Years Ended December 31, 2015, 2014 and 2013.

Armstrong World Industries, Inc., and Subsidiaries

Quarterly Financial Information (unaudited)

(dollar amounts in millions, except for per share data)


	First		Second		Third		Fourth
2015
Net sales	$	551.4	$	632.7	$	658.5	$	577.4
Gross profit		129.5		157.9		177.9		137.5

Earnings (loss) from continuing operations		3.8		29.9		30.3		(11.4	)
Per share of common stock:
Basic	$	0.07	$	0.53	$	0.54	($	0.21	)
Diluted	$	0.07	$	0.53	$	0.54	($	0.21	)

Price range of common stock - high	$	58.42	$	58.96	$	60.70	$	52.33
Price range of common stock - low	$	48.60	$	52.94	$	46.47	$	44.43

Dividend paid per share		—		—		—		—

2014
Net sales	$	590.0	$	659.1	$	678.9	$	587.3
Gross profit		142.1		147.0		168.0		126.2

Earnings from continuing operations		18.1		26.6		46.7		10.6
Per share of common stock:
Basic	$	0.33	$	0.48	$	0.84	$	0.19
Diluted	$	0.33	$	0.48	$	0.84	$	0.19

Price range of common stock - high	$	61.90	$	58.00	$	59.90	$	56.03
Price range of common stock - low	$	51.31	$	50.98	$	48.35	$	44.00

Dividend paid per share		—		—		—		—

Note: The net sales and gross profit amounts above are reported on a continuing operations basis. The sum of the quarterly earnings per share data may not equal the total year amounts due to changes in the average shares outstanding and, for diluted data, the exclusion of the anti-dilutive effect in certain quarters.

Armstrong World Industries, Inc., and Subsidiaries

Quarterly Financial Information (unaudited)

(dollar amounts in millions, except for per share data)

Fourth Quarter 2015 Compared With Fourth Quarter 2014 – Continuing Operations

Net sales of $577.4 million in the fourth quarter of 2015 decreased from net sales of $587.3 million in the fourth quarter of 2014. Net sales increased $7 million or 2% in the Americas. Net sales in EMEA decreased $12 million, or 14%, due to the unfavorable impact of foreign exchange. Net sales in the Pacific Rim decreased $5 million or 8%, due to the unfavorable impact of foreign exchange.

Excluding the unfavorable impact of foreign exchange of $17 million, Building Products net sales increased by $3 million driven by favorable price and mix, partially offset by lower volumes. Excluding the unfavorable impact of foreign exchange of $4 million, Resilient Flooring net sales increased by $6 million due to higher sales in the Americas and the Pacific Rim. Wood Flooring net sales increased $2 million or 2% due to higher volumes.

For the fourth quarter of 2015, cost of goods sold was 76.2% of net sales, compared to 78.5% in 2014. During the fourth quarter of 2015, we incurred approximately $5 million and $4 million in cost of goods sold and selling, general and administrative (“SG&A”) expenses, respectively, associated with cost reduction actions in EMEA and our decision to idle one of our Building Products plants in China.

SG&A expenses for the fourth quarter of 2015 were $127.7 million, or 22.1% of net sales compared to $94.2 million, or 16.0% of net sales, for the fourth quarter of 2014. In addition to the aforementioned cost reduction charges recorded in the fourth quarter of 2015, the increase was primarily due to higher promotional spending in both flooring businesses, an increase in employee compensation and benefits, mostly notably higher incentive compensation accruals and U.S. pension costs and an environmental reserve accrual at our Macon, Georgia facility.

In the fourth quarter of 2015, we recorded $17.5 million of separation costs primarily related to outside professional services and employee compensation and severance accruals incurred in connection with our initiative to separate our flooring business from our ceilings business.

Equity earnings in the fourth quarters of 2015 and 2014 were $16.5 million and $13.9 million, respectively.

Operating income was $8.8 million in the fourth quarter of 2015 compared to $35.9 million in the fourth quarter of 2014.

Interest expense in the fourth quarters of 2015 and 2014 was $11.4 million and $11.7 million, respectively.

Fourth quarter income tax expense was $1.1 million on a pre-tax loss of $10.3 million in 2015 compared to income tax expense of $13.0 million on pre-tax income of $23.6 million in 2014. Excluding the impact of the decrease in pre-tax earnings, the effective tax rate for the fourth quarter of 2015 was flat in comparison to the same period in 2014.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation and the criteria in the COSO framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2015.

KPMG LLP, an independent registered public accounting firm, audited our internal control over financial reporting as of December 31, 2015, as stated in their report included herein.

/s/ Matthew J. Espe

Matthew J. Espe

Director, President and Chief Executive Officer

/s/ David S. Schulz

David S. Schulz

Senior Vice President and Chief Financial Officer

/s/ Stephen F. McNamara

Stephen F. McNamara

Vice President and Corporate Controller

February 22, 2016

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Armstrong World Industries, Inc.:

We have audited Armstrong World Industries, Inc. and subsidiaries’ (“the Company”) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Armstrong World Industries, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2015 and 2014, and the related consolidated statements of earnings and comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2015, and our report dated February 22, 2016 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Philadelphia, Pennsylvania

February 22, 2016

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Armstrong World Industries, Inc.:

We have audited the accompanying consolidated balance sheets of Armstrong World Industries, Inc. and subsidiaries (“the Company”) as of December 31, 2015 and 2014, and the related consolidated statements of earnings and comprehensive income (loss), equity and cash flows for each of the years in the three-year period ended December 31, 2015. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule of valuation and qualifying reserves. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Armstrong World Industries, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 22, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Philadelphia, Pennsylvania

February 22, 2016

Armstrong World Industries, Inc., and Subsidiaries

Consolidated Statements of Earnings and Comprehensive Income (Loss)

(amounts in millions, except per share data)


	Years Ended December 31,
	2015			2014			2013
Net sales	$	2,420.0		$	2,515.3		$	2,527.4
Cost of goods sold		1,817.2			1,932.0			1,934.4

Gross profit		602.8			583.3			593.0

Selling, general and administrative expenses		447.2			398.5			386.9

Separation costs		34.3			—			—
Intangible asset impairments		—			10.8			—
Restructuring charges, net		—			—			(0.1	)
Equity earnings from joint venture		(66.1	)		(65.1	)		(59.4	)

Operating income		187.4			239.1			265.6

Interest expense		45.3			46.0			68.7
Other non-operating expense		23.5			10.5			2.0
Other non-operating (income)		(5.3	)		(2.6	)		(3.8	)

Earnings from continuing operations before income taxes		123.9			185.2			198.7
Income tax expense		71.3			83.2			71.4

Earnings from continuing operations		52.6			102.0			127.3

Net (loss) from discontinued operations, net of tax benefit of ($-), ($-) and ($-)		—			(23.7	)		(26.8	)
Gain (loss) on disposal of discontinued business, net of tax benefit of ($41.8), ($2.5) and ($3.6)		41.6			(14.5	)		(6.4	)

Net gain (loss) from discontinued operations		41.6			(38.2	)		(33.2	)

Net earnings	$	94.2		$	63.8		$	94.1

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(25.5	)		(29.6	)		(8.8	)
Derivative gain (loss)		0.7			(3.3	)		18.5
Pension and postretirement adjustments		32.9			(91.0	)		90.1

Total other comprehensive income (loss)		8.1			(123.9	)		99.8

Total comprehensive income (loss)	$	102.3		($	60.1	)	$	193.9

Earnings per share of common stock, continuing operations:
Basic	$	0.95		$	1.85		$	2.19
Diluted	$	0.94		$	1.83		$	2.17

Earnings (loss) per share of common stock, discontinued operations:
Basic	$	0.74		($	0.70	)	($	0.57	)
Diluted	$	0.74		($	0.69	)	($	0.57	)

Net earnings per share of common stock:
Basic	$	1.69		$	1.15		$	1.62
Diluted	$	1.68		$	1.14		$	1.60

Average number of common shares outstanding:
Basic		55.5			55.0			57.8
Diluted		55.9			55.4			58.4

See accompanying notes to consolidated financial statements beginning on page 52.

Armstrong World Industries, Inc., and Subsidiaries

Consolidated Balance Sheets

(amounts in millions, except share data)


	December 31, 2015			December 31, 2014
Assets
Current assets:
Cash and cash equivalents	$	244.8		$	185.3
Accounts and notes receivable, net		184.3			195.2
Inventories, net		344.2			335.5
Deferred income taxes		35.5			31.4
Income tax receivable		11.1			5.3
Other current assets		60.9			58.8

Total current assets		880.8			811.5

Property, plant, and equipment, less accumulated depreciation and amortization of $718.6 and $644.3, respectively		1,096.3			1,062.4

Prepaid pension costs		8.3			7.4
Investment in joint venture		130.8			129.0
Intangible assets, net		489.7			501.4
Deferred income taxes		21.0			26.6
Income tax receivable		2.4			—
Other noncurrent assets		62.6			67.9

Total assets	$	2,691.9		$	2,606.2

Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt	$	52.1		$	39.6
Accounts payable and accrued expenses		380.4			345.5
Income tax payable		3.2			2.5
Deferred income taxes		0.6			0.5

Total current liabilities		436.3			388.1
Long-term debt, less current installments		950.9			1,003.0
Postretirement benefit liabilities		172.4			201.5
Pension benefit liabilities		107.6			115.5
Other long-term liabilities		49.6			53.2
Income tax payable		92.3			51.1
Deferred income taxes		114.0			144.7

Total noncurrent liabilities		1,486.8			1,569.0

Shareholders’ equity:
Common stock, $0.01 par value per share, authorized
200 million shares; issued 60,416,446 shares, outstanding 55,359,064 shares in 2015 and 60,183,535 shares issued, 55,126,153 outstanding shares in 2014		0.6			0.6
Capital in excess of par value		1,151.8			1,134.4
Retained earnings		365.2			271.0
Treasury stock, at cost, 5,057,382 shares		(261.4	)		(261.4	)
Accumulated other comprehensive (loss)		(487.4	)		(495.5	)

Total shareholders’ equity		768.8			649.1

Total liabilities and shareholders’ equity	$	2,691.9		$	2,606.2

See accompanying notes to consolidated financial statements beginning on page 52.

Armstrong World Industries, Inc., and Subsidiaries

Consolidated Statements of Equity

(amounts in millions, except share data)


	Common Stock									Treasury Stock
	Shares			Amount		Capital in Excess of Par Value		Retained Earnings		Shares		Amount			Accumulated Other Comprehensive Income (Loss)			Total
December 31, 2012		58,934,050		$	0.6	$	1,076.8	$	113.1		—		—		($	471.4	)	$	719.1
Stock issuance, net		530,259
Share-based employee compensation							21.6												21.6

Net earnings									94.1										94.1

Repurchase of common stock		(5,057,382	)								5,057,382	($	261.4	)					(261.4	)
Other comprehensive income																99.8			99.8

December 31, 2013		54,406,927		$	0.6	$	1,098.4	$	207.2		5,057,382	($	261.4	)	($	371.6	)	$	673.2

Stock issuance, net		719,226
Share-based employee compensation							36.0												36.0
Net earnings									63.8										63.8

Other comprehensive loss																(123.9	)		(123.9	)

December 31, 2014		55,126,153		$	0.6	$	1,134.4	$	271.0		5,057,382	($	261.4	)	($	495.5	)	$	649.1

Stock issuance, net		232,911
Share-based employee compensation							17.4												17.4

Net earnings									94.2										94.2
Other comprehensive income																8.1			8.1

December 31, 2015		55,359,064		$	0.6	$	1,151.8	$	365.2		5,057,382	($	261.4	)	($	487.4	)	$	768.8

See accompanying notes to consolidated financial statements beginning on page 52.

Armstrong World Industries, Inc., and Subsidiaries

Consolidated Statements of Cash Flows

(amounts in millions)


	Years Ended December 31,
	2015			2014			2013
Cash flows from operating activities:
Net earnings	$	94.2		$	63.8		$	94.1
Adjustments to reconcile earnings to net cash provided by operating activities:
Depreciation and amortization		118.3			129.4			109.0
Write off of debt financing costs		—			—			18.9
Loss on disposal of discontinued operations		0.2			17.0			10.0
Impairment on assets of discontinued operations		—			11.9			—
Fixed and intangible asset impairments		—			15.8			—
Deferred income taxes		(48.5	)		33.1			37.0
Share-based compensation		13.4			12.7			15.9
Equity earnings from joint venture		(66.1	)		(65.1	)		(59.4	)
U.S. pension expense (credit)		25.2			0.6			(2.1	)
Non-cash foreign currency translation on intercompany loans		19.8			37.2			—
Other, non-cash adjustments, net		(1.6	)		(2.7	)		(4.6	)
Changes in operating assets and liabilities:
Receivables		2.7			(6.2	)		(8.8	)
Inventories		(15.7	)		(26.8	)		(11.9	)
Other current assets		(7.3	)		(9.7	)		(9.2	)
Other noncurrent assets		9.8			(2.9	)		7.1
Accounts payable and accrued expenses		49.3			(6.1	)		37.4
Income taxes payable		33.6			24.2			16.3
Other long-term liabilities		(22.2	)		(21.0	)		(35.3	)
Other, net		(1.4	)		3.6			(0.7	)

Net cash provided by operating activities		203.7			208.8			213.7

Cash flows from investing activities:
Purchases of property, plant and equipment		(170.7	)		(222.9	)		(213.7	)
Return of investment from joint venture		64.2			67.9			61.1
Proceeds from (payment of) company-owned life insurance, net		2.2			(0.5	)		(0.4	)
Proceeds from the sale of assets		2.8			7.9			7.2
Proceeds from settlement of note receivable		—			2.4			—
Net cash effect from deconsolidation of subsidiary		—			(4.1	)		—

Net cash (used for) investing activities		(101.5	)		(149.3	)		(145.8	)

Cash flows from financing activities:
Proceeds from revolving credit facility and other short-term debt		—			122.8			—
Payments of revolving credit facility and other short-term debt		—			(122.8	)		—
Proceeds from long-term debt		—			—			1,111.0
Payments of long-term debt		(39.5	)		(23.9	)		(1,115.5	)
Financing costs		—			—			(7.2	)
Special dividends paid		(1.2	)		(1.3	)		(1.4	)
Excess tax benefits from share-based awards		—			8.4			—
Proceeds from exercised stock options		6.4			17.8			8.6
Proceeds from company-owned life insurance loans, net		2.0			2.3			2.2
Payment for treasury stock acquired		—			—			(261.4	)

Net cash (used for) provided by financing activities		(32.3	)		3.3			(263.7	)

Effect of exchange rate changes on cash and cash equivalents		(10.4	)		(12.7	)		(5.4	)

Net increase (decrease) in cash and cash equivalents		59.5			50.1			(201.2	)
Cash and cash equivalents at beginning of year		185.3			135.2			336.4

Cash and cash equivalents at end of year		244.8			185.3			135.2
Cash and cash equivalents at end of year of discontinued operations		—			—			22.9

Cash and cash equivalents at end of year of continuing operations	$	244.8		$	185.3		$	112.3

Supplemental Cash Flow Disclosures:
Interest paid	$	39.4		$	40.2		$	42.4
Income taxes paid, net	$	44.4		$	15.0		$	14.4
Amounts in accounts payable for capital expenditures	$	14.3		$	18.7		$	15.3

See accompanying notes to consolidated financial statements beginning on page 52.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

NOTE 1. BUSINESS

Armstrong World Industries, Inc. (“AWI”) is a Pennsylvania corporation incorporated in 1891. When we refer to “we,” “our” and “us” in these notes, we are referring to AWI and its subsidiaries. We use the term “AWI” when we are referring solely to Armstrong World Industries, Inc.

On February 23, 2015, we announced that our board of directors unanimously approved a plan to separate our Resilient Flooring and Wood Flooring segments from our Building Products (Ceilings) segment. The separation will be effected by allocating the assets and liabilities related primarily to the Resilient Flooring and Wood Flooring segments to Armstrong Flooring, Inc. (“AFI”) and then distributing the common stock of AFI to AWI’s shareholders. The separation and distribution will result in AWI and AFI becoming two independent, publicly-traded companies, with AFI owning and operating the Resilient Flooring and Wood Flooring segments and AWI continuing to own and operate the Building Products (Ceilings) segment. Separation costs of $34.3 million for 2015 primarily relate to outside professional services and employee compensation and severance accruals. We expect the effective date of the separation to be near the end of the first quarter of 2016.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation Policy . The consolidated financial statements and accompanying data in this report include the accounts of AWI and its majority-owned subsidiaries. All significant intercompany transactions have been eliminated from the consolidated financial statements.

Use of Estimates . We prepare our financial statements in conformity with U.S. generally accepted accounting principles, which requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. When preparing an estimate, management determines the amount based upon the consideration of relevant internal and external information. Actual results may differ from these estimates.

Reclassifications . Certain amounts in the prior year’s Consolidated Financial Statements and related notes and schedule thereto have been recast to conform to the 2015 presentation.

Revenue Recognition . We recognize revenue from the sale of products when persuasive evidence of an arrangement exists, title and risk of loss transfers to the customers, prices are fixed and determinable, and it is reasonably assured the related accounts receivable is collectible. Our standard sales terms are Free On Board (“FOB”) shipping point. We have some sales terms that are FOB destination. Our products are sold with normal and customary return provisions. Sales discounts are deducted immediately from the sales invoice. Provisions, which are recorded as a reduction of revenue, are made for the estimated cost of rebates, promotional programs and warranties. We defer recognizing revenue if special sales agreements, established at the time of sale, warrant this treatment.

Sales Incentives . Sales incentives are reflected as a reduction of net sales.

Shipping and Handling Costs . Shipping and handling costs are reflected in cost of goods sold.

Advertising Costs . We recognize advertising expenses as they are incurred.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Research and Development Costs . We recognize research and development costs as they are incurred.

Pension and Postretirement Benefits . We have benefit plans that provide for pension, medical and life insurance benefits to certain eligible employees when they retire from active service. See Note 16 to the Consolidated Financial Statements for disclosures on pension and postretirement benefits.

Taxes . The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes to reflect the expected future tax consequences of events recognized in the financial statements. Deferred income tax assets and liabilities are recognized by applying enacted tax rates to temporary differences that exist as of the balance sheet date which result from differences in the timing of reported taxable income between tax and financial reporting.

We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability and foreign source income, the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are generally not used as positive evidence related to the realization of the deferred tax assets in the assessment.

Taxes collected from customers and remitted to governmental authorities are reported on a net basis.

Earnings per Share . Basic earnings per share is computed by dividing the earnings attributable to common shares by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings.

Cash and Cash Equivalents . Cash and cash equivalents include cash on hand and short-term investments that have maturities of three months or less when purchased.

Concentration of Credit . We principally sell products to customers in the building products industries in various geographic regions. No one customer accounted for 10% or more of our total consolidated net sales in the years 2015, 2014, and 2013. We monitor the creditworthiness of our customers and generally do not require collateral.

Receivables . We sell the vast majority of our products to select, pre-approved customers using customary trade terms that allow for payment in the future. Customer trade receivables, customer notes receivable and miscellaneous receivables (which include supply related rebates and other), net of allowances for doubtful accounts, customer credits and warranties are reported in accounts and notes receivable, net. Cash flows from the collection of current receivables are classified as operating cash flows on the consolidated statements of cash flows.

We establish credit-worthiness prior to extending credit. We estimate the recoverability of receivables each period. This estimate is based upon new information in the period, which can include the review of any available financial statements and forecasts, as well as discussions with legal counsel and the management of the debtor company. As events occur, which impact the collectability of the receivable, all or a portion of the receivable is reserved. Account balances are charged off against the allowance when the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Inventories . Inventories are valued at the lower of cost or market. Inventories also include certain samples used in ongoing sales and marketing activities. See Note 6 to the Consolidated Financial Statements for further information on our accounting for inventories.

Property Plant and Equipment . Property plant and equipment is recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized on a straight-line basis over the assets’ estimated useful lives. Machinery and equipment includes manufacturing equipment (depreciated over 3 to 15 years), computer equipment (depreciated over 3 to 5 years) and office furniture and equipment (depreciated over 5 to 7 years). Within manufacturing equipment, assets that are subject to quick obsolescence or wear out quickly, such as tooling and engraving equipment, are depreciated over shorter periods (3 to 7 years). Heavy production equipment, such as conveyors and production presses, are depreciated over longer periods (10 to 15 years). Buildings are depreciated over 15 to 30 years, depending on factors such as type of construction and use. Computer software is depreciated over 3 to 7 years.

Property, plant and equipment are tested for impairment when indicators of impairment are present, such as operating losses and/or negative cash flows. If an indication of impairment exists, we compare the carrying amount of the asset group to the estimated undiscounted future cash flows expected to be generated by the assets. The estimate of an asset group’s fair value is based on discounted future cash flows expected to be generated by the asset group, or based on management’s estimated exit price assuming the assets could be sold in an orderly transaction between market participants, or estimated salvage value if no sale is assumed. If the fair value is less than the carrying value of the asset group, we record an impairment charge equal to the difference between the fair value and carrying value of the asset group. Impairments of assets related to our manufacturing operations are recorded in cost of goods sold.

When assets are disposed of or retired, their costs and related depreciation are removed from the financial statements, and any resulting gains or losses normally are reflected in cost of goods sold or selling, general and administrative (“SG&A”) expenses depending on the nature of the asset.

Asset Retirement Obligations . We recognize the fair value of obligations associated with the retirement of tangible long-lived assets in the period in which they are incurred. Upon initial recognition of a liability, the discounted cost is capitalized as part of the related long-lived asset and depreciated over the corresponding asset’s useful life. Over time, accretion of the liability is recognized as an operating expense to reflect the change in the liability’s present value.

Intangible Assets . Our definite-lived intangible assets are primarily customer relationships (amortized over 20 years) and developed technology (amortized over 15 years). We review significant definite-lived intangible assets for impairment when indicators of impairment exist. We review our businesses for indicators of impairment such as operating losses and/or negative cash flows. If an indication of impairment exists, we compare the carrying amount of the asset group to the estimated undiscounted future cash flows expected to be generated by the assets. The estimate of an asset group’s fair value is based on discounted future cash flows expected to be generated by the asset group, or based on management’s estimated exit price assuming the assets could be sold in an orderly transaction between market participants. If the fair value is less than the carrying value of the asset group, we record an impairment charge equal to the difference between the fair value and carrying value of the asset group.

Our indefinite-lived intangibles are primarily trademarks and brand names, which are integral to our corporate identity and expected to contribute indefinitely to our cash flows. Accordingly, they have been assigned an indefinite life. We perform annual impairment tests during the fourth quarter on these indefinite-lived intangibles. These assets undergo more frequent tests if an indication of possible impairment exists.

The principal assumption used in our impairment tests for definite-lived intangible assets is future operating profit adjusted for depreciation and amortization. The principal assumptions used in our impairment tests for indefinite-lived intangible assets include revenue growth rate, discount rate and royalty rate. Revenue growth rate and future operating profit assumptions are derived from those utilized in our operating plan and strategic planning

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

processes. The discount rate assumption is calculated based upon an estimated weighted average cost of equity which reflects the overall level of inherent risk and the rate of return a market participant would expect to achieve. The royalty rate assumption represents the estimated contribution of the intangible asset to the overall profits of the reporting unit. Methodologies used for valuing our intangible assets did not change from prior periods.

See Note 10 to the Consolidated Financial Statements for disclosure on intangible assets.

Foreign Currency Transactions. Assets and liabilities of our subsidiaries operating outside the United States which account in a functional currency other than U.S. dollars are translated using the period end exchange rate. Revenues and expenses are translated at exchange rates effective during each month. Foreign currency translation gains or losses are included as a component of accumulated other comprehensive income (loss) within shareholders’ equity. Gains or losses on foreign currency transactions are recognized through the statement of earnings.

Financial Instruments and Derivatives . From time to time, we use derivatives and other financial instruments to offset the effect of currency, interest rate and commodity price variability. See Notes 17 and 18 to the Consolidated Financial Statements for further discussion.

Share-based Employee Compensation . For awards with only service and performance conditions that have a graded vesting schedule, we recognize compensation expense on a straight-line basis over the vesting period for the entire award. See Note 21 to the Consolidated Financial Statements for additional information on share-based employee compensation.

Subsequent Events . We have evaluated subsequent events for potential recognition and disclosure through the date the consolidated financial statements included in the Annual Report on Form 10-K were issued.

Recently Adopted Accounting Standards

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” which is part of ASC 205: Presentation of Financial Statements and ASC 360: Property, Plant and Equipment. The amendments in this guidance change the requirements for reporting discontinued operations. Under the new guidance a disposal of a component of an entity or a group of components is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The guidance is effective prospectively for disposals that occur within annual periods beginning on or after December 15, 2014. There was no impact on our financial condition, results of operations or cash flows as a result of the adoption of this guidance.

In May 2015, the FASB issued ASU 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” This standard removes the requirement to categorize investments within the fair value hierarchy when fair value is measured using the net asset value per share practical expedient. We do not hold any such investments on our Consolidated Balance Sheets, however, the assets held in trust for our defined benefit pension plan include such investments. The new guidance is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. We early adopted this guidance as of December 31, 2015 and have applied this guidance to our disclosures of defined benefit pension plan assets as of and for the years ended December 31, 2015 and 2014. See Note 16 to the Consolidated Financial Statements for disclosures on pension and postretirement benefits.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” . The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to a customer. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date” which defers the effective date for ASU 2014-09 by one year to January 1, 2018, however, public business entities would be permitted to adopt the standard as of the original effective date. We have not selected a transition method and are currently evaluating the impact this guidance will have on our financial condition, results of operations and cash flows.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory” which requires inventory that is measured on a first-in, first-out or average cost basis to be measured at lower of cost and net realizable value, as opposed to the lower of cost or market. For inventory that is measured under the last-in, first-out (“LIFO”) basis or the retail recovery method, there is no change to current measurement requirements. This new guidance is effective for annual reporting periods beginning after December 15, 2016, but early adoption is permitted. We are currently evaluating the impact the adoption of this standard would have on our financial condition, results of operations and cash flows.

NOTE 3. NATURE OF OPERATIONS

Building Products — produces suspended mineral fiber, soft fiber and metal ceiling systems for use in commercial, institutional and residential settings. In addition, our Building Products segment sources

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

complementary ceiling products. Our products, which are sold worldwide, are available in numerous colors, performance characteristics and designs, and offer attributes such as acoustical control, rated fire protection and aesthetic appeal. Commercial ceiling materials and accessories are sold to resale distributors and to ceiling systems contractors. Residential ceiling products are sold in North America primarily to wholesalers and retailers (including large home centers). Our Worthington Armstrong Venture (“WAVE”) joint venture with Worthington Industries, Inc. manufactures suspension system (grid) products which are sold by both us and WAVE.

Resilient Flooring — designs, manufactures, sources and sells a broad range of floor coverings primarily for homes and commercial and institutional buildings. Manufactured products in this segment include vinyl sheet, vinyl tile, and luxury vinyl tile (“LVT”) flooring. In addition, our Resilient Flooring segment sources and sells laminate flooring products, vinyl tile products, vinyl sheet products, LVT products, linoleum products, adhesives, and installation and maintenance materials and accessories. Resilient Flooring products are offered in a wide variety of types, designs, colors and installation options. We sell these products to independent wholesale flooring distributors, large home centers, retailers, contractors and to the manufactured homes industry, and secure specifications for these products through architects, designers and end users. When market conditions and available capacity warrant, we also provide product on an original equipment manufacturer (“OEM”) basis to other flooring companies.

Wood Flooring — designs, manufactures, sources and sells hardwood flooring products for use in new residential construction and renovation, with some commercial applications in stores, restaurants and high-end offices. The product offering includes pre-finished solid and engineered wood floors in various wood species, and related accessories. Virtually all of our Wood Flooring sales are in North America. Our Wood Flooring products are generally sold to independent wholesale flooring distributors, large home centers, retailers and flooring contractors. When market conditions and available capacity warrant, we also provide product on an OEM basis to other flooring companies

Unallocated Corporate — includes assets, liabilities, income and expenses that have not been allocated to the business units. Balance sheet items classified as Unallocated Corporate are primarily income tax related accounts, cash and cash equivalents, the Armstrong brand name, the U.S. pension and long-term debt. Expenses for our corporate departments and certain benefit plans are allocated to the reportable segments based on known metrics, such as specific activity or headcount. The remaining items, which cannot be attributed to the other reportable segments without a high degree of generalization, are reported in Unallocated Corporate.


	Building Products			Resilient Flooring		Wood Flooring			Unallocated Corporate			Total
For the year ended 2015
Net sales to external customers	$	1,231.3		$	713.3	$	475.4			—		$	2,420.0
Equity (earnings) from joint venture		(66.1	)		—		—			—			(66.1	)
Segment operating income (loss)		264.8			42.2		19.2		($	138.8	)		187.4
Segment assets		1,068.9			510.2		337.4			775.4			2,691.9
Depreciation and amortization		67.6			26.1		12.0			12.6			118.3
Investment in joint venture		130.8			—		—			—			130.8
Purchases of property, plant and equipment		86.7			40.8		20.8			22.4			170.7

	Building Products			Resilient Flooring		Wood Flooring			Unallocated Corporate			Total
For the year ended 2014
Net sales to external customers	$	1,294.3		$	712.9	$	508.1			—		$	2,515.3
Equity (earnings) from joint venture		(65.1	)		—		—			—			(65.1	)
Segment operating income (loss)		264.7			61.6		(14.9	)	($	72.3	)		239.1
Segment assets		1,079.7			492.7		329.8			704.0			2,606.2
Depreciation and amortization ⁽¹⁾		66.0			29.6		16.5			11.3			123.4
Asset impairment ⁽¹⁾		0.4			—		15.4			—			15.8
Investment in joint venture		129.0			—		—			—			129.0
Purchases of property, plant and equipment ⁽¹⁾		128.1			51.6		26.0			11.4			217.1

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	Building Products			Resilient Flooring		Wood Flooring		Unallocated Corporate			Total
For the year ended 2013
Net sales to external customers	$	1,264.6		$	728.8	$	534.0		—		$	2,527.4
Equity (earnings) from joint venture		(59.4	)		—		—		—			(59.4	)
Segment operating income (loss)		263.1			69.8		6.0	($	73.3	)		265.6
Segment assets		1,071.9			462.9		335.2		852.0			2,722.0
Depreciation and amortization ⁽¹⁾		56.3			25.8		11.4		9.0			102.5
Investment in joint venture		132.0			—		—		—			132.0
Purchases of property, plant and equipment ⁽¹⁾		134.5			50.7		8.0		15.8			209.0

⁽¹⁾	– Totals for 2014 and 2013 will differ from the totals on our Consolidated Statement of Cash Flow by the amounts that have been classified as discontinued operations.

Segment operating income (loss) is the measure of segment profit or loss reviewed by the chief operating decision maker. The sum of the segments’ operating income (loss) equals the total consolidated operating income as reported on our income statement. The following reconciles our total consolidated operating income to earnings from continuing operations before income taxes. These items are only measured and managed on a consolidated basis:


	2015			2014			2013
Segment operating income	$	187.4		$	239.1		$	265.6
Interest expense		45.3			46.0			68.7
Other non-operating expense		23.5			10.5			2.0
Other non-operating income		(5.3	)		(2.6	)		(3.8	)

Earnings from continuing operations before income taxes	$	123.9		$	185.2		$	198.7

Accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

The sales in the table below are allocated to geographic areas based upon the location of the customer.


	2015		2014		2013
Geographic Areas
Net trade sales
Americas:
United States	$	1,738.5	$	1,728.3	$	1,743.8
Canada		131.5		164.9		176.6
Other		31.8		33.5		33.9

Total Americas		1,901.8		1,926.7		1,954.3

Europe, Middle East & Africa:
United Kingdom		85.8		80.1		82.3
France		43.6		55.9		55.6
Russia		37.9		64.9		68.0
Saudi Arabia		10.8		20.8		18.1
Other		109.8		125.0		127.3

Total Europe, Middle East & Africa		287.9		346.7		351.3

Pacific Rim:
China		85.5		92.4		81.3
India		54.0		50.5		40.3
Australia		53.9		64.2		66.2
Other		36.9		34.8		34.0

Total Pacific Rim		230.3		241.9		221.8

Total net trade sales	$	2,420.0	$	2,515.3	$	2,527.4


			2015		2014
Property, plant and equipment, net at December 31,
Americas:
United States			$	769.8	$	715.8
Other				4.4		5.4

Total Americas				774.2		721.2

Europe, Middle East & Africa:
Russia				48.3		62.7
Germany				28.5		29.9
France				27.6		18.8
United Kingdom				21.8		19.1
Other				18.8		16.2

Total Europe, Middle East & Africa				145.0		146.7

Pacific Rim:
China				163.8		179.1
Other				13.3		15.4

Total Pacific Rim				177.1		194.5

Total property, plant and equipment, net			$	1,096.3	$	1,062.4

Impairment testing of our tangible assets occurs whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In 2014, we made the decision to dispose of certain idle equipment at five of our wood flooring manufacturing facilities and as a result we recorded a $4.4 million impairment charge in cost of goods sold.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

During 2014, we decided to close our resilient flooring plant in Thomastown, Australia and our engineered wood flooring plant in Kunshan, China. We recorded $2.2 million in cost of goods sold for accelerated depreciation due to the closure of the resilient flooring plant in Australia. We sold this facility in January 2015 for a gain of approximately $2 million. We also recorded $4.0 million in cost of goods sold for accelerated depreciation and $0.8 million for the impairment of intangible assets due to the closure of the wood flooring plant in China in 2014.

NOTE 4. DISCONTINUED OPERATIONS

European Resilient Flooring

On December 4, 2014, our Board of Directors approved the cessation of funding to our former DLW subsidiary, which was our former 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 through the preliminary insolvency period. As a result of the insolvency filing, the appointment of the Administrator and our resulting loss of control of DLW’s operations to the German insolvency court and its Administrator, effective December 11, 2014, we deconsolidated DLW from our financial statements and presented DLW for all historical periods as a discontinued operation.

The following is a summary of the results related to the DLW business, which are included in discontinued operations. These results were previously presented as part of the Resilient Flooring reporting segment.


	2014			2013
Net sales	$	175.2		$	192.5

(Loss) from discontinued operations before income tax	($	23.7	)	($	26.8	)
Income tax benefit		—			—

Net (loss) from discontinued operations	($	23.7	)	($	26.8	)


	2015			2014
(Loss) on disposal of discontinued business before income tax	($	0.8	)	($	13.5	)
Income tax benefit		42.0			1.2

Net gain (loss) on disposal of discontinued business	$	41.2		($	12.3	)

The $0.8 million and $13.5 million pre-tax losses on disposal of DLW recorded in 2015 and 2014 were comprised of the following items:


	2015			2014
Recognition of pension accumulated other comprehensive income		—		($	14.7	)
Transaction related fees		—			(3.4	)
Reserve for previous intercompany receivables		—			(1.1	)
Recognition of cumulative foreign currency translation adjustments		—			5.7
Other non-operating expenses	($	0.8	)		—

(Loss) on disposal of discontinued business before income tax	($	0.8	)	($	13.5	)
Income tax benefit		42.0			1.2

Net gain (loss) on disposal of discontinued business	$	41.2		($	12.3	)

The DLW insolvency filing in December 2014 resulted in our disposal and presentation of DLW for all historical periods as a discontinued operation. However, the insolvency filing did not meet the U.S. tax criteria to be considered disposed of until the first quarter of 2015. In determining the U.S. tax impact of the disposition, the liabilities, including an unfunded pension liability of approximately $115 million, were considered proceeds. However, pension deductions for tax purposes result only when the benefit payments are made. Accordingly, a deferred tax asset and non-cash income tax benefit of $43.4 million were recorded in the first quarter of 2015 within discontinued operations for the tax benefit of the future pension deductions.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

In June 2015, the Administrator announced that the business operations of DLW, including its two German manufacturing plants, were sold to a third party investment firm. We do not believe this transaction will have a material adverse impact on our financial condition, results of operations or cash flows. The insolvency proceedings continue as the Administrator works to sell remaining assets and resolve creditor claims.

At deconsolidation, DLW had a net liability of $12.9 million, representing assets of $151.9 million and liabilities of $164.8 million, which were removed from our balance sheet. This net liability was recognized as a contingent liability on our consolidated balance sheet pending the closure and results of the insolvency proceedings. Any shortfall will be recognized immediately when identified and any excess will be reflected when insolvency proceedings are finalized, all through discontinued operations. The amount of the net liability was $12.1 million at December 31, 2015.

We have entered into supply agreements with DLW to continue to purchase linoleum and homogenous flooring products for sale in the Americas and the Pacific Rim, and to provide administrative support services to DLW for information technology and accounts receivables and payables for a limited transition period. These agreements are not material.

Cabinets

In September 2012, we entered into a definitive agreement to sell our cabinets business to American Industrial Partners (“AIP”) for $27.0 million in cash. The sale was completed in October 2012. In February 2013, we received a demand notice from the Carpenters Labor-Management Pension Fund (the “Fund”) of a deemed withdrawal relating to the sale of our cabinets business to AIP in 2012.

During the third quarter of 2013, we recorded an estimated liability of $7.5 million for a potential withdrawal liability related to a multi-employer pension plan. During the second quarter of 2014, we recorded an additional $3.3 million expense to increase the total estimated remaining liability to $10.0 million. In August 2014, we entered into a settlement agreement with the Fund to resolve this matter for $10.3 million, including a complete release of all claims against us. As a result of the settlement, we recorded an additional charge of $0.3 million during the third quarter of 2014. Payment was made to the Fund in the third quarter of 2014.

The following is a summary of the results related to the cabinets business, which are included in discontinued operations.


	2015			2014			2013
Gain (loss) on disposal of discontinued business before income tax	$	0.6		($	3.5	)	($	10.0	)
Income tax (expense) benefit		(0.2	)		1.3			3.6

Net gain (loss) on disposal of discontinued business	$	0.4		($	2.2	)	($	6.4	)

The Consolidated Statement of Cash Flows does not separately report the cash flows of the discontinued operations.

NOTE 5. ACCOUNTS AND NOTES RECEIVABLE


	December 31, 2015			December 31, 2014
Customer receivables	$	198.8		$	209.7
Customer notes		1.5			1.3
Miscellaneous receivables		8.2			9.3
Less allowance for warranties, discounts, and losses		(24.2	)		(25.1	)

Accounts and notes receivable, net	$	184.3		$	195.2

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Generally, 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.

NOTE 6. INVENTORIES


	December 31, 2015			December 31, 2014
Finished goods	$	202.0		$	243.2
Goods in process		25.2			23.0
Raw materials and supplies		138.2			133.9
Less LIFO and other reserves		(21.2	)		(64.6	)

Total inventories, net	$	344.2		$	335.5

Approximately 77% and 73% of our total inventory in 2015 and 2014, respectively, were valued on a LIFO (last-in, first-out) basis. LIFO reserves as of December 31, 2015 were lower in comparison to December 31, 2014, primarily due to declines in lumber costs. Inventory values were lower than would have been reported on a total FIFO (first-in, first-out) basis by $17.8 million and $52.9 million in 2015 and 2014, respectively.

The distinction between the use of different methods of inventory valuation is primarily based on geographical locations and/or legal entities rather than types of inventory. The following table summarizes the amount of inventory that is not accounted for under the LIFO method.


	December 31, 2015		December 31, 2014
International locations	$	74.0	$	84.6
U.S. sourced products		5.5		4.7

Total	$	79.5	$	89.3

Substantially all of our international locations use the FIFO method of inventory valuation (or other methods which closely approximate the FIFO method) primarily because the LIFO method is not permitted for local tax and/or statutory reporting purposes. In these situations, a conversion to LIFO would be highly complex and involve excessive cost and effort to achieve under local tax and/or statutory reporting requirements.

The sourced products represent certain finished goods sourced from third party manufacturers, primarily from foreign suppliers.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

NOTE 7. OTHER CURRENT ASSETS


	December 31, 2015		December 31, 2014
Prepaid expenses	$	41.1	$	47.6
Fair value of derivative assets		6.6		5.7
Other		13.2		5.5

Total other current assets	$	60.9	$	58.8

NOTE 8. PROPERTY, PLANT AND EQUIPMENT


	December 31, 2015			December 31, 2014
Land	$	72.0		$	73.2
Buildings		381.3			373.3
Machinery and equipment		1,203.9			1,098.4
Computer software		23.2			18.6
Construction in progress		134.5			143.2
Less accumulated depreciation and amortization		(718.6	)		(644.3	)

Net property, plant and equipment	$	1,096.3		$	1,062.4

See Note 2 to the Consolidated Financial Statements for discussion of policies related to property and depreciation and asset retirement obligations.

NOTE 9. EQUITY INVESTMENTS

Investment in joint venture at December 31, 2015 reflected the equity interest in our 50% investment in our Worthington Armstrong Venture (“WAVE”) joint venture. The WAVE joint venture is reflected in our consolidated financial statements using the equity method of accounting.

We use the equity in earnings method to determine the appropriate classification of distributions from WAVE within our cash flow statement. During 2015, 2014 and 2013, WAVE distributed amounts in excess of our capital contributions and proportionate share of retained earnings. Accordingly, the distributions in these years were reflected as a return of investment in cash flows from investing activity in our Consolidated Statement of Cash Flows. Distributions from WAVE in 2015, 2014 and 2013 were $64.2 million, $67.9 million, and $61.1 million, respectively.

In certain markets, we sell WAVE products directly to customers pursuant to specific terms of sale. In those circumstances, we record the sales and associated costs within our consolidated financial statements. The total sales associated with these transactions were $97.4 million, $109.4 million and $111.7 million for the years ended 2015, 2014 and 2013, respectively.

Our recorded investment in WAVE was higher than our 50% share of the carrying values reported in WAVE’s consolidated financial statements by $172.1 million as of December 31, 2015 and $177.7 million as of December 31, 2014. These differences are due to our adoption of fresh-start reporting upon emergence from Chapter 11, while WAVE’s consolidated financial statements do not reflect fresh-start reporting. The differences are composed of the following fair value adjustments to assets:


	December 31, 2015		December 31, 2014
Property, plant and equipment	$	0.4	$	0.5
Other intangibles		141.3		146.8
Goodwill		30.4		30.4

Total	$	172.1	$	177.7

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Other intangibles include customer relationships, trademarks and developed technology. Customer relationships are amortized over 20 years and developed technology is amortized over 15 years. Trademarks have an indefinite life.

See Exhibit 99.1 for WAVE’s consolidated financial statements. Condensed financial data for WAVE is summarized below:


			December 31, 2015		December 31, 2014
Current assets			$	118.7	$	120.2
Noncurrent assets				52.1		40.5
Current liabilities				23.3		26.3
Other noncurrent liabilities				248.9		243.4

	2015		2014		2013
Net sales	$	374.4	$	392.5	$	381.8
Gross profit		187.4		185.1		172.9
Net earnings		144.4		142.2		132.4

See discussion in Note 26 to the Consolidated Financial Statements for additional information on this related party.

NOTE 10. INTANGIBLE ASSETS

We conduct our annual impairment testing of non-amortizing intangible assets during the fourth quarter. Our 2014 testing concluded there was an impairment of $10.0 million of a Wood Flooring trademark. The 2015 and 2013 reviews concluded that no impairment charges were necessary. See Note 2 to the Consolidated Financial Statements for a discussion of our accounting policy for intangible assets.

The following table details amounts related to our intangible assets as of December 31, 2015 and 2014:


		December 31, 2015				December 31, 2014
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortizing intangible assets
Customer relationships	20 years	$	165.4	$	76.7	$	165.4	$	68.4
Developed technology	15 years		87.2		51.0		84.9		45.1
Other	Various		20.4		2.7		21.3		2.4

Total		$	273.0	$	130.4	$	271.6	$	115.9

Non-amortizing intangible assets
Trademarks and brand names	Indefinite		347.1				345.7

Total intangible assets		$	620.1			$	617.3


	2015		2014		2013
Amortization expense	$	14.6	$	14.5	$	14.4

The expected annual amortization expense for the years 2016 through 2020 is approximately $14 million.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

NOTE 11. OTHER NON-CURRENT ASSETS


	December 31, 2015		December 31, 2014
Cash surrender value of company-owned life insurance policies	$	52.6	$	53.7
Debt financing costs		4.7		6.7
Other		5.3		7.5

Total other non-current assets	$	62.6	$	67.9

NOTE 12. ACCOUNTS PAYABLE AND ACCRUED EXPENSES


	December 31, 2015		December 31, 2014
Payables, trade and other	$	234.1	$	224.8
Employment costs		62.1		33.9
Current portion of pension and postretirement benefit liabilities		22.6		24.4
Contingent liability related to deconsolidated operations		12.1		12.9
Other		49.5		49.5

Total accounts payable and accrued expenses	$	380.4	$	345.5

The increase in accrued employment costs as of December 31, 2015 in comparison to December 31, 2014 was due to increased employee compensation and severance accruals recorded in connection with our planned separation of the flooring business.

NOTE 13. SEVERANCE AND RELATED COSTS

In 2015 we recorded $5.3 million in Unallocated Corporate for severance and related costs to reflect approximately 25 position eliminations (including our current Chief Executive Officer) as a result of our initiative to separate our flooring business from our ceiling business. These costs are reflected within Separation costs on the income statement.

In 2015 we also recorded $2.0 million in cost of goods sold and $0.9 million in SG&A for severance and related costs to reflect approximately 85 position eliminations in our Building Products business in the Pacific Rim. In response to China market conditions, we decided to idle one of our Buildings Products plants in China in the second quarter of 2016 and have eliminated other positions throughout the region. Production will be primarily transferred to our other Building Products plant in China.

In 2015 we also recorded $2.2 million in SG&A for severance and related costs to reflect approximately 30 position eliminations in our Buildings Products business in Europe. The position eliminations are in response to poor construction market conditions in many parts of Europe.

In the second and third quarters of 2014, we recorded $1.7 million and $0.2 million, respectively, in cost of goods sold for severance and related costs due to the closure of a resilient flooring plant in Australia. We also recorded $1.4 million and $0.7 million in the second and third quarters of 2014, respectively, in cost of goods sold for severance and related costs due to the closure of a wood flooring plant in China. Both plants were closed due to excess capacity and ceased operations in the third quarter of 2014.

In the fourth quarter of 2013, we recorded $1.4 million in cost of goods sold for severance and related costs in our Resilient Flooring business in Australia.

In the first quarter of 2013, we recorded $2.4 million in cost of goods sold for severance and related costs to reflect approximately 40 position eliminations in our Resilient Flooring business in Australia.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

NOTE 14. INCOME TAXES

The tax effects of principal temporary differences between the carrying amounts of assets and liabilities and their tax bases are summarized in the following table. Management believes it is more likely than not that the results of future operations will generate sufficient taxable income in the appropriate jurisdiction and foreign source income to realize deferred tax assets, net of valuation allowances. In arriving at this conclusion, we considered the profit before tax generated for the years 2013 through 2015, as well as future reversals of existing taxable temporary differences and projections of future profit before tax and foreign source income.

We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard for all periods, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability and foreign source income, the duration of statutory carryforward periods, and our experience with operating loss and tax credit carryforward expirations. A history of cumulative losses is a significant piece of negative evidence used in our assessment. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.

As of December 31, 2015 and 2014, we had valuation allowances of $69.1 million and $87.9 million, respectively. As of December 31, 2015, our valuation allowance consisted of $13.8 million for state deferred tax assets, primarily operating loss carryforwards, and $55.3 million for foreign deferred tax assets, primarily foreign operating loss carryforwards.

As of December 31, 2015 and 2014, we had $863.1 million and $969.6 million, respectively, of state NOL carryforwards expiring between 2016 and 2035. In addition, as of December 31, 2015 and 2014, we had $202.9 million and $158.3 million, respectively, of foreign NOL carryforwards. As of December 31, 2015, $76.9 million of our foreign NOL carryforwards were available for carryforward indefinitely and $126.0 million expire between 2016 and 2033. As of December 31, 2015, we also had U.S. foreign tax credit (“FTC”) carryforwards of $27.1 million on a gross basis, $12.3 million when netted with unrecognized tax benefits that expire between 2016 and 2022. U.S. FTC carryforwards as of December 31, 2014 were $54.3 million on a gross basis, $12.1 million when netted with unrecognized tax benefits.

Our valuation allowances as of December 31, 2015 of $69.1 million decreased $18.8 million from December 31, 2014. The valuation allowance for foreign deferred tax assets of $55.3 million as of December 31, 2015 increased $13.6 million in comparison to December 31, 2014. This increase was primarily a result of incurring additional foreign losses in 2015. The valuation allowance for federal statutorily limited federal losses, and corresponding equal deferred tax asset, were fully relieved as a result of the disposition of DLW. This resulted in a decrease to the valuation allowance of $31.6 million. The valuation allowance for state deferred tax assets of $13.8 million as of December 31, 2015 decreased $0.8 million in comparison to December 31, 2014.

We estimate we will need to generate future federal taxable income of $77.4 million, including foreign source income of $34.3 million, to fully realize the FTCs before they expire in 2022. We estimate we will need to generate future taxable income of approximately $971.1 million for state income tax purposes during the respective realization periods (ranging from 2016 to 2035) in order to fully realize the net deferred income tax assets discussed above.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Our ability to utilize deferred tax assets may be impacted by certain future events, such as changes in tax legislation or insufficient future taxable income prior to expiration of certain deferred tax assets.


				December 31, 2015			December 31, 2014
Deferred income tax assets (liabilities)
Net operating losses				$	83.7		$	113.7
Postretirement benefits					75.5			87.7
Pension benefit liabilities					74.3			34.0
Deferred compensation					33.8			23.2
Foreign exchange unrealized					18.9			13.3
Foreign tax credit carryforwards					12.3			12.1
State tax credit carryforwards					9.7			5.9
Other					43.2			41.9

Total deferred income tax assets					351.4			331.8
Valuation allowances					(69.1	)		(87.9	)

Net deferred income tax assets					282.3			243.9

Intangibles					(222.8	)		(229.1	)
Accumulated depreciation					(84.1	)		(77.6	)
Inventories					(22.6	)		(13.4	)
Other					(10.9	)		(11.0	)

Total deferred income tax liabilities					(340.4	)		(331.1	)

Net deferred income tax liabilities				($	58.1	)	($	87.2	)

Deferred income taxes have been classified in the Consolidated Balance Sheet as:
Deferred income tax assets - current				$	35.5		$	31.4
Deferred income tax assets - noncurrent					21.0			26.6
Deferred income tax liabilities - current					(0.6	)		(0.5	)
Deferred income tax liabilities - noncurrent					(114.0	)		(144.7	)

Net deferred income tax liabilities				($	58.1	)	($	87.2	)


	2015			2014			2013
Details of taxes
Earnings (loss) before income taxes:
Domestic	$	197.0		$	214.9		$	186.2
Foreign		(15.4	)		(29.7	)		12.5
Elimination of dividends from foreign subsidiaries		(57.7	)		—			—

Total	$	123.9		$	185.2		$	198.7

Income tax expense (benefit):
Current:
Federal	$	41.8		$	43.0		$	18.7
Foreign		10.3			7.9			8.1
State		1.3			2.4			3.3

Total current		53.4			53.3			30.1

Deferred:
Federal		9.1			19.0			40.1
Foreign		(1.7	)		0.8			2.3
State		10.5			10.1			(1.1	)

Total deferred		17.9			29.9			41.3

Total income tax expense	$	71.3		$	83.2		$	71.4

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

We reviewed our position with regards to foreign unremitted earnings and determined that unremitted earnings would continue to be permanently reinvested. Accordingly we have not recorded U.S. income or foreign withholding taxes on approximately $268.7 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the U.S. because we currently plan to keep these amounts permanently invested overseas. It is not practicable to calculate the residual income tax which would result if these basis differences reversed due to the complexities of the tax law and the hypothetical nature of the calculations.


	2015			2014			2013
Reconciliation to U.S. statutory tax rate
Continuing operations tax at statutory rate	$	43.4		$	64.8		$	69.6
Increase in valuation allowances on deferred foreign income tax assets		26.2			24.6			23.0
State income tax expense, net of federal benefit		5.9			6.0			5.9
Separation costs		2.9			—			—
Permanent book/tax differences		2.0			0.8			3.5
Increase (decrease) in valuation allowances on deferred domestic income tax assets		4.1			3.0			(2.9	)
Domestic production activities		(5.1	)		(5.8	)		(9.0	)
Tax on foreign and foreign-source income		(4.6	)		(5.7	)		(13.8	)
Research and development credits		(2.6	)		(4.8	)		(4.4	)
Other		(0.9	)		0.3			(0.5	)

Tax expense at effective rate	$	71.3		$	83.2		$	71.4

As a result of our planned separation of the flooring business we have incurred costs directly related to the separation transaction. Certain costs incurred to facilitate the transaction are not deductible for federal income tax purposes and result in a permanent difference.

We recognize the tax benefits of an uncertain tax position only if those benefits are more likely than not to be sustained based on existing tax law. Additionally, we establish a reserve for tax positions that are more likely than not to be sustained based on existing tax law, but uncertain in the ultimate benefit to be sustained upon examination by the relevant taxing authorities. Unrecognized tax benefits are subsequently recognized at the time the more likely than not recognition threshold is met, the tax matter is effectively settled or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired, whichever is earlier.

We have $150.6 million of Unrecognized Tax Benefits (“UTB”) as of December 31, 2015, $111.7 million ($109.4 million, net of federal benefit) of this amount, if recognized in future periods, would impact the reported effective tax rate. It is estimated that approximately $5 million of the UTB, if recognized, may be written off as a result of a change in ownership under Section 382 of the Internal Revenue Code.

It is reasonably possible that certain UTB’s may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities. Over the next twelve months we estimate that UTB’s may decrease by $0.1 million related to state statutes expiring and increase by $5.8 million due to uncertain tax positions expected to be taken on domestic tax returns.

We account for all interest and penalties on uncertain income tax positions as income tax expense. We reported $4.5 million of interest and penalty exposure as noncurrent income tax payable in the Consolidated Balance Sheet as of December 31, 2015.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

We had the following activity for UTB’s for the years ended December 31, 2015, 2014 and 2013:


	2015			2014			2013
Unrecognized tax benefits balance at January 1,	$	142.6		$	145.2		$	138.4
Gross change for current year positions		10.4			10.5			8.5
Increases for prior period positions		1.9			2.9			1.4
Decrease for prior period positions		(4.1	)		(14.1	)		(2.1	)
Decrease due to settlements and payments		—			(1.2	)		—
Decrease due to statute expirations		(0.2	)		(0.7	)		(1.0	)

Unrecognized tax benefits balance at December 31,	$	150.6		$	142.6		$	145.2

We conduct business globally, and as a result, we file income tax returns in the U.S., various states and international jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world in such major jurisdictions as Australia, Canada, Germany, India, the Netherlands, the United Kingdom and the United States. Generally, we have open tax years subject to tax audit on average of between three years and six years. The audit of our 2009 U.S. income tax return was finalized by the IRS in 2015. With few exceptions, the statute of limitations is no longer open for state or non-U.S. income tax examinations for the years before 2010. Other than the U.S., we have not significantly extended any open statutes of limitation for any major jurisdiction and have reviewed and accrued for, where necessary, tax liabilities for open periods. The tax years 2010 through 2014 are subject to future potential tax adjustments.


	2015		2014		2013
Other taxes
Payroll taxes	$	45.3	$	48.0	$	46.4
Property, franchise and capital stock taxes		10.7		10.9		10.2

NOTE 15. DEBT


	December 31, 2015		Weighted Average Interest Rate for 2015			December 31, 2014		Weighted Average Interest Rate for 2014
Term loan A due 2018	$	496.0		3.24	%	$	530.9		3.14	%
Term loan B due 2020		461.9		3.50	%		466.6		3.50	%
Tax exempt bonds due 2025 - 2041		45.1		0.87	%		45.1		0.88	%

Subtotal		1,003.0		3.25	%		1,042.6		3.20	%
Less current portion and short-term debt		52.1		3.26	%		39.6		3.18	%

Total long-term debt, less current portion	$	950.9		3.25	%	$	1,003.0		3.20	%

The average year-end interest rates are inclusive of our interest rate swaps. See Note 18 to the Consolidated Financial Statements for further information.

In March 2013, we refinanced our $1.3 billion senior credit facility. The amended facility is composed of a $250 million revolving credit facility (with a $150 million sublimit for letters of credit), a $550 million Term Loan A and a $475 million Term Loan B. The terms of the facility resulted in a lower interest rate spread (2.5% vs. 3.0%) than our previous facility. We also extended the maturity of Term Loan A from November 2015 to March 2018 and of Term Loan B from March 2018 to March 2020. The facility is secured by U.S. personal property, the capital stock of material U.S. subsidiaries, and a pledge of 65% of the stock of our material first tier foreign subsidiaries. In connection with the refinancing, we incurred $8.3 million for bank, legal, and other fees, of which $7.2 million was capitalized and is being amortized into interest expense over the life of the loans. Additionally, we wrote off $18.9 million of unamortized debt financing costs in the first quarter of 2013 related to our previous credit facility to interest expense.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

The primary covenant change resulting from the 2013 refinancing is related to mandatory prepayments required under the senior credit facility. If our ratio of consolidated funded indebtedness minus AWI and domestic subsidiary unrestricted cash and cash equivalents up to $100 million to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) (“Consolidated Net Leverage Ratio”) is greater than or equal to 3.5 to 1.0, we would be required to make a prepayment based on a computation of 50% of consolidated annual excess cash flows, as defined by the credit agreement. If our Consolidated Net Leverage Ratio is less than 3.5 to 1.0, no prepayment would be required. These annual payments would be made in the first quarter of the following year. No payment will be required in 2016.

As of December 31, 2015, we were in compliance with all covenants of the amended senior credit facility. Our debt agreements include other restrictions, including restrictions pertaining to the acquisition of additional debt, the redemption, repurchase or retirement of our capital stock, payment of dividends, and certain financial transactions as it relates to specified assets. We currently believe that default under these covenants is unlikely. Fully borrowing under our revolving credit facility would not violate these covenants.

On December 18, 2014, we amended and increased our $75 million Accounts Receivable Securitization Facility with the Bank of Nova Scotia (the “funding entity”), under which AWI and its subsidiary, Armstrong Hardwood Flooring Company (the Originators) sell their accounts receivables to Armstrong Receivables Company, LLC (“ARC”), a Delaware entity that is consolidated in these financial statements. The facility reflects a seasonality clause that changes to $100 million from March through September, and $90 million from October through February. The maturity date has been extended from March 2016 to December 2017. ARC is a 100% wholly owned single member LLC special purpose entity created specifically for this transaction; therefore, any receivables sold to ARC are not available to the general creditors of AWI. ARC then sells an undivided interest in the purchased accounts receivables to the funding entity. This undivided interest acts as collateral for drawings on the facility. Any borrowings under this facility are obligations of ARC and not AWI. ARC contracts with and pays a servicing fee to AWI to manage, collect and service the purchased accounts receivables. In connection with the planned separation of AFI, we intend to amend this facility, resulting in lower purchase and letter of credit commitments under the program.

All new receivables under the program generated by the originators are continuously purchased by ARC with the proceeds from collections of receivables previously purchased. Ongoing changes in the amount of funding under the program, through changes in the amount of undivided interests sold by ARC, reflect seasonal variations in the level of accounts receivable, changes in collection trends and other factors such as changes in sales prices and volumes. ARC has issued subordinated notes payable to the originators for the difference between the face amount of uncollected accounts receivable purchased, less a discount, and cash paid to the originators that was funded by the sale of the undivided interests. The notes issued by ARC are subordinated to the undivided interests of the funding entity in the purchased receivables. The balance of the subordinated notes payable, which are eliminated during consolidation, totaled $97.9 million and $103.1 million as of December 31, 2015 and December 31, 2014, respectively. As of December 31, 2015 we had no borrowings under this facility but had $60.3 million of letters of credit issued under the facility.

None of the remaining outstanding debt as of December 31, 2015 was secured with buildings and other assets. The credit lines at our foreign subsidiaries are subject to immaterial annual commitment fees.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Scheduled payments of long-term debt:


2016	$	52.1
2017		55.3
2018		402.9
2019		4.8
2020		487.9
2021 and later		—

We utilize lines of credit and other commercial commitments in order to ensure that adequate funds are available to meet operating requirements. On December 31, 2015, we had a $250 million revolving credit facility with a $150 million sublimit for letters of credit, of which $7.7 million was outstanding. There were no borrowings under the revolving credit facility. Availability under this facility totaled $242.3 million as of December 31, 2015. We also have the $90 million securitization facility which as of December 31, 2015 had letters of credit outstanding of $60.3 million and no borrowings against it. Maximum capacity under this facility was $67.4 million (of which $7.1 million was available), subject to accounts receivable balances and other collateral adjustments, as of December 31, 2015. As of December 31, 2015, our foreign subsidiaries had available lines of credit totaling $20.0 million of which $0.2 million was available only for letters of credit and guarantees. There were $0.2 million of letters of credit and guarantees issued under these credit lines as of December 31, 2015, leaving no additional letter of credit availability. There were no borrowings under these lines of credit as of December 31, 2015 leaving $19.8 million of unused lines of credit available for foreign borrowings. Letters of credit are issued to third party suppliers, insurance and financial institutions and typically can only be drawn upon in the event of AWI’s failure to pay its obligations to the beneficiary.

NOTE 16. PENSION AND OTHER BENEFIT PROGRAMS

We have defined benefit pension plans and postretirement medical and insurance benefit plans covering eligible employees worldwide. We also have defined-contribution pension plans for eligible employees. Benefits from defined benefit pension plans are based primarily on an employee’s compensation and years of service. We fund our pension plans when appropriate. We fund postretirement benefits on a pay-as-you-go basis, with the retiree paying a portion of the cost for health care benefits by means of deductibles and contributions.

UNITED STATES PLANS

The following tables summarize the balance sheet impact of the pension and postretirement benefit plans, as well as the related benefit obligations, assets, funded status and rate assumptions. The pension benefits disclosures include both the qualified, funded Retirement Income Plan (“RIP”) and the Retirement Benefit Equity Plan, which is a nonqualified, unfunded plan designed to provide pension benefits in excess of the limits defined under Sections 415 and 401(a)(17) of the Internal Revenue Code.

We use a December 31 measurement date for our U.S. defined benefit plans.


	2015			2014
U.S. defined-benefit pension plans
Change in benefit obligation:
Benefit obligation as of beginning of period	$	2,069.9		$	1,868.1
Service cost		16.3			14.4
Interest cost		80.9			85.7
Actuarial (gain) loss		(130.5	)		287.0
Benefits paid		(118.5	)		(185.3	)

Benefit obligation as of end of period	$	1,918.1		$	2,069.9

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	2015			2014
Change in plan assets:
Fair value of plan assets as of beginning of period	$	1,986.3		$	1,978.4
Actual return on plan assets		(34.2	)		188.9
Employer contribution		3.6			4.3
Benefits paid		(118.5	)		(185.3	)

Fair value of plan assets as of end of period	$	1,837.2		$	1,986.3

Funded status of the plans	($	80.9	)	($	83.6	)


	2015			2014
U.S. defined-benefit pension plans
Weighted-average assumptions used to determine benefit obligations at end of period:
Discount rate		4.40	%		4.05	%
Rate of compensation increase		3.10	%		3.10	%

Weighted-average assumptions used to determine net periodic benefit cost for the period:
Discount rate		4.05	%		4.75	%
Expected return on plan assets		7.00	%		7.00	%
Rate of compensation increase		3.10	%		3.10	%

The accumulated benefit obligation for the U.S. defined benefit pension plans was $1,896.8 million and $2,051.7 million at December 31, 2015 and 2014, respectively.


	2015		2014
U.S. pension plans with benefit obligations in excess of assets
Projected benefit obligation, December 31	$	1,918.1	$	2,069.9
Accumulated benefit obligation, December 31		1,896.8		2,051.7
Fair value of plan assets, December 31		1,837.2		1,986.3

The components of the pension cost are as follows:


	2015			2014			2013
U.S. defined-benefit pension plans
Service cost of benefits earned during the period	$	16.3		$	14.4		$	16.9
Interest cost on projected benefit obligation		80.9			85.7			79.7
Expected return on plan assets		(140.3	)		(139.3	)		(136.5	)
Amortization of prior service cost		1.9			1.9			1.9
Recognized net actuarial loss		72.8			42.4			40.9

Net periodic pension cost	$	31.6		$	5.1		$	2.9

Investment Policies

The RIP’s primary investment objective is to maintain the funded status of the plan such that the likelihood that we will be required to make significant contributions to the plan is limited. This objective is expected to be achieved by:

•

Investing a substantial portion of the plan assets in high quality corporate bonds whose duration is at least equal to that of the plan’s liabilities such that there is a relatively high correlation between the movements of the plan’s liability and asset values.

•

Investing in publicly traded equities in order to increase the ratio of plan assets to liabilities over time.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

•

Limiting investment return volatility by diversifying among additional asset classes with differing expected rates of return and return correlations.

•

Using derivatives to either implement investment positions efficiently or to hedge risk but not to create investment leverage.

Each asset class utilized by the RIP has a defined asset allocation target and allowable range. The table below shows the asset allocation target and the December 31, 2015 and 2014 position for each asset class:


	Target Weight at	Position at December 31,
Asset Class	December 31, 2015	2015	2014
Long duration bonds	59%	59%	58%
Equities	29%	26%	27%
High yield bonds and real assets	8%	8%	8%
Real estate and private equity	4%	5%	4%
Other fixed income	0%	2%	3%

Pension plan assets are required to be reported and disclosed at fair value in the financial statements. 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 on the measurement date. Three levels of inputs may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table sets forth by level within the fair value hierarchy a summary of the RIP’s assets measured at fair value on a recurring basis:


	Value at December 31, 2015
Description	Level 1		Level 2		Level 3		Total
Domestic equity	$	299.7		—		—	$	299.7
International equity		143.3	$	0.1		—		143.4
Other investments		—		—	$	2.9		2.9
Short term investments and other, net		12.8		48.0		—		60.8

Net assets measured at fair value	$	455.8	$	48.1	$	2.9	$	506.8

Investments measured at net asset value								1,330.4

Net assets							$	1,837.2

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	Value at December 31, 2014
Description	Level 1		Level 2		Level 3		Total
Domestic equity	$	275.0		—		—	$	275.0
International equity		196.9		—		—		196.9
Other investments		—		—	$	3.1		3.1
Short term investments and other, net		14.2	$	67.7		—		81.9

Net assets measured at fair value	$	486.1	$	67.7	$	3.1	$	556.9

Investments measured at net asset value								1,429.4

Net assets							$	1,986.3

The table below sets forth a summary of changes in the fair value of the RIP’s Other investments, measured at Level 3 of the fair value hierarchy, for the years ended December 31, 2015 and 2014:


December 31, 2013	$	3.2
Purchases		0.1
Settlements		(0.2	)

December 31, 2014	$	3.1
Unrealized (loss)		(0.1	)
Purchases		0.1
Sales		(0.1	)
Settlements		(0.1	)

December 31, 2015	$	2.9

The RIP has $1,330.4 million and $1,429.4 million of investments in alternative investment funds at December 31, 2015 and December 31, 2014, respectively, which are reported at fair value. Certain investments that are measured at fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the total fair value of plan assets. We have concluded that the NAV reported by the underlying fund approximates the fair value of the investment. These investments are redeemable at NAV under agreements with the underlying funds. However, it is possible that these redemption rights may be restricted or eliminated by the funds in the future in accordance with the underlying fund agreements. Due to the nature of the investments held by the funds, changes in market conditions and the economic environment may significantly impact the NAV of the funds and, consequently, the fair value of the RIP’s interest in the funds. Furthermore, changes to the liquidity provisions of the funds may significantly impact the fair value of the RIP’s interest in the funds. As of December 31, 2015, there were no restrictions on redemption of these investments.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

The following table sets forth a summary of the RIP’s investments measured at NAV:


	Value at December 31, 2015
Description	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Long duration bonds	$	1,069.9		—	Daily	Prior Day
Domestic equity		11.0		—	Daily	Prior Day
International equity		19.4		—	Daily	Prior Day
Global equity		33.5		—	Daily	Prior Day
High yield bonds		82.0		—	Monthly	3 Days
Real estate		79.7	$	2.3	Quarterly	45-90 Days
Real assets		32.1		—	Daily	Prior Day
Other investments		2.8		1.5	None	None

Investments measured at net asset value	$	1,330.4	$	3.8


	Value at December 31, 2014
Description	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Long duration bonds	$	1,142.5		—	Daily	Prior Day
Domestic equity		15.8		—	Daily	Prior Day
International equity		25.2		—	Daily	Prior Day
Global equity		38.7		—	Daily	Prior Day
High yield bonds		95.6		—	Monthly	3 Days
Real estate		77.9	$	2.4	Quarterly	45-90 Days
Real assets		31.1		—	Daily	Prior Day
Other investments		2.6		1.9	None	None

Investments measured at net asset value	$	1,429.4	$	4.3

Following is a description of the valuation methodologies used for assets measured at fair value and at NAV.

There have been no changes in the methodologies used at December 31, 2015 and 2014.

Long Duration Bonds : Consists of registered investment funds and common and collective trust funds investing in fixed income securities tailored to institutional investors. The fair values of the investments in this class have been estimated using the net asset value per share of the investments.

Domestic, International and Global equity securities : Consists of investments in common and preferred stocks as well as investments in registered investment funds investing in equities tailored to institutional investors. Domestic and international equity securities totaling $443.0 million and $471.9 million as of December 31, 2015 and 2014, respectively, were measured at fair value, with common and preferred stocks valued at the closing price reported on the active market on which the individual securities are traded. Domestic, international and global equity securities totaling $63.9 million and $79.7 million as of December 31, 2015 and 2014, respectively, were measured at fair value using the NAV practical expedient.

High Yield Bonds : Consists of an investment in a registered investment fund investing in fixed income securities tailored to institutional investors. These investments were measured at fair value using the NAV practical expedient.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Real Estate : The RIP’s real estate investments are comprised of both open-end and closed-end funds. There are no readily available market quotations for these real estate funds. These investments were measured at fair value using the NAV practical expedient.

Real Assets : Consists of a fund that has underlying investments in commodity futures contracts, as well as cash and fixed income instruments used as collateral instruments against the commodity future contracts. The futures contracts are considered real assets as the underlying securities include natural resources such as oil or precious metals, livestock, or raw agricultural products such as soybeans or coffee beans. These investments were measured at fair value using the NAV practical expedient.

Other Investments : Consists of investments in a group insurance annuity contract and a limited partnership. The investments in the group insurance annuity contract, totaling $2.9 million and $3.1 million as of December 31, 2015 and 2014, respectively, were determined by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer. The investments in the limited partnership , totaling $2.8 million and $2.6 million as of December 31, 2015 and 2014, respectively, were measured at fair value using the NAV practical expedient.

Short Term Investments and other, net : Cash and short term investments consist of cash and cash equivalents and other payables and receivables (net). The carrying amounts of cash and cash equivalents approximate fair value due to the short-term maturity of these instruments. Other payables and receivables consist primarily of margin on account for a fund, accrued fees and receivables related to investment positions liquidated for which proceeds had not been received at December 31. The carrying amounts of payables and receivables approximate fair value due to the short-term nature of these instruments.

Basis of Rate-of-Return Assumption

Long-term asset class return assumptions are determined based on input from investment professionals on the expected performance of the asset classes over 10 to 30 years. The forecasts were averaged to come up with consensus passive return forecasts for each asset class. Incremental components were added for the expected return from active management and asset class rebalancing based on historical information obtained from the RIP’s investment consultants. These forecasted gross returns were reduced by estimated management fees and expenses, yielding a long-term return forecast of 7.00% for the years ended December 31, 2015 and 2014.


	2015			2014
U.S. defined-benefit retiree health and life insurance plans
Change in benefit obligation:
Benefit obligation as of beginning of period	$	221.4		$	258.2
Service cost		0.9			0.9
Interest cost		8.1			10.9
Plan participants’ contributions		4.6			5.4
Actuarial (gain)		(22.7	)		(27.9	)
Benefits paid, gross		(22.3	)		(26.6	)
Medicare subsidy receipts		0.3			0.5

Benefit obligation as of end of period	$	190.3		$	221.4


	2015			2014
Change in plan assets:
Fair value of plan assets as of beginning of period		—			—
Employer contribution	$	17.4		$	20.7
Plan participants’ contributions		4.6			5.4
Benefits paid, gross		(22.3	)		(26.6	)
Medicare subsidy receipts		0.3			0.5

Fair value of plan assets as of end of period	$	—		$	—

Funded status of the plans	($	190.3	)	($	221.4	)

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	2015			2014
U.S. defined-benefit retiree health and life insurance plans
Weighted-average discount rate used to determine benefit obligations at end of period		4.25	%		3.90	%

Weighted-average discount rate used to determine net periodic benefit cost for the period		3.90	%		4.50	%

The components of postretirement benefits costs are as follows:


	2015			2014			2013
U.S. defined-benefit retiree health and life insurance plans
Service cost of benefits earned during the period	$	0.9		$	0.9		$	1.2
Interest cost on accumulated postretirement benefit obligation		8.1			10.9			9.7
Amortization of prior service (credit)		(0.6	)		(0.6	)		(0.6	)
Amortization of net actuarial gain		(7.8	)		(4.2	)		(3.5	)

Net periodic postretirement benefit cost	$	0.6		$	7.0		$	6.8

For measurement purposes, an average rate of annual increase in the per capita cost of covered health care benefits of 7.5% for pre-65 retirees and 9.0% to 11.8% for post-65 retirees (depending on plan type) was assumed for 2016, decreasing ratably to an ultimate rate of 4.5% in 2024. Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:


	One percentage point
	Increase			Decrease
U.S. retiree health and life insurance benefits plans
Effect on total service and interest cost components	($	0.1	)	$	0.1
Effect on postretirement benefit obligation		(1.8	)		1.3

Amounts recognized in (liabilities) on the consolidated balance sheets at year end consist of:


	Pension Benefits						Retiree Health and Life Insurance Benefits
	2015			2014			2015			2014
Accounts payable and accrued expenses	($	4.0	)	($	4.0	)	($	17.9	)	($	19.9	)
Postretirement benefit liabilities		—			—			(172.4	)		(201.5	)
Pension benefit liabilities		(76.9	)		(79.6	)		—			—

Net amount recognized	($	80.9	)	($	83.6	)	($	190.3	)	($	221.4	)

Pre-tax amounts recognized in accumulated other comprehensive (loss) income at year end consist of:


	Pension Benefits						Retiree Health and Life Insurance Benefits
	2015			2014			2015		2014
Net actuarial (loss) gain	($	775.6	)	($	804.3	)	$	91.5	$	77.4
Prior service (cost) credit		(3.9	)		(5.8	)		0.6		1.2

Accumulated other comprehensive (loss) income	($	779.5	)	($	810.1	)	$	92.1	$	78.6

We expect to amortize $67.0 million of previously unrecognized prior service cost and net actuarial losses into pension cost in 2016. We expect to amortize $8.6 million of previously unrecognized net actuarial gains and prior service credits into postretirement benefit cost in 2016.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

We expect to contribute $4.0 million to our U.S. defined benefit pension plans and $17.9 million to our U.S. postretirement benefit plans in 2016.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten years for our U.S. plans:


	Pension Benefits		Retiree Health and Life Insurance Benefits, Gross		Retiree Health Medicare Subsidy Receipts
2016	$	125.3	$	18.3	($	0.4	)
2017		125.0		17.8		(0.5	)
2018		125.5		17.1		(0.6	)
2019		126.8		16.1		(0.6	)
2020		126.5		15.2		(0.7	)
2021 - 2025		635.2		66.8		(4.3	)

These estimated benefit payments are based on assumptions about future events. Actual benefit payments may vary significantly from these estimates.

NON-U.S. PLANS

We have defined benefit pension plans covering employees in a number of foreign countries that utilize assumptions which are consistent with, but not identical to, those of the U.S. plans. The following tables summarize the balance sheet impact of foreign pension benefit plans, as well as the related benefit obligations, assets, funded status and rate assumptions.

We use a December 31 measurement date for all of our non-U.S. defined benefit plans.


	2015			2014
Non-U.S. defined-benefit pension plans
Change in benefit obligation:
Benefit obligation as of beginning of period	$	261.4		$	251.8
Service cost		2.4			2.5
Interest cost		8.3			10.5
Plan participants’ contributions		0.1			0.1
Plan amendments		—			0.7
Foreign currency translation adjustment		(16.5	)		(20.0	)
Actuarial (gain) loss		(6.7	)		28.9
Benefits paid		(15.0	)		(13.1	)

Benefit obligation as of end of period	$	234.0		$	261.4


	2015			2014
Change in plan assets:
Fair value of plan assets as of beginning of period	$	232.4		$	219.9
Actual return on plan assets		3.3			37.0
Employer contribution		3.4			4.5
Plan participants’ contributions		0.1			0.1
Foreign currency translation adjustment		(13.3	)		(16.0	)
Benefits paid		(15.0	)		(13.1	)

Fair value of plan assets as of end of period	$	210.9		$	232.4

Funded status of the plans	($	23.1	)	($	29.0	)

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	2015			2014
Non-U.S. defined-benefit pension plans
Weighted-average assumptions used to determine benefit obligations at end of period:
Discount rate		3.40	%		3.40	%
Rate of compensation increase		2.60	%		2.60	%

Weighted-average assumptions used to determine net periodic benefit cost for the period:
Discount rate		3.40	%		4.30	%
Expected return on plan assets		4.50	%		5.50	%
Rate of compensation increase		2.60	%		2.80	%

The accumulated benefit obligation for the non-U.S. defined benefit pension plans was $226.1 million and $257.7 million at December 31, 2015 and 2014, respectively.


	2015		2014
Non-U.S. pension plans with benefit obligations in excess of assets
Projected benefit obligation, December 31	$	58.3	$	70.5
Accumulated benefit obligation, December 31		52.7		68.7
Fair value of plan assets, December 31		26.8		34.0

The components of the pension cost are as follows:


	2015			2014			2013
Non-U.S. defined-benefit pension plans
Service cost of benefits earned during the period	$	2.4		$	2.5		$	2.4
Interest cost on projected benefit obligation		8.3			10.5			9.8
Expected return on plan assets		(9.0	)		(11.5	)		(9.6	)
Amortization of prior service cost		—			—			0.5
Amortization of net actuarial loss		2.8			2.1			2.7

Net periodic pension cost	$	4.5		$	3.6		$	5.8

Excluded from net periodic pension costs in the preceding table were $0.5 million of settlement charges recorded in 2015.

Investment Policies

Each of the funded non-U.S. pension plan’s primary investment objectives is to earn sufficient long-term returns on investments both to increase the ratio of the assets to liabilities in order for the plans to meet their benefits obligations and to minimize required cash contributions to the plans. This is expected to be achieved by (a) investing primarily in publicly-traded equities, (b) limiting return volatility by diversifying investments among additional asset classes with differing expected rates of return and return correlations, and (c) utilizing long duration bonds to limit the volatility of the plans’ asset/liability ratios.

Each of the plans has a targeted asset allocation for each asset class. The table below shows, for each asset class, the weighted average of the several plans’ asset allocation targets and positions at December 31, 2015 and 2014:


	Target Weight at	Position at December 31,
Asset Class	December 31, 2015	2015	2014
Long duration bonds	48%	46%	49%
Equities	42%	42%	40%
Real estate	7%	7%	6%
Other	3%	5%	5%

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

The following table sets forth by level within the fair value hierarchy a summary of our non-U.S. plan assets measured at fair value on a recurring basis:


	Value at December 31, 2015
Description	Level 1		Level 2		Level 3		Total
Bonds	$	1.1	$	86.9		—	$	88.0
Equities		1.1		38.3		—		39.4
Real estate		0.1		0.7		—		0.8
Other investments		—		0.9	$	4.9		5.8
Cash and other short term investments		3.4		—		—		3.4

Net assets measured at fair value	$	5.7	$	126.8	$	4.9	$	137.4

Investments measured at net asset value								73.5

Net assets							$	210.9


	Value at December 31, 2014
Description	Level 1		Level 2		Level 3		Total
Bonds		—	$	70.6		—	$	70.6
Equities		—		40.3		—		40.3
Other investments		—		—	$	5.6		5.6
Cash and other short term investments	$	5.7		—		—		5.7

Net assets measured at fair value	$	5.7	$	110.9	$	5.6	$	122.2

Investments measured at net asset value								110.2

Net assets							$	232.4

Level 3 assets decreased from December 31, 2014 to December 31, 2015 due mainly to the change in currency conversion from the Euro to the U.S. dollar.

The non-U.S. pension plans have $73.5 million and $110.2 million of investments in alternative investment funds at December 31, 2015 and December 31, 2014, respectively. We have concluded that the NAV reported by the underlying fund approximates the fair value of the investment. These investments are redeemable at NAV under agreements with the underlying funds. However, it is possible that these redemption rights may be restricted or eliminated by the funds in the future in accordance with the underlying fund agreements. Due to the nature of the investments held by the funds, changes in market conditions and the economic environment may significantly impact the NAV of the funds and, consequently, the fair value of the plans’ interest in the funds. Furthermore, changes to the liquidity provisions of the funds may significantly impact the fair value of the plans’ interest in the funds. As of December 31, 2015, there are no restrictions on redemption of these investments.

The following table sets forth a summary of the non-U.S. pension plan investments measured at NAV:


	Value at December 31, 2015
Description	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Bonds	$	9.0		—	Daily	Same Day
Equities		49.7		—	Daily	Prior Day - Same Day
Real estate		14.8		—	Monthly/Quarterly	2 - 90 Days

Investments measured at net asset value	$	73.5	$	—

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	Value at December 31, 2014
Description	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Bonds	$	43.8		—	Daily	Same Day
Equities		52.3		—	Daily	Prior Day - Same Day
Real estate		14.1		—	Monthly/Quarterly	2 - 90 Days

Investments measured at net asset value	$	110.2	$	—

Following is a description of the valuation methodologies used for non-U.S. plan assets measured at fair value and at NAV.

There have been no changes in the methodologies used at December 31, 2015 and 2014.

Bonds : Consists of investments in individual corporate and government bonds as well as investments in pooled funds investing in fixed income securities tailored to institutional investors. Investments in individual and pooled corporate and government bonds totaled $88.0 million and $70.6 million as of December 31, 2015 and 2014, respectively. Investments in individual bonds were measured at fair value based on the closing price reported in the active market in which the bond is traded and investments in pooled funds traded in a non-active market were valued at bid price. Investments in pooled corporate and government bonds totaling $9.0 million and $43.8 million as of December 31, 2015 and 2014, respectively, were measured at fair value using the NAV practical expedient.

Equities : Consists of investments in common and preferred stocks as well as investments in pooled funds investing in international equities tailored to institutional investors. Equity securities totaled $39.4 million and $40.3 million as of December 31, 2015 and 2014, respectively. Investments in common and preferred stocks were measured at fair value based on the closing price reported on the active market on which the individual securities are traded. Investments in pooled funds traded in a non-active market were valued at bid price Equity securities in pooled funds totaling $49.7 million and $52.3 million as of December 31, 2015 and 2014, respectively, were measured at fair value using the NAV practical expedient.

Real Estate : The plans’ real estate investments are comprised of individual and pooled real estate mutual funds. Real estate funds totaling $0.8 million as of December 31, 2015 were measured at fair value, with the funds valued at the closing price reported on the active market on which the individual funds are traded. Real estate funds totaling $14.8 million and $14.1 million as of December 31, 2015 and 2014, respectively, were measured at fair value using the NAV practical expedient.

Other Investments : Consists primarily of an investment in individual life insurance policies. These investments were measured at fair value is based on an actuarial reserve calculated using life tables and by discounting the related cash flows based on a fixed interest rate.

Cash and other Short Term Investments : Cash and short term investments consist primarily of cash and cash equivalents, and plan receivables/payables. The carrying amounts of cash and cash equivalents and receivables/payables approximate fair value due to the short-term nature of these instruments.

Basis of Rate-of-Return Assumption

Long-term asset class return assumptions are determined based on input from investment professionals on the expected performance of the asset classes. The forecasts were averaged to come up with consensus passive return forecasts for each asset class. These forecast asset class returns were weighted by the plans’ target asset class weights, yielding a long-term return forecast of 4.5% and 5.5% for the years ended December 31, 2015 and 2014, respectively.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Amounts recognized in assets and (liabilities) on the consolidated balance sheets at year end consist of:


	2015			2014
Prepaid pension costs	$	8.3		$	7.4
Accounts payable and accrued expenses		(0.7	)		(0.5	)
Pension benefit liabilities		(30.7	)		(35.9	)

Net amount recognized	($	23.1	)	($	29.0	)

Pre-tax amounts recognized in accumulated other comprehensive (loss) at year end consist of:


	2015			2014
Net actuarial (loss)	($	26.6	)	($	33.2	)
Net prior service (costs)	($	0.6	)	($	0.7	)

Accumulated other comprehensive (loss)	($	27.2	)	($	33.9	)

We expect to amortize $1.5 million of previously unrecognized net actuarial losses into pension cost in 2016.

We expect to contribute $3.1 million to our non-U.S. defined benefit pension plans in 2016.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten years:


	Pension Benefits
2016	$	9.6
2017		9.3
2018		9.3
2019		10.0
2020		10.4
2021 - 2025		57.1

Costs for other worldwide defined contribution benefit plans were $14.4 million in 2015, $14.7 million in 2014 and $14.2 million in 2013.

NOTE 17. FINANCIAL INSTRUMENTS

We do not hold or issue financial instruments for trading purposes. The estimated fair values of our financial instruments are as follows:


	December 31, 2015						December 31, 2014
	Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Assets/(Liabilities), net:
Total debt, including current portion	($	1,003.0	)	($	994.1	)	($	1,042.6	)	($	1,028.2	)
Foreign currency contracts		6.2			6.2			5.4			5.4
Natural gas contracts		(0.8	)		(0.8	)		(3.0	)		(3.0	)
Interest rate swap contracts		(10.6	)		(10.6	)		(9.3	)		(9.3	)

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. The fair value estimates of long-term debt were primarily based upon quotes from a major financial institution of recently observed trading levels of our Term Loan B debt. The fair value estimates of foreign currency contract obligations are estimated from market quotes provided by a well-recognized national market data provider. The fair value

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

estimates of natural gas contracts are estimated using internal valuation models with verification by obtaining quotes from major financial institutions. For natural gas swap transactions, fair value is calculated using NYMEX market quotes provided by a well-recognized national market data provider. For natural gas option based strategies, fair value is calculated using an industry standard Black-Scholes model with market based inputs, including but not limited to, underlying asset price, strike price, implied volatility, discounted risk free rate and time to expiration, provided by a well-recognized national market data provider. The fair value estimates for interest rate swap contracts are estimated by obtaining quotes from major financial institutions with verification by internal valuation models. Refer to Note 18 for a discussion of the fair value and the related inputs used to measure fair value.

The fair value measurement of assets and liabilities is summarized below:


	December 31, 2015						December 31, 2014
	Fair value based on						Fair value based on
	Quoted, active markets			Other observable inputs			Quoted, active markets			Other observable inputs
	Level 1			Level 2			Level 1			Level 2
Assets/(Liabilities), net:
Total debt, including current portion	($	457.4	)	($	536.7	)	($	459.8	)	($	568.4	)
Foreign currency contracts		6.2			—			5.4			—
Natural gas contracts		—			(0.8	)		—			(3.0	)
Interest rate swap contracts		—			(10.6	)		—			(9.3	)

We do not have any financial assets or liabilities that are valued using Level 3 (unobservable) inputs.

NOTE 18. DERIVATIVE FINANCIAL INSTRUMENTS

We are exposed to market risk from changes in foreign exchange rates, interest rates and commodity prices that could impact our results of operations, cash flows and financial condition. We use forward swaps and option contracts to hedge these exposures. Exposure to individual counterparties is controlled and derivative financial instruments are entered into with a diversified group of major financial institutions. Forward swaps and option contracts are entered into for periods consistent with underlying exposure and do not constitute positions independent of those exposures. At inception, hedges that we designate as hedging instruments are formally documented as either (1) a hedge of a forecasted transaction or “cash flow” hedge, or (2) a hedge of the fair value of a recognized liability or asset or “fair value” hedge. We also formally assess both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer probable of occurring, we discontinue hedge accounting, and any future mark-to-market adjustments are recognized in earnings. We use derivative financial instruments as risk management tools and not for speculative trading purposes.

Counterparty Risk

We only enter into derivative transactions with established counterparties having a credit rating of BBB or better. We monitor counterparty credit default swap levels and credit ratings on a regular basis. All of our derivative transactions with counterparties are governed by master International Swap and Derivatives Association agreements (“ISDAs”) with netting arrangements. These agreements can limit our exposure in situations where we have gain and loss positions outstanding with a single counterparty. We do not post nor do we receive cash collateral with any counterparty for our derivative transactions. These ISDAs do not have any credit contingent features; however, a default under our bank credit facility would trigger a default under these agreements. Exposure to individual counterparties is controlled, and thus we consider the risk of counterparty default to be negligible.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Commodity Price Risk

We purchase natural gas for use in the manufacturing process and to heat many of our facilities. As a result, we are exposed to fluctuations in the price of natural gas. We have a policy to reduce cost volatility for North American natural gas purchases by purchasing natural gas forward contracts and swaps, purchased call options, and zero-cost collars up to 24 months forward. The contracts are based on forecasted usage of natural gas measured in mmBtu’s. There is a high correlation between the hedged item and the hedge instrument. The gains and losses on these instruments offset gains and losses on the transactions being hedged. These instruments are designated as cash flow hedges. At December 31, 2015 and December 31, 2014, the notional amount of these hedges was $9.2 million and $14.6 million, respectively. The mark-to-market gain or loss on qualifying hedges is included in other comprehensive income to the extent effective, and reclassified into cost of goods sold in the period during which the underlying gas is consumed. The mark-to-market gains or losses on ineffective portions of hedges are recognized in cost of goods sold immediately. The earnings impact of the ineffective portion of these hedges was not material for the years ended December 31, 2015, 2014 and 2013.

Currency Rate Risk – Sales and Purchases

We manufacture and sell our products in a number of countries throughout the world and, as a result, we are exposed to movements in foreign currency exchange rates. To a large extent, our global manufacturing and sales provide a natural hedge of foreign currency exchange rate movement, as foreign currency expenses generally offset foreign currency revenues. We manage our cash flow exposures on a net basis and use derivatives to hedge the majority of our unmatched foreign currency cash inflows and outflows. Our major foreign currency exposures as of December 31, 2015, based on operating profits by currency, are to the Canadian dollar, the Chinese Renminbi and the Australian dollar.

We use foreign currency forward exchange contracts to reduce our exposure to the risk that the eventual net cash inflows and outflows resulting from the sale of products to foreign customers and purchases from foreign suppliers will be adversely affected by changes in exchange rates. These derivative instruments are used for forecasted transactions and are classified as cash flow hedges. Cash flow hedges are executed quarterly, generally up to 15 months forward, and allow us to further reduce our overall exposure to exchange rate movements, since gains and losses on these contracts offset gains and losses on the transactions being hedged. The notional amount of these hedges was $73.3 million and $102.4 million at December 31, 2015 and December 31, 2014, respectively. Gains and losses on these instruments are recorded in other comprehensive income, to the extent effective, until the underlying transaction is recognized in earnings. The mark-to-market gains or losses on ineffective portions of hedges are recognized in SG&A expense. The earnings impact of the ineffective portion of these hedges was not material for the years ended December 31, 2015, 2014 and 2013.

Currency Rate Risk - Intercompany Loans and Dividends

Where efficient, reliable and liquid markets exist we may utilize foreign currency forward exchange contracts to hedge exposures created by cross-currency intercompany loans and dividends. The translation adjustments related to these loans and any offsetting gains or losses on the related derivative contracts are recorded in other non-operating income or expense. The notional amount of these hedges was $6.1 million and $21.2 million at December 31, 2015 and December 31, 2014, respectively. Due to the significant decline in the value of the Russian Ruble, we received $30.0 million in cash in 2014 as a result of settling Russian Ruble forward contracts utilized to hedge the currency impacts associated with intercompany loans to our Russian subsidiary. Our exposure to changes in the Ruble due to intercompany loans was unhedged at December 31, 2015 and 2014.

Interest Rate Risk

We utilize interest rate swaps to minimize the fluctuations in earnings caused by interest rate volatility. Interest expense on variable-rate liabilities increases or decreases as a result of interest rate fluctuations. The following table summarizes our interest rate swaps:


Trade Date	Notional Amount	Interest Rate Paid	Coverage Period	Risk Coverage
March 27, 2012	$250.0	1.928%	March 2012 to March 2018	Term Loan B
March 27, 2012	$200.0	2.810%	November 2015 to March 2018	Term Loan B
April 16, 2013	$250.0	1.398%	November 2015 to March 2018	Term Loan A

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Under the terms of the Term Loan A swaps we receive 3-month LIBOR and pay a fixed rate over the hedged period. Under the terms of the Term Loan B swaps, we receive the greater of 3-month LIBOR or the 1% LIBOR Floor and pay a fixed rate over the hedged period. These swaps are designated as cash flow hedges against changes in LIBOR for a portion of our variable rate debt. Gains and losses on these instruments are recorded in other comprehensive income, to the extent effective, until the underlying transaction is recognized in earnings. The mark-to-market gains or losses on ineffective portion of hedges are recognized in interest expense. There was no earnings impact of the ineffective portion of these hedges for the years ended December 31, 2015, 2014 and 2013.

Financial Statement Impacts

The following tables detail amounts related to our derivatives as of December 31, 2015 and December 31, 2014. Our derivative liabilities not designated as hedging instruments were $0.1 million at December 31, 2015 and were $0.5 million at December 31, 2014. We did not have any derivative assets not designated as hedging instruments for the years ended December 31, 2015 and 2014. The derivative asset and liability amounts below are shown in gross amounts; we have not netted assets with liabilities.


	Derivative Assets					Derivative Liabilities
		Fair Value					Fair Value
	Balance Sheet Location	December 31, 2015		December 31, 2014		Balance Sheet Location	December 31, 2015		December 31, 2014
Derivatives designated as hedging instruments
Natural gas commodity contracts	Other current assets		—		—	Accounts payable and accrued expenses	$	0.8	$	3.0

Foreign exchange contracts	Other current assets	$	6.6	$	5.7	Accounts payable and accrued expenses		0.3		0.7

Foreign exchange contracts	Other non-current assets		—		0.9	Other long-term liabilities		—		0.1

Interest rate swap contracts	Other non-current assets		—		1.9	Other long-term liabilities		10.6		11.2

Total derivatives designated as hedging instruments		$	6.6	$	8.5		$	11.7	$	15.0

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	Amount of (Loss) Gain Recognized in Accumulated Other Comprehensive Income (“AOCI”) (Effective Portion)(a)									Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)	(Loss) Gain Reclassified from AOCI into Income (Effective Portion)
	2015			2014			2013				2015			2014		2013
Derivatives in Cash Flow Hedging Relationships
Natural gas commodity contracts	($	2.3	)	($	2.9	)	$	0.5		Cost of goods sold	($	4.4	)	$	0.7	($	2.6	)

Foreign exchange contracts – purchases		0.4			1.1			5.7		Cost of goods sold		1.0			1.0		1.5

Foreign exchange contracts – sales		9.3			4.6			—		Net sales		8.4			5.0		—

Interest rate swap contracts		(2.1	)		(9.3	)		(7.9	)	Interest expense		(0.8	)		—		—

Total	$	5.3		($	6.5	)	($	1.7	)		$	4.2		$	6.7	($	1.1	)

(a)	As of December 31, 2015, the amount of existing gains in AOCI expected to be recognized in earnings over the next twelve months is $5.4 million.

The amount of pre-tax gain recognized in income for derivative instruments not designated as hedging instruments was $29.6 million for the year ended December 31, 2014. There was no material gain or loss recognized in 2015 or 2013.

NOTE 19. PRODUCT WARRANTIES

On certain products, we provide the original retail purchaser limited warranties which may cover structural integrity, wear, fade and certain other pre-installation manufacturing related defects. Our product warranties place certain requirements on the retail purchaser, including evidence of original purchase and require installation in accordance with our instructions. All of our warranties are non-transferrable. Warranty claims are most commonly experienced in the periods immediately following retail purchase and decline with the passage of time. In addition to our warranty program, under certain limited circumstances, we will occasionally and at our sole discretion, provide a customer accommodation repair or replacement. Warranty repairs and replacements are most commonly made by professional installers employed by or affiliated with our independent distributors. Reimbursement for cost associated with warranty repairs are provided to our independent distributors through a credit against accounts receivable from the distributor to us.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

The following table summarizes the activity for the accrual of product warranties for December 31, 2015 and 2014:


	2015			2014
Balance at beginning of period	$	7.9		$	7.4
Reductions for payments		(12.1	)		(14.9	)
Current year warranty accruals		11.9			15.4

Balance at end of period	$	7.7		$	7.9

NOTE 20. OTHER LONG-TERM LIABILITIES


	December 31, 2015		December 31, 2014
Long-term deferred compensation arrangements	$	18.7	$	21.0
Long-term portion of derivative liabilities		10.6		11.3
U.S. workers’ compensation		4.0		5.0
Postemployment benefit liabilities		3.8		4.8
Environmental liabilities		6.0		4.4
Other		6.5		6.7

Total other long-term liabilities	$	49.6	$	53.2

NOTE 21. SHARE-BASED COMPENSATION PLANS

The 2006 Long-Term Incentive Plan (“2006 Plan”) authorized us to issue stock options, stock appreciation rights, restricted stock awards, stock units, performance-based awards and cash awards to officers and key employees, and was scheduled to terminate on October 2, 2016. On June 24, 2011 our shareholders approved an amendment and restatement of the 2006 Plan, resulting in the 2011 Long-Term Incentive Plan (the “LTIP”). The 2006 Plan originally authorized up to 5,349,000 shares of common stock for issuance, and the amendment authorized an additional 1,600,000 shares of common stock for issuance, for a total of 6,949,000, which includes all shares that have been issued under the 2006 Plan. The amendment also extended the expiration date of the LTIP to June 24, 2021, after which time no further awards may be made. As of December 31, 2015, 1,516,166 shares were available for future grants under the LTIP.


	Year Ended December 31, 2015
	Number of shares (thousands)			Weighted- average exercise price			Weighted- average remaining contractual term (years)		Aggregate intrinsic value (millions)
Option shares outstanding at beginning of period		1,601.2		$	40.33
Option shares exercised		(173.9	)		(36.45	)			$	3.5
Options forfeited		(17.0	)		(53.08	)

Option shares outstanding at end of period		1,410.3		$	40.66			6.1	$	10.9

Option shares exercisable at end of period		1,144.5			37.75			5.7	$	10.9
Option shares vested and expected to vest		1,393.9			40.52			6.1	$	10.9

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	Year Ended December 31, 2014
	Number of shares (thousands)			Weighted- average exercise price			Weighted- average remaining contractual term (years)		Aggregate intrinsic value (millions)
Option shares outstanding at beginning of period		2,204.6		$	35.60
Options granted		318.9			53.93
Option shares exercised		(640.8	)		(27.80	)			$	17.1
Options forfeited		(228.8	)		(48.03	)
Options expired		(52.7	)		(43.49	)

Option shares outstanding at end of period		1,601.2		$	40.33			6.9	$	18.2

Option shares exercisable at end of period		1,015.3			34.12			6.0	$	17.3
Option shares vested and expected to vest		1,579.6			40.17			6.9	$	18.2

We have reserved sufficient authorized shares to allow us to issue new shares upon exercise of all outstanding options. Options generally become exercisable in three years and expire 10 years from the date of grant. When options are exercised, we may issue new shares, use treasury shares (if available), acquire shares held by investors, or a combination of these alternatives in order to satisfy the option exercises. The aggregate intrinsic value of options exercised during the year ended December 31, 2013 was $15.1 million. Cash proceeds received from options exercised for the years ended December 31, 2015, 2014 and 2013 were $6.4 million, $17.8 million and $8.6 million, respectively.

The fair value of option grants was estimated on the date of grant using the Black-Scholes option pricing model. There were no option grants in 2015. The weighted average assumptions for the years 2014 and 2013 are presented in the table below.


	2014			2013
Weighted-average grant date fair value of options granted (dollars per option)	$	24.93		$	21.62

Assumptions
Risk free rate of return		1.9	%		1.2	%
Expected volatility		46.5	%		42.4	%
Expected term (in years)		6.0			6.0
Expected dividend yield		0.0	%		0.0	%

The risk free rate of return is determined based on the implied yield available on zero coupon U.S. Treasury bills at the time of grant with a remaining term equal to the expected term of the option. During 2014 we established the expected volatility based on Armstrong’s stock since it had traded a sufficient amount of time since our emergence from bankruptcy in October 2006 to produce valid results. Prior to 2014, we established the expected volatility based on an average of the actual historical volatilities of the stock prices of a peer group of companies. The expected life represented the midpoint of the average vesting period and the contractual life of the grant. We used an allowable simplified method to determine an appropriate expected term for our option valuation assumptions. The expected dividend yield was assumed to be zero because, at the time of each grant, we had no plans to declare a dividend. The assumptions outlined above were applicable to all option grants.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

We have also granted restricted stock and restricted stock units. The restricted stock awards entitle the recipient to a specified number of shares of Armstrong’s common stock provided the prescribed service period is fulfilled. These awards generally had vesting periods of three years at the grant date. A summary of the 2015 and 2014 activity related to these awards follows:


	Non-Vested Stock Awards
	Number of shares			Weighted- average fair value at grant date
December 31, 2013		153,577		$	47.34
Granted		93,711			52.57
Vested		(61,902	)		(41.61	)
Forfeited		(9,784	)		(52.08	)

December 31, 2014		175,602		$	51.89
Granted		308,528			55.62
Vested		(42,503	)		(51.04	)
Forfeited		(28,361	)		(54.52	)

December 31, 2015		413,266		$	54.66

The table above contains 17,545 and 18,925 restricted stock units at December 31, 2015 and 2014, respectively, that are accounted for as liability awards as they are able to be settled in cash.

We have also granted performance restricted stock and performance restricted stock units. The performance based stock awards entitle the recipient to a specified number of shares of Armstrong’s common stock provided the defined financial targets are achieved at the end of the performance period. These awards generally had vesting periods of three years at the grant date. A summary of the 2015 and 2014 activity related to these awards follows:


	Non-Vested Performance Stock Awards
	Number of shares			Weighted- average fair value at grant date
December 31, 2013		390,681		$	47.81
Granted		129,858			53.88
Vested		(78,125	)		(41.69	)
Forfeited		(108,051	)		(46.37	)

December 31, 2014		334,363		$	52.07
Vested		(70,381	)		(50.38	)
Forfeited		(47,048	)		(51.26	)

December 31, 2015		216,934			$52.84

The table above contains 6,537 and 12,207 performance stock units at December 31, 2015 and 2014, respectively, that are accounted for as liability awards as they are able to be settled in cash.

In addition to the equity awards described above, as of December 31, 2015 we had 20,616 fully-vested phantom shares outstanding for non-employee directors under the 2006 Phantom Stock Unit Plan. These awards are settled in cash and had vesting periods of one to three years. The awards are generally payable six months following the director’s separation from service on the Board of Directors. The total liability recorded for these shares as of December 31, 2015 was $1.7 million which includes associated dividends. The awards under the 2006 Phantom Stock Unit Plan are not reflected in the Non-Vested Stock Awards tables above. The 2006 Phantom Stock Unit Plan is still in place; however, no additional shares will be granted under the plan.

During 2008, we adopted the 2008 Directors Stock Unit Plan. At December 31, 2015 and 2014, there were 197,475 and 174,478 restricted units, respectively, outstanding under the 2008 Directors Stock Unit Plan. In 2015 and 2014, we granted 22,997 and 21,262 restricted stock units, respectively, to non-employee directors. These awards generally have a vesting period of one year, and as of December 31, 2015 and 2014, 174,478 and

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

153,216 shares, respectively, were vested but not yet delivered. The awards are generally payable six months following the director’s separation from service on the Board of Directors. The awards granted under the 2008 Directors Stock Unit Plan are not reflected in the Non-Vested Stock Awards table above.

We recognize share-based compensation expense on a straight-line basis over the vesting period. Share-based compensation cost was $13.3 million ($8.7 million net of tax benefit) in 2015; $12.8 million ($8.5 million net of tax benefit) in 2014, and $16.5 million ($11.1 million net of tax benefit) in 2013. Share-based compensation expense is recorded within the Corporate Unallocated segment as a component of SG&A expenses. The benefits of tax deductions in excess of grant date fair value from the exercise of stock options and vesting of share-based awards for the years ended December 31, 2015 and 2014 was $0.5 million and $3.3 million, respectively. To the extent the vesting date value is greater than the grant date value, the excess tax benefit is a credit to additional paid in capital (“APIC”), but only if it reduces income tax currently payable. During 2015, we did not recognize any credits to APIC as a result of excess tax benefits reducing income tax currently payable.

As of December 31, 2015, there was $11.7 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.7 years.

NOTE 22. EMPLOYEE COSTS


	2015		2014		2013
Wages, salaries and incentive compensation	$	483.2	$	478.4	$	471.4
Payroll taxes		45.3		48.0		46.4
Pension expense, net		51.0		23.3		22.9
Insurance and other benefit costs		44.6		49.1		51.8
Share-based compensation		13.3		12.8		16.5

Total	$	637.4	$	611.6	$	609.0

NOTE 23. LEASES

We rent certain real estate and equipment. Several leases include options for renewal or purchase, and contain clauses for payment of real estate taxes and insurance. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases.


	2015			2014			2013
Rent expense	$	22.7		$	21.7		$	20.6
Sublease (income)		(0.4	)		(0.4	)		(0.3	)

Net rent expense	$	22.3		$	21.3		$	20.3

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Future minimum payments at December 31, 2015 by year and in the aggregate, having non-cancelable lease terms in excess of one year are as follows:


	Total Minimum Lease Payments		Sublease (Income)			Net Minimum Lease Payments
Scheduled minimum lease payments
2016	$	7.9	($	0.4	)	$	7.5
2017		5.3		(0.2	)		5.1
2018		3.4		—			3.4
2019		2.6		—			2.6
2020		1.6		—			1.6
Thereafter		3.2		—			3.2

Total	$	24.0	($	0.6	)	$	23.4

Assets under capital leases at December 31, 2015 and 2014 are not material.

NOTE 24. SHAREHOLDERS’ EQUITY

There were 5,057,382 treasury shares at December 31, 2015 and December 31, 2014.

The balance of each component of accumulated other comprehensive (loss), net of tax as of December 31, 2015 and 2014 is presented in the table below.


	December 31, 2015			December 31, 2014
Foreign currency translation adjustments	($	33.8	)	($	8.3	)
Derivative (loss), net		(3.3	)		(4.0	)
Pension and postretirement adjustments		(450.3	)		(483.2	)

Accumulated other comprehensive (loss)	($	487.4	)	($	495.5	)

The amounts and related tax effects allocated to each component of other comprehensive income (loss) for 2015, 2014, and 2013 are presented in the table below.


	Pre-tax Amount			Tax Benefit			After-tax Amount
2015
Foreign currency translation adjustments	($	25.5	)		—		($	25.5	)
Derivative gain, net		1.1		($	0.4	)		0.7
Pension and postretirement adjustments		50.7			(17.8	)		32.9

Total other comprehensive income	$	26.3		($	18.2	)	$	8.1


	Pre-tax Amount			Tax Expense			After-tax Amount
2014
Foreign currency translation adjustments	($	29.6	)		—		($	29.6	)
Derivative (loss), net		(4.9	)	$	1.6			(3.3	)
Pension and postretirement adjustments		(153.6	)		62.6			(91.0	)

Total other comprehensive (loss)	($	188.1	)	$	64.2		($	123.9	)

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)


	Pre-tax Amount			Tax Benefit			After-tax Amount
2013
Foreign currency translation adjustments	($	8.8	)		—		($	8.8	)
Derivative gain, net		28.4		($	9.9	)		18.5
Pension and postretirement adjustments		139.4			(49.3	)		90.1

Total other comprehensive income	$	159.0		($	59.2	)	$	99.8

The following table summarizes the activity, by component, related to the change in AOCI for December 31, 2015 and 2014:


	Foreign Currency Translation Adjustments ⁽¹⁾			Derivative (Loss) Gain ⁽¹⁾			Pension and Postretirement Adjustments ⁽¹⁾			Total Accumulated Other Comprehensive (Loss) ⁽¹⁾
Balance, December 31, 2013	$	21.3		($	0.7	)	($	392.2	)	($	371.6	)
Other comprehensive income before reclassifications, net of tax (expense) benefit of $ -, ($0.8), $77.2, and $76.4		(29.6	)		1.1			(118.0	)		(146.5	)
Amounts reclassified from accumulated other comprehensive income		—			(4.4	)		27.0			22.6

Net current period other comprehensive (loss) income		(29.6	)		(3.3	)		(91.0	)		(123.9	)

Balance, December 31, 2014	($	8.3	)	($	4.0	)	($	483.2	)	($	495.5	)

Other comprehensive income before reclassifications, net of tax (expense) benefit of $ -, ($1.8), $6.4, and $4.6		(25.5	)		3.5			(12.0	)		(34.0	)
Amounts reclassified from accumulated other comprehensive income		—			(2.8	)		44.9			42.1

Net current period other comprehensive (loss)		(25.5	)		0.7			32.9			8.1

Balance, December 31, 2015	($	33.8	)	($	3.3	)	($	450.3	)	($	487.4	)

⁽¹⁾	Amounts are net of tax

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

The amounts reclassified from AOCI and the affected line item of the Consolidated Statement of Earnings and Comprehensive Income are presented in the table below.


	Amounts Reclassified from AOCI						Affected Line Item in the Consolidated Statement of Earnings and Comprehensive Income
	2015			2014
Derivative Adjustments:
Natural gas commodity contracts	$	4.4		($	0.7	)	Cost of goods sold
Foreign exchange contracts - purchases		(1.0	)		(1.0	)	Cost of goods sold
Foreign exchange contracts - sales		(8.4	)		(5.0	)	Net sales
Interest rate swap contracts		0.8			—		Interest expense

Total expense, before tax		(4.2	)		(6.7	)
Tax impact		1.4			2.3		Income tax expense

Total expense, net of tax		(2.8	)		(4.4	)

Pension and Postretirement Adjustments:
Prior service cost amortization		0.6			0.6		Cost of goods sold
Prior service cost amortization		0.7			0.7		SG&A expense
Amortization of net actuarial loss		35.5			21.7		Cost of goods sold
Amortization of net actuarial loss		32.3			18.6		SG&A expense

Total expense, before tax		69.1			41.6
Tax impact		(24.2	)		(14.6	)	Income tax expense

Total expense, net of tax		44.9			27.0

Total reclassifications for the period	$	42.1		$	22.6

Amounts reported above for 2014 and 2013 include amounts that have been classified as discontinued operations.

NOTE 25. SUPPLEMENTAL FINANCIAL INFORMATION


	2015		2014		2013
Selected operating expense
Maintenance and repair costs	$	92.6	$	89.0	$	89.7
Research and development costs		31.1		30.6		29.3
Advertising costs		10.6		10.9		12.2

Other non-operating expense
Foreign currency transaction loss, net of hedging activity	$	22.8	$	8.4	$	1.6
Other		0.7		2.1		0.4

Total	$	23.5	$	10.5	$	2.0

Other non-operating income
Interest income	$	2.2	$	2.5	$	3.3
Foreign currency transaction gain, net of hedging activity		3.0		—		0.1
Other		0.1		0.1		0.4

Total	$	5.3	$	2.6	$	3.8

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

NOTE 26. RELATED PARTIES

We purchase grid products from WAVE, our 50%-owned joint venture with Worthington Industries. The total amount of these purchases was $73.7 million in 2015, $85.4 million in 2014 and $88.9 million in 2013. We also provide certain selling, promotional and administrative processing services to WAVE for which we receive reimbursement. Those services amounted to $15.2 million in 2015, $14.7 million in 2014, and $14.9 million in 2013. The net amount due to WAVE from us for all of our relationships was $5.4 million as of December 31, 2015 and $8.5 million as of December 31, 2014. See Note 9 to the Consolidated Financial Statements for additional information.

NOTE 27. LITIGATION AND RELATED MATTERS

ENVIRONMENTAL MATTERS

Environmental Compliance

Our manufacturing and research facilities are affected by various federal, state and local requirements relating to the discharge of materials and the protection of the environment. We make expenditures necessary for compliance with applicable environmental requirements at each of our operating facilities. These regulatory requirements continually change, therefore we cannot predict with certainty future expenditures associated with compliance with environmental requirements.

Environmental Sites

Summary

We are actively involved in the investigation, closure and/or remediation of existing or potential environmental contamination under the Comprehensive Environmental Response, Compensation and Liability Act, and state or international Superfund and similar type environmental laws at several domestically- and internationally-owned, formerly owned and non-owned locations allegedly resulting from past industrial activity. In a few cases, we are one of several potentially responsible parties and have agreed to jointly fund the required investigation and remediation, while preserving our defenses to the liability. We may also have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies. We are currently pursuing coverage and recoveries under those policies with respect to certain of the sites, but we are unable to predict the outcome or costs of these proceedings.

Estimates of our future liability at the environmental sites are based on evaluations of currently available facts regarding each individual site. We consider factors such as our activities associated with the site, existing technology, presently enacted laws and regulations and prior company experience in remediating contaminated sites. Although current law imposes joint and several liability on all parties at Superfund sites, our contribution to the remediation of these sites is expected to be limited by the number of other companies potentially liable for site remediation. As a result, our estimated liability reflects only our expected share. In determining the probability of contribution, we consider the solvency of other parties, the site activities of other parties, whether liability is being disputed, the terms of any existing agreements and experience with similar matters, and the effect of our Chapter 11 reorganization upon the validity of the claim.

Specific Material Events

St Helens, OR

In August 2010, we entered into a Consent Order (the “Consent Order”) with the Oregon Department of Environmental Quality (“ODEQ”), along with Kaiser Gypsum Company, Inc. (“Kaiser”), and Owens Corning Sales LLC (“OC”), with respect to our St. Helens, OR Building Products facility, which was previously owned by Kaiser and then OC. The Consent Order, which replaces a previous order of the ODEQ requiring us to investigate and remediate hazardous substances present at the facility, requires that we and Kaiser complete a remedial investigation and feasibility study (“RI/FS”) on the portion of the site owned by us (“Owned Property”), which is comprised of Upland and Lowland areas. The Consent Order further requires us, Kaiser and OC to conduct an RI/FS in the In-Water area of the adjacent Scappoose Bay. We are currently in an investigation phase for both the Owned Property and the Scappoose Bay and are working with ODEQ, Kaiser and OC to finalize the reports to move to the Feasibility Study phase. We have determined that it is probable that remedial action for certain portions of both the Upland and Lowland areas of the Owned Property will be required. The current estimate of our future liability at the site includes any remaining known investigation work required by the Consent Order and the current projected cost of possible remedies for certain portions of the Owned Property. At this time, we are

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

unable to reasonably estimate any remediation costs that we may ultimately incur with respect to other portions of the Owned Property or the Scappoose Bay or whether the projected costs for the areas we have included in our current estimate will increase. Additional investigative or remedial action required by ODEQ could result in additional costs greater than the amounts currently estimated. We believe that our ongoing work with ODEQ and Kaiser may enable us to reasonably estimate costs in 2016, and those costs may be material.

Costs and responsibilities for investigation, including the current RI/FS for the Owned Property continue to be shared with Kaiser pursuant to a cost sharing agreement with Kaiser. Contemporaneously with the execution of the Consent Order, we, Kaiser and OC also entered into a separate cost sharing agreement for both the investigation and possible remediation of the Scappoose Bay. Kaiser’s shares under the cost sharing agreements are being funded by certain insurance policies, which comprise substantially all of Kaiser’s assets. If Kaiser and OC are unwilling or unable to fulfill their obligations under the cost sharing agreements, or seek to contest or challenge the allocations, or if Kaiser’s insurance policies are unable to fund Kaiser’s shares, it could result in additional cost to us greater than the amounts currently estimated and those costs may be material.

The principal contaminants at the St. Helens site are arsenic and dioxin compounds from historic operations by prior owners of the plant. As part of the investigation on the site pursuant to the Consent Order, we conducted an analysis of the raw materials used in our manufacturing processes at the St. Helens facility to identify possible sources of these same contaminants. Our testing found low levels of naturally occurring dioxin in sourced clay, known as ball clay, used in the production of some of our fire-retardant products at our St. Helens manufacturing facility. Based on the data from the soil and sediment samples from our St. Helens property and the data from the ball clay, we do not believe that the presence of dioxin in our raw material will have a material impact on our ultimate liability at the site. In addition, consistent with our health and safety policies, we tested employee exposure levels at two facilities representative of our handling procedures at all plants that use this ball clay and, as a result of such testing, do not believe that the ball clay poses a hazard to our employees based on applicable regulatory standards. Based on the manufacturing process and the amount of raw material utilized, we also believe that the dioxin levels in our finished products do not pose a hazard to installers or consumers. While we have not received any claims related to this raw material or our fire-retardant products, there can be no assurance that the raw material or the finished products will not become the subject of legal claims or regulatory actions or that such claims or actions will not have a material adverse effect on our financial condition or results of operations.

Macon, GA

The U.S. Environmental Protection Agency (“EPA”) has listed two landfills located on a portion of our Building Products facility in Macon, GA, along with the former Macon Naval Ordnance Plant landfill adjacent to our property, and portions of Rocky Creek (collectively, the “Macon Site”) as a Superfund site on the National Priorities List due to the presence of contaminants, most notably PCBs.

In September 2010, we entered into an Administrative Order on Consent for a 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”). We concluded the investigative phase of the Removal Action for the WWTP Landfill and submitted our final Engineering Evaluation/Cost Analysis (“EE/CA”) to the EPA in 2013. The EPA subsequently approved the EE/CA and issued an Action Memorandum in July 2013 selecting our recommended remedy for the Removal Action. In July 2014, we entered into an Administrative Order on Consent for Removal Action with the EPA for the WWTP Landfill. The EPA approved the Removal Action Work Plan on March 30, 2015 and the removal work commenced in the third quarter of 2015. We expect this work to be completed by the end of the first quarter of 2016. Our estimate of future liability includes costs for the remedial work for the WWTP Landfill.

It is probable that we will incur field investigation, engineering and oversight costs associated with a RI/FS with respect to the remainder of the Superfund site, which includes the other landfill on our property, as well as areas on and adjacent to Armstrong’s property and Rocky Creek (the “Remaining Site”). On September 25, 2015, AWI and six other Potentially Responsible Parties (“PRPs”) received a Special Notice Letter from the EPA under CERCLA inviting AWI and the PRPs to enter into the negotiation of a Settlement Agreement (formerly known as an Administrative Order on Consent) to conduct an RI/FS of Operable Unit 2, which is the Remaining Site. We have not yet entered into an Order with the EPA for the Remaining Site and have not yet commenced an investigation of this portion of the site. We anticipate that the EPA will require significant investigative work for the Remaining Site and that we may ultimately incur costs in remediating any contamination discovered during the

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

RI/FS. The current estimate of future liability at this site includes our estimated share of the costs of the investigative work that, at this time, we anticipate the EPA will require the PRP team to perform. We are unable to reasonably estimate AWI’s final share of the costs or the total costs associated with the investigation work or any resulting remediation therefrom, although such amounts may be material.

Elizabeth City, NC

This site is a former cabinet manufacturing facility that was operated by Triangle Pacific Corporation, now known as Armstrong Wood Products, Inc. (“Triangle Pacific”) from 1977 until 1996. The site was formerly owned by the U.S. Navy (“Navy”) and Westinghouse, now CBS Corporation (“CBS”). We assumed ownership of the site when we acquired the stock of Triangle Pacific in 1998. Prior to our acquisition, the NC Department of Environment and Natural Resources listed the site as a hazardous waste site. In 1997, Triangle Pacific entered into a cost sharing agreement with Westinghouse whereby the parties agreed to share equally in costs associated with investigation and potential remediation. In 2000, Triangle Pacific and CBS entered into an RI/FS with the EPA for the site. In 2007, we and CBS entered into an agreement with the Navy whereby the Navy agreed to pay one third of defined past and future investigative costs up to a certain amount, which has now been exhausted. Although the parties initially submitted the RI/FS work plan to the EPA in 2004, the EPA did not approve the RI/FS work plan until August 2011. In January 2014, we submitted the draft Remedial Investigation and Risk Assessment reports and conducted supplemental investigative work based upon agency comments to those reports. The supplemental reports were submitted to the agency in January 2015 and the agency has not yet responded to those reports. We are unable to reasonably estimate any additional investigative costs or determine whether remediation will be required. If remediation is required, the related costs may be material, although we expect these costs to be shared with CBS and the Navy.

Summary of Financial Position

Liabilities of $6.0 million at December 31, 2015 and $4.4 million at December 31, 2014 were recorded for potential environmental liabilities, on a global basis, that we consider probable and for which a reasonable estimate of the probable liability could be made. Where existing data is sufficient to estimate the liability, that estimate has been used; where only a range of probable liabilities is available and no amount within that range is more likely than any other, the lower end of the range has been used. As assessments and remediation activities progress at each site, these liabilities are reviewed to reflect new information as it becomes available. These liabilities are undiscounted.

The estimated liabilities above do not take into account any claims for recoveries from insurance or third parties. It is our policy to record probable recoveries that are either available through settlement or anticipated to be recovered through negotiation or litigation as assets in the Consolidated Balance Sheets. No material amounts were recorded for probable recoveries at December 31, 2015 or December 31, 2014.

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.

ANTIDUMPING AND COUNTERVAILING DUTY CASES

In October 2010, a coalition of U.S. producers of multilayered wood flooring (not including AWI and its subsidiaries) filed petitions seeking antidumping duties (“AD”) and countervailing duties (“CVD”) with the United States Department of Commerce (“DOC”) and the United States International Trade Commission (“ITC”) against imports of multilayered wood flooring from China. The AD and CVD petitions ultimately resulted in DOC issuing AD and CVD orders (the “Orders”) against multilayered wood flooring imported into the U.S. from China. These Orders and the associated additional duties they have imposed have been the subject of extensive litigation, both at DOC and in the U.S. courts.

We produce multilayered wood flooring domestically and import multilayered wood flooring from third party suppliers in China. Until October 2014, we also operated a plant in Kunshan, China (“Armstrong Kunshan”) that manufactured multilayered wood flooring for export to the U.S. As a result, we have been directly involved in the multilayered wood flooring-related litigation at DOC and in the U.S. courts. Our consistent view through the course of this matter has been, and remains, that our imports are neither dumped nor subsidized. In 2013, in the sole DOC investigation of AWI and its subsidiaries (as a mandatory respondent in connection with the first annual administrative review), Armstrong Kunshan received a final AD rate of 0.00% and a final CVD rate of 0.98%.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

Litigation regarding this matter has continued in the U.S. courts. The most recent court decision, on July 6, 2015, upheld certain DOC calculations on remand. Armstrong Kunshan as well as other respondents have appealed the DOC’s original decision to apply an AD rate to us and other “separate rate” respondents in the original investigation (for which we received a final initial AD rate of 3.31%) to the Court of Appeals for the Federal Circuit.

DOC also continues to conduct annual administrative reviews of the AD and CVD final duty rates under the Orders. In July 2015, DOC issued its final AD and CVD rates for the second administrative review, which applies to imports of multilayered wood flooring made between December 1, 2012 and November 30, 2013 (AD) and between January 1, 2012 and December 31, 2012 (CVD). Armstrong Kunshan was not selected as a mandatory respondent for the second AD review and, therefore, was not subject to individual review, but we are subject to the rates applicable to importers that were not individually reviewed (the “separate rate” or “all others” respondents).

On July 7, 2015, the DOC issued a final “All Others” CVD rate of 0.99% that also applies to Armstrong Kunshan as part of the second CVD administrative review. On July 9, 2015, DOC issued a final AD determination for the second administrative review. DOC imposed a 13.74% AD rate determined solely on the basis of the AD duty rate assigned to the only mandatory respondent that did not receive a de minimis rate. DOC assigned this rate to all separate rate respondents that were not individually investigated, including Armstrong Kunshan. AWI and its subsidiaries, Armstrong Kunshan, and other respondents have filed complaints against DOC challenging the rate in the U.S. Court of International Trade with a decision expected in 2016. If such rates are ultimately upheld after any court appeals are exhausted, the estimated additional liability to us for the relevant period is approximately $4 million. This estimated additional liability was reflected in our second quarter 2015 results. We continue to accrue and make cash deposits for duties when we are the importer of record at the rates established by the DOC based on the second administrative review process.

DOC is also currently conducting its third annual administrative review. Armstrong Kunshan was not selected as a mandatory respondent for the third AD review and therefore, is not subject to individual mandatory review. As part of these reviews, Armstrong Kunshan’s individual AD and CVD assessment rates may be changed and the revised rates applicable to participants that were not individually reviewed will apply to all multilayer wood flooring imports between December 1, 2013 and November 30, 2014 (AD) and between January 1, 2013 and December 31, 2013 (CVD). The DOC issued a preliminary AD rate of 13.34% and a preliminary CVD rate of 1.43% for the third administrative review. We do not anticipate final AD and CVD rates for the third administrative reviews until mid-2016. We are unable to predict the final AD and CVD rates for the pending reviews at this time, but plan to continue to defend our import practices and pursue our available legal rights and remedies, including litigation at DOC and in the U.S. courts. Armstrong Kunshan is not a respondent in the DOC fourth AD and CVD administrative reviews.

OTHER CLAIMS

We are involved in various lawsuits, claims, investigations and other legal matters from time to time that arise in the ordinary course of conducting business, including matters involving our products, intellectual property, relationships with suppliers, relationships with distributors, relationships with competitors, employees and other matters. For example, we are currently a party to various litigation matters that involve product liability, tort liability and other claims under a wide range of 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. In some cases, these allegations involve multiple defendants and relate to legacy products that we and other defendants purportedly manufactured or sold. We believe these claims and allegations to be 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. We are currently pursuing coverage and recoveries under those policies, but are unable to predict the outcome or those demands.

While complete assurance cannot be given to the outcome of these proceedings, we do not believe that any of these matters, individually or in the aggregate, will have a material adverse effect on our financial condition, liquidity or results of operations.

Armstrong World Industries, Inc., and Subsidiaries

Notes to Consolidated Financial Statements

(dollar amounts in millions, except share data)

NOTE 28. EARNINGS PER SHARE

Earnings per share components may not add due to rounding.

The following table is a reconciliation of net earnings to net earnings attributable to common shares used in our basic and diluted EPS calculations for the years ended December 31, 2015, 2014, and 2013:


	2015			2014			2013
Earnings from continuing operations	$	52.6		$	102.0		$	127.3
Earnings allocated to participating non-vested share awards		(0.1	)		(0.5	)		(0.7	)

Earnings from continuing operations attributable to common shares	$	52.5		$	101.5		$	126.6


	2015			2014			2013
				(in millions)
Basic shares outstanding		55.5			55.0			57.8
Dilutive effect of common stock equivalents		0.4			0.4			0.6

Diluted shares outstanding		55.9			55.4			58.4

Options to purchase 203,527, 142,038 and 181,041 shares of common stock were outstanding as of December 31, 2015, 2014, and 2013, respectively, but not included in the computation of diluted earnings per share, because the options were anti-dilutive.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.

CONTROLS AND PROCEDURES

Our management, with the participation of our chief executive officer and our chief financial officer, performed an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)) as of December 31, 2015. Our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures were effective insofar as they are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2015 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm are incorporated by reference to Item 8.

I TEM 9B.

OTHER INFORMATION

Not applicable.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Executive Officers of the Company (as of February 22, 2016):


Name	Age	Present Position and Business Experience During the Last Five Years*
Matthew J. Espe	57	Armstrong World Industries, Inc. President & CEO; Director since August 2010 Ricoh Americas Corporation Chairman & CEO (2008)

Victor D. Grizzle	54	Armstrong World Industries, Inc. Executive Vice President & CEO, Armstrong Building Products since January 2011 Valmont Industries Group President, Global Structures, Coatings and Tubing (2005)

Mark A. Hershey	46	Armstrong World Industries, Inc. Senior Vice President, General Counsel since July 2011 Chief Compliance Officer since February 2012 Secretary (July 2011 to June 2014) Ricoh Americas Corporation Senior Vice President, General Counsel, Chief Compliance Officer & Secretary (2008)

Donald R. Maier	51	Armstrong World Industries, Inc. Executive Vice President and CEO, Armstrong Floor Products since September 2014 Senior Vice President, Global Operations Excellence (2010) TPG Capital Operational Consultant, several TPG portfolio companies (2008) Director of Operational Excellence, Freescale Semiconductors (2008)

Stephen F. McNamara	49	Armstrong World Industries, Inc. Vice President, Controller since July 2008

Ellen R. Romano	54	Armstrong World Industries, Inc. Senior Vice President, Human Resources since July 2013 Vice President, Human Resources, Armstrong Building Products (2009)

David S. Schulz	50	Armstrong World Industries, Inc. Senior Vice President, Chief Financial Officer since November 2013 Vice President, Armstrong Building Products (June 2011) Procter & Gamble Company Associate Director & CFO, Americas Snacks (2009) J.M. Smucker Company Finance Director, Coffee Strategic Business Area (2008)

^*	Information in parentheses regarding previously held positions indicates either the duration the Executive Officer held the position or the year in which service in the position began.

All executive officers are elected by the Board of Directors to serve in their respective capacities until their successors are elected and qualified or until their earlier resignation or removal.

100

Code of Ethics

We have adopted a Code of Business Conduct that applies to all employees, executives and directors, specifically including our Chief Executive Officer, our Chief Financial Officer and our Controller. We have also adopted a Code of Ethics for Financial Professionals (together with the Code of Business Conduct, the “Codes of Ethics”) that applies to all professionals in our finance and accounting functions worldwide, including our Chief Financial Officer and our Controller.

The Codes of Ethics are intended to deter wrongdoing and to promote:

•

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

•

full, fair, accurate, timely and understandable public disclosures;

•

compliance with applicable governmental laws, rules and regulations;

•

the prompt internal reporting of violations of the Codes of Ethics; and

•

accountability for compliance with the Codes of Ethics.

The Codes of Ethics are available at http://www.armstrong.com/corporate/codes-policies.html and in print free of charge. Any waiver of the Company’s Code of Business Conduct, particularly its conflicts-of-interest provisions, which may be proposed to apply to any director or executive officer, must be reviewed in advance by the Nominating and Governance Committee of the Board of Directors, which would be responsible for making a recommendation to the Board of Directors for approval or disapproval. The Board of Directors’ decision on any such matter would be disclosed publicly in compliance with applicable legal standards and the rules of the New York Stock Exchange. We intend to satisfy these requirements by making disclosures concerning such matters available on the “For Investors” page of our website. There were no waivers or exemptions from the Code of Business Conduct in 2015 applicable to any director or executive officer.

Other information required by Item 10 is incorporated by reference to the sections entitled “Election of Directors,” “Corporate Governance,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s proxy statement for its 2016 annual meeting of shareholders to be filed no later than April 29, 2016.

ITEM 11.

EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated by reference to the sections entitled “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and Stock Vested,” “Pension Benefits,” “Nonqualified Deferred Compensation,” “Potential Payments Upon Termination or Change in Control,” “Board of Directors – Board’s Role in Risk Management Oversight,” “Compensation Committee Interlocks and Insider Participation” and “Compensation of Directors” in the Company’s proxy statement for its 2016 annual meeting of shareholders to be filed no later than April 29, 2016.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 is incorporated by reference to the sections entitled “Security Ownership of Certain Beneficial Owners,” “Security Ownership of Management,” and “Equity Compensation Plan Information” in the Company’s proxy statement for its 2016 annual meeting of shareholders to be filed no later than April 29, 2016.

101

IT EM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is incorporated by reference to the sections entitled “Certain Relationships and Related Transactions” and “Director Independence” in the Company’s proxy statement for its 2016 annual meeting of shareholders to be filed no later than April 29, 2016.

I TEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 is incorporated by reference to the sections entitled “Audit Committee Report” and “Relationship with Independent Auditors” in the Company’s proxy statement for its 2016 annual meeting of shareholders to be filed no later than April 29, 2016.

102

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Listing of Documents

1.	The financial statements and schedule of Armstrong World Industries, Inc. filed as a part of this 2015 Annual Report on Form 10-K is listed in the “Index to Financial Statements and Schedules” on Page 42.

2.	The financial statements required to be filed pursuant to Item 15 of Form 10-K are:

Worthington Armstrong Venture consolidated financial statements for the years ended December 31, 2015, 2014, and 2013 (filed herewith as Exhibit 99.1).

3.	The following exhibits are filed as part of this 2015 Annual Report on Form 10-K:


Exhibit No.		Description

2		Armstrong World Industries, Inc.’s Fourth Amended Plan of Reorganization dated May 23, 2003 (as modified by modifications filed with the Bankruptcy Court on October 17, 2003, November 10, 2003, December 3, 2004 and February 21, 2006) is incorporated by reference from the Annual Report on Form 10-K, filed on February 24, 2006, wherein it appeared as Exhibit 2.3.

3.1		Amended and Restated Certificate of Incorporation of Armstrong World Industries, Inc. is incorporated by reference from the Current Report on Form 8-K filed on October 2, 2006, wherein it appeared as Exhibit 3.1.

3.2		Amended and Restated Bylaws of Armstrong World Industries, Inc. are incorporated by reference from the Current Report on Form 8-K filed on July 28, 2014, wherein it appeared as Exhibit 3.1.

10.1		Amended and Restated Credit Agreement dated, March 15, 2013, among Armstrong World Industries, Inc. and Armstrong Wood Products, Inc., as borrowers, the guarantors identified therein and Bank of America, N.A., as administrative agent and collateral agent, is incorporated by reference from the Current Report on Form 8-K filed on March 18, 2013, wherein it appeared as Exhibit 10.1.

10.2		Amended and Restated Security Agreement dated, March 15, 2013, by and among Armstrong World Industries, Inc., the grantors named therein and Bank of America, N.A., as collateral agent, is incorporated by reference from the Current Report on Form 8-K filed on March 18, 2013, wherein it appeared as Exhibit 10.2.

10.3		Amended and Restated Pledge Agreement dated, March 15, 2013, by and among Armstrong World Industries, Inc., the pledgors named therein and Bank of America, N.A., as collateral agent, is incorporated by reference from the Current Report on Form 8-K filed on March 18, 2013, wherein it appeared as Exhibit 10.3.

10.4		Amended and Restated Canadian Pledge Agreement dated, March 15, 2013, by and among Armstrong World Industries, Inc. and Bank of America, N.A., as collateral agent, is incorporated by reference from the Current Report on Form 8-K filed on March 18, 2013, wherein it appeared as Exhibit 10.4.

103


10.5		Receivables Purchase Agreement dated as of December 10, 2010, by and among Armstrong World Industries, Inc., as initial servicer and collection agent, Armstrong Receivables Company LLC, as seller, Atlantic Asset Securitization LLC, as conduit purchaser, and Credit Agricole Corporate and Investment Bank, as administrative agent, an issuer of letters of credit and related committed purchaser, is incorporated by reference from the Current Report on Form 8-K filed on December 14, 2010, wherein it appeared as Exhibit 10.1.

10.6		Purchase and Sale Agreement dated as of December 10, 2010, by and among Armstrong World Industries, Inc., as originator and as initial servicer, Armstrong Hardwood Flooring Company, as originator, and Armstrong Receivables Company LLC, is incorporated by reference from the Current Report on Form 8-K filed on December 14, 2010, wherein it appeared as Exhibit 10.2.

10.7		Omnibus Amendment to Receivables Purchase Agreement and Purchase and Sale Agreement dated as of August 1, 2011, by and among Armstrong World Industries, Inc., Armstrong Receivables Company LLC, Armstrong Hardwood Flooring Company, Atlantic Asset Securitization LLC, and Credit Agricole Corporate and Investment Bank, is incorporated by reference from the Annual Report on Form 10-K filed on February 27, 2012, wherein it appeared as Exhibit 10.9.

10.8		Second Omnibus Amendment to Receivables Purchase Agreement and Purchase and Sale Agreement dated as of December 21, 2011, by and among Armstrong World Industries, Inc., Armstrong Receivables Company LLC, as seller, Armstrong Hardwood Flooring Company, as originator, Atlantic Asset Securitization LLC, as resigning conduit purchaser, Credit Agricole Corporate and Investment Bank, as resigning administrative agent, resigning related committed purchaser and resigning LC bank, The Bank of Nova Scotia, as successor administrative agent, successor related committed purchaser and successor LC bank, and Liberty Street Funding LLC, as successor conduit purchaser, is incorporated by reference from the Annual Report on Form 10-K filed on February 27, 2012, wherein it appeared as Exhibit 10.10.

10.9		Third Omnibus Amendment Agreement, dated as of March 28, 2013, by and among Armstrong Receivables Company, LLC, Armstrong World Industries, Inc., Armstrong Hardwood Flooring Company, The Bank of Nova Scotia, and Liberty Street Funding LLC, is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 29, 2013, wherein it appeared as Exhibit 10.1.

10.10		Fourth Amendment Agreement, dated as of December 18, 2014, by and among Armstrong Receivables Company, LLC, Armstrong World Industries, Inc., Armstrong Hardwood Flooring Company, The Bank of Nova Scotia, and Liberty Street Funding LLC, is incorporated by reference from the Annual Report on Form 10-K filed on February 23, 2015, wherein it appeared as Exhibit 10.10.

10.11		Stipulation and Agreement with Respect to Claims of Armstrong Holdings, Inc. and Armstrong Worldwide, Inc.; and Motion for Order Approving Stipulation and Agreement are incorporated by reference from the Current Report on Form 8-K filed on February 27, 2007, wherein they appeared as Exhibits 99.2 and 99.3, respectively.

10.12		Amended and Restated Joint Venture Agreement, dated February 22, 2016 between Armstrong Ventures, Inc. and Worthington Ventures, Inc. †

10.13		Management Achievement Plan for Key Executives, effective as of November 28, 1983, as amended April 30, 2007, December 8, 2008, and June 24, 2011, is incorporated by reference to Armstrong World Industries, Inc.’s Definitive Proxy Statement on Schedule 14A for the Armstrong World Industries, Inc. 2011 Annual Meeting of Shareholders held on June 24, 2011, filed on April 28, 2011, wherein it appeared as Exhibit B.*

104


10.14		2006 Long-Term Incentive Plan, as amended February 23, 2009, is incorporated by reference from the Annual Report on Form 10-K, filed on February 26, 2009, wherein it appeared as Exhibit 10.13.*

10.15		Form of Stock Option Agreement under 2006 Long-Term Incentive Plan is incorporated by reference from the Current Report on Form 8-K filed on October 2, 2006, wherein it appeared as Exhibit 10.5.*

10.16		Form of Restricted Stock Award Agreement under 2006 Long-Term Incentive Plan is incorporated by reference from the Current Report on Form 8-K filed on October 2, 2006, wherein it appeared as Exhibit 10.6.*

10.17		Form of Restricted Stock and/or Option Award under 2006 Long-Term Incentive Plan is incorporated by reference from the Current Report on Form 8-K filed on October 2, 2006, wherein it appeared as Exhibit 10.7.*

10.18		Form of Restricted Stock Award under the 2006 Long-Term Incentive Plan is incorporated by reference from the 2007 Annual Report on Form 10-K, filed on February 29, 2008, wherein it appeared as Exhibit 10.35.*

10.19		Form of Stock Option Award under the 2006 Long-Term Incentive Plan is incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 1, 2008, wherein it appeared as Exhibit 10.37.*

10.20		Stock Option Award under the 2006 Long-Term Incentive Plan to Thomas B. Mangas is incorporated by reference from the Current Report on Form 8-K filed on April 6, 2010, wherein it appeared as Exhibit 10.1.*

10.21		Form of Stock Option Award under the 2006 Long-Term Incentive Plan used in connection with award to Stephen F. McNamara is incorporated by reference from the Current Report on Form 8-K filed on April 6, 2010, wherein it appeared as Exhibit 10.2.*

10.22		Stock Option and Performance Restricted Stock Unit Awards under the 2006 Long-Term Incentive Plan to Donald R. Maier dated September 7, 2010, is incorporated by reference from the Annual Report on Form 10-K filed on February 27, 2012, wherein it appeared as Exhibit 10.25.*

10.23		Form of Stock Option and Restricted Stock Unit Award under the 2006 Long-Term Incentive Plan used in connection with awards to Victor D. Grizzle in connection with new hire grant, is incorporated by reference from the Annual Report on Form 10-K filed on February 27, 2012, wherein it appeared as Exhibit 10.26.*

10.24		Forms of Stock Option and Performance Restricted Stock Unit Award under the 2006 Long-Term Incentive Plan used in connection with March 2011 grants to officers (except Donald R. Maier) and new hire grant for Mark A. Hershey, is incorporated by reference from the Annual Report on Form 10-K filed on February 27, 2012, wherein it appeared as Exhibit 10.27.*

10.25		2011 Long-Term Incentive Plan, effective as of June 24, 2011, is incorporated by reference to Armstrong World Industries, Inc.’s Definitive Proxy Statement on Schedule 14A for the Armstrong World Industries, Inc 2011 Annual Meeting of Shareholders held on June 24, 2011 filed on April 28, 2011, wherein it appeared as Exhibit A.*

10.26		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Nonqualified Stock Options — U.S. (Executive Officer), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2012, wherein it appeared as Exhibit 10.1.*

105


10.27		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Nonqualified Stock Options — U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2012, wherein it appeared as Exhibit 10.2.*

10.28		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Nonqualified Stock Options — Non-U.S. (Executive Officer)), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2012, wherein it appeared as Exhibit 10.3.*

10.29		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Time-Based Restricted Stock Units – U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2012, wherein it appeared as Exhibit 10.4.*

10.30		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Time-Based Restricted Stock Units – Payable in Cash – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2012, wherein it appeared as Exhibit 10.5.*

10.31		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Time-Based Restricted Stock Units – Payable in Shares – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2012, wherein it appeared as Exhibit 10.6.*

10.32		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Performance-Based Restricted Stock Units – Payable in Shares – U.S. (Executive Officer)), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2012, wherein it appeared as Exhibit 10.7.*

10.33		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Performance-Based Restricted Stock Units – Payable in Shares – U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2012, wherein it appeared as Exhibit 10.8.*

10.34		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Performance-Based Restricted Stock Units – Payable in Cash – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2012, wherein it appeared as Exhibit 10.9.*

10.35		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Performance-Based Restricted Stock Units – Payable in Shares – Non-U.S. (Executive Officer)), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2012, wherein it appeared as Exhibit 10.10.*

10.36		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2013 (Grant of Nonqualified Stock Options – U.S. (Executive Officer)), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 29, 2013, wherein it appeared as Exhibit 10.2.*

10.37		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2013 (Grant of Nonqualified Stock Options – U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 29, 2013, wherein it appeared as Exhibit 10.3.*

10.38		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2013 (Grant of Nonqualified Stock Options – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 29, 2013, wherein it appeared as Exhibit 10.4.*

10.39		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2014 (Grant of Nonqualified Stock Options – U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 28, 2014, wherein it appeared as Exhibit 10.1.*

106


10.40		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2014 (Grant of Nonqualified Stock Options – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 28, 2014, wherein it appeared as Exhibit 10.2.*

10.41		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2014 (Grant of Time-Based Restricted Stock Units – U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 28, 2014, wherein it appeared as Exhibit 10.3.*

10.42		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2014 (Grant of Time-Based Restricted Stock Units – Payable in Cash – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 28, 2014, wherein it appeared as Exhibit 10.4.*

10.43		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2014 (Grant of Time-Based Restricted Stock Units – Payable in Shares – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 28, 2014, wherein it appeared as Exhibit 10.5.*

10.44		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2014 (Grant of Performance Restricted Stock Units – Payable in Shares – U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 28, 2014, wherein it appeared as Exhibit 10.6.*

10.45		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2014 (Grant of Performance Restricted Stock Units – Payable in Cash – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 28, 2014, wherein it appeared as Exhibit 10.7.*

10.46		Form of 2011 Long-Term Incentive Plan Terms and Conditions, as amended for 2014 (Grant of Performance Restricted Stock Units – Payable in Shares – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 28, 2014, wherein it appeared as Exhibit 10.8.*

10.47		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Time-Based Restricted Stock Units – U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2015, wherein it appeared as Exhibit 10.1.*

10.48		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Time-Based Restricted Stock Units – Payable in Cash – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2015, wherein it appeared as Exhibit 10.2.*

10.49		Form of 2011 Long-Term Incentive Plan Terms and Conditions (Grant of Time-Based Restricted Stock Units – Payable in Shares – Non-U.S.), is incorporated by reference from the Quarterly Report on Form 10-Q filed on April 30, 2015, wherein it appeared as Exhibit 10.3.*

10.50		Nonqualified Deferred Compensation Plan effective January 2005, as amended July 23, 2010, is incorporated by reference from the Annual Report on Form 10-K, filed on February 28, 2011, wherein in appeared as Exhibit 10.4.*

10.51		Bonus Replacement Retirement Plan, effective as of January 1, 1998, as amended January 1, 2007, is incorporated by reference from the Annual Report on Form 10-K, filed on February 29, 2008, wherein it appeared as Exhibit 10.9.*

10.52		Retirement Benefit Equity Plan, effective January 1, 2005, as amended October 29, 2007 and December 8, 2008, is incorporated by reference from the Annual Report on Form 10-K, filed on February 26, 2009, wherein it appeared as Exhibit 10.2.*

107


10.53		2006 Phantom Stock Unit Plan, as amended December 8, 2008, is incorporated by reference from the 2008 Annual Report on Form 10-K, filed on February 26, 2009, wherein it appeared as Exhibit 10.18.*

10.54		2006 Phantom Stock Unit Agreement is incorporated by reference from the Current Report on Form 8-K filed on October 26, 2006, wherein it appeared as Exhibit 10.3. A Schedule of Participating Directors is incorporated by reference from the 2006 Annual Report on Form 10-K, filed on March 30, 2007, wherein it appeared as Exhibit 10.36.*

10.55		2007 Award under the 2006 Phantom Stock Unit Agreement and the Schedule of Participating Directors are incorporated by reference from the Current Report on Form 8-K filed on October 23, 2007, wherein they appeared as Exhibits 10.1 and 10.2, respectively.*

10.56		Schedule of Armstrong World Industries, Inc. Nonemployee Directors Compensation Summary is incorporated by reference from the Quarterly Report on Form 10-Q, filed on July 29, 2013, wherein it appeared as Exhibit 10.3.*

10.57		The 2008 Directors Stock Unit Plan, as amended December 8, 2008, November 30, 2010 and June 24, 2011 is incorporated by reference to the Current Report on Form 8-K filed on June 13, 2011, wherein it appeared as Exhibit 99.2.*

10.58		Form of 2009 Award under the 2008 Director Stock Unit Plan, as amended, is incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, filed on October 28, 2009, wherein it appeared as Exhibit 10.27.*

10.59		Form of 2010 Award under the 2008 Directors Stock Unit Plan, as amended, is incorporated by reference from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, filed on October 28, 2009, wherein it appeared as Exhibit 10.27.*

10.60		Form of 2011, 2012, 2013 and 2014 Award under the 2008 Directors Stock Unit Plan, as amended, is incorporated by reference from the Annual Report on Form 10-K filed on February 27, 2012, wherein it appeared as Exhibit 10.40.*

10.61		Employment Agreement with Matthew J. Espe dated June 24, 2010, is incorporated by reference from the Current Report filed on Form 8-K filed on June 25, 2010, wherein it appeared as Exhibit 10.1.*

10.62		Amendment to Employment Agreement with Matthew J. Espe dated March 9, 2015, is incorporated by reference from the Current Report filed on Form 8-K filed on March 10, 2015, wherein it appeared as Exhibit 10.1.*

10.63		Amendment to Employment Agreement with Matthew J. Espe dated December 31, 2012, is incorporated by reference from the Current Report filed on Form 8-K filed on January 4, 2013, wherein it appeared as Exhibit 10.4.*

10.64		Offer Letter to Victor D. Grizzle dated January 4, 2011, is incorporated by reference from the Current Report on Form 8-K filed on January 10, 2011, wherein it appeared as Exhibit 99.2.*

10.65		Offer Letter to Mark A. Hershey dated April 21, 2011, is incorporated by reference from the Current Report on Form 8-K filed on April 27, 2011, wherein it appeared as Exhibit 99.1.*

10.66		Form of Change in Control Severance Agreement with Matthew Espe dated August 1, 2015, is incorporated by reference from the Quarterly Report on Form 10-Q filed on October 29, 2015, wherein it appeared as Exhibit 10.1.*

108


10.67		Form of Retention Agreement with Matthew J. Espe, David S. Schulz and Mark A. Hershey is incorporated by reference from the Report on Form 8-K filed on March 10, 2015, wherein it appeared as Exhibit 10.2.*

10.68		Form of Severance Agreement with David S. Schulz and Mark A. Hershey and Victor D. Grizzle is incorporated by reference from the Report on Form 8-K filed on March 10, 2015, wherein it appeared as Exhibit 10.3.*

10.69		Form of Change in Control Severance Agreement with Ms. Ellen R. Romano and Messrs. David S. Schulz, Victor D. Grizzle, Mark A. Hershey, Stephen H. Poole, and Stephen F. McNamara is incorporated by reference from the Quarterly Report on Form 10-Q filed on October 29, 2015, wherein it appeared as Exhibit 10.2.*

10.70		Change in Control Severance Agreement with Donald R. Maier, dated as of November 17, 2014, is incorporated by reference from the Report on Form 8-K filed on November 18, 2014, wherein it appeared as Exhibit 10.1.*

10.71		Form of Indemnification Agreement for Officers and Directors of Armstrong World Industries, Inc. is incorporated by reference from the Report on Form 8-K filed on June 4, 2010, wherein it appeared as Exhibit 10.1.*

10.72		Separation of Employment and General Release Agreement dated as of November 5, 2013 by and between the Company and Frank J. Ready, is incorporated by reference from the Current Report on Form 8-K filed on December 2, 2013, wherein it appeared as Exhibit 10.1.

10.73		Transition Agreement with Donald R. Maier, dated as of March 31, 2014, is incorporated by reference from the Report on Form 8-K filed on April 4, 2014, wherein it appeared as Exhibit 10.1.*

11		Computation of Earnings Per Share.†

12		Computation of Ratio of Earnings to Fixed Charges.†

14		The Armstrong Code of Business Conduct, revised as of July 29, 2011, is incorporated by reference from the Current Report on Form 8-K filed on August 1, 2011, wherein it appeared as Exhibit 14.1.

21		Armstrong World Industries, Inc.’s Subsidiaries.†

23.1		Consent of Independent Registered Public Accounting Firm.†

23.2		Consent of Independent Auditors.†

31.1		Certification of Chief Executive Officer required by Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act.

31.2		Certification of Chief Financial Officer required by Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act.

32.1		Certification of Chief Executive Officer required by Rule 13a and 18 U.S.C. Section 1350 (furnished herewith).

32.2		Certification of Chief Financial Officer required by Rule 13a and 18 U.S.C. Section 1350 (furnished herewith).

99.1		Worthington Armstrong Venture consolidated financial statements as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013.†

109


99.2		Armstrong World Industries, Inc. Asbestos Personal Injury Settlement Trust Agreement dated as of October 2, 2006, by and among Armstrong World Industries, Inc. and trustees, is incorporated by reference from the Current Report on Form 8-K filed on October 2, 2006, wherein it appeared as Exhibit 10.2.

99.3		Stockholder and Registration Rights Agreement, dated as of October 2, 2006, by and between Armstrong World Industries, Inc. and the Armstrong World Industries, Inc. Asbestos Personal Injury Settlement Trust is incorporated by reference from the Current Report on Form 8-K filed on October 2, 2006, wherein it appeared as Exhibit 10.3.

99.4		Nomination and Shareholder Agreement with the persons or entities identified on Schedule I attached thereto (collectively the “ValueAct Group” and each individually, a “member” of the ValueAct Group), and Gregory P. Spivy in his individual capacity and as a member of the ValueAct Group (the “ValueAct Designee”), is incorporated by reference from the Report on Form 8-K filed on December 15, 2014, wherein it appeared as Exhibit 99.1.

101		Interactive Data Files**

*	Management Contract or Compensatory Plan.

†	Filed herewith.

XBRL – Information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

110

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


ARMSTRONG WORLD INDUSTRIES, INC.
(Registrant)

By:		/s/ Matthew J. Espe
		Director, President and Chief Executive Officer

Date:		February 22, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant Armstrong and in the capacities and on the dates indicated.

Directors and Principal Officers of the registrant AWI:


Name		Title

Matthew J. Espe		Director, President and Chief Executive Officer
		(Principal Executive Officer)

David S. Schulz		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

Stephen F. McNamara		Vice President and Controller
		(Principal Accounting Officer)

Stanley A. Askren		Director

James J. Gaffney		Director

Tao Huang		Director

Michael F. Johnston		Director

Jeffrey Liaw		Director

Larry S. McWilliams		Director

James C. Melville		Director

James J. O’Connor		Director

John J. Roberts		Director

Gregory P. Spivy		Director

Richard E. Wenz		Director


By:		/s/ Matthew J. Espe
		(Matthew J. Espe)

		As of February 22, 2016

By:		/s/ David S. Schulz
		(David S. Schulz)

		As of February 22, 2016

By:		/s/ Stephen F. McNamara
		(Stephen F. McNamara)

		As of February 22, 2016

111

SCHEDULE II

Armstrong World Industries, Inc., and Subsidiaries

Valuation and Qualifying Reserves

(amounts in millions)


	Balance at beginning of year		Additions charged to earnings		Deductions			Balance at end of year
2013
Provision for bad debts	$	3.9	$	0.9	($	1.6	)	$	3.2
Provision for discounts		19.7		113.8		(119.1	)		14.4
Provision for warranties		8.7		15.7		(17.0	)		7.4
Reserves for inventory		1.6		1.0		(0.4	)		2.2

2014
Provision for bad debts	$	3.2	$	2.1	($	1.1	)	$	4.2
Provision for discounts		14.4		97.2		(98.6	)		13.0
Provision for warranties		7.4		15.4		(14.9	)		7.9
Reserves for inventory		2.2		1.8		(1.6	)		2.4

2015
Provision for bad debts	$	4.2	$	0.8	($	1.0	)	$	4.0
Provision for discounts		13.0		105.4		(105.9	)		12.5
Provision for warranties		7.9		11.9		(12.1	)		7.7
Reserves for inventory		2.4		2.8		(2.0	)		3.2

112

Exhibit No. 10.12

Execution Copy

AMENDED AND RESTATED JOINT VENTURE AGREEMENT

This Amended and Restated Joint Venture Agreement (“ Agreement ”) is entered into as of February 22, 2016, (the “Restatement Date”) by and between Armstrong Ventures, Inc., a Delaware corporation (“ AVI ”), and The Worthington Steel Company, a Delaware corporation formerly known as Worthington Ventures, Inc. (“ WVI ”).

R E C I T A L S :

WHEREAS, AVI and WVI entered into a Joint Venture Agreement dated March 23, 1992 (as amended by (A) Amendment No. 1 to Joint Venture Agreement between AVI and WVI dated April 13, 1993 and (B) the letter from the Joint Venture (as such term is hereinafter defined in Section 14.1) to AVI and WVI dated December 20, 2010 and agreed to and accepted by AVI and WVI regarding certain special allocations of the Joint Venture’s profits and losses (collectively, the “ Existing Joint Venture Agreement ”) pursuant to which AVI and WVI agreed to form a joint venture, effective as of June 1, 1992, to produce and sell Grid (as such term is hereinafter defined in Section 14.1) on a world-wide basis; and

WHEREAS, AVI and WVI desire to modify, amend, restate and replace the Existing Joint Venture Agreement in its entirety, all as hereinafter provided; and

WHEREAS, the provisions of the Existing Joint Venture Agreement shall govern all matters and activities occurring prior to the Restatement Date; and

WHEREAS, capitalized terms used in this Agreement will have the meanings ascribed to them in Article 14 hereof.

NOW, THEREFORE, in consideration of the mutual understandings and agreements hereinafter set forth, the parties hereto mutually agree to modify, amend and restate the Existing Joint Venture Agreement, effective as of the Restatement Date, to read in its entirety as follows:

ARTICLE 1

Formation of Joint Venture

1.1. Establishment of Joint Venture . AVI and WVI hereby establish, effective as of the Effective Date, an unincorporated Joint Venture to carry on, as owners, a business for profit for the purposes set forth below. The Joint Venture shall be established and conducted as a general partnership pursuant to the Uniform Partnership Act as adopted in the State of Delaware (as amended from time-to-time the “ General Partnership Law ”) with AVI and WVI as sole and equal partners; provided , however , in the case of any conflict between the provisions of this Agreement and the General Partnership Law, the provisions of this Agreement shall control.

1.2. Name . The Joint Venture shall operate under the name of “Worthington Armstrong Venture” or the acronym “WAVE,” or such other name as to which the Members may mutually agree.

1.3. Office . The principal office of the Joint Venture shall be located at such location as the Board of Directors may designate.

1.4. Purpose of the Joint Venture . The purpose of the Joint Venture shall be to operate a global business related to the production and sale of Core Grid, Scope Extensions, Grid-Type Products, and products and services related thereto and, to the extent approved by the Board or through Guiding Principles approved by the Board, other products and services.

1.5. Ownership . Except as otherwise agreed to in writing by the Members, AWI and WVI shall each have a 50% interest in the Joint Venture.

1.6. Term . The Joint Venture shall continue in existence until terminated pursuant to Article 11 hereof. Except as provided in Article 10 or Article 11 hereof, neither Member shall withdraw from the Joint Venture for any reason, without obtaining the prior written consent of the other Member.

1.7. Transferability of Interest . Except as provided in Article 10 hereof, neither Member shall transfer, sell, assign, pledge, hypothecate, give, or otherwise dispose of all or any portion of its interest in the Joint Venture without the prior written approval of the other Member.

1.8. Organizational Costs . Except as otherwise agreed by the Members, all costs incurred by a Member in connection with the establishment or amendment of the Joint Venture shall be borne by the Member incurring such costs.

1.9. Effective Date . The effective date of the Joint Venture is June 1, 1992 (the “ Effective Date ”). The effective date of this Amendment and Restatement is the Restatement Date.

ARTICLE 2

Combining Existing Businesses

2.1. Items to be Contributed . The Members contributed their then current Grid Businesses to the Joint Venture as of the Effective Date, as provided in the Existing Joint Venture Agreement including certain machinery and equipment, inventory, intellectual property, purchase orders, books and records, and other items. The Members also retained certain assets and liabilities as provided in the Existing Joint Venture Agreement.

2.1.1. IP Licenses .

(a) The Members contributed to the Joint Venture the Trademarks and Patents and all inventions, formulas, trade secrets, manufacturing processes, know-how and other similar intellectual property rights and information relating to their then current Grid Businesses. Excluded from these contributions were corporate names.

(b) AWI and the Joint Venture have entered into a License Agreement in the form attached as Exhibit 2.1.1(b), with respect to the use of the Armstrong name and trademark.

(c) Following the execution of this Agreement, the Members agree that AWI and the Joint Venture will enter into a License Agreement to be approved in form and substance by both members, pursuant to which AWI will be provided a license to use certain of the Joint Venture intellectual property in connection with the AWI ceilings and wall businesses.

(d) No provision of this Agreement, nor of either License Agreement, shall require, or be deemed or construed to require, Armstrong or Worthington to change its corporate name.

2.2. Environmental Liabilities . If the Joint Venture has operated, or in the future operates, facilities owned or previously operated by a Member Corporation, the Joint Venture shall be liable for any conditions, whether on or off site, resulting from the emission or discharge of regulated substances into the air or water or the use, storage, generation, disposal or release or threatened release of any hazardous substance, contaminant, chemical, or material defined as hazardous pursuant to the federal Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. ¶ 9601 et sec., as amended, or the federal Resource Conservation and Recovery Act, 42 U.S.C. ¶ 9202 et sec., as amended, including petroleum and petroleum products, caused by operations of the Joint Venture and the Joint Venture shall indemnify, defend and hold harmless the Member Group from all costs related to investigation and remediation of any environmental conditions resulting therefrom. However, each Member Group (a) shall retain liability, if any, for (i) any environmental impairment which may exist prior to the date the Joint Venture began operating the facility (the “Date of Joint Venture Operation”) with respect to any land and buildings owned, leased or otherwise operated by such Member Group and (ii) any environmental conditions resulting from such Member Group’s operations, whether on or off site (other than those caused by operations of the Joint Venture) on or after the Date of Joint Venture Operation, and (b) shall indemnify, defend and hold harmless the Joint Venture from all costs related to investigation and remediation of any such environmental impairment or environmental conditions for which such Member Group is responsible.

ARTICLE 3

Financing The Venture

3.1. Capital Contributions of the Members .

3.1.1. Current Capital Accounts . Capital Contributions made to the Joint Venture through the Restatement Date are reflected in the Capital Contribution Accounts of the Members.

3.1.2. Additional Capital Contributions . If the Members should at any time determine that the Joint Venture needs additional funds in order to continue to transact business, as provided in Section 3.3, the Members agree, to the extent practicable and economically feasible, that the funds shall be obtained through loans obtained by the Joint Venture. If the Joint Venture is unable to, or the Members mutually elect not to, borrow such additional funds, then each Member agrees to make additional cash capital contributions to the Joint Venture, in proportion to its interest in the Venture, in order to provide the Joint Venture with the necessary funds. If either Member should fail to make such additional capital contribution, then the other Member may, at its option, make on behalf of the non-contributing Member, another additional cash contribution in the non-contributing Member’s place and in an amount equal to that which the non-contributing Member was obligated but failed to make. In such event, the additional cash capital contribution shall be treated as a loan from the contributing Member to the non-contributing Member, and shall bear interest at the announced Prime Rate of Citibank plus 3% per annum (but not in excess of the maximum rate permitted by law) and shall be payable not later than 30 days following the date the additional cash contribution is made. Capital calls shall be made only upon mutual consent of the Members.

3.1.3. Capital Contributions to Pay Liabilities . The Members shall not be obligated by this Agreement to make any additional or other capital contributions to the Joint Venture, other than as provided in Section 3.1.2 or except to the extent that either Member may be obligated to do so by a creditor of the Joint Venture under applicable state partnership laws. Any sum paid by either Member to or on behalf of the Joint Venture to the extent such Member was obligated to do so by a creditor of the Joint Venture under applicable state partnership law shall be regarded and treated as a capital contribution to the Joint Venture by the Member who

made it and shall be credited to its Capital Account. No provision of this Section 3.1.3 shall be deemed to limit a Member’s right of contribution from the other Member to the extent that the Member is obligated to make an additional capital contribution to the Joint Venture by a creditor of the Joint Venture under applicable state partnership law.

3.1.4. Capital Account . A separate account entitled “ Capital Account ” shall be established and maintained for each Member on the books of account of the Joint Venture. Such Capital Account shall reflect all contributions and withdrawals of capital of such Member. No withdrawals shall be made from the Capital Account of a Member, except as may be authorized by the Board of Directors. The respective Capital Accounts of the Members will be determined and maintained in accordance with the rules of paragraph (b)(2)(iv) of Reg. §1.704-1 of the Internal Revenue Code of 1986 (as amended from time-to-time, the “ Code ”), and will be adjusted in accordance with paragraph (b)(2)(iv)(g) of the same regulation for allocations to such Capital Accounts of depreciation, depletion, amortization, and gain or loss, as computed for book purposes, with respect to property described under paragraphs (b)(2)(iv)(d)(3) and (b)(2)(iv)(f)(3) of the same regulation.

3.1.5. No Guaranteed Return on Capital . A Member shall not be entitled to be paid any interest or specified rate of return on its capital contributions or its Capital Account. The Joint Venture shall not be obligated to repurchase or to redeem the interest of either Member, and the Member shall not have the right to withdraw or to demand a return of its capital contributions, whether in cash or in assets other than cash, except as specifically provided in the applicable provisions of this Agreement.

3.2. Members, Interest in the Venture . The interest of each Member in the Joint Venture for all purposes of this Agreement shall be its share of the Joint Venture’s assets, liabilities and equities, its allocations of profit and loss and its distributions of cash or other assets, which share, subject to the special allocations described in Section 3.4, shall be equal to the percentages specified as follows:


Member		Initial Interest in the Venture
AVI		50%
WVI		50%

3.3. Financing . The Members agree that, to the extent practicable and economically feasible, all funds required for the Joint Venture in excess of the initial capital contributions of the Members, shall be obtained by loans arranged for and obtained in the name of the Joint Venture. Both Members agree to use commercially reasonable efforts to assist in obtaining such necessary financing. To the extent required by the financing institutions, the Members agree to guarantee, or cause their respective parents to guarantee, their proportionate share of any such financing on a “several” basis (i.e., so that neither Member (or their Affiliates) will be liable for the portion guaranteed by the other Member). Any necessary guarantees shall be furnished on terms reasonably satisfactory to the respective lenders and Members. In lieu of guarantees of loans from financial institutions, the Members shall have the option of making (or having their Affiliates make) direct loans to the Joint Venture. If one Member elects to make such a loan and the other secures financing for the Joint Venture from a financial institution, the interest rate payable to the lending Member shall equal the rate payable to the financial institution. If one Member’s guarantee cannot support an interest rate as low as the other, arrangements will be made so that the Member obtaining the higher rate will make up the difference in the two rates.

3.4. Special Allocation of Joint Venture Profits and Losses .

(a) The Members agree that a special allocation of income or loss (or items thereof) shall be made to WVI’s Capital Account for each Fiscal Year beginning on or after January 1, 2010 in an amount equal to the aggregate Armstrong Grid Profits or Armstrong Grid Losses earned or incurred (or otherwise recognized), as applicable, during such Fiscal Year. Prior to allocating the remaining profits and losses of the Joint Venture for any such Fiscal Year as provided in Section 3.4(b), the calculation of the Armstrong Grid Profits or Armstrong Grid Losses for such Fiscal Year shall initially be made by AVI in good faith. AVI, at the request of WVI, shall provide to WVI all information and documentation as shall be reasonably necessary

to verify the calculation of the Armstrong Grid Profits or Armstrong Grid Losses. If there is a dispute between the Members as to the amount of the Armstrong Grid Profits or Armstrong Grid Losses, or if either of the Members requests, in writing, then, in either such event, the amount of the Armstrong Grid Profits or Armstrong Grid Losses shall be calculated by the independent certified public accounting firm then serving as auditors to the Joint Venture (or such other independent certified public accounting firm as is mutually agreeable to the Members) and AVI shall provide such accounting firm with all documents and information reasonably requested by such accounting firm to verify the calculation of the Armstrong Grid Profits or Armstrong Grid Losses for such Fiscal Year. Such determination of the Armstrong Grid Profits or Armstrong Grid Losses by the accounting firm shall be considered final, conclusive and binding on the Members absent proven manifest error.

(b) All remaining profits or losses of the Joint Venture (i.e., the total profit or loss of the Joint Venture less the special allocation described in Section 3.4(a)) shall be allocated between AVI and WVI in accordance with their respective interests in the Joint Venture as set forth in Section 3.2.

(c) The Members agree that prior to the last day of each Fiscal Year occurring after January 1, 2010, the Joint Venture shall estimate the amount of the special allocation to be made to WVI for such Fiscal Year pursuant to Section 3.4(a) and shall make a cash distribution to WVI equal to, or greater than, such estimated amount prior to the last day of such Fiscal Year. When computing the estimated Armstrong Grid Profits and the distribution on account of such profits as described above, the Members agree to implement procedures to ensure that the Members’ respective Capital Accounts will not be impacted in any way that would trigger a change in the Joint Venture’s taxable year-end under Code § 706. At WVI’s discretion, these procedures shall include the reasonable payment of distributions prior to the end of a particular Fiscal Year that are sufficiently in excess of projected Armstrong Grid Profits for such Fiscal Year. Any such distributions received by WVI relating to a particular Fiscal Year that are in excess of the Armstrong Grid Profits as finally determined for such Fiscal Year, shall be promptly returned by WVI to the Joint Venture during the following Fiscal Year at AVI’s discretion, as either an additional capital contribution to the Joint Venture by WVI or a reduction of WVI’s distribution of the Joint Venture’s profits for such subsequent Fiscal Year.

(d) The principles for the allocation of the Joint Venture’s profits as set forth in Sections 3.4(b) and 3.4(c) are illustrated on the example set forth in Exhibit 3.4(d) .

(e) All distributions (including liquidating distributions) under this Agreement shall be made in accordance with the allocations set forth in this Section 3.4.

(f) The Members expressly intend for Affiliates of AWI outside of the United States of America to be authorized to sell Grid for and on behalf of the Joint Venture as deemed necessary by the Members, consistent with the Sales Representation Agreement. Furthermore, transfer pricing between the Joint Venture and any such foreign Affiliates of AWI will be in accordance with arm’s-length principles and as otherwise required by local tax regulations.

(g) The Members agree that the Joint Venture shall enter into such agreements for the sale and distribution of Grid with the applicable Affiliates of AWI, subject to the approval of the Members.

ARTICLE 4

Facilities

4.1. Selection of Sites . The Board of Directors will determine the location of the manufacturing facilities, offices and any other locations for the Joint Venture.

4.2. Member Facilities.

4.2.1. Lease of Facilities . Unless the Members and the Joint Venture otherwise agree, if any facility of a Member Corporation (or any portion thereof) is to be operated by the Joint Venture, the Joint Venture will lease (or sublease) such facility from the Member Corporation at a fair market value to be negotiated between the parties. Any common items will be reasonably allocated. The lease or sublease of such facilities shall be documented through a lease or sublease reasonably negotiated between the parties.

4.2.2. Initial Handling of Employees, Termination Costs, Contracts, Warehouses and Trucking . Treatment of any employees of a Member who worked for the Joint Venture prior to the Restatement Date shall be handled as provided in the Existing Joint Venture Agreement or as otherwise agreed by the Members and the Joint Venture. The manner

in which prior use of facilities, warehouses or trucking services of a Member Corporation is as provided in the Existing Joint Venture Agreement or as otherwise agreed by the Members and the Joint Venture.

ARTICLE 5

Operation of the Joint Venture

5.1. Operating Management . The Board of Directors of the Joint Venture shall nominate, select and appoint a Chief Executive Officer for the Joint Venture. The Chief Executive Officer shall be responsible for the day-to-day operation of the Joint Venture. The Board of Directors shall also appoint a CFO and such other officers as it deems appropriate. The Board of Directors shall determine the structure of the management of the Joint Venture and responsibilities given to the officers. The executive officers of the Joint Venture shall report to the Chief Executive Officer unless otherwise determined by the Board of Directors.

5.2. Employees .

5.2.1. From time to time, the Member Corporations may, at the request of the Joint Venture, assign certain of their employees to work for the Joint Venture. If any employees of a Member Corporation are assigned to provide services for the Joint Venture, the Member Corporation providing such employee and the Joint Venture shall mutually determine the compensation and benefits for such employees. Such Member’s corporate policies shall continue to apply to and govern that employee’s employment during his/her term of service, in conjunction with any applicable policies of the Joint Venture. During their assignment, employees of the Member Corporations assigned to the Joint Venture shall remain employees of the applicable Member Corporation. The Joint Venture shall reimburse the applicable Member Corporation for the agreed upon compensation and benefits paid during assignment to the Joint Venture.

5.2.2. Employees . The Members agree that any employees of a Member Corporation who are assigned to and work for the Joint Venture shall be available to the Member Group for whom they previously worked to be transferred back to the other operations of that Member Group; provided , however , that the timing of any such transfer will not be disruptive to

the Joint Venture’s operations, appropriate replacements are available and the Joint Venture has no other compelling reasons to object to such transfer. Such employees of a Member Corporation shall not be subject to the obligations of Section 12.1.2(b) hereunder, as to their Member Group.

5.2.3. Joint Venture Employees . The Joint Venture shall also from time to time employ its own employees and the Joint Venture shall determine the compensation, benefits and corporate policies and procedures applicable with respect to those employees.

5.3. Sales . The intent of the Members is that the Grid produced by the Joint Venture will be sold for the Joint Venture by the Armstrong sales force, which also sells Armstrong ceiling tiles. Such selling efforts shall be performed in accordance with the existing Sales Representation Agreement entered into between the Joint Venture and Armstrong as of March 23, 1992 (as amended from time to time, the “ Sales Representation Agreement ”), pursuant to which Armstrong will have its sales force use all reasonable efforts to sell Grid. The above notwithstanding, the Joint Venture may employ such additional sales representatives or sales agents as the Board of Directors determines. Further, should the Board of Directors determine that its Grid can be sold in a more effective manner, it shall be entitled to amend or terminate the Sales Representation Agreement with Armstrong in a manner which is fair and reasonable to both parties.

5.4. Steel Purchases; Steel Supply Sourcing Services . The Joint Venture agrees to provide WVI or its affiliated Worthington Steel Companies (collectively, together with their respective successors and assigns, “ Worthington Steel ”) the first right to supply the steel used at each Joint Venture facility for the production of its Grid, and the Joint Venture shall purchase from Worthington Steel such steel as to which Worthington Steel elects. However, Worthington Steel may exercise its election under this provision only with respect to those items of steel as to which: (a) Worthington Steel is competitive in price, quality and other terms for prime steel with respect to such item or items; and (b) Worthington Steel (i) has a facility within a reasonable distance from the Grid facility, or (ii) can still provide similar service, delivery and pricing as steel suppliers which are close to the Grid facility. If Worthington Steel does not elect to supply any item of steel, or any portion thereof, or if Worthington Steel does not meet the provisions of

the prior sentence as to any item of steel, then the Joint Venture shall be free to purchase from other parties, any such item, or the portion of such item, not being supplied by Worthington Steel. In setting the prices for any steel to be supplied by Worthington Steel, the parties shall consider the price that could be obtained from others to supply steel of the same quality and the same level of service, the absence of commissions, and the limited credit risk in selling to the Joint Venture. Pricing for said steel will be set in good faith based upon fair market value for the type of steel product and services required. Purchasing arrangements will be reviewed by the Board of Directors every six months, or sooner if needed. If, for any of the reasons specified above in this Section 5.4, Worthington Steel is not supplying any item of steel, or portion thereof, to the Joint Venture, Worthington Steel will, at the request of the Joint Venture, agree to assist the Joint Venture in identifying and procuring one or more reliable sources of competitively priced prime steel to supply the Joint Venture’s requirements for any such item of steel not being supplied by Worthington Steel (any such assistance so provided by Worthington Steel will be referred to herein as the “ Steel Supply Sourcing Services ”). Worthington Steel will use commercially reasonable efforts in providing the Steel Supply Sourcing Services. The amount to be paid, if any, to Worthington Steel by the Joint Venture for such services will be reasonably agreed by them, based on the principles mutually agreed to from time to time . The Joint Venture will at any time have the right, upon notice to Worthington Steel, to immediately terminate any Steel Supply Sourcing Services being provided by Worthington Steel and to thereafter directly or indirectly source and purchase its requirements for any items of steel which are not then being supplied by Worthington Steel.

5.5. Costs . All costs of the Joint Venture, including amounts paid to the Member Corporations pursuant to the contracts described herein, shall be paid by the Joint Venture.

5.6. Allocation and Distribution of Profits . Except as otherwise provided in this Agreement or as agreed by the Members, all profits and losses of the Joint Venture shall be allocated to each Member according to their respective Interests in the Joint Venture.

5.7. Cash Distributions . Except as otherwise provided in this Agreement or as agreed by the Members: (a) Cash shall be distributed to the Members from the Joint Venture in such amounts and at such times as the Board of Directors may determine; and (b) each distribution of

cash shall be made to the Members in proportion to their Interests in the Joint Venture at the time of such distribution. Generally, the Members expect that the Joint Venture will distribute at least a sufficient amount of cash for the Members to pay their taxes on Joint Venture earnings, unless the Members otherwise agree.

5.8. Investment of Funds . All cash of the Joint Venture shall, to the extent possible, be maintained in such interest bearing bank accounts (“sweep” account) in the name of, or for the benefit of, the Joint Venture or in such short term investments as the Joint Venture’s Board of Directors may determine from time to time. No Member shall be entitled to take an advance against anticipated future distributions or borrow funds from the Joint Venture without the approval of the Board of Directors. If at any time a Member so requests, all cash funds of the Joint Venture shall be kept solely in segregated accounts of the Joint Venture.

5.9. Worthington Support Agreement . The Joint Venture shall enter into with Worthington, the Worthington Support Agreement, substantially in the form of Exhibit 5.9 hereto (as amended from time-to-time, the “ Worthington Support Agreement ”), pursuant to which Worthington shall provide the Joint Venture certain administrative, support and operational services for a fee which shall be agreed upon between Worthington and the Joint Venture.

5.10. Armstrong Support Agreement . The Joint Venture shall enter into with Armstrong, the Armstrong Support Agreement, substantially in the form of Exhibit 5.10 hereto, (as amended from time-to-time, the “ Armstrong Support Agreement ”), pursuant to which Armstrong shall provide the Joint Venture certain administrative, advertising, product development, technical, support and operational services for a fee which shall be agreed upon between Armstrong and the Joint Venture.

5.11. Other Contracts . The Joint Venture may enter into other contracts and agreements with either Member or its Affiliates which will include a reasonable profit or fee, but only with the prior consent of the Board of Directors. Any such agreement, including the Sales Representation Agreement, the Worthington Support Agreement and the Armstrong Support Agreement, shall not be modified or amended or the terms thereof extended without the prior consent of the Board of Directors.

5.12. Assistance to the Joint Venture . Each Member agrees to use reasonable efforts to assist the Joint Venture in the conduct of its Business and to communicate to the Board of Directors of the Joint Venture promptly all information, requests, and other matters relating to the affairs of the Joint Venture received by such Members.

5.13. Taxes . The Board of Directors shall appoint an appropriate person or entity to prepare and file any tax returns or other filings which may be appropriate for the Joint Venture.

5.14. Compliance with Laws and Standards of Conduct . Each Member, for itself, its Affiliates and their directors, officers, agents, employees and other persons authorized to act in its or their behalf agrees that the Business of the Joint Venture shall be conducted in conformity with all applicable laws, statutes, regulations, rules, policies, and orders as in effect from time to time.

ARTICLE 6

Management of the Joint Venture

6.1. Creation of Board of Directors . Subject to the terms and conditions of this Agreement, the overall management and supervision of the Business of the Joint Venture shall be vested in a Board of Directors consisting of three persons appointed by AVI and three persons appointed by WVI. Each director shall serve at the pleasure of the Member appointing such director. All appointments and withdrawals of appointment shall be made by written notice to the other Member. Each Member may, but need not, designate an alternate director for each director (one alternate may represent more than one director) who shall represent the designated director if the designated director cannot attend the meeting. Action taken with approval of an alternate director shall be as valid as if taken with the approval of the designated director.

6.2. Voting.

6.2.1. General . Approval of matters within the scope of the Board of Directors shall require the affirmative vote of a majority of all authorized directors (i.e. four votes out of six). Directors may vote in person, by telephone, or by written proxy. Matters beyond the authority of the Board of Directors shall be brought to the Member’s attention for consideration.

6.2.2. Deadlock . It is expected that consensus of the Board of Directors will be the general rule. However, if the Board of Directors becomes deadlocked over any matter, then such controversy shall be addressed under the alternative dispute resolution provisions as provided in Article 13 hereof.

6.3. Meetings.

6.3.1. Time and Place . The Board of Directors shall meet at least semi-annually (unless the Members or the Board of Directors otherwise determine) on such dates as the Board of Directors may agree in writing. Additional meetings shall be held at the written request of any director on five business days’ notice issued to all directors by the director requesting the meeting. Unless otherwise agreed by the Board, the meetings shall alternate between a location reasonably designated by the AVI directors and a location reasonably designated by the WVI directors.

6.3.2. Quorum . A quorum for all meetings of the Board of Directors shall be four directors represented in person or by proxy, consisting of at least two directors appointed by each of AVI and WVI.

6.3.3. Telephone, Meetings and Consent Actions . Any director may participate in a meeting by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear one another. Any action of the Board of Directors may be taken without a meeting by formal written resolution if all directors sign the resolution.

6.4. Minutes . Minutes of all meetings of the Board of Directors shall be kept by such person as is designated by the Board, and copies of all Board of Directors minutes and other resolutions approved by the Board of Directors shall be given to each director.

6.5. Officers.

6.5.1. Chairman . The Members agree that one of the members of the Board of Directors shall be appointed Chairman of the Board of Directors to preside at the meetings of the Board of Directors. In the event that the Chief Executive Officer of the Joint Venture was an

employee of either Member or one of its Affiliates at the time he was so appointed, then the Chairman shall be selected from the members of the Board of Directors appointed by the other Member. If the Chief Executive Officer of the Joint Venture was not an employee of either Member or their Affiliates when so appointed, then the Chairmanship shall alternate each year between a member of the Board of Directors designated by WVI and a member of the Board of Directors designated by AVI. The Chairman of the Board shall not be considered an officer of the Joint Venture.

6.6. Specific Powers of the Board of Directors . The Board of Directors shall have, without limitation, the specific power to:

(a) Add to or modify the type of product which the Joint Venture will produce and/or the type of services to be performed;

(b) Establish and modify (in any material respect) any schedules for construction, erection and/or installation of major facilities and equipment;

(d) Review operating results and operating performance forecasts;

(e) Approve all unbudgeted capital projects (involving amounts in excess of One Million Dollars (US$1,000,000) and all mergers and acquisitions;

(f) Approve all agreements between the Joint Venture and a Member (excluding routine, ordinary course service and support arrangements of a non-material nature);

(g) Approve all agreements between the Joint Venture and third parties which have a value of more than One Million Dollars (US$1,000,000) or a duration of more than three (3) years (or such other limits as may be set by the Board from time-to-time);

(h) Approve establishment and closure of all investment banking, lending and borrowing relationships;

(i) Approve material legal actions on behalf of, and review material legal actions against, the Joint Venture and approve conduct and any settlement of such actions involving amounts in excess of One Million Dollars (US$1,000,000) or which could have a material adverse effect on the Joint Venture or a Member;

(j) Approve the material terms of all insurance programs;

(k) Make decisions on matters of policy to be followed and material elections to be made in connection with the taxes and tax returns of the Joint Venture;

(l) Authorize the hiring or other retention of and salaries, wages, benefits and other terms and conditions of the executive officers of the Joint Venture and the overall Joint Venture policies concerning salaries, wages, benefits and other terms and conditions of employment for employees of the Joint Venture;

(m) Approve the financial statements of the Joint Venture;

(n) Approve any indebtedness not incurred in the ordinary course of business of the Joint Venture;

(o) Make or assume suretyships, guaranties and/or similar liabilities for the Joint Venture; and

(p) Appoint, remove and replace the accounting firm for the Joint Venture.

The Board of Directors shall have the power by appropriate action taken by it, to delegate any of its powers or other duties to any other person or committee.

ARTICLE 7

Records and Accounts

7.1. Financial Records and Statements . The Joint Venture shall maintain books, records, and financial statements of the Business and affairs of the Joint Venture and shall prepare for distribution to each Member monthly financial statements.

7.2. Fiscal Year . The fiscal year of the Joint Venture shall end on December 31. The books of account of the Joint Venture shall be closed and the accounts of the Members stated at the end of each fiscal year.

7.3. Independent Accountants . Unless the Members agree otherwise, the Board of Directors shall appoint independent certified public accountants (which may be the same as the accountants retained in connection with the audit of the financial statements of a Member) to audit the books and records of the Joint Venture at the end of each fiscal year requested by the Member and certify to the Members as to the financial statements of the Joint Venture, and provide a full and complete report of the audit scope and audit findings.

7.4. Location of Accounts . The books, accounts and records of the Joint Venture shall be maintained at its principal office or such other location as the Board of Directors may determine.

7.5. Right to Inspect . Each Member shall have the right to inspect the books and records of the Joint Venture, directly or through its agents or representatives, at any reasonable time, to make copies thereof, and to cause a supplementary audit thereof at its own expense by certified public accountants of its choice. The Joint Venture shall also supply each Member with such additional financial and other information as the Member may reasonably request.

7.6. Accounting Disputes . AVI and WVI shall each designate an individual who shall be responsible for resolving any disputes as to accounting with respect to the Joint Venture. On failure of such individuals to reach agreement within a reasonable time, the dispute shall be submitted, at the request of either Member, to the public accounting firm which has been engaged to audit the books of the Joint Venture or if no accounting firm has been so engaged, then to a public accounting firm mutually agreeable to the Members. In such case the determination of the accounting firm shall be final and binding on the Members in all cases.

ARTICLE 8

Confidentiality and Restrictions on Use

8.1. Restrictions on Disclosure . Except with the prior written consent of the party having provided any Confidential Information, each Member and its Affiliates receiving Confidential Information shall:

(a) treat in strict confidence such Confidential Information and use reasonable efforts to ensure that its employees and others subject directly or indirectly to its control shall not reproduce, disclose or make available to any third party any of such Confidential Information;

(b) limit access to Confidential Information to such of its employees and representatives, including without limitation members of each Member’s outside law and accounting firms, as may be reasonably required in connection with the activities of the Joint Venture as contemplated by this Agreement; and

(c) not use such Confidential Information for any purpose other than the activities of the Joint Venture as contemplated by this Agreement.

Without limiting the foregoing, each Member and its Affiliates specifically agree not to directly or indirectly use or disclose the Confidential Information in any judicial or administrative proceeding, unless (i) served with compulsory process or otherwise required by law, or (ii) consented to by the other Member.

8.2. Exceptions . The obligations of each Member Group set forth in Section 8.1 shall not apply to Confidential Information which:

(a) is or becomes generally available to the public other than as a result of disclosure by the Member Group in whom the Confidential Information is confided;

(b) becomes available to the confidant Member Group on a non-confidential basis from a source other than the disclosing Member Group, and provided that such source has represented to the confidant Member Group (and which confidant Member Group has no reason to disbelieve after due inquiry) that it is entitled to disclose the Confidential Information; or

(c) was known to the confidant Member Group on a non-confidential basis prior to the disclosure thereof to the confidant Member Group by the disclosing Member Group.

8.3. Return of Confidential Information . All Confidential Information furnished by any Member Group to the other Member Group shall be returned by such other Member Group to the disclosing Member Group immediately upon a request of the disclosing Member Group. The confidentiality obligations and restrictions on use contained in this Article 8 shall survive this Agreement.

8.4. Nondisclosure of Terms of Agreement . Each Member (on behalf of itself and its Affiliates) agrees that its Member Group shall not disclose the terms of this Agreement without the consent of the other Member Group, except to the extent as may be determined by counsel to be required by law, governmental regulation or the rules of any applicable securities exchange on which the shares of AWI or WII are traded, or in connection with any judicial proceeding or arbitration; provided , however , that each Member Group may disclose the terms of this Agreement: (i) to its Affiliates, directors, officers and employees, (ii) to its legal, insurance, accounting, investment bankers or other advisors in the ordinary course of the Member Group’s business; (iii) where such disclosures are reasonably required in the conduct of a Member Group’s business, subject to appropriate agreements of nondisclosure; or (iv) in general terms in disclosures to investors and other stakeholders; or (v) where such disclosures are inadvertent, provided such Member Group has exercised the same degree of care to avoid such disclosure as it takes to protect its own similar proprietary business information.

ARTICLE 9

Representations and Warranties of Members.

9.1. Representations and Warranties of the Members . In addition to the representations and warranties made elsewhere in this Agreement, each Member represents and warrants to the other, with respect to the Member Corporations in its Member Group, that:

(a) Each Member Corporation is duly incorporated and in good standing in the jurisdiction of its incorporation, has full power and authority to enter into and perform its obligations under this Agreement and the Related Agreements (to which it is a party), and has the requisite approval of its Board of Directors to enter into this Agreement and the Related Agreements (to which it is a party) and to consummate the transactions contemplated hereby and thereby;

(b) This Agreement and the Related Agreements are valid, binding, and enforceable obligations of the Member Corporations which have executed such agreements, in accordance with their terms (except that the enforceability of such Member Corporation’s obligations thereunder is subject to general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law or in arbitration);

(c) The execution and delivery of this Agreement and the Related Agreements by each such Member Corporation which has executed such agreements, and the consummation of the transactions contemplated thereby will not result in a breach of any of the terms and provisions of, or constitute a default under, or conflict with, any material agreement, indenture, or other instrument to which such Member Corporation is a party or by which such Member Corporation is bound, any judgment, decree, order, or award of any court, governmental body, or arbitrator applicable to such Member Corporation, any law, rule or regulation applicable to such Member Corporation, or their respective incorporation documents;

(d) All material consents, approvals, authorizations, and other requirements prescribed by any law, rule, or regulation that must be obtained or satisfied by such Member Corporation and are necessary for such Member Corporation’s execution and delivery of this Agreement and the Related Agreements or the performance of the terms thereof have been obtained and satisfied;

(e) No broker, finder, or agent has acted on such Member Group’s behalf in connection with this Agreement or the transactions contemplated hereby; and

(f) No agreement or arrangement has been entered into by the Member Group with any third party granting to such third party any rights with respect to the Joint Venture or any interest in the Joint Venture.

ARTICLE 10

Restrictions on Transfer

10.1. Restrictions on Transfer of Interest . Neither Member, without the prior written consent of the other, may sell, assign or otherwise transfer its interest in the Joint Venture in whole or in part to any other person, provided , however , that the Members agree not to unreasonably withhold their consent to a transfer to an Affiliate of the transferring party.

10.2. Consent . Notwithstanding any other provision of this Agreement, or the General Partnership Law, no sale, transfer or assignment of any portion of a Member’s interest in the Joint Venture which is consented to by the other Member shall be deemed to be an event which would dissolve the Joint Venture, except to the extent required by Section 708(b) of the Code.

ARTICLE 11

Dissolution and Buy-Out

11.1. Events of Dissolution

11.1.1. General Dissolution . The Joint Venture will be terminated and dissolved upon the mutual written agreement of the Members that the Joint Venture be terminated and the term of this Agreement ended.

11.1.2. Elective Dissolution – Cessation of Business . The Joint Venture may be terminated and dissolved, at the election of a Member as follows:

(a) Either Member may elect to dissolve the Joint Venture upon the occurrence of any event or the existence of any condition beyond the reasonable control of the Members which prevents the Joint Venture from producing and/or selling commercially acceptable products consistent with the purpose of the Joint Venture or the Joint Venture is otherwise unable to carry out its purpose, and such event or condition cannot be corrected within a reasonable time, at a reasonable expense.

(b) Either Member may elect to dissolve the Joint Venture as of December 31, 2018 or as of any third year anniversary thereafter i.e. as of December 31, 2021, December 31, 2024, etc. (each a “Potential Termination Date”). Such election to dissolve must be made at least six months before the Potential Termination Date by written notice to the other Member.

(c) Either Member may elect to dissolve the Joint Venture if the Joint Venture fails to attain the Financial Target (as defined below) for any fiscal year. Such election to dissolve must be made within 90 days after the financial statements for the Joint Venture’s fiscal year are furnished to such Member. The “ Financial Target ” is defined to be an annual return of 15%.

The “ annual return ” shall mean the Venture’s return on total assets before interest and income taxes for the applicable fiscal year and shall be calculated as: (a) the Venture’s net income plus interest expense (less interest income) plus income tax, divided by (b) the average of the amount of total assets for the Venture at the end of each month during the fiscal year in question. All such calculations shall be in accordance with generally accepted accounting principles as applied by the Joint Venture.

The Members shall meet at the end of each fiscal year and review the Financial Target; provided , however , that unanimous consent of the Members shall be required in order to change the Financial Target.

11.1.3. Default Dissolution . The non-defaulting Member may elect to terminate and dissolve the Joint Venture in the event of a default, as specified below, by the other Member. The occurrence of any of the following events shall constitute a default by a Member:

(a) A Member shall have defaulted in its obligation to make any capital contribution or to support financial commitments as required in Articles 2 and 3 hereof and such default shall continue to exist for a period of 30 days after the other Member gives such defaulting Member written notice of such default.

(b) A Member or its Affiliate shall materially default in the observance or performance of any material agreement, covenant, or condition contained in this Agreement or in any material agreement with or relating to the Joint Venture and such default shall continue to exist for a period of 30 days after the other Member or the Joint Venture gives such defaulting Member or its Affiliate written notice of such default;

(c) A representation or warranty made by the Member herein or in any Related Agreement (or in any certificate or financial or other statement furnished by such Member to the other in connection therewith) or by the Member’s Affiliate in connection with this Agreement or any Related Agreement shall prove to be false or misleading in any respect which would have a material adverse effect on the Joint Venture or the other Member and remain uncured for a period of thirty (30) days after the other Member gives the Member or its Affiliate written notice of such default;

(d) There is an entry of an order for relief or the institution of any proceedings of any nature under the laws of the United States or any state or any foreign country for relief of debtors wherein an Affiliated Member Corporation (or any parent thereof) is seeking relief as debtor; there is an appointment of a receiver, trustee, custodian or like officer for all or substantially all of the business or assets of such Affiliated Member Corporation (or any parent thereof) on the grounds of insolvency and either the Affiliated Member Corporation (or any parent thereof) has consented to such appointment, or such Affiliated Member Corporation (or any parent thereof) has failed to vacate or otherwise cause said appointment to be set aside within 60 days; or there is the institution against such Affiliated Member Corporation (or any parent thereof) of a proceeding under the Federal bankruptcy act or any law of the United States or other jurisdiction now in existence or hereinafter enacted having the same general purpose which proceeding is not dismissed or discharged within 60 days after the institution thereof.

11.1.4. Worthington Change in Control . AVI may elect to terminate and dissolve the Joint Venture if: (a)(i) any Person or group of Persons (within the meaning of Section 13 or 14 of the Exchange Act), excluding the members of the current executive management of Worthington Industries, Inc. and their Relatives and Affiliates, shall acquire (whether by purchase, merger, consolidation or otherwise) beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of 50% or more of the issued and outstanding voting securities (determined on a fully-diluted basis) of Worthington Industries, Inc. (together with its successors and assigns, “WII”) and (ii) AVI reasonably determines that such event would be or could be adverse to its interest; or (b)(i) WII shall sell all or substantially all of its assets to any Person or group of Persons and (ii) AVI reasonably determines that such event would be or could be adverse to its interest, or (c) WVI shall cease to

be an Affiliate of WII; provided , however , that with respect to any transaction that would result in WVI ceasing to be an Affiliate of WII, such transaction will not be deemed to constitute a change in control pursuant to this Section 11.1.4 if Persons who beneficially own (within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) more than fifty percent (50%) of the issued and outstanding voting securities of WII as of immediately prior to such transaction, continue to beneficially own, directly or indirectly, more than fifty percent (50%) of the issued and outstanding voting securities of WVI immediately following the completion of such transaction.

11.1.5. Armstrong Change in Control . WVI may elect to terminate and dissolve the Joint Venture if: (a)(i) any Person or group of Persons (within the meaning of Section 13 or 14 of the Exchange Act), excluding the members of the current executive management of Armstrong World Industries, Inc. and their Relatives and Affiliates, shall acquire (whether by purchase, merger, consolidation or otherwise) beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of 50% or more of the issued and outstanding voting securities (determined on a fully-diluted basis) of AWI and (ii) WVI reasonably determines that such event would be or could be adverse to its interest, or (b)(i) AWI shall sell all or substantially all of its assets to any Person or group of Persons and (ii) WVI reasonably determines that such event would be or could be adverse to its interest, or (c) AVI shall cease to be an Affiliate of AWI; provided , however , that with respect to any transaction that would result in AVI ceasing to be an Affiliate of AWI, such transaction will not be deemed to constitute a change in control pursuant to this Section 11.1.5 if (i) Persons who beneficially own (within the meaning of Rule 13d 3 promulgated by the SEC under the Exchange Act) more than fifty percent (50%) of the issued and outstanding voting securities of AWI as of immediately prior to such transaction, continue to beneficially own, directly or indirectly, more than fifty percent (50%) of the issued and outstanding voting securities of AVI immediately following the completion of such transaction and (ii) AVI continues to be affiliated with or connected to the Armstrong ceilings business (currently known as the Armstrong Building Products division of Armstrong). As of the Restatement Date, AWI has publicly announced its plan to spin off its flooring business into a separate publicly traded company (“Flooring Spinoff”). The parties acknowledge and agree that a Flooring Spinoff, as currently publicly disclosed by AWI (in its press release and Form 10 filings with the SEC) and explained to WVI, shall not constitute a change in control of Armstrong for purposes of this Agreement.

11.1.6. Election to Terminate . An election to terminate and dissolve the Joint Venture pursuant to Section 11.1.4 or 11.1.5 must be made within 90 days after the Member which has the election is given all relevant facts concerning the change in control by the other Member.

11.2. Notice of Dissolution . If a Member is entitled to dissolve the Joint Venture, it may do so by giving notice to the other Member, in writing, that it is electing to dissolve the Joint Venture.

11.3. Winding Up . If the Joint Venture is to be dissolved, then the Members shall proceed jointly to wind up the affairs of the Joint Venture; provided , however , that if the dissolution is occurring pursuant to Section 11.1.3, then the non-defaulting Member may unilaterally wind up the affairs of the Joint Venture if it so chooses.

11.4. Liquidation of Assets.

11.4.1. Manner of Liquidation . If, in winding up the affairs of the Joint Venture, no election is made, pursuant to Section 11.5 below, by either Member to continue conducting the Business of the Joint Venture, then the Members shall attempt to sell the Business of the Joint Venture. If an acceptable buyer cannot be found within a reasonable time, the Joint Venture shall be liquidated. The assets of the Joint Venture, including proceeds of sale, shall be applied in the following order:

(a) To payment of the expenses of the sale or liquidation;

(b) To payment (or creation of reserves for payment) of the debts and liabilities of the Joint Venture, first to non-members and then to Members for services, advances or otherwise;

(d) To payment to each Member of the amounts outstanding to its credit with respect to its Capital Account; and

(e) To divide the surplus, if any, in proportion to the interest of each Member in the Joint Venture.

The liquidation of the assets and discharge of liabilities shall occur over a reasonable time so as to enable the Members to minimize the normal losses attendant upon a liquidation. Each Member immediately shall pay to the Joint Venture all amounts owing to the Joint Venture, together with its proportionate share of all contributions required by law to be paid by the Members for the payment of liabilities of the Joint Venture.

11.4.2. Accounting on Liquidation . If the Joint Venture is liquidated, each Member shall be furnished with a statement (which shall, at the option of either Member, be certified by the independent auditor who, if not already appointed, shall be appointed by mutual agreement of the Members of the Joint Venture), which shall set forth the assets and liabilities of the Joint Venture and the status of the Capital Accounts of the Members as of the date of the completed liquidation, taking into account distributions and payments as provided in Section 11.4.1 hereinabove, the allocation of all gain or loss realized by the Joint Venture on the liquidation of property and assets of the Joint Venture, and the allocation of any tax benefits. Notwithstanding the foregoing provisions, upon the dissolution, liquidation and termination of the Joint Venture, if either Member has a negative Capital Account, then it shall make a capital contribution to the Joint Venture, either to pay creditors of the Joint Venture or to distribute to the other Member, of an amount of money equal to the amount of the negative balance in such Member’s Capital Account in order to restore such Capital Account balance to zero. Such capital contribution shall be made within 90 days after the liquidation of the Joint Venture.

11.4.3. Payment of Costs . The Joint Venture will pay all costs incurred in the sale or other disposition of its assets upon liquidation and any other expenses incurred in the liquidation and dissolution.

11.4.4. Purchase by a Member Group . If either Member or an Affiliate thereof buys the Business of the Joint Venture as part of a sale or other disposition of assets upon

liquidation, the price to be paid for the Business shall in all events be calculated as if the purchase were being made as a buy-out under Section 11.5.1, 11.5.2 or 11.5.3, whichever may be applicable, and such Member (or its Affiliate) must pay fair market value (or 85% of fair market value in cases of default). If there are any loans outstanding which are owed by the Member whose interest is being purchased to the Member making the purchase, the Member making the purchase may apply a portion of the purchase price to the repayment of any unpaid principal amount of, and accrued unpaid interest on, any such loans.

11.5. Buy-Out-Procedures.

11.5.1. Buy-Out on Default . If an election is made by a Member to terminate the Joint Venture pursuant to Section 11.1.3 above, that Member may also elect, by written notice given within ninety (90) days of the date of the election to terminate, to continue the Business of the Joint Venture. In such event the electing Member shall purchase the other Member’s interest in the Joint Venture for an amount equal to eighty-five percent (85%) of the fair market value of the other Member’s interest.

11.5.2. Buy-Out on Elective Dissolution . If an election is made by a Member (the “ Terminating Member ”) to terminate the Joint Venture pursuant to Section 11.1.2, the other Member may elect, by written notice given within 90 days of the date of the election to terminate, to continue the business of the Joint Venture. In such event, the acquiring Member shall purchase the Terminating Member’s interest in the Joint Venture for an amount equal to one hundred percent (100%) of the fair market value of the Terminating Member’s interest.

11.5.3. Buy-Out on Mutual Agreement . If the Joint Venture is terminated pursuant to Section 11.1.1 above, either Member may elect, by written notice given within ninety (90) days of the date of termination, to continue conducting the Business of the Joint Venture. Unless the Members otherwise agree, the acquiring Member shall purchase the Terminating Member’s interest in the Joint Venture for an amount equal to one hundred percent (100%) of the fair market value of the Terminating Member’s interest.

11.5.4. Fair Market Value – Mutual Agreement . In case of elections under Section 11.5.1, 11.5.2 or 11.5.3, hereinabove, the Members shall use their best efforts to agree as

to the fair market value of the Joint Venture. If the Members fail to agree on such fair market value within sixty (60) days following the election by a Member to continue the Joint Venture, fair market value shall be determined pursuant to Section 11.5.5.

11.5.5. Fair Market Value – Third Party Determination . (a) If the Members cannot agree upon the fair market value of the Business in accordance with Section 11.5.4, then either Member may elect, by written notice of the other, to have fair market value set by independent appraisal (“Appraisal Notice”). Within fifteen (15) days following the receipt of the Appraisal Notice (the “Agreed Appointment Period”), the Members shall attempt to agree upon a Person to determine the fair market value (the “Agreed Appraiser”) and the procedures under which the Agreed Appraiser shall determine the fair market value. If the Members cannot agree upon an Agreed Appraiser or the procedures to be used within the Agreed Appointment Period, within fifteen (15) days following the expiration of the Agreed Appointment Period, each of the Members shall (i) retain a reputable investment banking firm of national or regional recognition having significant experience in performing valuations of complex business entities (each, an “ Advocate Appraiser ”) and (ii) notify the other Member, in writing, of the name, address and contact information of its Advocate Appraiser. Each Advocate Appraiser shall make a separate determination of the fair market value of the Business as of the end of the most recently completed calendar quarter using whatever reasonable assumptions and valuation methods that they deem appropriate. Each Advocate Appraiser shall have a period of thirty (30) days within which to complete their respective determinations of the fair market value of the Business and provide a written report setting forth its determination to each of the Members (each, an “ Advocate Appraiser Report ”). Each Advocate Appraiser Report shall include a reasonably detailed description of the assumptions and valuation methods used by the Advocate Appraiser in connection with its determination of fair market value. The respective fair market values of the Business as determined by the Advocate Appraisers shall each be referred to individually as an “ IB Value ” and, collectively, as the “ IB Values .” In the event the either Member fails to appoint an Advocate Appraiser and notify the other Member, in writing, of the name and address of its Advocate Appraiser within the initial fifteen (15) day period referred to above in this Section 11.5.5(a), then the determination of the fair market value of the Business provided in the other Member’s Advocate Appraiser Report shall constitute the fair market value of the Business and the Member failing to so appoint its Advocate Appraiser shall be deemed to have accepted such fair market value determination.

(b) Following the delivery of each Advocate Appraiser Report, the fair market value of the Business of the Joint Venture shall then be calculated according to the following:

(i) If the respective IB Values are within a range of plus or minus ten percent (10%), the arithmetic average of the two IB Values shall be deemed to be the fair market value of the Business.

(ii) If the range between the IB Values is greater than plus or minus ten percent (10%), the Advocate Appraisers shall, within fifteen (15) days following the expiration of the thirty (30) day period referred to in Section 11.5.5(a), jointly (A) select a third appraiser (the “ Neutral Appraiser ”) to be engaged by the Joint Venture, (B) notify the Members in writing of the name and address of such Neutral Appraiser, and (C) provide to such Neutral Appraiser copies of the Advocate Appraiser Reports. The Neutral Appraiser shall be a reputable investment banking firm of national recognition having significant experience in performing valuations of complex business entities and, unless both Members agree after full disclosure, in no event shall the Neutral Appraiser either (1) be currently performing services for one of the Members or any of its Affiliates other than of a nominal nature; or (2) have, during the five (5) years prior to the calculation of fair market value, received fees in the aggregate amount of One Hundred Thousand Dollars ($100,000) or more from either Member or any of their respective Affiliates. If the Advocate Appraisers fail to select a Neutral Appraiser within such fifteen (15) day period, then either Member may initiate an arbitration proceeding with a single arbitrator in accordance with the arbitration procedures to be mutually agreed upon by the Parties and set forth in Exhibit 13.2 , and the arbitrator in such proceeding shall appoint the Neutral Appraiser. Within thirty (30) days following the date of the designation or appointment of the Neutral Appraiser, the Neutral Appraiser shall prepare its determination of the fair market value of the Business as of the date of determination and shall communicate such determination to each of the Members, in writing, together with a report (the “ Neutral Appraiser Report ”) describing in reasonable detail the assumptions and valuation methods used or relied upon in making such determination. The final fair market value of the Business shall be the arithmetic average of the

two valuations out of the three valuations delivered that are closest to each other; provided , however , that in the event that one of the three valuations is the arithmetic average of the other two valuations, then the final fair market value of the Business shall be equal to such valuation that constitutes the arithmetic average of the other two valuations.

(c) Each Member shall be responsible for the engagement of its designated Advocate Appraiser. The Members shall be jointly responsible for the engagement of the Agreed Appraiser or the Neutral Appraiser and each Member agrees to authorize and use commercially reasonable efforts to cause the Joint Venture to engage any Agreed Appraiser or Neutral Appraiser designated or appointed pursuant to this Section 11.5.5. Each Member shall be responsible for the payment of all fees, expenses, reimbursements and indemnities of its Advocate Appraiser. Responsibility for the fees, expenses, reimbursements and indemnities of the Agreed Appraiser or Neutral Appraiser shall be shared by the Members in proportion to their respective interests in the Joint Venture.

(d) The Joint Venture shall, and each Member shall cooperate with one another to cause the Joint Venture to, provide such financial and other information and related assistance regarding the Joint Venture and its subsidiaries as may be reasonably requested by the Advocate Appraisers and any Neutral Appraiser for the purposes of performing their respective valuations of the Business pursuant to this Section 11.5.5.

11.5.6. All Relevant Factors . In determining fair market value of the Business of the Joint Venture, the Appraisers shall take into account all relevant factors. Each Member may supply the Appraisers a list of or information on those factors which the Member believes might add to or detract from the fair market value of the Business of the Joint Venture as it will be continued by the Member who has made such election to continue.

11.6. Operations Pending Liquidation/Buy-Out . Each Member shall continue to use commercially reasonable efforts to operate or support the operation of the Joint Venture as a going business until liquidation or buy-out.

11.7. Continuing Sales Representation; Continuing Steel Supply and Steel Supply Sourcing Services .

(a) If an entity other than a Member Corporation of the Member Group of which Armstrong is a part is to continue to operate the Business of the Joint Venture, Armstrong agrees to continue to sell Grid for such entity (including the Joint Venture as continued) pursuant to the Sales Representation Agreement, at the fee arrangement last in place, for a minimum period of time after termination of the Joint Venture, if such entity requests. Such minimum period shall be (i) three years if WVI or one of its Member Corporations continues the Business and (ii) one year if a third party continues the Business. In addition, Armstrong agrees to transfer or otherwise make available to the Joint Venture, whenever the sales representation by Armstrong is to end (whether at the end of the minimum period or before such time) a sufficient number of sales employees who had been selling Grid so as to provide reasonable coverage of the accounts being sold and the territories where the Joint Venture’s Grid is being sold. Any such transfer or temporary use of sales employees will be effected in good faith and in a manner which is fair and reasonable to both parties. The parties acknowledge that customer lists, contracts, advertising and marketing information, and similar items are property of the Joint Venture.

(b) If an entity other than a Member Corporation of the Member Group of which Worthington is a part is to continue the Business of the Joint Venture, Worthington will, if any such entity so requests, cause Worthington Steel to continue (to the extent it is doing so for the Joint Venture at the time of termination) to (i) supply prime steel to such entity at the prices and on the other terms and conditions set forth in Section 5.4 and (ii) provide Steel Supply Sourcing Services to such entity for any items of steel not then being supplied to the Joint Venture by Worthington Steel in accordance with Section 5.4, for a minimum period of time after termination of the Joint Venture. Such minimum period shall be (A) three years if AVI or one of its Member Corporations continues the Business and (B) one year if a third party continues the Business. The parties acknowledge that supplier lists, supplier contact and pricing information and any similar items obtained, used or developed at any time in connection with the providing of any Steel Supply Sourcing Services, to the extent exclusive to the Joint Venture, are the property of the Joint Venture .

11.8. Transition Period . In the event there is a termination of the Joint Venture and either of the Members will continue the Business of the Joint Venture, the party who will not be continuing the Business of the Joint Venture agrees to continue providing services it had otherwise provided to the Joint Venture for a period not to exceed six months (or such longer period of time as may be provided elsewhere in this Agreement or in the Related Agreements) as may be necessary in order to permit a smooth transition.

11.9. Necessary Approvals . The provisions as to liquidation of the Joint Venture and the purchase of the Business of the Joint Venture shall be subject to any necessary governmental approvals, and the Members shall agree upon such reasonable extensions of time with respect to such provisions as may be reasonably necessary in order to obtain any such approvals.

11.10.

ARTICLE 12

Relationship between the Members and the Venture

12.1. Competition.

12.1.1. Acknowledgement of Business Situation . Each Member acknowledges that each Member and its Affiliates now are and/or hereinafter may be engaged in other businesses. The Members agree that neither Member shall be required to bring any business opportunities to the attention of the other Member or the Joint Venture, provided , however , that the Members must bring any business opportunities relating to the production and sale of Core Products to the attention of the Joint Venture.

12.1.2. Non-Competition in Core Products; Non-Inducement of Key Employees . Subject to the exceptions set forth in Sections 5.2.2, 12.1.4 and 12.8, each Member, on behalf of itself and its Affiliates, expressly agrees that it, and they, will not directly or indirectly: (a) compete with the Joint Venture in the production or sale of Core Products anywhere in the world (a “ Competing Business ”), inasmuch as it is the specific intent of the Members and their Affiliates that this Joint Venture shall be the sole vehicle for their production and sale and/or sourcing of Core Products throughout the world; or (b) induce any person who is an executive or key employee of the Joint Venture (defined to include the CEO, any direct report

to the CEO, and any direct report to any executive officer of the Joint Venture) to terminate his or her employment with the Joint Venture, or offer employment to such employee, or hire or otherwise engage any such employee (whether as an employee, consultant, independent contractor or otherwise) without the Joint Venture’s prior written consent, unless the employment of such employee has been terminated by the Joint Venture prior to the commencement of any employment discussions or other similar discussions with such former employee. The foregoing non-inducement restriction shall not prohibit either Member or any of their respective Affiliates from merely conducting general solicitations for employees or public advertising of employment opportunities (including, but not limited to, through the use of employment or placement agencies) that is not specifically directed at any management employee of the Joint Venture or the Joint Venture’s employees generally. Notwithstanding the foregoing, in all cases, the provisions of Section 5.2.2 shall control in the event of any conflict with the provisions of this Section.

The restrictions set forth in this Section shall apply to the Members and their Affiliates until such time as the Joint Venture is dissolved, and, if the Business of the Joint Venture is continued by either Member Group or a third party, for a period of five (5) years after the dissolution of the Joint Venture (or, if shorter, until such Business is discontinued).

12.1.3. Dealing with Joint Venture . Nothing in this Agreement shall be construed to prevent a Member, or its Affiliates, or any entity in which a Member or its Affiliates shall have an interest, from dealing with the Joint Venture in good faith as vendor, customer or otherwise in a manner not specifically covered by this Agreement, provided the Member or entity shall have given notice of such interest to the Board of Directors and the Board of Directors has approved or ratified such dealing.

12.1.4. Temporary Exceptions to Non-Competition in Core Products . Section 12.1.2 shall not prohibit any Member or its Affiliates from acquiring a business (either through a purchase of equity or assets) that has a segment that directly or indirectly designs, develops, produces, markets, distributes or sells a Core Product (the “Competitive Segment”) if, but only if, (i) (A) the Competitive Segment is only a minor part of the overall business being acquired, and (B) the Competitive Segment is not a key purpose of the acquisition, and (ii) the

acquiring Member Corporation will, as soon as reasonably practical following the acquisition of such Competitive Segment (and in no event more than nine (9) months after said acquisition), either (a) sell the Competitive Segment to the Joint Venture (at a purchase price reflecting fair value attributable to such Competitive Segment), with the Joint Venture having a right of first opportunity for such purchase (which shall be initiated by written notice from such acquiring Member promptly following the closing of the acquisition) or (b) discontinue such Competitive Segment or sell it to a third party (in the event the Joint Venture does not exercise its first opportunity purchase right within ninety (90) days following the date of written notice or if the parties fail to consummate such a sale within one hundred twenty (120) days following such notice and are no longer actively engaged in good faith negotiations for such sale).

If a Member Corporation acquires ownership of a Competing Segment covered by this Section 12.1.4, it shall be permitted to continue to operate the Competitive Segment of the acquired business in the ordinary course of business during the aforementioned disposition process (not to exceed the nine (9) month disposition process period), provided it does not expand the size or capacity of such Competitive Segment, does not add any new products to such Competitive Segment and does not utilize any of the relationships, strategies or information available to it as a Member of the Joint Venture to compete directly with the Joint Venture in the production or sale of Core Products, unless approved in writing by the Joint Venture.

12.2. Relation to General Partnership Law . To the extent the provisions of this Agreement are inconsistent with the General Partnership Law as it relates to the Joint Venture, the provisions of this Agreement shall apply. In particular, but not in limitation of the foregoing, the Members agree that neither Member shall be required to bring any business opportunities to the attention of the other Member, except as provided in Section 12.1.1.

12.3. Members’ Actions . No Member shall do anything whereby the capital or the property of the Joint Venture may be attached, taken in execution, or otherwise impaired, and each Member punctually shall pay its separate debts and indemnify the other Member against any losses or damages incurred as a result of separate debts of the Member. Any expenses incurred by the Joint Venture in defending or meeting obligations of an individual Member shall be chargeable to that individual Member.

12.4. Limitation on Member’s and Director’s Authority .

12.4.1. Except as specifically authorized herein or in an agreement executed concurrently herewith, neither Member nor any individual serving as a member of the Board of Directors shall have any authority to act, and neither Member nor any such director shall act or hold itself out as having authority: (a) to act as agent of the Joint Venture in any matter; or (b) to convey any interest in any property of any kind, without regard to who holds title thereto, which is used in the conduct of the Joint Venture, in either case unless the Board of Directors delegates specific authority to the Member or such director to act as agent for the Joint Venture in the particular matter.

12.4.2. Unless otherwise provided herein or in an agreement executed concurrently herewith, no Member or individual serving as a member of the Board of Directors, without the prior written consent of the Board of Directors, shall draw, accept or endorse any bill of exchange or promissory note on account of the Joint Venture, compromise any claim of the Joint Venture, for any reason, or confess judgment against the Joint Venture.

12.5. Use of Name . Neither Member shall have the right to use the name of the Joint Venture or any similar variation of such name in connection with any product, service or business without the written consent of the other Member.

12.6. Enforcement . A Member shall be entitled to enforce any rights of the Joint Venture against the other Member (or an Affiliate thereof) without the consent of such other Member.

12.7. Equitable Relief . The Members and the Joint Venture each acknowledge and agree they would be irreparably harmed in the event that any of the provisions of Article 8 or Sections 12.1.2, 12.1.4, 12.8 or 12.9 of this Agreement are not complied with or otherwise breached by a Member or any of its Affiliates or by the Joint Venture, as applicable. Accordingly, it is understood and agreed that money damages will not be a sufficient remedy for any such breach of this Agreement and that the Joint Venture or the respective Members (as appropriate) shall be entitled to seek specific performance and injunctive or other equitable relief as a remedy for any such breach, and the Joint Venture and each of the Members further agrees

to waive, on behalf of itself and its respective Affiliates, any requirement for the providing of any security or the posting of any bond (other than a nominal bond or other nominal security required under applicable law) in connection with such remedy. Such remedy shall not be deemed to be the exclusive remedy for any such breach of this Agreement, but will be in addition to all other remedies available at law or equity to the Joint Venture and the respective Members, as appropriate.

12.8 AWI Specialty Ceilings Businesses; Guiding Principles . The Parties recognize that AWI and its Affiliates are currently engaged in businesses that design, develop, produce, market and sell Specialty Ceilings, and that such Specialty Ceilings require or may require Grid or Grid-Type Products, and that AWI or its Affiliates may acquire additional Specialty Ceilings businesses in the future (collectively “Specialty Ceilings Businesses”). The Parties further recognize that as the Joint Venture’s business develops, the Joint Venture’s products and sales efforts will be aligned with those of AWI and its Affiliates, particularly with respect to its ceiling and Specialty Ceilings products. Accordingly, to promote alignment between the business and product development efforts of the Joint Venture and the Specialty Ceilings Businesses of AWI, the Members and the Board of Directors have adopted and approved the Guiding Principles attached hereto as Exhibit 12.8 to set forth certain parameters and procedures designed to provide guidance on how the Joint Venture and Armstrong would appropriately interact in these and other situations where they may have mutual interest or a potential conflict of interest as to the alignment of their businesses (“Guiding Principles”). The Board of Directors may from time to time by unanimous approval adopt other Guiding Principles to provide guidance on how the Joint Venture and Armstrong would appropriately interact in these and other situations where they may have mutual interest or a potential conflict of interest as to the alignment of their businesses. These Guiding Principles may also be amended from time-to-time by the Board of Directors by unanimous approval of the Board of Directors.

12.9 Grid Supply for Specialty Ceilings Businesses . AVI shall cause AWI and its Affiliates to agree that, subject in all respects to any then-existing commitments or obligations to other suppliers of Core Products, Grid or Grid-Type Products in the case of a Purchased Business, AWI and its Affiliates will afford to the Joint Venture the first right to supply the respective requirements for Core Products or such other Grid or Grid-Type Products for any

Specialty Ceilings Businesses. Notwithstanding the above as to items which are not Core Products, the Joint Venture may exercise its election under this Section only with respect to those items as to which the Joint Venture is competitive in price, quality, performance, service and other material terms (taken as a whole) with respect to such item or items. If the Joint Venture does not elect to supply any item of Grid or Grid-Type Products, or any portion thereof, or if the Joint Venture does not meet the provisions of the prior sentence as to any such item which is not a Core Product, then the Specialty Ceilings Business shall be free to purchase from other parties for use in Specialty Ceilings, any such item, or the portion of such item, not being supplied by the Joint Venture, which is not a Core Product.

ARTICLE 13

Dispute Resolution

13.1. Initial Procedure . Any, claim, dispute, difference or controversy arising out of or relative to this Agreement or the operation of the Joint Venture which cannot be settled by mutual understanding between the parties, shall be initially submitted to a member of the Executive Committee of AWI, or his delegate, on behalf of AVI and a member of the Executive Committee of WII or his delegate, on behalf of WVI. The said persons shall promptly meet and use their best efforts to resolve the claim, dispute, difference or controversy.

13.2. Formal Dispute Resolution. Subject to Section 12.7 hereof and except as hereinafter provided in this Section 13.2, should any such claim, dispute, difference or controversy not be resolved as provided in Section 13.1 hereof within fifteen (15) business days of submission to the respective persons designated by the parties pursuant to Section 13.1 hereof, then, at the election of either party, the parties shall first be required to endeavor to achieve a resolution of such claim, dispute, difference or controversy by non-binding mediation administered by the American Arbitration Association under its Commercial Mediation Procedures before resorting to arbitration, litigation, or some other dispute resolution procedure. The party which elects to seek resolution of such claim, dispute, difference or controversy by mediation shall, notify the other party in writing of such election. Any such notice shall describe in reasonable detail the subject matter of such claim, dispute, difference or controversy, and include a statement of such party’s position and a summary of the arguments supporting that

position and the relief sought, and shall also identify the names of three (3) prospective, independent, neutral mediators and include a statement of their respective curricula vitae. Each of such prospective mediators shall be a member of the American Arbitration Association National Roster of Arbitrators and Mediators and have experience in complex commercial matters, including, if practicable, joint ventures. Within ten (10) business days following its receipt of such notice, the recipient party shall submit to the other party a written response, which response shall include a reasonably detailed statement of the recipient party’s position regarding the dispute identified by the notifying party and a summary of the arguments supporting that position. Any such response shall also include the name, selected from the list of prospective mediators provided by the notifying party, of the individual who will act as the mediator in the dispute identified by the notifying party. The parties shall meet with the selected mediator in the City of Philadelphia, Pennsylvania or such other location as the parties may mutually agree within thirty (30) business days after the recipient party has received notice of the dispute and shall proceed diligently and in good faith, using commercially reasonable efforts, to resolve the matters in dispute. The mediation shall not continue longer than one (1) hearing day without the written approval of both parties. Neither party shall be bound by any recommendation of the mediator. One or more senior executives from each party shall personally participate in the mediation proceedings contemplated herein and shall endeavor to achieve a resolution of the dispute though mutual agreement. The senior executives, who shall have full authority to decide on behalf of and bind their respective entities, shall allocate at least one (1) full business day of their time for the mediation process on any such claim, dispute, difference or controversy submitted to mediation hereunder. Such senior executives may be represented by counsel in connection with any such mediation proceedings and, in addition, either party may, with permission of the mediator, bring such additional persons as are needed to respond to questions, contribute information or participate in the negotiations. The fees and expenses of the mediator and the American Arbitration Association shall be shared equally by both parties. The mediator shall be disqualified as a witness, consultant, expert or counsel for any party with respect to any such claim, dispute, difference or controversy and any related matters. All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by any of the parties, their agents, employees, experts and attorneys, and by the mediator or any employees of the American Arbitration Association, are confidential,

privileged and inadmissible for any purpose, including, but not limited to, impeachment, in any arbitration, litigation or other proceeding related to this Agreement, provided, however, that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of its use in the mediation. At no time prior to or during the mediation shall either party initiate an arbitration or litigation related to this Agreement except to pursue a provisional remedy that is authorized by law or by agreement of the parties. However, this limitation is inapplicable to a party if the other party refuses to comply with the requirements of Section 13.1 or this Section 13.2. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled until fifteen (15) business days after the completion of the mediation and the parties shall take such action, if any, required to effectuate such tolling. If any such claim, dispute, difference or controversy is not resolved by such mediation, either party may pursue such rights and remedies as may be available to either of them under this Agreement or at law or in equity.

13.3. Injunctive Relief . Nothing in this Article 13 shall preclude any party, at any time, from taking or requesting any judicial or other authority in any country to order any provisional or conservatory measure, including pre-award attachment, injunction or similar remedy for the presentation of its rights and interests.

ARTICLE 14

Definitions

14.1. Definitions . As used in this Agreement, the following terms shall have the meanings specified:

“ Affiliate ” means a person or entity who, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person or entity specified. The term “control”, or any derivation thereof, as used herein shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management or policies (whether through the ownership of securities or of partnership or other ownership interests, by contract or otherwise) of any other person or entity; provided , however , that any person or entity that owns or holds, directly or indirectly, more than 50% of the voting securities or partnership or other equity interests of any other person or entity (other than as a limited partner of such person or entity) will be deemed to control such other person or entity.

“ Affiliated Member Corporation ” means with respect to (a) the Member Group of which AVI is a member, either AWI or AVI and (b) the Member Group of which WVI is a member, any of WVI or WII.

“ Agreement ” means this Amended and Restated Joint Venture Agreement, as amended from time-to-time.

“ Armstrong ” shall mean AWI and AVI collectively or individually as the case and context may dictate, including their Affiliates where appropriate.

“ Armstrong Grid Profits or Losses ” means, with respect to any particular Fiscal Year, the aggregate net profits (or losses) earned or recognized for such Fiscal Year by those foreign Affiliates of AWI from the re-sale to third parties of Grid which it purchased from AWI or an Affiliate of AWI at an arms’ length price. Calculation of Armstrong Grid Profits (or Losses) shall be in accordance with past practice, and that certain letter agreement dated December 20, 2010 with respect to such matter.

“ AVI ” shall mean Armstrong Ventures, Inc., a Delaware corporation, and its successors and assigns permitted pursuant to this Agreement.

“ AWI ” shall mean Armstrong World Industries, Inc., a Pennsylvania corporation, and its successors and assigns.

“ Board of Directors ” means the Board of Directors of the Joint Venture.

“ Business ” shall mean the business of the Joint Venture.

“ Confidential Information ” means any proprietary information, technical data or other know-how or information, prior to or subsequent to the date of this Agreement, has been or may be disclosed by a party hereto ,or any of its Affiliates, directly or indirectly, to the other party hereto (a) in writing and identified in writing as being confidential at the time of or prior to such disclosure or (b) orally and identified at the time of disclosure as confidential and promptly

thereafter identified and described in writing as confidential or (c) is such that the other party should reasonably know is confidential even without such identification; and all records and accounts contemplated by Article 7 herein.

“ Core Grid ” shall mean grid (whether made of metal, plastic, fiberglass or other materials) for suspended ceilings, which includes, without limitation, main beams, cross tees, angle molding, anchors, hanger wire and/or other functionally similar stabilizing components, and related products such as clips and hanger attachments. “Core Grid” also includes refinements, improvements, or logical extensions of Core Grid products. For example, development of a new or improved product which would be used in place of a Core Grid product, as was the case with the DC FlexZone electrified grid system, drywall grid and clean room grid, are each included as Core Grid. Core Grid does not include Scope Extensions. Core Grid also does not include Specialty Ceilings Suspension Products for Specialty Ceilings.

“ Core Products ” shall mean Core Grid and Exclusive Scope Extensions.

“ Effective Date ” shall mean June 1, 1992.

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time-to-time.

“ Exclusive Scope Extensions ” means those Scope Extensions which the Members have agreed will be exclusively produced by the Joint Venture and not the Members. All Exclusive Scope Extensions as of the Restatement Date are listed as such on Schedule X. Schedule X shall be deemed amended from time to time to reflect any additions or deletions to such Exclusive Scope Extensions as agreed by the Members and the Joint Venture. The parties intend to update Schedule X from time to time to reflect additions and deletions.

“ Fiscal Year ” means both the fiscal year and taxable year of the Joint Venture as in effect from time-to-time, which, as of the date of this Agreement, is the twelve (12) month period commencing on January 1 of each calendar year and ending on December 31 of such calendar year.

“ Grid ” shall mean, collectively, (a) any Core Grid and (b) the Scope Extensions.

“ Grid Business ” shall mean the business of manufacturing and selling Grid.

“ Grid-Type Products ” means products which are identical or substantially similar to Grid products, or which are Specialty Ceilings Suspension Products. “ Indebtedness ” means indebtedness for borrowed money.

“ Joint Venture ” or “ Venture ” means the business relationship between AVI and WVI, the terms and conditions of which are set forth in this Agreement, including, but not limited to, the formation and operation of the Joint Venture.

“ Member Corporation ” shall mean an entity in the Member Group.

“ Member Group ” means Armstrong and its Affiliates (including AVI) and/or WII and its Affiliates (including WVI) collectively or individually as the case and context require.

“ Members ” means AVI and WVI, and their respective successors and permitted assigns, collectively or AVI and WVI individually, as the case and context may dictate.

“Miscellaneous JV Specialty Ceilings Suspension Products” shall mean the miscellaneous extruded aluminum suspension products; custom brake formed aluminum or steel suspension products; and certain hanging kits and clips produced or sold by the Joint Venture as of the Restatement Date as or for Specialty Ceilings Suspension Products.

“ Person ” shall mean any individual, corporation, general or limited partnership, limited liability company or partnership, joint venture, estate, trust, association, organization, or other legal entity or governmental body.

“ Related Agreements ” shall mean (a) with respect to Armstrong, the Supplemental Agreement, the License Agreement – Armstrong Name, the License Agreement – WAVE IP, the Armstrong Support Agreement, and the Sales Representation Agreement and (b) with respect to Worthington, the Worthington Support Agreement and the Supplemental Agreement.

“ Relatives and Affiliates ” shall mean, with respect to any individual, his spouse, children, grandchildren, parents and siblings and any entity controlled by such individual.

“ Purchased Business ” means a business purchased by a Member Group.

“ Scope Extensions ” shall mean the specific products that are not Core Grid but are produced or sold by the Joint Venture as of the Restatement Date or are products which are agreed by the Board of Directors to be added as products produced or sold by the Joint Venture or which are logical extensions of then-existing Scope Extension products produced or sold by the Joint Venture and include refinements or improvements of such products or products designed to replace or compete against any then current Scope Extension products produced or sold by the Joint Venture. Scope Extensions as of the Restatement Date are the ceiling products currently produced and sold by the Joint Venture under the names “Perimeters,” “Axiom” or “Serpentina.” All Scope Extensions will be listed on Schedule X, which Schedule X shall be deemed amended and updated from time to time to reflect new Scope Extensions developed as refinements or improvements as provided above or approved by the Board of Directors. Scope Extensions that are Exclusive Scope Extensions will be specifically designated as such on Schedule X. The parties intend to update Schedule X from time to time to reflect additions and deletions.

“ Specialty Ceiling ” shall mean a ceiling providing unique aesthetics and design which is most often custom engineered and designed (typically consisting of products such as planks, panels, canopies, clouds, strips, bars, beams, baffles or tiles affixed to the structural components of the ceiling to form an integrated solution) and which would not normally be supported by Core Grid, but rather by Specialty Ceiling Suspension Products. The “Architectural Specialties” business unit of AWI is engaged as of the Restatement Date in the design, manufacture and sale of Specialty Ceilings and related products. The following are examples of Specialty Ceiling brands of the AWI Architectural Specialties business unit as of the Restatement Date: CAPZ™ Acoustical Ceilings, INFUSIONS ^® Canopies, INFUSIONS ^® Panels, METALWORKS™ Canopies, METALWORKS™ Concealed Panels, METALWORKS™ Torsion Spring Panels, METALWORKS™ Linear Panels, METALWORKS™ Snap-in Panels, METALWORKS™ RH 200/215, SOUNDSCAPES ^® Canopies/Clouds/Blades, WOODWORKS ^® Canopies, WOODWORKS ^® Concealed Panels, WOODWORKS ^® Grille Panels, WOODWORKS ^® Linear Panels, WOODWORKS ^® Channeled Panels, LINEAGE™ Wood Looks Panels and ALTITUDES™ custom ceiling system. For clarity, the Members acknowledge that Core Grid is used, in whole or in part, to support, and other Core Products are used in some of the above-listed Specialty Ceiling brands.

“ Specialty Ceilings Suspension Products ” shall mean suspension products specifically designed for Specialty Ceilings which are (a) generally low volume custom products unique to the Specialty Ceiling which are different from Core Grid, and (b) not readily manufactured through a manufacturing process used by the Joint Venture. Examples of Specialty Ceilings Suspension Products (and not Core Grid) as of the Restatement Date are those suspension products typically being used for the following ceiling systems: Metalworks RH200, Metalworks Fastrack, and Metalworks RH215. Other examples of Specialty Ceilings Suspension Products produced or sold by the Architectural Specialties” business unit of AWI as of the Restatement Date include aircraft cables and inserts used for Metalworks Canopies, U Profile suspension products used for Metalworks DH700 and Metalworks RH200 and RH215; custom aluminum or brake press bulkhead suspension products used for Metalworks Torsion Spring Custom; and hanging kits used for Soundscape Clouds.

“ Supplemental Agreement ” shall mean the Supplemental Agreement, dated March 23, 1992 and executed in connection herewith, among the Joint Venture, AWI, AVI, WVI and NRM, as amended from time-to-time.

“ Trademarks and Patents ” shall mean trademarks, trade names, copyrights, service marks, label filings and patents.

“ Worthington ” shall mean WII and WVI collectively or individually, as the case and context may dictate, including their Affiliates where appropriate.

“ WVI ” shall mean The Worthington Steel Company, a Delaware corporation formerly known as Worthington Ventures, Inc., its successors and assigns permitted and agreed to pursuant to this Agreement.

14.2. Terms Defined Elsewhere . All of the following terms are defined elsewhere in this Agreement:

Advocate Appraiser – Section 11.5.5(a)

Advocate Appraiser Report – Section 11.5.5(a)

Armstrong Support Agreement – Section 5.10

Capital Account – Section 3.1.4

Code – Section 3.1.4

Competing Business – Section 12.1.1(a)

Competitive Segment – Section 12.8(a)

Core Grid IP – Section 2.1.3

Excluded Businesses - Section 12.8

Existing Joint Venture Agreement – Recitals

Financial Target – Section 11.1.2(c)

General Partnership Law – Section 1.1

IB Value – Section 11.5.5(a)

Initial Term – Section 1.6

License Agreement – Section 2.1.3

Maximum Commitment– Section 3.4

Worthington Support Agreement – Section 5.9

Neutral Appraiser – Section 11.5.5(b)

Neutral Appraiser Report – Section 11.5.5(b)

Sales Representation Agreement– Section 5.3

Steel Supply Sourcing Services – Section 5.4

Terminating Member – Section 11.5.2

WII – Section 11.1.4

Worthington Steel - Section 5.4.

ARTICLE 15

Indemnification

15.1. Indemnification . Each Member expressly disclaims any liability for the acts of the other Member unless such acts have been expressly authorized by this Agreement or the Related Agreements or by the Board of Directors, and, with respect to any such unauthorized acts, each Member hereby indemnifies and holds harmless the other Member and the Joint Venture from any and all claims, demands, losses or damages arising from such unauthorized acts of the indemnifying party, including the providing of a legal defense to any such claims or demands, together with all expenses incurred in such defense.

ARTICLE 16

Miscellaneous Provisions

16.1. Notices . All notices, requests, demands, and other communications required or permitted hereunder shall be in writing and delivered by hand or mail, postage paid, or by FAX at the respective addresses and telephone numbers of the parties as follows:


If to AVI:		Armstrong Ventures, Inc.
		2500 Columbia Avenue
		P.O. Box 3001
		Lancaster, PA 17604
		Attention: President
		Fax No.: 717/396-3304

Copy to:		Armstrong World Industries, Inc.
		2500 Columbia Avenue
		P. O. Box 3001
		Lancaster, PA 17604
		Attention: General Counsel
		FAX No.: 717/396-2983

If to WVI:		The Worthington Steel Company
		200 Old Wilson Bridge Road
		Columbus, Ohio 43085
		Attention: President
		FAX No. : 614/438-3256

Copy to:		Worthington Industries, Inc.
		200 Old Wilson Bridge Road
		Columbus, Ohio 43085
		Attention: General Counsel
		FAX No.: 614/840-3706

The effective date of any notice, demand, request or other communication shall be deemed to be the date of delivery or deposit thereof. Any party hereto may change its address for purposes hereof by notice to the others as provided in this Section 16.1.

16.2. Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware.

16.3. Counterparts . This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute but one and the same instrument. Any party to this Agreement may deliver an executed copy hereof or of any of the Related Agreements by facsimile transmission or electronically in Portable Document Format (PDF) to another party hereto or thereto and any such delivery shall have the same force and effect as any other delivery of a manually signed copy of this Agreement or of any of the Related Agreements.

16.4. Publicity . Each Member Group agrees that press releases and other announcements to be made by the Joint Venture or a Member Group with respect to transactions contemplated hereby shall be subject to mutual agreement and prior consent.

16.5. Interpretation . The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

16.6. Assignability . This Agreement, and all rights and obligations hereunder, are personal to the parties and shall not be assigned by any of them voluntarily or by operation of law without the prior written consent thereto by the other parties hereto. No assignment shall become effective until the prospective transferee has executed and delivered to the Joint Venture an undertaking satisfactory to counsel for the other parties in which the transferee agrees to be bound by the terms of this Agreement and all of the Related Agreements as may be appropriate.

16.7. No Waiver . A failure by any party to assert its rights under this Agreement shall not be deemed a waiver of such rights, nor shall any waiver be implied from any act or omission. No waiver by a party with respect to any right shall extend its effect to any subsequent breach of the terms hereof of like or different kind unless such waiver explicitly provides otherwise.

16.8. Amendments . This Agreement may be altered, modified, or amended only by a written instrument duly executed by each of the Members.

16.9. Complete Agreement . This Agreement amends and restates, in its entirety, the Existing Joint Venture Agreement. This Agreement, together with the Exhibits and Schedules hereto and the Related Agreements, represent the entire agreement of the parties with respect to the transactions contemplated hereby and shall supersede and replace the Existing Joint Venture

Agreement and any and all previous contracts, arrangements, understandings, negotiations and commitments between the parties with respect to the transactions contemplated hereby(whether oral or written); provided , however , that it does not change or otherwise alter or affect any of the Related Agreements except to the extent that the provisions of any such Related Agreements are inconsistent with any of the provisions hereof, in which event the provisions of this Agreement will govern and control.

16.10. Responsibility for Breach by Affiliates . Each Member shall be responsible for and liable for any breach of the provisions of this Agreement or any agreement executed in connection herewith (including, but not limited to, the Related Agreements) by its Affiliates, and any such breach by a Member’s Affiliate shall be considered a breach of this Agreement by such Member.

IN WITNESS WHEREOF, the parties have hereunto executed this Amended and Restated Joint Venture Agreement as of the date set forth above.


ARMSTRONG VENTURES, INC.

By:
Name:
Title:

THE WORTHINGTON STEEL COMPANY

By:
Name:
Title:


Exhibit / Section:		Exhibit Name:
● 2.1.1(b)		License Agreement – Armstrong Name

● 3.4(d)		Example of Special Allocation of Certain Profits and Losses

● 5.3		Sales Representation Agreement

● 5.9		Worthington Support Agreement

● 5.10		Armstrong Support Agreement

● 12.8		Guiding Principles

● 13.2		Arbitration Procedures

Schedules:

●	Schedule X - List of Scope Extensions & Exclusive Scope Extensions (Definitions)

SCHEDULE X

Amended and Restated Joint Venture Agreement

List of Scope Extensions & Exclusive Scope Extensions


Name of Scope Extension Product	Exclusive Scope Extension Product? (Y or N)	Effective Date
Perimeters	Y	Restatement Date

Axiom	Y	Restatement Date

Serpentina	Y*	Restatement Date

Miscellaneous JV Specialty Ceilings Suspension Products	N	Restatement Date

Lighting products integrated into Core Grid or Scope Extensions	N	Restatement Date

As of the Restatement Date, the parties acknowledge that Armstrong has sourced and/or manufactured products having similar attributes to the Serpentina brand products on a limited, low volume basis for certain custom projects, and the parties agree that Armstrong may continue to do so on a limited, project specific basis, provided that it does so in a manner and in volumes that are consistent with past practice.

Exhibit No. 11

Armstrong World Industries, Inc. and Subsidiaries

Computation of Earnings Per Share

(amounts in millions, except per share data)


	2015			2014			2013
Basic earnings per share from continuing operations
Earnings from continuing operations	$	52.6		$	102.0		$	127.3
Earnings allocated to participating non-vested share awards		(0.1	)		(0.5	)		(0.7	)

Earnings from continuing operations attributable to common shares	$	52.5		$	101.5		$	126.6
Basic weighted average number of common shares outstanding		55.5			55.0			57.8
Basic earnings per share from continuing operations	$	0.95		$	1.85		$	2.19

Diluted earnings per share from continuing operations
Earnings from continuing operations	$	52.6		$	102.0		$	127.3
Earnings allocated to participating non-vested share awards		(0.1	)		(0.5	)		(0.7	)

Earnings from continuing operations attributable to common shares	$	52.5		$	101.5		$	126.6
Basic weighted average number of common shares outstanding		55.5			55.0			57.8
Weighted average number of common shares issuable under stock option or unvested stock grants		0.4			0.4			0.6

Diluted weighted average number of common shares outstanding		55.9			55.4			58.4
Diluted earnings per share from continuing operations	$	0.94		$	1.83		$	2.17

Exhibit No. 12

Armstrong World Industries, Inc. and Subsidiaries

Computation of Ratio of Earnings to Fixed Charges

(dollar amounts in millions)


	2015			2014			2013			2012			2011
Determination of Earnings

Earnings from continuing operations before income taxes	$	123.9		$	185.2		$	198.7		$	234.6		$	222.9
Equity earnings from joint venture		(66.1	)		(65.1	)		(59.4	)		(55.9	)		(54.9	)

Earnings from continuing operations before income taxes and equity earnings	$	57.8		$	120.1		$	139.3		$	178.7		$	168.0
Add:
Fixed charges		54.1			55.7			78.3			63.0			55.0
Distributed income from equity affiliates (1)		—			—			—			—			—
Amortization of capitalized interest		0.2			0.2			0.1			0.1			—

Less:
Capitalized interest		(1.4	)		(2.6	)		(2.8	)		(3.6	)		(1.4	)

Total earnings as defined	$	110.7		$	173.4		$	214.9		$	238.2		$	221.6

Fixed charges
Interest expense	$	45.3		$	46.0		$	68.7		$	53.6		$	48.4
Capitalized interest		1.4			2.6			2.8			3.6			1.4
Estimate of interest included in rent expense (2)		7.4			7.1			6.8			5.8			5.2

Total fixed charges	$	54.1		$	55.7		$	78.3		$	63.0		$	55.0

Ratio of Earnings to Fixed Charges		2.0			3.1			2.7			3.8			4.0

(1)	– Includes only return on investment, not return of investment

(2)	– One-third of rental expense is considered to be representative of the interest factor in rental expense.

Exhibit No. 21

Subsidiaries of Armstrong World Industries, Inc.

December 31, 2015

The following is a list of subsidiaries of Armstrong World Industries, Inc., omitting certain subsidiaries, which, when not considered in the aggregate, but as a single subsidiary, would not constitute a significant subsidiary.


		Jurisdiction of
U.S. Subsidiaries		Incorporation
Armstrong Cork Finance LLC		Delaware
Armstrong Hardwood Flooring Company		Tennessee
Armstrong Ventures, Inc.		Delaware
Armstrong Wood Products, Inc.		Delaware
Armstrong World Industries (Delaware) LLC		Delaware
AWI Licensing Company		Delaware

		Jurisdiction of
Non-U.S. Subsidiaries		Incorporation
Armstrong World Industries Canada Ltd.		Canada
Armstrong (U.K.) Investments		United Kingdom
Armstrong World Industries Ltd.		United Kingdom
AWI Asia Company		China
Armstrong China Holdings, Limited		Hong Kong

Exhibit No. 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Armstrong World Industries, Inc.:

We consent to the incorporation by reference on Form S-8 (Registration Statement Nos. 333-138034, 333-154765, and 333-177072) and on Form S-3 (Registration Statement Nos. 333-179711 and 333-202253) of Armstrong World Industries, Inc. of our reports dated February 22, 2016, with respect to the consolidated balance sheets of Armstrong World Industries, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of earnings and comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2015, and related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2015, which reports appear in the December 31, 2015 annual report on Form 10-K of Armstrong World Industries, Inc.

/s/ KPMG LLP

Philadelphia, Pennsylvania

February 22, 2016

Exhibit No. 23.2

Consent of Independent Auditors

The Board of Directors

Worthington Armstrong Venture:

We consent to the incorporation by reference on Form S-8 (Registration Statement Nos. 333-138034, 333-154765, and 333-177072) and on Form S-3 (Registration Statement Nos. 333-179711 and 333-202253) of Armstrong World Industries, Inc. of our report dated February 15, 2016, with respect to the consolidated balance sheets of Worthington Armstrong Venture and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income and comprehensive income, partners’ deficit, and cash flows for each of the years in the three-year period ended December 31, 2015, which report is included in the December 31, 2015 annual report on Form 10-K of Armstrong World Industries, Inc.

/s/ KPMG LLP

Philadelphia, Pennsylvania

February 22, 2016

Exhibit No. 31.1

I, Matthew J. Espe, certify that:

1)	I have reviewed this report on Form 10-K of Armstrong World Industries, Inc.;

2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: February 22, 2016

/s/ Matthew J. Espe

Matthew J. Espe

Director, President and Chief Executive Officer

Exhibit No. 31.2

I, David S. Schulz, certify that:

1)	I have reviewed this report on Form 10-K of Armstrong World Industries, Inc.;

2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: February 22, 2016

/s/ David S. Schulz

David S. Schulz

Senior Vice President and Chief Financial Officer

Exhibit No. 32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

I certify to the best of my knowledge and belief that the Annual Report on Form 10-K of Armstrong World Industries, Inc. (the “Company”) containing its financial statements for the fiscal year ended December 31, 2015 fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934 as amended, and that information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Company as of that date.

/s/ Matthew J. Espe

Matthew J. Espe

Director, President and Chief Executive Officer

Armstrong World Industries, Inc.

Dated: February 22, 2016

Exhibit No. 32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

I certify to the best of my knowledge and belief that the Annual Report on Form 10-K of Armstrong World Industries, Inc. (the “Company’) containing its financial statements for the fiscal year ended December 31, 2015 fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934 as amended, and that information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Company as of that date.

/s/ David S. Schulz

David S. Schulz

Senior Vice President and Chief Financial Officer

Armstrong World Industries, Inc.

Dated: February 22, 2016

Exhibit No. 99.1

WORTHINGTON ARMSTRONG VENTURE

Consolidated Financial Statements

December 31, 2015 and 2014

(With Independent Auditors’ Report Thereon)

WORTHINGTON ARMSTRONG VENTURE

Table of Contents


	Page
Independent Auditors’ Report		1

Consolidated Balance Sheets, December 31, 2015 and 2014		3

Consolidated Statements of Income and Comprehensive Income, Years ended December 31, 2015, 2014, and 2013		4

Consolidated Statements of Partners’ Deficit, Years ended December 31, 2015, 2014, and 2013		5

Consolidated Statements of Cash Flows, Years ended December 31, 2015, 2014, and 2013		6

Notes to Consolidated Financial Statements		7

Independent Auditors’ Report

The Board of Directors

Worthington Armstrong Venture:

We have audited the accompanying consolidated financial statements of Worthington Armstrong Venture and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of income and comprehensive income, partners’ deficit, and cash flows for each of the years in the three-year period ended December 31, 2015, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Worthington Armstrong Venture and its subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in accordance with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Philadelphia, Pennsylvania

February 15, 2016

WORTHINGTON ARMSTRONG VENTURE

Consolidated Balance Sheets

December 31, 2015 and 2014

(Dollar amounts in thousands)


	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	48,018		$	35,670
Short-term investments		5,434			6,274
Accounts receivable, net		24,662			27,967
Receivables from affiliates		5,595			8,819
Inventory, net		34,003			40,518
Other current assets		973			975

Total current assets		118,685			120,223
Property, plant, and equipment, net		41,094			37,111
Goodwill		10,249			2,429
Other assets		775			980

Total assets	$	170,803		$	160,743

Liabilities and Partners’ Deficit
Accounts payable	$	15,064		$	18,230
Accounts payable to affiliates		936			740
Accrued expenses		6,694			6,968
Taxes payable		652			391

Total current liabilities		23,346			26,329

Long-term liabilities:
Deferred income taxes		346			233
Long-term debt		243,500			238,000
Other long-term liabilities		5,064			5,129

Total long-term liabilities		248,910			243,362

Total liabilities		272,256			269,691

Partners’ deficit:
Contributed capital		—			—
Accumulated deficit		(85,755	)		(99,187	)
Accumulated other comprehensive loss		(15,698	)		(9,761	)

Total partners’ deficit		(101,453	)		(108,948	)

Total liabilities and partners’ deficit	$	170,803		$	160,743

See accompanying notes to consolidated financial statements.

WORTHINGTON ARMSTRONG VENTURE

Consolidated Statements of Income and Comprehensive Income

Years ended December 31, 2015, 2014, and 2013

(Dollar amounts in thousands)


	2015			2014			2013
Net sales	$	374,414		$	392,508		$	381,798
Cost of sales		(187,024	)		(207,409	)		(208,924	)

Gross margin		187,390			185,099			172,874
Selling, general, and administrative expenses		(34,189	)		(33,500	)		(30,920	)

		153,201			151,599			141,954
Other (expense), net		(237	)		(242	)		(631	)
Interest income		572			551			631
Interest expense		(6,544	)		(6,401	)		(6,321	)

Income before income tax expense		146,992			145,507			135,633
Income tax expense		(2,560	)		(3,267	)		(3,231	)

Net income		144,432			142,240			132,402

Other comprehensive income (loss):
Change in pension plan		(182	)		(2,145	)		1,369
Change in cash flow hedge		(259	)		(1,405	)		165
Foreign currency adjustments		(5,496	)		(6,174	)		1,366

Total other comprehensive income (loss)		(5,937	)		(9,724	)		2,900

Total comprehensive income	$	138,495		$	132,516		$	135,302

See accompanying notes to consolidated financial statements.

WORTHINGTON ARMSTRONG VENTURE

Consolidated Statements of Partners’ Deficit

Years ended December 31, 2015, 2014, and 2013

(Dollar amounts in thousands)


	Contributed capital
			The					Accumulated
	Armstrong		Worthington					other			Total
	Ventures,		Steel		Accumulated			comprehensive			partners’
	Inc.		Company		deficit			income (loss)			deficit
Balance, December 31, 2012	$	—	$	—	$	(113,329	)	$	(2,937	)	$	(116,266	)
Net income		—		—		132,402			—			132,402
Distributions		—		—		(125,000	)		—			(125,000	)
Change in pension plan		—		—		—			1,369			1,369
Change in cash flow hedge		—		—		—			165			165
Foreign currency translation adjustments		—		—		—			1,366			1,366

Balance, December 31, 2013		—		—		(105,927	)		(37	)		(105,964	)
Net income		—		—		142,240			—			142,240
Distributions		—		—		(135,500	)		—			(135,500	)
Change in pension plan		—		—		—			(2,145	)		(2,145	)
Change in cash flow hedge		—		—		—			(1,405	)		(1,405	)
Foreign currency translation adjustments		—		—		—			(6,174	)		(6,174	)

Balance, December 31, 2014		—		—		(99,187	)		(9,761	)		(108,948	)
Net income		—		—		144,432			—			144,432
Distributions		—		—		(131,000	)		—			(131,000	)
Change in pension plan		—		—		—			(182	)		(182	)
Change in cash flow hedge		—		—		—			(259	)		(259	)
Foreign currency translation adjustments		—		—		—			(5,496	)		(5,496	)

Balance, December 31, 2015	$	—	$	—	$	(85,755	)	$	(15,698	)	$	(101,453	)

See accompanying notes to consolidated financial statements.

WORTHINGTON ARMSTRONG VENTURE

Consolidated Statements of Cash Flows

Years ended December 31, 2015, 2014, and 2013

(Dollar amounts in thousands)


	2015			2014			2013
Cash flows from operating activities:
Net income	$	144,432		$	142,240		$	132,402
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,173			3,752			5,007
Deferred income taxes		27			(437	)		249
Changes in assets and liabilities:
Change in receivables		6,131			(2,083	)		2,975
Change in inventory		5,933			(4,448	)		(1,159	)
Change in payables and accrued expenses		(2,405	)		(1,991	)		3,247
Other		(312	)		643			(1,750	)

Net cash provided by operating activities		157,979			137,676			140,971

Cash flows from investing activities:
Purchases of property, plant, and equipment		(8,329	)		(5,315	)		(7,390	)
Sale of property, plant, and equipment		(83	)		(18	)		1,359
Short-term investments		840			(2,913	)		(3,493	)
Acquisition of business, net of cash acquired		(8,400	)		—			(205	)

Net cash used in investing activities		(15,972	)		(8,246	)		(9,729	)

Cash flows from financing activities:
Proceeds from revolving credit facility		132,000			150,663			141,000
Issuance of long-term debt		—			—			50,000
Repayment of revolving credit facility		(126,500	)		(151,163	)		(190,500	)
Financing cost		—			—			(863	)
Distributions paid		(131,000	)		(135,500	)		(125,000	)

Net cash used in financing activities		(125,500	)		(136,000	)		(125,363	)

Effect of exchange rate changes on cash and cash equivalents		(4,159	)		(3,552	)		1,415

Net increase (decrease) in cash and cash equivalents		12,348			(10,122	)		7,294
Cash and cash equivalents at beginning of year		35,670			45,792			38,498

Cash and cash equivalents at end of year	$	48,018		$	35,670		$	45,792

Supplemental disclosures:
Interest paid	$	6,736		$	6,162		$	5,421
Income taxes paid		2,457			3,370			2,369

See accompanying notes to consolidated financial statements.

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

(1)

Description of Business

Worthington Armstrong Venture (the Company) is a general partnership, formed in June 1992, between Armstrong Ventures, Inc. (Armstrong), a subsidiary of Armstrong World Industries, Inc., and The Worthington Steel Company (Worthington), a Delaware corporation (a subsidiary of Worthington Industries, Inc.). Its business is to manufacture and market suspension systems for commercial and residential ceiling markets throughout the world. The Company has manufacturing plants located in the United States, France, the United Kingdom, the People’s Republic of China, and India.

The Company closed its manufacturing plant in Spain during 2013 transferring its production capabilities to other European locations. The total cost of the plant closure was $3,934, which included $2,009 severance pay, $1,278 capital and inventory obsolescence, and $647 other closing related costs. All closing costs were incurred and expensed during 2013 and recorded in cost of goods sold.

(2)

Summary of Significant Accounting Policies

(a)

Use of Estimates

These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include management estimates and judgments, where appropriate. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the carrying amount of property, plant, and equipment and goodwill, valuation allowances for receivables and inventories, valuation of derivatives, and assets and obligations related to employee benefits.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated.

(b)

Revenue Recognition

The Company recognizes revenue from the sale of products when title transfers, generally on the date of shipment and collection of the relevant receivable is probable. At the time of shipment, a provision is made for estimated applicable discounts and losses that reduce revenue. The Company’s standard sales terms are “Free On Board” (FOB) shipping point. The Company has some sales terms that are FOB destination.

Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from revenues in the consolidated statements of income and comprehensive income.

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

(c)

Derivative Instruments and Hedging Activities

The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. For derivatives designated in hedging relationships, changes in the fair value are recognized in accumulated other comprehensive income, to the extent the derivative is effective at offsetting the changes in cash flows being hedged until the hedged item affects earnings. For derivatives not designated as hedges or that do not meet the criteria for hedge accounting, all changes in fair value are recorded immediately to profit or loss.

(d )

Advertising Costs

The Company recognizes advertising expense as incurred. Advertising expense was $1,116, $1,049, and $940 for the years ended December 31, 2015, 2014, and 2013, respectively.

(e )

Research and Development Expenditures

The Company recognizes research and development expense as expenditures are incurred. Total research and development expense was $4,048, $4,065, and $3,811 for the years ended December 31, 2015, 2014, and 2013, respectively.

(f )

Taxes

The Company is a general partnership in the United States, and accordingly, generally, U.S. federal and state income taxes are the responsibility of the two general partners. Deferred income tax assets and liabilities are recognized for foreign subsidiaries for taxes estimated to be payable in future years based upon differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are determined using enacted rates expected to apply to taxable income in the years the temporary differences are expected to be recovered or settled. The Company recognizes the effect of uncertain income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

(g )

Cash and Cash Equivalents

Cash short-term investments that have original maturities of three months or less when purchased are considered to be cash equivalents.

(h)

Short-term Investments

Short-term investments that have maturity dates greater than three months consist primarily of one year certificates of deposits.

(i)

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

receivable portfolio. In establishing the required allowance, management considers historical losses, current receivables aging, and existing industry and national economic data. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

(j)

Inventories

Inventories are valued at the lower of cost or market. Cost is determined on the first-in, first-out method.

(k)

Long-Lived Assets

Property, plant, and equipment are stated at cost, with accumulated depreciation and amortization deducted to arrive at net book value. Depreciation charges are determined generally on the straight-line basis over the useful lives as follows: buildings, 30 years; machinery and equipment, 5 to 15 years; and leasehold improvements over the shorter of 10 years or the life of the lease. Impairment losses are recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If an impairment exists, the asset is reduced to fair value.

(l)

Goodwill

Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in a purchase business combination. Goodwill is tested for impairment at least annually. The impairment tests performed in 2015, 2014, and 2013 did not result in an impairment of the Company’s goodwill.

(m)

Foreign Currency Translation and Transactions

For subsidiaries with functional currencies other than the U.S. dollar, income statement items are translated into dollars at average exchange rates throughout the year and balance sheet items are translated at year-end exchange rates. Gains or losses on foreign currency transactions are recognized in other income (expense), net in the accompanying consolidated statements of income. Gains and losses on foreign currency translation are recognized in accumulated other comprehensive income in the accompanying consolidated balance sheets.

(3)

Accounts Receivable

The Company sells its products to select, preapproved customers whose businesses are directly affected by changes in economic and market conditions. The Company considers these factors and the financial condition of each customer when establishing its allowance for losses from doubtful accounts. The allowance for doubtful accounts was $571 and $622, at December 31, 2015 and 2014, respectively.

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

(4)

Inventory


	2015		2014
Finished goods	$	11,987		14,420
Goods in process		916		206
Raw materials		17,599		22,137
Supplies		3,501		3,755

Total inventory, net of reserves	$	34,003		40,518

(5)

Derivative Instruments and Hedging Activities

The Company uses an interest rate swap to manage its exposure related to changes in interest rates on its variable-rate private placement note and uses derivative instruments to manage its exposure to steel price fluctuations.

The private placement note through New York Life Insurance Company is variable-rate London Interbank Offered Rate (LIBOR) debt. The debt obligation exposes the Company to variability in interest payments due to changes in interest rates. On July 16, 2013, the Company entered into a LIBOR-based interest rate swap agreement to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. The swap changes the variable-rate cash flow exposure on the private placement note to fixed cash flows. Under the terms of the interest rate swap, the Company receives LIBOR-based variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the notional amount of its debt hedged. The swap has a notional amount of $50,000 maturing in July 2020, under the terms of which the Company pays a fixed rate of 2.136% and receives one-month LIBOR. This swap is designed as a cash flow hedge.

In 2013, the Company entered into contracts with Worthington as the counterparty to manage the price risk associated with fluctuations in market prices for steel. These contracts do not meet the requirements to qualify for hedge accounting. Accordingly, the steel derivatives are adjusted to current fair value at the end of each period through earnings. As of December 31, 2015 and 2014, the Company had no outstanding steel derivatives. The loss on the steel derivatives recognized in earnings within cost of goods sold for the years ended December 31, 2015 and 2014 was $0 and $1, respectively.

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

The fair values of derivative instruments held as of December 31, 2015 and 2014 are as follows:


	2015				2014
	B/S Location	Fair value			B/S Location	Fair value
Derivatives designated as hedging instruments:
Interest contract	Other assets	$	—		Other assets	$	—
	Long-term liabilities		(1,499	)	Long-term liabilities		(1,240	)

Total derivatives designated as hedging instruments			(1,499	)			(1,240	)

Total derivatives		$	(1,499	)		$	(1,240	)

As of December 31, 2015, the amount of loss recognized in accumulated other comprehensive income was $1,499. As of December 31, 2014 the amount of loss recognized in accumulated other comprehensive income was $1,240.

(6)

Property, Plant, and Equipment


	2015			2014
Land	$	1,609			1,687
Buildings		17,787			17,734
Machinery and equipment		79,920			76,687
Computer software		1,760			1,152
Construction in process		7,138			5,524

		108,214			102,784

Accumulated depreciation and amortization		(67,120	)		(65,673	)

Total property, plant, and equipment, net	$	41,094			37,111

Depreciation and amortization expense was $4,173, $3,752, and $5,007 for the years ended December 31, 2015, 2014, and 2013, respectively.

(7)

Goodwill

During 2015, Goodwill increased by $8,037 as a result of the acquisition in note 15. Foreign currency translation impact increased (decreased) goodwill by $(217), $(287), and $81 during 2015, 2014, and 2013, respectively.

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

(8)

Fair Value of Financial Instruments

The Company does not hold or issue financial instruments for trading purposes.

The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable approximate their fair value due to the short-term maturity of these instruments. The carrying value and estimated fair value of debt was $243,500 and $241,100, respectively, at December 31, 2015. The carrying value and estimated fair value of debt was $238,000 and $239,500, respectively, at December 31, 2014.

The fair value of the Company’s debt is based on the amount of future cash flows discounted using rates the Company would currently be able to realize for similar instruments of comparable maturity.

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. U.S. GAAP establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

Assets measured at fair value on a recurring basis are summarized below:


	Quoted active markets (Level 1)
	2015		2014
Assets:
Money market investments (included within cash and cash equivalents)	$	22,092		21,694
Short-term investments		5,434		6,274

	$	27,526		27,968

The Company’s derivatives are valued using Level 2 inputs. The fair values are disclosed in note 5. The Company does not have any significant financial or nonfinancial assets or liabilities that are valued using Level 3 inputs.

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

(9)

Debt

The Company has a $200,000 revolving credit facility (Facility) with PNC Bank and other lenders that was extended for five years on October 24, 2013. As of December 31, 2015 and 2014, there was $143,500 and $138,000, respectively, outstanding under the Facility. The Company can borrow at rates with a range over LIBOR of 1.125% to 1.75%, depending on the Company’s leverage ratio, as defined by the terms of the Facility. As of December 31, 2015 and 2014, the rate was 1.68% and 1.42%, respectively.

On July 1, 2013, the Company issued $50,000 of private placement floating rate debt through New York Life Insurance Company. The seven-year notes (NY Life Notes) mature on July 1, 2020. The NY Life Notes bear interest at a rate of one-month LIBOR plus a spread of 150 basis points. At December 31, 2015 and 2014, there was $50,000 outstanding.

On December 23, 2011, the Company issued $50,000 of 10-year private placement notes (Prudential Notes) with Prudential Insurance Company that mature in December 2021. At December 31, 2015 and 2014, there was $50,000 outstanding. The Prudential Notes bear interest at 4.9% that is paid on a quarterly basis.

The debt agreements contain certain restrictive financial covenants, including, among others, interest coverage and leverage ratios. The Company was in compliance with its covenants during the years ended and as of December 31, 2015 and 2014.

(10)

Pension Benefit Programs

The Company contributes to the Worthington Industries Deferred Profit Sharing Plan for eligible U.S. employees. Costs for this plan were $1,258, $1,284, and $1,160 for 2015, 2014, and 2013, respectively.

The Company contributes to government-related pension programs in a number of foreign countries. The cost for these plans amounted to $531, $504, and $514 for 2015, 2014, and 2013, respectively.

The Company also has a U.S. defined-benefit pension plan for eligible hourly employees that worked in its former manufacturing plant located in Malvern, Pennsylvania. This plan was curtailed in January 2004 due to the consolidation of the Company’s East Coast operations, which eliminated the expected future years of service for participants in the plan.

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

The following tables set forth the defined-benefit pension plan’s benefit obligations, fair value of plan assets, and funded status at December 31, 2015 and 2014:


	2015			2014
Projected benefit obligation at beginning of year	$	11,795			9,907
Interest cost		451			479
Actuarial (gain) loss		(381	)		2,059
Benefits paid		(680	)		(650	)

Projected benefit obligation at end of year	$	11,185			11,795


	2015			2014
Benefit obligation at December 31	$	11,185			11,795
Fair value of plan assets as of December 31		8,325			8,758

Funded status at end of year	$	(2,860	)		(3,037	)

Amounts recognized in the balance sheets consist of:
Other long-term liabilities	$	(2,860	)		(3,037	)
Accumulated other comprehensive loss		6,369			6,187

Net amount recognized	$	3,509			3,150

Amounts recognized in accumulated other comprehensive loss represent unrecognized net actuarial losses.

The components of net periodic benefit cost (benefit) are as follows:


	2015			2014			2013
Interest cost	$	451			479			438
Expected return on plan assets		(643	)		(620	)		(507	)
Recognized net actuarial loss		343			254			357

Net periodic benefit cost	$	151			113			288

The accumulated benefit obligation for the U.S. defined-benefit pension plan was $11,185 and $11,795 at December 31, 2015 and 2014, respectively. The unrecognized net loss for the defined-benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $250.

In October 2014, the Society of Actuaries (SOA) issued new mortality tables that raise life expectancies and thereby indicate the amount of estimated benefit payments to U.S. pension plan’s participants increased. In October 2015, the SOA updated the mortality improvement scale that accompanies the 2014 mortality table. The updated mortality improvement scale reflects a decrease in the rate of improvements in

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

life expectancies in the United States compared with the data in the 2014 mortality improvement scale. The Company incorporated the new SOA improvement scale into the December 31, 2015 measurement of the U.S. pension plan’s benefit obligation.

Weighted average assumptions used to determine benefit obligations for the years ended and as of December 31, 2015 and 2014 are as follows:


	2015			2014
Weighted average assumptions for the year ended December 31:
Discount rate		3.95	%		4.95	%
Expected long-term rate of return on plan assets		7.25			7.25

Weighted average assumptions as of December 31:
Discount rate		4.13	%		3.95	%
Expected long-term rate of return on plan assets		7.25			7.25

Pension plan assets are required to be disclosed at fair value in the consolidated financial statements. Fair value is defined in note 7 – Fair Value of Financial Instruments.

The U.S. defined-benefit pension plan assets’ fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following tables set forth by level within the fair value hierarchy a summary of the plan’s assets measured at fair value on a recurring basis as of December 31, 2015 and 2014, respectively:


			2015
			Fair value based on
	Fair value		Quoted active markets (Level 1)		Observable inputs (Level 2)
Investment:
Cash and money market funds	$	772		772		—
Corporate bonds		766		—		766
U.S. government and agency issues		660		—		660
Common stocks		6,203		6,203		—

	$	8,401		6,975		1,426

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)


			2014
			Fair value based on
	Fair value		Quoted active markets (Level 1)		Observable inputs (Level 2)
Investment:
Cash and money market funds	$	885		885		—
Corporate bonds		849		—		849
U.S. government and agency issues		519		—		519
Common stocks		6,505		6,505		—

	$	8,758		7,390		1,368

Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2015 and 2014.

Cash: Consists of cash and cash equivalents. The carrying amounts of cash and cash equivalents approximate fair value due to the short-term maturity of these instruments.

Money market funds: The money market investment consists of an institutional investor money market fund, valued at the fund’s net asset value (NAV), which is normally calculated at the close of business daily. The fund’s assets are valued as of this time for the purpose of computing the fund’s NAV.

Corporate bonds and U.S. government and agency issues: Consist of investments in individual corporate bonds or government bonds. These bonds are each individually valued using a yield curve model, based on observable inputs, which may also incorporate available trade and bid/ask spread data where available.

Common stocks: Consist of investments in common stocks that are valued at the closing price reported on the active market on which the individual security is traded.

In developing the 7.25% expected long-term rate of return assumption, the Company considered its historical returns and reviewed asset class return expectations and long-term inflation assumptions.

The primary investment objective of the defined-benefit pension plan is to achieve long-term growth of capital in excess of 7.25% annually, exclusive of contributions or withdrawals. This objective is to be achieved through a balanced portfolio comprising equities, fixed income, and cash investments.

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

Each asset class utilized by the defined-benefit pension plan has a targeted percentage. The following table shows the asset allocation target and the December 31, 2015 and 2014 position:


				Position at December 31
	Target weight			2015			2014
Equity securities		65	%		74	%		75	%
Fixed income securities		35			17			15
Cash and equivalents		—			9			10

The Company made contributions of $510, $576, and $906 to the U.S. defined-benefit pension plan in 2015, 2014, and 2013, respectively. The Company expects to contribute $400 to the plan in 2016.

The benefits expected to be paid in each of the next five years and in the aggregate for the five years thereafter are shown in the following table:


Expected future payments for the year(s) ending December 31:
2016	$	659
2017		652
2018		654
2019		662
2020		670
2021-2025		3,400

The expected benefits are based on the same assumptions used to measure the Company’s benefit obligation at December 31, 2015.

(11)

Income Taxes

The Company is a general partnership in the United States, and accordingly, generally, U.S. federal and state income taxes are the responsibility of the two general partners. Therefore, no income tax provision has been recorded on U.S. income. There are no significant differences between the statutory income tax rates in foreign countries where the Company operates and the income tax provision recorded in the income statements. No deferred taxes, including withholding taxes, have been provided on the unremitted earnings of foreign subsidiaries as the Company’s intention is to invest these earnings permanently.

Deferred tax balances recorded on the balance sheets relate primarily to depreciation and other temporary differences such as pensions and inventories. In 2015, the provision for income tax expense was $2,560 comprising $2,512 current and $48 deferred. In 2014, the provision for income tax expense was $3,267 comprising $3,286 current and $(19) deferred. In 2013, the provision for income tax expense was $3,231 comprising $3,295 current and $(64) deferred.

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

The Company’s tax returns remain subject to tax examination by foreign taxing authorities for various jurisdictions from 2010–2014. There is no reserve related to these tax years.

(12)

Leases

The Company rents certain real estate and equipment. Several leases include options for renewal or purchase and contain clauses for payment of real estate taxes and insurance. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rent expense during 2015, 2014, and 2013 amounted to $2,950, $2,581, and $2,835, respectively.

Future minimum payments by year and in the aggregate for operating leases having noncancelable lease terms in excess of one year are as follows:


Year:
2016	$	3,124
2017		2,895
2018		2,566
2019		1,977
2020		1,871
Thereafter		2,856

Total	$	15,289

(13)

Accumulated Other Comprehensive Income (Loss)

The balances for accumulated other comprehensive income (loss) are as follows:


	2015			2014
Foreign currency translation	$	(7,830	)		(2,334	)
Cash flow hedge		(1,499	)		(1,240	)
Pension plan		(6,369	)		(6,187	)

Total accumulated other comprehensive loss	$	(15,698	)		(9,761	)

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

The following table summarizes the activity, by component, related to the change in AOCI for December 31, 2015:


	Foreign currency translation			Cash flow hedge			Pension plan			Accumulated other comprehensive (loss)
Balance, December 31, 2013	$	3,840			165			(4,042	)		(37	)

Other comprehensive (loss) income before reclassifications		(6,174	)		(1,405	)		(2,298	)		(9,877	)
Amounts reclassified from accumulated other comprehensive income		—			—			153			153

Net current period other comprehensive (loss) income		(6,174	)		(1,405	)		(2,145	)		(9,724	)

Balance, December 31, 2014		(2,334	)		(1,240	)		(6,187	)		(9,761	)

Other comprehensive (loss) before reclassifications		(5,496	)		(259	)		(425	)		(6,180	)
Amounts reclassified from accumulated other comprehensive income		—			—			243			243

Net current period other comprehensive (loss)		(5,496	)		(259	)		(182	)		(5,937	)

Balance, December 31, 2015	$	(7,830	)		(1,499	)		(6,369	)		(15,698	)

The amount reclassified from AOCI was recorded in cost of goods sold in the consolidated statements of income and comprehensive income.

(14)

Related Parties

Armstrong provides certain selling, promotional, and administrative processing services to the Company for which it receives reimbursement. Armstrong purchases grid products from the Company, which are then resold along with Armstrong inventory to the customer. In 2013, the Company sold $820 of equipment and materials to Armstrong at their net book value and no gain or loss was recognized on transactions. No equipment and materials were sold to Armstrong in 2014 or 2015.


	2015		2014		2013
Services provided by Armstrong	$	15,240		14,651		14,892
Sales to Armstrong		73,680		85,217		88,851

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

The Company owed $223 and $336 to Armstrong as of December 31, 2015 and 2014, respectively, which is included in accounts payable to affiliates. Armstrong owed the Company $5,595 and $8,819 for purchases of product as of the same periods, respectively. The Company owed $713 and $404 to Worthington and affiliates of Worthington as of December 31, 2015 and 2014, respectively, which are included in accounts payable to affiliates.

Worthington, and affiliates of Worthington, provide certain administrative processing services, steel processing services, and insurance-related coverages to the Company for which it receives reimbursement.


	2015		2014		2013
Administrative services by Worthington	$	509		441		425
Insurance-related coverage net of premiums by Worthington		656		641		648
Steel processing services by Worthington and affiliates of Worthington		292		587		1,649

(15)

Acquisition

On March 6, 2015, the Company acquired the assets utilized by Fry Reglet Corporation (Fry) in the manufacturing of two product lines (the Business). Assets of the Business and the results of the Business’s operations have been included in the consolidated financial statements since the acquisition date. Prior to the acquisition, Fry was the sole supplier of those products to the Company. The Company concluded that the assets met the definition of a business under Accounting Standard Codification section 805, Business Combinations , and therefore the transaction has been accounted for as a business combination. As a result of the acquisition, the Company has vertically integrated the customer service, design and drawing, and manufacturing processes of the Business.

The total purchase price of $8,400 was paid in cash. The estimated fair value of the identifiable assets acquired at the acquisition date were Property, Plant and Equipment of $363, and the remainder recorded as Goodwill in the amount of $8,037.

In connection with the acquisition, the Company paid Fry a $500 consulting fee for transition services. The Company incurred acquisition related costs of $240. These consulting fees and acquisition related costs are included within Selling, General, and Administrative expenses.

(16)

Legal Proceedings

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

WORTHINGTON ARMSTRONG VENTURE

Notes to Consolidated Financial Statements

December 31, 2015 and 2014

(Dollar amounts in thousands)

(17)

Business and Credit Concentrations

Approximately, 16%, 16%, and 16% of net sales were to the Company’s largest third-party customer for 2015, 2014, and 2013, respectively. The Company’s 10 largest third-party customers accounted for approximately 53%, 50%, and 50% of the Company’s net sales for 2015, 2014, and 2013 respectively, and approximately 47% and 41% of the Company’s accounts receivable balances at December 31, 2015 and 2014, respectively. See note 14 for sales to and amounts owed to the Company from Armstrong.

(18)

Subsequent Events

Management has evaluated subsequent events through the date the annual consolidated financial statements were available to be issued, February 15, 2016.