UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year endedDecember 31, 20182021
 
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-37589
ARMSTRONG FLOORING, INC.
(Exact name of Registrant as specified in its charter)
Delaware47-4303305
(State or other jurisdiction of incorporation or organization)(I.R.S. employer Identification number)
2500 Columbia Avenue, PO Box 3025,       1770 Hempstead Road,Lancaster, Pennsylvania 17604PA17605
(Address of principal executive offices)(Zip Code)
(717)672-9611
(717) 672-9611
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueAFINew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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   ¨ No   þ


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   þ


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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   þ No   ¨


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit such files.)  Yes   þ 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. þ


Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☑
Non-accelerated filer☐Smaller reporting company☑
Large accelerated filer ¨
Accelerated filer þ
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company¨
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨


Indicate by check mark whether the Registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  Yes ☑    No  ¨

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes  ¨☐    No   þ


The aggregate market value of the Common Stock of Armstrong Flooring, Inc. held by non-affiliates based on the closing price ($14.046.19 per share) on the New York Stock Exchange (trading symbol AFI) as of June 30, 20182021 was approximately $292.3$94.0 million. As of February 28, 20192022 the number of shares outstanding of the registrant’s Common Stock was 25,835,850.21,779,575.


DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of Armstrong Flooring, Inc.’s definitive Proxy Statement for use in connection with its 20192022 annual meeting of stockholders, to be filed no later than April 30, 20192022 (120 days after the last day of our 20182021 fiscal year), are incorporated by reference into Part III of this Form 10-K Report where indicated.





    



Armstrong Flooring, Inc.


Table of Contents
Page Number
Cautionary Statement Concerning Forward-Looking Statements
1
PART I
Item 1.
Business
2
Item 1A.
Risk Factors
8
Item 1B.
Unresolved Staff Comments
15
Item 2.
Properties
16
Item 3.
Legal Proceedings
16
Item 4.
Mine Safety Disclosures
16
Page Number
Cautionary Statement Concerning Forward-Looking Statements
1
PART I
Item 1.
Business
2
Item 1A.
Risk Factors
6
Item 1B.
Unresolved Staff Comments
14
Item 2.
Properties
15
Item 3.
Legal Proceedings
15
Item 4.
Mine Safety Disclosures
15
PART II
Item 5.
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
1617
Item 6.
1717
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
18
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
3130
Item 8.
Financial Statements
3231
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
8579
Item 9A.
Controls and Procedures
8579
Item 9B.Other Information
80
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
80
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
8781
Item 11.
Executive Compensation
8882
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
8882
Item 13.
Certain Relationships and Related Transactions, and Director Independence
8982
Item 14.
Principal Accountant Fees and Services
8982
PART IV
Item 15.
Exhibits and Financial Statement Schedules
9083
Item 16.
Form 10-K Summary
9589
SIGNATURES
9790
















    



Glossary of Defined Terms

Unless the context requires otherwise, "AFI," the "Company," "we," "our," or "us" refers to Armstrong Flooring, Inc., a Delaware corporation and its consolidated subsidiaries. The Company also uses several other terms in this Form 10-K, which are further defined below:

TermDescription
2016 Directors' PlanArmstrong Flooring, Inc. 2016 Directors Stock Unit Plan
2016 LTI PlanAmended and Restated Armstrong Flooring, Inc. 2016 Long-Term Incentive Plan
2021 ABL AmendmentsCollectively, the Fourth and Fifth Amendments to the ABL Credit Facility
2021 Term Loan AmendmentsCollectively, the First and Second Amendments to the Term Loan Agreement
2022 Proxy StatementThe Company's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed no later than April 30, 2022
ABL Credit FacilityABL Credit Facility, as amended through the third amendment thereto
AIPAmerican Industrial Partners
Amended ABL Credit FacilityABL Credit Facility, as amended through the fifth amendment thereto
Amended Term Loan AgreementPathlight Capital L.P. term loan agreement, as amended though the second amendment thereto
AOCIAccumulated other comprehensive income (loss)
ASCAccounting Standards Codification
ASUAccounting Standards Update
AWIArmstrong World Industries, Inc. (a Pennsylvania corporation)
BoardBoard of Directors of the Company
CEOChief Executive Officer
CFOChief Financial Officer
COVID-19COVID-19 coronavirus
Credit AgreementsCollectively, the Amended ABL Credit Facility and the Amended Term Loan Agreement
DE&IDiversity, equity and inclusion
DistributionThe allocation of assets and liabilities related primarily to the Resilient Flooring and Wood Flooring segment to AFI and then distributing the common stock of AFI to Armstrong World Industries, Inc. shareholders
FIFOFirst-in, first-out
Form 10-KAnnual Report on Form 10-K
GDPGross domestic product
IRSInternal Revenue Service
ISDAInternational Swap and Derivatives Association
ITInformation technology
LIBORLondon interbank offered rate
LIFOLast-in, first-out
LVTLuxury vinyl tile
NOLNet operating loss
PBRSUsPerformance-based restricted stock units
PSAsPerformance-based stock awards
PSUsPerformance-based stock units
PVCPolyvinyl chloride
RIPRetirement income plan
ROURight-of-use asset
RSUsRestricted stock units
SECSecurities and Exchange Commission
SeparationThe separation by Armstrong World Industries, Inc., a Pennsylvania corporation, of its Resilient Flooring and Wood Flooring segments from its Building Products segment
SG&ASelling, general and administrative



TermDescription
South Gate FacilityFacility formerly owned by the Company, located in South Gate, California sold March 10, 2021
Spin-offCollectively, the Separation and Distribution
TZITarzan Holdco, Inc.
Term Loan AgentPathlight Capital L.P.
Term Loan AgreementPathlight Capital L.P. term loan agreement
U.S.United States
U.S. GAAPGenerally accepted accounting principles in the United States of America
UTBsUnrecognized tax benefits
VCTVinyl composition tile



CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS


Certain statements in this Annual Report on Form 10-K ("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 commercial and residential markets and their effect on our operating results, and our ability to increase revenues, earnings and earnings before interest, taxes, depreciation and amortization. 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;
competition;•the process for the potential sale and consideration of other strategic alternatives;
•debt covenants;
•liquidity and our ability to continue as a going concern;
•debt;
•execution of strategy;
•competition;
•availability and costs of raw materials and energy;
•key customers;
•construction activity;
costs savings•pandemics, epidemics or other public health emergencies such as the outbreak of COVID-19;
•global economic conditions;
•international operations;
•environmental and productivity initiatives;regulatory matters;
strategic transactions;
•information systems and transition services;
•personnel;
•intellectual property rights;
international operations;•labor;
labor;
•claims and litigation;
liquidity;•outsourcing; and
debt;
debt covenants;
outsourcing;
environmental and regulatory matters; and
•other risks detailed from time to time in our filings with the Securities and Exchange Commission ("SEC"),SEC, press releases and other communications, including those set forth under “Risk Factors” included elsewhere in this Form 10-K and in the documents incorporated by reference.10-K.


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.









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PART I


Item 1. Business


Armstrong Flooring, Inc. ("AFI" or the "Company") is a Delaware corporation incorporated in 2015. When we refer to "AFI," "the Company," "we," "our," and "us" in this report, we are referring to Armstrong Flooring, Inc. and its consolidated subsidiaries.


We are a leading global producer of resilient flooring products for use primarily in the construction and renovation of commercial, residential and institutional buildings. We design, manufacture, source and sell flooring products primarily in North America and the Pacific Rim. As of December 31, 2021, we operated seven manufacturing plants in three countries, including five manufacturing plants located throughout the U.S. (Illinois, Mississippi, Oklahoma and two in Pennsylvania) and one plant each in China and Australia.


On April 1, 2016, we became an independent company as a result of the separation by Armstrong World Industries, Inc. ("AWI"), a Pennsylvania corporation, of its Resilient Flooring and Wood Flooring segments from its Building Products segment (the "Separation"). The Separation which was effected by allocating the assets and liabilities related primarily to the Resilient Flooring and Wood Flooring segments to AFI and then distributing the common stock of AFI to AWI’s shareholders (the "Distribution").Distribution. The Separation and Distribution (together, the "Spin-off")Spin-off resulted in AFI and AWI 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 a ceilings business.


In NovemberOn December 31, 2018, we entered into a definitive agreement to sellsold our North American wood flooringWood Flooring business to Tarzan Holdco, Inc. ("TZI"), a Delaware corporation and an affiliate of American Industrial Partners ("AIP").AIP.

During early 2020, we established a multi-year strategic roadmap to transform and modernize our operations to become a leaner, faster-growing and more profitable business. The sale was completed ontransformation encompasses three critical objectives: (i) expanding customer reach; (ii) simplifying product offerings and operations; and (iii) strengthening core capabilities. In addition, we have implemented a new operating model that we believe will more effectively accomplish these objectives by: (i) placing customers first by aligning services and products through a more seamless value chain; (ii) aiming to lead the industry in product innovation; (iii) simplifying processes and operating complexity to become more competitive and efficient; (iv) realigning the go-to-market model to reach all relevant channels and customers; (v) implementing system changes to improve operations, reduce costs and reignite organic growth; and (vi) investing thoughtfully with a return-focused mindset. The goal of this focused strategy is to transform and modernize AFI, resulting in a company that is more agile, faster-growing and more profitable.

On December 31, 2018. See Note 9 to the Consolidated Financial Statements for additional information related to discontinued operations. The historical financial results2021, following our Board's determination that a sale of the North American wood flooring business have been reflectedCompany or other strategic transaction, if completed, would be in our Consolidated Financial Statements asthe best interests of the Company and the best means to maximize value for the Company's stockholders and other stakeholders, we announced that we had initiated a discontinued operationprocess for all periods presented.the potential sale of the Company and consideration of other strategic alternatives.


Products and Markets

We hold leadership or significant market share positions in the majority of the product categories and markets in which we operate. We compete exclusively in the resilient flooring product category in North America and the Pacific Rim. The majority of our sales are in North America, where we serve both commercial and residential markets. In the Pacific Rim, we are principally focused on commercial markets.

Our business operates in a competitive environment across all our product categories and excess capacity exists in much of the industry.  The major markets in which we compete are:


North American Commercial — Our products are used in commercial, institutional buildings and institutional buildings.multi-family housing. Our revenue opportunities come from new construction as well as renovation of existing buildings. Industry analysts estimate that renovation work represents the majority of the total North American commercial market opportunity. Most of our revenue comes from fourthree major segmentsend markets of commercial building: education, healthcare retail and office.retail. During 2020, we positioned our entry into the Hospitality vertical, which represents an incremental growth opportunity, and recorded our first sales in this vertical towards the end of 2021. We monitor U.S. construction starts and follow project activity. Our revenue from new construction can lag behind construction starts by as much as twenty-four months given that the installation of flooring typically occurs later in the construction process. We also monitor office vacancy rates, architectural activity, gross domestic product ("GDP")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. We also believe that consumer preferences for product type, style, color, availability, performance attributes and affordability also significantly affect our revenue.











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North American Residential — We sell products for use in single and multi-family housing. Homeowners, contractors, builders, and property management firms can choose from our innovative flooring products. We compete directly with other domestic and international suppliers of these products. Our flooring products also compete with carpet, stone, wood, laminate and ceramic products, which we do not offer.


Our products are used in new home construction and existing home renovation work. Industry analysts estimate that existing home renovation (also known as replacement/remodel) work represents a majority of the total

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North American residential market opportunity. We monitor key U.S. statistics including 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 these indicators and our operating results. However, we believe that consumers’ preferences for product type, style, color, availability, performance attributes and affordability also significantly affect our revenue. Further, changes in inventory levels and/or product focus at national home centers and independent wholesale flooring distributors can significantly affect our revenue.


Outside of North America — We also serve commercial markets in the Pacific Rim region with over 80%approximately 90% of the sales in this region coming from China and Australia. The commercial segments we serve are similar to the North American market (education, retail, office(healthcare, education, and healthcare)retail). However, there is a higher penetration of resilient flooring in the hospitality (retail) and officeinfrastructure segments in China than we see in North America. For the countries where we have significant revenue, we monitor various national statistics (such as GDP) as well as construction data (starts and project-related information).


The following table provides an estimate of our net sales, by major markets(a):
North American CommercialNorth American Residential
Outside of
North America (b)
Total
NewRenovationNewRenovationNewRenovationCommercialResidentialTotal
10%35%5%30%5%15%65%35%100%
(a) Management has estimated the above data as the ultimate end-use of our products is not easily determinable. Management believes these estimates to be consistent year-over-year.
(b)    The Company's sales outside of North America are primarily commercial.

Demand for our products is influenced by economic conditions. We closely monitor publicly available macroeconomic trend data that provides insight to commercial and residential market activity; this includes GDP growth indices, the Architecture Billings Index and the Consumer Confidence Index, as well as housing starts and existing home sales. In addition, our channel partners raise or lower their inventory levels according to their expectations of market demand and consumer preferences, which directly affects our sales.

Products
LVT Investment — Luxury vinyl tile ("LVT") - LVT represents the fastest growing resilient flooring product category. Through enhanced wear layers and coatings, LVT delivers improved durability and lower maintenance over traditional vinyl tile. In addition, the utilization of advanced printing and embossing technology provides LVT with upgraded visual realism in a wide variety of attractive wood and stone designs.designs. LVT’s modular format offers a wide range of installation options for the professional and do-it-yourself installer, with an enhanced ease of installation when compared to other products such as wood or ceramic tile;tile; this can be seen with the growing popularity of floating and rigid LVT floors. The largest market for LVT is North America. Historically, thisWe believe LVT growth has and will continue to come partially at the expense of other product categories in both the soft and hard surface flooring markets.

VCT - VCT is a flooring material composed of PVC chips formed into solid sheets and cut into modular shapes that offers a classic look and economical value. We are the largest producer of VCT which is primarily used in commercial environments. The market for VCT is mature and well-structured, but demand has been largely served by importedsoftened due to customer trends that favor alternate products, including LVT.

Vinyl sheet - Vinyl sheet is a resilient flooring product manufacturedthat comes in the Pacific Rim. In additiona roll that is cut to our existing LVT capacity at our Kankakee, Illinois plant, we completed constructionsize. Vinyl sheet performs in high-traffic settings and is low maintenance. Our product Rejuvenations™ Restore™ addresses heath care concerns of an expansion to our Lancaster, Pennsylvania plantin 2016both comfort and repurposed a portion of our Stillwater, Oklahomasound. We produce and sell vinyl sheet plantproduct for both residential and commercial markets. We continue to experience a decline in 2017demand for our traditional resilient products, particularly residential vinyl sheet products. The decline in vinyl sheet is driven by loss of market share to add LVT manufacturing capacity.

The following table provides an estimate of our 2018 net sales,competitors as well as consumer trends that favor alternative products, including LVT. During 2020, we introduced the industry's first non-PVC vinyl sheet system, Medinpure™, for use in healthcare applications, which was recognized by major markets.many trade publications and industry organizations.





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North American Commercial North American Residential Outside of North America  
New Renovation New Renovation New Renovation Total
5% 35% 5% 35% 15% 5% 100%

Management has estimated the above data as the end-use of our products is not easily determinable.

Customers

We use our reputation, capabilities, service and brand recognition to develop long-standing relationships with our customers. We principally sell products through both independent wholesale flooring distributors, who re-sell our products to retailers, builders, contractors, installers and others.others as well as direct to specialty retailers. In the commercial sector, we also have important relationships with subcontractors’ alliances, large architect andarchitectural firms, large design firms and major facility owners in our focus segments. In the North American retail channel, which sells to end-users in the residential and light commercial segments, we have important relationships with several national home centers and flooring retailers. In the North American residential sector,Additionally, we also have important relationships with major home builders and retail buying groups. Additionally, when market conditions and available capacity warrant, we also provide products on an OEM basis to other flooring companies.groups in the North American residential sector.


Approximately 75%69% of our consolidated net sales in 2018 are2021 were to distributors. Sales to large home centers accountaccounted for approximately 15%11% of our consolidated sales in 2018.2021. Our remaining sales arewere primarily to other retailers, end-use customers and contractors.



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The Belknap White Group, which includes J. J. Haines and Company, Inc., One customer accounted for 10% or more of our total consolidated net sales in 2018.2021.


Working CapitalApproximately 75% of our consolidated net sales in 2020 were to distributors. Sales to large home centers accounted for approximately 16% of our consolidated sales in 2020. Our remaining sales were primarily to other retailers, end-use customers and contractors. One customer accounted for 10% or more of our total consolidated net sales in 2020.


We produce goods for inventory and sell on creditThe above changes in sales channels are attributable to our customers. Our distributors carry inventory as neededshift in go-to-market strategy, which aims to meet local or rapid delivery requirements. We sell the vast majority ofprovide more service options for 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.customers.


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 resilient flooring products compete with carpet, stone, wood, ceramic products, rubber and ceramic products.stained or polished concrete. There is excess industry capacity for certain products in some geographies, which tends to increase price competition. The following companies (listed alphabetically) are our primary competitors:

AHF LLC, Beaulieu International Group N.V., Creative Flooring Solution, Congoleum Corporation, Engineered Floors, LLC, Forbo Holding AG, Gerflor Group, Halstead InternationalHMTX Industries (including Metroflor Corporation), Interface, Inc. (including Nora Systems GmbH), Krono Holding AG,LG Floors, Mannington Mills, Inc., Mohawk Industries, Inc., Nora Systems GmbH (division of Interface, Inc), Shaw Industries, Inc., and Tarkett AG.AG. We also compete with private label brokers.


Raw Materials

We purchase raw materials from numerous suppliers worldwide in the ordinary course of business. The principal raw materials include: polyvinylchloride ("PVC")PVC resins and films, plasticizers, fiberglass and felt backings, limestone, pigments, inks, stabilizers and coatings.

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.available. 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. If these suppliers were unable to satisfy our requirements, we believe alternative supply arrangements would be available.


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. During the fourth quarter of 2020 there was a resin shortage due to a hurricane and COVID-19. This caused a temporary increase in the price of resin, which is used to make PVC. Additionally, during 2021, the Company experienced supply chain disruptions and significant inflationary pressures related to critical raw materials. Certain raw materials, including PVC, plasticizer and CoPoly, have seen increases ranging from approximately 60% to 150% since January 2020. As a result, we instituted multiple price increases during 2021, the realization of which have lagged the increased input costs and have not been adequate to fully cover inflationary pressures. We will continue to monitor the larger macro-economic environment and will further adjust its pricing strategy as necessary.


Sourced Products

Some of our products are sourced from third parties. Our primary sourced products include LVT, vinyl sheet, installation and maintenance materials and accessories, and laminate.accessories. We purchase most of our sourced products from suppliers that are located outside of the U.S., primarily from Asia. Sales of sourced products represented approximately 35%43% of our total consolidated revenue in 2018.2021.








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In general, adequate supplies of sourced products are available to all of our businesses.available. However, availability can change for a number of reasons, including environmental conditions, laws and regulations including tariffs, production and transportation disruptions and/or business decisions made by, or events that affect, our suppliers. If these suppliers were unable to satisfy our requirements, we believe alternative supply arrangements would be available.



Shipping and Transportation

Recent trends in shipping continue to extend delivery times for certain products and materials, primarily from China and Vietnam. While we expect this to be temporary in nature, we cannot reasonably predict when the imbalance of global shipping capacity and demand will end. These global logistics and shipping challenges delayed a substantial number of anticipated order deliveries from the second and third quarter of 2021 until the fourth quarter of 2021 and the first quarter of 2022.
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In addition, increases in shipping costs have negatively impacted operating results. Certain shipping costs, including ocean freight, increased up to 350% since January 2020. As a result, we instituted multiple price increases during 2021, including the introduction of an ocean freight surcharge, the realization of which have lagged the increased input costs and have not been adequate to fully cover inflationary pressures. We will continue to monitor the larger macro-economic environment and will further adjust its pricing strategy as necessary.



Tariffs

Tariffs impact the cost of products we import from China. The U.S. government announced a tariff of 10% on certain flooring products imported to the U.S. from China, effective on September 24, 2018 with an additional 15% effective on May 10, 2019. In order to partially offset the impact, we implemented price increases that went into effect in the fourth quarter of 2018, and additional price increases that went into effect in the second quarter of 2019 on select impacted products. On November 8, 2019, an exclusion on tariffs of certain flooring products was announced. The exclusion applied retroactively to September 24, 2018. Additional products were added to the exclusion in the second quarter of 2020, also retroactive to September 24, 2018. The exclusions expired in August 2020. We filed for tariff refunds on these products in 2020 and recorded refunds as a reduction of previously recorded expense once formal approval was received. Upon expiration of the exclusion in 2020, we implemented a price increase on select impacted products to offset the expense of the tariffs.

Seasonality

Generally, our sales in North America tend to be stronger in the second and third quarters of our fiscal year due to more favorable weather conditions, customer business cycles and education renovations typical during the summer months. 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.behaviors in the first fiscal quarter.


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 AFI, including those before and after the Spin-off, 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.


An example of patented technology includes Diamond 10® Technology, which is patented in the United States and certain other countries.

We own or have a license to use certain trademarks, including, but not limited to, without limitation, Armstrong®, Alterna®, BBT®, Diamond 10® Technology, Empower™, Excelon®, Imperial®, Initiator™, Inspiring Great Spaces®, Lock&Fold®, Luxe Plank®, Medintech®, Empower™, Medinpure™, Memories™, Natural Creations®, NexProTM, NexproTM XMB, Rest & RefugeTM,Station Square™, StrataMax®, Timberline®, and Vivero®, which are important to our business because of their significant brand name recognition. This includes the new Armstrong Flooring logos developed in 2020 to strengthen and differentiate the Armstrong Flooring brand. 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.








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Sustainability
We sublicense certain patentsbelieve that a commitment to positive environmental and trademarkssocial practices strengthens our organization, increases our connection with our stakeholders and helps us better serve our customers and communities. Through these commitments which are embedded in our corporate strategy, we see additional ways to American Hardwood Flooring Company ("AHFC"),create value for our stockholders, our employees, our customers and the wider world. As part of this commitment, we focus on operating our global footprint with minimal impact on the environment and designing products with materials and processes that are safe for both people and the planet. As a subsidiarycompany, we recover over 80% of TZI.our generated waste and operate a closed loop product take-back program which has recycled over 150 million pounds of post-consumer flooring (since program inception prior to the Spin-off). Solar installations at our China and Australia facilities have further reduced our carbon footprint. Water recirculation and rainwater harvesting projects have eliminated over 200 million gallons of water use since 2008. We provide our employees with ongoing support through education, training, development and leadership opportunities and we prioritize the safety and well-being of our employees, stakeholders and communities. We demonstrate our commitment to environmental and social matters in many ways. We published our first Sustainability Report in 2021, which can be found on our website at www.armstrongflooring.com.


EmployeesThere have been no, and we do not expect there to be in the near term, material impacts on our business, financial condition or results of operations as a result of compliance with legislation or regulatory rules regarding climate change. Increased regulation and other climate change concerns, however, could subject us to additional costs and restrictions, and we are not able to predict how such regulations or concerns would affect our business, operations or financial results.


AsHuman Capital
Overview
We had 1,568 employees globally as of December 31, 2018, we had approximately 1,800 full-time2021. Our workforce spans 1,172 employees in the U.S. and part-timethe remainder in Canada, Australia, China, the Philippines, Singapore and Vietnam.

We are evolving our culture and our human capital strategies to best serve all these employees worldwide. Approximately 35%and align with our growth strategies and the changing social environments. Fostering a culture that is values-based, responsible, ethical and inclusive motivates and empowers our employees. This culture enables us to attract and retain the most talented people, engage them in meaningful and inspiring work and, as a result, fulfill our business goals and objectives. Our human capital philosophy is simple: Invest in people and they will return your investment in dividends. We grow together, encouraging one another to develop our own unique skills and celebrating each individual’s uniqueness, to find fulfillment, success and advancement.

Health and Safety
A key focus of our 900 productionshared community is on the health, safety and maintenance employees are represented by labor unions. As of March 5, 2019, approximately 150 employees at onewell-being of our domestic plantsemployees. We engage in continuous physical safety programs throughout our manufacturing facilities and provide mental and physical well-being programs to all employees. We have continued measures to reduce the impact of the COVID-19 pandemic to ensure employee health, safety and well-being.

Talent Development
We recognize that in order to drive innovation and operational excellence, we must attract, develop, motivate and retain diverse, world-class talent. Through the execution of our people strategy and management succession plan, we are working to expand our talent pipeline and build a workforce with the skills necessary to thrive in the workplace of the future. Our workforce development efforts are focused on ensuring that we will maintain our leadership position in the industry and continue to work under an expired collective bargaining agreementprovide our customers with innovative flooring solutions. We utilize digital recruiting tools to remove roadblocks typically faced by diverse candidates in applying to positions so that we can obtain a strong diverse candidate pool.

Through regular employee engagement surveys, semi-annual talent reviews, real-time discussions, available employee communication channels and negotiations continue. Contracts for remaininga focus on our Values; we monitor the needs and expectations of our employees expire between 2019 and 2020.respond to meet these evolving employee needs. We provide employees with ongoing opportunities to grow and develop through many different programs, including professional and leadership development, continuous performance management internal mobility. These programs and activities increased our employee engagement ratings and led to a workforce dedicated to creating value.














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Diversity, Equity & Inclusion
We recognize DE&I as a business imperative. We believe that our relations withbusiness accomplishments are a result of the efforts of our employees are satisfactory. Outaround the world and that a diverse employee population will result in a better understanding of our 1,800customers’ needs. We respect the attributes that make each individual unique, including those that can be seen and those that are acquired or learned. Our DE&I purpose is to evolve the organization and our culture to reflect the customers and communities we serve, where employees approximately 100can be their authentic selves and where differences in background, thought and experience are welcomed, valued and celebrated. We demonstrate purposeful actions and incorporate intentional practices to drive these inclusive behaviors in our daily work. One key example is through changes to our recruiting program, where we have digitally enabled our process to broaden the applicant pool to diverse groups that have traditionally had difficulty accessing job opportunities. This has increased the diversity of our candidate pool and our hires.

We are committed to continually reviewing our operational practices and aligning DE&I initiatives with business objectives. Our DE&I commitment is demonstrated by the establishment of our DE&I Council which considers all parts of our employee experience to ensure that DE&I principles are incorporated into our talent acquisition strategies, development offerings and employee services. The Council is comprised of, and led by, our employees, with executive sponsorship up to and including our CEO.

Competitive Pay and Employee Benefits
We provide market-competitive compensation and benefits to our employees. Our pay programs are designed to be performance-based so that employees are partpaid based on performance that they can control. Our benefits programs are reviewed each year to ensure that we are meeting current practices in providing benefits that meet the health and safety needs of our employees. When special circumstances occur, such as the transition services agreement with TZI, andrecent pandemic, we expect most of themadjust our benefits to transfer to TZI by the end of 2019.meet our employees’ needs.



Regulatory Matters
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Legal and Regulatory Proceedings

AFI’sOur 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.


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 and 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.
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, results of operations, or cash flows.

We have not experienced a material adverse effect upon our capital expenditures or competitive position as a result of environmental control, legislation and regulations. ThereIn addition, there were no material liabilities recorded at December 31, 20182021 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 22 to the Consolidated Financial Statements11, Litigation and Risk FactorsRelated Matters, in this Form 10-KPart II, Item 8, "Financial Statements" and Part I, Item 1A, "Risk Factors" for information regarding the possible effects that compliance with environmental laws and regulations may have on our businesses and operating results.additional information.


Website

We maintain a website at www.armstrongflooring.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,10-Ks, 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.






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Item 1A. Risk Factors


Worldwide economic conditionsRisks Related to our Sale Process, Consideration of Strategic Alternatives, Debt and Liquidity

We may not reach agreement on the sale of the Company or any other strategic transaction.

On December 31, 2021, we announced that we entered into the Fifth Amendment to the ABL Credit Facility and the Second Amendment to the Term Loan Amendment, both of which became effective as of December 30, 2021. In connection with the 2021 Term Loan Amendments, Pathlight Capital LP, in its capacity as our term loan lender, loaned us and our subsidiary, Armstrong Flooring Pty Ltd, additional term loans in an aggregate principal amount of $35.0 million to support us. We simultaneously announced that we had retained Houlihan Lokey Capital, Inc. to assist with a process for the sale of the Company and with the consideration of other strategic alternatives. There can be no assurance that we will reach agreement on any sale of the Company or any other strategic transaction. Also, even if such an agreement is reached, there is a risk that any such transaction would need to be completed through a court-supervised insolvency process. In the event the lenders under the Amended ABL Credit Facility and/or the Amended Term Loan Agreement exercise remedies and/or we seek court protection as described above, holders of our equity securities would likely be entitled to little or no recovery on their investment. See Note 8, Debt, in Part II, Item 8, "Financial Statements," for additional information.

Our Credit Agreements 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 2021 ABL Amendments and the 2021 Term Loan Amendments contain provisions that require us and our subsidiaries to adhere to various operational and financial covenants, including meeting certain milestones relating to the process for the sale of the Company, and there can be no assurance that we will be able to comply with these covenants. The failure to comply with any of these covenants would constitute a default under the terms of the Amended ABL Credit Facility and/or the Amended Term Loan Agreement, as applicable, which could have an adverse effect on the Company, including affecting its access to liquidity. In such circumstance, absent additional accommodations from our lenders, the lenders under the Amended ABL Credit Facility and/or the Amended Term Loan Agreement could exercise remedies and/or we could determine to seek protection through a materialcourt-supervised insolvency process. In addition, the cash dominion arrangement provided for in the Amended ABL Credit Facility creates certain operational risks for us given the constraints it places on our cash management system and could impede our access to liquidity if for any reason we were unable to borrow under the Amended ABL Credit Facility. See Note 8, Debt, in Part II, Item 8, "Financial Statements," for additional information.

We require a significant amount of liquidity to fund our strategy and operations.

Our failure to comply with various operational and financial covenants included in the 2021 ABL Amendments and 2021 Term Loan Amendments could adversely affect our access to liquidity. In addition, 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.

The failure to comply with any of these covenants would constitute a default under the terms of the Credit Agreements which could have an adverse impacteffect on the Company, including affecting its access to liquidity.

Our auditor has raised substantial doubts as to our ability to continue as a going concern.

Our consolidated financial statements as of December 31, 2021 and 2020, and for the three-year period ended December 31, 2021 appearing later in this report have been prepared assuming we will continue as a going concern. The Report of Independent Registered Public Accounting Firm on our consolidated financial statements includes an explanatory paragraph related to our recurring losses from operations and notes the ability of the Company to continue as a going concern is dependent on the Company maintaining adequate capital and liquidity to fund operating losses until it returns to profitability or is sold. Accordingly, our ability to continue as a going concern is dependent upon our ability to complete a sale of the Company or to refinance our Credit Agreement no later than June 30, 2022. The failure to complete a sale of the Company or to obtain sufficient financing could adversely affect our ability to achieve our business objectives and continue as a going concern.







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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 pursuing;
•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.



Risks Related to our Business, Operations and Industry

Failure to successfully execute our strategy to transform and modernize our business and related investment costs may materially adversely affect our market position, financial condition, liquidity or results of operations.

In March 2020, we announced our strategy to transform and modernize our business, including through go-to-market efforts featuring expanded customer reach, simplification of our business processes, strengthened product innovation and optimized production capabilities. Our business is influenced by conditions in domesticinability to execute and foreign economies,fund any of these strategies, including inflation, deflation, interest rates, availability and cost ofthrough any failure to invest sufficiently, or to realize intended revenue; margin; SG&A expenses; working 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 conditionscapital expenditure benefits or improvements; could have a material adverse effect on our financial condition, liquidity or results of operations, including as follows:operations.


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

We compete with numerous flooring manufacturers in highly competitive markets.Competition can affect customer preferences, reduce demand for our products, negatively affect our product sales mix, leverage greater financial resources, or cause us to lower prices.prices, any or all which could adversely affect our financial condition, liquidity or results of operations.


Our markets are highly competitive. We compete for sales of flooring products with many manufacturers and independent distributors of resilient flooring as well as with manufacturers who also produce other types of flooring products. Some of our competitors have greater financial resources than we do. Competition can reduce demand for our products, negatively affect our product sales mix or cause us to lower prices. Our customers consider our products' performance, content and styling, as well as customer service and price when deciding whether to purchase our products. Shifting consumer preference in our highly competitive markets whether for performance, product content, styling preferences, or our inability to develop and offer new competitive performance features, could have an adverse effect on our sales. Regulatory action or new product standards could also steer consumers away from our products.

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.

Our failure to compete effectively through management of our product portfolio, by meeting consumer preferences, maintaining market share positions in our traditional categories and gaining market leadership in growth product categories such as LVT, 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 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.






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If the availability of rawdirect materials or energy(raw materials, packaging, sourced products, energy) decreases, or these and other sourcing 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 direct materials, including raw materials, packaging materials, energy and sourced products are critical to our operations. For example, we use substantial quantities of petroleum-basedpetrochemical-based raw materials 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. We also source from overseas and could be subject to international trade costs, such as tariffs.Thistariffs, transportation and foreign exchange rates, or international epidemics, including, without limitation, the COVID-19 outbreak. There is also a concentration of our sourced products in an emerging market, which subjects us to legislative, political, regulatory and economic volatility and vulnerability. This dependency and any limited availability could cause us to reformulate products or limit our production. Decreased access to rawdirect materials and energy or significant increased cost to purchase these items, as well as increased transportation and trade costs, delays due to government-mandated initiatives in response to the COVID-19 and any corresponding inability to pass along such costs through price increases or meet demand requirements, as applicable, could have a material adverse effect on our financial condition, liquidity or results of operations.


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. 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.


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



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Our business has greater sales opportunities when construction activity is strong and, conversely, has 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 GDP, 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.



Risks Related to the Macro-Economic and Regulatory Environment

Our cost saving initiativesbusiness, results of operations, financial condition, cash flows and stock price has been, and may not achieve expected savings in our operating costs or improved operating results.continue to be adversely affected by the outbreak of COVID-19.


We aggressively lookcould be negatively impacted by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, there was an outbreak of a new strain of COVID-19. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation due to “shelter-in-place” restrictions by various governments worldwide and created significant volatility and disruption of financial markets. This adversely impacted our results of operations during the fiscal years 2021 and 2020. The extent of the impact of the COVID-19 pandemic on our future operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the pandemic and related restrictions on travel and transports; the effect on our customers and demand for waysour products and services; our ability to makesell and provide our operations more efficientproducts and effective. We reduce, moveservices, including as a result of travel restrictions 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. We also announced a cost optimization plan in connection withpeople working remotely; the saleability of our wood business. Ourcustomers to pay for our products and services; the overall health of our production employees and our ability to achieve cost savingsmaintain adequate staffing of our facilities to satisfy marketplace demand for our products; and other benefits within expected time frames is subject to many estimatesany closures of our or our customers’ offices and assumptions. These estimates and assumptions are subject to significant economic, competitive and other uncertainties, somefacilities all of which are beyonduncertain and cannot be predicted. An extended period of global supply chain and economic disruption could materially affect our control. If these estimatesbusiness, our results of operations, our access to sources of liquidity, the carrying value of our tangible and assumptions are incorrect, if we experience delays, or if other unforeseen events occur,intangible assets, our financial condition liquidity or results of operationsand our stock price.






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Worldwide economic conditions could be materially and adversely affected.

We may pursue strategic transactions that could create risks and present unforeseen integration obstacles or costs, any of which could materially adversely affecthave a material adverse impact on 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 operations could be materially and adversely affected.

Disruptions to or failures of our various information systems could have an adverse effect on our business and could impact our ability to perform transitional services following the sale of our wood business.

We rely heavily on our information systems to operate our business activities, including, among other things, purchasing, distribution, inventory management, processing, shipping and receiving, billing and collection, financial reporting and record keeping. We also rely on our computer hardware, software and network for the storage, delivery and transmission of data to our sales and distribution systems, and certain of our production processes are managed and conducted by computer. Any interruption, whether caused by human error, natural disasters, power loss, computer viruses, system conversion, intentional acts of vandalism, or various forms of cyber crimes including and not limited to hacking, intrusions, malware or otherwise, could disrupt our normal operations and inhibit our ability to perform certain transition services in connection with the sale of our wood business. There can be no assurance that we can effectively carry out our disaster recovery plan to handle the failure of our information systems, or that we will be able to restore our operational capacity within sufficient time to avoid material disruption to our business. The occurrence of any of these events could cause unanticipated disruptions in service, decreased customer service and customer satisfaction, harm to our reputation and loss or misappropriation of sensitive information, which could result in loss of customers, increased operating expenses and financial losses. Any such events could in turn have a material adverse effect on our business, financial condition, results of operations, and prospects.



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Our performance depends on our abilitybusiness 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 attract, developmanage economic conditions. Volatility in financial markets and retain talented management.

We must attract, developthe continued softness or further deterioration of national and retain qualified and talented personnel in senior management, sales, marketing, product design, and operations. We compete with numerous companies for these employees and invest resources in recruiting, developing, motivating and retaining them. The failure to attract, develop, motivate and retain key employeesglobal economic conditions could negatively affect our competitive position, execution on strategic priorities and operating results.

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 will 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, will 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.operations, including as follows:


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

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 portion of our products move in international trade, with approximately 15%20% of our revenues from operations outside the United StatesU.S. and Canada in 2018.2021. Our international trade is subject to currency exchange fluctuations, trade regulations, tariffs, import duties, logistics costs, delays and other related risks.risks, including, for example, the COVID-19 outbreak. Our international operations are also subject to various tax rates, credit risks in emerging markets, political risks, uncertain legal systems 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 many countries outside of the United States,U.S., 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, which 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 StatesU.S. and our financial condition, liquidity or results of 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 11, Litigation and Related Matters, in Part II, Item 8, "Financial Statements," for further information related to environmental matters.

Our industry has been subject to claims relating to raw materials. 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.






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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.


Other Risks Related to our Operations

Disruptions to or failures of our various information systems could have an adverse effect on our business.

We rely heavily on our information systems to operate our business activities, including, among other things, purchasing, distribution, inventory management, processing, shipping and receiving, billing and collection, financial reporting and record keeping. We also rely on our computer hardware, software and network for the storage, delivery and transmission of data to our sales systems, distribution systems and certain of our production processes are managed and conducted by computer. Any interruption, whether caused by human error, natural disasters, power loss, computer viruses, system conversion, intentional acts of vandalism, or various forms of cybercrime including and not limited to hacking, intrusions, malware or otherwise, could disrupt our normal operations. There can be no assurance that we can effectively carry out our disaster recovery plan to handle the failure of our information systems, or that we will be able to restore our operational capacity within sufficient time to avoid material disruption to our business. The occurrence of any of these events could cause unanticipated disruptions in service, decreased customer service and customer satisfaction, harm to our reputation and loss or misappropriation of sensitive information, which could result in loss of customers, increased operating expenses and financial losses. Any such events could in turn have a material adverse effect on our financial condition, liquidity or results of operations.

Our performance depends on our ability to attract, develop and retain talented management.

We must attract, develop and retain qualified and talented personnel in senior management, sales, marketing, product design and operations. We compete with numerous companies for these employees and invest resources in recruiting, developing, motivating and retaining them. The failure to attract, develop, motivate and retain key employees could negatively affect our competitive position, execution on strategic priorities and operating results.

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 will 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 U.S. 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-U.S. jurisdictions, particularly those of certain emerging markets, will provide less protection for our proprietary rights than the laws of the U.S. 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.

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 majorityA significant portion 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


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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.








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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 will 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, or were improperly installed 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, data privacy 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 will not be able to 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.

We require a significant amount of liquidity to fund our operations.

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 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 pursuing;
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;


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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.

Our credit agreement contains 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.

Our $150 million secured credit facility (the “Credit Facility”) and the underlying credit agreement that governs our indebtedness includes covenants that, among other things, may impose significant operating and financial restrictions, including restrictions or limitations on our ability to engage in activities that may be in our best long-term interests. These covenants may restrict or limit our ability to:

incur additional indebtedness;
pay dividends on our capital stock or redeem, repurchase or retire our capital stock or indebtedness;
make investments, loans, advances and acquisitions;
engage in transactions with our affiliates;
sell assets, including capital stock of our subsidiaries;
consolidate or merge;
create liens;
change the nature of our business; and
enter into sale and lease back transactions.

Under the terms of the Credit Facility, we are required to maintain a specified fixed charge coverage and net leverage 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 Credit Facility. If any such default occurs, the lenders under the 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.


We outsource our information technologyIT infrastructure and certain finance and accounting functions, which makes us more dependent upon third parties.


In an effort to make our finance, accounting and information technology (“IT”)IT functions more efficient, increase related capabilities, as well as generate cost savings, we outsource certain finance and accounting functions and a significant portion of our IT infrastructure to separatea third party service providers.provider. As a result, we rely on the third partiesparty to ensure that our related needs are sufficiently met. This reliance subjects us to risks arising from the loss of control over certain processes, changes in pricing that may affect our operating results and potentially, termination of provisions of these services by our suppliers.supplier. A failure of our service providersprovider to perform may have a material adverse effect on our financial condition, liquidity or results of operations.


We may be
Risks Related to our Common Stock

Our stock price is subject to liability undervolatility.

Our stock price has experienced price volatility in the past and may make substantial future expenditurescontinue to comply with environmental laws and regulations, which could materially adversely affect our financial condition, liquidity or results of operations.



11





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 liabilitiesdo so in the future. See Note 22 toWe, the Consolidated Financial Statements for further information related to environmental matters.

Ourflooring industry has been subject to claims relating to raw materials. Weand the stock market have not received any significant claims involving our raw materials or our product performance; however, product liability insurance coverage may not be available or adequateexperienced stock price and volume fluctuations that have affected stock prices in all circumstances to cover claimsways that may arisehave been unrelated to operating performance.

A stockholder's percentage of ownership in us may be diluted in the future.


A stockholder's percentage ownership in us may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that we may grant to our directors, officers and employees. Such issuances may have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.












13


In addition, our operationsamended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock with respect to dividends and distributions, as our Board generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.

Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our Board rather than to attempt a hostile takeover. These provisions include, among others:

•the inability of our stockholders to call a special meeting;
•rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
•the right of our Board to issue preferred stock without stockholder approval;
•a provision that directors serving on a classified board may be removed by stockholders only for cause; and
•the ability of our directors, and not stockholders, to fill vacancies on our Board.

In addition, because we are subject to various domesticSection 203 of the General Corporation Law of the State of Delaware, this provision could also delay or prevent a change in control that stockholders may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock.

We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board and foreign environmental, health,by providing our Board with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and safety laws and regulations. These laws and regulationsthe provisions could delay or prevent an acquisition that our Board determines is 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,best interests of AFI and these increased costsits stockholders. These provisions may materially adversely affect our financial condition, liquidityalso prevent or results of operations.discourage attempts to remove and replace incumbent directors.



Risks Related to the Separation from AWI


If the Separation and Distribution fails to qualify as a tax-free transaction for U.S. federal income tax purposes, then we could be subject to significant tax liability or tax indemnity obligations.


AWI received an opinion of AWI’s tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP, 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 AWI and AWI’s shareholders, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code.


Notwithstanding the tax opinion, the Internal Revenue Service (“IRS”)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 shareholders for U.S. federal income tax purposes and shareholders could incur significant U.S. federal income tax liability. In addition, AWI and/or we could incur significant U.S. federal income tax liabilities or tax indemnification obligations, whether under applicable law or the Tax Matters Agreement that we entered into with AWI, if it is ultimately determined that certain related transactions undertaken in anticipation of the Distribution are taxable.






14


We will be required to satisfy certain indemnification obligations to AWI or may not be able to collect on indemnification rights from AWI.


Under the terms of the Separation and Distribution, we will indemnify AWI from and after the Separation and Distribution with respect to (i) all debts, liabilities and obligations allocated or transferred to us in connection with the Separation and Distribution (including our failure to pay, perform or otherwise promptly discharge any such debts, liabilities or obligations after the Separation and Distribution),; (ii) any misstatement or omission of a material fact in our Information Statement, dated March 24, 2016, resulting in a misleading statement,statement; (iii) any breach by us of the Separation and Distribution Agreement, the Employee Matters Agreement, the Tax Matters Agreement, the Campus Lease Agreement or the Trademark License AgreementsAgreements; and (iv) our ownership and operation of our business. We are not aware of any existing indemnification obligations at this time, but any such indemnification obligations that may arise could be significant. Under the terms of the Separation and Distribution Agreement, AWI will indemnify us from and after the Separation and Distribution with respect to (i) all debts, liabilities and obligations allocated to AWI after the Separation and Distribution (including its failure to pay, perform or otherwise promptly discharge any such debts, liabilities or


12





obligations after the Separation and Distribution),; (ii) any breach by AWI of the Separation and Distribution Agreement, the Employee Matters Agreement, the Tax Matters Agreement, the Campus Lease Agreement or the Trademark License AgreementsAgreements; and (iii) AWI’s ownership and operation of its business. Our and AWI’s ability to satisfy these indemnities, if called upon to do so, will depend upon our and AWI’s future financial strength. If we are required to indemnify AWI, or if we are not able to collect on indemnification rights from AWI, our financial condition, liquidity or results of operations could be materially and adversely affected. We cannot determine whether we will have to indemnify AWI, or if AWI will have to indemnify us, for any substantial obligations after the Distribution.


Risks Related to our Common Stock

A stockholder's percentage of ownership in us may be diluted in the future.

A stockholder's percentage ownership in us may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that we may grant to our directors, officers and employees. Such issuances may have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock.

In addition, our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock with respect to dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.

Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:

the inability of our stockholders to call a special meeting;
rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
the right of our board of directors to issue preferred stock without stockholder approval;
the initial division of our board of directors into three classes of directors, with each class serving a staggered three-year term, and this classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult until we have phased out our staggered board;
a provision that directors serving on a classified board may be removed by stockholders only for cause; and
the ability of our directors, and not stockholders, to fill vacancies on our board of directors.

In addition, because we are subject to Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), this provision could also delay or prevent a change in control that stockholders may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following


13





the date on which that person or its affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock.

We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and the provisions could delay or prevent an acquisition that our board of directors determines is not in the best interests of AFI and its stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

Item 1B. Unresolved Staff Comments


None.






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15






Item 2. Properties


Our worldworldwide corporate headquarters is located in Lancaster, Pennsylvania. We entered into a lease agreement with AWI under which we lease certain portionsPennsylvania and is leased.

The following table details the location and principal use of their current headquarters as our corporate headquarters. See Note 7the Company's most significant properties:

LocationPrincipal UseInterest
Lancaster, Pennsylvania, U.S.Production - LVT & Residential SheetOwned
Beech Creek, Pennsylvania, U.S.Production - Printed FilmOwned
Kankakee, Illinois, U.S.Production - LVT, VCT & Residential TileOwned
Stillwater, Oklahoma, U.S.Production - LVT & Residential SheetOwned
Jackson, Mississippi, U.S.Production - VCTOwned
Montebello, California, U.S.Warehouse & DistributionLeased
Wujiang, Jiangsu, ChinaProduction - Commercial SheetOwned
Braeside, Victoria, AustraliaProduction - Commercial SheetOwned

In addition to the Consolidated Financial Statements forabove, we also operate from a discussionnumber of the terms of the Campus Lease Agreement. We have also subleased a portion of our corporate headquarters to TZI in connection with the sale of our wood business.

We produce and market our flooring products and services throughout the world, owning and operating 8 manufacturing plants in three countries. We operate 6 manufacturing plants located throughout the United States, (California, Illinois, Mississippi, Oklahoma, and Pennsylvania) and one plant each in China and Australia.

Ourother smaller sales and administrative offices (leased or owned) and warehousing facilities (leased or owned). We consider all of our properties at which operations are leased and/or owned worldwide,currently performed to be in satisfactory condition and leased facilities are utilized to supplement our owned warehousing facilities.suitable for their intended use.


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. AdditionalWe make additional incremental investments in plant facilities are made as appropriate to balance capacity with anticipated demand, improve quality, andimprove service and reduce costs.



Item 3. Legal Proceedings


We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of our management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows. See Note 11, Litigation and Related Matters, in Part II, Item 8, "Financial Statements" for additional information related to legal proceedings.



Item 4. Mine Safety Disclosures


Not applicable.




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PART II



Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


AFI’sOur common shares trade on the New York Stock Exchange under the ticker symbol “AFI.” As of February 28, 2019,December 31, 2021, there were approximately 214189 holders of record of AFI’sour common stock.


There were noWe did not declare any dividends declared during 20182021 or 2017.2020.


AFI currently expectsOur stock performance graph, required by Item 5, is incorporated by reference to return a portionthe section entitled "Stock Performance Graph" in the Company’s Definitive Proxy Statement for its 2022 Annual Meeting of the net proceeds from the sale of the wood business to shareholders in an amount, manner, and timingStockholders to be determined by the board of directors. Return of the net proceeds rests solely within the discretion of our board of directors and will depend, among other things, upon AFI’s earnings, capital requirements, financial condition, legal requirements, regulatory constraints, covenants associated with certain of AFI’s debt service obligations, industry practice, and other relevant factors as determined by our board of directors.filed no later than April 30, 2022.


Issuer Purchases of Equity Securities


The following table includes information about our stock repurchases from October 1, 20182021 to December 31, 2018:2021:
Period
Total Number of Shares Purchased (a)
Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs
October 1 - 31, 20215,596 $3.06 — — 
November 1 - 30, 202121,160 2.63 — — 
December 1 - 31, 20214,764 2.02 — — 
Total31,520 — — 
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 Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs
October 1 - 31, 2018259
 $17.96 —
 $9 million
November 1 - 30, 2018258
 $16.02 —
 $9 million
December 1 - 31, 2018—
 —
 —
 $9 million
Total517
   —
 $9 million
_____________
1 (a)Shares reacquired through the withholding of shares to pay employee tax obligations upon the exercise of options or vesting of restricted units granted under our long-term incentive plans and those previously granted under AWI's long-term incentive plans, which were converted to AFI units on April 1, 2016.





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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 Consolidated Financial Statements for periods prior to the Spin-off include the historical results of operations, assets and liabilities of the legal entities that are considered to comprise AFI and may not be indicative of results had we actually been a separate stand-alone entity during such periods, nor are they necessarily indicative of our future financial position, results of operations and cash flows. The historical financial results of the North American wood flooring business have been reflected in our Consolidated Financial Statements as a discontinued operation for all periods presented.

Not applicable.

 Year Ended December 31,
(Dollars in millions, except per share data)2018 2017 2016 2015 2014
Income statement data         
Net sales$728.2
 $704.1
 $710.1
 $716.9
 $717.3
Operating (loss) income(17.4) (12.7) (12.5) (11.7) 17.9
(Loss) income from continuing operations(19.1) (17.1) (16.2) (6.4) 8.6
Per common share - basic (1)
$(0.73) $(0.63) $(0.58) $(0.23) $0.31
Per common share - diluted (1)
(0.73) (0.63) (0.58) (0.23) 0.31
Dividends declared per share of common stock—
 —
 —
 —
 —
Balance sheet data (end of period)         
Total assets$708.2
 $890.1
 $904.4
 $870.6
 $858.0
Long-term debt70.6
 85.0
 20.0
 10.2
 10.2



(1) For 2014-2015, basic and diluted earnings (loss) per share were calculated based on 27,738,779 shares of AFI common stock distributed on April 1, 2016.




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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations



Overview


Armstrong Flooring, Inc. ("AFI" or the "Company") isWe are a leading global producer of flooring products for use primarily in the construction and renovation of commercial, residential and institutional buildings. We design, manufacture, source and sell resilient flooring products primarily in North America and the Pacific Rim. As of December 31, 2018,2021, we operated 8seven manufacturing plants in three countries, including 6five manufacturing plants located throughout the U.S. (Illinois, Mississippi, Oklahoma and two in Pennsylvania) and one plant each in China and Australia.


During early 2020, the Company established a multi-year strategic roadmap with the goal of transforming and modernizing our operations to become a leaner, faster-growing and more profitable business. During 2021 we (i) completed the phased relocation of our new corporate headquarters and Technical Center including a first-of-its-kind design center to showcase our full capabilities, with expected cost savings of approximately 60% when fully annualized; (ii) launched several new key products including additions to the American CharmTM collection and the introduction of NexProTM, NexproTM XMB, and Rest & RefugeTM; (iii) commenced shipments from the Company's new fully operational west coast distribution center; (iv) continued to execute on our multichannel go-to-market strategy including expanded rebranding initiatives and the launch of the new distributor-driven Armstrong® Flooring SignatureTM brand and the Armstrong® Flooring ProTM brand that is focused on the builder and multi-family channels; (v) continued initiatives aimed at improving manufacturing efficiency and customer experiences; (vi) continued to make investments in both talent and process improvements; (vii) we made our initial sales to the hospitality channel; and (viii) received numerous product and project awards which recognize our commitment to quality and innovation.

Despite this momentum, our transformation has been delayed due to COVID-19 and impacted by supply chain issues and inflationary pressures related to raw materials, transportation and labor. We instituted multiple price increases during 2021, the realization of which have lagged the increased input costs and have not been adequate to cover inflationary pressures. Accordingly, effective November 1, 2021, we instituted an additional price increase, resulting in a complete price re-positioning on commercial tile, select residential sheet, commercial/residential manufactured and sourced products, and installation materials. In addition, we implemented an ocean freight surcharge.

We will continue to monitor the larger macro-economic environment and further adjust our pricing strategy as necessary. In January 2022, we announced an additional U.S. price increase that will be effective March 1, 2022 and raise the price for certain residential products up to 10% and certain commercial products up to 15%.

On March 10, 2021, we completed the sale of our South Gate Facility for a total purchase price of $76.7 million. We received proceeds of $65.3 million, net of fees, expenses and certain amounts held in an environmental-related escrow account. We recognized a gain of $46.0 million on the sale. Concurrent with the sale, we paid $20.4 million to Pathlight Capital L.P., including a $20.0 million mandatory repayment of amounts outstanding under the Term Loan Agreement and $0.4 million of prepayment premium fees.

During the fourth quarter of 2021, we entered into multiple amendments to our Credit Agreements, which further amended the ABL Credit Facility and the Term Loan Agreement. The 2021 ABL Amendments amended the interest rates applicable to the Amended ABL Credit Facility, modified certain financial maintenance and other covenants as well as included the consent of the lenders to incur incremental borrowings under the Amended Term Loan Agreement. The 2021 Term Loan Amendments lowered the interest rates applicable to the Amended Term Loan Agreement, modified certain financial maintenance and other covenants as well as eliminated scheduled amortization payments. Additionally, the 2021 Term Loan Amendments provided incremental borrowings of $35.0 million. As part of these transactions we recorded $9.6 million of expenses related to the write-off of previously capitalized deferred financing costs and incremental debt amendment fees and capitalized $3.7 million in incremental deferred financing costs in accordance with U.S. GAAP. See Liquidity and Capital Resources for additional information pertaining to these amendments.

On December 31, 2021, following our Board's determination that a sale of the Company or other strategic transaction, if completed, would be in the best interests of the Company and the best means to maximize value for the Company's stockholders and other stakeholders, we announced that we had initiated a process for the potential sale of the Company and consideration of other strategic alternatives.








18

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



COVID-19
As the COVID-19 pandemic has continued, the overall impact on our business has declined. However, we remain committed to safeguarding our employees and the communities in which we operate, while continuing to deliver our products to customers. We have experienced the impact of the imbalance of global shipping capacity and demand which has led to delays in the receipt of goods from China and Vietnam at U.S. ports. Additionally, while overall economic activity has improved, some of our customers' commercial projects in the retail, office, medical and educational sectors continue to be postponed. These factors have led to a softer demand environment in certain states and channels. The ultimate duration and impact of the pandemic on our future results is unknown.

Outlook
Looking forward, we currently expect that our results will likely continue to be negatively impacted by (i) inflation, (ii) supply chain disruptions, (iii) delayed realization of pricing increases, (iv) COVID-19, and (v) costs associated with the potential sale of the Company or other strategic alternatives.

Geographic Areas


See Note 35, Property, Plant and Equipment and Note 12, Revenue, in Part II, Item 8, "Financial Statements" to the Consolidated Financial Statements for additional financial information by geographic areas.


Recent Events

On April 1, 2016, Armstrong World Industries, Inc. ("AWI"), a Pennsylvania corporation, separated AWI’s Resilient Flooring and Wood Flooring segments from its Building Products segment (the "Separation"). The Separation was effected by allocating the assets and liabilities related primarily to the Resilient Flooring and Wood Flooring segments to AFI and then distributing the common stockResults of AFI to AWI’s shareholders (the "Distribution"). The Separation and Distribution (together, the "Spin-off") resulted 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 a ceilings business. On the distribution date, each holder of AWI common stock received one share of AFI's common stock for every two shares of AWI's common stock held on the record date.Operations


The Spin-off was completed pursuant to a Separation and Distribution Agreement and several other agreements with AWI related to the Separation, including a Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement, a Trademark License Agreement, a Transition Trademark Agreement and a Campus Lease Agreement, each of which was filed with the SEC as an exhibit to our Current Report on Form 8-K on April 4, 2016. These agreements govern the relationship between AFI and AWI following the Spin-off and provided for the allocation of various assets, liabilities, rights and obligations. For a discussion of each agreement, see the section entitled “Certain Relationships and Related Person Transactions — Agreements with AWI” in our Information Statement, dated March 24, 2016.Consolidated Results

Year Ended December 31,
(Dollars in millions)202120202019
Net sales$649.9 $584.8 $626.3 
Cost of goods sold575.8 500.8 539.3 
Gross profit74.1 84.0 87.0 
Selling, general and administrative expenses160.9 145.2 146.4 
Gain on sale of property(46.0)— — 
Operating (loss) income(40.8)(61.2)(59.4)
Interest expense12.0 7.5 4.4 
Write-off of unamortized debt issuance costs and amendment fees9.6 — — 
Other expense (income), net(8.9)(4.8)1.8 
Income (loss) from continuing operations before income taxes(53.5)(63.9)(65.6)
Income tax expense (benefit)(0.5)(0.8)1.6 
Income (loss) from continuing operations(53.0)(63.1)(67.2)
Gain (loss) on disposal of discontinued operations, net of tax— — 10.4 
Net earnings (loss) from discontinued operations— — 10.4 
Net income (loss)$(53.0)$(63.1)$(56.8)
Our Registration Statement on Form 10 was declared effective by the SEC on March 15, 2016 and our common stock began regular-way trading on the New York Stock Exchange on April 4, 2016 under the symbol AFI.


During the second quarter of 2017, we acquired vinyl composition tile ("VCT") assets of Mannington Mills, Inc., a nationally recognized flooring company, for a cash purchase price of $36.1 million including transaction costs (the "VCT Acquisition"). See Note 15 to the Consolidated Financial Statements for further information.


On November 14, 2018, AFI entered into a Stock Purchase Agreement with Tarzan Holdco Inc., ("TZI"), an affiliate of American Industrial Partners ("AIP"), to sell our North American wood flooring business. On December 31, 2018 AIP completed the purchase of all of the issued and outstanding shares of Armstrong Wood Products, Inc., a Delaware Corporation ("AWP"), including its direct and indirect wholly owned subsidiaries. We received proceeds of $90.2 million, net of closing costs, transaction fees and taxes. The transaction is subject to a customary post-closing working capital adjustment process. The historical financial results of the North American wood flooring business have been reflected in our Consolidated Financial Statements as a discontinued operation for all periods presented.













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19


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




Factors Affecting Our Business


Net Sales

Net sales by percentage point change are shown in the tables below:
Overview
Year Ended December 31,ChangePercentage Point Change Due to
(Dollars in millions)20212020$%PriceVolume /
Mix		Currency
$649.9 $584.8 $65.1 11.1 %5.6 %5.4 %0.1 %


Demand
Year Ended December 31,ChangePercentage Point Change Due to
(Dollars in millions)20202019$%PriceVolume / MixCurrency
$584.8 $626.3 $(41.5)(6.6)%(1.5)%(5.0)%(0.1)%

Net sales for our products is influenced by economic conditions. We closely monitor publicly available macroeconomic trend data that provides insightthe year ended December 31, 2021 increased $65.1 million and 11.1% compared to commercial and residential market activity; this includes Gross Domestic Product growth indices, the Architecture Billings Index and the Consumer Confidence Index, as well as housing starts and existing home sales.

Demand for our products is also influenced by consumer preferences. During 2018, we continuedyear ended December 31, 2020 primarily due to experience growth in each region in which the demandCompany operates. Demand improvements, favorable product mix and impacts from previously announced pricing initiatives drove sales increases in both Commercial and Residential channels, partially offset by supply chain disruptions, including ocean shipping delays related to sourced products, which have delayed receipt of certain products from 2021 until 2022, despite strong demand.

Net sales for luxury vinyl tile ("LVT")the year ended December 31, 2020 decreased $41.5 million and 6.6% compared to the year ended  December 31, 2019 primarily due to lower sales volume due to COVID-19 pandemic related business disruptions, including the postponement of certain commercial projects and slower activity at many independent customer retail locations.

Cost of goods sold
Cost of goods sold for the year ended December 31, 2021 was 88.5% of net sales compared to 85.6% of net sales for the year-ending December 31, 2020. The increase in conjunction with a decline in our traditional resilient products, particularly vinyl sheet.percentage was primarily due to inflation related to the critical input costs and supply interruptions which have caused manufacturing inefficiencies. In addition, our channel partners raise or lower their inventory levels according to their expectations of market demand and consumer preferences, which directly affects our sales. Higher than normal inventory levels at distributors could impact sales in the first quarter of 2021 was impacted by manufacturing inefficiencies caused by winter storms which affected multiple manufacturing plants and the second quarter of 2021 was impacted by a $4.5 million charge, which included $3.3 million of accelerated depreciation expense for property, plant and equipment for which no alternative use was identified and a $1.2 million inventory rationalization charge related to the Company's business transformation initiatives.

Cost of goods sold for the year ended December 31, 2020 was 85.6% of net sales compared to 86.1% of net sales for year-ending December 31, 2019. The decrease in percentage was primarily due to a $13.6 million inventory write-down related to an inventory optimization initiative that occurred during 2019 and did not repeat during 2020, partially offset by inefficiencies caused by decreases in volume and non-recurring costs associated with the consolidation of our manufacturing activities as could continued uncertainty around tariffs from products imported from China.

Markets

We compete in both the commercial and residential markets in North America and primarily the commercial market in the Pacific Rim. Our business operates in a competitive environment across all our product categories, and excess capacity exists in muchpart of the industry.  We continueCompany's business transformation initiatives during 2020.

Selling, general & administrative expenses
SG&A expenses for the year-ended December 31, 2021 increased $15.7 million and 10.8% compared to see efforts by various competitors to price aggressively as a means to gain market share.

We have experienced a declinethe year-ended December 31, 2020. The increase in demand for our traditional resilient products, particularly vinyl sheet products used in residential applications. The decline in vinyl sheet2021 is driven by lossincreased headcount in our sales organization to support changes in our go-to-market strategy, higher incentive compensation accruals compared to prior year, increased advertising and promotion costs compared to prior year and cost reduction measures implemented during 2020, in response to the impact of market shareCOVID-19, which did not repeat during the current year. In addition, there were incremental expenses of $1.0 million related to competitorsthe relocation of the Company's headquarters and $0.6 million of professional services related to the sale of the Company during the 2021. Excluding the headquarter relocation and sale related costs, we expect current year costs to be more indicative of our future cost structure.

SG&A expenses for the year-ended December 31, 2020 decreased $1.2 million and 0.8% compared to the year-ended December 31, 2019. The decrease in 2020 is driven by a reduction in core SG&A resulting from business transformation initiatives as well as consumer trends, which have continued$14.2 million of expenses incurred during 2019 related to favor alternate products, including LVT products.

The flooring market continues to experience LVT growth. Given its attractive visualsa samples inventory write-down, strategic initiative costs and performance characteristics, LVT growth has exceededemployee termination costs that of the overall flooring market. We believe LVT growth has and will continue to come partially at the expense of other product categories in both the soft and hard surface flooring markets, with the largest impacts on the AFI portfolio within the vinyl sheet and VCT categories.

We are the largest producer of VCT. The market for VCT, which is primarily used in commercial environments, is a mature and well-structured category.

Operating Expenses

We have experienced increased raw material prices and basic energy costs which we expect to continue to experience in 2019. Additionally, we expect increases in transportation costs in 2019.

Tariff

The U.S. government announced a tariff of 10% on certain flooring products imported to the U.S. from China, effective on September 24, 2018. This tariff increase has an impact on products we import from China. In order todid not repeat during 2020, partially offset the impact, we have implemented price increasesby $19.0 million of non-recurring transition services income from TZI that went into effectdid not repeat in the fourth quarter of 2018. A potential tariff increase to 25% was announced but has been delayed indefinitely. We expect to implement additional price changes in line with potential tariff rate increases if and when they become effective.2020.





19




20


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




ResultsBusiness transformation costs
Beginning in 2018, the Company commenced a multi-year business transformation which resulted in a strategic roadmap formally announced during 2020. In addition, the Company has incurred costs related to debt refinancing and the potential sale of Operations

2018 Compared to 2017

Consolidated Results from Continuing Operations
 Year Ended December 31,
     Change
(Dollars in millions)2018 2017 $ %
Net sales$728.2
 $704.1
 $24.1
 3.4 %
Cost of goods sold585.0
 553.0
 32.0
 5.8 %
Gross profit143.2
 151.1
 (7.9) (5.2)%
Selling, general and administrative expenses160.6
 163.8
 (3.2) (2.0)%
Operating (loss)(17.4) (12.7) (4.7) NM
Interest expense4.8
 2.7
 2.1
  
Other expense, net2.9
 3.7
 (0.8)  
(Loss) from continuing operations before income taxes(25.1) (19.1) (6.0)  
Income tax (benefit)(6.0) (2.0) (4.0)  
(Loss) from continuing operations(19.1) (17.1) (2.0)  
Earnings (loss) from discontinued operations, net of tax9.9
 (24.7) 34.6
  
Loss on disposal of discontinued operations, net of tax(153.8) —
 (153.8)  
Net loss from discontinued operations$(143.9) $(24.7) $(119.2)  
Net (loss)$(163.0) $(41.8) $(121.2)  
_____________
NM: not meaningful

Net Sales

Net sales by percentage point changethe Company or other strategic transaction. Such costs (or gains) are shownincluded in the table below:
 Year Ended December 31, Change Percentage Point Change Due to
(Dollars in millions)2018 2017 $ % Price Volume Mix Currency
 $728.2
 $704.1
 $24.1
 3.4% 1.0
 (2.2) 4.5
 0.1

Net salescaptions Costs of goods sold; SG&A expenses; Gain on sale or property; and Write-off of unamortized debt issuance costs and amendment fees on the Company's Consolidated Statements of Operations as required by U.S. GAAP. A summary of business transformation costs included in these captions for the year endedperiods presented include:
Site Exit and Relocation
Costs		Strategic Initiative
Costs		Employee Termination CostsProduct and Asset RationalizationNet
Gains		Total
2021:
Cost of goods sold$— $— $— $4.5 $— $4.5 
Selling, general and administrative expenses1.0 0.6 — — — 1.6 
(Gain) loss on sale of property— — — — (46.0)(46.0)
Write-off of unamortized debt issuance costs and amendment fees— 9.6 — — — 9.6 
$1.0 $10.2 $— $4.5 $(46.0)$(30.3)
2020:
Cost of goods sold$5.7 $— $— $— $— $5.7 
Selling, general and administrative expenses0.8 0.9 0.7 — (0.2)2.2 
$6.5 $0.9 $0.7 $— $(0.2)$7.9 
2019:
Cost of goods sold$4.6 $— $— $13.6 $— $18.2 
Selling, general and administrative expenses— 5.4 2.9 6.0 — 14.3 
$4.6 $5.4 $2.9 $19.6 $— $32.5 
Site exit and relocation costs - Site exit and relocation costs include expenses associated with exit or disposal activities, including asset write-downs, and non-recurring costs associated with relocation of Company operations. Costs incurred in 2021 relate primarily to the Company's corporate headquarters relocation. Costs in both 2020 and 2019 relate primarily to the Company's South Gate Facility which was sold on March 10, 2021.

Strategic initiative costs - Costs of non-recurring strategic projects, including exploration of strategic capital market initiatives, financing transactions and executive leadership transitions that are not considered part of normal operations. Costs incurred in 2021 related the write-off of unamortized debt issuance costs and amendment fees for transactions entered into during the fourth quarter as well as costs directly associated with the Company's announcement of a potential sale or other strategic alternatives announced on December 31, 2018 increased compared2021. Costs incurred in 2020 related to non-severance costs related to the year ended December 31, 2017 primarily dueCFO transition. Costs in 2019 related to favorable mix and increase in price in response to higher inputnon-severance costs partially offset by lower volume. Double-digit sales growth in LVT contributed to favorable mix while volume was impacted by declines in traditional categories.

Operating (Loss)

Operating results for the year ended December 31, 2018 declined comparedrelated to the year ended December 31, 2017.CEO transition, the sale of the wood flooring business and development of strategy alternatives.
Employee termination costs - Costs of involuntary termination benefits associated with one-time benefit arrangements provided as part of an exit or disposal activity are recognized by the Company when a formal plan for reorganization is approved at the appropriate level of management and communicated to affected employees. The decline reflected the impact of higher inputemployee termination benefit costs which more than offset the benefit of higher net sales, lower manufacturing costs, improved productivityin 2020 and lower selling, general2019 related to our former CFO and administrative ("SG&A") expenses.former CEO, respectively.






20




21


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




Product and asset rationalization - As part the Company's on-going business transformation efforts, it may from time-to-time determine to stop producing certain products. As a result, the Company may incur accelerated depreciation charges for certain assets and inventory reserve charges to reflect inventory at estimated market value. Costs incurred during 2021 related to such determinations included accelerated depreciation expense for idled assets with no future alternative use and certain inventory related charges related to product rationalization decisions. On September 11, 2019, Michel S. Vermette was appointed CEO of the Company and initiated the implementation of a new multi-year product strategy and inventory optimization plan, which includes focusing on critical products and standardizing procedures to enable better decision making. As a result, we recorded a non-cash inventory write down of $13.6 million during the third quarter of 2019, primarily related to the write down of inventory in certain product categories to estimated liquidation value. Directly related to this strategy and inventory optimization plan, merchandising materials of $6.0 million were written off as obsolete in the third quarter of 2019 in connection with a decreased demand for residential displays following our go to market change.
Net gains - Net gains result from the sale of redundant properties (primarily land and buildings) and non-core assets. In 2021 net gains related to the sale of our South Gate Facility which was classified as Assets held-for-sale at December 31, 2020. In 2020 net gains related to the sale of a property in Vicksburg, Mississippi that had been classified as Assets held-for-sale during 2020. The property was originally retained as part of the sale of the wood business in 2018.

Write-off of unamortized debt issuance costs and amendment fees
For the year-ended, December 31, 2021, the Company recorded a charge of $9.6 million related the certain costs associated with amendments to its Credit Agreements, which further amended the ABL Credit Facility and the Term Loan Agreement. These charges consisted of the write-off of unamortized debt issuance costs of $5.9 million and $3.7 million of incremental fees which did not qualify for capitalization under U.S. GAAP.

Interest expense
For the year-ended December 31, 2021, interest expense increased $4.5 million and 60.0% compared to year-ended December 31, 2020 due to higher interest rates on debt outstanding resulting from our June 2020 refinancing for a full year in 2021 compared to a partial year in 2020.

For the year-ended December 31, 2020, interest expense increased $3.1 million and 70.5% compared to year-ended December 31, 2019 due to higher interest rates on debt outstanding resulting from our June 2020 refinancing.

Other (income) expense, net:net
Other (income) expense, net of $2.9$(8.9) million, $(4.8) million and $3.7$1.8 million for the years ended December 31, 20182021, 2020 and 2017,2019, respectively, primarily reflected costs forthe positive impact from changes in actuarial assumptions related to defined-benefit pension and postretirement plans. Additionally, the results for 2020 included a non-recurring postretirement gain resulting from a plan change totaling $1.8 million.


Income tax expense:expense (benefit)
For the year ended December 31, 20182021 we recorded an income tax benefit of $6.0$0.5 million compared to an income tax benefit of $2.0$0.8 million for the year ended December 31, 2017.2020. The effective tax rates were 23.9%a benefit of 0.9% and 10.5%a benefit of 1.2% for the years ended December 31, 20182021 and 2017,2020, respectively. The tax benefit rate was higher in 2018 primarily due to domestic valuation allowances established during the prior period and the release of foreign valuation allowances in 2018 offset by the reduction in the U.S. tax rate from 35% to 21% in 2018.


Discontinued operations:For the year ended December 31, 20182020 we recorded an income tax benefit of $0.8 million compared to an income tax expense of $1.6 million for the year ended December 31, 2019. The effective tax rates were a benefit of 1.2% and 2017an expense of 2.4% for the years ended December 31, 2020 and 2019, respectively.

The change in effective rates during both periods was primarily driven by changes in the mix of income among tax jurisdictions and the impact of discontinued operations, as well as the effects of non-benefited losses.

Net earnings (loss) from discontinued operations
For the years ended December 31, 2021 and 2020 there were no discontinued operations activity. For the year ended December 31, 2019, a $10.4 million gain on disposal of $9.9 million and lossdiscontinued operations was realized primarily due to the resolution of $24.7 million, respectively, reflected the operating results of the North American wood flooring business. In 2018, we recognized a loss on the sale ofour anti-dumping case related to the North American wood flooring business of $153.8 million. See Note 9 to the Consolidated Financial Statements.which was sold in 2018.










21




22


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




2017 Compared
Liquidity and Capital Resources

During the fourth quarter of 2021, the Company entered into multiple amendments to 2016its Credit Agreements, which further amended the ABL Credit Facility and the Term Loan Agreement. These amendments are described in more detail below. As part of these transactions, the Company recorded a charge of $9.6 million related to the write-off of unamortized debt issuance costs and debt amendment fees and capitalized $3.7 million in incremental debt issuance costs in accordance with U.S. GAAP.


On November 1, 2021, the Company entered into the Fourth Amendment to the ABL Credit Facility and on December 31, 2021, the Company entered into the Fifth Amendment to the ABL Credit Facility. These 2021 ABL Amendments amended the interest rates applicable to the Amended ABL Credit Facility, modified certain financial maintenance and other covenants as well as included the consent of the lenders to incur incremental borrowings under the Amended Term Loan Agreement.

On November 1, 2021, the Company entered into the First Amendment to the Term Loan Agreement and on December 31, 2021, the Company entered into the Second Amendment to the Term Facility. These 2021 Term Loan Amendments amended the interest rates applicable to the Amended Term Loan Agreement, modified certain financial maintenance and other covenants as well as eliminated scheduled amortization payments. Additionally, the 2021 Term Loan Amendments provided incremental borrowings of $35.0 million which was used to reduce borrowings under the Amended ABL Credit Facility. After completion of the 2021 Term Loan Amendments the outstanding aggregate principal under the Amended Term Loan Agreement was $83.3 million. In connection with the 2021 Term Loan Amendments, the Company paid the Term Loan Agent an amendment fee equal to 2.5% of the outstanding principal balance of the original Term Loan Agreement and 5.0% of the incremental borrowings under the Amended Term Loan Agreement. These amendment fees were added to the outstanding principal of the Amended Term Loan Agreement. As a result, total borrowings under the Amended Term Loan Agreement were $86.2 million at December 31, 2021.

The Company is required to refinance the Credit Agreements no later than June 30, 2022, even if a sale of the Company or other strategic transaction has not been consummated prior to such date. The Company will pay a sale process fee to its lenders under the Amended ABL Credit Facility upon the consummation of a sale of the Company or similar transaction, which fee will be $500,000 if such transaction closes before March 31, 2022, and $750,000, if it closes any time thereafter.

See Note 8, Debt, in Part II, Item 8, "Financial Statements" to the Consolidated Results from Continuing OperationsFinancial Statements for additional information related to the Amended ABL Credit Facility and Amended Term Loan Agreement.
 Year Ended December 31,
     Change
(Dollars in millions)2017 2016 $ %
Net sales$704.1
 $710.1
 $(6.0) (0.8)%
Cost of goods sold553.0
 554.5
 (1.5) (0.3)%
Gross profit151.1
 155.6
 (4.5) (2.9)%
Selling, general and administrative expenses163.8
 168.1
 (4.3) (2.6)%
Operating (loss)(12.7) (12.5) (0.2) NM
Interest expense2.7
 1.5
 1.2
  
Other expense, net3.7
 6.9
 (3.2)  
(Loss) from continuing operations before income taxes(19.1) (20.9) 1.8
  
Income tax (benefit)(2.0) (4.7) 2.7
  
(Loss) from continuing operations(17.1) (16.2) (0.9)  
(Loss) earnings from discontinued operations, net of tax(24.7) 25.4
 (50.1)  
Net (loss) income$(41.8) $9.2
 $(51.0)  
_____________
NM: not meaningfulCash Flows

The table below shows our cash (used for) provided by operating, investing and financing activities:
Year Ended December 31,
(Dollars in millions)202120202019
Cash provided by (used for) operating activities$(70.3)$(28.2)$(6.0)
Cash provided by (used for) investing activities44.8 (21.1)(29.4)
Cash provided by (used for) financing activities21.5 35.0 (111.1)

Operating activities
Net Sales

Net sales by percentage point change are showncash used for operating activities for 2021 was $70.3 million, an increase in the table below:
 Year Ended December 31, Change Percentage Point Change Due to
(Dollars in millions)2017 2016 $ % Price Volume Mix Currency
 $704.1
 $710.1
 $(6.0) (0.8)% (1.3) (2.3) 2.7
 0.1

Net sales for the year ended December 31, 2017 decreaseduse of $42.1 compared to the year ended December 31, 2016 primarily2020. The increase was due to lower volumenet cash income and price, partially offset by favorable mix. Lower volume reflected a declinechanges in sales of vinyl sheetworking capital with increased receivable and laminate products,inventory balances partially offset by higher salesaccounts payable and accrued expense balances.

Net cash used for operating activities for 2020 was $28.2 million, an increase in use of LVT, which continued to achieve double-digit growth, and VCT. The decline in price reflected continued competitive pressure across our product categories. Favorable mix was driven by growth from our LVT products relative to declines in traditional categories.

Operating (Loss)

Operating results for the year ended December 31, 2017 declined slightly$22.2 compared to the year ended December 31, 2016.2019. The decline reflected the impactprimary drivers of this increase were lower salesnet cash income and higher input costs,net increases in working capital, primarily inventory, other assets and liabilities and receivables, partially offset by lower manufacturing costs, including lower costs related to our Lancaster, PA LVT operations compared to the prior-year period,accounts payable and lower SG&Aaccrued expenses.


Other expense, net: Other expense, net of $3.7 million and $6.9 million for the years ended December 31, 2017 and 2016, respectively, primarily reflected costs for defined-benefit pension and postretirement plans and, in 2016, the translation of unhedged cross-currency intercompany loans.







22




23


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






Income tax expense: For the year ended December 31, 2017, income tax benefitInvesting activities
Net cash provided by investing activities for 2021 was $2.0$44.8 million, an increase of $65.9 million compared to an income tax benefit of $4.7 million for the year ended December 31, 2016.2020. The effective tax rates were 10.5% and 22.5% for the years ended December 31, 2017 and 2016, respectively. The loss from continuing operations in 2017 resulted in the recognition of domestic valuation allowances in the period. These valuation allowances, net of the effect from the geographic distribution of earnings and losses, resulted in a lower effective tax rate compared to 2016.

Discontinued operations: For the years ended December 31, 2017 and December 31, 2016 (loss) earnings from discontinued operations primarily reflected the operating results of our former North American wood flooring business. For the year ended December 31, 2016, discontinued operations also included $1.7 million of non-cash tax benefits for our former European resilient flooring business related to pension expense deductions. See Note 9 to the Consolidated Financial Statements.

Liquidity and Capital Resources

In March 2017, our board of directors authorized a share repurchase program of up to $50.0 million. The authorization of the repurchase programincrease is aligned with our goal to increase the efficiency of our capital structure over time while preserving sufficient liquidity to invest in growth projects and other value-accretive opportunities. During 2018, we repurchased $1.0 million of the Company's outstanding stock. From inception of the program through year end 2018, we repurchased 2.5 million shares under the program for a total cost of $41.0 million. Any shares not used to fulfill employee stock award obligation are held in treasury as of December 31, 2018.

Our primary sources of liquidity are, and we anticipate that they will continue to be, cash generated from operations and borrowings under our new secured Credit Facility described below. We believe these sources are sufficient to fund our capital needs, planned capital expenditures, and to meet our interest and other contractual obligations in the near term, as well as any further share repurchases. Our liquidity needs for operations vary throughout the year with the majority of our cash flows generated in the second and third quarters. We believe the absence of cash flow from discontinued operations will not materially impact our future liquidity and capital resources.

Prior to the Spin-off, deemed transfers of cash to and from AWI’s cash management system were reflected in net AWI investment in the historical combined financial statements.

Cash and cash equivalents totaled $173.8 million as of December 31, 2018 of which $140.9 million was held in the U.S.

Cash Flows

The discussion that follows includes cash flows related to discontinued operations.

The table below shows our cash provided (used) by operating, investing and financing activities:
 Year Ended December 31,
(Dollars in millions)2018 2017 2016
Cash provided by operating activities$62.5
 $62.9
 $54.0
Cash provided by (used for) investing activities60.6
 (80.5) (36.9)
Cash provided by financing activities13.3
 24.4
 14.5






23


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


Operating activities

Operating activities for 2018 provided $62.5 million of cash. Cash was generated from earnings exclusive of net non-cash expenses, primarily loss on sale of discontinued operations, and depreciation and amortization. Changes in working capital primarily reflected higher inventory levels, higher accounts payable and accrued expenses, and lower accounts receivable.

Operating activities for 2017 provided $62.9 million of cash. Cash was generated through earnings exclusive of non-cash expenses, primarily depreciation and amortization, impairment and pension, and by changes in working capital. Changes in working capital primarily reflected lower inventories, partially offset by lower accounts payable and accrued expenses and changes in other assets and liabilities.

Operating activities for 2016 provided $54.0 million of cash. Cash was generated through earnings exclusive of non-cash expenses, primarily depreciation and amortization, partially offset by increased working capital. Increased working capital primarily reflected net changes in inventories and accounts payable and accrued expenses.

Investing activities

Investing activities for 2018 provided cash of $60.6 million primarily due to the net proceeds from the sale of discontinued operations, partially offset by purchases of property, plantour South Gate Facility and equipment.slightly lower capital expenditure year-over-year.


Net cash used for investing activities for 2020 was $21.1 million, a decrease of $80.5$8.3 million and $36.9 millioncompared to 2019. The primary drivers for the years ended December 31, 2017 and 2016, respectively, was primarily due tothis decrease were lower purchases of property, plant and equipment. Includedequipment and a cash payment related to discontinued operation in the 2017 outflow was the cash paid for the acquisition of the VCT assets of Mannington Mills, Inc. for $36.1 million including transaction costs.2019 that did not repeat in 2020.


Financing activities

Net cash provided by financing activities for 2021 was $13.3$21.5 million, $24.4a decrease of $13.5 million from cash provided by financing activities in 2020. The decrease is due to lower incremental borrowings under the Amended Term Loan Agreement year-over-year and $14.5 million formandatory prepayments on the years ended December 31, 2018, 2017 and 2016, respectively. Cash provided in 2018 primarily reflected proceeds fromTerm Loan Agreement during 2021 after the sale of our new debt facility,South Gate Facility, partially offset by higher net borrowings under the Amended ABL Credit Facility year-over-year as well as lower payments on our ABL facility. Cashfor deferred financing costs during 2021.

Net cash provided by financing activities for 2020 was $35.0 million, an increase of $146.1 million from cash used by financing activities in 2017 primarily reflected2019. The primary driver of this change was the net proceeds from debt partially offset by purchases of treasury stock. Cash provided in 2016 primarily reflected net proceeds from debt and transfers from AWI, netimpact of the distribution paid at Separation.Company's debt refinancing during the second quarter of 2020.


DebtSources and Uses of Cash

In connection withThe 2021 ABL Amendments and the 2021 Term Loan Amendments contain provisions that require the Company to adhere to various covenants, including meeting certain milestones relating to the sale of the woodCompany and there can be no assurance that the Company will be able to comply with these covenants. The Company is required to refinance the Credit Agreements no later than June 30, 2022, even if a sale of the Company or other strategic transaction has not been consummated prior to such date. The failure to comply with any of these covenants would constitute a default under the terms of the Credit Agreements which could have an adverse effect on the Company, including affecting its access to liquidity. The Company continues to face certain risks and uncertainties that have been affecting its business on December 31, 2018, we entered intoand operations. While the Company has implemented substantial pricing actions and evaluates other initiatives that could enhance its liquidity, including the potential sale of the Company, there can be no assurances that these actions will be successful. Substantial doubt about the Company's ability to continue as a credit agreement (the "Credit Agreement"). The Credit Agreement provides us with a $150.0 million secured credit facility (the "Credit Facility"), consistinggoing concern exists because the sale of a $75.0 million revolving facility and a $75.0 million term loan facility. The revolving facility includes a $25.0 million sublimit for the issuance of letters of credit and a $15.0 million sublimit for swing line loans. The Credit Facility is scheduled to mature on December 31, 2023. The Credit Agreement provides for a uncommitted accordion feature that allows us to request an increase in the revolving facilityCompany being completed or the term loan facility in an aggregate amountCredit Agreements being extended beyond the June 30, 2022 refinancing requirement cannot be considered probable as they are not under our sole control. Additionally, based on current projections, as a result of continuing supply chain disruptions and continued inflationary pressures related to exceed $25.0 million.transportation, labor and raw materials which are expected to continue through 2022, the forecasts do not provide the Company with reasonable certainty it will have the necessary liquidity to fund operations beyond June 30, 2022.


As of December 31, 2018, total2021 there were borrowings of $20.6 million outstanding under our Credit Facility were $75.0 million under Term Loan A and $25.0 million under the revolvingAmended ABL Credit Facility, while outstanding letters of credit were $3.9$6.8 million. Proceeds fromTotal net availability under the newAmended ABL Credit Facility were utilized to repay borrowings of $94.0 million under the $225.0 million ABL facility dated April 1, 2016. The $225.0 million ABL Facility was closedand Amended Term Loan Agreement as of December 31, 2018, without penalty. Capitalized fees related to the ABL facility of $0.6 million were expensed as of December 31, 2018.2021 was $19.9 million.




24


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


Borrowings under the new Credit Facility bear interest at a rate equal to an adjusted base rate or the London Interbank Offered Rate ("LIBOR") plus an applicable margin, which varies according to the net leverage ratio and was 0.75% as of December 31, 2018. As of December 31, 2018, the interest rate of 6.25% was determined using the base rate plus applicable margin. On January 4, 2019, the interest rate of 4.26% was determined as borrowings were converted to use LIBOR plus the applicable margin. We are required to pay a commitment fee, payable quarterly in arrears, on the average daily unused amount of the revolving Amended ABL Credit Facility, which varies according to the net leverage ratio and was 0.20%0.50% as of December 31, 2018.2021. Outstanding letters of credit issued under the Amended ABL Credit Facility are subject to fees which will be due quarterly in arrears based on the applicable margin described above plus a fronting fee. The total rate for letters of credit was 1.875%4.125% as of December 31, 2018.2021.

All obligations under the Credit Agreement are guaranteed by each of our wholly owned domestic subsidiaries that individually, or together with its subsidiaries, has assets of more than $1.0 million. All obligations under the Credit Agreement, and guarantees of those obligations, are secured by all of the present and future assets of the Company and the guarantors, subject to certain exceptions and exclusions as set forth in the Credit Agreement and other security and collateral documents.

Borrowings under the revolving portion of the Credit Facility are presented on our Consolidated Balance Sheet as a short-term obligation. Borrowings under the Term Loan A portion of the Credit Facility are segregated on our Consolidated Balance Sheet with $70.6 million net of fees shown as a long-term obligation and $3.7 million presented as a short-term obligation due to quarterly principal repayment installments.

Debt Covenants

The Credit Agreement requires us to comply with certain financial covenants calculated for the Company and its subsidiaries on a consolidated basis. Specifically, the Credit Agreement requires that we and our subsidiaries not:

Permit the Consolidated Net Leverage Ratio (as defined in the Credit Agreement) at any time to be greater than 3.00 to 1.00; and
Permit the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement) at any time to be less than 1.25 to 1.00.

The Credit Agreement also contains customary affirmative covenants and events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $15.0 million.


Our foreign subsidiaries had available lines of credit totaling $8.7 million;$9.4 million and there were no borrowing$4.6 million borrowings under these lines of credit as of December 31, 2018.

Off-Balance Sheet Arrangements

No disclosures are required pursuant to Item 303(a)(4)2021. Total availability under these foreign lines of Regulation S-K.


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 under contractual obligations existingcredit as of December 31, 2018. Only known payments that are dependent solely2021 was $4.8 million.

In addition, the Company had $9.7 million of Cash and cash equivalents at December 31, 2021.

Based on the passageforegoing, the Company had total liquidity (including Cash and cash equivalents) of time are included. Obligations under contracts that contain minimum payment amounts are shown$34.4 million 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. AmountsDecember 31, 2021 compared to $52.7 million at December 31, 2020.





25




24


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




are presented below based upon
Debt Covenants
The Amended ABL Credit Facility contains certain financial covenants applicable to the currently scheduled payment terms. Actual future payments may differCompany and its subsidiaries. Among other things, the Amended ABL Credit Facility requires that the Company and its subsidiaries (i) maintain minimum Availability (as defined in the Amended ABL Credit Facility) of $40 million during the months ending December 31, 2021 and January 31, 2022, $37.5 million during the month ending February 28, 2022, and $25 million thereafter, (ii) maintain minimum Consolidated Cash Flow (as defined in the Amended ABL Credit Facility) for each month, commencing with the month ending December 31, 2021, and calculated on a cumulative basis, ranging from the amounts presented below due to changes in payment terms or events affecting the payments.
(Dollars in millions)2019 2020 2021 2022 2023 Thereafter Total
Debt$3.7
 $3.8
 $7.5
 $7.5
 $77.5
 $—
 $100.0
Operating lease obligations (1)
10.0
 7.1
 2.0
 0.3
 0.2
 0.8
 20.4
Scheduled interest and fee payments (2)
4.4
 3.8
 4.0
 3.8
 3.8
 —
 19.8
Unconditional purchase obligations (3)
11.6
 6.4
 1.4
 —
 —
 —
 19.4
Pension contributions (4)
0.2
 —
 —
 —
 —
 —
 0.2
Other obligations(5)
6.0
 —
 —
 —
 —
 —
 6.0
Total contractual obligations$35.9
 $21.1
 $14.9
 $11.6
 $81.5
 $0.8
��$165.8
_____________
(1) Operating lease obligations include the minimum payments due under existing agreements with non-cancelable lease terms in excess of one year.
(2) For debt with variable interest rates, we projected future interest payments based on market interest rates and the balance outstandingnegative $21 million as of December 31, 2018.2021, to negative $40 million as of June 30, 2022 and (iii) maintain a minimum Formula Availability (as defined in the Amended ABL Credit Facility) in an amount ranging from $86.4 million during the month ending December 31, 2021 to $106.4 million during the month ending June 30, 2022. In addition, the Amended ABL Credit Facility includes certain milestones related to the Company’s consideration of a sale of the Company or other strategic alternatives which is required to be completed no later than May 15, 2022.
(3)
The Term Loan Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability to create liens; to undertake fundamental changes; to incur debt; to sell or dispose of assets; to make investments; to make restricted payments such as dividends, distributions or equity repurchases; to change the nature of our businesses; to enter into transactions with affiliates and to enter into certain burdensome agreements.

The Company was in compliance with these covenants at December 31, 2021.

While the Company has implemented substantial pricing actions and evaluates other initiatives that could enhance its liquidity, including the potential sale of the Company, there can be no assurances that these actions will be successful. The failure to comply with any of these covenants would constitute a default under the terms of the Credit Agreements which could have an adverse effect on the Company, including affecting its access to liquidity. The Company continues to face certain risks and uncertainties that have been affecting its business and operations. Substantial doubt about the Company's ability to continue as a going concern exists because the sale of the Company being completed or the Credit Agreements being extended beyond the June 30, 2022 refinancing requirement cannot be considered probable as they are not under our sole control. Additionally, based on current projections, as a result of continuing supply chain disruptions and continued inflationary pressures related to transportation, labor and raw materials, which are expected to continue through 2022, the forecasts do not provide the Company with reasonable certainty it will have the necessary liquidity to fund operations beyond June 30, 2022.

Cash Management
The Company has various cash management systems throughout the world that centralize cash in various bank accounts where it is economically justifiable and legally permissible to do so. These centralized cash balances are then redeployed to other operations to reduce short-term borrowings and to finance working capital needs or capital expenditures. Due to the transitory nature of cash balances, they are normally invested in bank deposits that can be withdrawn at will or in very liquid short-term bank time deposits. The Company's policy is to primarily use the banks that participate in our ABL credit facility located in the various countries in which the Company operates. The Company monitors the creditworthiness of banks and when appropriate will adjust banking operations to reduce or eliminate exposure to less creditworthy banks.

At December 31, 2021, our Cash and cash equivalents totaled $9.7 million, of which $1.1 million was held in the U.S. and $8.6 million held by non-U.S. subsidiaries. At December 31, 2021 none of our consolidated cash and cash equivalents had regulatory restrictions that would preclude the transfer of funds with and among subsidiaries. While our remaining non-U.S. cash and cash equivalents can be transferred with and among subsidiaries, the majority of these non-U.S. cash balances will be used to support the ongoing working capital needs and continued growth of our non-U.S. operations.

Unconditional Purchase Obligations
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 on usage. Our unconditional purchase obligations are mainly comprised of utility contracts and IT service agreements. At December 31, 2021 these obligations totaled $43.9 million, of which $21.5 million is due in 2022, $11.2 million is due in 2023, and $11.2 million is due in 2024.
(4) Pension contributions include estimated required contributions for our defined-benefit pension plans. We are not presenting estimated payments in the table above beyond 2019 as funding can vary significantly from year to year based upon changes in the fair value
In addition, we had $6.5 million of plan assets, funding regulations and actuarial assumptions.
(5) Other obligations include inventory in transit at December 31, 2021, where the title hashad not been assumed by us,passed to us; however, we are committed to make payment once these shipments reach the shipment reaches its destination as required per the contract.

The table does not include $1.6 million of unrecognized tax benefits 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 8 to the Consolidated Financial Statements for more information.

This table excludes obligations related to postretirement benefits since we voluntarily provide these benefits. The amount of benefit payments we made in 2018 was $8.0 million. See Note 18 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 2020. Had these agreements terminated as of December 31, 2018, we would have been obligated to purchase approximately $2.1 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.

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 obligations to the beneficiary. This table summarizes the commitments we have available in the U.S. for use as of December 31, 2018. Letters of credit are currently arranged through our Credit Facility. See Note 17 to the Consolidated Financial Statements for more information.




26




25


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




(Dollars in millions)2019 2020 2021 2022 2023 Thereafter Total
Other Commercial Commitments             
Letters of credit$3.9
 —
 —
 —
 —
 —
 $3.9


Critical Accounting Estimates
In preparingThe Company's discussion and analysis of our consolidated financial statementscondition and results of operations are based upon the Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), we are requiredGAAP. The preparation of these Consolidated Financial Statements requires us to make certain estimates and assumptionsjudgments that affect the reported amounts of assets, liabilities, revenues and liabilitiesexpenses. On an ongoing basis, we evaluate the estimates, including those related to inventories, impairments of tangible and disclosureintangible assets, U.S. pension and other postretirement benefit costs and sales-related accruals. The impact of contingentchanges in these estimates, as necessary, is reflected in the results of operations in the period of the change. We base estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of 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 ongoing basis, using relevant internal and external information. We believe that our estimates and assumptions are reasonable. However, actualnot readily apparent from other sources. Actual results may differ from whatthese estimates under different outcomes, assumptions or conditions.

We believe the following critical accounting policies are affected by our more significant judgments and estimates used in the preparation of the Consolidated Financial Statements. Management has discussed the development and selection of the critical account estimates described below with the Audit Committee of the Board and they have reviewed our disclosures relating to these estimates in this Management's Discussion and Analysis of Financial Condition. These items should be read in conjunction with Note 2, Summary of Significant Accounting Policies, in Part II, Item 8, "Financial Statements."

Inventories
At December 31, 2021 and 2020 inventories of $146.3 million and $128.1 million, respectively.

Critical Estimate - Inventories
Inventories are valued at the lower of cost or net realizable value and cost is determined using the FIFO method of accounting. Additionally, inventory balances are adjusted for estimated obsolete or unmarketable inventory and recorded at net realizable value.

During the fourth quarter of 2021, the Company changed its method of accounting for U.S. based inventories from the LIFO method to the FIFO method. We believe that this change in accounting method is preferable as it results in a better matching of revenue and expense, more closely resembles the physical flow of inventory, is a more consistent method to value inventory across our businesses, and results in improved comparability with industry peers. The effects of this change have been retroactively applied to all periods presented. This change resulted in an increase to accumulated deficit of $3.0 million as of January 1, 2019. See Note 2, Summary of Significant Accounting Policies, in Part II, Item 8, "Financial Statements" for additional information.

We estimate inventory obsolescence by continually examining our inventories to determine if there are indicators that carrying values may exceed net realizable value or estimated market value. In assessing the realization of inventory balances, the Company is required to make significant judgements related to estimated future demand for products, estimated future selling prices and the amount of excess inventory on-hand. In addition, the Company takes into account other factors including the age of inventory on-hand and the ultimate sales prices recognized for previously dropped products. While we believe that adequate adjustments for inventory obsolescence have been made in the Consolidated Financial Statements, consumer tastes and preferences as well as macroeconomic factors will continue to change and we could experience additional inventory write-downs in the future. It is estimated that a 10% change in our assumptions for excess or obsolete inventory would have affected net earnings by approximately $0.5 million for the year ended December 31, 2021.

Other than the change in method of accounting for U.S. based inventories from the LIFO method to the FIFO method, the Company has not materially changed the methodology for determining inventory values for the years presented. See Note 4, Inventories, in Part II, Item 8, "Financial Statements," for additional information.














26

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



Impairments of Tangible and Intangible Assets
At December 31, 2021 and 2020 Property, plant and equipment of $230.5 million and $246.9 million, respectively, are net of accumulated depreciation of $342.9 million and $336.7 million, respectively. At December 31, 2021 and 2020 intangible assets of $12.4 million and $19.0 million, respectively, are net of accumulated amortization of $33.1 million and $26.1 million, respectively.

Critical Estimate - Impairments of Tangible and Intangible Assets
We review long-lived asset groups, which include long-lived tangible and intangible assets, for impairment when indicators of impairment exist, such as operating losses and/or negative cash flows. If an evaluation of the undiscounted future cash flows generated by the asset indicates impairment, the asset group is written down to its estimated fair value, which is based on its discounted future cash flows. The principal assumption used in these impairment tests is future cash flows, which are derived from those used in our operating plan and strategic planning processes.

The revenue and cash flow estimates used in applying our impairment and recoverability tests are based on management’s analysis of information available at the time of the impairment test. Actual results lower than estimates could lead to significant future impairments. If future testing indicates that fair values have declined below carrying value, our financial condition and results of operations would be affected.

During the second quarter of 2021, the Company accelerated $3.3 million of depreciation expense for property, plant and equipment for which no future alternative use was estimatedidentified as part of the Company's business transformation initiatives. During 2020 and 2019, we recognized $4.9 million and $4.6 million, respectively, of accelerated depreciation, primarily related to the closure of our South Gate Facility.
In addition, the Company’s business transformation has been delayed by supply chain disruptions and inflationary pressures related to transportation, labor and raw materials. As a result, the Company has experienced continued losses and negative cash flows, which were higher than anticipated. These events constitute a triggering event that required impairment testing of our North American asset group as of the last day of the third quarter of 2021. Our test for recoverability, which utilized a probability-weighted income approach, compared the carrying value of the asset group to the sum of (i) the undiscounted cash flows expected to result from the use of the North American asset group and (ii) the value of the North American asset group upon its eventual disposition. The results of this impairment testing indicated that, as of September 30, 2021, our North American asset group is not impaired. While indicators of impairment remained at December 31, 2021, the Company re-evaluated the key assumptions noted above and determined there were no significant changes that would result in a different determination. While no long-lived asset impairment existed as of December 31, 2021, such charges are possible in the future, which could have a significantmaterial adverse effect on future results. There were no other triggering events during 2021.

During 2020, the potential impact onof the financial statements.COVID-19 pandemic, our recurring losses and our negative cash flows resulted in the identification of a triggering event requiring impairment testing of our North American asset group in the first quarter. Our test for recoverability, which utilized a probability-weighted income approach, compared the carrying value of the asset group to the sum of (i) the undiscounted cash flows expected to result from the use of the North American asset group and (ii) the value of the North American asset group upon its eventual disposition. The results of this testing indicated that, as of March 31, 2020, our North American asset group was not impaired. There were no other triggering events during 2020.


We have identifiedcannot predict the following as our critical accounting estimates. We have discussed these critical accounting estimatesoccurrence 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 our audit committee.significant customers, or strategic decisions made in response to economic and competitive conditions, or the ultimate determination of a potential sale or other strategic alternatives.


The Company has not materially changed the methodology for calculating intangible impairments for the years presented. See Note 5, Property, Plant and Equipment; and Note 7, Intangible Assets, in Part II, Item 8, "Financial Statements," for additional information.












27

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



U.S. Pension and Postretirement Benefit Costs—
At December 31, 2021 and 2020, the Company had combined pension and postretirement liabilities, net of prepaid pension assets, of $32.0 million and $63.1 million, respectively. During the year-ended December 31, 2021 we recognized U.S. pension and postretirement benefit income of $8.0 million. During the years-ended December 31, 2020 and 2019 we incurred U.S. pension and postretirement benefit costs of $1.1 million and $5.6 million, respectively. In addition, during 2021, the Company recognized a settlement gain of $0.6 million related to our defined benefit pension plans in Canada. Also, as a result of the elimination of future life insurance benefits for certain employees, we recorded a curtailment gain of $1.8 million in 2020 in Other (income) expense.

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


The discount rate is used to determine retirement plan assets and liabilities andas well as to determine the interest cost component of net periodic pension and postretirement cost. Management utilizes the Aon Hewitt AA only above medianOnly 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, 2018,2021, we assumed a discount rate of 4.40%2.85% for the U.S. defined-benefit pension plans and a discount rate of 2.80% for the U.S. postretirement plans. As of December 31, 2018,2020, we assumed a discount rate of 4.30%2.50% for the U.S. defined-benefit pension plans and a discount rate of 2.45% for the U.S. postretirement plans. The effects of any change in discount rate will be amortized into earnings as described below. Absent any other changes, a one-quarter percentage point increase or decrease in the discount rates for the U.S. pension and postretirement plans would change 2019be expected to decrease or increase 2021 operating income by approximately $1.2$0.2 million.


We manage two U.S. defined-benefit pension plans, a qualified funded plan and a nonqualifiednon-qualified 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 20 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. These forecasted gross returns are reduced by estimated management fees and expenses. The actual lossreturn on plan assets achieved for 20182021 was 5.90%5.02%. 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 20182021 U.S. pension cost was 5.85%5.25%. We have assumed a return on plan assets during 2019for 2022 of 6.30%4.85%. The 20192022 expected return on assets was calculated in a manner consistent with 2018.2021. A one-quarter percentage point increase or decrease in the 20192022 assumption would be expected to increase or decrease 20192022 operating income by approximately $0.9$1.0 million.


We use the Society of Actuaries RP-2014Pri-2012 Generational Mortality Table with MP-2018 generationalMP-2021 projection scales.


27


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







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


The Company has not materially changed the methodology for calculating pension expense for the years presented. See Note 18 to the Consolidated Financial9, Pension and Other Postretirement Benefit Programs, in Part II, Item 8, "Financial Statements," for additional information.


Impairments of Intangible and Tangible Assets — We review long-lived asset groups, which include long-lived intangible and tangible assets, for impairment when indicators of impairment exist, such as operating losses and/or negative cash flows. If an evaluation of the undiscounted future cash flows generated by the asset indicates impairment, the asset is written down to its estimated fair value, which is based on its discounted future cash flows. The principal assumption used in these impairment tests is future cash flows, which are derived from those used in our operating plan and strategic planning processes.


The revenue and cash flow estimates used in applying our impairment and recoverability tests are based on management’s analysis of information available at the time of the impairment test. Actual results lower than the estimate could lead to significant future impairments. If future testing indicates that fair values have declined below carrying value, our financial condition and results of operations would be affected.


There were no material impairment charges in 2018.


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 2 and 15 to the Consolidated Financial Statements for additional information.

Income Taxes — For purposes of our Consolidated Financial Statements, for the periods prior to April 1, 2016, we recorded income tax expense and deferred tax balances as if we filed separate tax returns on a stand-alone basis apart from AWI, which we refer to as the “separate return method.” The separate return method applies the accounting guidance for income taxes to the stand-alone financial statements as if we were a separate taxpayer and a stand-alone enterprise for the periods presented. The calculation of the provision for income taxes, deferred tax assets and liabilities, valuation allowances against deferred tax assets, and accruals for uncertain tax positions on a separate return basis requires a considerable amount of judgment and use of both estimates and allocations. As a stand-alone entity, our deferred taxes and effective tax rate may differ from those in the historical periods.

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”) 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,








28



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




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.

Sales-related Accruals
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.

As further described in Note 8 to the Consolidated Financial Statements, our Consolidated Balance Sheet as ofAt December 31, 2018 includes net deferred income tax assets of $33.4 million. Included in this amount are deferred federal income tax assets2021 and 2020 sales-related accruals for postretirementwarranty and postemployment benefits of $16.7 million, foreign NOL deferred tax assets of $16.3 million, state NOL deferred income tax assets of $0.7accommodation claims and sales incentives were
$30.1 million and federal NOL deferred income tax assets of $2.3 million. We have established valuation allowances in the amount of $29.7$26.1 million, consisting of $17.5 million for foreign deferred tax assets, primarily foreign operating loss carryovers, $2.8 million for state deferred tax assets, and $9.4 million federal 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.respectively.


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 $69.6 million for state income tax purposes during the respective realization periods (ranging from 2019 to 2038) in order to fully realize the net deferred income tax assets.

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.

See Note 8 to the Consolidated Financial Statements for additional information.

Critical Estimate - Sales-related Accruals -
We provide direct customer and end-user warranties for our products and honor approved accommodation claims. Standard warranties cover manufacturing defects that would prevent the product from performing in line with its intended and marketed use. Generally, the terms of these warranties range up to 30thirty years (limited lifetime), and provide for the repair or replacement of the defective product including limited labor costs. We collect and analyze warranty and accommodation claims data with a focus on the historical amount of claims, the products involved, the amount of time between the warranty claims and the products’ respective sales and the amount of current sales.


29


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



We also maintain numerous customer relationships that incorporate different sales incentive programs, (primarilyprimarily volume rebates and promotions).promotional programs for our distribution customers. The rebates vary by customer and usually include tiered incentives based on the level of customers’ purchases. Certain promotional allowancesPromotional programs are also tied to customer purchase volumes.sell-through volumes and certain pricing promotions. We estimate the amount of expected annual sales during the course of the year and use the projected sales amount to estimate the cost of the incentive programs. For sales incentive programs that are on the same calendar basis as our fiscal calendar, actual sales information is used in the year-end accruals.

In addition, we also provide for potential early pay discounts and returns based on historical trends. During 2021, the Company eliminated early pay discounts for a substantial portion of customers.

The Company accounts for all such items in accordance with ASC, Section 606 - Revenue from Contracts with Customers and ASC, Section 460 - Guarantees (as it relates to warranties).
 
The amount of actual experience related to these accruals could differ significantly from the estimated amounts during the year. If this occurs, we adjust our accruals accordingly. We maintained sales-related accruals for warranty and accommodation claims and sales incentives of $13.6 million and $13.0 million as of December 31, 2018 and 2017, respectively. We record the costs of these accruals as a reduction of gross sales.


The Company has not materially changed the methodology for calculating sales accruals for the years presented. See Schedule II, Valuation and Qualifying Reserves, in Part IV, for additional information.




Accounting Pronouncements Effective in Future Periods


SeeInformation on recently adopted and recently issued accounting standards is included in Note 2, to the Consolidated Financial Statements for a descriptionSummary of recent accounting pronouncements including the dates, or expected dates, of adoption, and effects, or expected effects, on our disclosures, results of operations, and financial condition.


Significant Accounting Policies, in Part II, Item 8, "Financial Statements."


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29





Item 7A. Quantitative and Qualitative Disclosures About Market Risk


Market Risk

We are exposed to market risk from changes in foreign currency exchange rates that could impact our financial condition, results of operations and cash flows. We enter into derivative contracts, including contracts to hedge our foreign currency exchange rate exposures. Forward swap contracts are entered into for periods consistent with underlying exposure and do not constitute positions independent of those exposures. Derivative financial instruments are used 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 exposure to potential nonperformance on such instruments. Developments in the capital markets are regularly monitored.


We are subject to interest rate market risk in connection with our Amended ABL Credit Facility.  As of December 31, 2018,2021, our Amended ABL Credit Facility provided variable rate borrowings consisting of a $75.0$90.0 million asset-based revolving facility and a $75.0 million term loancredit facility. The revolving facilityAmended ABL Credit Facility includes a $25.0$20.0 million sublimitsub-limit for the issuance of letters of credit and a $15.0 million sublimitsub-limit for swing loans, net of $3.9$6.8 million of letters of credit.credit outstanding at December 31, 2021.  In addition, the Amended ABL Credit Facility contains certain covenants which requires use to maintain minimum availability (as defined by the agreement). The Term Loan A portion of ourAmended ABL Credit Facility bears interest at a variable rate based on LIBOR or a base rate plus an applicable margin. An assumed 25 basis point change in interest rates would change interest expense on our Amended ABL Credit Facility by  $0.4$0.2 million if fully drawn and outstanding for the entire year.


We are subject to additional interest rate market risk in connection with the Amended Term Loan Agreement. The Amended Term Loan Agreement provides us with a secured term loan credit facility of $86.2 million. Borrowings under the Amended Term Loan Agreement bear interest at a rate per annum equal to LIBOR for a three-month interest period, plus an applicable margin. An assumed 25 basis point change in interest rates would change interest expense on the Amended Term Loan Agreement by $0.2 million for an entire year.

See Liquidity and Capital Resources, in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Note 8 Debt, in Part II, Item 8, "Financial Statements," for additional information.

Counterparty Risk

We only enter into derivative transactions with established counterparties having a credit rating of BBB or better, and counterpartybetter. Counterparty credit default swap levels and credit ratings are monitored on a regular basis in an effort to reduce the risk of counterparty default. All of our derivative transactions with counterparties are governed by master International Swap and Derivatives Association, Inc. agreements (“ISDAs”)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 neither post nor receive cash collateral with any counterparty for our derivative transactions. As of December 31, 2018, we had no cash collateral posted or received for any of our derivative transactions. These ISDAs do not have credit contingent features; however, a default under our Amended ABL Credit Facility would trigger a default under these agreements.


Exchange Rate Sensitivity

We manufacture and sell our products in a number of countries 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. AFI enters into foreign currency forward exchange contracts to reduce its remaining exposure. As of December 31, 2018,2021, our major foreign currency exposures are to the Canadian Dollar, the Chinese Renminbi and the Australian Dollar. A 10% strengthening (or weakening) of all currencies against the U.S. dollar compared to December 31, 20182021 levels would increasedecrease (or increase) our forecasted 20192022 earnings before income taxes by approximately $0.4$2.4 million, including the impact of current foreign currency forward exchange contracts.


The table below details our outstanding currency instruments as of December 31, 2018:2021:
(Dollars in millions)Maturing in 2022Total
On Balance Sheet Foreign Exchange Related Derivatives
Notional amounts$14.2 $14.2 
Liabilities at fair value, net(0.3)(0.3)

We are exposed to changes in foreign currency exchange rates against the U.S. dollar when consolidating our foreign entities. Significant fluctuations could impact our financial results.





30
(Dollars in millions)Maturing in 2019 Maturing in 2020 Total
On Balance Sheet Foreign Exchange Related Derivatives     
Notional amounts$39.0
 $3.6
 $42.6
Liabilities at fair value, net1.0
 0.1
 1.1



31






Item 8. Financial Statements


The following consolidated financial statementsConsolidated Financial Statements are filed as part of this Annual Report on Form 10-K:
Page Number
32
Report(s) of Independent Registered Public Accounting Firm
3334
Financial Statements:
Consolidated Balance Sheets as of December 31, 2021 and 2020
39
Consolidated Statements of Operations for the Years Ended December 31, 2018, 20172021, 2020 and 20162019
3640
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2018, 20172021, 2020 and 20162019
3741
Consolidated Balance Sheets asStatements of Cash Flows for the Years Ended December 31, 20182021, 2020 and 20172019
3842
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2018, 20172021, 2020 and 20162019
3943
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016
40
Notes to Consolidated Financial Statements
4144











31




Management's Report on Internal Control Over Financial Reporting

Management of Armstrong Flooring, Inc., together with its consolidated subsidiaries (the "Company"), is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Securities Exchange Act Rule 13a-15(f) or 15d-15(f). The Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's Consolidated Financial Statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

The Company's internal control over financial reporting includes policies and procedures that:

•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company;

•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and

•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 Company's Consolidated 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 and procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

Management, under the supervision and with the participation of our CEO and CFO and oversight of the Board of Directors assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, the end of our fiscal year. Management based its assessment on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2021 due to a material weakness related to information technology general controls (ITGCs) over an IT system utilized for warehouse management for certain finished goods. More specifically, controls related to provisioning and removal of user access, the review of logical access, and change management controls were not properly executed. These control deficiencies were the result of a failure to execute policies and procedures established to maintain IT general controls over a warehouse management system as the control owners did not adequately understand the control objectives or the design of the control activity. As a result, certain manual controls over finished goods quantities that utilize information contained within the affected IT system are, therefore, also considered ineffective because they could have been adversely impacted.

After identification of the material weakness, management performed additional procedures to confirm that this material weakness did not result in any identified misstatements to the Consolidated Financial Statements as of and for the year ended December 31, 2021 and there were no changes to previously released financial statements. However, because the material weakness created a reasonable possibility that a material misstatement to our Consolidated Financial Statements would not be prevented or detected on a timely basis, we concluded, as of December 31, 2021, our internal control over financial reporting was not effective.












32


Management will re-assess its IT policies and procedures to provide clarity in the execution of its directives. Management will also consider the appropriateness of the assignment of control execution responsibilities to experienced personnel with training in the clarified policies and procedures regarding the impacted IT system to ensure that logical access and change management control deficiencies contributing to the material weakness are remediated. The material weakness will not be considered remediated, however, until the controls are designed, implemented, and operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of 2022.

The effectiveness of the Company's internal control over financial reporting at December 31, 2021 has been audited by KPMG, LLP, an independent registered public accounting firm, as stated in their report appearing in this Annual Report on Form 10-K, which expresses an adverse opinion on the effectiveness of the Company's internal control over financial reporting at December 31, 2021.



/s/ Michel S. Vermette
Michel S. Vermette
President and Chief Executive Officer
March 9, 2022
/s/ Amy P. Trojanowski
Amy P. Trojanowski
Senior Vice President and Chief Financial Officer
March 9, 2022








33



Report of Independent Registered Public Accounting Firm


To the Stockholders and Board of Directors
Armstrong Flooring, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Armstrong Flooring, Inc. and subsidiaries (the “Company”)Company) as of December 31, 20182021 and 2017,2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018,2021, and the related notes and financial statement schedule of valuation and qualifying reservesII (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018,2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 5, 20199, 2022 expressed an unqualifiedadverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the terms of the existing credit agreements require the Company to complete or achieve events or conditions, including a sale of the Company and a refinancing of the credit agreements, that are outside of the Company’s control, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2018, the Company adopted Financial Accounting Standards Board (FASB) Topic 606, Revenuehas elected to change its method of accounting for U.S. based inventories from Contracts with Customers, and the related FASB Accounting Standard Updates usinglast-in, first-out (LIFO) method to the modified retrospective transition method.first-in, first-out (FIFO) method in 2021.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.



34



Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of North American long-lived tangible and intangible assets

As discussed in Note 2 to the consolidated financial statements, the Company reviews long-lived asset groups, which include long-lived tangible and intangible assets, for impairment when indicators of impairment exist, such as operating losses or negative cash flows. The Company’s business transformation has been delayed by supply chain disruptions and inflationary pressures related to transportation, labor and raw materials. As a result, the Company has experienced continued losses and negative cash flows, which were higher than anticipated. These events constituted a triggering event that required impairment testing of the North American long-lived tangible and intangible assets (North American asset group) in the third quarter of 2021. The Company's test for recoverability, which utilized a probability-weighted income approach, compared the carrying value of the asset group to the sum of i) the undiscounted cash flows expected to result from the use of the North American asset group and ii) the value of the North American asset group upon its eventual disposition.

We identified the evaluation of the North American asset group recoverability test performed in the third quarter of 2021 as a critical audit matter. Specifically, subjective and challenging auditor judgment was required to assess the significant assumptions, including:

•revenue growth rates and cost-reduction trends, which are affected by expectations about future market or economic conditions and internal cost-reduction initiatives

•the discount rate used in the determination of the value of the North American asset group upon its eventual disposition.

Additionally, the audit effort associated with the evaluation of the recoverability test required valuation professionals with specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the recoverability test. This included controls related to the determination of the revenue growth rates, the cost-reduction trends, and the discount rate. We evaluated the reasonableness of the Company’s revenue growth rates and cost-reduction trends by comparing the revenue growth assumptions and cost trends to the Company’s historical results and to industry data. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s discount rate by comparing it against a discount rate range that was independently developed using publicly available market data for comparable entities.

Net realizable value of certain inventory

As discussed in Notes 2 and 4 to the consolidated financial statements, the inventory balance as of December 31, 2021 was $146.3 million. The Company’s inventories are valued at the lower of cost or net realizable value and cost is determined using the FIFO method of accounting. The Company recently executed product strategy and inventory optimization initiatives, including simplifying its product offerings.

35


We identified the evaluation of the net realizable value of certain inventory in the U.S. as a critical audit matter. Subjective auditor judgment was required in evaluating how the Company’s objectives and strategies affected the net realizable value of certain inventory.

The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgement to determine the nature, extent, and sufficiency of procedures to be performed over the net realizable value of certain inventory. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to record inventory at its net realizable value. We evaluated the effect of the Company’s objectives and strategies on the net realizable value of certain inventory by inspecting documentation supporting the product strategy and inventory optimization initiatives. For a selection of inventory items, we compared (1) current year average sales price per unit from recent invoices to prior years’ average sales price per unit, (2) the current year average sales price per unit to the item’s current cost, and (3) the item’s cost with its net realizable value for consistency with the product strategy and inventory optimization initiatives. We assessed the sufficiency of audit evidence obtained related to the net realizable value of inventory by evaluating the results of the audit procedures performed.


/s/ KPMG LLP


We have served as the Company’s auditor since 2015.
Philadelphia,, Pennsylvania PA
March 5, 20199, 2022





36


Report of Independent Registered Public Accounting Firm

33







To the Stockholders and Board of Directors
Armstrong Flooring, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Armstrong Flooring, Inc. and subsidiaries’subsidiaries' (the “Company”)Company) internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB), the consolidated balance sheets of the Company as of December 31, 20182021 and 2017,2020, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018,2021, and the related notes and financial statement schedule of valuation and qualifying reservesII (collectively, the “consolidatedconsolidated financial statements”)statements), and our report dated March 5, 20199, 2022 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to information technology general controls (ITGCs) over an IT system utilized for warehouse management for certain finished goods has been identified and included in management's assessment. More specifically, controls related to provisioning and removal of user access, the review of logical access, and change management controls were not properly executed. These control deficiencies were the result of a failure to execute policies and procedures established to maintain IT general controls over a warehouse management system as the control owners did not adequately understand the control objectives or the design of the control activity. As a result, certain manual controls over finished goods quantities that utilize information contained within the affected IT system are, therefore, also considered ineffective because they could have been adversely impacted. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

Basis for Opinion

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 ManagementManagement’s Report on Internal Control over Financial Reporting within Item 9A.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.





37



Definition and Limitations of Internal Control Over Financial Reporting

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.

34






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.


/s/ KPMG LLP




Philadelphia,, Pennsylvania
March 5, 2019




9, 2022
35
38



Armstrong Flooring, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in millions, except par value)
December 31, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$9.7 $13.7 
Accounts and notes receivable, net53.0 43.0 
Inventories146.3 128.1 
Prepaid expenses and other current assets15.6 12.9 
Assets held-for-sale— 17.8 
Total current assets224.6 215.5 
Property, plant and equipment, net230.5 246.9 
Operating lease assets18.5 8.5 
Intangible assets, net12.4 19.0 
Prepaid pension asset23.0 1.1 
Deferred income taxes4.2 4.4 
Other noncurrent assets3.8 3.3 
Total assets$517.0 $498.7 
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt$5.1 $5.5 
Current installments of long-term debt (a)105.8 2.9 
Trade accounts payable85.7 78.5 
Accrued payroll and employee costs20.6 14.8 
Current operating lease liabilities2.8 2.7 
Other accrued expenses22.6 17.7 
Total current liabilities242.6 122.1 
Long-term debt (a)0.7 71.4 
Noncurrent operating lease liabilities16.7 5.8 
Postretirement benefit liabilities48.2 55.6 
Pension benefit liabilities3.2 4.6 
Other long-term liabilities5.3 9.0 
Deferred income taxes1.1 2.4 
Total liabilities317.8 270.9 
Commitments and contingencies
Stockholders' equity:
Common stock with par value $0.0001 per share: 100,000,000 shares authorized; 28,376,662 issued and 21,779,575 outstanding shares as of December 31, 2021 and 28,376,662 issued and 21,638,141 outstanding shares as of December 31, 2020— — 
Preferred stock with par value $0.0001 per share: 15,000,000 shares authorized; none issued— — 
Treasury stock, at cost, 6,597,087 shares as of December 31, 2021 and 6,738,521 shares as of December 31, 2020(84.5)(87.1)
Additional paid-in capital677.6 677.4 
Accumulated deficit(356.2)(303.2)
Accumulated other comprehensive (loss)(37.7)(59.3)
Total stockholders' equity199.2 227.8 
Total liabilities and stockholders' equity$517.0 $498.7 
(a)     Net of unamortized debt issuance costs. See Note 1 - Business and Basis of Presentation, for additional details.

See accompanying notes to Consolidated Financial Statements.

39





Armstrong Flooring, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in millions, except per share data)

Year Ended December 31,
202120202019
Net sales$649.9 $584.8 $626.3 
Cost of goods sold575.8 500.8 539.3 
Gross profit74.1 84.0 87.0 
Selling, general and administrative expenses160.9 145.2 146.4 
Gain on sale of property(46.0)— — 
Operating income (loss)(40.8)(61.2)(59.4)
Interest expense12.0 7.5 4.4 
Write-off of unamortized debt issuance costs and amendment fees9.6 — — 
Other expense (income), net(8.9)(4.8)1.8 
Income (loss) from continuing operations before income taxes(53.5)(63.9)(65.6)
Income tax expense (benefit)(0.5)(0.8)1.6 
Income (loss) from continuing operations(53.0)(63.1)(67.2)
Gain (loss) on disposal of discontinued operations, net of tax— — 10.4 
Net earnings (loss) from discontinued operations— — 10.4 
Net income (loss)$(53.0)$(63.1)$(56.8)
Basic (loss) per share of common stock:
Basic (loss) per share of common stock from continuing operations$(2.41)$(2.88)$(2.78)
Basic earnings (loss) per share of common stock from discontinued operations— — 0.43 
Basic (loss) per share of common stock$(2.41)$(2.88)$(2.35)
Diluted (loss) per share of common stock:
Diluted (loss) per share of common stock from continuing operations$(2.41)$(2.88)$(2.78)
Diluted earnings (loss) per share of common stock from discontinued operations— — 0.43 
Diluted (loss) per share of common stock$(2.41)$(2.88)$(2.35)
 Year Ended December 31,
 2018 2017 2016
Net sales$728.2
 $704.1
 $710.1
Cost of goods sold585.0
 553.0
 554.5
Gross profit143.2
 151.1
 155.6
Selling, general and administrative expenses160.6
 163.8
 168.1
Operating (loss)(17.4) (12.7) (12.5)
Interest expense4.8
 2.7
 1.5
Other expense, net2.9
 3.7
 6.9
(Loss) from continuing operations before income taxes(25.1) (19.1) (20.9)
Income tax (benefit)(6.0) (2.0) (4.7)
(Loss) from continuing operations(19.1) (17.1) (16.2)
Earnings (loss) from discontinued operations, net of tax9.9
 (24.7) 25.4
Loss on disposal of discontinued operations, net of tax(153.8) —
 —
Net (loss) earnings from discontinued operations(143.9) (24.7) 25.4
Net (loss) income$(163.0) $(41.8) $9.2
      
Basic (loss) earnings per share of common stock:    
Basic (loss) per share of common stock from continuing operations$(0.73) $(0.63) $(0.58)
Basic (loss) earnings per share of common stock from discontinued operations(5.54) (0.91) 0.91
Basic (loss) earnings per share of common stock$(6.27) $(1.54) $0.33
Diluted (loss) earnings per share of common stock:    
Diluted (loss) per share of common stock from continuing operations$(0.73) $(0.63) $(0.58)
Diluted (loss) earnings per share of common stock from discontinued operations(5.54) (0.91) 0.90
Diluted (loss) earnings per share of common stock$(6.27) $(1.54) $0.32


See accompanying notes to consolidated financial statements.

Consolidated Financial Statements.
36
40







Armstrong Flooring, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in millions, except per share data)

Year Ended December 31,
202120202019
Net (loss)$(53.0)$(63.1)$(56.8)
Changes in other comprehensive income (loss), net of tax:
Foreign currency translation adjustments1.0 7.2 (2.2)
Cash flow hedge adjustments0.8 (0.4)(1.4)
Pension and postretirement adjustments19.8 8.6 (9.5)
Total other comprehensive income (loss)21.6 15.4 (13.1)
Total comprehensive income (loss)$(31.4)$(47.7)$(69.9)
 Year Ended December 31,
 2018 2017 2016
Net (loss) income$(163.0) $(41.8) $9.2
Changes in other comprehensive (loss) income, net of tax:     
Foreign currency translation adjustments(6.0) 7.2
 (8.2)
Derivatives gain (loss)1.7
 (1.5) (1.6)
Pension and postretirement adjustments7.8
 1.6
 2.2
Total other comprehensive income (loss)3.5
 7.3
 (7.6)
Total comprehensive (loss) income$(159.5) $(34.5) $1.6

See accompanying notes to consolidated financial statements.Consolidated Financial Statements.



37
41







Armstrong Flooring, Inc. and Subsidiaries

Consolidated Balance SheetsStatements of Cash Flows
(Dollars in millions, except par value)millions)
Year Ended December 31,
202120202019
Cash flows from operating activities:
Net (loss)$(53.0)$(63.1)$(56.8)
Adjustments to reconcile net (loss) to net cash (used for) provided by operating activities:
Depreciation and amortization43.3 47.8 50.7 
Gain on disposal of discontinued operations— — (10.4)
Inventory write down1.2 — 13.6 
Deferred income taxes(0.8)(1.6)1.1 
Stock-based compensation3.0 2.7 1.2 
Gain on sale of property(46.0)— — 
Gains from long-term disability plan changes— (2.9)— 
U.S. pension expense (income)(7.1)3.8 5.6 
Write off of unamortized debt issuance costs5.9 — 0.8 
Other non-cash adjustments, net1.6 0.3 0.2 
Changes in operating assets and liabilities:
Receivables(15.5)(2.7)2.9 
Insurance receivable3.8 — — 
Inventories(19.8)(10.2)12.4 
Accounts payable and accrued expenses25.8 5.0 (26.0)
Insurance liability(3.8)— — 
Income taxes payable and receivable0.4 0.9 (0.5)
Other assets and liabilities(9.3)(8.2)(0.8)
Net cash provided by (used for) operating activities(70.3)(28.2)(6.0)
Cash flows from investing activities:
Purchases of property, plant and equipment(20.6)(22.8)(28.9)
Proceeds from the sale of assets65.4 1.7 1.4 
Net (payments) proceeds related to sale of discontinued operations— — (1.9)
Net cash provided by (used for) investing activities44.8 (21.1)(29.4)
Cash flows from financing activities:
Proceeds from revolving credit facility and other short-term debt114.6 58.2 47.2 
Payments on revolving credit facility and other short-term debt(105.1)(85.1)(30.0)
Issuance of long-term debt38.2 70.0 — 
Payments of long-term debt(22.2)(0.3)(75.3)
Financing costs(3.7)(7.7)(0.8)
Purchases of treasury stock— — (51.4)
Proceeds from exercised stock options— — 0.1 
Value of shares withheld related to employee tax withholding(0.3)(0.1)(0.9)
Net cash provided by (used for) financing activities21.5 35.0 (111.1)
Effect of exchange rate changes on cash and cash equivalents— 0.9 (0.2)
Net (decrease) increase in cash and cash equivalents(4.0)(13.4)(146.7)
Cash and cash equivalents at beginning of year13.7 27.1 173.8 
Cash and cash equivalents at end of year$9.7 $13.7 $27.1 
 December 31, 2018 December 31, 2017
Assets   
Current assets:   
Cash$173.8
 $40.1
Accounts and notes receivable, net39.0
 52.6
Inventories, net139.5
 117.0
Current assets of discontinued operations—
 149.5
Income tax receivable0.6
 3.6
Prepaid expenses and other current assets18.0
 27.5
Total current assets370.9
 390.3
Property, plant and equipment, less accumulated depreciation and amortization of $318.8 and $296.1, respectively296.1
 310.6
Intangible assets, less accumulated amortization of $12.0 and $5.2, respectively32.0
 38.6
Noncurrent assets of discontinued operations—
 130.3
Deferred income taxes5.6
 14.0
Other noncurrent assets3.6
 6.3
Total assets$708.2
 $890.1
Liabilities and Stockholders' Equity   
Current liabilities:   
Short-term debt$25.0
 $—
Current installments of long-term debt3.7
 —
Accounts payable and accrued expenses141.4
 124.1
Current liabilities of discontinued operations—
 26.1
Income tax payable0.5
 0.8
Total current liabilities170.6
 151.0
Long-term debt70.6
 85.0
Postretirement benefit liabilities55.7
 69.9
Pension benefit liabilities11.3
 2.3
Other long-term liabilities6.7
 7.2
Noncurrent liabilities of discontinued operations—
 22.7
Noncurrent income taxes payable0.2
 0.1
Deferred income taxes2.1
 1.9
Total liabilities317.2
 340.1
Stockholders' equity:   
Common stock with par value $.0001 per share: 100,000,000 shares authorized; 28,284,358 issued and 25,832,193 outstanding shares as of December 31, 2018 and 28,183,218 issued and 25,734,222 outstanding shares as of December 31, 2017—
 —
Preferred stock with par value $.0001 per share: 15,000,000 shares authorized; none issued—
 —
Treasury stock, at cost, 2,452,165 shares as of December 31, 2018 and 2,448,996 shares as of December 31, 2017(39.7) (39.9)
Additional paid-in capital678.6
 674.2
(Accumulated deficit)(186.3) (31.8)
Accumulated other comprehensive (loss)(61.6) (52.5)
Total stockholders' equity391.0
 550.0
Total liabilities and stockholders' equity$708.2
 $890.1
Supplemental Cash Flow Disclosure:
Amounts in accounts payable for capital expenditures$3.4 $5.9 $5.6 
Interest paid9.3 6.2 3.1 
Income taxes paid, net0.9 0.1 1.0 


See accmpanyingaccompanying notes to consolidated financial statements.

Consolidated Financial Statements.
38
42







Armstrong Flooring, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars in millions)
Additional Paid-in CapitalAccumulated Other Comprehensive (Loss)Retained Earnings (Accumulated Deficit)Total Equity
Common StockTreasury Stock
SharesAmountSharesAmount
December 31, 201825,832,193 $— 2,452,165 $(39.7)$678.6 $(61.6)$(186.3)$391.0 
Cumulative effect of change in accounting principle (LIFO method to FIFO method) as of January 1 (Note 2)— — — — — — 3.0 3.0 
Net (loss)— — — — — — (56.8)(56.8)
Repurchase of common stock(4,504,504)— 4,504,504 (51.4)— — — (51.4)
Stock-based employee compensation, net192,072 — (118,772)2.2 (1.9)— — 0.3 
Other comprehensive income— — — — — (13.1)��� (13.1)
December 31, 201921,519,761 $— 6,837,897 (88.9)676.7 (74.7)(240.1)273.0 
Net (loss)— — — — — — (63.1)(63.1)
Stock-based employee compensation, net118,380 — (99,376)1.8 0.7 — — 2.5 
Other comprehensive (loss)— — — — — 15.4 — 15.4 
December 31, 202021,638,141 $— 6,738,521 (87.1)677.4 (59.3)(303.2)227.8 
Net (loss)— — — — — — (53.0)(53.0)
Stock-based employee compensation, net141,434 — (141,434)2.6 0.2 — — 2.8 
Other comprehensive income— — — — — 21.6 — 21.6 
December 31, 202121,779,575 $— 6,597,087 $(84.5)$677.6 $(37.7)$(356.2)$199.2 
         Net AWI Investment Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Total Equity
 Common Stock Treasury Stock     
 Shares Amount Shares Amount     
December 31, 2015—
 $—
 —
 $—
 $622.0
—
$—
 $2.0
 $—
 $624.0
Net (loss) income—
 —
 —
 —
 (0.8) —
 —
 10.0
 9.2
Net transfers from (to) AWI—
 —
 —
 —
 96.6
 —
 (54.2) —
 42.4
Cash distribution paid to AWI—
 —
 —
 —
 (50.0) —
 —
 —
 (50.0)
Reclassification of net parent investment to additional paid-in capital—
 —
 —
 —
 (667.8) 667.8
 —
 —
 —
Issuance of common stock at separation27,738,779
 —
 —
 —
 —
 —
 —
 —
 —
Stock-based employee compensation, net156,892
 —
 —
 —
 —
 5.5
 —
 —
 5.5
Other comprehensive (loss)—
 —
 —
 —
 —
 —
 (7.6) —
 (7.6)
December 31, 201627,895,671
 $—
 —
 $—
 $—
 $673.3
 $(59.8) $10.0
 $623.5
Net (loss)        —
   —
 (41.8) (41.8)
Net transfers to AWI—
 —
 —
 —
 (0.8) —
 —
 —
 (0.8)
Repurchase of common stock(2,455,604) —
 2,455,604
 (40.0) —
 —
 —
 —
 (40.0)
Reclassification of net parent investment to additional paid-in capital—
 —
 —
 —
 0.8
 (0.8) —
 —
 —
Stock-based employee compensation, net294,155
 —
 (6,608) 0.1
 —
 1.7
 —
 —
 1.8
Other comprehensive income—
 —
 —
 —
 —
 —
 7.3
 —
 7.3
December 31, 201725,734,222
 $—
 2,448,996
 $(39.9) $—
 $674.2
 $(52.5) $(31.8) $550.0
Cumulative effect of adoption of ASC 606 new revenue recognition standard as of January 1—
 —
 —
 —
 —
 —
 —
 (4.1) (4.1)
Cumulative effect of adoption on ASU 2018-02 related to tax reform as of January 1—
 —
 —
 —
 —
 —
 (12.6) 12.6
 —
Net (loss)              (163.0) (163.0)
Repurchase of common stock(69,353) —
 69,353
 (1.0) —
 —
 —
 —
 (1.0)
Stock-based employee compensation, net167,324
 —
 (66,184) 1.2
 —
 4.4
 —
 —
 5.6
Other comprehensive income—
 —
 —
 —
 —
 —
 3.5
 —
 3.5
December 31, 201825,832,193
 $—
 2,452,165
 $(39.7) $—
 $678.6
 $(61.6) $(186.3) $391.0

See accompanying notes to consolidated financial statements.

Consolidated Financial Statements.
39
43






Armstrong Flooring, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in millions)
 Year Ended December 31,
 2018 2017 2016
Cash flows from operating activities:     
Net (loss) income$(163.0) $(41.8) $9.2
Adjustments to reconcile net (loss) income to net cash provided by operating activities:     
Depreciation and amortization55.1
 78.7
 46.6
Loss on disposal of discontinued operations153.8
 —
 —
Intangible asset impairment—
 12.5
 —
Deferred income taxes2.4
 (3.0) (5.2)
Stock-based compensation5.4
 2.2
 5.7
U.S. pension expense6.8
 8.9
 6.5
Write off of debt financing costs0.6
 —
 —
Other non-cash adjustments, net(0.8) (0.6) 6.0
Changes in operating assets and liabilities:     
Receivables16.3
 (2.5) (3.2)
Inventories(39.4) 30.4
 (19.8)
Accounts payable and accrued expenses16.8
 (10.5) 9.9
Income taxes payable and receivable2.8
 (3.0) (0.6)
Other assets and liabilities5.7
 (8.4) (1.1)
Net cash provided by operating activities62.5
 62.9
 54.0
Cash flows from investing activities:     
Purchases of property, plant and equipment(35.3) (44.8) (37.6)
Net proceeds from sale of discontinued operations90.2
 —
 —
Proceeds from the sale of assets5.7
 0.4
 0.5
Cash paid for acquisition—
 (36.1) —
Other investing activities—
 —
 0.2
Net cash provided by (used for) investing activities60.6
 (80.5) (36.9)
Cash flows from financing activities:     
Proceeds from revolving credit facility82.0
 90.0
 110.0
Payments on revolving credit facility(142.0) (25.0) (90.0)
Issuance of long-term debt75.0
 —
 —
Financing costs(0.7) —
 (1.4)
Payments of long-term debt—
 —
 (10.0)
Payments on capital lease(0.2) (0.2) —
Purchases of treasury stock(1.0) (40.0) —
Cash distribution paid to AWI—
 —
 (50.0)
Proceeds from exercised stock options0.8
 1.4
 0.3
Value of shares withheld related to employee tax withholding(0.6) (1.8) —
Net transfers from AWI—
 —
 55.6
Net cash provided by financing activities13.3
 24.4
 14.5
Effect of exchange rate changes on cash and cash equivalents(1.6) 1.6
 (1.0)
Net increase in cash and cash equivalents134.8
 8.4
 30.6
Cash and cash equivalents at beginning of year39.0
 30.6
 —
Cash and cash equivalents at end of year$173.8
 $39.0
 $30.6
Cash and cash equivalents at end of year from discontinued operations—
 (1.1) (1.6)
Cash and cash equivalents at end of year of continuing operations$173.8
 $40.1
 $32.2
Supplemental Cash Flow Disclosure:     
Amounts in accounts payable for capital expenditures$8.5
 $7.8
 $12.9
Interest paid3.4
 2.8
 1.5
Income taxes (refunded) paid, net(1.4) (2.8) 8.1
Supplemental Schedule of Non-Cash Investing and Financing Activities:     
Capital expenditures funded by capital lease borrowings$—
 $—
 $1.2
See accompanying notes to consolidated financial statements.

40



Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)





NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Business
Armstrong Flooring, Inc. ("AFI") is a leading global producer of resilient flooring products for use primarily in the construction and renovation of residential, commercial and institutional buildings. AFI designs, manufactures, sources and sells resilient flooring products in North America and the Pacific Rim. When

On December 31, 2021, following our Board's determination that a sale of the Company or other strategic transaction, if completed, would be in the best interests of the Company and the best means to maximize value for the Company's stockholders and other stakeholders, we refer to "AFI," "theannounced that we had initiated a process for the potential sale of the Company" "we," "our," and "us" in this report, we are referring to Armstrong Flooring, Inc., a Delaware corporation, and its consolidated subsidiaries.consideration of other strategic alternatives.


Former Parent Separation
On April 1, 2016, we became an independent company as a result of the separation by Armstrong World Industries, Inc. ("AWI"), a Pennsylvania corporation, of its Resilient Flooring and Wood Flooring segments from its Building Products segment (the "Separation"). The Separation which was effected by allocating the assets and liabilities related primarily to the Resilient Flooring and Wood Flooring segments to AFI and then distributing the common stock of AFI to AWI’s shareholders (the "Distribution").Distribution. The Separation and Distribution (together, the "Spin-off")Spin-off resulted in AFI and AWI 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 a ceilings business.

In connection with the completion of the Spin-off, we entered into several agreements with AWI that provided for the separation and allocation between AFI and AWI of the assets, employees, liabilities and obligations of AWI and its subsidiaries attributable to periods prior to, at and after the Spin-off.These agreements also govern the relationship between AFI and AWI subsequent to the completion of the Spin-off.

On June 30, 2021, we terminated the Campus Lease Agreement with AWI.
Discontinued Operations
On November 14, 2018, AFI entered into a Stock Purchase Agreement with Tarzan Holdco, Inc. ("TZI"),TZI, a Delaware corporation and an affiliate of American Industrial Partners ("AIP"),AIP, to sell its North American wood flooring business. On December 31, 2018, AIP completed the purchase of all of the issued and outstanding shares of Armstrong Wood Products, Inc. ("AWP"), a Delaware corporation, including its direct and indirect wholly owned subsidiaries. For the year ended December 31, 2019, a $10.4 million gain on disposal of discontinued operations was realized primarily due to the resolution of our anti-dumping case. There was no discontinued operations activity for the years ended December 31, 2021 and 2020.
Basis of Presentation
COVID
As the COVID-19 pandemic continues, the Company has seen the overall impact on its business decline. However, we remain committed to safeguarding our employees and the communities in which we operate, while continuing to deliver our products to customers. The historical results of operations and financial positionCompany has experienced the impact of the North American wood flooring business are reported as discontinued operationsimbalance of global shipping capacity and demand which has led to delays in the Consolidated Statementsreceipt of Operationsgoods from China and Vietnam at U.S. ports. Additionally, while overall economic activity has improved, some of the Consolidated Balance Sheets. The historical informationCompany's customers' commercial projects in the accompanying Notesretail, office, medical and educational sectors continue to be postponed. These factors have led to a softer demand environment in certain states and channels. The ultimate duration and impact of the Consolidated Financial Statementspandemic on our future results is unknown.

Reclassifications
Certain reclassifications have been restatedmade to reflectprior year amounts to conform with current year classifications.

Going Concern
These financial statements have been prepared assuming that the effects of the sale of the North American wood flooring business. For further information on discontinued operations, see Note 9.
Prior to April 1, 2016, AFI operatedCompany will continue as a part of AWI. The financial information for periods prior to April 1, 2016 was prepared on a combined basis from AWI’s historical accounting records and is presented herein on a stand-alone basis as if the operations had been conducted independently of AWI. Beginning April 1, 2016, the financial information was prepared on a consolidated basis. The Consolidated Financial Statements of AFI presented are not indicative of our future performance, and, for periods prior to April 1, 2016, do not necessarily reflect what our historical financial condition, results of operations and cash flows would have been if we had operated as a separate, stand-alone entity during those periods.
For periods prior to April 1, 2016, AFI was comprised of certain stand-alone legal entities for which discrete financial information was available, as well as portions of legal entities for which discrete financial information was not available (the "Shared Entities").going concern. For the Shared Entities for which discrete financial information was not available, such as shared utilities, taxes, and other shared costs, allocation methodologies were applied to allocate amounts to AFI. The Consolidated Statementsyear ended December 31, 2021, the Company had a net loss of Operations and Comprehensive Income (Loss) for these periods include all revenues and costs attributable to AFI, including costs for facilities, functions and services used by AFI. The results$53.0 million. As of operations for those periods also include allocationsDecember 31, 2021, the Company had an accumulated deficit of costs for administrative functions and services performed on behalf of AFI by centralized staff groups within AWI, AWI’s general corporate expenses and certain pension and other retirement benefit costs for those periods. All of the allocations and estimates in the Consolidated Financial Statements are based on assumptions that AFI management believes are reasonable.$356.2 million.





41
44




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




All chargesThe ability of the Company to continue as a going concern is dependent on the Company maintaining adequate capital and allocationsliquidity to fund operating losses until it returns to profitability. On December 31, 2021, AFI announced that it entered into the 2021 ABL Amendments and the 2021 Term Loan Amendments, that became effective as of costDecember 30, 2021. In connection with the Term Loan Amendment, the Company's current term loan lender, loaned AFI an aggregate principal of $35 million to provide additional liquidity to the Company. Also on December 31, 2021, following our Board's determination that a sale of the Company or other strategic transaction, if completed, would be in the best interests of the Company and the best means to maximize value for facilities, functionsthe Company's stockholders and services performed by AWIother stakeholders, we announced that we had initiated a process for the potential sale of the Company and consideration of other strategic alternatives.

The 2021 ABL Amendments and the 2021 Term Loan Amendments contain provisions that require the Company to adhere to various covenants, including meeting certain milestones relating to the sale of the Company and there can be no assurance that the Company will be able to comply with these covenants. The Company is required to refinance the Credit Agreements no later than June 30, 2022, even if a sale of the Company or other strategic transaction has not been consummated prior to such date. The failure to comply with any of these covenants would constitute a default under the Spin-offterms of the Credit Agreements which could have an adverse effect on the Company, including affecting its access to liquidity. The Company continues to face certain risks and uncertainties that have been affecting its business and operations. While the Company has implemented substantial pricing actions and evaluates other initiatives that could enhance its liquidity, including the potential sale of the Company, there can be no assurances that these actions will be successful. Substantial doubt about the Company's ability to continue as a going concern exists because the sale of the Company being completed or the Credit Agreements being extended beyond the June 30, 2022 refinancing requirement cannot be considered probable as they are not under our sole control. Additionally, based on current projections, as a result of continuing supply chain disruptions and continued inflationary pressures related to transportation, labor and raw materials, which are expected to continue through 2022, the forecasts do not provide the Company with reasonable certainty it will have the necessary liquidity to fund operations beyond June 30, 2022. As a result, the Company has classified amounts outstanding under the Credit Agreements as Current installments of long-term debt at December 31, 2021 on the Consolidated Balance Sheets. See Note 8, Debt, for additional details.

Asset Impairment Review
The Company’s business transformation has been delayed by supply chain disruptions and inflationary pressures related to transportation, labor and raw materials. As a result, the Company has experienced continued losses and negative cash flows, which were deemed paid by AFI to AWIhigher than anticipated. These events constitute a triggering event that required impairment testing of our North American asset group as of the last day of the third quarter of 2021. The results of this impairment testing indicated that, as of September 30, 2021, our North American asset group is not impaired. While indicators of impairment remained at December 31, 2021, the Company re-evaluated the key assumptions and determined there were no significant changes that would result in cash,a different determination. While no long-lived asset impairment existed as of December 31, 2021, such charges are possible in the period infuture, which the cost was recorded in the Consolidated Statements of Operations. Prior to the Spin-off, transactions between AWI and AFI were accounted for through net AWI investment.
Prior to the Spin-off, AFI’s portion of current income taxes payable was deemed to have been remitted to AWI in the period the related tax expense was recorded. AFI’s portion of current income taxes receivable was deemed to have been remitted to AFI by AWI in the period to which the receivable applies only to the extent that a refund of such taxes could have been recognized by AFIa material adverse effect on a stand-alone basis under the law of the relevant taxing jurisdiction.future results. There were no other triggering events during 2021.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy

The Consolidated Financial Statements and accompanying data in this reportForm 10-K include the accounts of AFI and its subsidiaries. All significant intercompanyIntercompany accounts and transactions have been eliminated from the Consolidated Financial Statements.


Change in Accounting Principle
During the fourth quarter of 2021, the Company changed its method of accounting for U.S. based inventories from the LIFO method to the FIFO method. We believe that this change in accounting method is preferable as it results in a better matching of revenue and expense, it more closely resembles the physical flow of inventory, is a more consistent method to value inventory across our businesses, and results in improved comparability with industry peers. The effects of this change have been retroactively applied to all periods presented. This change resulted in a decrease to accumulated deficit of $3.0 million as of January 1, 2019.


45


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)

In addition, certain financial statement line items in our Consolidated Balance Sheet for December 31, 2020, as well as our Consolidated Statement of Operations and Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 were adjusted as follows:

Consolidated Balance Sheet as of December 31, 2020
Originally ReportedEffect of ChangeAs Adjusted
Inventories$122.9 $5.2 $128.1 
Accumulated deficit(308.4)5.2 (303.2)

Consolidated Statement of Operations for the Year Ended December 31, 2020
Originally ReportedEffect of ChangeAs Adjusted
Cost of goods sold$501.3 $(0.5)$500.8 
Income (loss) from continuing operations(63.6)0.5 (63.1)
Basic and diluted (loss) per share of common stock(2.90)0.02 (2.88)

Consolidated Statement of Operations for the Year Ended December 31, 2019
Originally ReportedEffect of ChangeAs Adjusted
Cost of goods sold$541.0 $(1.7)$539.3 
Income (loss) from continuing operations(68.9)1.7 (67.2)
Basic and diluted (loss) per share of common stock(2.42)0.07 (2.35)

Consolidated Statement of Cash Flows for the Year Ended December 31, 2020
Originally ReportedEffect of ChangeAs Adjusted
Net (loss)$(63.6)$0.5 $(63.1)
Inventories(9.7)(0.5)(10.2)
Consolidated Statement of Cash Flows for the Year Ended December 31, 2019
Originally ReportedEffect of ChangeAs Adjusted
Net (loss)$(58.5)$1.7 $(56.8)
Inventories14.1 (1.7)12.4 

Had the Company not made the above change in accounting principle, the Consolidated Balance Sheet for the year ended December 31, 2021 would have reflected Inventories of $128.9 million and Accumulated deficit of $373.8 million and the Company's Consolidated Statement of Operations for the year ended December 31, 2021 would have reflected Costs of goods sold of $588.1 million, Loss from continuing operations of $65.3 million and Loss per common share of $2.97 per share.

Use of Estimates

We prepare our financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"),GAAP, 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
46


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements and related notes and schedule thereto have been recast to conform to the 2018 presentation.

(Dollars in millions, except per share data)


Revenue Recognition

We recognize revenue when control of the promised goods is transferred to our customers, in an amount that reflects
the consideration we expect to be entitled to in exchange for those goods.


Our primary performance obligation to our customers is the delivery of flooring products pursuant to purchase orders. Control of the products we sell generally transfers to our customers at the point in time when the goods are shipped. Our standard sales terms are primarily Free On Board (“FOB”)free-on-board shipping point. Our typical payment terms are 30 days and our sales arrangements do not contain any significant financing component for our customers. Our customer arrangements do not generate contract assets or liabilities that are material to the Consolidated Financial Statements.


Each purchase order sets forth the transaction price for the products purchased under that arrangement. Some customer arrangements include variable consideration, such as volume rebates, some of which depend upon our customers meeting specified performance criteria, such as a purchasing level over a period of time. We use judgment to estimate the most likely amount of variable consideration at each reporting date.


We generally do not incur anyCosts to obtain a contract are capitalized and amortized over the life of the related contract when the incremental costs directly relate to a specific contract, generates or enhances resources of the company that will be used to satisfy performance of the terms of the contract and the cost are expected to be recovered from the customer. During the fourth quarter of 2020 we capitalized $1.1 million of costs to obtain or fulfill our customer contracts that require capitalization and expense such costs as incurred whena contract, related to a single new arrangement, which will be amortized over the amortization period is less than one year.three year contractual agreement.


We disaggregate revenue based on customer geography as this category represents the most appropriate depiction of how the nature, timing and uncertainty of revenues and cash flows are impacted by economic factors. See Note 312, Revenue, to the Consolidated Financial Statements for our revenues disaggregated by geography.


42


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)



Warranties

- We provide our customers with a product warranty that provides assurance that the products we sell meet standard specifications and are free of defects. We maintain a reserve for claims incurred under our standard product warranty programs. We allocate a portion ofand related costs based on historical experience and periodically adjusts these provisions to reflect actual experience. See Note 3, Accounts and Notes Receivable, to the transaction priceConsolidated Financial Statements for each sale to our performance obligation to provide service type warranties to our customers.additional information.


Sales Incentives

- Sales incentives to customers are reflected as a reduction of net sales.


Shipping and Handling Costs

- We treat shipping and handling that occurs after our customer obtainscustomers obtain control of the products as a fulfillment activity and not as a promised service. Shipping and handling costs are reflected as a component of costCost of goods sold.


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

Advertising Costs

We recognize advertising expenses 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. The cost of plan amendments that provide for benefits already earned by plan participants is amortized over the expected future working lifetime or the life expectancy of plan participants. A market-related value of plan assets methodology is utilized in the calculation of expected return on assets. The methodology recognizes gains and losses on long duration bonds immediately, while gains and losses on other assets are recognized in the calculation over a five-year period. We use a December 31 measurement date for our pension and postretirement benefit plans.

Taxes

For the periods prior See Note 9, Pension and Other Postretirement Benefit Programs, to April 1, 2016, operations of certain businesses included in our Consolidated Financial Statements are divisions of legal entities included in AWI’s consolidated U.S. federal and state income tax returns, or tax returns of non-U.S. subsidiaries of AWI. The provision for income taxes and related balance sheet accounts of such entities have been prepared and presented in the Consolidated Financial Statements based on a separate return basis. Differences between our separate return income tax provisionfor additional information.




47


Armstrong Flooring, Inc. and cash flows attributableSubsidiaries
Notes to income taxes for businesses that were divisions of legal entities have been recognized as capital contributions from, or dividends to, AWI within net AWI investment.Consolidated Financial Statements

(Dollars in millions, except per share data)


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.Consolidated 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 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

43


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


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.

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 account for all interest and penalties on uncertain income tax positions as income tax expense.

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 sum of the weighted average number of shares of common stock outstanding during the period and the weighted average number of stock-based awards that have vested but not yet been issued 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.

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 and miscellaneous receivables, net of allowances for doubtful accounts, customer credits and warranties are reported in accounts and notes receivable on a net basis. Cash flows from the collection of 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 available financial statements and forecasts, as well as discussions with legal counsel and the management of the debtor company. We provide allowances as events occur which impact the collectibility of the receivable. 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.

Inventories

U.S. inventories are valued at the lower of cost or market, and cost is determined using the last-in, first-out ("LIFO") method of accounting. Non-U.S. inventories are valued at the lower of cost or net realizable value, and cost is determined using the first-in, first-out ("FIFO") method of accounting.

Property Plant and Equipment


44


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


Property, plant and equipment is recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized on a straight-line basis over 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 accelerated obsolescence or wear, such as tooling and engraving equipment, are depreciated over shorter periods (3 to 7 years). Heavy production equipment, such as conveyors, kilns and mixers, 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 amortized over 3 to 7 years.

Property, plant and equipment is tested for impairment when indicators of impairment exist, such as operating losses and/or negative cash flows. If an evaluation of the undiscounted future cash flows generated by an asset group indicates impairment, the asset group is written down to its estimated fair value, which is based on its discounted future cash flows. The principal assumption used in these impairment tests is future cash flows, which are derived from those used in our operating plan and strategic planning processes.

Intangible Assets

Our indefinite-lived intangible assets are primarily trademarks which are integral to our corporate identity and expected to contribute indefinitely to our corporate cash flows. We conduct our annual impairment test for indefinite-lived intangible assets during the fourth quarter and we conduct interim impairment tests if indicators of potential impairment exist.

An impairment is recognized if the carrying amount of the asset exceeds its fair value. We first perform a qualitative assessment to determine if it is necessary to perform a quantitative impairment test. If a quantitative impairment test is deemed necessary, the method used to determine the fair value of our indefinite-lived intangible assets is the relief-from-royalty method. The principal assumptions used in our application of this method are revenue growth rate, discount rate and royalty rate. Revenue growth rates are derived from those used in our operating plan and strategic planning processes. The discount rate assumption is calculated based upon an estimated weighted average cost of capital, which we believe 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 overall profits. The method used for valuing our indefinite-lived intangible assets did not change from prior periods.

Our long-lived intangible assets are primarily contractual arrangements (amortized over 5 years), which includes non-compete agreements, and intellectual property (amortized over 2 to 15 years), which includes developed technology and patents. We review long-lived intangible assets for impairment if indicators of potential impairment exist, such as operating losses and/or negative cash flows. If an evaluation of the undiscounted future cash flows generated by the asset indicates impairment, the asset group is written down to its estimated fair value, which is based on its discounted future cash flows. The principal assumption used in these impairment tests is future cash flows, which are derived from those used in our operating plan and strategic planning processes.

Foreign Currency Transactions

For our subsidiaries with non-U.S. dollar functional currency, assets and liabilities are translated at period-end exchange rates. 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 ("AOCI") within equity. Gains or losses on foreign currency transactions are recognized through net income (loss).

Stock-Based Employee Compensation

We issue stock-based compensation to certain employees and non-employee directors in different forms, including performance stock awards ("PSAs"), performance stock units ("PSUs"), and restricted stock units ("RSUs"). We record

45


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


stock-based compensation expense based on an estimated grant-date fair value. The expense is reflected as a component of selling, general and administrative (“SG&A”) expenses on our Consolidated Statements of Operations. Stock-based compensation expense includes an estimate for forfeitures and anticipated achievement levels and is generally recognized on a straight-line basis over the vesting period for the entire award.

Net AWI Investment

The Consolidated Statements of Stockholders' Equity include net cash transfers and other property transfers between AWI and AFI. The net AWI investment balance included assets and liabilities incurred by AWI on behalf of AFI such as accrued liabilities related to corporate allocations including administrative expenses for legal, accounting, treasury, information technology, human resources and other services. Other assets and liabilities recorded by AWI, whose related income and expense had been allocated to AFI, were also included in net AWI investment.

All intercompany transactions effected through net AWI investment were considered cash receipts and payments and are reflected in financing activities in the accompanying Consolidated Statements of Cash Flows.

The impact of the Spin-off on equity is reflected in net transfers from AWI and distribution paid to AWI on the Consolidated Statements of Stockholders' Equity and the Consolidated Statements of Cash Flows. The components on the Consolidated Statements of Stockholders' Equity and the Consolidated Statements of Cash Flows were as follows:
  Year Ended December 31, 2016
  Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows - Financing Activities
 
 Net transfers from AWI for the three months prior to Spin-off$53.6
 $53.6
 Net transfers (to) from AWI upon Spin-off(11.2) 9.0
 Other activity concurrent with Spin-off—
 (7.0)
  42.4
 55.6
 Cash distribution paid to AWI upon Spin-off(50.0) (50.0)
 Net transfers (to) from AWI$(7.6) $5.6

Additionally, during 2017, we recorded adjustments primarily related to the tax attributes assumed upon the Spin-off in the amount of $0.7 million.

Recently Adopted Accounting Standards

On January 1, 2018, we adopted Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with
Customers," and all the related amendments. The impact of the standard is limited to our accounting for warranties and returns. We adopted the standard using the modified retrospective transition method and we recorded a cumulative catch up adjustment to increase accumulated deficit in the amount of $4.1 million, increase prepaid expenses and other current assets by $0.4 million and decrease accounts receivable, net by $4.5 million. The adoption of the standard did not have a material impact on our results of operations or cash flows, but did result in new disclosures.

On January 1, 2018, we adopted Accounting Standards Update ("ASU") 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities." The guidance 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. Adoption did not have a material impact on our financial condition, results of operations or cash flows.


46


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


On January 1, 2018, we adopted ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory." The guidance requires entities to recognize income tax consequences of many intercompany asset transfers other than inventory at the transaction date. Adoption of this standard did not have a material impact on our financial condition, results of operations or cash flows.

On January 1, 2018, we adopted ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The guidance requires the service cost component of net periodic benefit cost to be presented in the income statement line items with compensation cost and all other components of net periodic benefit cost to be presented outside operating income. Previously, all components of net periodic benefit cost were recorded within cost of goods sold and selling, general and administrative ("SG&A") expense. We applied this standard retrospectively in the period of adoption. The table below presents the impact of adoption on our results of operations:
 Year Ended December 31,
 2017
 Prior to Adoption Impact of Adoption Upon Adoption
Cost of goods sold$555.1
 $(2.1) $553.0
Selling, general and administrative expenses164.6
 (0.8) 163.8
Operating (loss)(15.6) 2.9
 (12.7)
Other expense, net0.8
 2.9
 3.7
      
 Year Ended December 31,
 2016
 Prior to Adoption Impact of Adoption Upon Adoption
Cost of goods sold$556.1
 $(1.6) $554.5
Selling, general and administrative expenses168.7
 (0.6) 168.1
Operating (loss)(14.7) 2.2
 (12.5)
Other expense, net4.7
 2.2
 6.9

ASU 2017-07 does not impact our financial condition or cash flows.

On January 1, 2018, we early adopted ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities.”The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and it requires the presentation of all items that affect earnings in the same income statement line as the hedged item. This standard did not have a material impact on our financial condition, results of operations or cash flows.

On January 1, 2018, we early adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The guidance permits entities to reclassify tax effects stranded in AOCI as a result of tax reform to retained earnings. We applied this standard in the period of adoption and we reclassified $12.6 million from accumulated other comprehensive (loss) into accumulated deficit. There will be no impact on results of operations or cash flows.

In March 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-05, "Income Taxes". This guidance addresses the recognition of taxes payable or refundable for the current year and the recognition of deferred tax liabilities and deferred tax assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. This guidance was effective immediately upon issuance. The adoption did not have a material impact on our financial condition, results of operations or cash flows.
Recently Issued Accounting Standards

47


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


In February 2016, the FASB issued ASU 2016-02, "Leases." The guidance, and subsequent amendments issued, requires a lessee to recognize the assets and liabilities that arise from a lease agreement. Specifically, this new guidance will require lessees to recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term, with limited exceptions. This new guidance is effective for annual reporting periods beginning after December 15, 2018 and must be adopted under a modified retrospective basis. The FASB allows companies transition and practical expedient elections to simplify the transition of the new standard. We have elected the following:
We have elected to not restate comparative prior periods but instead recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.
We have elected to use the hindsight practical expedient with respect to determining the lease term allowing us to consider the actual outcome of lease renewals, termination options, and purchase options and in assessing impairment of right-of-use assets for existing leases.
We have elected to combine lease and non-lease components as a single component and account for it as a lease for all asset classes excluding real estate.
We have elected to use a portfolio approach to determine the discount rate.

Upon adoption, we will record the right-of-use assets and the lease liabilities related to our operating leases with a lease term in excess of one year. Based on our assessment to date, we expect adoption of the standard will result in recognizing an increase in our lease related assets and liabilities of less than $10 million on our Consolidated Balance Sheet. We do not believe there will be a material impact on results of operations or cash flows.

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." The guidance requires immediate recognition of estimated credit losses that are expected to occur over the remaining life of many financial assets. This new guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2019, but early adoption is permitted for annual and interim periods in fiscal years beginning after December 15, 2018. We are currently evaluating the impact the adoption of this standard would have on our financial condition, results of operations and cash flows.

In August 2018, the FASB issued ASU 2018-13, "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." The guidance eliminates, adds and modifies certain disclosure requirements. This new guidance is effective for fiscal years beginning after December 15, 2019 for public companies. Early adoption is permitted for either the entire standard or provisions that eliminate or modify requirements. Adoption of the standard will not impact our financial condition, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The guidance changes the disclosure requirements by eliminating certain disclosures that are no longer considered cost beneficial and added new ones that are considered pertinent. The guidance is effective for fiscal years ending December 15, 2020 for public companies. Early adoption is permitted. Adoption of the standard will not impact our financial condition, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The guidance aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal use software license. Capitalized implementation costs should be amortized over the term of the service agreement on a straight-line basis and should be assessed for impairment in a manner similar to long-lived assets. This new guidance is effective for fiscal years beginning after December 15, 2019 for public companies. Early adoption is permitted. We are continuing to evaluate the impact the adoption of this standard will have on our financial condition, results of operations and cash flows.

Subsequent Events


48


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


We have evaluated subsequent events for potential recognition and disclosure through the date the Consolidated Financial Statements included in the Form 10-K were issued.
NOTE 3. NATURE OF OPERATIONS
Geographic Areas

The sales in the table below are allocated to geographic areas based upon the location of the customer.
 Year Ended December 31,
 2018 2017 2016
Net trade sales     
United States$563.4
 $549.9
 $565.3
China68.7
 59.3
 51.2
Canada49.2
 48.6
 51.5
Other46.9
 46.3
 42.1
Total$728.2
 $704.1
 $710.1

The long-lived assets in the table below include property, plant and equipment, net. Long-lived assets by geographic area are reported by location of the operations to which the asset is attributed.
 December 31, 2018 December 31, 2017
United States$205.9
 $212.5
China78.0
 85.0
Other12.2
 13.1
Total$296.1
 $310.6

Information about Major Customers

In 2018, net sales to one customer exceeded 10% of our total net sales. Total revenue from this customer was $122.6 million in 2018. We monitor the creditworthiness of our customers and generally do not require collateral.

NOTE 4. SEVERANCE EXPENSE
In connection with the divestiture of our North American wood flooring business we announced a cost optimization plan to improve our existing cost structure by eliminating essentially all shared costs that will not be covered by transition service agreements with AIP. The new structure is expected to better reflect the simplification of our operations as a purely resilient flooring company. We eliminated approximately 45 positions, and the impacted employees received severance benefits. We recognized charges of $2.4 million in SG&A expenses in the fourth quarter of 2018.
In the first quarter of 2018, we announced that we were changing our residential go-to-market strategy and empowering our distributors with the responsibilities of marketing, merchandising and direct sales representation. The new structure was designed to provide enhanced support and responsiveness to retailers. As a result of the reorganization, approximately 70 positions were eliminated, and the impacted employees received severance benefits. We recognized charges of $3.1 million primarily in SG&A expenses.

49


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)



In the first quarter of 2017, we announced the combination of our commercial and residential go-to-market structures and related organization. The new structure was designed to provide enhanced support and responsiveness to retailers and contractors and to foster greater alignment with distributors, which cover both commercial and residential markets. As a result of this reorganization, approximately 40 positions were eliminated, and the impacted employees received severance benefits. We recognized charges of $4.6 million in SG&A expense as a result of this reorganization.

In 2016, we reorganized certain administrative functions, resulting in the elimination of six positions, including the Chief Operating Officer position. We recognized charges of $1.7 million in SG&A expense as a result of this reorganization.

NOTE 5. STOCK-BASED COMPENSATION
Prior to the Spin-off, AWI issued stock-based compensation awards to employees and directors that became employees or directors of AFI. These awards included employee stock options, employee and director RSUs, and employee PSUs. Stock-based compensation expense until the Spin-off in 2016 was allocated to AFI based on direct expenses for AFI employees and a proportional allocation for employees that were providing services to both companies prior to the Spin-off.

In April 2016, AFI adopted the Armstrong Flooring, Inc. 2016 Long-Term Incentive Plan (the "2016 LTIP") and the Armstrong Flooring, Inc. 2016 Directors' Stock Unit Plan (the "2016 Directors' Plan"), which collectively comprised a new compensation program that allows for the grant to certain employees and non-employee directors of AFI different forms of benefits, including PSAs, PSUs, and RSUs. On June 2, 2017, our stockholders approved an amendment and restatement of the 2016 LTIP. Under the 2016 LTIP, our board of directors initially authorized up to 5,500,000 shares of common stock for issuance and the amendment authorized an additional 2,100,000 shares of common stock of issuance, for a total of 7,600,000 shares, which includes all shares that have been issued under the 2016 LTIP. Our board of directors authorized up to 600,000 shares of common stock that may be issued pursuant to the 2016 Directors' Plan. As of December 31, 2018, 2,566,814 shares and 245,363 shares were available for future grants under the 2016 LTIP and the 2016 Directors' Plan, respectively.

New Awards

The Management Development and Compensation Committee of the Board of Directors granted the following awards under the 2016 LTIP Plan and the 2016 Directors' Plan:

PSAs and PSUs — PSAs and PSUs were granted to key executive employees and certain management employees of AFI. The PSAs and PSUs are units of restricted Company common stock that vest based on the achievement of certain performance conditions. The performance condition for 75.0% of the awards is based on earnings before interest, taxes, depreciation and amortization ("EBITDA"). The performance condition for the remaining 25.0% of the awards is based on cumulative free cash flow, defined as cash flow from operations, less cash used in investing activities. Performance awards issued to key executive employees in 2016 and 2017 are also indexed to the achievement of specified levels of absolute total shareholder return, and the fair value was measured using a Monte-Carlo simulation on the date of grant. For performance awards that are not indexed to the achievement of specified levels of absolute total shareholder return, the fair value was measured using our stock price on the date of grant. If the performance conditions are met, the awards vest at the conclusion of the performance period, which is generally at the end of the third fiscal year following the date of grant.


50


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


The following table summarizes the assumptions used to measure the fair value of the annual grant of performance awards that are also indexed to the achievement of specified levels of absolute total shareholder return.
 2017 2016
Weighted-average grant-date fair value$15.41
 $12.44
    
Assumptions   
Risk-free rate of return1.6% 0.8%
Expected volatility31.4% 36.2%
Expected term (in years)3.0
 2.8
Expected dividend yield—
 —

We did not issue any such awards in 2018.

The risk free rate of return was 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 award.  The expected volatility was based on peer volatility since, as of the valuation date, we did not have a sufficient number of trading days to rely on our own trading history. The expected term represented the performance period on the underlying award. The expected dividend yield was assumed to be zero because, at the time of each grant, we had no plans to declare a dividend. 

RSUs —RSUs were granted to certain management employees of AFI. The RSUs are units representing shares of Company common stock which are converted to shares of Company common stock at the end of the service period. There are no performance conditions associated with these awards. Vesting occurs with one third of the awards vesting at the end of one, two and three years from the date of grant. The fair value of RSUs was measured using our stock price on the date of grant.

Director Awards —RSUs were granted to our non-employee directors under the 2016 Directors' Plan. These awards generally have a vesting period of one year, and any dividends paid prior to vesting are forfeitable if the award does not vest. The awards are generally payable six months following the director’s separation from service on the board. The fair value of non-employee director RSUs was measured using our stock price on the date of grant. The following table summarizes activity related to the non-employee director RSUs.
 2018 2017
Vested and not yet delivered as of December 31,174,442 140,146
Granted67,288 48,722
Outstanding as of December 31,241,730 188,868

Modified Awards

In connection with the Spin-off, in accordance with the Employee Matters Agreement between AFI and AWI, certain executives, employees and non-employee directors were entitled to receive equity compensation awards of AFI in replacement of previously outstanding awards granted prior to the Spin-off under various AWI stock incentive plans. These awards included stock options, RSUs, and PSUs. In connection with the Spin-off, these awards were converted into new AFI equity awards using a formula designed to preserve the intrinsic value of the awards immediately prior to the Spin-off on April 1, 2016. The modification did not result in a change to the value of the awards. Therefore, no additional compensation expense related to the award modification was recorded. The terms and conditions of the AWI awards were replicated and, as necessary, adjusted to ensure that the vesting schedule and economic value of the awards was unchanged by the conversion.


51


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


The modified PSUs were initially issued with performance conditions based on AWI's results. At modification, two of the three years of performance had occurred. For the third year, which occurred after the Spin-off, award payout was at the target level.

The following table summarizes information about AFI's modified stock options:
  Number of Shares (in thousands) Weighted-Average Exercise Price (per share) Weighted-Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2017 533.6
 $12.77
 4.7 $2.2
Exercised (66.1) 11.65
    
Cancelled (14.0) 14.15
    
Outstanding as of December 31, 2018 453.5
 12.89
 3.6 0.2
Options exercisable 453.5
 12.89
 3.6 0.2

The options expire between 2019 and 2024. 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 following table presents information related to stock option exercises:
 Year Ended December 31,
 2018 2017
Total intrinsic value of stock options exercised$0.3
 $0.5
Cash proceeds received from stock options exercised0.8
 1.4

Total Awards

The table below summarizes activity related to the PSAs, PSUs, and RSUs. The non-employee director activity is not reflected in the RSU activity below.
  PSAs and PSUs RSUs
  Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value (per share) Number of Shares (in thousands) Weighted-Average Grant-Date Fair Value (per share)
Non-vested as of December 31, 2017 892.7
 $13.93
 231.6
 $15.77
Granted 354.7
 13.94
 308.3
 16.12
Vested —
 —
 (137.0) 15.32
Forfeited (144.9) 14.27
 (78.3) 16.79
Non-vested as of December 31, 2018 1,102.5
 13.88
 324.6
 16.13

The table above contains 6,895 and 5,228 PSUs as of December 31, 2018 and 2017, respectively, which are accounted for as liability awards as they may be settled in cash. The table above contains 6,825 and 5,676 RSUs as of December 31, 2018 and 2017, respectively, which are accounted for as liability awards as they may be settled in cash.




52


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


In 2018, the weighted-average grant-date fair value of performance-based awards and RSUs granted was $13.94 and $16.12, respectively. No PSAs and PSUs vested in 2018. The fair value of RSUs that vested in 2018 was $2.1 million.

In 2017, the weighted-average grant-date fair value of performance-based awards and RSUs granted was $16.54 and$17.21, respectively. The fair value of PSAs and PSUs that vested in 2017 was $0.7 million and RSU's that vested in the same year was $3.1 million.

Stock-based compensation expense is generally recognized on a straight-line basis over the vesting period and is recorded as a component of SG&A. Total stock-based compensation expense included in the Consolidated Statements of Operations and the related tax effects are presented in the table below:
 Year Ended December 31,
 2018 2017 2016
Stock-based compensation expense$4.7
 $1.5
 $5.4
Income tax benefit1.1
 0.8
 2.5

To the extent the vesting-date fair value is greater than the grant-date fair value, the excess tax benefit is recorded as an income tax benefit in the Consolidated Statements of Operations. For the years ended December 31, 2018 and 2017, the income tax expense was $0.1 million and income tax benefit $0.5 million, respectively related to grant-date fair value from the exercise of stock options and vesting of stock-based awards.

As of December 31, 2018, $6.5 million of total unrecognized compensation expense related to non-vested stock-based compensation arrangements is expected to be recognized over a weighted-average period of 1.9 years.

NOTE 6. OPERATING 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. Total rent expense was $11.0 million, $10.1 million and $8.5 million in 2018, 2017, and 2016, respectively.

Future minimum payments at December 31, 2018 by year and in the aggregate, having non-cancelable lease terms in excess of one year are as follows:
 Total Minimum Lease Payments
2019$10.0
20207.1
20212.0
20220.3
20230.2
Thereafter0.8
Total$20.4

The table above includes AFI lease obligations to AWI. The AFI sublease to TZI is cancellable within less than one year and is therefore excluded from the table above. The termination fee to cancel the sublease before the end of the sublease term is $2.5 million.


53


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


NOTE 7. RELATIONSHIP WITH AWI
On April 1, 2016, in connection with the completion of the Spin-off, we entered into several agreements with AWI that provided for the separation and allocation between AFI and AWI of the assets, employees, liabilities and obligations of AWI and its subsidiaries attributable to periods prior to, at and after the Spin-off. These agreements also govern the relationship between AFI and AWI subsequent to the completion of the Spin-off.

These agreements included a Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement, a Trademark License Agreement, a Transition Trademark Agreement and a Campus Lease Agreement.

Under the Transition Services Agreement, AFI and AWI provided various services to each other, including information technology, accounts payable, payroll, and other financial functions and administrative services through December 31, 2017.

The Tax Matters Agreement generally governs AFI’s and AWI’s respective rights, responsibilities and obligations after the Spin-off with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and other matters regarding taxes for any tax period ending on or before the distribution date, as well as tax periods beginning after the distribution date. In addition, the Tax Matters Agreement provides that AFI is liable for taxes incurred by AWI that may arise if AFI takes, or fails to take, certain actions that may result in the separation, the distribution or certain related transactions failing to qualify as tax-free for U.S. federal income tax purposes. AWI received an opinion from its tax counsel that the Spin-off qualified as a tax-free transaction for AWI and its shareholders.

The Employee Matters Agreement governs certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of AFI and AWI. Pursuant to this agreement and in connection with the Distribution, AWI transferred assets and liabilities from the Shared Plans sponsored by AWI to AFI that relate to active AFI employees and certain former AFI employees to mirror plans established by AFI.

Pursuant to the Trademark License Agreement, AWI provided AFI with a perpetual, royalty-free license to use the “Armstrong” trade name and logo.

Pursuant to the Transition Trademark License agreement, AFI provided AWI with a five-year, royalty-free license to use the “Inspiring Great Spaces” tagline, logo and related color scheme.

Under the Campus Lease Agreement, AFI leased certain portions of AWI's campus for use as AFI's corporate headquarters. The Campus Lease Agreement provides for an initial term of five years from April 1, 2016.

NOTE 8. INCOME TAXES
Historically, AFI was included with the AWI and affiliated entities in filing a consolidated U.S. federal income tax return, and as part of a unitary or combined group in some states. Income taxes are computed and reported herein under the separate return method as if AFI were a separate taxpayer for periods prior to and on March 31, 2016. Use of the separate return method requires significant judgment and may result in differences when the sum of the amounts allocated to stand-alone tax provisions are compared with amounts presented in Consolidated Financial Statements. In that event, the related deferred tax assets and liabilities could be significantly different from those presented herein.

U.S. Tax Reform

On December 22, 2017, the U.S government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The Tax Reform Act made broad and complex changes to the U.S. tax code

54


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


that has impacted our fiscal year ending December 31, 2018, including, but not limited, reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, limiting the carryover of net operating losses to 80% of taxable income, and modifying the deductibility of certain expenses.

We recognized the income tax effects of the Tax Reform Act in our 2017 Consolidated Financial Statements in accordance with SAB No. 118, which provides SEC staff guidance for the application of ASC Topic 740, "Income Taxes," in the reporting period in which the Tax Reform Act was signed into law. We completed our analysis of the Tax Reform Act during 2018 and recorded an additional income tax expense of $0.1 million in 2018, due to the impact of filing our 2017 U.S. Federal Tax Return.

The following table presents loss from continuing operations before income taxes for U.S. and international operations based on the location of the entity to which such earnings are attributable:
 Year Ended December 31,
 2018 2017 2016
Domestic$(28.1) $(18.0) $(15.1)
Foreign3.0
 (1.1) (5.8)
Total$(25.1) $(19.1) $(20.9)

The following table presents the components of the income tax benefit:
 Year Ended December 31,
 2018 2017 2016
Current     
Federal$0.3
 $(4.7) $(0.9)
Foreign0.6
 (0.4) (0.4)
State and local0.2
 —
 0.3
Subtotal1.1
 (5.1) (1.0)
Deferred     
Federal(4.6) (0.3) (3.8)
Foreign(2.5) 0.1
 0.5
State and local—
 3.3
 (0.4)
Subtotal(7.1) 3.1
 (3.7)
Total$(6.0) $(2.0) $(4.7)

As of December 31, 2018, we reviewed our position with regard to foreign unremitted earnings and determined that unremitted earnings would continue to be permanently reinvested. Accordingly, we have not recorded foreign withholding taxes on approximately $11.3 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 that would result if these basis differences reversed due to the complexities of the tax law and the hypothetical nature of the calculations.

55


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


The following table presents the differences between our income tax benefit at the U.S. federal statutory income tax rate and our effective income tax rate:
 Year Ended December 31,
 2018 2017 2016
Continuing operations tax at statutory rate$(5.3) $(6.7) $(7.3)
(Decrease)/increase in valuation allowances on deferred foreign income tax assets(3.4) 2.0
 2.4
Permanent book/tax differences1.7
 0.6
 3.6
Tax on foreign and foreign-source income1.1
 (1.4) (1.5)
Increase in valuation allowances on deferred state income tax assets0.7
 5.2
 —
State income tax benefit, not of federal benefit(0.6) (0.8) (0.6)
Research and development credits(0.6) (0.7) (0.8)
Increase in valuation allowances on deferred federal income tax assets0.2
 —
 —
Impact of Tax Reform Act0.1
 0.8
 —
State law changes, net of federal benefit—
 (1.1) —
Domestic production activities—
 —
 (0.4)
Other0.1
 0.1
 (0.1)
Total$(6.0) $(2.0) $(4.7)

56


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


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 2016 through 2018, as well as future reversals of existing taxable temporary differences and projections of future profit before tax and foreign source income.
 December 31, 2018 December 31, 2017
Deferred income tax assets (liabilities)   
Postretirement and postemployment benefits$16.7
 $20.2
Net operating losses19.3
 30.4
Accrued expenses9.1
 8.3
Deferred compensation5.5
 2.4
Customer claims reserves2.9
 2.9
Goodwill2.2
 2.6
Pension benefit liabilities2.3
 0.4
Tax credit carryforwards2.6
 2.5
Intangibles1.7
 0.6
Other0.8
 1.3
Total deferred income tax assets63.1
 71.6
Valuation allowances(29.7) (29.7)
Net deferred income tax assets33.4
 41.9
Accumulated depreciation(20.2) (21.2)
Inventories(8.7) (8.1)
Other(1.0) (0.5)
Total deferred income tax liabilities(29.9) (29.8)
Net deferred income tax assets$3.5
 $12.1
Deferred income taxes have been classified in the Consolidated Balance Sheet as:   
Deferred income tax assets—noncurrent$5.6
 $14.0
Deferred income tax liabilities—noncurrent(2.1) (1.9)
Net deferred income tax assets$3.5
 $12.1


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.



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 account for all interest and penalties on uncertain income tax positions as income tax expense.

See Note 14, Income Taxes, to the Consolidated Financial Statements for additional information.

Earnings Per Share
Basic earnings or loss per share is computed by dividing the earnings or loss attributable to common shares by the sum of the weighted average number of shares of common stock outstanding during the period and the weighted average number of stock-based awards that have vested but not yet been issued during the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings. Diluted loss per share would be calculated using basic common shares outstanding, as inclusion of potentially dilutive common shares would be anti-dilutive. See Note 15, Earnings Per Share of Common Stock, to the Consolidated Financial Statements for additional information.

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. The Company has no restricted cash.

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 and miscellaneous receivables, net of allowances for current expected credit losses, customer credits and warranties are reported in accounts and notes receivable on a net basis. Cash flows from the collection of 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 net of allowances for current expected credit losses of receivables each period. This estimate is based upon the current and forecasted economic conditions as well as an analysis of prior credit losses by receivable type. 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.

See Note 3, Accounts and Notes Receivable, to the Consolidated Financial Statements for additional information.

57
48




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




Inventories
Inventories are valued at the lower of cost or net realizable value and cost is determined using the FIFO method of accounting. Additionally, inventory balances are adjusted for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and its net realizable value.

During the fourth quarter of 2021, the Company changed its method of accounting for U.S. based inventories from the LIFO method to the FIFO method. We believe that this change in accounting method is preferable as it results in a better matching of revenue and expense, it more closely resembles the physical flow of inventory, is a more consistent method to value inventory across our businesses, and results in improved comparability with industry peers.

See Note 4, Inventories, to the Consolidated Financial Statements for additional information.

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 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 accelerated obsolescence or wear, such as tooling and engraving equipment, are depreciated over shorter periods (3 to 7 years). Heavy production equipment, such as conveyors, 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 amortized over 3 to 7 years.

Property, plant and equipment is tested for impairment when indicators of impairment exist, such as operating losses and/or negative cash flows. If an evaluation of the undiscounted future cash flows generated by an asset group indicates impairment, the asset group is written down to its estimated fair value, which is based on its discounted future cash flows. The following table presentsprincipal assumption used in these impairment tests is future cash flows, which are derived from those used in our operating plan and strategic planning processes.

See Note 5, Property, Plant and Equipment, to the componentsConsolidated Financial Statements for additional information.

Intangible Assets
Our indefinite-lived intangible assets are primarily trademarks which are integral to our corporate identity and expected to contribute indefinitely to our corporate cash flows. We conduct our annual impairment test for indefinite-lived intangible assets during the fourth quarter and we conduct interim impairment tests if indicators of potential impairment exist.

An impairment is recognized if the carrying amount of the asset exceeds its fair value. We first perform a qualitative assessment to determine if it is necessary to perform a quantitative impairment test. If a quantitative impairment test is deemed necessary, the method used to determine the fair value of our valuation allowance against deferred income tax assets:
indefinite-lived intangible assets is the relief-from-royalty method. The principal assumptions used in our application of this method are revenue growth rate, discount rate and royalty rate. Revenue growth rates are derived from those used in our operating plan and strategic planning processes. The discount rate assumption is calculated based upon an estimated weighted average cost of capital, which we believe 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 overall profits. The method used for valuing our indefinite-lived intangible assets did not change from prior periods.
 Year Ended December 31,
 2018 2017
Federal$9.4

$0.1
State2.8

6.1
Foreign17.5
 23.5
Total$29.7
 $29.7


Our long-lived intangible assets are primarily contractual arrangements (amortized over 5 years), which includes non-compete agreements, and intellectual property (amortized over 2 to 15 years), which includes developed technology and patents. We review long-lived intangible assets for impairment if indicators of potential impairment exist, such as operating losses and/or negative cash flows. If an evaluation of the undiscounted future cash flows generated by the asset group indicates impairment, the asset group is written down to its estimated fair value, which is based on its discounted future cash flows. The principal assumption used in these impairment tests is future cash flows, which are derived from those used in our operating plan and strategic planning processes.
The valuation allowances offset federal, state and foreign deferred tax assets, credits, and operating loss carryforwards.

The following is a summary of our net operating loss (“NOL”) carryforwards:
 Year Ended December 31,
 2018 2017
State$17.6
 $17.8
Foreign65.3
 83.2
Federal14.0
 30.5

As of December 31, 2018, federal NOL carryforwards expire between 2019 and 2038, state NOL carryforwards expire between 2019 and 2038, and foreign NOL carryforwards expire between 2019 and 2023.

We estimate we will need to generate future taxable income of approximately $69.6 million for state income tax purposes during the respective realization periods (ranging from 2019 to 2038) in order to fully realize the net deferred income tax assets discussed above.

We have $1.6 million of unrecognized tax benefits ("UTBs") as of December 31, 2018. Of this amount, $0.1 million, net of federal benefit, if recognized in future periods, would impact the reported effective tax rate.

It is reasonably possible that certain UTBs 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 relatedSee Note 7, Intangible Assets, to the results of published tax cases or other similar activities. Over the next twelve months, we estimate no changes to UTBs.

The following table presents a reconciliation of the total amounts of UTBs, excluding interest and penalties:Consolidated Financial Statements for additional information.
49
 2018 2017 2016
Unrecognized tax benefits as of January 1,$4.8
 $5.0
 $81.9
Gross change for current year positions0.2
 0.4
 1.3
(Decreases) for prior period positions(3.4) (0.6) (78.2)
Unrecognized tax benefits balance as of December 31,$1.6
 $4.8
 $5.0


The 2018 decrease related to prior period positions includes $3.1 million related to discontinued operations. The 2017 decrease related to prior period positions includes $0.5 million that resulted from the reduction of the U.S. income tax rate from 35% to 21% since these positions represent a reduction of U.S. net operating losses. The $78.2 million decrease for prior period positions in 2017 were UTBs allocated to AFI as a result of the separate return method, which remained with AWI upon Spin-off.


58



Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)



Foreign Currency Transactions
For our subsidiaries with non-U.S. dollar functional currency, assets and liabilities are translated at period-end exchange rates. Revenues and expenses are translated at exchange rates effective during each month. Foreign currency translation gains or losses are included as a component of AOCI within equity. Gains or losses on foreign currency transactions are recognized through net income (loss).

Stock-Based Employee Compensation
We conduct business globally,issue stock-based compensation to certain employees and non-employee directors in different forms, including various types of performance-based share compensation including PSAs, PSUs, PBRSUs and RSUs. We record stock-based compensation expense based on an estimated grant-date fair value. The expense is reflected as a result,component of SG&A expenses on our Consolidated Statements of Operations. Stock-based compensation expense includes an estimate for forfeitures and anticipated achievement levels and is generally recognized on a straight-line basis over the vesting period for the entire award. See Note 13, Stock-based Compensation, to the Consolidated Financial Statements for additional information.

Leases
We lease certain real estate (warehouse and office space), vehicles and equipment. For leases with an initial term of one year or less we file income tax returnsrecognize lease expense for these leases on a straight-line basis over the lease term. Leases with an initial term of one year or more are recorded on the Consolidated Balance Sheet. We consider all payments fixed unless there is a material impact to the balance sheet at any given time during the lease period.

We determine if a contract is a lease at inception. Operating leases are included in operating lease assets, accounts payable and accrued expenses and noncurrent operating lease liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, current installments of long-term debt and long-term debt in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. We update these rates annually. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain with a compelling economic reason that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We have elected to combine lease and non-lease components as a single component and account for it as a lease for all asset classes with the exception of land and non-operating buildings. Lease and non-lease components of land and non-operating buildings are generally accounted for separately.

We have elected to use a portfolio approach to determine the discount rate and defined portfolio based on the geographic location of the asset by country and duration of the lease.

See Note 6, Leases, to the Consolidated Financial Statements for additional information.

Recently Adopted Accounting Standards
On January 1, 2021, we adopted ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" This new standard eliminates certain exceptions in the U.S., various states and international jurisdictions. InASC, Section 740, related to the normal course of business, we are subject to examination by taxing authorities throughoutapproach for intraperiod tax allocation, the worldmethodology for calculating income taxes in such major jurisdictions as Australia, Canada, Chinaan interim period, guidance on accounting for franchise taxes and the U.S. Generally, we have open tax years subject to tax audit on averagerecognition of between three years and six years. With few exceptions, the statute of limitations is no longer open for state or non-U.S. income tax examinations for the years before 2012. We have not significantly extended any open statutes of limitation for any major jurisdiction and have reviewed and accrued for, where necessary,deferred tax liabilities for open periods. The tax years 2012 through 2018 are subject to future potential tax adjustments.

The following table details amounts related to certainoutside basis differences. It also clarifies and simplifies other taxes:
 Year Ended December 31,
 2018 2017 2016
Payroll taxes$11.7
 $10.9
 $11.5
Property and franchise taxes2.5
 2.5
 2.6

NOTE 9. DISCONTINUED OPERATIONS
In November 2018, we entered into a definitive agreement to sell our wood business to TZI, an affiliateaspects of AIP. The sale was completed in December 2018. The proceeds from the sale were $90.2 million, net of closing costs, transaction fees andaccounting for income taxes. The transaction is subject toadoption of the standard did not have a customary post-closing working capital adjustment process,significant impact on our consolidated financial statements.

There are no additional accounting standards that have been issued and become effective for the Company at a future date which isare expected to be completed in the first quarter of 2019.
On December 31, 2018, in connection with the sale ofhave a material impact on our wood business, TZI and AFI entered into agreements related to transition services, intellectual property, and subleases.
Pursuant to the transition service agreement AFI will provide transitional services in areas including human resources, customer service, operations, finance and IT. In consideration for the services, TZI will pay AFI monthly fees that vary based on the scope of services provided, plus a $3.0 million administrative fee. TZI will reimburse AFI for AFI’s out-of-pocket costs and expenses in connection with providing the services.
Pursuant to the intellectual property agreement, AFI provided TZI a non-exclusive, royalty-free, non-sublicensable, non-assignable license in and to certain trademarks.
Under the subleases agreement TZI will lease certain premises located at the AFI campus through March 30, 2021 with the option to terminate the sublease any time after six months from the effective date of the sublease with 30-days’ prior notice. Upon such termination, TZI will pay a termination fee of $2.5 million.
As a part of the transition service agreement, we are facilitating sales into Canada through our Canadian subsidiary.
The financial condition, results of the wood business have been reclassified as discontinued operations for all periods presented. The Consolidated Statements of Cash Flows does not separately report theor cash flows of the discontinued operation.flows.    



59
50




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)





NOTE 3. ACCOUNTS AND NOTES RECEIVABLE
The following table presents accounts and notes receivables, net:
December 31, 2021December 31, 2020
Customer trade accounts receivable$70.7 $52.4 
Miscellaneous receivables (a)
4.0 9.0 
Less: allowance for product warranties, discounts and losses(21.7)(18.4)
Total$53.0 $43.0 
(a)    Miscellaneous receivables primarily relate to the current portion of a distributor note receivable, tax claim receivables and medical insurance rebate receivables not included in Customer trade account receivables. The decrease in Miscellaneous receivables is primarily due to receipt of an insurance receivable associated with a shareholder lawsuit that was included in the balance at December 31, 2020. See Note 11, Litigation and Related Matters, for additional details.
Allowance for product claims, which is a portion of the allowance for product claims, discounts, returns and losses, represents expected reimbursements for cost associated with warranty repairs and customer accommodation claims, the majority of which is provided to our independent distributors through credits against customer trade accounts receivable from the independent distributor to AFI.
The following is a summary oftable summarizes the operating results ofactivity for the wood business, which are included in discontinued operations.allowance for product claims:
Year Ended December 31,
20212020
Balance as of January 1$(10.3)$(9.0)
Reductions for payments9.5 7.5 
Current year claim accruals(11.3)(8.8)
Balance as of December 31$(12.1)$(10.3)

 Year Ended December 31,
 2018 2017 2016
Net Sales$387.0
 $429.6
 $483.1
Cost of goods sold330.7
 407.5
 407.6
Gross profit56.3
 22.1
 75.5
Selling, general and administrative expenses36.6
 39.4
 42.3
Intangible asset impairment—
 12.5
 —
Operating earnings (loss)19.7
 (29.8) 33.2
Interest expense—
 0.1
 —
Other expense, net—
 1.0
 0.7
Earnings (loss) before income tax19.7
 (30.9) 32.5
Income tax expense (benefit)9.8
 (6.2) 8.8
Net earnings (loss) from discontinued operations$9.9
 $(24.7) $23.7
 Year Ended December 31,
 2018 2017 2016
Depreciation and Amortization$10.3
 $40.0
 $14.1
Capital Expenditures(8.0) (12.3) (11.9)
NOTE 4. INVENTORIES
The following is a summary of the resultstable presents details related to inventories:
December 31, 2021December 31, 2020
Finished goods$100.3 $96.3 
Goods in process6.7 6.7 
Raw materials and supplies39.3 25.1 
Total$146.3 $128.1 
During the net lossfourth quarter of 2021, the Company changed its method of accounting for U.S. based inventories from the LIFO method to the FIFO method. See Note 2, Summary of Significant accounting policies - Change in Accounting Principle for additional information. As of December 31, 2021, all inventories are now stated on disposal of wood business which is included in discontinued operations:a FIFO basis.

 Year Ended December 31, 2018
(Loss) on disposal of discontinued operations before income tax$(153.8)
Income tax (benefit)—
Net (loss) on disposal of discontinued operations$(153.8)
The following is a summary of the assetsInventory was decreased by $5.3 million and liabilities of the discontinued operations$7.0 million as of December 31, 2017.2021 and 2020, respectively, to reduce inventory to net realizable value as a result of obsolescence. The decrease from 2020 was attributable to the continued implementation of several initiatives aimed at improving the overall composition and age of the Company's inventory.


51
 Year Ended December 31, 2017
Cash$(1.1)
Accounts and notes receivable, net27.1
Inventories, net119.0
Other assets4.5
Current assets of discontinued operations$149.5


60



Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




 Year Ended December 31, 2017
Property plant and equipment, net$107.5
Intangible assets, net21.8
Other noncurrent assets1.0
Noncurrent assets of discontinued operations$130.3
 Year Ended December 31, 2017
Accounts payable and accrued expenses$26.1
Current liabilities of discontinued operations$26.1
 Year Ended December 31, 2017
Long-term debt$1.0
Postretirement benefit liabilities2.9
Pension benefit liabilities3.4
Deferred income taxes13.1
Other liabilities2.3
Noncurrent liabilities of discontinued operations$22.7
European Resilient Flooring
On December 4, 2014, AWI's Board of Directors approved the cessation of funding to its DLW subsidiary, which at the time was our European flooring business. As a result, DLW management filed for insolvency in Germany on December 11, 2014.
The DLW insolvency filing in 2014 resulted in presenting DLW for all historical periods prior to the Spin-off as a discontinued operation. 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 $115.0 million, were considered proceeds. Accordingly, a non-cash income tax benefit of $43.4 million was recorded in 2015 within discontinued operations for the tax benefit of the future pension deductions. As AWI is solely responsible for any shortfall, and the beneficiary of any excess, at the closure of the DLW insolvency proceedings, DLW is excluded from our financial position, results of operations and cash flows after the Spin-off.
The following is a summary of the operating results of DLW, which are reflected in these Consolidated Financial Statements for periods prior to the Spin-off.
 Year Ended December 31, 2016
(Loss) on disposal of discontinued operations before income tax$(0.1)
Income tax benefit1.8
Gain on disposal of discontinued operations, net of tax$1.7



61


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


NOTE 10. EARNINGS PER SHARE OF COMMON STOCK
The table below shows a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated.
  Year Ended December 31,
  2018 2017 2016
Numerator      
(Loss) from continuing operations $(19.1) $(17.1) $(16.2)
(Loss) earnings from discontinued operations, net of tax (143.9) (24.7) 25.4
Net (loss) income $(163.0) $(41.8) $9.2
       
Denominator      
Weighted average number of common shares outstanding 25,780,214
 26,977,475
 27,773,434
Weighted average number of vested shares not yet issued 188,195
 136,504
 91,903
Weighted average number of common shares outstanding - Basic 25,968,409
 27,113,979
 27,865,337
Dilutive stock-based compensation awards outstanding —
 —
 212,147
Weighted average number of common shares outstanding - Diluted 25,968,409
 27,113,979
 28,077,484

On April 1, 2016, AWI distributed 27,738,779 shares of AFI's common stock to AWI’s shareholders.

For the years ended December 31, 2018 and December 31, 2017, the diluted loss per share was calculated using basic common shares outstanding, as inclusion of potentially dilutive common shares would be anti-dilutive. For the year ended December 31, 2016, the diluted earnings per share was calculated using the diluted weighted average number of common shares outstanding during the period, determined using the treasury stock method.

Performance-based employee compensation awards are considered potentially dilutive in the initial period in which the performance conditions are met.

5. PROPERTY, PLANT AND EQUIPMENT
The following awards were excluded fromtable presents details related to our property, plant and equipment, net:
December 31, 2021December 31, 2020
Land$10.3 $10.6 
Buildings84.2 81.8 
Machinery and equipment451.2 458.9 
Computer software18.5 15.9 
Construction in progress9.2 16.4 
Less accumulated depreciation and amortization(342.9)(336.7)
Total$230.5 $246.9 
The long-lived assets in the computationtable below include property, plant and equipment, net. Long-lived assets by geographic area are reported by location of diluted (loss) earnings per share:the operations to which the asset is attributed.
December 31, 2021December 31, 2020
United States$147.7 $160.4 
China70.5 73.5 
Australia12.3 13.0 
Total$230.5 $246.9 

Year Ended December 31,
20212020
Depreciation expense$36.3 $40.8 
On March 10, 2021 the Company sold its South Gate Facility, previously classified as assets held-for-sale, for a purchase price of $76.7 million. The Company received proceeds of $65.3 million, net of fees, expenses and certain amounts held in an environmental-related escrow account. The Company realized a gain of $46.0 million during the three months ended March 31, 2021 on the sale. At December 31, 2020, the Company had classified as Assets held-for-sale, $17.8 million of primarily land and buildings related to the South Gate Facility that met all related criteria under U.S. GAAP.
During the second quarter of 2021, the Company accelerated $3.3 million of depreciation expense for property, plant and equipment for which no future alternative use was identified as part of the Company's business transformation initiatives.

The following table presents details related to our Assets held-for-sale:

December 31, 2020
Land held for sale$16.9 
Buildings held for sale0.8 
Other tangible assets0.1 
Total$17.8 


52
 Year Ended December 31,
 2018 2017 2016
Potentially dilutive common shares excluded from diluted computation as inclusion would be anti-dilutive474,910
 743,678 201,994
Performance awards excluded from diluted computation, as performance conditions not met862,256
 849,483 646,698



62



Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




NOTE 11. ACCOUNTS AND NOTES RECEIVABLE6. LEASES
The following table presents accounts and notes receivables, netCompany's leases, excluding short-term leases, have remaining terms of allowances:
 December 31, 2018 December 31, 2017
Customer receivables$45.4
 $59.8
Miscellaneous receivables6.2
 4.8
Less: allowance for product warranties, discounts and losses(12.6) (12.0)
Total$39.0
 $52.6
Generally, we sell our productsless than one year 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.
Allowance for product claims represents expected reimbursements for cost associated with warranty repairs and customer accommodation claims, the majorityten years, some of which include options to extend for up to ten years or more. The exercise of lease renewal options is providedat our sole discretion. Certain leases also include options to our independent distributors throughpurchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a credit against accounts receivable from the distributor to AFI.transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.


The following table summarizes the activity for the allowance for product claims:
components of lease expense:
 Year Ended December 31,
 2018 2017
Balance as of January 1,$(5.6) $(5.1)
Cumulative effect of adoption of new revenue recognition standard as of January 1(1.7) —
Reductions for payments7.5
 8.9
Current year claim accruals(6.6) (9.4)
Balance as of December 31,$(6.4) $(5.6)
Year Ended
December 31, 2021December 31, 2020
Finance lease cost$0.4 $0.3 
Operating lease cost5.4 4.4 
Short-term lease cost2.2 1.0 
Sublease income(0.1)(0.1)
Total lease cost$7.9 $5.6 

NOTE 12. INVENTORIES
The following table presents detailssummarizes supplemental balance sheet information related to our inventories, net:
leases:
 December 31, 2018
December 31, 2017
Finished goods$110.5
 $91.5
Goods in process5.7
 5.4
Raw materials and supplies23.3
 20.1
Total$139.5
 $117.0
    
Inventories valued on a LIFO basis$113.3
 $91.2
Inventories valued on FIFO or other basis$26.2
 $25.8
Lease CategoryBalance Sheet ClassificationDecember 31, 2021December 31, 2020
Assets
   Operating lease assetsOperating lease assets$18.5 $8.5 
   Finance lease assetsProperty, plant and equipment, net1.2 1.0 
Total lease assets$19.7 $9.5 
Liabilities
   Current
      Operating lease liabilitiesAccounts payable and accrued expenses$2.8 $2.7 
      Finance lease liabilitiesCurrent installments of long-term debt0.4 0.3 
   Noncurrent
      Operating lease liabilitiesNoncurrent operating lease liabilities16.7 5.8 
      Finance lease liabilitiesLong-term debt, net of unamortized debt issuance costs0.7 0.7 
Total lease liabilities$20.6 $9.5 

The distinction betweenfollowing table summarizes supplemental cash flow information related to leases:
Year Ended
December 31, 2021December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$4.2 $4.4 
Financing cash flows from finance leases0.5 0.3 
Non-cash lease liability activity:
Lease assets obtained in exchange for new operating lease liabilities13.46.9
Lease assets obtained in exchange for new finance lease liabilities0.50.7

During 2021, the useCompany added $11.6 million of different methods of inventory valuation is primarily based onadditional ROU assets related to the geographic locationcommencement of the manufacturing facility.

Inventory values were lower than would have been reported on a total FIFO basis by $3.0 millionTechnical Center and $0.3 million as of December 31, 2018 and 2017, respectively.


Headquarters leases.
63
53




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




The following table summarized weighted average remaining lease term and weighted average discount rate:
December 31, 2021December 31, 2020
Weighted average remaining lease term - Operating leases (in years)7.54.1
Weighted average remaining lease term - Finance leases (in years)2.53
Weighted average discount rate - Operating leases (%)11.0 %9.5 %
Weighted average discount rate - Finances leases (%)8.4 %7.1 %

The following table provides future minimum payments at December 31, 2021, by year and in the aggregate, for leases having non-cancelable lease terms in excess of one year:
Operating LeasesFinance Leases
2022$4.7 $0.5 
20234.3 0.4 
20243.9 0.2 
20253.3 0.1 
20262.3 — 
Thereafter11.2 — 
Total lease payments29.7 1.2 
Less: Unamortized interest(10.2)(0.1)
Total$19.5 $1.1 


NOTE 13. PREPAID EXPENSES AND OTHER CURRENT7. INTANGIBLE ASSETS
The following table details amounts related to our intangible assets:
December 31, 2021December 31, 2020
Estimated Useful LifeGross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Long-lived intangible assets:
Contractual arrangements5 years$33.4 $30.1 $33.4 $23.6 
Land Use Rights50 years3.3 0.6 3.20.5
Intellectual property2-15 years5.8 2.4 5.62.0
Subtotal42.5 33.1 42.2 26.1 
Indefinite-lived intangible assets:
Trademarks and brand namesIndefinite3.0 2.9 
Total$45.5 $33.1 $45.1 $26.1 
Year Ended December 31,
202120202019
Amortization expense$7.0 $7.0 $7.0 

2022202320242025Thereafter
Estimated annual amortization expense$3.7 $0.4 $0.4 $0.4 $4.5 
54


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


NOTE 8. DEBT
The following table presents details related to our prepaid expensesdebt:
December 31, 2021December 31, 2020
Credit lines (international)$4.6 $4.5 
Insurance premiums financing0.5 1.0 
Short-term debt5.1 5.5 
Current installment of Amended Term Loan Agreement (a)
86.2 2.6 
Amended ABL Credit Facility (a)
20.6 — 
Current installment of finance leases0.4 0.3 
Less: Deferred financing costs (a)
(1.4)— 
Current installments of long-term debt105.8 2.9 
Noncurrent portion of Term Loan Agreement (a)
— 67.4 
Amended ABL Credit Facility (a)
— 10.0 
Other financing payable (including finance leases)0.7 0.7 
Total principal balance outstanding, long-term debt0.7 78.1 
Less: Deferred financing costs (a)
— (6.7)
Long-term debt, net of unamortized debt issuance costs0.7 71.4 
Total$111.6 $79.8 
The maturities of debt for the five years following December 31, 2021 are as follows:
Year of Maturity
2022 (a)
$110.9 
20230.4 
20240.2 
20250.1 
(a) Substantial doubt about the Company’s ability to continue as a going concern has been raised. As a result, the Company has classified amounts outstanding under the Amended ABL Credit Facility and the Amended Term Loan Agreement as Current installments of long-term debt at December 31, 2021 on the Consolidated Balance Sheets. See Note 1, Business and Basis of Presentation, for additional details.

During the fourth quarter of 2021, the Company entered into multiple amendments to its Credit Agreements, which further amended the ABL Credit Facility and the Term Loan Agreement. These amendments are described in more detail below. As part of these transactions, the Company recorded a charge of $9.6 million related to the write-off of unamortized debt issuance costs, and debt amendment fees and capitalized $3.7 million in incremental debt issuance costs in accordance with U.S. GAAP.

During March 2021, we entered into a new line of credit in China. The new credit limit is $9.3 million with a one-year maturity date and a variable interest rate of 3.85% to 4.35%. The loan is secured by the land and building of our Chinese facility.

Amended ABL Credit Facility
On June 23, 2020, we entered into an amendment to the ABL Credit Facility, which reduced commitments from $100.0 million to $90.0 million, amended the interest rates applicable to the borrowings, modified certain financial maintenance and other current assets:covenants as well as permitted indebtedness under the Term Loan Agreement. This amendment to the ABL Credit Facility provided for a borrowing base that is derived from our accounts receivable and inventory, collectively, with the equity interests in the guarantors, the ABL Priority Collateral, subject to certain reserves and other limitations.



55


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)

 December 31, 2018 December 31, 2017
Prepaid expenses$6.8
 $14.4
Merchandising materials9.4
 11.1
Other1.8
 2.0
Total$18.0
 $27.5

On November 1, 2021, the Company entered into the Fourth Amendment to the ABL Credit Facility and on December 31, 2021, the Company entered into the Fifth Amendment to the ABL Credit Facility. These 2021 ABL Amendments amended the interest rates applicable to the Amended ABL Credit Facility, modified certain financial maintenance and other covenants as well as included the consent of the lenders to incur incremental borrowings under the Amended Term Loan Agreement.

The Amended ABL Credit Facility permits us to grant a first priority security interest in real estate, machinery and equipment and intellectual property collateral to Term Loan Agent, collectively the Term Loan Priority Collateral. Bank of America, N.A., as administrative agent and collateral agent, will not have a security interest in the real property securing the Amended Term Loan Agreement but will have a second priority security interest in machinery and equipment and intellectual property constituting Term Loan Priority Collateral. In addition, as a result of the 2021 ABL Amendments, the Company has also granted a 100% security in the equity interest of certain foreign subsidiaries.

Borrowings under the Amended ABL Credit Facility bear interest at a rate per annum equal to, at our option, a base rate or a Eurodollar rate equal to LIBOR for the relevant interest period, plus, in each case, an applicable margin determined in accordance with the provisions of the 2021 ABL Amendments. The base rate will be the highest of (a) the federal funds rate plus 0.50%; (b) the prime rate of Bank of America, N.A.; and (c) LIBOR plus 1.00%. The applicable margin for borrowings under the Amended ABL Credit Facility will be determined based on the Company’s Consolidated Leverage Ratio (as defined in the 2021 ABL Amendments) and will range from 2.25% to 3.50% with respect to base rate borrowings and 3.25% to 4.50% with respect to Eurodollar rate borrowings. In addition to paying interest on outstanding principal under the Amended ABL Credit Facility, we will pay a commitment fee to the lenders with respect to the unutilized revolving commitments thereunder at a rate ranging from 0.375% to 0.50% depending on the Company’s Consolidated Leverage Ratio (as defined in the 2021 ABL Amendments). The weighted average interest rate for the Amended ABL Credit Facility was 5.74% during 2021.

The Amended ABL Credit Facility contains financial covenants applicable to the Company and its subsidiaries. These financial covenants require that the Company and its subsidiaries (i) maintain minimum Availability (as defined in the Amended ABL Credit Facility) of $40 million during the months ending December 31, 2021 and January 31, 2022, $37.5 million during the month ending February 28, 2022, and $25 million thereafter; (ii) maintain minimum Consolidated Cash Flow (as defined in the Amended ABL Credit Facility) for each month, commencing with the month ending December 31, 2021, and calculated on a cumulative basis, ranging from negative $21 million as of December 31, 2021, to negative $40 million as of June 30, 2022; and (iii) maintain a minimum Formula Availability (as defined in the Amended ABL Credit Facility) in an amount ranging from $86.4 million during the month ending December 31, 2021 to $106.4 million during the month ending June 30, 2022. The Company was in compliance with these covenants at December 31, 2021.

In addition, the Amended ABL Credit Facility includes certain milestones related to the Company’s consideration of a sale of the Company or other strategic alternatives. These milestones include: (i) a requirement that the Company deliver a confidential information memorandum regarding the sale process to potential buyers, investors and/or refinancing sources by January 14, 2022; (ii) a requirement that the Company provide a summary by February 18, 2022 of all written indications of interest regarding the acquisition of the Company or an alternative transaction that are received on or before that date,; (iii) a requirement that the Company notify by February 28, 2022 whether any binding letter of intent for the acquisition of the Company has been entered into prior to such date and, thereafter, providing copies of any such letter of intent entered into after such date (subject to any necessary redaction); (iv) a requirement that the Company enter into a definitive agreement for the acquisition of the Company by March 31, 2022 which provides for a purchase price in an amount sufficient to repay in full the outstanding loans under the Amended ABL Credit Facility and the Amended Term Loan Agreement and otherwise be in form and substance reasonably satisfactory,; and (v) a requirement that the Company consummate the sale of the Company or a similar transaction by no later than May 15, 2022.

As of December 31, 2021, outstanding letters of credit issued under the Amended ABL Credit Facility were $6.8 million and are subject to fees which will be due quarterly in arrears based on the applicable margin described above plus a fronting fee. The total rate for letters of credit was 4.125% as of December 31, 2021.



56


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


Prior to the 2021 ABL Amendments, the Company had $0.5 million of unamortized deferred financing costs associated with the ABL Credit Facility. In accordance with U.S. GAAP, as a result of the 2021 ABL Amendments, the Company recorded a charge of $0.4 million related to the write-off of unamortized debt issuance costs and capitalized an additional $2.0 million of incremental new debt issuance costs.

Amended Term Loan Agreement
On June 23, 2020, we entered into the Term Loan Agreement with Pathlight Capital L.P. as the administrative agent. The Term Loan Agreement provided us with secured borrowings of $70.0 million. The borrowing base was derived from the Company’s machinery and equipment, intellectual property and real property, subject to certain reserves and other limitations. The Term Loan Agreement is scheduled to mature on June 23, 2025.

During 2021, upon the sale of our South Gate Facility, we made a mandatory prepayment of $20.0 million to Pathlight Capital L.P. towards the principal balance on our Term Loan Agreement as required by the Term Loan Agreement. As part of the mandatory payment, we paid an additional $0.4 million in prepayment premium fees.

On November 1, 2021, the Company entered into the First Amendment to the Term Loan Agreement and on December 31, 2021, the Company entered into the Second Amendment to the Term Facility. These 2021 Term Loan Amendments amended the interest rates applicable to the Amended Term Loan Agreement, modified certain financial maintenance and other covenants as well as eliminated scheduled amortization payments. Additionally, the 2021 Term Loan Amendments provided incremental borrowings of $35.0 million. After completion of the 2021 Term Loan Amendments the outstanding aggregate principal under the Amended Term Loan Agreement was $83.3 million. In connection with the 2021 Term Loan Amendments, the Company paid the Term Loan Agent an amendment fee equal to 2.5% of the outstanding principal balance of the original Term Loan Agreement and 5.0% of the incremental borrowings under the Amended Term Loan Agreement. These amendment fees were added to the outstanding principal of the Amended Term Loan Agreement. As a result, total borrowings under the Amended Term Loan Agreement were $86.2 million at December 31, 2021.

Under the Amended Term Loan Agreement, borrowings bear interest at LIBOR plus the applicable margin, which was reduced from 12.0% per annum to 11.0% per annum by the 2021 Term Loan Amendments. Interest on amounts outstanding under the original Term Loan Agreement is required to be paid in cash. Interest on the incremental $35.0 million of term loan borrowings under the 2021 Term Loan Amendments will be paid-in-kind and added to the principal balance of Amended Term Loan Agreement.

We must use cash proceeds from certain dispositions, including sales of real estate, equity and debt issuances and extraordinary events, to prepay outstanding loans under the Amended Term Loan Agreement, subject to specified exceptions, including the prepayment requirements with respect to the Amended ABL Credit Facility. Additionally, if prepaid within one year amounts outstanding are subject to a prepayment fee equal as defined in the Amended Term Loan Agreement.

All obligations under the Amended Term Loan Agreement are guaranteed by each of our wholly owned domestic subsidiaries that individually, or together with its subsidiaries, has assets of more than $1.0 million and are secured by a first priority lien on the Term Priority Collateral and a second priority lien on the ABL Priority Collateral. Also under the terms of the 2021 Term Loan Amendments, the Company’s Australian subsidiary granted a security interest in its real and personal property to the Term Loan Agent, which is included in the term loan borrowing base.

The Amended Term Loan Agreement contains a number of covenants that, among other things, and subject to certain exceptions, restrict our ability to create liens, to undertake fundamental changes, to incur debt, to sell or dispose of assets, to make investments, to make restricted payments such as dividends, distributions or equity repurchases, to change the nature of our businesses, to enter into transactions with affiliates and to enter into certain burdensome agreements. At December 31, 2021, we were in compliance with these debt covenants.





57


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


In addition, the Amended Term Loan Agreement requires us to comply with the Amended ABL Credit Facility financial covenants. The Amended Term Loan Agreement also contains customary affirmative covenants and events of default, including a cross-default provision in respect of certain material indebtedness and a change of control provision. If an event of default occurs, the lenders may choose to accelerate the maturity of the Amended Term Loan Agreement and require repayment of all obligations thereunder.

Prior to the 2021 Term Loan Amendments, the Company had $5.5 million of unamortized deferred financing costs associated with the Term Loan Agreement. In accordance with U.S. GAAP, as a result of the 2021 Term Loan Amendments, the Company recorded a charge of $5.5 million related to the write-off of unamortized debt issuance costs and capitalized an additional $1.7 million of incremental new debt issuance costs. The Company also incurred $3.7 million of debt amendment fees which were not capitalized.

The Company is required to refinance the Credit Agreements no later than June 30, 2022, even if a sale of the Company or other strategic transaction has not been consummated prior to such date. The Company will pay a sale process fee to its lenders under the Amended ABL Credit Facility upon the consummation of a sale of the Company or similar transaction, which fee will be $500,000 if such transaction closes before March 31, 2022, and $750,000, if it closes any time thereafter.


NOTE 14. PROPERTY, PLANT9. PENSION AND EQUIPMENTOTHER POSTRETIREMENT BENEFIT PROGRAMS
We have defined-benefit pension and other postretirement benefit plans covering eligible employees in North America. Benefits from defined-benefit pension plans are based primarily on 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.

During 2020, the Company approved two plan changes. One of our U.S. defined-benefit pension plans, the RIP, was amended as of December 31, 2020, to freeze the accrual of additional benefits for the Company's non-union production employees and Lancaster International Association of Machinists and Aerospace Workers participants. Also, our U.S. postretirement plan’s life insurance benefit is no longer being offered for hourly participants at various locations (Beech Creek, Kankakee, and Stillwater) and for traditional salaried participants who retire on or after January 1, 2021.

We also have defined contribution plans providing for the Company to contribute a specified matching amount for participating employees’ contributions to the plan. The following table presents details relatedmatching amount is dependent upon employee classification, but is generally either a 50% match on the first 6% of pay contributed with a maximum company matching contribution of 3% or a 100% match on the first 4% of pay contributed plus 50% match on the next 4% of pay contributed with a maximum company matching contribution of 6%. Participants become vested in the Company’s matching amount when they have completed three calendar years of company service and worked at least 1,000 hours in each year. Costs for defined-contribution plans were $6.6 million and $3.6 million in 2021 and 2020, respectively. Costs during 2020 were lower due to our property, plant and equipment, net:
the temporary suspension of Company contribution from May 2020 through September 2020 as a countermeasure to the impact of the COVID-19 pandemic.
 December 31, 2018 December 31, 2017
Land$29.6
 $30.2
Buildings91.8
 91.5
Machinery and equipment452.8
 441.8
Computer software19.2
 17.2
Construction in progress21.5
 26.0
Less accumulated depreciation and amortization(318.8) (296.1)
Total$296.1
 $310.6


NOTE 15. INTANGIBLE ASSETS
The following table details amounts related to our intangible assets:

   December 31, 2018 December 31, 2017
 Estimated Useful Life Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Long-lived intangible assets        
Contractual arrangements5 years $36.4
 $10.7
 $36.6
 $4.1
Intellectual property2-15 years 5.0
 1.3
 4.9
 1.1
Subtotal  41.4
 $12.0
 41.5
 $5.2
Indefinite-lived intangible assets        
Trademarks and brand namesIndefinite 2.6
   2.3
  
Total  $44.0
   $43.8
  









58
  Year Ended December 31,
  2018 2017 2016
Amortization expense $7.2
 $4.2
 $0.4



64



Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




DuringDefined-Benefit Pension Plans
The following tables summarize the second quarter of 2017, we acquired vinyl composition tile ("VCT") assets for $36.1 million, consisting of equipment and trademarks of Mannington Mills, Inc. ("Mannington Mills") under an agreement that included non-compete provisions. We allocated $33.6 millionbalance sheet impact of the purchase price to intangiblepension benefit plans, as well as the related benefit obligations, assets, funded status and rate assumptions. The pension benefits disclosures include both the qualified, funded RIP and the remainderRetirement Benefit Equity Plan, which is a non-qualified, unfunded plan designed to inventoriesprovide pension benefits in excess of the limits defined under Sections 415 and equipment.401(a)(17) of the Internal Revenue Code. The assigned intangible asset classes were contractual arrangements, $33.3 million, with an estimated useful life of five years, and intellectual property, $0.3 million, with an estimated useful life of two years.disclosures also include our 2 Canadian pension plans.


In addition, Mannington Mills is eligible for contingent consideration of up
U.S. Pension PlansCanadian Pension Plans
2021202020212020
Change in benefit obligation:
Projected benefit obligations as of January 1$418.4 $394.6 $17.1 $16.3 
Service cost1.0 2.6 — — 
Interest cost10.2 12.5 0.4 0.5 
Foreign currency translation adjustment— — 0.1 0.4 
Effect of plan curtailment— (0.9)(0.6)— 
Actuarial (gain) loss(13.6)30.4 (1.1)1.2 
Benefits paid(21.6)(20.8)(1.3)(1.3)
Projected benefit obligations as of December 31394.4 418.4 14.6 17.1 
Change in plan assets:
Fair value of plan assets as of January 1417.2 380.7 14.8 14.2 
Actual return on plan assets19.5 57.2 0.6 1.4 
Employer contribution0.1 0.1 0.1 0.1 
Foreign currency translation adjustment— — 0.1 0.4 
Effect of plan settlements— — (0.6)— 
Benefits paid(21.6)(20.8)(1.4)(1.3)
Fair value of plan assets as of December 31415.2 417.2 13.6 14.8 
Funded status of the plans$20.8 $(1.2)$(1.0)$(2.3)
Accumulated benefit obligation as of December 31$394.4 $418.4 $14.6 $17.1 

Actuarial gains related to $9.0 million based on sales of our VCT flooring productsthe change in the benefit obligation for the twelve month periods ending June 30, 2019U.S. and June 30, 2020 (“measurement periods”) compared to a base period of combined AFI and Mannington Mills salesCanadian pension plans for the 12 month periodyear ended June 30, 2017. The contingent consideration is tiered for each of the separate twelve month measurement periods ranging from consideration of zero to a maximum of $4.5 million in each measurement period. No contingent liability has been recognized as we concluded that such liability is not probable. Any contingent liability recognized will be recorded as an adjustment to the value of the acquired assets.

 2019 2020 2021 2022 2023
Expected annual amortization expense$7.1
 $7.0
 $7.0
 $3.7
 $0.4

NOTE 16. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table details amounts related to our accounts payable and accrued expenses:
 December 31, 2018 December 31, 2017
Payables, trade and other$99.5
 $93.6
Employment costs25.0
 13.6
Other accrued expenses16.9
 16.9
Total$141.4
 $124.1
NOTE 17. DEBT
The following table presents details related to our debt:
 December 31, 2018 December 31, 2017
Revolver$25.0
 $—
Current portion of Term Loan A3.7
 —
Noncurrent portion of Term Loan A70.6
 —
ABL Facility—
 85.0
Total$99.3
 $85.0
In connection with the sale of the wood business, on December 31, 2018, the Company entered into a credit agreement (the "Credit Agreement"). The Credit Agreement provides the Company with a $150.0 million secured Credit Facility (the "Credit Facility"), consisting of a $75.0 million revolving facility and a $75.0 million term loan facility. The revolving facility includes a $25.0 million sublimit for the issuance of letters of credit and a $15.0 million sublimit for swing line loans. The Credit Facility is scheduled2021 was primarily due to mature on December 31, 2023. The Credit Agreement provides for a uncommitted accordion feature that allows the Company to request an increase in discount rate, and an experience gain due to plan experience for the revolving facility orCanadian pension plans. Actuarial losses related to the term loan facilitychange in an aggregate amount notbenefit obligation for U.S. and Canadian pension plans for the year ended December 31, 2020 were primarily due to exceed $25.0 million.


the decrease in the discount rate each period.
65
59




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




AsThe table below presents the weighted-average assumptions used in computing the benefit obligations and net periodic benefit cost for the defined-benefit pension plans:
U.S. Pension PlansCanadian Pension Plans
2021202020212020
Weighted average assumptions used to determine benefit obligations as of December 31:
Discount rate2.85 %2.50 %2.80 %2.30 %
Rate of compensation increase3.25 %3.25 %n/an/a
Weighted average assumptions used to determine net periodic benefit cost for the period:
Discount rate2.50 %3.25 %2.30 %3.00 %
Expected return on plan assets5.25 %5.70 %3.60 %4.00 %
Rate of compensation increase3.25 %3.25 %n/an/a

Basis of Rate-of-Return Assumption
Long-term asset class return assumptions are determined based on the expected performance of the asset classes over 20 years. For the U.S. plans, these forecasted gross returns were reduced by estimated management fees and expenses, yielding a long-term return forecast of 5.25% and 5.70% for the years ended December 31, 2018, total borrowings outstanding under2021 and 2020, respectively. For our Credit FacilityCanadian plans, these forecasted gross returns were $75.0 million under Term Loan Areduced by estimated management fees and $25.0 million underexpenses, yielding a long-term return forecast of 3.60% and 4.00% for the revolving Credit Facility, while outstanding letters of credit were $3.9 million. Proceeds from the new Credit Facility were utilized to repay borrowings of $94.0 million under the $225.0 million ABL facility dated April 1, 2016. The $225.0 million ABL Facility was closed as ofyears ended December 31, 2018, without penalty. Capitalized fees2021 and 2020, respectively.

Defined-benefit pension plans with benefit obligations in excess of plan assets were as follows:
U.S. Pension PlansCanadian Pension Plans
2021202020212020
Projected benefit obligation, December 31$2.2 $2.3 $14.6 $16.7 
Accumulated benefit obligation, December 312.2 2.3 14.6 16.7 
Fair value of plan assets, December 31— — 13.5 14.4 

The U.S. pension plans had a prepaid asset balance of $23.0 million and $1.1 million at December 31, 2021 and 2020, respectively.

The components of net periodic pension cost for the U.S. and Canadian defined-benefit pension plans were as follows:
Year Ended December 31,
U.S. Pension PlansCanadian Pension Plans
202120202019202120202019
Service cost of benefits earned during the period$1.0 $2.6 $2.7 $— $— $— 
Interest cost on projected benefit obligation10.2 12.5 15.0 0.4 0.5 0.6 
Expected return on plan assets(21.2)(21.3)(21.7)(0.5)(0.5)(0.7)
Recognized net actuarial loss3.0 10.1 9.7 0.2 0.3 0.4 
Net periodic pension cost$(7.0)$3.9 $5.7 $0.1 $0.3 $0.3 

Excluded from net periodic pensions costs in the Canadian pension plans table above were $0.6 million of settlement gains recorded in 2021.
60


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)

Investment Policies
Our primary investment objective is to maintain the funded status of the plans 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 and treasury 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.
•Limiting investment return volatility by diversifying among additional asset classes with differing expected rates of return and return correlations.

Each asset class used has a defined asset allocation target and allowable range. The tables below show the asset allocation targets and the December 31, 2021 and 2020 positions for each asset class:
Target Weight atPosition at December 31,
December 31, 202120212020
U.S. Asset Class
Fixed income securities65 %62 %54 %
Equities35 %38 %46 %
Canadian Asset Class
Fixed income securities50 %50 %50 %
Equities48 %48 %48 %
Other2 %2 %2 %

The change in the U.S. defined benefit pension plan asset allocation for the year ended December 31, 2021 is due to a reduction in return seeking assets to minimize risk for the portfolio and further protect the overall funded status.

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.

61


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)

The following tables set forth by level within the fair value hierarchy a summary of the U.S. and Canadian defined-benefit pension plan assets, net of payables for administrative expenses, measured at fair value on a recurring basis:
Value at December 31, 2021
Level 1Level 2Level 3Total
U.S. Plans
Fixed income securities$— $258.5 $— $258.5 
Equities— 156.8 — 156.8 
Other(0.1)— — (0.1)
Net assets measured at fair value$(0.1)$415.3 $— $415.2 
Value at December 31, 2020
Level 1Level 2Level 3Total
U.S. Plans
Fixed income securities$— $226.5 $— $226.5 
Equities— 191.0 — 191.0 
Other(0.3)— — (0.3)
Net assets measured at fair value$(0.3)$417.5 $— 417.2 
Value at December 31, 2021
Level 1Level 2Level 3Total
Canadian Plans
Fixed income securities$— $6.7 $— $6.7 
Equities— 6.6 — 6.6 
Other0.3 — — 0.3 
Net assets measured at fair value$0.3 $13.3 $— $13.6 
Value at December 31, 2020
Level 1Level 2Level 3Total
Canadian Plans
Fixed income securities$— $7.5 $— $7.5 
Equities— 7.1 — 7.1 
Other0.2 — — 0.2 
Net assets measured at fair value$0.2 $14.6 $— $14.8 

Following is a description of the valuation methodologies used for assets.

Fixed income securities - Consists of registered investment funds, common trust funds, collective trust funds and segregated funds investing in fixed income securities tailored to institutional investors. The fair values of the investments in this class are based on the underlying securities in each fund’s portfolio, which is the amount the fund would receive for the security upon a current sale.

Equities - Consists of investments in funds investing in equities tailored to institutional investors. The fair value of each fund is based on the underlying securities in each fund’s portfolio, which is the amount the fund would receive for the security upon a current sale.

Other - Consists 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. The carrying amounts of payables and receivables approximate fair value due to the short-term nature of these instruments.
62


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)

Defined-Benefit Postretirement Benefit Plans
The following tables summarize the balance sheet impact of the postretirement benefit plans, as well as the related benefit obligations, assets, funded status and rate assumptions.
20212020
Change in benefit obligation:
Projected benefit obligations as January 1$59.6 $65.3 
Service cost— — 
Interest cost1.3 1.9 
Plan participants' contributions0.7 1.2 
   Plan amendments— (6.4)
Actuarial (gain) loss(6.2)4.5 
Benefits paid(3.7)(6.9)
Projected benefit obligation as of December 3151.7 59.6 
Change in plan assets:
Fair value of plan assets as January 1— — 
Employer contribution3.0 5.7 
Plan participants' contribution0.7 1.2 
Benefits paid(3.7)(6.9)
Fair value of plan assets as of December 31— — 
Funded status of the plans$(51.7)$(59.6)

The actuarial gains related to the ABL Facility of $0.6 million were expensed as ofchange in benefit obligation for the obligation for the postretirement benefit plans for the year ended December 31, 2018.2021 was primarily due to the increase in the discount rate and an experience gain due to plan experience.The actuarial loss related to the change in benefit obligation for the postretirement plans for the year ended December 31, 2020 was primarily due to the decrease in the discount rate and new claim costs being higher than assumed, partially offset by a gain from the census data updates.


The table below presents the weighted-average assumptions used in computing the benefit obligations and net periodic benefit cost for the U.S. defined-benefit postretirement benefit plans:
20212020
Weighted average discount rate used to determine benefit obligations as of December 312.80 %2.45 %
Weighted average discount rate used to determine net periodic benefit cost2.45 %3.20 %

The components of net periodic postretirement (benefit) cost were as follows:
Year Ended December 31,
202120202019
Service cost of benefits earned during the period$— $— $0.2 
Interest cost on accumulated postretirement benefit obligations1.3 1.9 2.5 
Amortization of prior service (credit)(1.1)(0.2)— 
Amortization of net actuarial (gain)(1.3)(4.8)(3.1)
Net periodic postretirement (benefit) cost$(1.1)$(3.1)$(0.4)

As a result of the elimination of future life insurance benefits for certain employees, we recorded a curtailment gain of $1.8 million in 2020 in other income.This gain is not reflected in the above table.


63


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)

For measurement purposes, an average rate of annual increase in the per capita cost of covered health care benefits of 6.5% for pre-65 retirees was assumed for 2022, decreasing ratably to an ultimate rate of 4.5% by 2029.

Financial Statement Impacts
Amounts recognized in assets and (liabilities) on the Consolidated Balance Sheets at year end consist of:
U.S. Pension BenefitsCanadian Pension BenefitsPostretirement Benefits
202120202021202020212020
Prepaid pension asset$23.0 $1.1 $— $— $— $— 
Accrued payroll and employee costs— — — — (3.5)(4.0)
Postretirement benefit liabilities— — — — (48.2)(55.6)
Pension benefit liabilities(2.2)(2.3)(1.0)(2.3)— — 
Net amount recognized$20.8 $(1.2)$(1.0)$(2.3)$(51.7)$(59.6)

Pre-tax amounts recognized in AOCI at year end for our pension and postretirement benefit plans consist of:
U.S. Pension BenefitsCanadian Pension BenefitsPostretirement Benefits
202120202021202020212020
Net actuarial gain (loss)$(91.7)$(106.7)$(3.4)$(4.9)$29.5 $25.6 

We expect to contribute $0.1 million and $0.3 million to our U.S. and Canadian defined-benefit pension plans, respectively, and $3.5 million to our U.S. postretirement benefit plans in 2022.

Future Benefit Payments
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. and Canadian plans:
U.S. Pension BenefitsCanadian Pension BenefitsPostretirement Benefits
2022$21.4 $1.3 $3.5 
202321.9 1.2 3.4 
202422.0 1.2 3.2 
202522.1 1.1 3.1 
202623.1 1.1 3.0 
2027-2031114.2 4.8 14.3 

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






64


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


NOTE 10. FINANCIAL INSTRUMENTS
The fair value of cash, accounts and notes receivable and accounts payable and accrued expenses approximate their carrying amounts due to the short-term maturities of these assets and liabilities.
Fair Value at December 31, 2021
Carrying amountLevel 1Level 2Level 3Total
Financial liabilities
Foreign exchange contracts$0.3 $0.3 $— $— $0.3 
Amended ABL Credit Facility20.6 — 20.6 — 20.6 
Total foreign credit facilities4.6 — 4.6 — 4.6 
Amended Term Loan Agreement86.2 — 86.7 — 86.7 
Total financial liabilities$111.7 $0.3 $111.9 $— $112.2 

Fair Value at December 31, 2020
Carrying amountLevel 1Level 2Level 3Total
Financial liabilities
Foreign exchange contracts$1.1 $1.1 $— $— $1.1 
Amended ABL Credit Facility10.0 — 10.0 — 10.0 
Total foreign credit facilities4.5 — 4.5 — $4.5 
Term Loan Agreement70.0 — 73.8 — $73.8 
Total financial liabilities$85.6 $1.1 $88.3 $— $89.4 

The fair values of our net foreign currency contracts were estimated from market quotes, which are considered to be Level 1 inputs.
Borrowings under the newAmended ABL Credit Facility, bear interest at a rate equal to an adjusted base rateforeign credit facilities and the Amended Term Loan Agreement are quoted in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the London Interbank Offered Rate ("LIBOR") plus an applicable margin, which varies according to the net leverage ratio and was 0.75% as of December 31, 2018. As of December 31, 2018, the interest rate of 6.25% was determined using the base rate plus applicable margin. On January 4, 2019, the interest rate of 4.26% was determined as borrowings were converted to use LIBOR plus the applicable margin. We are required to pay a commitment fee, payable quarterly in arrears, on the average daily unused amountfull term of the revolving Credit Facility, which varies accordingliability (Level 2 inputs).
We do not have any assets or liabilities that are valued using Level 3 unobservable inputs.









65


Armstrong Flooring, Inc. and Subsidiaries
Notes to the net leverage ratio and was 0.20% as of December 31, 2018. Outstanding letters of credit issued under the Credit Facility are subject to fees which will be due quarterlyConsolidated Financial Statements
(Dollars in arrears based on the applicable margin described above plus a fronting fee. The total rate for letters of credit was 1.875% as of December 31, 2018.millions, except per share data)


All obligations under the Credit Agreement are guaranteed by each of the Company's wholly owned domestic subsidiaries that individually, or together with its subsidiaries, has assets of more than $1.0 million. All obligations under the Credit Agreement, and guarantees of those obligations, are secured by all of the present and future assets of the Company and the guarantors, subject to certain exceptions and exclusions as set forth in the Credit Agreement and other security and collateral documents.

Borrowings under the revolving portion of the Credit Facility are presented on our Consolidated Balance Sheet as a short-term obligation. Borrowings under the Term Loan A portion of the Credit Facility are segregated on our Consolidated Balance Sheet with $70.6 million net of fees shown as a long-term obligation and $3.7 million presented as a short-term obligation due to quarterly principal repayment installments.

In addition, the Credit Agreement requires the Company to comply with certain financial covenants calculated for the Company and its subsidiaries on a consolidated basis. Specifically, the Credit Agreement requires that the Company and its subsidiaries not:

Permit the Consolidated Net Leverage Ratio (as defined in the Credit Agreement) at any time to be greater than 3.00 to 1.00; and
Permit the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement) at any time to be less than 1.25 to 1.00.

The Credit Agreement also contains customary affirmative covenants and events of default, including a cross-default provision in respect of any other indebtedness that has an aggregate principal amount exceeding $15.0 million.

Our foreign subsidiaries had available lines of credit totaling $8.7 million; there were no borrowing under these lines of credit as of December 31, 2018.
NOTE 18. PENSION11. LITIGATION AND OTHER POSTRETIREMENT BENEFIT PROGRAMSRELATED MATTERS
For periods priorEnvironmental Matters
Environmental Compliance
Our manufacturing and research facilities are affected by various federal, state and local requirements relating to April 1, 2016, certainthe discharge of materials and the protection of the environment. We make expenditures necessary for compliance with applicable environmental requirements at each of our North American employees participatedoperating facilities. These regulatory requirements continually change, therefore we cannot predict with certainty future expenditures associated with compliance with environmental requirements.

Environmental Sites
In connection with our current or legacy manufacturing operations, or those of former owners, we may from time to time become involved in defined-benefit pensionthe investigation, closure and/or remediation of existing or potential environmental contamination under the Comprehensive Environmental Response, Compensation and postretirement plans (the “Shared Plans”) sponsored by AWI. The related net benefit plan obligations of the Shared Plans were not included in our Consolidated Balance Sheets as we did not sponsor the Shared Plans and had no rights or obligations related to the Shared Plans’ assets or liabilities. Our Consolidated Statements of Operations include Shared Plan expenses for our active and retired employeesLiability Act as well as an allocationstate or international Superfund and similar type environmental laws. For those matters, we may have rights of Shared Plan expenses. The Shared Plan expenses presentedcontribution or reimbursement from other parties or coverage under applicable insurance policies; however, we cannot predict with certainty the future identification of or expenditure for any investigation, closure or remediation of any environmental site.
Summary of Financial Position
There were no material liabilities recorded as of December 31, 2021 and December 31, 2020 for potential environmental liabilities that we consider probable and for which a reasonable estimate of the probable liability could be made.
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 Consolidated Financial Statements representproducts, intellectual property, relationships with suppliers, relationships with distributors and 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 allocationworkplace, or medical conditions arising from exposure to product ingredients or the presence of plan coststrace contaminants. In some cases, these allegations involve multiple defendants and relate to AFIlegacy 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.

While complete assurance cannot be given to the outcome of these proceedings, we do not representbelieve that any of these matters, individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash paymentsflows.

On November 15, 2019, a shareholder filed a putative class action complaint in the United States District Court for the Central District of California alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, promulgated thereunder, based on alleged false and/or misleading statements or omissions made between March 6, 2018 and November 4, 2019. On November 30, 2020, the Company reached a settlement in principle to AWI or tofully resolve this matter. The settlement agreement provided, in part, for a settlement payment of $3.75 million in exchange for the Shared Plans.dismissal and a release of all claims against the defendants. Neither the Company nor any individual defendant admits any wrongdoing through the settlement agreement. In September 2021, the $3.75 million settlement payment was paid by our insurance provider under our relevant insurance policy and placed into escrow for distribution. The Company had previously recorded the settlement in the caption Accounts and notes receivable, net and Other accrued expenses on the Consolidated Balance Sheets.






66




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




EffectiveNOTE 12. REVENUE
Geographic Areas

The net sales in the table below are allocated to geographic areas based upon the location of the customer.
Year Ended December 31,
202120202019
Net sales
United States$478.3 $451.6 $474.4 
China88.7 66.5 68.4 
Canada34.9 30.1 37.9 
Australia33.7 24.9 28.0 
Other14.3 11.7 17.6 
Total$649.9 $584.8 $626.3 

Information about Major Customers
In 2021, 2020, and 2019, net sales to one customer exceeded 10% of our total net sales. Total net sales to this customer were $76.3 million, $111.6 million, and $124.4 million in 2021, 2020, and 2019, respectively. We monitor the creditworthiness of our customers and generally do not require collateral.


NOTE 13. STOCK-BASED COMPENSATION
In April 1, 2016, upon separation from AWI, AFI created defined-benefit pensionadopted the Armstrong Flooring, Inc. 2016 LTI Plan and postretirement plans,the Armstrong Flooring, Inc. 2016 Directors' Plan, which provide North Americancollectively comprised a new compensation program that allows for the grant of stock-based compensation awards to certain employees and retirees who previously participated in the Shared Plans the same defined-benefit pensionnon-employee directors of AFI different forms of benefits, including performance-based awards and postretirement benefits that had been previously provided by AWI. As a resultRSUs. On June 2, 2017, our stockholders approved an amendment and restatement of the Separation,2016 LTI Plan. On June 4, 2021, our stockholders approved an amendment and based on an analysis provided by our actuaries, AFI assumed defined-benefit pension plan assets of $381.4 million, defined-benefit pension benefit obligations of $385.4 million, defined-benefit postretirement benefit obligations of $82.9 million and accumulated other comprehensive loss of $101.8 million. Our U.S. defined-benefit pension plans were amended to freeze accruals for remaining salaried non-production employees, effective December 31, 2017.

On November 14, 2018, AFI entered into a Stock Purchase Agreement with TZI, an affiliate of American Industrial Partners ("AIP"), to sell our North American wood flooring business. On December 31, 2018, AIP completed the purchase of allrestatement of the issued and outstanding2016 Directors' Plan. Under the 2016 LTI Plan, as amended, our Board has authorized up to 7,600,000 shares of Armstrong Wood Products, Inc.common stock for issuance. Our Board authorized up to 900,000 shares of common stock that may be issued pursuant to the 2016 Directors' Plan, as amended. As a result of the sale, all plan participants in the Hartco Retiree Welfare Plan, one of AFI's three postretirement plans, were transferred to AHF, LLC, an affiliate of AIP. The transfer of all liabilities for the Hartco Retiree Welfare Plan were effective as of December 31, 2018. Also,2021, 964,475 shares and 198,179 shares were available for future grants under the 2016 LTI Plan and the 2016 Directors' Plan as amended, respectively.

Prior to the Spin-off, AWI issued stock-based compensation awards to employees and directors that became employees or directors of AFI. In connection with the Spin-off, these awards were converted into new AFI equity awards using a resultformula designed to preserve the intrinsic value of the North American wood flooring business sale, AFI transferredawards immediately prior to the Spin-off. The modification did not result in a portionchange to the value of the Retirement Income Plan ("RIP"),awards. The terms and conditions of the AWI awards were replicated and, as necessary, adjusted to ensure that the vesting schedule and economic value of the awards was unchanged by the conversion. At December 31, 20182021 only stock option awards remained outstanding related to AHF, LLC. The U.S. pension plan disclosures show the spun off liability and asset amounts and include the allocated actuarial loss for the affected participants.AWI issued stock-based compensation awards.


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. We also have defined-contribution pension plans for eligible employees.


Defined-Benefit Pension Plans


The following tables summarize the balance sheet impact of the pension 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. The disclosures also include our two Canadian pension plans.





67




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)





 U.S. Pension Plans Canadian Pension Plans
 2018 2017 2018 2017
Change in benefit obligation:       
Projected benefit obligations as of January 1,$395.8
 $364.4
 $17.8
 $16.7
Liabilities transferred to AHF, LLC(11.5) —
 —
 —
Service cost3.8
 5.4
 —
 —
Interest cost14.6
 15.4
 0.6
 0.6
Foreign currency translation adjustment—
 —
 (1.2) 1.2
Actuarial (gain)/loss(33.4) 28.4
 0.5
 1.1
Benefits paid(22.9) (17.8) (2.1) (1.8)
Projected benefit obligations as of December 31,346.4
 395.8
 15.6
 17.8
        
Change in plan assets:       
Fair value of plan assets as of January 1,390.8
 363.2
 17.1
 16.5
Assets to be transferred to AHF, LLC(8.1) —
 —
 —
Actual return on plan assets(22.8) 45.3
 (0.4) 1.2
Employer contribution0.1
 0.1
 0.1
 —
Foreign currency translation adjustment—
 —
 (1.1) 1.2
Benefits paid(22.9) (17.8) (2.1) (1.8)
Fair value of plan assets as of December 31,337.1
 390.8
 13.6
 17.1
Funded status of the plans$(9.3) $(5.0) $(2.0) $(0.7)
        
Accumulated benefit obligation as of December 31,$345.1
 $394.5
 $15.6
 $17.8
Stock-based compensation expense

Stock-based compensation expense is generally recognized on a straight-line basis over the vesting period and is recorded as a component of SG&A. Total stock-based compensation expense included in the Consolidated Statements of Operations and the related tax effects are presented in the table below:
The table below presents
Year Ended December 31,
202120202019
Stock-based compensation expense$3.0 $2.7 $1.2 
Income tax benefit— — — 

To the weighted-average assumptions usedextent that the vesting-date fair value of an award is greater than the grant-date fair value, the excess tax benefit is recorded as an income tax benefit in computing the benefit obligations and net periodic benefit cost for the defined-benefit pension plans:
 U.S. Pension Plans Canadian Pension Plans
 2018 2017 2018 2017
Weighted average assumptions used to determine benefit obligations as of December 31,       
Discount rate4.40% 3.75% 3.80% 3.30%
Rate of compensation increase3.25% 3.25% n/a
 n/a
Weighted average assumptions used to determine net periodic benefit cost for the period:       
Discount rate3.75% 4.30% 3.30% 3.80%
Expected return on plan assets5.85% 6.10% 4.90% 5.40%
Rate of compensation increase3.25% 3.10% n/a
 n/a

BasisConsolidated Statements of Rate-of-Return Assumption

Long-term asset class return assumptions are determined based on the expected performance of the asset classes over 20 years.Operations. For the U.S. plans, these forecasted gross returns were reduced by estimated management fees and expenses, yielding a long-term return forecast of 5.85% and 6.10% foryear ended December 31, 2021 there was no income tax expense related to vested stock-based compensation awards. For the years ended December 31, 20182020 and 2017, respectively.2019 the income tax expense was $0.3 million and $0.1 million, respectively, related to vested stock-based compensation awards.


As of December 31, 2021, $4.5 million of total unrecognized compensation expense related to non-vested stock-based compensation arrangements is expected to be recognized over a weighted-average period of 2.2 years.

Performance-based stock compensation
The Company grants PSAs, PSUs and PBRSUs to key executive employees and certain management employees of AFI under the 2016 LTI Plan. These awards represent units of restricted Company common stock that vest based on the achievement of certain performance or market conditions.

PSAs and PSUs - The performance condition for 75% of the awards is based on earnings before interest, taxes, depreciation and amortization. The performance condition for the remaining 25% of the awards is based on cumulative free cash flow, defined as cash flow from operations, less cash used in investing activities. PSAs issued to key executive employees are also indexed to the achievement of specified levels of absolute total shareholder return and the fair value was measured using a Monte-Carlo simulation on the date of grant. For PSUs that are not indexed to the achievement of specified levels of absolute total shareholder return, the fair value was measured using our stock price on the date of grant. If the performance conditions are met, the awards vest at the conclusion of the performance period, which is generally at the end of the third fiscal year following the date of grant. We did not issue any PSAs during 2021, 2020 or 2019 and did not issue any PSUs during 2021 or 2020.

Details of PSUs issued during 2019 are as follows:
2019
Issued (in thousands)200.9
Weighted-average grant date fair value$13.25 

PBRSUs - The Company issued 592,213 PBRSUs to key executive employees and certain management employees on April 1, 2021. The market condition is based on price targets for the Company's common stock at a future date. Price targets are achieved if the average closing sale stock price of one share of Company Stock, over the 20 trading days following the date of the 2023 year-end earnings release, equals or surpasses the price targets. The number of shares earned is based upon the achievement of four stock price hurdles: $7.25, $8.75, $10.25 and $11.75. Following the first price target achievement, 50% of the overall performance units are earned. With each of the next three Price Target Achievements, an additional 25% of the overall performance units are earned. Payout percentages will be linearly interpolated for stock price performance between the hurdles. The Monte-Carlo valuation provided a weighted average fair value of $4.37 per share for the grant-date fair value.




68




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




For our Canadian plans, these forecasted gross returns were reduced by estimated
The Company issued 691,130 PBRSUs to key executive employees and certain management fees and expenses, yielding a long-term return forecast of 4.90% and 5.40%employees on March 24, 2020. The market condition is based on price targets for the years ended December 31, 2018Company's common stock at a future date. Price targets are achieved if the average closing sale stock price of one share of Company Stock, over the 20 trading days following the date of the 2022 year-end earnings release, equals or surpasses the price targets. The number of shares earned is based upon the achievement of four stock price hurdles: $6.00, $7.50, $9.00 and 2017.$10.50. Following the first price target achievement, 50% of the overall performance units are earned. With each of the next three Price Target Achievements, an additional 25% of the overall performance units are earned. Payout percentages will be linearly interpolated for stock price performance between the hurdles. The Monte-Carlo valuation provided a weighted average fair value of $0.90 per share for the grant-date fair value.

Defined-benefit pension plans with benefit obligations in excess of plan assets were as follows:
 U.S. Pension Plans Canadian Pension Plans
 2018 2017 2018 2017
Projected benefit obligation, December 31$346.4
 $395.8
 $15.2
 $17.3
Accumulated benefit obligation, December 31345.1
 394.5
 15.2
 17.3
Fair value of plan assets, December 31337.1
 390.8
 13.1
 16.5


The components of net periodic pension costCompany issued 371,430 PBRSUs to the CEO on September 11, 2019. The market condition is based on price targets for the U.S. defined-benefit pension plans were as follows:
 Year Ended December 31,
 2018 2017 2016
Service cost of benefits earned during the period$3.8
 $5.4
 $4.3
Interest cost on projected benefit obligation14.6
 15.4
 11.7
Expected return on plan assets(22.2) (22.7) (17.4)
Amortization of prior service cost—
 0.4
 0.3
Recognized net actuarial loss10.7
 10.5
 7.7
Allocated benefit cost from Shared Plans—
 —
 2.2
Net periodic pension cost$6.9
 $9.0
 $8.8

Company's common stock at a future date. The number of shares earned is based upon the achievement of five stock price hurdles over the period from September 11, 2019 through September 11, 2024. The five per share stock price hurdles are $10.50, $12.25, $14.00, $15.75 and $17.50. A Monte-Carlo valuation was performed to simulate possible future stock prices for AFI over the time remaining period of the award. The Monte-Carlo valuation provided a fair value for each of the five per share stock price hurdles discussed above, respectively: $5.93, $5.28, $4.70, $4.20 and $3.75 (weighted average value of $4.77); and provided derived service periods of 3 years for the first two hurdles and 4 years for the remaining three hurdles.
The componentsfollowing table summarizes the Monte-Carlo inputs and grant-date fair value price used for PBRSU issuances.

April 1,
2021		March 24,
2020		September 11,
2019
Grant-date stock price (AFI closing stock price on date of grant)$5.20 $2.18 $7.43 
Assumptions
Risk-free rate of return0.35 %0.44 %1.59 %
Expected volatility88.53 %66.29 %41.45 %
Expected dividend yield— — — 

The risk-free rate of net periodic pension (credit) cost forreturn was determined based on the Canadian defined-benefit pension plans were as follows:
 Year Ended December 31,
 2018 2017 2016
Interest cost on projected benefit obligation$0.6
 $0.6
 $0.5
Expected return on plan assets(0.8) (0.9) (0.8)
Amortization of net actuarial loss0.2
 0.2
 0.2
Allocated benefit cost from Shared Plans—
 —
 0.1
Net periodic pension (credit) cost$—
 $(0.1) $—

Investment Policies

Our primary investment objective is to maintainimplied yield available on zero-coupon U.S. Treasury bills at the funded statustime of grant with a remaining term equal the expected term of the award. The expected volatility was based on a weighted average of the volatility of AFI and (or) the average volatility of our compensation peer group's volatility. The expected dividend yield was assumed to be zero because, at the time of the grant, we had no plans such that the likelihood that we will be required to make significant contributionsdeclare a dividend.

The table below summarizes activity related to the plan is limited. This objective is expected to be achieved by:PSUs and PBRSUs.

PSUs and PBRSUs
Number of Shares (in thousands)Weighted-Average Grant-Date Fair Value (per share)
Non-vested as of December 31, 20201,257.4 $4.69 
Granted592.2 4.37 
Vested— — 
Cancelled(193.5)13.94 
Forfeited(34.8)2.68 
Non-vested as of December 31, 20211,621.3 3.54 
Investing a substantial portion of the plan assets in high quality corporate and treasury 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.
Limiting investment return volatility by diversifying among additional asset classes with differing expected rates of return and return correlations.





69




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




Each asset class used has a defined asset allocation target
Restricted Stock Awards

RSUs - RSUs were granted to key executive employees and allowable range.certain management employees of AFI. The tables below showRSUs are units representing shares of Company common stock which are converted to shares of Company common stock at the asset allocation targetsend of the service period. There are no performance or market conditions associated with these awards. For awards issued prior to 2020, vesting generally occurs with one third of the awards vesting at the end of one, two and three years from the December 31, 2018 and 2017 positions for each asset class:
 Target Weight at Position at December 31,
 December 31, 2018 2018 2017
U.S. Asset Class     
Fixed income securities60% 59% 56%
Equities40% 41% 44%

 Target Weight at Position at December 31,
 December 31, 2018 2018 2017
Canadian Asset Class     
Fixed income securities50% 50% 49%
Equities48% 48% 49%
Other2% 2% 2%

Pension plan assets are required to be reported and disclosed at fair value indate of grant. In 2020, most newly issued RSUs cliff vest three years from 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 levelsdate 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 thegrant. The fair value of RSUs was measured using our stock price on the assets or liabilities. This includes certain pricing models, discounted cash flow methodologiesdate of grant. Details of RSUs issued during 2021, 2020 and similar techniques that use significant unobservable inputs.2019 are as follows:
202120202019
Issued (in thousands)137.3165.0 622.8 
Weighted-average grant date fair value5.24.36 7.39 

The asset’stable below summarizes activity related to RSUs. The non-employee director activity is not reflected in the RSU activity below:
RSUs
Number of Shares (in thousands)Weighted-Average Grant-Date Fair Value (per share)
Non-vested as of December 31, 2020638.3 $6.71 
Granted137.3 5.20 
Vested(222.0)8.85 
Forfeited(10.6)5.03 
Non-vested as of December 31, 2021543.0 5.50 

The table above contains 2,772 and 8,334 RSUs as of December 31, 2021 and 2020, respectively, which are accounted for as liability awards as they may be settled in cash. These relate to employees in certain international jurisdictions which have prohibitions related to stock settled awards.

Director Awards -RSUs were granted to our non-employee directors under the 2016 Directors' Plan, as amended. These awards generally have a vesting period of one year and any dividends paid prior to vesting are forfeitable if the award does not vest. The awards are generally payable six months following the director’s separation from service on the Board. The fair value measurement level within the fair value hierarchy is basedof non-employee director RSUs was measured using our stock price on the lowest leveldate of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the usegrant. Details of observable inputsDirector awarded RSUs issued during 2021, 2020 and minimize the use of unobservable inputs.2019 are as follows:

202120202019
Issued (in thousands)118.9 171.257.0
Weighted-average grant date fair value5.76$3.83 $11.05 

70




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




The following tables set forthtable summarizes activity related to the non-employee director RSUs.
Number of Shares (in thousands)Weighted-Average Grant-Date Fair Value (per share)
Vested and not yet delivered as of December 31, 2020412.5 $9.32 
Granted118.9 5.76
Distributed— —
Outstanding as of December 31, 2021531.4 8.53

Stock Options

The following table summarizes activity related to stock options:
Number of Shares (in thousands)Weighted-Average Exercise Price (per share)Weighted-Average Remaining Contractual Term (years)Aggregate Intrinsic Value (in millions)
Outstanding (and exercisable) as of December 31, 2020442.1 $12.85 1.7$— 
Forfeited / cancelled94.0 10.65 
Outstanding (and exercisable) as of December 31, 2021348.1 13.45 1.1— 

Remaining stock options expire between 2022 and 2024. When stock options are exercised, we may issue new shares, use treasury shares (if available), acquire shares held by level withininvestors, or a combination of these alternatives.

The following table presents information related to stock option exercises:
Year Ended December 31,
20212020
Total intrinsic value of stock options exercised$— $— 
Cash proceeds received from stock options exercised— — 

NOTE 14. INCOME TAXES
The following table presents income (loss) from continuing operations before income taxes for U.S. and international operations based on the fair value hierarchy a summarylocation of the U.S. and Canadian defined-benefit pension plan assets, net of payables for administrative expenses, measured at fair value on a recurring basis:entity to which such earnings or losses are attributable:
Year Ended December 31,
202120202019
Domestic$(56.0)$(65.0)$(63.9)
Foreign2.5 1.1 (1.7)
Total$(53.5)$(63.9)$(65.6)
 Value at December 31, 2018
 Level 1 Level 2 Level 3 Total
U.S. Plans       
Fixed income securities$—
 $202.4
 $—
 $202.4
Equities—
 143.2
 —
 143.2
Other(0.4) —
 —
 (0.4)
Net assets measured at fair value$(0.4) $345.6
 $—
 $345.2
Assets to be transferred to AHF, LLC      (8.1)
Fair value of plan assets      $337.1

 Value at December 31, 2017
 Level 1 Level 2 Level 3 Total
U.S. Plans       
Fixed income securities$—
 $219.2
 $—
 $219.2
Equities—
 172.1
 —
 172.1
Other(0.5) —
 —
 (0.5)
Net assets measured at fair value$(0.5) $391.3
 $—
 $390.8

 Value at December 31, 2018
 Level 1 Level 2 Level 3 Total
Canadian Plans       
Fixed income securities$—
 $6.9
 $—
 $6.9
Equities—
 6.5
 —
 6.5
Other0.2
 —
 —
 0.2
Net assets measured at fair value$0.2
 $13.4
 $—
 $13.6

 Value at December 31, 2017
 Level 1 Level 2 Level 3 Total
Canadian Plans       
Fixed income securities$—
 $8.4
 $—
 $8.4
Equities—
 8.3
 —
 8.3
Other0.4
 —
 —
 0.4
Net assets measured at fair value$0.4
 $16.7
 $—
 $17.1

Following is a description of the valuation methodologies used for assets.

Fixed income securities — Consists of registered investment funds, common and collective trust funds, and segregated funds investing in fixed income securities tailored to institutional investors. The fair values of the investments in this

71




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




class are basedThe following table presents the components of the income tax expense (benefit):
Year Ended December 31,
202120202019
Current
Federal$0.3 $0.2 $0.3 
Foreign0.7 0.7 0.4 
State and local0.1 0.1 0.1 
Subtotal1.1 1.0 0.8 
Deferred
Federal(0.6)(2.5)0.1 
Foreign(0.5)1.1 0.6 
State and local(0.5)(0.4)0.1 
Subtotal(1.6)(1.8)0.8 
Total$(0.5)$(0.8)$1.6 

As of December 31, 2021, we reviewed our position with regard to foreign unremitted earnings and determined that unremitted earnings would continue to be permanently reinvested. Accordingly, we have not recorded income taxes on approximately $18 million of undistributed earnings of foreign subsidiaries that could be subject to taxation if remitted to the underlying securities in each fund’s portfolio, whichU.S. because we currently plan to keep these amounts permanently invested overseas. It is not practicable to calculate the amountresidual income tax that would result if these basis differences reversed due to the fund would receive forcomplexities of the security upon a current sale.tax law and the hypothetical nature of the calculations.


Equities — ConsistsThe following table presents the differences between our income tax benefit at the U.S. federal statutory income tax rate and our effective income tax rate:
Year Ended December 31,
202120202019
Continuing operations tax at statutory rate$(11.2)$(13.4)$(13.7)
Increase in valuation allowances on deferred federal income tax assets10.2 10.3 13.9 
Increase in valuation allowances on deferred state income tax assets1.4 2.6 2.1 
State income tax benefit, net of federal benefit(1.7)(2.7)(1.8)
Tax on foreign and foreign-source income3.0 0.5 1.2 
Permanent book/tax differences0.5 0.6 1.1 
Increase (decrease) in valuation allowances on deferred foreign income tax assets(2.5)1.3 0.1 
Other(0.2)— (1.3)
Total$(0.5)$(0.8)$1.6 

The tax effects of investments in funds investing in equities tailored to institutional investors. The fair value of each fund is based onprincipal temporary differences between the underlying securities in each fund’s portfolio, which is the amount the fund would receive for the security upon a current sale.

Other — Consists of cash and cash equivalents and other payables and receivables (net). The carrying amounts of cashassets and cash equivalents approximate fair value dueliabilities 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 short-term maturityprofit or loss before tax generated for the years 2019 through 2021, as well as future reversals of these instruments. The carrying amountsexisting taxable temporary differences and projections of payables and receivables approximate fair value due to the short-term nature of these instruments.future profit before tax.


72




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)



December 31, 2021December 31, 2020
Deferred income tax assets (liabilities)
Postretirement and postemployment benefits$13.4 $15.8 
Net operating losses36.6 38.1 
Accrued expenses4.4 5.0 
Deferred compensation3.9 3.2 
Customer claims reserves5.1 4.3 
Goodwill1.9 2.1 
Pension benefit liabilities— 0.3 
Tax credit carryforwards2.6 2.5 
Intangibles4.9 3.8 
163(j) Disqualified Interest6.2 2.3 
Other5.0 2.4 
Total deferred income tax assets84.0 79.8 
Valuation allowances(51.6)(47.2)
Net deferred income tax assets32.4 32.6 
Accumulated depreciation(16.1)(20.7)
Inventories(3.3)(7.4)
Pension benefit asset(5.3)— 
Other(4.6)(2.5)
Total deferred income tax liabilities(29.3)(30.6)
Net deferred income tax assets$3.1 $2.0 
Deferred income taxes have been classified in the Consolidated Balance Sheet as:
Deferred income tax assets—noncurrent$4.2 $4.4 
Deferred income tax liabilities—noncurrent(1.1)(2.4)
Net deferred income tax assets$3.1 $2.0 


Defined-Benefit Postretirement Benefit PlansWe 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, 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.


The following tables summarize the balance sheet impact of the postretirement benefit plans, as well as the related benefit obligations, assets, funded status and rate assumptions.
 2018 2017
Change in benefit obligation:   
Projected benefit obligations as January 1,$76.4
 $80.3
Service cost0.4
 0.4
Interest cost2.6
 3.2
Plan participants' contributions1.6
 1.7
Effect of curtailment(0.2) —
Actuarial (gain)/loss(9.0) 0.5
Benefits paid(9.6) (9.7)
Projected benefit obligation as of December 31,62.2
 76.4
    
Change in plan assets:   
Fair value of plan assets as January 1,—
 —
Employer contribution8.0
 8.0
Plan participants' contribution1.6
 1.7
Benefits paid(9.6) (9.7)
Fair value of plan assets as of December 31,—
 —
Funded status of the plans$(62.2) $(76.4)

The table below presents the weighted-average assumptions used in computing the benefit obligations and net periodic benefit cost for the U.S. defined-benefit postretirement benefit plans:
 2018 2017
Weighted average discount rate used to determine benefit obligations as of December 31,4.30% 3.60%
Weighted average discount rate used to determine net periodic benefit cost3.60% 4.05%

The components of net periodic postretirement benefit cost (credit) were as follows:our valuation allowance against deferred income tax assets:
Year Ended December 31,
20212020
Federal$38.3 $32.0 
State8.4 7.8 
Foreign4.9 7.4 
Total$51.6 $47.2 
 Year Ended December 31,
 2018 2017 2016
Service cost of benefits earned during the period$0.4
 $0.4
 $0.1
Interest cost on accumulated postretirement benefit obligations2.6
 3.2
 2.6
Amortization of prior service (credit)—
 —
 (0.2)
Amortization of net actuarial (gain)(2.5) (2.4) (3.3)
Allocated benefit (credit) from Shared Plans—
 —
 (0.3)
Net periodic postretirement benefit cost (credit)$0.5
 $1.2
 $(1.1)




73




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)



The valuation allowances offset federal, state and foreign deferred tax assets, credits and operating loss carryforwards.
ForThe following is a summary of our NOL carryforwards:
Year Ended December 31,
20212020
Federal$124.4 $124.1 
State104.7 103.0 
Foreign19.1 28.1 

As of December 31, 2021, $75.0 million of state NOL carryforwards expire between 2022 and 2041; and $19.1 million foreign NOL carryforwards expire between 2022 and 2026. The remainder are available for carryforward indefinitely.

We estimate we will need to generate future taxable income of approximately $192.2 million for state income tax purposes during the respective realization periods (ranging from 2022 to 2041) in order to fully realize the net deferred income tax assets discussed above.

We have $1.3 million of UTBs as of December 31, 2021. None of this amount, if recognized in future periods, would impact the reported effective tax rate. It is reasonably possible that certain UTBs 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 purposes, an average rateconsiderations related to the results of annual increasepublished tax cases or other similar activities. Over the next twelve months, we estimate no UTBs decreases related to state statutes expiring.

The following table presents a reconciliation of the total amounts of UTBs, excluding interest and penalties:
202120202019
Unrecognized tax benefits as of January 1$1.3 $0.7 $1.6 
Increase for prior period positions— 0.7 — 
Decreases for prior period positions— — (0.9)
Decrease due to statute expirations— (0.1)— 
Unrecognized tax benefits balance as of December 31$1.3 $1.3 $0.7 

We conduct business globally, and as a result, we file income tax returns in the per capita costU.S., various states and international jurisdictions. In the normal course of covered health care benefitsbusiness, we are subject to examination by taxing authorities throughout the world in such major jurisdictions as Australia, Canada, China and the U.S. Generally, we have open tax years subject to tax audit on average of 7.5%between three years and six years. With few exceptions, the statute of limitations is no longer open for pre-65 retirees and 8.6% to 11.1% for post-65 retirees (depending on plan type) was assumed for 2019, decreasing ratably to an ultimate rate of 4.5% by 2027. Assumed health care cost trend rates can have a significant effect on the amounts reportedstate or non-U.S. income tax examinations for the health care plans. A one-percentage-point change in assumed health care cost trend rates wouldyears before 2014. We have thenot 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 2014 through 2020 are subject to future potential tax adjustments.

The following effects on the defined-benefit postretirement benefit plans for 2019:table details amounts related to certain other taxes:
Year Ended December 31,
202120202019
Payroll taxes$11.3 $9.8 $10.0 
Property and franchise taxes3.2 3.0 3.2 
 One percentage point
 Increase Decrease
(Decrease) increase on total service and interest cost components$—
 $—
(Decrease) increase on postretirement benefit obligation(0.8) 1.0

Financial Statement Impacts
Amounts recognized in assets and (liabilities) on the Consolidated Balance Sheets at year end consist of:

 U.S. Pension Benefits Canadian Pension Benefits
 2018 2017 2018 2017
Pension benefit liabilities$(9.3) $(1.6) $(2.0) $(0.7)
Net amount recognized$(9.3) $(1.6) $(2.0) $(0.7)




 Postretirement Benefits
 2018 2017
Accounts payable and accrued expenses$(6.5) $(6.5)
Postretirement benefit liabilities(55.7) (69.9)
Net amount recognized$(62.2) $(76.4)

Pre-tax amounts recognized in AOCI at year end for our pension and postretirement benefit plans consist of:
 U.S. Pension Benefits Canadian Pension Benefits
 2018 2017 2018 2017
Net actuarial (loss)$(124.2) $(127.4) $(4.7) $(3.8)

 Postretirement Benefits
 2018 2017
Net actuarial gain$41.0
 $34.8

We expect to amortize $8.9 million and $0.3 million of previously unrecognized net actuarial losses into U.S. and Canadian plan pension cost, respectively, in 2019. We expect to amortize $3.3 million of previously unrecognized net actuarial gains into postretirement benefit cost in 2019.

We expect to contribute $0.1 million each to our U.S. and Canadian defined-benefit pension plans and $6.5 million to our U.S. postretirement benefit plans in 2019.


74




Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




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. and Canadian plans:
 U.S. Pension Benefits Canadian Pension Benefits Postretirement Benefits
2019$16.8
 $1.3
 $6.5
202018.4
 1.3
 6.2
202118.7
 1.2
 6.0
202219.9
 1.1
 5.8
202320.6
 1.1
 5.4
2024-2028113.6
 5.0
 21.4

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

Costs for defined-contribution pension plans were $6.2 million in 2018 and $6.5 million in 2017.

NOTE 19. DERIVATIVE FINANCIAL INSTRUMENTS
We are exposed to market risk from changes in foreign exchange rates that could impact our financial condition, results of operations and cash flows. We enter into derivative contracts, including contracts to hedge our foreign currency exchange rate exposures. Exposure to individual counterparties is controlled and derivative financial instruments are entered into with a diversified group of major financial institutions. Forward swap contracts are entered into for periods consistent with underlying exposure and do not constitute positions independent of those exposures. At inception, hedges designated 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. Derivatives are formally assessed both at inception and at least quarterly thereafter, to ensure that derivatives 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, hedge accounting is discontinued, 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. Counterparty credit default swap levels and credit ratings are monitored on a regular basis in an effort to reduce the risk of counterparty default. 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 exposure in situations where gain and loss positions are outstanding with a single counterparty. We neither post nor receive cash collateral with any counterparty for our derivative transactions. These ISDAs do not have credit contingent features; however, a default under our Credit Facility would trigger a default under these agreements.

75


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


Currency Rate Risk – Sales and Purchases
We manufacture and sell our products in a number of countries 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. Before considering the impacts of any hedging, our major foreign currency exposures as of December 31, 2018, based on operating profits by currency, are from 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. These cash flow hedges are executed quarterly, generally up to 18 months forward. The notional amount of these hedges was $24.9 million and $26.2 million as of December 31, 2018 and 2017, respectively. Gains and losses on these instruments are recorded in other comprehensive income (loss), 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.
Currency Rate Risk - Intercompany Loans and Dividends
We may use foreign currency forward exchange contracts to hedge exposures created by cross-currency intercompany loans and dividends. The translation adjustments related to these loans are recorded in other expense, net. The offsetting gains and losses on the related derivative contracts are also recorded in other expense, net. These contracts are decreased or increased as repayments are made or additional intercompany loans are extended or adjusted for intercompany dividend activity as necessary. The notional amount of these hedges was $17.7 million and $20.0 million as of December 31, 2018 and 2017, respectively.
Financial Statement Impacts
The following table presents the classification of derivative assets and liabilities within the Consolidated Balance Sheets. The foreign exchange contracts outstanding are presented gross as we have not netted derivative assets with derivative liabilities:
 December 31, 2018 December 31, 2017
 
Assets (1)
 
Liabilities (2)
 
Assets (1)
 
Liabilities (2)
Derivatives designated as cash flow hedging instruments       
Foreign exchange contracts$1.1
 $—
 $—
 $0.8
Derivatives not designated as hedging instruments       
Foreign exchange contracts—
 —
 —
 0.3
Total$1.1
 $—
 $—
 $1.1
_____________
(1) Derivative assets are classified within prepaid expenses and other current assets as well as other non-current assets.
(2) Derivative liabilities are classified within accounts payable and accrued expenses as well as other long-term liabilities.


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Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


The following tables summarize the impact of the effective portion of derivative instruments on the Consolidated Statements of Operations and Comprehensive Income (Loss):
 
Gains (losses) recognized in other comprehensive income ("OCI") (3)
 
(Losses) gains reclassified from
AOCI (3)
 Year Ended December 31, Year Ended December 31,
 2018 2017 2016 2018 2017 2016
Cash flow hedges           
Foreign exchange contracts$2.0
 $(1.9) $(1.7) $(0.3) $(0.4) $0.7
 
Gains (losses) recognized in income (3)
 Year Ended December 31,
 2018 2017 2016
Non-designated hedges     
Foreign exchange contracts$1.5
 $(2.0) $0.8
_____________
(3) Gains (losses) were included in net sales and cost of goods sold.

As of December 31, 2018, the amount of existing gains in AOCI expected to be recognized in earnings over the next twelve months is $0.9 million.

NOTE 20. FINANCIAL INSTRUMENTS
Financial instruments are required to be disclosed at fair value in the financial statements.
The fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term maturities of these assets and liabilities.

 Fair Value at December 31, 2018
 Carrying amount Level 1 Level 2 Level 3 Total
Financial assets         
Foreign exchange contracts$1.1
 $1.1
 $—
 $—
 $1.1
Total financial assets$1.1
 $1.1
 $—
 $—
 $1.1
Financial liabilities         
Total debt$(99.3) $—
 $(99.3) $—
 $(99.3)
Total financial liabilities$(99.3) $—
 $(99.3) $—
 $(99.3)


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Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


 Fair Value at December 31, 2017
 Carrying amount Level 1 Level 2 Level 3 Total
Financial liabilities         
Derivatives designated as hedging instruments:         
Foreign exchange contracts$(0.8) $(0.8) $—
 $—
 $(0.8)
Derivatives not designated as hedging instruments:         
Foreign exchange contracts(0.3) (0.3) —
 —
 (0.3)
Total debt(85.0) —
 (85.0) —
 (85.0)
Total financial liabilities$(86.1) $(1.1) $(85.0) $—
 $(86.1)
Total debt as of December 31, 2018 , consisted of the outstanding borrowings under the Credit Facility dated December 31, 2018. Borrowings under the Credit Facility are quoted in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the liability (Level 2 inputs) and accordingly, the carrying amount approximates fair value.
Total debt as of December 31, 2017 consisted primarily of the outstanding borrowings under the ABL Facility. Borrowings under the ABL Facility were quoted in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the liability (Level 2 inputs) and accordingly, the carrying amount approximates fair value.
The fair values of our net foreign currency contracts were estimated from market quotes, which are considered to be Level 1 inputs.
We do not have any assets or liabilities that are valued using Level 3 unobservable inputs.
NOTE 21.15. EARNINGS PER SHARE OF COMMON STOCK
The table below shows a reconciliation of the numerator and denominator for basic and diluted earnings per share calculations for the periods indicated.
Year Ended December 31,
202120202019
Income (loss) from continuing operations$(53.0)$(63.1)$(67.2)
Earnings (loss) from discontinued operations, net of tax— — 10.4 
Net (loss)$(53.0)$(63.1)$(56.8)
Weighted average number of common shares outstanding21,698,681 21,583,041 23,597,877 
Weighted average number of vested shares not yet issued338,389 345,513 518,460 
Weighted average number of common shares outstanding - Basic22,037,070 21,928,554 24,116,337 
Dilutive stock-based compensation awards outstanding— — — 
Weighted average number of common shares outstanding - Diluted22,037,070 21,928,554 24,116,337 
(Loss) per share of common stock from continuing operations:
Basic (loss) per share of common stock from continuing operations$(2.41)$(2.88)$(2.78)
Diluted (loss) per share of common stock from continuing operations$(2.41)$(2.88)$(2.78)
The diluted loss per share was calculated using basic common shares outstanding, as inclusion of potentially dilutive common shares would be anti-dilutive for those calculations.

Performance-based employee compensation awards are considered potentially dilutive in the periods in which the performance conditions are met.

The following awards were excluded from the computation of diluted (loss) earnings per share:
Year Ended December 31,
202120202019
Potentially dilutive common shares excluded from diluted computation, as inclusion would be anti-dilutive or because performance conditions were not met2,338,829 1,124,950954,904 

NOTE 16. STOCKHOLDERS' EQUITY
Common Stock Repurchase Plan

On March 6, 2017, we announced that our board of directorsBoard had approved a share repurchase program pursuant to which we arewere authorized to repurchase up to $50.0 million of our outstanding shares of common stock (the “Program”). Repurchases under the Program may be made through open market and block transactions, including Rule 10b5-1 plans, at such times and in such amounts as management deems appropriate, subject to market and business conditions, regulatory requirements and other factors. The Program does not obligate us to repurchase any particular amount of common stock and may be suspended or discontinued at any time without notice. For the year ended December 31, 2018, we repurchased approximately 69,000 shares under the Program for a total cost of $1.0 million, or an average price of $14.20 per share.stock. From inception of the Programshare repurchase program through December 31, 2018,May 3, 2019, we repurchased approximately 2.5 million shares under the Program for a total cost of $41.0 million, with an average price of $16.23 per share. On May 3, 2019, we announced that our Board had authorized an increased share repurchase program for an additional $50.0 million beyond the $41.0 million already repurchased under the prior share repurchase program, effective immediately. Repurchases under the new program could be made through open market, block and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deemed appropriate, subject to market and business conditions, regulatory requirements and other factors.





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Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




On May 17, 2019, we announced the commencement of a modified "Dutch auction" self-tender offer to repurchase up to $50.0 million in cash of shares of our common stock. As a result of the auction, on June 21, 2019 we purchased 4,504,504 shares of common stock at a purchase price of $11.42 per share, for a total cost of $51.4 million , including fees and expenses. After the completion of the tender offer, we have no remaining authorization to purchase further shares.

Accumulated Other Comprehensive Income (Loss) Income

The amounts and related tax effects allocated to each component of OCIAOCI in 2018, 20172021, 2020 and 20162019 are presented in the table below.below:
Pre-tax AmountTax ImpactAfter-tax Amount
2021
Foreign currency translation adjustments$1.0 $— $1.0 
Derivative adjustments0.7 — 0.7 
Pension and postretirement adjustments20.3 (0.4)19.9 
Total other comprehensive income (loss)$22.0 $(0.4)$21.6 
2020
Foreign currency translation adjustments$7.2 $— $7.2 
Derivative adjustments(0.6)0.2 (0.4)
Pension and postretirement adjustments11.5 (2.9)8.6 
Total other comprehensive income (loss)$18.1 $(2.7)$15.4 
2019
Foreign currency translation adjustments$(2.2)$— $(2.2)
Derivative adjustments(1.5)0.1 (1.4)
Pension and postretirement adjustments(9.5)— (9.5)
Total other comprehensive income (loss)$(13.2)$0.1 $(13.1)
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 Pre-tax Amount Tax Impact After-tax Amount
2018     
Foreign currency translation adjustments$(6.0) $—
 $(6.0)
Derivative adjustments2.3
 (0.6) 1.7
Pension and postretirement adjustments8.5
 (0.7) 7.8
Total other comprehensive income$4.8
 $(1.3) $3.5
      
2017     
Foreign currency translation adjustments$7.2
 $—
 $7.2
Derivative adjustments(2.0) 0.5
 (1.5)
Pension and postretirement adjustments2.2
 (0.6) 1.6
Total other comprehensive (loss)$7.4
 $(0.1) $7.3
      
2016     
Foreign currency translation adjustments$(8.2) $—
 $(8.2)
Derivative adjustments(2.0) 0.4
 (1.6)
Postretirement adjustments3.3
 (1.1) 2.2
Total other comprehensive (loss)$(6.9) $(0.7) $(7.6)


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Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




The following table summarizes the activity, by component, related to the change in AOCI for December 31, 20182021 and 2017:2020:
Foreign Currency Translation AdjustmentsDerivative AdjustmentsPension and Postretirement AdjustmentsTotal Accumulated Other Comprehensive (Loss)
Balance, December 31, 2019$(0.5)$(0.6)$(73.6)$(74.7)
Other comprehensive (loss) income before reclassifications, net of tax impact of $— , $0.2, $(2.0) and $(1.8)7.2 (0.2)5.9 12.9 
Amounts reclassified from accumulated other comprehensive (loss) income— (0.2)2.7 2.5 
Net current period other comprehensive (loss) income7.2 (0.4)8.6 15.4 
Balance, December 31, 2020$6.7 $(1.0)$(65.0)$(59.3)
Other comprehensive income (loss) before reclassifications, net of tax impact of $—, $—, $(0.4) and $(0.4)1.0 — 18.9 19.9 
Amounts reclassified from accumulated other comprehensive (loss) income— 0.7 1.0 1.7 
Net current period other comprehensive income (loss) income1.0 0.7 19.9 21.6 
Balance, December 31, 2021$7.7 $(0.3)$(45.1)$(37.7)
 Foreign Currency Translation Adjustments Derivative Adjustments Pension and Postretirement Adjustments Total Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2016$0.5
 $0.5
 $(60.8) $(59.8)
Other comprehensive income (loss) before reclassifications, net of tax impact of $ — , $0.7, $1.2 and $1.97.2
 (1.9) (5.4) (0.1)
Amounts reclassified from accumulated other comprehensive income—
 0.4
 7.0
 7.4
Net current period other comprehensive income (loss)7.2
 (1.5) 1.6
 7.3
Balance, December 31, 2017$7.7
 $(1.0) $(59.2) $(52.5)
Cumulative effect of adoption of ASU 2018-02 as of January 1—
 0.1
 (12.7) (12.6)
Other comprehensive income (loss) before reclassifications, net of tax impact of $ — , ($0.5), $1.0 and $0.5(6.0) 1.4
 1.2
 (3.4)
Amounts reclassified from accumulated other comprehensive income—
 0.3
 6.6
 6.9
Net current period other comprehensive income (loss)(6.0) 1.7
 7.8
 3.5
Balance, December 31, 2018$1.7
 $0.8
 $(64.1) $(61.6)

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Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


The amounts reclassified from AOCI and the affected line item of the Consolidated Statements of Operations are presented in the table below.
Year Ended December 31,
202120202019Affected Line Item
Derivative adjustments
Foreign exchange contracts - purchases$0.4 $(0.1)$(0.4)Cost of goods sold
Foreign exchange contracts - sales0.3 (0.1)(0.3)Net sales
Total reclassifications before tax0.7 (0.2)(0.7)
Tax impact— — — Income tax expense (benefit)
Total reclassifications, net of tax0.7 (0.2)(0.7)
Pension and postretirement adjustments
Prior service credit amortization(1.1)(2.0)— Other (income) expense, net
Amortization of net actuarial loss2.1 5.6 7.0 Other (income) expense, net
Total reclassifications before tax1.0 3.6 7.0 
Tax impact— (0.9)— Income tax expense (benefit)
Total reclassifications, net of tax1.0 2.7 7.0 
Total reclassifications for the period$1.7 $2.5 $6.3 

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 Year Ended December 31,  
 2018 2017 2016 Affected Line Item
Derivative adjustments       
Foreign exchange contracts - purchases$(0.1) $0.1
 $0.3
 Cost of goods sold
Foreign exchange contracts - purchases—
 (0.1) —
 Earnings (loss) from discontinued operations
Foreign exchange contracts - sales0.4
 0.3
 (1.0) Net sales
Foreign exchange contracts - sales0.1
 0.3
 (0.8) Earnings (loss) from discontinued operations
Total expense/(income) before tax0.4
 0.6
 (1.5)  
Tax impact(0.1) (0.2) 0.2
 Income tax (benefit)
Tax impact—
 —
 0.3
 Earnings (loss) from discontinued operations
Total expense (income), net of tax0.3
 0.4
 (1.0)  
Pension and postretirement adjustments       
Prior service cost amortization—
 0.4
 0.1
 Other expense, net
Amortization of net actuarial loss8.4
 8.4
 4.6
 Other expense, net
Amortization of net actuarial loss(0.1) —
 0.1
 Earnings (loss) from discontinued operations
Total expense before tax8.3
 8.8
 4.8
  
Tax impact(1.8) (1.8) (1.6) Income tax (benefit)
Tax impact0.1
 —
 (0.1) Earnings (loss) from discontinued operations
Total expense, net of tax6.6
 7.0
 3.1
  
Total reclassifications for the period$6.9
 $7.4
 $2.1
  
NOTE 22. 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
In connection with our current or legacy manufacturing operations, or those of former owners, we may from time to time become 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

81



Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)




international Superfund and similar type environmental laws. For those matters, we may have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies, however, we cannot predict with certainty the future identification of or expenditure for any investigation, closure or remediation of any environmental site.NOTE 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summary of Financial Position
2021 Quarter Ended
March 31June 30September 30December 31
Net sales$148.9 $168.1 $168.5 $164.4 
Gross profit20.6 22.1 18.0 13.4 
Net income (loss)27.9 (18.6)(24.6)(37.7)
Per share of common stock:
Basic$1.27 $(0.85)$(1.11)$(1.70)
Diluted1.26 (0.85)(1.11)(1.70)
2020 Quarter Ended
March 31June 30September 30December 31
Net sales$138.7 $145.6 $156.6 $143.9 
Gross profit23.8 25.9 28.8 5.5 
Net income (loss)(12.7)(5.1)(10.5)(34.8)
Per share of common stock:
Basic$(0.58)$(0.23)$(0.48)$(1.59)
Diluted(0.58)$(0.23)(0.48)(1.59)
There were no material liabilities recorded as of December 31, 2018 and December 31, 2017 for potential environmental liabilities that we consider probable and for which a reasonable estimate of the probable liability could be made.
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 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.
Prior to the sale of our North American wood flooring business on December 31, 2018, we produced multilayered wood flooring domestically and imported multilayered wood flooring from third party suppliers in China. Until October 2014, AWI 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 were 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 CVD rate of 0.98% and a final AD rate of 0.00%.
Litigation regarding this matter has continued in the U.S. courts.  Armstrong Kunshan as well as other respondents have appealed the DOC’s original decision to apply an AD rate to AWI and its subsidiaries 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 ("CAFC").  The CAFC, on February 15, 2017, found that DOC did not make the requisite factual findings necessary to support its original investigation determination.  The CAFC vacated and remanded the U.S. Court of International Trade ("CIT") decision for further proceedings.  On July 3, 2018, the CIT issued a ruling ordering DOC to revoke the AD order with respect to Armstrong Kunshan and two other respondents. Petitioners have filed notice of appeal. At this time, therefore, the ultimate outcome of the litigation is uncertain, as well as the status of the revocation of the AD order with respect to Armstrong Kunshan. We will continue to pursue the case. We believe success on appeal could result in a final revocation of the AD order with respect to Armstrong Kunshan and its prior entries under the order.
The DOC also continues to conduct annual administrative reviews of the AD and CVD final duty rates under the Orders. Armstrong Kunshan was not selected as a mandatory respondent for the second, third and fourth reviews 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 other” respondents).
The second administrative review period covered 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). In July 2015, the DOC issued a final “all others” CVD rate of 0.99% and a 13.74% AD rate. The AD rate was 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 these rates to all separate rate respondents that were not individually investigated, including Armstrong Kunshan. We, along with other respondents, have filed complaints against DOC challenging the AD rate in the CIT. If such rates are ultimately upheld after any court appeals are exhausted, the estimated additional liability to us for the relevant period is approximately $5.0 million, which is recorded in accounts payable and accrued expenses. The court

82


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


granted the preliminary injunction requested by plaintiffs on August 13, 2015, and enjoined the U.S. Government agencies from causing or permitting liquidation of unliquidated entries of multilayered wood flooring from China, pending final decision on the case. On June 8, 2018, the CIT issued a decision and order remanding the review determination to DOC to reconsider certain valuation methodologies. A revised decision by DOC is pending and must be approved by the Court.
The third administrative review period covered all multilayered wood flooring imports made between December 1, 2013 and November 30, 2014 (AD) and between January 1, 2013 and December 31, 2013 (CVD). On May 16, 2016 the DOC issued a final “all others” CVD rate of 1.38% and on July 13, 2016, DOC imposed a 17.37% “all others” AD rate. The AD rate was determined again 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 these rates to all separate rate respondents that were not individually investigated, including Armstrong Kunshan. We continue to defend our import practices by pursuing our available legal rights and remedies, including litigation at DOC and in the U.S. courts. If such rates are ultimately upheld after any potential court appeals are exhausted, the estimated additional liability to us for the relevant period is approximately $6.2 million, which is recorded in accounts payable and accrued expenses. We successfully filed an injunction request. The court granted the preliminary injunction on January 4, 2017 and enjoined the U.S. Government agencies from causing or permitting liquidation of unliquidated entries of multilayered wood flooring from China, pending final decision on the case. The preliminary injunction also ensures that our entries made during the 2013-14 review period will ultimately be liquidated in accordance with the final decision by the courts. On November 26, 2018, the CIT issued a decision and order upholding DOC's determination Armstrong and other affected "separate rate" parties have filed appeals to the Court of Appeals for the Federal Circuit and those appeals remain pending.
AWI and Armstrong Kunshan were not subject to review during the fourth administrative review period, however, we are liable for other manufacturers' applicable rates to the extent we were importer of record of products covered by the AD/CVD orders during this period. The fourth administrative review period covered all multilayered wood flooring imports made between December 1, 2014 and November 30, 2015 (AD) and between January 1, 2014 and December 31, 2014 (CVD). On May 15, 2017, the DOC published a final "all others" CVD rate of 1.06% and on June 5, 2017, DOC imposed a de minimus "all others" AD rate which will apply to our multilayered wood flooring imports during this period. We have begun receiving refunds for our multilayered wood flooring imports during this time period as our deposit rate exceeded this de minimus rate. The petitioners initially appealed this decision, but withdrew their appeal on October 17, 2017. We will accrue and make cash deposits for duties when we are the importer of record at the rates established by the DOC based on the fourth administrative review process. Administrative reviews for the fifth review period (December 1, 2015-November 30, 2016 for AD and January 1, 2015-December 31, 2015 for CVD) have been initiated. We were not subject to review for this period; however, we will be liable for other manufacturers' applicable rates to the extent we were importer of record of products covered by the AD/CVD orders during this period. On June 14, 2018, DOC published a final "all others" CVD rate of 0.85% and on July 18, 2018, DOC published a final "all others" AD rate of 0.00% for our multilayered wood flooring imports during this time period.
The U.S. International Trade Commission completed a sunset review of the original Orders inDuring the fourth quarter of 2017 and determined to continue2021, the OrdersCompany changed its method of accounting for an additional five year period.
Armstrong Kunshan was not sold as part ofU.S. based inventories from the North American wood sale but was sold to a separate buyer in December 2018. We retained the right to elect to defend and control the defense of the above matters, as well as the right to any related refunds or payments, and agreed to indemnify and hold the buyer from and against any and all duties, penalties, fines or other charges.
We have consistently pursued our legal rights and possible remedies to recover certain antidumping duty deposits and we are currently seeking to resolve this matter, if possible, outside of continued litigation.
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

83


Armstrong Flooring, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)


with suppliers, distributors and 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.
While complete assurance cannot be givenLIFO method to the outcomeFIFO method. The effects of these proceedings, we do not believe that anythis change have been retroactively applied to all periods presented. See Note 2, Summary of these matters, individually orSignificant Accounting Policies, Change in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows.Accounting Principle, for additional information.
NOTE 23. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 2018 Quarter Ended
 March 31 June 30 September 30 December 31
Net sales$164.3
 $201.2
 $208.9
 $153.8
Gross profit29.3
 43.7
 45.2
 25.0
(Loss) earnings from continuing operations(10.4) 0.2
 6.0
 (14.9)
Per share of common stock:       
Basic$(0.40) $0.01
 $0.24
 $(0.57)
Diluted(0.40) 0.01
 0.23
 (0.57)
        
 2017 Quarter Ended
 March 31 June 30 September 30 December 31
Net sales$160.8
 $188.4
 $195.5
 $159.4
Gross profit32.8
 45.0
 43.9
 29.4
(Loss) earnings from continuing operations(12.2) 2.5
 15.2
 (22.6)
Per share of common stock:       
Basic$(0.44) $0.09
 $0.57
 $(0.87)
Diluted(0.44) 0.09
 0.57
 (0.87)

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 or rounding and, for diluted data, the exclusion of the anti-dilutive effect in certain quarters.

78


84



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


Not applicable.None.



Item 9A. Controls and Procedures


Evaluation of Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures to give reasonable assurance that information required to be disclosed in the Company's reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. These controls and procedures also give reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to management to allow timely decisions regarding required disclosures.


As of December 31, 2018,2021, the Company's Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), together with management, conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the CEO and CFO concluded that these disclosure controls and procedures arewere not effective at the reasonable assurance levelas of such date due to a material weakness in internal control over financial reporting, described above.below.


Management Report on Internal Control overOver Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles ("GAAP").


The Company’s internal control over financial reporting includes those policies and procedures that:

•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;

•provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP and that our receipts and expenditures are being made only in accordance with management and director authorization; and

•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated 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.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.












79


Management, under the supervision and with the participation of our CEO and CFO and oversight of the Board of Directors assessed the effectiveness of our internal control over financial reporting as of December 31, 2018,2021, the end of our fiscal year. Management based its assessment on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’sCommission. Based on that assessment, included evaluationmanagement concluded that the Company’s internal control over financial reporting was not effective as of elements suchDecember 31, 2021 due to a material weakness related to information technology general controls (ITGCs) over an IT system utilized for warehouse management for certain finished goods. More specifically, controls related to provisioning and removal of user access, the review of logical access, and change management controls were not properly executed. These control deficiencies were the result of a failure to execute policies and procedures established to maintain IT general controls over a warehouse management system as the control owners did not adequately understand the control objectives or the design of the control activity. As a result, certain manual controls over finished goods quantities that utilize information contained within the affected IT system are, therefore, also considered ineffective because they could have been adversely impacted.

After identification of the material weakness, management performed additional procedures to confirm that this material weakness did not result in any identified misstatements to the Consolidated Financial Statements as of and operating effectivenessfor the year ended December 31, 2021 and there were no changes to previously released financial statements. However, because the material weakness created a reasonable possibility that a material misstatement to our Consolidated Financial Statements would not be prevented or detected on a timely basis, we concluded as of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

Based on this assessment, management has concluded thatDecember 31, 2021, our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with GAAP. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.not effective.


Our independent registered public accounting firm, KPMG LLP, independently assessedwho audited the consolidated financial statements included in this Annual Report on Form 10-K, issued an adverse opinion on the effectiveness of the company’sCompany’s internal control over financial reporting as statedof December 31, 2021. KPMG LLP’s report appears on page 37 of this Annual Report on Form 10-K.

Management’s Remediation Plan
Management will re-assess its IT policies and procedures to provide clarity in the firm’s attestation report, which is included within Part II, Item 8execution of its directives. Management will also consider the appropriateness of the assignment of control execution responsibilities to experienced personnel with training in the clarified policies and procedures regarding the impacted IT system to ensure that logical access and change management control deficiencies contributing to the material weakness are remediated. The material weakness will not be considered remediated, however, until the controls are designed, implemented, and operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this Form 10-K and incorporated by reference into this Item 9A.material weakness will be completed prior to the end of 2022.



85


ChangesChange in Internal ControlsControl over Financial Reporting

As of January 4, 2019, Ronald D. Ford resigned from his position as Senior Vice President and CFO and Douglas B. Bingham, Vice President, Treasury and Investor Relations, became the Senior Vice President, CFO and Treasurer. The role and responsibilities of principal accounting officer of the Company previously held by Mr. FordThere were assumed by the Vice President and Controller, Tracy L. Marines.

No changeno changes in our internal control over financial reporting that occurred during theour most recent fiscal quarter ended December 31, 2018 that has materially affected, or isare reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.




Item 9B. Other Information

None.


Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.
86
80




PART III


Item 10. Directors, Executive Officers and Corporate Governance


Executive Officers of the Company (as of March 5, 2019)9, 2022):
Name; Company PositionNameAgeOther Business Experience During the Last Five Years*Years
Donald R. Maier,
Michel S. Vermette


54
Armstrong Flooring, Inc.
President and CEO
Director (since September 2019)
(since March 30, 2016)
54
Armstrong WorldMohawk Industries, Inc.
   EVP & CEO, Flooring Products (2014 to 2016)
   SVP, Global Operations Excellence (2010 to 2014)President Residential Carpeting (2019 - September 2019)
President of Mohawk Group (2011 - 2019)
Douglas B. Bingham,Amy P. Trojanowski

52
Armstrong Flooring, Inc.
SVP, Chief Financial Officer & Treasurer(since October 2020)
(since January 2019)
43
Armstrong Flooring, Inc.
 VP, Treasury and Investor Relations (April 2016 - January 2019) Armstrong World Industries, Inc.
   Director, Treasury & Risk Management (2014 to 2016)The Chemours Company.
   General Manager,VP, Business Finance Building Productsand Global Shared Services (2019 - Asia (2011 to 2014)August 2020)
   Chief Accounting Officer and VP, Controller (2015 - 2019)
                                                                                     
John C. Bassett,
59
Armstrong Flooring, Inc.
SVP, Chief Human Resources
(since Officer (since March 30, 2016)
56
Armstrong World Industries, Inc.
   VP, Flooring Products, Human Resources (2014 to 2016)
General Manager, Flooring Products, Hardwood Manufacturing (2012 to 2014)
   VP, Human Resources, Global Operating & Supply Chain (2010 to 2012)
Brent A. Flaharty
SVP, North American Sales
(since March 2017)
4649
Armstrong Flooring, Inc.
   SVP & Chief Customer Experience Officer (since March 2017)
VP, Residential Sales (December 2016(2016 - March 2017)

Mag Instrument, Inc.
   Chief Revenue Officer (2016)
Exemplis Corporation
   Chief Marketing Officer (2015 - 2016)
Masonite International Corporation
   Vice President and Business Leader, North America (2012 - 2015)
Christopher S. Parisi,


51
Armstrong Flooring Industries, Inc.
SVP, General Counsel, Secretary & Chief Compliance Officer (since March 2016)
(since March 30, 2016)
48
Armstrong World Industries, Inc.
   VP, Associate General Counsel and Secretary (2014 to 2016)
   VP, Corporate Governance (2011 to 2014)
Dominic C. Rice,
Chief Product Officer & SVP, Global OperationsPhillip J. Gaudreau
(since February 2018)
5845
Armstrong Flooring, Inc.
   SVP, Global Operations & Manufacturing (March 2017 - February 2018)
   SVP, North America Commercial (March 2016 - March 2017)
Armstrong World Industries, Inc.
   VP, Flooring Products, Commercial (2010 to 2016)
Tracy L. Marines,
VP, Controller
(since January 2019)
47
Armstrong Flooring, Inc. (since September 2020)
   Director, Controller (2018)Harsco Corporation.
   Director, Financial Reporting &and Consolidation (2018)(2014 - September 2020)
   Senior Manager, Financial Reporting & Consolidation (2017-2018)
   Senior Manager, Financial Reporting (2016-2017)
   Manager, Financial Reporting (2016)
Armstrong World Industries, Inc.
   Manager, Financial Reporting (2008-2016)




All executive officers are elected by our board of directorsBoard to serve in their respective capacities until their successors are elected and qualified or until their earlier resignation or removal.



87



Code of Ethics

We have adopted a Code of Business Conduct that applies to all employees, executives and directors, specifically including our CEO, our CFO 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 OfficerCFO 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.





 
81


The Codes of Ethics are available at https://www.armstrongflooring.com/corporate/en-us/about/governance/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 also 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 directorsBoard for approval or disapproval. The board of directors’Board’s 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”“Investors” page of our website. There were no waivers or exemptions from the Code of Business Conduct in 20182021 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 statement2022 Proxy Statement for its 2019 annual meeting2022 Annual Meeting of stockholdersStockholders to be filed no later than April 30, 2019.2022.



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“2021 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“Corporate Governance - 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 2019 annual meeting of stockholders to be filed no later than April 30, 2019.2022 Proxy Statement.



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,” “Management and Directors,” and “Securities Authorized for Issuance Under Equity Compensation Plans” in the Company’s proxy statement for its 2019 annual meeting of stockholders to be filed no later than April 30, 2019.2022 Proxy Statement.

 

88


Item 13. Certain Relationships and Related Transactions, and Director Independence


The information required by Item 13 is incorporated by reference to the sections entitled “Certain“Corporate Governance - Certain Relationships and Related Transactions” and “Director“Corporate Governance - Director Independence” in the Company’s proxy statement for its 2019 annual meeting of stockholders to be filed no later than April 30, 2019.2022 Proxy Statement.



Item 14. Principal Accountant Fees and Services


Our independent registered public accounting firm is KPMG LLP, Philadelphia, PA, Auditor Firm ID: 185.

The information required by Item 14 is incorporated by reference to the sectionssection entitled “Audit Committee Report”“Fees Paid to Independent Registered Public Accounting Firm” in the Company’s proxy statement for its 2019 annual meeting of stockholders to be filed no later than April 30, 2019.


2022 Proxy Statement.
89
82


    



PART IV

Item 15. Exhibits and Financial Statement Schedules


(a)(1) - Financial Statements are included in Part II, Item 8 of the Annual Report on Form 10-K.


(a)(2) - Schedule II - Valuation and Qualifying Accounts is submitted as a separate section of this report. Schedules I, III, IV and V are not applicable to the Company and, therefore, have been omitted.


(a)(3) - Listing of Exhibits

Exhibit

Number
Description
2.1
2.1
Separation and Distribution Agreement by and between Armstrong Flooring, Inc., and AFI Intermediate Co. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 4,March 15, 2016).

3.1
3.1
Amended and Restated Certificate of Incorporation of Armstrong Flooring, Inc. dated March 30, 2016 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 4, 2016).

3.2
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Armstrong Flooring, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on June 4, 2021).
3.23.3
Amended and Restated Bylaws of Armstrong Flooring, Inc. dated March 30, 2016 (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 4, 2016).

4.1
10.1
Transition Services Agreement, dated asDescription of April 1, 2016, by and between Armstrong World Industries, Inc. and Armstrong Flooring, Inc.Securities Registered under Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 10.14.1 to the Company's CurrentAnnual Report on Form 8-K,10-K, as filed with the U.S. Securities and Exchange Commission on April 4, 2016)March 10, 2020).


10.1
10.2
Tax Matters Agreement, dated as of April 1, 2016, by and between Armstrong World Industries, Inc. and Armstrong Flooring, Inc. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 4, 2016).


10.2
10.3
Employee Matters Agreement, dated as of April 1, 2016, by and between Armstrong World Industries, Inc. and Armstrong Flooring, Inc. (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 4, 2016).

10.4
Trademark License Agreement, dated as of April 1, 2016, by and between Armstrong World Industries, Inc. and Armstrong Flooring, Inc. (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 4, 2016).

10.3
10.5
Transition Trademark License Agreement, dated as of April 1, 2016, by and between Armstrong World Industries, Inc. and Armstrong Flooring, Inc. (incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 4, 2016).
10.6
Campus Lease Agreement, dated as of April 1, 2016, by and between Armstrong World Industries, Inc. and Armstrong Flooring, Inc. (incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 4, 2016).


90






10.4
10.7
Stock Purchase Agreement by and between Armstrong Flooring. Inc.andInc.and Tarzan Holdco, Inc., dated November 14, 2018 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on November 15, 2018).

10.5
10.8
Transition Services Agreement, dated as of December 31, 2018, by and between Armstrong Flooring, Inc. and AHF Holding, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, as filed with U.S. Securities and Exchange Commission on January 7, 2019).

10.6
10.9
Intellectual Property Agreement, dated as of December 31, 2018, by and among Armstrong Flooring, Inc., AFI Licensing LLC, AHF Holding, Inc. and Armstrong Hardwood Flooring Company (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on January 7, 2019)..

10.7
10.10
Sublease, dated as of December 31, 2018, by and among Armstrong Flooring, Inc., and Armstrong Hardwood Flooring Company (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on January 7, 2019).
10.11
Credit Agreement, dated December 31, 2018, by and among Armstrong Flooring, Inc., as borrower, the guarantors named therein, the lenders party thereto and Bank of America, N.A., as administrative agent for the lenders thereunder (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on January 7, 2019).


83




Exhibit
Number		Description
10.8
First Amendment to Credit Agreement, dated as of November 1, 2019, by and among Armstrong Flooring, Inc., as borrower, the guarantors named therein, the lenders party thereto and Bank of America, N.A., as administrative agent for the lenders thereunder (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on November 5, 2019).

10.9
Second Amendment to Credit Agreement, dated as of December 18, 2019, by and among Armstrong Flooring, Inc., as borrower, the guarantors named therein, the lenders party thereto and Bank of America, N.A., as administrative agent for the lenders thereunder (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on December 20, 2019).

10.1210.10
Third Amendment to Credit Agreement, dated as of June 23, 2020, by and among Armstrong Flooring, Inc., as borrower, the guarantors named therein, the lender parties thereto and Bank of America, N.A., as administrative agent for the lenders thereunder (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on June 24, 2020).

10.11
Fourth Amendment to Credit Agreement, dated as of November 1, 2021, by and among Armstrong Flooring, Inc., as borrower, the guarantors named therein, the lender parties thereto and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and letter of credit issuer (Incorporated by reference to Exhibit 10.1 on the Company's Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on November 4, 2021).
10.12
Fifth Amendment to Credit Agreement and First Amendment to Pledge Agreement, dated as of December 30, 2021, by and among Armstrong Flooring, Inc., as borrower, the guarantors named therein, the lenders party thereto and Bank of America, N.A., as administrative agent, collateral agent, Australian security trustee, swingline lender and letter of credit issuer (Incorporated by reference to Exhibit 10.1 on the Company's Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on January 3, 2022).
10.13
Term Loan Agreement, dated as of June 23, 2020, by and among Armstrong Flooring, Inc., as borrower, the guarantors named therein, the lender parties thereto and Pathlight Capital LP, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on June 24, 2020).

10.14
First Amendment to Term Loan Agreement, dated as of November 1, 2021, by and among Armstrong Flooring, Inc., as borrower, the guarantors named therein, the lender parties thereto and Pathlight Capital LP, as administrative agent and collateral agent (Incorporated by reference to Exhibit 10.2 on the Company's Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on November 4, 2021).
10.15
Second Amendment to Term Loan Agreement and First Amendment to Pledge Agreement, dated as of December 30, 2021, by and among Armstrong Flooring, Inc., as borrower, Armstrong Flooring Pty Ltd, as Australian borrower, the guarantors named therein, the lender parties thereto and Pathlight Capital LP, as administrative agent, collateral agent and Australian security trustee (Incorporated by reference to Exhibit 10.2 on the Company's Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on January 3, 2022).
10.16
Lease Agreement - Part I, dated June 26, 2020, by and between the Company and High Properties, a Pennsylvania limited partnership, as successor to High Properties, a Pennsylvania general partnership (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on June 29, 2020).

10.17
Lease Agreement - Part I, dated June 26, 2020, by and between the Company and High Properties, a Pennsylvania limited partnership, as successor to High Properties, a Pennsylvania general partnership (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on June 29, 2020).

10.18
Amended and Restated Armstrong Flooring, Inc. 2016 Long-Term Incentive Plan (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-8 filed by Armstrong Flooring, Inc. with the SEC on August 7, 2017).*
10.13
Form of 2016 Long-Term Performance - Based Restricted Stock Grant - Tier 1 Executive - Free Cash Flow (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 12, 2016)7, 2017).*

10.14
Form of 2016 Long-Term Performance - Based Restricted Stock Grant - Tier 1 Executive - EBITDA (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 12, 2016).*
10.15
Form of 2016 Long-Term Performance - Based Restricted Stock Grant - Free Cash Flow (incorporated by reference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q, as filed with the U.S Securities and Exchange Commission on May 9, 2016). *
10.16
Form of 2016 Long-Term Performance - Based Restricted Stock Grant - EBITDA (incorporated by reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q, as filed with the U.S Securities and Exchange Commission on May 9, 2016). *
10.17
Form of 2016 Long-Term Performance - Based Restricted Stock Grant - Non U.S. (China) - Free Cash Flow - Payable in Cash.(incorporated by reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q, as filed with the U.S Securities and Exchange Commission on May 9, 2016). *
10.18
Form of 2016 Long-Term Performance - Based Restricted Stock Grant - Non U.S. (China) - EBITDA - Payable in Cash (incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q, as filed with the U.S Securities and Exchange Commission on May 9, 2016). *


91





10.19
Form of 2016 Long-Term Time - Based Restricted Stock Grant - U.S. and Non-U.S. (incorporated by reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q, as filed with the U.S Securities and Exchange Commission on May 9, 2016). *
10.20
Form of 2016 Long-Term Time - Based Restricted Stock Grant - Non-U.S. (China) - Payable in Cash(incorporated by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q, as filed with the U.S Securities and Exchange Commission on May 9, 2016). *
10.21
Form of 2017 Long-Term Performance - Based Restricted Stock Grant - Tier 1 Executive - Free Cash Flow. (incorporated by reference to Exhibit 10.1 to the Company’s Amended Quarterly Report on Form 10-Q/A filed with the U.S. Securities and Exchange Commission on May 9, 2017).*
10.22
Form of 2017 Long-Term Performance - Based Restricted Stock Grant - Tier 1 Executive - EBITDA. (incorporated by reference to Exhibit 10.2 to the Company’s Amended Quarterly Report on Form 10-Q/A filed with the U.S. Securities and Exchange Commission on May 9, 2017).*
10.23
Form of 2017 Long-Term Performance - Based Restricted Stock Grant - Tier 2 Executive - Free Cash Flow. (incorporated by reference to Exhibit 10.3 to the Company’s Amended Quarterly Report on Form 10-Q/A filed with the U.S. Securities and Exchange Commission on May 9, 2017).*
10.24
Form of 2017 Long-Term Performance - Based Restricted Stock Grant - Tier 2 Executive - EBITDA. (incorporated by reference to Exhibit 10.4 to the Company’s Amended Quarterly Report on Form 10-Q/A filed with the U.S. Securities and Exchange Commission on May 9, 2017).*
10.25
Form of 2017 Long-Term Performance - Based Restricted Stock Grant - Non U.S. (China) - Free Cash Flow - Payable in Cash. (incorporated by reference to Exhibit 10.5 to the Company’s Amended Quarterly Report on Form 10-Q/A filed with the U.S. Securities and Exchange Commission on May 9, 2017).*
10.26
Form of 2017 Long-Term Performance - Based Restricted Stock Grant - Non U.S. (China) - EBITDA - Payable in Cash. (incorporated by reference to Exhibit 10.6 to the Company’s Amended Quarterly Report on Form 10-Q/A filed with the U.S. Securities and Exchange Commission on May 9, 2017).*
10.27
Form of 2017 Long-Term Performance - Based Restricted Stock Grant - U.S. and non- U.S. (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2017).*
10.28
Form of 2017 Long-Term Performance - Based Restricted Stock Grant - Non U.S. (China) - Payable in Cash. (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2017).*
10.29Form of 2018 Long-Term Performance - Based Restricted Stock Grant - CEO - EBITDA (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2018).*
10.30Form of 2018 Long-Term Performance - Based Restricted Stock Grant - CEO - Free Cash Flow (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2018).*


92





10.31
10.19
Form of 20182019 Long-Term Performance - Based Restricted Stock Grant - Tier 1 Executive - EBITDA (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2018)7, 2019).*


84




Exhibit
Number		Description
10.3210.20
Form of 20182019 Long-Term Performance - Based Restricted Stock Grant - Tier 12 Executive - Free Cash Flow (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2018)7, 2019).*

10.21
10.33
Form of 20182019 Long-Term Performance - Based Restricted Stock Grant - Tier 2 Executive-Executive - EBITDA (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2018)7, 2019).*

10.22
10.34
Form of 20182019 Long-Term Performance - Based Restricted Stock Grant - Tier 2 Executive - Free Cash Flow (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2018)7, 2019).*

10.23
10.35
Form of 20182019 Long-Term Time-Based Restricted Stock Grant - U.S. and Non-U.S. (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2018).*
10.36
Form of 2018 Long-Term Performance - Based Restricted Stock Grant - Non U.S. (China) - EBITDA - Payable in Cash (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2018)7, 2019).*

10.24
10.37
Form of 20182019 Long-Term Performance - BasedTime-Based Restricted Stock Grant - Non U.S.Non-U.S. (China) - Free Cash Flow - Payable in Cash (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2018)7, 2019).*

10.25
10.38
Form of 20182020 Long-Term Time-Based Restricted Stock Grant - Non-U.S. (China) - Payable in Cash Award – CEO (incorporated by reference to Exhibit 10.1010.1 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on May 8, 2018)June 24, 2020).*

10.26
Form of 2020 Long-Term Time-Based Cash Award - Tier 1 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on June 24, 2020).*

10.3910.27
Form of 2020 Long-Term Time-Based Cash Award - Tier 2 and 3 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on June 24, 2020).*

10.28
Form of 2020 Long-Term Performance - Based Performance Stock Unit Grant - CEO (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on June 24, 2020).*

10.29
Form of 2020 Long-Term Performance - Based Performance Stock Unit Grant - Tier 1 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on June 24, 2020).*

10.30
Form of 2020 Long-Term Performance - Based Performance Stock Unit Grant - Tier 2 and 3 (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on June 24, 2020).*

10.31
Form of 2021 Long-Term Time-Based Cash Award - CEO (Incorporated by reference to Exhibit 10.1 on the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on July 30, 2021). *
10.32
Form of 2021 Long-Term Time-Based Cash Award - United States (Incorporated by reference to Exhibit 10.2 on the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on July 30, 2021). *
10.33
Form of 2021 Long-Term Performance-Based Cash Award - China (Incorporated by reference to Exhibit 10.3 on the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on July 30, 2021). *
10.34
Form of 2021 Long-Term Performance-Based Performance Stock Unit Grant - CEO (Incorporated by reference to Exhibit 10.4 on the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on July 30, 2021). *

85




Exhibit
Number		Description
10.35
Form of 2021 Long-Term Performance-Based Performance Stock Unit Grant - No Holding Period (Incorporated by reference to Exhibit 10.5 on the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on July 30, 2021). *
10.36
Form of 2021 Long-Term Performance-Based Performance Stock Unit Grant - With Holding Period (Incorporated by reference to Exhibit 10.6 on the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on July 30, 2021). *
10.37
Form 2021 Long-Term Time-Based Restricted Stock Unit Grant - CEO (Incorporated by reference to Exhibit 10.7 on the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on July 30, 2021). *
10.38
Form 2021 Long-Term Time-Based Restricted Stock Unit Grant ELT (Incorporated by reference to Exhibit 10.8 on the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on July 30, 2021). *
10.39
Form 2021 Long-Term Time-Based Cash Award - China (Incorporated by reference to Exhibit 10.9 on the Company's Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on July 30, 2021). *
10.40
Amended and Restated Armstrong Flooring, Inc. 2016 Directors Stock Unit Plan (incorporated herein by reference to Exhibit 4.44.1 to the Registration Statement on Form S-8, as filed by Armstrong Flooring, Inc. with the SECU.S. Securities and Exchange Commission on April 4, 2016)June 7, 2021).*
10.41
10.40
Form of Director Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q, as filed with the U.S. Securities and Exchange Commission on May 9, 2016).*

10.42
10.41
Armstrong Flooring, Inc. Nonqualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.10 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 4, 2016).*

10.43
Amendment to the Armstrong Flooring, Inc. Nonqualified Deferred Compensation Plan, effective May 1, 2020 (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q, as filed with the U.S. Securities and Exchange Commission on June 24, 2020). *

10.4210.44
Amendment to the Armstrong Flooring, Inc. Nonqualified Deferred Compensation Plan, effective October 1, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, as filed with the U.S. Securities and Exchange Commission on October 30, 2020). *

10.45
Amendment of the Armstrong Flooring, Inc. Nonqualified Deferred Compensation Plan, effective January 1, 2022. †

10.46
Retirement Benefit Equity Plan of Armstrong Flooring, Inc. (incorporated by reference to Exhibit 10.11 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on April 4, 2016).*



93





10.47
10.43
Form of Indemnification Agreement with Directors and Officers (incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission on August 12, 2016).*

10.48
10.44
Amended and Restated Change in Control SeveranceEmployment Agreement with Mr. Maier dated December 1, 2017Michel S. Vermette (incorporated by reference to Exhibit 10.3010.1 to the Company's AnnualCurrent Report on Form 10-K8-K, as filed with the U.S. Securities adand Exchange Commission on March 6, 2018)September 10, 2019).*

10.49
Form of 2019 Long-Term Time- Based Restricted Stock Grant - Michel S. Vermette (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on September 10, 2019).*


86




10.45Exhibit
Number		Description
10.50
Form of 2019 Long-Term Performance- Based Restricted Stock Grant - Michel S. Vermette (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on September 10, 2019).*

10.51
Form of Time Based Restricted Stock Grant - Larry S. McWilliams (incorporated by reference to Exhibit 99.D.16 to the Company's Tender Offer Statement on Schedule SC-TO-I, as filed with the U.S. Securities and Exchange Commission on May 17, 2019).*

10.52
Form of Retention Bonus Agreement with Messrs. Bassett, Flaharty, Hess and Parisi, dated October 31, 2019 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, as filed with the U.S. Securities and Exchange Commission on November 5, 2019).*

10.53
Form of Amended and Restated Change in Control Severance Agreement with Messrs. Bassett, Hess, Parisi, and RiceParisi dated December 1, 2017, Mr. Thoresen dated December 11, 2019, and Mr. BinghamMs. Trojanowski dated January 7, 2019October 19, 2020 (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 6, 2018).*

10.54
10.46
Amended and Restated Change in Control Severance Agreement with Mr. Flaharty dated December 1, 2017 (incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 6, 2018).*

10.55
10.47
Severance Pay Plan for Executive Employees of Armstrong Flooring, Inc. (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on September 2, 2016).*

10.56
10.48
Form of SeveranceSeparation Agreement between David S. Schulz and Armstrong World Industries, Inc.Release with Mr. Maier dated May 2, 2019 (incorporated by reference to Exhibit 10.310.1 to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on May 3, 2019).*

10.57
Separation Agreement and Release dated July 1, 2020, by and between the Company and Douglas B. Bingham (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on July 2, 2020).*

10.58
Agreement of Purchase and Sale and Joint Escrow Instructions by and between Armstrong World Industries,Flooring, Inc.’s and South Gate Owner, LP, a Delaware limited partnership, as of February 25, 2021 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on March 10, 2015)2, 2021).*
10.59
10.49
SeparationForm of Holdback Agreement as Exhibit G to Agreement of Purchase and Release with Mr. Bondi datedSale and Joint Escrow Instructions by and between Armstrong Flooring, Inc. and South Gate Owner, LP, a Delaware limited partnership, as of February 1, 201825, 2021 (incorporated by reference to Exhibit 10.3510.2 to the Company's AnnualCurrent Report on Form 10-K8-K filed with the U.S. Securities and Exchange Commission on March 6, 2018)2, 2021).*
18.1
10.50
Separation Agreement and Release with Mr. Ford dated January 10, 2019*Preferability Letter of Independent Registered Public Accounting Firm. †
21.1
21.1
Subsidiaries of Armstrong Flooring, Inc. †

23.1
23.1
Consent of Independent Registered Public Accounting Firm.†

31.1
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†

31.2
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†
32.1
32.1
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†

32.2
32.2
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.†

101.INSXBRL Instance Document†



87
94








101.INSExhibit
Number		XBRL Instance Document†Description
101.SCH
101.SCHXBRL Taxonomy Extension Schema Document†
101.CAL
101.CALXBRL Taxonomy Extension Calculation Linkbase Document†
101.DEF
101.DEFXBRL Taxonomy Extension Definition Linkbase Document†
101.LAB
101.LABXBRL Taxonomy Extension Label Linkbase Document†
101.PRE
101.PREXBRL Taxonomy Extension Presentation Linkbase Document†
104Cover Page Interactive Data File [formatted as inline XBRL)†
*
*Management Contract or Compensatory Plan.
†Filed herewith.



88




SCHEDULE II
Armstrong Flooring, Inc.
Valuation and Qualifying Reserves
(Dollars in millions)
Balance at beginning of yearAdditions charged to earningsDeductionsBalance at end of year
2021
Provision for current expected credit
losses (a)
$0.6 $1.6 $— $2.2 
Provision for discounts7.5 47.7 (47.9)7.3 
Provision for warranties10.3 11.3 (9.5)12.1 
Valuation allowance for deferred tax assets (b)
47.2 9.2 (4.8)51.6 
2020
Provision for current expected credit
losses (a)
$0.8 $0.0 $(0.2)$0.6 
Provision for discounts8.4 51.8 (52.7)7.5 
Provision for warranties9.0 8.8 (7.5)10.3 
Valuation allowance for deferred tax assets (b)
34.6 12.6 — 47.2 
2019
Provision for doubtful accounts (a)
$0.6 $0.3 $(0.1)$0.8 
Provision for discounts5.6 72.1 (69.3)8.4 
Provision for warranties6.4 9.4 (6.8)9.0 
Valuation allowance for deferred tax assets (b)
29.0 5.6 — 34.6 
(a) On January 1, 2020 we adoptedASU 2016-13, "Measurement of Credit Losses on Financial Instruments." As a result the historic provision for doubtful accounts has been replaced by the provision for current expected credit losses.

(b) During the fourth quarter of 2021, the Company changed its method of accounting for U.S. based inventories from the LIFO method to the FIFO method. As a result prior periods have been adjusted accordingly. See Note 2, Summary of Significant Accounting Policies, in Part II, Item 8, "Financial Statements," for additional details.


Item 16. Form 10-K Summary


None.





9589





SCHEDULE II
Armstrong Flooring, Inc.
Valuation and Qualifying Reserves
(Dollars in millions)

 Balance at beginning of year Additions charged to earnings Deductions ASC 606 Cumulative Catchup Adjustment Balance at end of year
2016         
Provision for bad losses$0.4
 $—
 $(0.1) $—
 $0.3
Provision for discounts7.7
 61.8
 (64.7) —
 4.8
Provision for warranties5.2
 6.9
 (7.0) —
 5.1
Reserve for inventories0.4
 0.7
 (0.4) —
 0.7
          
2017         
Provision for bad losses$0.3
 $0.1
 $—
 $—
 $0.4
Provision for discounts4.8
 55.3
 (54.1) —
 6.0
Provision for warranties5.1
 9.4
 (8.9) —
 5.6
Reserve for inventories0.7
 0.4
 (0.2) —
 0.9
          
2018         
Provision for bad losses$0.4
 $0.2
 $—
 $—
 $0.6
Provision for discounts6.0
 61.0
 (59.7) (1.7) 5.6
Provision for warranties5.6
 6.6
 (7.5) 1.7
 6.4
Reserve for inventories0.9
 0.3
 (0.6) —
 0.6



96





SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Armstrong Flooring, Inc.
(Registrant)
Date:March 5, 20199, 2022
By:/s/ Donald R. MaierMichel S. Vermette
Donald R. MaierMichel S. Vermette
Director, President and Chief Executive Officer
(As Duly Authorized Officer and Principal Executive Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Reportreport has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Directors and Principal Officers of the registrant AFI:
/s/ Donald R. MaierMichel S. VermetteDirector, President and Chief Executive Officer (Principal Executive Officer)March 5, 20199, 2022
Donald R. MaierMichel S. Vermette
/s/ Douglas B. BinghamAmy P. TrojanowskiSenior Vice President and Chief Financial Officer and Treasurer (Principal Financial Officer)March 5, 20199, 2022
Douglas B. BinghamAmy P. Trojanowski
/s/ Tracy L. MarinesPhillip J. GaudreauVice President and Controller (Principal Accounting Officer)March 5, 20199, 2022
Tracy L. MarinesPhillip J. Gaudreau
/s/ Michael F. JohnstonDirectorMarch 5, 20199, 2022
Michael F. Johnston
/s/ Kathleen S. LaneDirectorMarch 5, 20199, 2022
Kathleen S. Lane
/s/ Jeffrey LiawDirectorMarch 5, 20199, 2022
Jeffrey Liaw
/s/ Michael W. MaloneDirectorMarch 5, 20199, 2022
Michael W. Malone
/s/ Larry S. McWilliamsDirectorMarch 5, 20199, 2022
Larry S. McWilliams
/s/ James C. MelvilleDirectorMarch 5, 20199, 2022
James C. Melville
/s/ James J. O'ConnorDirectorMarch 5, 2019
James J. O'Connor
/s/ Jacob H. WelchDirectorMarch 5, 2019
Jacob H. Welch

90
97