UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended JuneSeptember 30, 2020
OR
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☐ | 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)
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| | | | | | | | | | | | | | | | |
Delaware | | 47-4303305 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. employer Identification number) |
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2500 Columbia Avenue, | Lancaster, | PA | | | 17603 |
(Address of principal executive offices) | | (Zipcode) |
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| (717) | 672-9611 | |
2500 Columbia Avenue | | 17603 |
Lancaster | Pennsylvania | | | |
(Address of principal executive offices) | | (Zip Code) |
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| (717) | 672-9611 | |
(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act: |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.0001 par value | AFI | New York Stock Exchange |
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 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.
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Large accelerated filer | ☐ | Accelerated filer | ☑ |
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 is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The Registrant had 21,594,12421,626,222 shares of common stock, $0.0001 par value, outstanding at July 27,October 26, 2020.
Armstrong Flooring, Inc.
Table of Contents
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PART I | | |
Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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PART II | | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5 | | |
Item 6. | | |
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q ("Form 10-Q") 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, income 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:
•the impact of COVID-19 on the economy, demand for our products and our operations, including the measures taken by governmental authorities to address it, which may precipitate or exacerbate other risks and/or uncertainties;
•global economic conditions;
•competition;
•availability and costs of raw materials and energy;
•key customers;
•construction activity;
•execution of strategy;
•international operations;
•debt covenants;
•liquidity;
•debt;
•information systems and transition services;
•personnel;
•intellectual property rights;
•claims and litigation;
•labor;
•internal controls;
•environmental and regulatory matters;
•outsourcing; and
•other risks detailed from time to time in our filings with the Securities and Exchange Commission ("SEC"), press releases and other communications, including those set forth under “Risk Factors” included in our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the three months ended March 31, 2020 and in the documents incorporated by reference.
Such forward-looking statements speak only as of the date they are made. We expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Armstrong Flooring, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in millions, except per share data)
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| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net sales | $ | 145.6 |
| | $ | 177.7 |
| | $ | 284.3 |
| | $ | 319.4 |
|
Cost of goods sold | 120.9 |
| | 141.5 |
| | 236.3 |
| | 261.1 |
|
Gross profit | 24.7 |
| | 36.2 |
| | 48.0 |
| | 58.3 |
|
Selling, general and administrative expenses | 30.3 |
| | 32.5 |
| | 66.9 |
| | 70.2 |
|
Operating (loss) income | (5.6 | ) | | 3.7 |
| | (18.9 | ) | | (11.9 | ) |
Interest expense | 1.2 |
| | 0.9 |
| | 1.8 |
| | 1.9 |
|
Other (income) expense, net | (0.5 | ) | | 0.2 |
| | (0.9 | ) | | 0.5 |
|
(Loss) earnings from continuing operations before income taxes | (6.3 | ) | | 2.6 |
| | (19.8 | ) | | (14.3 | ) |
Income tax (benefit) | — |
| | (2.7 | ) | | (0.3 | ) | | (3.0 | ) |
Net (loss) income from continuing operations | $ | (6.3 | ) | | $ | 5.3 |
| | $ | (19.5 | ) | | $ | (11.3 | ) |
Gain on disposal of discontinued operations, net of tax | — |
| | 9.4 |
| | — |
| | 9.3 |
|
Net income from discontinued operations | — |
| | 9.4 |
| | — |
| | 9.3 |
|
Net (loss) income | $ | (6.3 | ) | | $ | 14.7 |
| | $ | (19.5 | ) | | $ | (2.0 | ) |
| | | | | | | |
Basic (loss) earnings per share of common stock: | | | | | | | |
Basic (loss) earnings per share of common stock from continuing operations | $ | (0.29 | ) | | $ | 0.20 |
| | $ | (0.89 | ) | | $ | (0.43 | ) |
Basic earnings per share of common stock from discontinued operations | — |
| | 0.36 |
| | — |
| | 0.35 |
|
Basic (loss) earnings per share of common stock | $ | (0.29 | ) | | $ | 0.56 |
| | $ | (0.89 | ) | | $ | (0.08 | ) |
| | | | | | | |
Diluted (loss) earnings per share of common stock: | | | | | | | |
Diluted (loss) earnings per share of common stock from continuing operations | $ | (0.29 | ) | | $ | 0.20 |
| | $ | (0.89 | ) | | $ | (0.43 | ) |
Diluted earnings per share of common stock from discontinued operations | — |
| | 0.36 |
| | — |
| | 0.35 |
|
Diluted (loss) earnings per share of common stock | $ | (0.29 | ) | | $ | 0.56 |
| | $ | (0.89 | ) | | $ | (0.08 | ) |
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| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2020 | | 2019 | | 2020 | | 2019 |
Net sales | $ | 156.6 | | | $ | 165.6 | | | $ | 440.9 | | | $ | 485.0 | |
Cost of goods sold | 129.0 | | | 153.8 | | | 365.3 | | | 414.9 | |
Gross profit | 27.6 | | | 11.8 | | | 75.6 | | | 70.1 | |
Selling, general and administrative expenses | 37.7 | | | 40.0 | | | 104.6 | | | 110.2 | |
Operating (loss) | (10.1) | | | (28.2) | | | (29.0) | | | (40.1) | |
Interest expense | 2.8 | | | 0.8 | | | 4.6 | | | 2.7 | |
Other (income) expense, net | (1.5) | | | 0.7 | | | (2.4) | | | 1.2 | |
(Loss) from continuing operations before income taxes | (11.4) | | | (29.7) | | | (31.2) | | | (44.0) | |
Income tax expense (benefit) | 0.3 | | | 0 | | | 0 | | | (3.0) | |
Net (loss) from continuing operations | (11.7) | | | (29.7) | | | (31.2) | | | (41.0) | |
| | | | | | | |
Net (loss) income from discontinued operations | 0 | | | (1.7) | | | 0 | | | 7.6 | |
Net (loss) | $ | (11.7) | | | $ | (31.4) | | | $ | (31.2) | | | $ | (33.4) | |
| | | | | | | |
Basic (loss) earnings per share of common stock: | | | | | | | |
Basic (loss) per share of common stock from continuing operations | $ | (0.53) | | | $ | (1.36) | | | $ | (1.42) | | | $ | (1.65) | |
Basic (loss) earnings per share of common stock from discontinued operations | 0 | | | (0.08) | | | 0 | | | 0.31 | |
Basic (loss) per share of common stock | $ | (0.53) | | | $ | (1.44) | | | $ | (1.42) | | | $ | (1.34) | |
| | | | | | | |
Diluted (loss) earnings per share of common stock: | | | | | | | |
Diluted (loss) per share of common stock from continuing operations | $ | (0.53) | | | $ | (1.36) | | | $ | (1.42) | | | $ | (1.65) | |
Diluted (loss) earnings per share of common stock from discontinued operations | 0 | | | (0.08) | | | 0 | | | 0.31 | |
Diluted (loss) per share of common stock | $ | (0.53) | | | $ | (1.44) | | | $ | (1.42) | | | $ | (1.34) | |
| | | | | | | |
See accompanying notes to Condensed Consolidated Financial Statements.Statements (Unaudited).
Armstrong Flooring, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in millions)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net (loss) income | $ | (6.3 | ) | | $ | 14.7 |
| | $ | (19.5 | ) | | $ | (2.0 | ) |
Changes in other comprehensive income, net of tax: | | | | | | | |
Foreign currency translation adjustments | 1.6 |
| | (2.8 | ) | | (0.9 | ) | | (0.6 | ) |
Derivative (loss) gain | (0.9 | ) | | (0.3 | ) | | 0.4 |
| | (0.8 | ) |
Pension and postretirement adjustments | 0.9 |
| | 0.6 |
| | 2.2 |
| | 1.8 |
|
Total other comprehensive income (loss) | 1.6 |
| | (2.5 | ) | | 1.7 |
| | 0.4 |
|
Total comprehensive (loss) income | $ | (4.7 | ) | | $ | 12.2 |
| | $ | (17.8 | ) | | $ | (1.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net (loss) | $ | (11.7) | | | $ | (31.4) | | | $ | (31.2) | | | $ | (33.4) | |
Changes in other comprehensive income (loss), net of tax: |
Foreign currency translation adjustments | 3.6 | | | (3.7) | | | 2.7 | | | (4.3) | |
Derivative adjustments | (0.3) | | | 0.1 | | | 0.1 | | | (0.7) | |
Pension and postretirement adjustments | 0.9 | | | 1.9 | | | 3.1 | | | 3.7 | |
Total other comprehensive income (loss) | 4.2 | | | (1.7) | | | 5.9 | | | (1.3) | |
Total comprehensive (loss) | $ | (7.5) | | | $ | (33.1) | | | $ | (25.3) | | | $ | (34.7) | |
See accompanying notes to Condensed Consolidated Financial Statements.Statements (Unaudited).
Armstrong Flooring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in millions, except par value)
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| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
| (Unaudited) | | |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 34.1 |
| | $ | 27.1 |
|
Accounts and notes receivable, net | 45.0 |
| | 36.1 |
|
Inventories, net | 122.3 |
| | 111.6 |
|
Income tax receivable | 1.1 |
| | 0.7 |
|
Prepaid expenses and other current assets | 11.6 |
| | 10.0 |
|
Total current assets | 214.1 |
| | 185.5 |
|
Property, plant, and equipment, less accumulated depreciation and amortization of $333.4 and $318.4, respectively | 266.6 |
| | 277.2 |
|
Operating lease assets | 5.7 |
| | 6.0 |
|
Intangible assets, less accumulated amortization of $22.5 and $19.0, respectively | 22.0 |
| | 25.4 |
|
Deferred income taxes | 5.1 |
| | 5.3 |
|
Other noncurrent assets | 2.2 |
| | 2.8 |
|
Total assets | $ | 515.7 |
| | $ | 502.2 |
|
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Short-term debt | $ | 4.2 |
| | $ | — |
|
Current installments of long-term debt | 1.1 |
| | 0.2 |
|
Accounts payable and accrued expenses | 114.9 |
| | 104.4 |
|
Total current liabilities | 120.2 |
| | 104.6 |
|
Long-term debt, net of unamortized debt issuance costs | 62.7 |
| | 42.5 |
|
Noncurrent operating lease liabilities | 2.2 |
| | 2.7 |
|
Postretirement benefit liabilities | 57.5 |
| | 59.7 |
|
Pension benefit liabilities | 12.6 |
| | 16.0 |
|
Other long-term liabilities | 6.0 |
| | 5.8 |
|
Noncurrent income taxes payable | 0.2 |
| | 0.2 |
|
Deferred income taxes | 2.5 |
| | 2.4 |
|
Total liabilities | 263.9 |
| | 233.9 |
|
Stockholders’ equity: | | | |
Common stock with par value $.0001 per share: 100,000,000 shares authorized; 28,376,662 issued and 21,593,522 outstanding shares as of June 30, 2020 and 28,357,658 issued and 21,519,761 outstanding shares as of December 31, 2019 | — |
| | — |
|
Preferred stock with par value $.0001 per share: 15,000,000 shares authorized; none issued | — |
| | — |
|
Treasury stock, at cost, 6,783,140 shares as of June 30, 2020 and 6,837,897 shares as of December 31, 2019 | (87.9 | ) | | (88.9 | ) |
Additional paid-in capital | 677.0 |
| | 676.7 |
|
Accumulated deficit | (264.3 | ) | | (244.8 | ) |
Accumulated other comprehensive (loss) | (73.0 | ) | | (74.7 | ) |
Total stockholders’ equity | 251.8 |
| | 268.3 |
|
Total liabilities and stockholders’ equity | $ | 515.7 |
| | $ | 502.2 |
|
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 22.2 | | | $ | 27.1 | |
| | | |
Accounts and notes receivable, net | 43.8 | | | 36.1 | |
Inventories, net | 129.9 | | | 111.6 | |
| | | |
Prepaid expenses and other current assets | 13.8 | | | 10.7 | |
Assets held-for-sale | 19.3 | | | 0 | |
Total current assets | 229.0 | | | 185.5 | |
Property, plant, and equipment, net | 246.0 | | | 277.2 | |
Operating lease assets | 5.3 | | | 6.0 | |
Intangible assets, net | 20.5 | | | 25.4 | |
Deferred income tax assets | 5.3 | | | 5.3 | |
Other noncurrent assets | 2.5 | | | 2.8 | |
Total assets | $ | 508.6 | | | $ | 502.2 | |
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Short-term debt | $ | 6.3 | | | $ | 0 | |
Current installments of long-term debt | 2.1 | | | 0.2 | |
Accounts payable and accrued expenses | 112.9 | | | 104.4 | |
| | | |
| | | |
Total current liabilities | 121.3 | | | 104.6 | |
Long-term debt, net of unamortized debt issuance costs | 62.1 | | | 42.5 | |
Noncurrent operating lease liabilities | 2.3 | | | 2.7 | |
Postretirement benefit liabilities | 56.2 | | | 59.7 | |
Pension benefit liabilities | 11.1 | | | 16.0 | |
Other long-term liabilities | 8.3 | | | 6.0 | |
| | | |
Deferred income tax liabilities | 2.4 | | | 2.4 | |
Total liabilities | 263.7 | | | 233.9 | |
Commitments and contingencies | | | |
Stockholders’ equity: | | | |
Common stock with par value $.0001 per share: 100,000,000 shares authorized; 28,376,662 issued and 21,626,222 outstanding shares as of September 30, 2020 and 28,357,658 issued and 21,519,761 outstanding shares as of December 31, 2019 | 0 | | | 0 | |
Preferred stock with par value $.0001 per share: 15,000,000 shares authorized; none issued | 0 | | | 0 | |
Treasury stock, at cost, 6,750,440 shares as of September 30, 2020 and 6,837,897 shares as of December 31, 2019 | (87.3) | | | (88.9) | |
Additional paid-in capital | 677.0 | | | 676.7 | |
Accumulated deficit | (276.0) | | | (244.8) | |
Accumulated other comprehensive (loss) | (68.8) | | | (74.7) | |
Total stockholders’ equity | 244.9 | | | 268.3 | |
Total liabilities and stockholders’ equity | $ | 508.6 | | | $ | 502.2 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Armstrong Flooring, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive (Loss) | | (Accumulated Deficit) | | Total Equity |
| Shares | | Amount | | Shares | | Amount | | | | |
December 31, 2019 | 21,519,761 | | $ | — |
| | 6,837,897 | | $ | (88.9 | ) | | $ | 676.7 |
| | $ | (74.7 | ) | | $ | (244.8 | ) | | $ | 268.3 |
|
Net (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (13.2 | ) | | (13.2 | ) |
Stock-based employee compensation, net | 36,072 |
| | — |
| | (36,072 | ) | | 0.7 |
| | — |
| | — |
| | — |
| | 0.7 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
|
March 31, 2020 | 21,555,833 |
| | $ | — |
| | 6,801,825 |
| | $ | (88.2 | ) | | $ | 676.7 |
| | $ | (74.6 | ) | | $ | (258.0 | ) | | $ | 255.9 |
|
Net (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6.3 | ) | | (6.3 | ) |
Stock-based employee compensation, net | 37,689 |
| | — |
| | (18,685 | ) | | 0.3 |
| | 0.3 |
| | — |
| | — |
| | 0.6 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 1.6 |
| | — |
| | 1.6 |
|
June 30, 2020 | 21,593,522 |
| | $ | — |
| | 6,783,140 |
| | $ | (87.9 | ) | | $ | 677.0 |
| | $ | (73.0 | ) | | $ | (264.3 | ) | | $ | 251.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive (Loss) | | Accumulated Deficit | | Total Equity |
| Shares | | Amount | | Shares | | Amount | | | | |
December 31, 2019 | 21,519,761 | | $ | 0 | | | 6,837,897 | | $ | (88.9) | | | $ | 676.7 | | | $ | (74.7) | | | $ | (244.8) | | | $ | 268.3 | |
Net (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (13.2) | | | (13.2) | |
Stock-based employee compensation, net | 36,072 | | | 0 | | | (36,072) | | | 0.7 | | | 0 | | | — | | | — | | | 0.7 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | 0.1 | |
March 31, 2020 | 21,555,833 | | | 0 | | | 6,801,825 | | | (88.2) | | | 676.7 | | | (74.6) | | | (258.0) | | | 255.9 | |
Net (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (6.3) | | | (6.3) | |
Stock-based employee compensation, net | 37,689 | | | 0 | | | (18,685) | | | 0.3 | | | 0.3 | | | — | | | — | | | 0.6 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 1.6 | | | — | | | 1.6 | |
June 30, 2020 | 21,593,522 | | | 0 | | | 6,783,140 | | | (87.9) | | | 677.0 | | | (73.0) | | | (264.3) | | | 251.8 | |
Net (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (11.7) | | | (11.7) | |
Stock-based employee compensation, net | 32,700 | | | 0 | | | (32,700) | | | 0.6 | | | 0 | | | — | | | — | | | 0.6 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 4.2 | | | — | | | 4.2 | |
September 30, 2020 | 21,626,222 | | | $ | 0 | | | 6,750,440 | | | $ | (87.3) | | | $ | 677.0 | | | $ | (68.8) | | | $ | (276.0) | | | $ | 244.9 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive (Loss) | | (Accumulated Deficit) | | Total Equity |
| Shares | | Amount | | Shares | | Amount | | | | |
December 31, 2018 | 25,832,193 |
| | $ | — |
| | 2,452,165 |
| | $ | (39.7 | ) | | $ | 678.6 |
| | $ | (61.6 | ) | | $ | (186.3 | ) | | $ | 391.0 |
|
Net (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (16.7 | ) | | (16.7 | ) |
Stock-based employee compensation, net | 53,908 |
| | — |
| | (50,251 | ) | | 0.9 |
| | (0.5 | ) | | — |
| | — |
| | 0.4 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | 2.9 |
| | — |
| | 2.9 |
|
March 31, 2019 | 25,886,101 |
| | $ | — |
| | 2,401,914 |
| | $ | (38.8 | ) | | $ | 678.1 |
| | $ | (58.7 | ) | | $ | (203.0 | ) | | $ | 377.6 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14.7 |
| | 14.7 |
|
Repurchase of common stock | (4,504,504 | ) | | — |
| | 4,504,504 |
| | (51.3 | ) | | — |
| | — |
| | — |
| | (51.3 | ) |
Stock-based employee compensation, net | 93,305 |
| | — |
| | (49,130 | ) | | 0.9 |
| | 0.1 |
| | — |
| | — |
| | 1.0 |
|
Other comprehensive (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | (2.5 | ) | | — |
| | (2.5 | ) |
June 30, 2019 | 21,474,902 |
| | $ | — |
| | 6,857,288 |
| | $ | (89.2 | ) | | $ | 678.2 |
| | $ | (61.2 | ) | | $ | (188.3 | ) | | $ | 339.5 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive (Loss) | | (Accumulated Deficit) | | Total Equity |
| Shares | | Amount | | Shares | | Amount | | | | |
December 31, 2018 | 25,832,193 | | | $ | 0 | | | 2,452,165 | | | $ | (39.7) | | | $ | 678.6 | | | $ | (61.6) | | | $ | (186.3) | | | $ | 391.0 | |
Net (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (16.7) | | | (16.7) | |
| | | | | | | | | | | | | | | |
Stock-based employee compensation, net | 53,908 | | | — | | | (50,251) | | | 0.9 | | | (0.5) | | | — | | | — | | | 0.4 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 2.9 | | | — | | | 2.9 | |
March 31, 2019 | 25,886,101 | | | 0 | | | 2,401,914 | | | (38.8) | | | 678.1 | | | (58.7) | | | (203.0) | | | 377.6 | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 14.7 | | | 14.7 | |
Repurchase of common stock | (4,504,504) | | | — | | | 4,504,504 | | | (51.3) | | | — | | | — | | | — | | | (51.3) | |
Stock-based employee compensation, net | 93,305 | | | — | | | (49,130) | | | 0.9 | | | 0.1 | | | — | | | — | | | 1.0 | |
Other comprehensive (loss) | — | | | — | | | — | | | — | | | — | | | (2.5) | | | — | | | (2.5) | |
June 30, 2019 | 21,474,902 | | | 0 | | | 6,857,288 | | | (89.2) | | | 678.2 | | | (61.2) | | | (188.3) | | | 339.5 | |
Net (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (31.4) | | | (31.4) | |
Stock-based employee compensation, net | 24,888 | | | — | | | 0 | | | 0 | | | 0.1 | | | — | | | — | | | 0.1 | |
Other comprehensive (loss) | — | | | — | | | — | | | — | | | — | | | (1.7) | | | — | | | (1.7) | |
September 30, 2019 | 21,499,790 | | | $ | 0 | | | 6,857,288 | | | $ | (89.2) | | | $ | 678.3 | | | $ | (62.9) | | | $ | (219.7) | | | $ | 306.5 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Armstrong Flooring, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | Six Months Ended June 30, | | Nine Months Ended September 30 |
| 2020 | | 2019 | | 2020 | | 2019 |
Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net (loss) | (19.5 | ) | | (2.0 | ) | Net (loss) | $ | (31.2) | | | $ | (33.4) | |
Adjustments to reconcile net (loss) to net cash (used for) operating activities: | | | | Adjustments to reconcile net (loss) to net cash (used for) operating activities: | |
Depreciation and amortization | 20.9 |
| | 22.3 |
| Depreciation and amortization | 32.0 | | | 35.2 | |
Gain on disposal of discontinued operations | | Gain on disposal of discontinued operations | 0 | | | (7.6) | |
Inventory write down | | Inventory write down | 0 | | | 13.6 | |
Deferred income taxes | (0.6 | ) | | (0.6 | ) | Deferred income taxes | (0.9) | | | (3.5) | |
Stock-based compensation | 1.3 |
| | 2.1 |
| Stock-based compensation | 2.0 | | | 2.4 | |
Gain from long-term disability plan change | (1.1 | ) | | — |
| Gain from long-term disability plan change | (1.1) | | | 0 | |
U.S. pension expense | 1.9 |
| | 2.7 |
| U.S. pension expense | 2.8 | | | 4.2 | |
Other non-cash adjustments, net | 0.5 |
| | (0.5 | ) | Other non-cash adjustments, net | 0.6 | | | (0.2) | |
Changes in operating assets and liabilities: | | | | Changes in operating assets and liabilities: | |
Receivables | (9.2 | ) | | (26.8 | ) | Receivables | (7.7) | | | (4.5) | |
Inventories | (11.0 | ) | | 3.4 |
| Inventories | (18.0) | | | 13.7 | |
Accounts payable and accrued expenses | 15.4 |
| | (32.2 | ) | Accounts payable and accrued expenses | 11.2 | | | (22.0) | |
Income taxes payable and receivable | | Income taxes payable and receivable | 0.6 | | | (0.2) | |
Other assets and liabilities | (5.5 | ) | | (2.2 | ) | Other assets and liabilities | (6.6) | | | 0.5 | |
Net cash (used for) operating activities | (6.9 | ) | | (33.8 | ) | Net cash (used for) operating activities | (16.3) | | | (1.8) | |
Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Purchases of property, plant and equipment | (10.9 | ) | | (15.5 | ) | Purchases of property, plant and equipment | (15.2) | | | (22.9) | |
Proceeds from sale of assets | | Proceeds from sale of assets | 0.1 | | | 0 | |
Net payment related to the sale of discontinued operations | | Net payment related to the sale of discontinued operations | 0 | | | (1.9) | |
Net cash (used for) investing activities | (10.9 | ) | | (15.5 | ) | Net cash (used for) investing activities | (15.1) | | | (24.8) | |
Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Proceeds from revolving credit facility | 41.2 |
| | — |
| Proceeds from revolving credit facility | 43.1 | | | 0 | |
Payments on revolving credit facility | (79.2 | ) | | (25.0 | ) | Payments on revolving credit facility | (79.2) | | | (25.0) | |
Issuance of long-term debt | 70.0 |
| | — |
| Issuance of long-term debt | 70.0 | | | 0 | |
Financing costs | (6.9 | ) | | (0.1 | ) | Financing costs | (7.4) | | | (0.1) | |
Payments on long-term debt | (0.1 | ) | | (2.1 | ) | Payments on long-term debt | (0.2) | | | (3.0) | |
Purchases of treasury stock | — |
| | (51.3 | ) | Purchases of treasury stock | 0 | | | (51.3) | |
Proceeds from exercised stock options | — |
| | 0.1 |
| Proceeds from exercised stock options | 0 | | | 0.1 | |
Value of shares withheld related to employee tax withholding | — |
| | (0.7 | ) | Value of shares withheld related to employee tax withholding | 0 | | | (0.8) | |
Net cash provided by (used for) financing activities | 25.0 |
| | (79.1 | ) | Net cash provided by (used for) financing activities | 26.3 | | | (80.1) | |
Effect of exchange rate changes on cash and cash equivalents | (0.2 | ) | | 0.1 |
| Effect of exchange rate changes on cash and cash equivalents | 0.2 | | | (0.5) | |
Net increase (decrease) in cash and cash equivalents | 7.0 |
| | (128.3 | ) | |
Net (decrease) in cash and cash equivalents | | Net (decrease) in cash and cash equivalents | (4.9) | | | (107.2) | |
Cash and cash equivalents at beginning of year | 27.1 |
| | 173.8 |
| Cash and cash equivalents at beginning of year | 27.1 | | | 173.8 | |
Cash and cash equivalents at end of period | $ | 34.1 |
| | $ | 45.5 |
| Cash and cash equivalents at end of period | $ | 22.2 | | | $ | 66.6 | |
| Supplemental Cash Flow Disclosure: | | | | Supplemental Cash Flow Disclosure: | | | |
Amounts in accounts payable for capital expenditures | $ | 2.0 |
| | $ | 4.6 |
| Amounts in accounts payable for capital expenditures | $ | 2.9 | | | $ | 2.2 | |
Interest paid | 1.7 |
| | 1.8 |
| Interest paid | 3.6 | | | 2.5 | |
Income taxes paid (refunded), net | 0.4 |
| | 1.1 |
| |
Income taxes paid, net | | Income taxes paid, net | 0.4 | | | 1.2 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Background
Armstrong Flooring, Inc. (“AFI”) is a leading global producer of resilient flooring products for use primarily in the construction and renovation of commercial, residential commercial and institutional buildings. AFI designs, manufactures, sources and sells resilient flooring products in North America and the Pacific Rim. When we refer to "AFI," "the Company," "we," "our," and "us" in this report, we are referring to Armstrong Flooring, Inc., a Delaware corporation, and its consolidated subsidiaries.
Basis of Presentation
These Condensed Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The statementsCondensed Consolidated Financial Statements include management estimates and judgments, where appropriate. Management uses estimates to record many items including certain asset values, allowances for bad debts,expected credit losses, inventory obsolescence, lower of cost or market or net realizable value charges, warranty reserves, workers compensation, general liability and environmental claims and income taxes. When preparing an estimate, management determines the amount based upon the consideration of relevant information. Management may confer with outside parties, including outside counsel. Actual results may differ from these estimates. In the opinion of management, all adjustments of a normal recurring nature have been included to provide a fair statement of the results for the reporting periods presented. Operating results for the three and sixnine months ended JuneSeptember 30, 2020 and 2019 included in this report are unaudited. Quarterly results are not necessarily indicative of annual income,results, primarily due to the different level of sales in each quarterseasonality of the yearbusiness and the possibility of changes in economic conditions between periods.
The accounting policies used in preparing the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q are the same as those used in preparing the Consolidated Financial Statements for the year ended December 31, 2019, except as noted below. These statements should therefore be read in conjunction with the Consolidated Financial Statements and notes that are included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
All significant intercompany transactions within AFI have been eliminated from the Condensed Consolidated Financial Statements.
COVID-19
The COVID-19 pandemic has significantly impacted our operationsbusiness and resulted in lower than expected revenue in 2020. In response, we have implemented several cost reduction initiatives including reduced capital spending, implementing a furlough of certain salaried employees and reducingreduced employee benefits.benefits for a portion of the year. We are also pursuing a plan expected to monetize non-core assets. The ultimate duration and impact of the pandemic on our future results is unknown. We have incurred net losses for the past several years, and negative cash flows from operations beginning in 2019. The pandemic’s impacts, our recurring losses and our negative cash flows resulted in the identification of a triggering event requiring impairment testing of our North America long-lived assets in the first quarter of 2020. The results of this testing indicated that, as of March 31, 2020, our North America long-lived assets were not impaired. Our actual second quarterresults for the nine months ended September 30, 2020 results exceeded the assumptions used in our first quarter 2020 impairment test. While no long-lived asset impairment, significant inventory write-down or significant incremental accounts receivable reserves were recorded in the first sixnine months of 2020, such charges are possible in the future, which could have a material adverse effect on our future results.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform with current year classifications.
Recently Adopted and Recently Issued Accounting Standards
The following accounting standards have been adopted in 2020:
On January 1, 2020, we adopted Accounting Standards Update (" ASUASU") 2016-13, "Measurement of Credit Losses on Financial Instruments." The guidance and subsequent amendments issued, requires immediate recognition of estimated credit losses that are expected to occur over the remaining life of many financial assets. The most notable impact of this ASU related to our processes around
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
the assessment of the adequacy of our allowance for doubtful accounts on trade account receivables. We adopted using the modified retrospective transition method. The adoption of the standard did not have a material impact on our financial condition, results of operations or cash flows.
Armstrong Flooring, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
On January 1, 2020, we adopted ASU 2018-13, "Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." The guidance eliminates, adds and modifies certain disclosure requirements. Adoption of the standard did not have an impact on our financial condition, results of operations or cash flows.
On January 1, 2020, we adopted 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. Adoption of the standard did not have an impact on our financial condition, results of operations or cash flows.
On January 1, 2020, we adopted 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. We adopted using the prospective transition method. This standard did not have a material impact on our financial condition, results of operations and cash flows.
Recently Issued Accounting Standards
The following accounting standards have been issued and become effective for the Company at a future date:
In December 2019, the FASBFinancial Accounting Standards Board ("FASB") issued ASU 2019-12, "Income Taxes (Topic 740)." The guidance simplifies accounting for income taxes by removing certain exceptions. This new guidance is effective for fiscal years beginning after December 15, 2020 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.
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
NOTE 2. REVENUE
We disaggregate revenue based on customer geography as geography represents the most appropriate depiction of how the nature, timing and uncertainty of revenues and cash flows are impacted by economic factors.
The following table presents our revenues disaggregated by geographic area based upon the location of the customer.
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
Net sales | | | | | | | | Net sales | | | | | | | |
United States | $ | 113.9 |
| | $ | 136.6 |
| | $ | 229.1 |
| | $ | 245.9 |
| United States | $ | 116.3 | | | $ | 125.1 | | | $ | 345.4 | | | $ | 371.0 | |
China | 17.4 |
| | 19.1 |
| | 24.0 |
| | 30.5 |
| China | 22.3 | | | 20.6 | | | 46.3 | | | 51.1 | |
Canada | 6.2 |
| | 10.6 |
| | 13.5 |
| | 20.6 |
| Canada | 7.8 | | | 8.7 | | | 21.3 | | | 29.3 | |
Australia | | Australia | 6.9 | | | 7.1 | | | 19.4 | | | 21.3 | |
Other | 8.1 |
| | 11.4 |
| | 17.7 |
| | 22.4 |
| Other | 3.3 | | | 4.1 | | | 8.5 | | | 12.3 | |
Total net sales | $ | 145.6 |
| | $ | 177.7 |
| | $ | 284.3 |
| | $ | 319.4 |
| Total net sales | $ | 156.6 | | | $ | 165.6 | | | $ | 440.9 | | | $ | 485.0 | |
NOTE 3. SEVERANCE
In the second quarter of 2019, we recorded $2.9 million in selling, general and administrative ("SG&A") expenses for severance and related expenses to reflect the separation costs for our former President and Chief Executive Officer.
Armstrong Flooring, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
NOTE 4. INCOME TAXES
The following table presents details related to our income taxes: |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
(Loss) income from continuing operations before income taxes | $ | (6.3 | ) | | $ | 2.6 |
| | $ | (19.8 | ) | | $ | (14.3 | ) |
Income tax (benefit) | — |
| | (2.7 | ) | | (0.3 | ) | | (3.0 | ) |
Effective tax rate | — | % | | (103.8 | )% | | 1.5 | % | | 21.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2020 | | 2019 | | 2020 | | 2019 |
(Loss) from continuing operations before income taxes | $ | (11.4) | | | $ | (29.7) | | | $ | (31.2) | | | $ | (44.0) | |
Income tax expense (benefit) | 0.3 | | | 0 | | | 0 | | | (3.0) | |
Effective tax rate | (2.7) | % | | 0 | % | | 0 | % | | 6.8 | % |
Pursuant to ASCthe FASB's Accounting Standards Codification - Topic 740 - Income Taxes, we are required to consider all items (including items recorded in discontinued operations and other comprehensive income) in determining the amount of income tax benefitexpense (benefit) that results from a loss from continuing operations.
For the sixthree months and nine months ended JuneSeptember 30, 2020 we recognized an income tax benefitexpense consisting of a U.S. income tax benefit andoffset by a foreign income tax expense from various jurisdictions. The U.S. income tax benefit relates to a reduction in the Company’s valuation allowance due to the tax impact of the gains in other comprehensive income.
For the three months and sixnine months ended JuneSeptember 30, 2019, we recognized an income tax benefit consisting of a U.S. income tax benefit and a foreign income tax expense from various jurisdictions. The U.S. income tax benefit relates to a reduction in our valuation allowance due to the tax impact of the gains from resolution of our antidumping case in discontinued operations and gains on other comprehensive income.
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
Upon audit, taxing authorities may challenge all or part of an uncertain income tax position. AFI regularly assesses the outcome of potential examinations in each of the taxing jurisdictions when determining the adequacy of the amount of unrecognized tax benefit recorded. We do not expect to record any material changes during 2020 to our unrecognized tax benefits as of December 31, 2019.
As of JuneSeptember 30, 2020, we consider foreign unremitted income to be permanently reinvested.
NOTE 5. DISCONTINUED OPERATIONS
In December 2018, we completed the sale of our wood business to Tarzan Holdco, Inc. ("TZI"), a Delaware corporation and an affiliate of American Industrial Partners. The proceeds from the sale were $90.2 million, net of closing costs, transaction fees and taxes. The transaction was subject to a customary post-closing working capital adjustment process which resulted in us making a $1.9 million payment to TZI in the third quarter of 2019.
The following is a summary of the results related to the net gain on disposal of the wood business, which is included in discontinued operations:
| | | | | | | | | | | |
| Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 |
(Loss) gain on disposal of discontinued operations before income tax | $ | (2.3) | | | $ | 10.3 | |
Income tax (benefit) expense | (0.6) | | | 2.7 | |
Net (loss) income on disposal of discontinued operations | $ | (1.7) | | | $ | 7.6 | |
Armstrong Flooring, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
|
| | | | | | | |
| Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
Gain on disposal of discontinued operations before income tax | $ | 12.7 |
| | $ | 12.6 |
|
Income tax expense | 3.3 |
| | 3.3 |
|
Net gain on disposal of discontinued operations | $ | 9.4 |
| | $ | 9.3 |
|
During the second quarter of 2019, we reached a resolution in our antidumping case regarding our previously operated plant in Kunshan, China that manufactured multilayered wood flooring. We resolved our potential liability outside of litigation pursuant to a settlement agreement with the petitioners. As a result, we reversed the previously recognized liability of $11.4 million, which was reflected in gain on disposal of discontinued operations.
NOTE 6. EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Earnings per share components may not add due to rounding.
The table below shows adetails the calculation and reconciliation of shares used in the numerator and denominatorcalculation for basic and diluted earnings (loss) per share calculations for the periods indicated.
Table of contents | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Net (loss) from continuing operations | $ | (11.7) | | | $ | (29.7) | | | $ | (31.2) | | | $ | (41.0) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Weighted average shares outstanding: | | | | | | | |
Weighted average common shares outstanding | 21,600,477 | | | 21,496,319 | | | 21,567,629 | | | 24,300,804 | |
Weighted average common shares, vested not yet issued | 357,635 | | | 401,402 | | | 340,599 | | | 552,198 | |
Weighted average common shares outstanding - Basic | 21,958,112 | | | 21,897,721 | | | 21,908,228 | | | 24,853,002 | |
Dilutive impact of stock-based compensation plans | 0 | | | 0 | | | 0 | | | 0 | |
Weighted average common shares outstanding - Diluted | 21,958,112 | | | 21,897,721 | | | 21,908,228 | | | 24,853,002 | |
| | | | | | | |
(Loss) per share of common stock from continuing operations: |
Basic (loss) per share of common stock from continuing operations | $ | (0.53) | | | $ | (1.36) | | | $ | (1.42) | | | $ | (1.65) | |
Diluted (loss) per share of common stock from continuing operations | $ | (0.53) | | | $ | (1.36) | | | $ | (1.42) | | | $ | (1.65) | |
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Numerator | | | | | | | |
Net (loss) income from continuing operations | $ | (6.3 | ) | | $ | 5.3 |
| | $ | (19.5 | ) | | $ | (11.3 | ) |
Net income from discontinued operations | — |
| | 9.4 |
| | — |
| | 9.3 |
|
Net (loss) income | $ | (6.3 | ) | | $ | 14.7 |
| | $ | (19.5 | ) | | $ | (2.0 | ) |
| | | | | | | |
Denominator | | | | | | | |
Weighted average number of common shares outstanding | 21,574,595 |
| | 25,602,519 |
| | 21,551,024 |
| | 25,726,288 |
|
Weighted average number of vested shares not yet issued | 346,845 |
| | 455,263 |
| | 331,987 |
| | 628,845 |
|
Weighted average number of common shares outstanding - Basic | 21,921,440 |
| | 26,057,782 |
| | 21,883,011 |
| | 26,355,133 |
|
Dilutive impact of stock-based compensation plans | — |
| | 81,701 |
| | — |
| | — |
|
Weighted average number of common shares outstanding - Diluted | 21,921,440 |
| | 26,139,483 |
| | 21,883,011 |
| | 26,355,133 |
|
For the three months and six months ended June 30, 2020 and the six months ended June 30, 2019 theThe diluted loss per share was calculated using basic common shares outstanding, as inclusion of potentially dilutive common shares would be anti-dilutive. For the three months ended June 30, 2019 the diluted earnings per share was calculated using net income available to common stockholders divided by 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.
The following stock-based compensation awards were excluded from the computation of diluted earnings (loss) per share:share of common stock from continuing operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 | | |
| 2020 | | 2019 | | 2020 | | 2019 | | | | |
Potentially dilutive common shares excluded from diluted computation, as inclusion would be anti-dilutive | 981,739 | | | 753,898 | | | 1,019,716 | | | 535,111 | | | | |
Performance awards excluded from diluted computation, as performance conditions not met | 154,679 | | | 330,392 | | 170,119 | | | 394,632 | | | | |
|
| | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Potentially dilutive common shares excluded from diluted computation, as inclusion would be anti-dilutive | 1,016,278 |
| | 411,360 |
| | 1,038,705 |
| | 425,718 |
Performance awards excluded from diluted computation, as performance conditions not met | 175,174 |
| | 344,440 |
| | 177,839 |
| | 426,753 |
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
NOTE 7. ACCOUNTS AND NOTES RECEIVABLE
The following table presents accounts and note receivables, net of allowances:net:
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Customer receivables | $ | 59.2 |
| | $ | 47.1 |
|
Miscellaneous receivables | 4.0 |
| | 7.2 |
|
Less: allowance for product claims, discounts, returns and losses | (18.2 | ) | | (18.2 | ) |
Total | $ | 45.0 |
| | $ | 36.1 |
|
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Customer receivables | $ | 58.1 | | | $ | 47.1 | |
Miscellaneous receivables | 4.5 | | | 7.2 | |
Less: allowance for product claims, discounts, returns and losses | (18.8) | | | (18.2) | |
Total accounts and notes receivable, net | $ | 43.8 | | | $ | 36.1 | |
On January 1, 2020 we adoptedASU 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. Generally, we sell our products to select, pre-approved customers whose businesses are affected by changes in economic and market conditions. We consider these factors and the financial condition of each customer when establishing our allowance for losses from doubtful accounts.expected credit losses. We adopted this ASU using the modified retrospective transition method. The adoption of the standard did not have a material impact on our results of operations or cash flows.
Allowance for product claims represents expected reimbursements for cost associated with warranty repairs and customer accommodation claims, the majority of which is provided to our independent distributors through a creditcredits against accounts receivable from the independent distributor to AFI.
The following table summarizes the activity for the allowance for product claims:
| | | Six Months Ended June 30, | | Nine Months Ended September 30 |
| 2020 | | 2019 | | 2020 | | 2019 |
Balance as of January 1 | $ | (9.0 | ) | | $ | (6.4 | ) | Balance as of January 1 | $ | (9.0) | | | $ | (6.4) | |
| Reductions for payments | 3.3 |
| | 3.5 |
| Reductions for payments | 4.9 | | | 5.2 | |
Current year claim accruals | (3.8 | ) | | (5.0 | ) | Current year claim accruals | (5.9) | | | (7.5) | |
Balance as of June 30 | $ | (9.5 | ) | | $ | (7.9 | ) | |
Balance as of September 30 | | Balance as of September 30 | $ | (10.0) | | | $ | (8.7) | |
NOTE 8. INVENTORIES
The following table presents details related to our inventories, net:
| | | June 30, 2020 |
| December 31, 2019 | | September 30, 2020 | | December 31, 2019 |
Finished goods | $ | 93.8 |
| | $ | 87.1 |
| Finished goods | $ | 101.2 | | | $ | 87.1 | |
Goods in process | 5.6 |
| | 4.5 |
| Goods in process | 5.7 | | | 4.5 | |
Raw materials and supplies | 22.9 |
| | 20.0 |
| Raw materials and supplies | 23.0 | | | 20.0 | |
Total | $ | 122.3 |
| | $ | 111.6 |
| |
Total inventories, net | | Total inventories, net | $ | 129.9 | | | $ | 111.6 | |
Armstrong Flooring, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
NOTE 9. PROPERTY, PLANT AND EQUIPMENT
The following table presents details related to our property, plant and equipment, net:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Land | $ | 10.2 | | | $ | 28.2 | |
Buildings | 80.1 | | | 88.3 | |
Machinery and equipment | 461.2 | | | 444.6 | |
Computer software | 16.4 | | | 15.3 | |
Construction in progress | 12.3 | | | 19.2 | |
Less accumulated depreciation and amortization | (334.2) | | | (318.4) | |
Total property, plant and equipment, net | $ | 246.0 | | | $ | 277.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| | 2020 | | 2019 | | 2020 | | 2019 |
Depreciation expense | | $ | 9.3 | | | $ | 11.1 | | | $ | 26.8 | | | $ | 29.9 | |
The Company reclassified to Assets held-for-sale, $19.3 million of primarily land and buildings for two properties that met all related criteria under U.S. GAAP as of September 30, 2020. The ultimate sale of these assets is expected to occur within one year from initial classification as Assets held-for-sale. Long-lived assets that meet the held-for-sale criteria are reported at the lower of their carrying value or fair value, less estimated costs to sell. The Company had no Assets held-for-sale as of December 31, 2019. Assets held-for-sale are recorded as current assets and are presented as a separate caption on the Company's Condensed Consolidated Balance Sheets.
NOTE 10. INTANGIBLE ASSETS
The following table details amounts related to our intangible assets, net:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2020 | | December 31, 2019 |
| Estimated Useful Life | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Finite-lived intangible assets: | | | | | | | | | |
Contractual arrangements | 5 years | | $ | 36.5 | | | $ | 22.4 | | | $ | 36.4 | | | $ | 17.3 | |
Intellectual property | 2-15 years | | 5.5 | | | 1.9 | | | 5.3 | | | 1.7 | |
Subtotal | | | 42.0 | | | 24.3 | | | 41.7 | | | 19.0 | |
Indefinite-lived intangible assets: | | | | | | | | | |
Trademarks and brand names | Indefinite | | 2.8 | | | | | 2.7 | | | |
Total intangible assets, net | | | $ | 44.8 | | | $ | 24.3 | | | $ | 44.4 | | | 19.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| | 2020 | | 2019 | | 2020 | | 2019 |
Amortization expense | | $ | 1.7 | | | $ | 1.7 | | | $ | 5.2 | | | $ | 5.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 | | 2023 | | 2024 |
Expected annual amortization expense | | $ | 7.0 | | | $ | 7.0 | | | $ | 3.7 | | | $ | 0.4 | | | $ | 0.4 | |
Armstrong Flooring, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
NOTE 11. LEASES
On October 16, 2020, we entered into a new lease for additional warehouse space. The term of the lease is five years and will commence on November 1, 2020. This lease will be recorded as an operating lease.
On June 26, 2020, we entered into new Headquarters (HQ)("HQ") and Technical Center lease agreements with High Properties. The term of the HQ lease will beis ten years and four months, with an anticipated commencement date of June 1, 2021.
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
The term of the Technical Center lease will beis ten years and seven months, with an anticipated commencement date of March 1, 2021. Both leases will be recorded as operating leases.
In the second quarter of 2019, we recognized $0.9 million and $1.6 million of sublease income and income from non-lease components, respectively, in SG&A expenses related to termination fees received from TZI due to the cancellation of a sublease before the end of the lease term.
NOTE 10.12. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table details amounts related to our accounts payable and accrued expenses:
| | | June 30, 2020 | | December 31, 2019 | | September 30, 2020 | | December 31, 2019 |
Payables, trade and other | $ | 83.9 |
| | $ | 70.5 |
| Payables, trade and other | $ | 78.2 | | | $ | 70.5 | |
Employment costs | 13.9 |
| | 13.8 |
| Employment costs | 14.7 | | | 13.8 | |
Other accrued expenses | 13.6 |
| | 16.8 |
| Other accrued expenses | 17.0 | | | 16.8 | |
Current operating lease liabilities | 3.5 |
| | 3.3 |
| Current operating lease liabilities | 2.9 | | | 3.3 | |
Total | $ | 114.9 |
| | $ | 104.4 |
| |
Income tax payable | | Income tax payable | 0.1 | | | 0 | |
Total accounts payable and accrued expenses | | Total accounts payable and accrued expenses | $ | 112.9 | | | $ | 104.4 | |
NOTE 11.13. DEBT
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Credit lines (international) | $ | 4.3 | | | $ | 0 | |
Insurance premiums financing | 2.0 | | | 0 | |
Short-term debt | 6.3 | | | 0 | |
Current installment of Term Loan Facility | 1.8 | | | 0 | |
Current installment of finance leases | 0.3 | | | 0.2 | |
Current installments of long-term debt | 2.1 | | | 0.2 | |
Noncurrent portion of Term Loan Facility | 68.2 | | | 0 | |
ABL Facility | 0 | | | 42.2 | |
Noncurrent portion of finance leases | 0.6 | | | 0.3 | |
Total principal balance outstanding | 68.8 | | | 42.5 | |
Less: Deferred financing costs, net | (6.7) | | | 0 | |
Long-term debt, net of unamortized debt issuance costs: | 62.1 | | | 42.5 | |
Total | $ | 70.5 | | | $ | 42.7 | |
Armstrong Flooring, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
|
| | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Credit Lines | $ | 4.2 |
| | $ | — |
|
ABL Facility | — |
| | 42.2 |
|
Current portion of Term Loan Facility | 0.9 |
| | — |
|
Current portion of finance lease | 0.2 |
| | 0.2 |
|
Noncurrent portion of Term Loan Facility | 69.1 |
| | — |
|
Noncurrent portion of finance leases | 0.5 |
| | 0.3 |
|
Total principal balance outstanding | 74.9 |
| | 42.7 |
|
Less: Deferred financing costs, net | (6.9 | ) | | — |
|
Total | $ | 68.0 |
| | $ | 42.7 |
|
On June 23, 2020, we entered into a Third Amendment to the ABL Credit Facility (the "Amendment""Amended ABL Credit Facility"), which reduces commitments from $100 million to $90 million, amends the interest rates applicable to the loans, modifies certain financial maintenance and other covenants, and permits indebtedness under the Term Loan Agreement defined below. The Amended ABL Credit Facility provides 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. The Amended ABL Credit Facility matures in December 2023.
The Amendment permits us to grant a first priority security interest in real estate, machinery and equipment and intellectual property collateral to Pathlight Capital LP (the "Term Loan Agent") (collectively, the “Term Loan Priority Collateral”). Bank of America, N.A., as administrative agent and collateral agent (in such capacities, the “ABL Agent”) will not have a security interest in the real property securing the Term Loan Agreement (as defined below) but will have a second priority security interest in machinery and equipment and intellectual property constituting Term Loan Priority Collateral.
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
Borrowings under the Amended ABL Credit Facility will bear interest at a rate per annum equal to, at our option, a base rate or a Eurodollar rate equal to the London interbank offered rate (“LIBOR”) for the relevant interest period, plus, in each case, an applicable margin determined in accordance with the provisions of the Amendment. 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 Amendment) and will range from 1.75% to 3.00% with respect to base rate borrowings and 2.75% to 4.00% 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.
In addition, the Amendment also amends certain financial covenants. The Amended ABL Credit Facility requires, among other things, that we maintain a minimum Consolidated Cash Flow (as defined in the Amendment) for the three-fiscal quarter period ending September 30, 2020 and for any four-fiscal quarter period ending thereafter, have minimum Availability (as defined in the Amended ABL Credit Facility) of $30 million and, during a Financial Covenant Trigger Period (as defined in the Amendment), maintain a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Amendment) of at least 1.00 to 1.00 (such covenants, the “Financial Covenants”).
On June 23, 2020 we also entered into a new term loan facility with Pathlight Capital LP as the administrative agent ("Term Loan Agreement"). The Term Loan Agreement provides us with a secured term loan credit facility of $70 million (the “Term Loan Facility”). The borrowing base is derived from the Company’s machinery and equipment, intellectual property and real property, subject to certain reserves and other limitations. The Term Loan Facility is scheduled to mature on June 23, 2025. The principal balance of the Term Loan Facility is payable in quarterly installments beginning in June 2021. We used the proceeds of the Term Loan Facility to pay down the Amended ABL Credit Facility.
Borrowings under the Term Loan Facility will bear interest at a rate per annum equal to LIBOR for a three-month interest period, plus an applicable margin of 12.00%.
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 Term Loan Facility, subject to specified exceptions, including the prepayment requirements with respect to the Amended ABL Credit Facility. Prepayments of loans under the Term Loan Facility prior to the third anniversary of the closing date are subject to certain premiums.
All obligations under the 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.
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.
Armstrong Flooring, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
In addition, the Term Loan Agreement requires us to comply with the amended ABL Credit Facility Financial Covenants.
The 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 Term Loan Facility and require repayment of all obligations thereunder.
The Company capitalized $6.9 million of fees related to the new term loan facility, all of which had been recorded and principally paid at June 30, 2020. The deferred financing costs will be amortized through 2025 over the life of the term loan facility.
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
NOTE 12.14. PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS
The following table summarizes our pension and postretirement expense:
| | | Three Months Ended June 30, | Six Months Ended June 30, | | Three Months Ended September 30 | | Nine Months Ended September 30 | |
| 2020 | | 2019 | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | |
Defined-benefit pension, U.S. | | | | | | Defined-benefit pension, U.S. | | | | | | | | |
Service cost | $ | 0.7 |
| | $ | 0.7 |
| $ | 1.3 |
| | $ | 1.3 |
| Service cost | $ | 0.6 | | | $ | 0.7 | | | $ | 1.9 | | | $ | 2.0 | | |
Interest cost | 3.1 |
| | 3.7 |
| 6.2 |
| | 7.5 |
| Interest cost | 3.2 | | | 3.7 | | | 9.4 | | | 11.2 | | |
Expected return on plan assets | (5.4 | ) | | (5.4 | ) | (10.7 | ) | | (10.8 | ) | Expected return on plan assets | (5.3) | | | (5.4) | | | (16.0) | | | (16.2) | | |
| Amortization of net actuarial loss | 2.5 |
| | 2.4 |
| 5.1 |
| | 4.8 |
| Amortization of net actuarial loss | 2.5 | | | 2.5 | | | 7.6 | | | 7.3 | | |
Total, defined-benefit pension, U.S. | $ | 0.9 |
| | $ | 1.4 |
| $ | 1.9 |
| | $ | 2.8 |
| Total, defined-benefit pension, U.S. | $ | 1.0 | | | $ | 1.5 | | | $ | 2.9 | | | $ | 4.3 | | |
Defined-benefit pension, Canada | | | | | | Defined-benefit pension, Canada | | | | | | | | |
Interest cost | $ | 0.1 |
| | $ | 0.2 |
| $ | 0.2 |
| | $ | 0.3 |
| Interest cost | $ | 0.1 | | | $ | 0.1 | | | $ | 0.3 | | | $ | 0.4 | | |
Expected return on plan assets | (0.2 | ) | | (0.2 | ) | (0.3 | ) | | (0.3 | ) | Expected return on plan assets | (0.1) | | | (0.2) | | | (0.4) | | | (0.5) | | |
Amortization of net actuarial loss | 0.1 |
| | — |
| 0.2 |
| | 0.1 |
| Amortization of net actuarial loss | 0.1 | | | 0.2 | | | 0.3 | | | 0.3 | | |
Total, defined-benefit pension, Canada | $ | — |
| | $ | — |
| $ | 0.1 |
| | $ | 0.1 |
| Total, defined-benefit pension, Canada | $ | 0.1 | | | $ | 0.1 | | | $ | 0.2 | | | $ | 0.2 | | |
Defined-benefit postretirement, U.S. | | | | | | Defined-benefit postretirement, U.S. | | | | | | | | |
Service cost | $ | — |
| | $ | — |
| $ | — |
| | $ | 0.1 |
| Service cost | $ | 0 | | | $ | 0.1 | | | $ | 0 | | | $ | 0.2 | | |
Interest cost | 0.5 |
| | 0.7 |
| 1.0 |
| | 1.3 |
| Interest cost | 0.5 | | | 0.6 | | | 1.5 | | | 1.9 | | |
Amortization of prior service credits | (0.1 | ) | | — |
| (0.2 | ) | | — |
| Amortization of prior service credits | 0 | | | 0 | | | (0.2) | | | 0 | | |
Amortization of net actuarial gains | (1.2 | ) | | (0.8 | ) | (2.4 | ) | | (1.6 | ) | Amortization of net actuarial gains | (1.2) | | | (0.8) | | | (3.6) | | | (2.4) | | |
Total, defined-benefit postretirement, U.S. | $ | (0.8 | ) | | $ | (0.1 | ) | $ | (1.6 | ) | | $ | (0.2 | ) | Total, defined-benefit postretirement, U.S. | $ | (0.7) | | | $ | (0.1) | | | $ | (2.3) | | | $ | (0.3) | | |
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
NOTE 13. COMMON STOCK REPURCHASE PLAN
On March 6, 2017, we announced that our board of directors had approved a share repurchase program pursuant to which we were authorized to repurchase up to $50.0 million of our outstanding shares of common stock. From inception of the share repurchase program through May 3, 2019, we repurchased approximately 2.5 million shares 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 of directors 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.
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 $11.40 per share, for a total cost of $51.3 million, including fees and expenses. After the completion of the tender offer, we have no remaining authorization to purchase further shares.
NOTE 14.15. ACCUMULATED OTHER COMPREHENSIVE (LOSS)
The following table summarizes the activity, by component, related to the change in AOCI.Accumulated other comprehensive (loss).
|
| | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Derivative Adjustments | | Pension and Postretirement Adjustments | | Total Accumulated Other Comprehensive (Loss) Income |
Balance, December 31, 2019 | $ | (0.5 | ) | | $ | (0.6 | ) | | $ | (73.6 | ) | | $ | (74.7 | ) |
Other comprehensive (loss) income before reclassifications, net of tax impact of $ − in all periods | (0.9 | ) | | 0.7 |
| | 0.2 |
| | — |
|
Amounts reclassified from accumulated other comprehensive income | — |
| | (0.3 | ) | | 2.0 |
| | 1.7 |
|
Net current period other comprehensive (loss) income | (0.9 | ) | | 0.4 |
| | 2.2 |
| | 1.7 |
|
Balance, June 30, 2020 | $ | (1.4 | ) | | $ | (0.2 | ) | | $ | (71.4 | ) | | $ | (73.0 | ) |
| | | | | | | |
Balance, December 31, 2018 | $ | 1.7 |
| | $ | 0.8 |
| | $ | (64.1 | ) | | $ | (61.6 | ) |
Other comprehensive (loss) before reclassifications, net of tax impact of $- , $0.3, ($0.8), and ($0.5) | (0.6 | ) | | (0.4 | ) | | (0.8 | ) | | (1.8 | ) |
Amounts reclassified from accumulated other comprehensive income | — |
| | (0.4 | ) | | 2.6 |
| | 2.2 |
|
Net current period other comprehensive (loss) income | (0.6 | ) | | (0.8 | ) | | 1.8 |
| | 0.4 |
|
Balance, June 30, 2019 | $ | 1.1 |
| | $ | — |
| | $ | (62.3 | ) | | $ | (61.2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Derivative Adjustments | | Pension and Postretirement Adjustments | | Total Accumulated Other Comprehensive (Loss) Income |
Balance, December 31, 2019 | $ | (0.5) | | | $ | (0.6) | | | $ | (73.6) | | | $ | (74.7) | |
Other comprehensive income before reclassifications, net of tax impact of $ −, $0.1, $- and $0.1, respectively | 2.7 | | | 0.4 | | | 0 | | | 3.1 | |
Amounts reclassified from accumulated other comprehensive (loss), net of tax | 0 | | | (0.3) | | | 3.1 | | | 2.8 | |
Net current period other comprehensive income | 2.7 | | | 0.1 | | | 3.1 | | | 5.9 | |
Balance, September 30, 2020 | $ | 2.2 | | | $ | (0.5) | | | $ | (70.5) | | | $ | (68.8) | |
| | | | | | | |
Balance, December 31, 2018 | $ | 1.7 | | | $ | 0.8 | | | $ | (64.1) | | | $ | (61.6) | |
Other comprehensive (loss) before reclassifications, net of tax impact of $ - , $0.2, $(0.2), and $ -, respectively | (4.3) | | | (0.1) | | | (0.4) | | | (4.8) | |
Amounts reclassified from accumulated other comprehensive (loss) income | 0 | | | (0.6) | | | 4.1 | | | 3.5 | |
Net current period other comprehensive (loss) income | (4.3) | | | (0.7) | | | 3.7 | | | (1.3) | |
Balance, September 30, 2019 | $ | (2.6) | | | $ | 0.1 | | | $ | (60.4) | | | $ | (62.9) | |
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
The amounts reclassified from AOCIAccumulated other comprehensive (loss) and the affected line item of the Condensed Consolidated Statements of Operations are presented in the table below.
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 | | Affected Line Item |
Derivative adjustments | | | | | | | | | |
Foreign exchange contracts - purchases | $ | (0.1 | ) | | $ | (0.1 | ) | | $ | (0.2 | ) | | $ | (0.2 | ) | | Cost of goods sold |
Foreign exchange contracts - sales | (0.1 | ) | | (0.1 | ) | | (0.1 | ) | | (0.2 | ) | | Net sales |
Total (income) before tax | (0.2 | ) | | (0.2 | ) | | (0.3 | ) | | (0.4 | ) | | |
Tax impact | — |
| | — |
| | — |
| | — |
| | Income tax (benefit) |
Total (income), net of tax | (0.2 | ) | | (0.2 | ) | | (0.3 | ) | | (0.4 | ) | | |
Pension and postretirement adjustments | | | | | | | | | |
Prior service cost amortization | (0.2 | ) | | — |
| | (0.2 | ) | | — |
| | Other expense, net |
Amortization of net actuarial loss | 1.5 |
| | 1.6 |
| | 2.9 |
| | 3.3 |
| | Other expense, net |
Tax impact | (0.4 | ) | | (0.3 | ) | | (0.7 | ) | | (0.7 | ) | | Income tax (benefit) |
Total expense, net of tax | 0.9 |
| | 1.3 |
| | 2.0 |
| | 2.6 |
| | |
Total reclassifications for the period | $ | 0.7 |
| | $ | 1.1 |
| | $ | 1.7 |
| | $ | 2.2 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 | | | | |
| 2020 | | 2019 | | 2020 | | 2019 | | | | | | Affected Line Item |
Derivative adjustments: | | | | | | | | | | | | | |
Foreign exchange contracts - purchases | $ | 0 | | | $ | (0.1) | | | $ | (0.2) | | | $ | (0.3) | | | | | | | Cost of goods sold |
Foreign exchange contracts - sales | 0 | | | (0.1) | | | (0.1) | | | (0.3) | | | | | | | Net sales |
Total before tax | 0 | | | (0.2) | | | (0.3) | | | (0.6) | | | | | | | |
Tax impact | 0 | | | 0 | | | 0 | | | 0 | | | | | | | Income tax expense (benefit) |
Total reclassifications of derivative adjustments, net of tax | 0 | | | (0.2) | | | (0.3) | | | (0.6) | | | | | | | |
| | | | | | | | | | | | | |
Pension and postretirement adjustments: |
Prior service cost amortization | 0 | | | 0 | | | (0.2) | | | 0 | | | | | | | Other (income) expense, net |
Amortization of net actuarial loss | 1.4 | | | 1.9 | | | 4.3 | | | 5.2 | | | | | | | Other (income) expense, net |
Total before tax | 1.4 | | | 1.9 | | | 4.1 | | | 5.2 | | | | | | | |
Tax impact | (0.3) | | | (0.4) | | | (1.0) | | | (1.1) | | | | | | | Income tax expense (benefit) |
Total reclassifications of pension and postretirement adjustments, net of tax | 1.1 | | | 1.5 | | | 3.1 | | | 4.1 | | | | | | | |
| | | | | | | | | | | | | |
Total reclassifications for the period, net of tax | $ | 1.1 | | | $ | 1.3 | | | $ | 2.8 | | | $ | 3.5 | | | | | | | |
Armstrong Flooring, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions, except per share data)
NOTE 15.16. LITIGATION AND RELATED MATTERS
Environmental MattersMatters.
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 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.
Armstrong Flooring, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(Dollars in millions, except per share data)
Summary of Financial Position
There were 0no material liabilities recorded as of JuneSeptember 30, 2020 and December 31, 2019 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 products, intellectual property, relationships with suppliers, relationships with distributors, relationships with competitors, employees and other matters. For example, we are currently a party to various litigation matters that involve product liability, tort liability and other claims under a wide range of allegations, including illness due to exposure to certain chemicals used in the workplace, or medical conditions arising from exposure to product ingredients or the presence of trace contaminants. In some cases, these allegations involve multiple defendants and relate to legacy products that we and other defendants purportedly manufactured or sold. We believe these claims and allegations to be without merit and intend to defend them vigorously. For these matters, we also may have rights of contribution or reimbursement from other parties or coverage under applicable insurance policies.
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 March 2, 2020, the court issued an order appointing a lead plaintiff and lead counsel. On July 2, 2020, the lead plaintiff filed an amended complaint asserting similar violations and expanding the alleged class period to cover alleged false and/or misleading statements or omissions made between March 6, 2018 and March 3, 2020. On August 17, 2020, the Company moved to dismiss the amended complaint, and the lead plaintiff filed an opposition on October 1, 2020. We cannot predict the duration or outcome of this suit at this time. As a result, we are unable to estimate the reasonably possible loss arising from this lawsuit. The Company intends to continue vigorously defenddefending itself in this matter.
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying Condensed Consolidated Financial Statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. This interim MD&A should be read in conjunction with the MD&A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Executive Overview
Armstrong Flooring, Inc. ("AFI" or the "Company") is 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 JuneSeptember 30, 2020, we operated eight manufacturing plants in three countries. We operate six manufacturing plants located throughout the United States (California, Illinois, Mississippi, Oklahoma, and Pennsylvania) and one plant each in China and Australia. As of September 30, 2020 and December 31, 2019, we had approximately 1,700 and 1,600 full-time and part-time employees worldwide, respectively.
During early 2020, the Company established a multi-year strategic roadmap to transform and modernize its operations to become a leaner, faster-growing and more profitable business. The transformation encompasses three critical objectives: (i) expanding customer reach; (ii) simplifying product offerings and operations; and (iii) strengthening core capabilities. In addition, the Company has implemented a new operating model to more effectively accomplish these objectives by: (i) placing customers first by aligning services and products through a more seamless value chain; (ii) leading 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.
To date, the Company has (i) announced the relocation of its corporate headquarters, effective summer 2021, with estimated cost savings of approximately 60% annually; (ii) begun the process of consolidating U.S. manufacturing facilities with the intent to monetize non-core assets; (iii) executed product portfolio simplification and inventory optimization initiatives; (iv) commenced manufacturing projects aimed at improving efficiency; (v) begun to focus on enhancing customer experiences through new methods of customer interactions and communication as well as the introduction of a quick-ship program; and (vi) invested in product innovations with a focus on U.S.-based manufacturing. The Company has incurred approximately $1 million and $3 million in incremental costs associated with the above business transformation initiatives during the third quarter and nine months ended September 30, 2020, respectively.
In June 2020, the Company amended its senior secured asset-based revolving credit facility, modifying the facility size to $90.0 million with a maturity date in 2023. Additionally, the Company entered into a $70 million term loan facility maturing in 2025 to further strengthen its capital resources for business transformation and growth initiatives. The Company capitalized $6.9 million of fees related to the new term loan facility, all of which had been paid at June 30, 2020. The deferred financing costs will be amortized through 2025 over the life of the term loan facility.
COVID-19
The COVID-19 pandemic is significantly impacting our business and results of operations. We are committed to safeguarding our employees and the communities in which we operate, while continuing to deliver our products to customers. We are following guidelines and directives from governmental authorities and local health authorities across our facilities to continue to operate safely and responsibly. This includes working remotely, providing personal protective equipment, limiting group meetings, restricting air travel, enhancing cleaning and sanitizing procedures, and practicing social distancing, among other risk mitigation measures.
Our China plant was closed most of the month of February 2020. On April 1, 2020, we announced a proactive two-week production suspension in our North America plants beginning April 5, 2020 in response to the increasing social and economic impact of COVID-19. We continued to operate our warehouses. We reopened our North America plants as planned following the two-week shut-down. Our plants in China and Australia continued their operations during the secondthird quarter. However, beginning in August 2020 the Company's Australia plant began to operate at approximately 60% capacity due to additional governmental restrictions. We have not experienced, and do not anticipate, material availability issues related to our raw materials or finished goods.
To help mitigate the potential spread of the virus, our North America sales team and corporate staff are working remotely and will continue to do so.so indefinitely. In the second quarter we furloughed approximately 100 employees, primarily administrative employees from our corporate headquarters. Most of the furloughed employees returned in July 2020. In addition, the employer match for certain benefit plans was suspended through the end of the third quarter of 2020 for salaried non-production employees.
Inconsistent state and local government orders have resulted in and will continue to have varying impacts to our results across geographies and for some of our customers. In some cases independent customer retail locations are closed. Generally, home centers have continued to operate. Construction is considered an essential business in most of North America. However, some of our customers' commercial projects in the retail, sectoroffice, medical and educational sectors have been 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.
EmployeesOutlook
AsLooking forward, the Company remains committed to profitable growth over the medium and long-term, however results will be negatively impacted by COVID-19 for at least the remainder of June 30, 2020, and into early 2021, primarily in the commercial markets served by the Company as well as costs associated with Company's on-going business transformation initiatives. The Company's view for the remainder of 2020 and beyond is supported by the below factors, which should be considered in the context of other risks, trends and strategies described in this Quarterly Report, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 we had approximately 1,500 and 1,600 full-timein the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2020:
•The Company expects inventory levels to increase in the short-term to support the new quick-ship program and part-time employees worldwide, respectively.initiatives to consolidate manufacturing operations.
•Operating results in the short-term will negatively be impacted by incremental expenses necessary to execute the Company's business transformation initiatives. •The Company remains committed to generating positive operating cash flow in 2022.
Factors Affecting Our Business
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net Sales
Overview
Demand for our products is influenced by economic conditions. We closely monitor publicly available macroeconomic trend data that provide insight 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. 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.
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 much of the industry. We continue to see efforts by various competitors to price aggressively as a means to gain market share.
We continue to see a decline in demand for our traditional resilient products, including VCTvinyl composition tile ("VCT") and, particularly, vinyl sheet products used in residential applications. The decline in vinyl sheet is driven by consumer trends, which have continued to favor alternate products, including luxury vinyl tile ("LVT") products. We are the largest producer of VCT which is primarily used in commercial environments.
The flooring market continues to experience LVT growth. Given its attractive visuals and performance characteristics, LVT growth has exceeded 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.
We are the largest producer
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 applies retroactively to September 24, 2018. We filed for tariff refunds on these products in 2020. Additional products were added to the exclusion in the second quarter of 2020, also retroactive to September 24, 2018. The exclusions are scheduled to expireexpired in August 2020. In addition, we reduced pricesWe filed for tariff refunds on select impactedthese products in the fourth quarter2020 and record refunds as a reduction of 2019.previously recorded expense once formal approval is received.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Condensed Consolidated Results from Continuing Operations
Below is a summary of comparative results of operations for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 | | |
| | | Change | | | | | | Change | | | | |
(Dollars in millions) | 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % | | | | | | | | |
Net sales | $ | 156.6 | | | $ | 165.6 | | | $ | (9.0) | | | (5.4) | % | | $ | 440.9 | | | $ | 485.0 | | | $ | (44.1) | | | (9.1) | % | | | | | | | | |
Cost of goods sold | 129.0 | | | 153.8 | | | (24.8) | | | (16.1) | % | | 365.3 | | | 414.9 | | | (49.6) | | | (12.0) | % | | | | | | | | |
Gross profit | 27.6 | | | 11.8 | | | 15.8 | | | NM* | | 75.6 | | | 70.1 | | | 5.5 | | | 7.8 | % | | | | | | | | |
Selling, general and administrative expenses | 37.7 | | | 40.0 | | | (2.3) | | | (5.8) | % | | 104.6 | | | 110.2 | | | (5.6) | | | (5.1) | % | | | | | | | | |
Operating (loss) | (10.1) | | | (28.2) | | | 18.1 | | | (64.2) | % | | (29.0) | | | (40.1) | | | 11.1 | | | (27.7) | % | | | | | | | | |
Interest expense | 2.8 | | | 0.8 | | | 2.0 | | | | | 4.6 | | | 2.7 | | | 1.9 | | | | | | | | | | | |
Other (income) expense, net | (1.5) | | | 0.7 | | | (2.2) | | | | | (2.4) | | | 1.2 | | | (3.6) | | | | | | | | | | | |
(Loss) from continuing operations before income taxes | (11.4) | | | (29.7) | | | 18.3 | | | | | (31.2) | | | (44.0) | | | 12.8 | | | | | | | | | | | |
Income tax expense (benefit) | 0.3 | | | — | | | 0.3 | | | | | — | | | (3.0) | | | 3.0 | | | | | | | | | | | |
Net (loss) from continuing operations | (11.7) | | | (29.7) | | | 18.0 | | | | | (31.2) | | | (41.0) | | | 9.8 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income from discontinued operations | — | | | (1.7) | | | 1.7 | | | | | — | | | 7.6 | | | (7.6) | | | | | | | | | | | |
Net (loss) | $ | (11.7) | | | $ | (31.4) | | | $ | 19.7 | | | | | $ | (31.2) | | | $ | (33.4) | | | $ | 2.2 | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| | | Change | | | | | | Change |
(Dollars in millions) | 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | $ | | % |
Net sales | $ | 145.6 |
| | $ | 177.7 |
| | $ | (32.1 | ) | | (18.1 | )% | | $ | 284.3 |
| | $ | 319.4 |
| | $ | (35.1 | ) | | (11.0 | )% |
Cost of goods sold | 120.9 |
| | 141.5 |
| | (20.6 | ) | | (14.6 | )% | | 236.3 |
| | 261.1 |
| | (24.8 | ) | | (9.5 | )% |
Gross profit | 24.7 |
| | 36.2 |
| | (11.5 | ) | | (31.8 | )% | | 48.0 |
| | 58.3 |
| | (10.3 | ) | | (17.7 | )% |
Selling, general and administrative expenses | 30.3 |
| | 32.5 |
| | (2.2 | ) | | (6.8 | )% | | 66.9 |
| | 70.2 |
| | (3.3 | ) | | (4.7 | )% |
Operating (loss) income | (5.6 | ) | | 3.7 |
| | (9.3 | ) | | NM* |
| | (18.9 | ) | | (11.9 | ) | | (7.0 | ) | | NM* |
Interest expense | 1.2 |
| | 0.9 |
| | 0.3 |
| | | | 1.8 |
| | 1.9 |
| | (0.1 | ) | | |
Other (income) expense, net | (0.5 | ) | | 0.2 |
| | (0.7 | ) | | | | (0.9 | ) | | 0.5 |
| | (1.4 | ) | | |
(Loss) income from continuing operations before income taxes | (6.3 | ) | | 2.6 |
| | (8.9 | ) | | | | (19.8 | ) | | (14.3 | ) | | (5.5 | ) | | |
Income tax (benefit) | — |
| | (2.7 | ) | | 2.7 |
| | | | (0.3 | ) | | (3.0 | ) | | 2.7 |
| | |
Net (loss) income from continuing operations | (6.3 | ) | | 5.3 |
| | (11.6 | ) | | | | (19.5 | ) | | (11.3 | ) | | (8.2 | ) | | |
Gain on disposal of discontinued operations, net of tax | — |
| | 9.4 |
| | (9.4 | ) | | | | — |
| | 9.3 |
| | (9.3 | ) | | |
Net income from discontinued operations | — |
| | 9.4 |
| | (9.4 | ) | | | | — |
| | 9.3 |
| | (9.3 | ) | | |
Net (loss) income | $ | (6.3 | ) | | $ | 14.7 |
| | $ | (21.0 | ) | | | | $ | (19.5 | ) | | $ | (2.0 | ) | | $ | (17.5 | ) | | |
NM*: not meaningful
Three months ended JuneSeptember 30, 2020 compared to Junethree months ended September 30, 2019
Net sales
Net sales by percentage point change are shown in the table below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Change | | Percentage Point Change Due to |
|
| (Dollars in millions) | 2020 | | 2019 | | $ | | % | | Price | | Volume | | Mix | | Currency |
| | $ | 145.6 |
| | $ | 177.7 |
| | $ | (32.1 | ) | | (18.1 | )% | | (2.4 | ) | | (15.3 | ) | | 0.4 |
| | (0.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Change | | Percentage Point Change Due to |
|
(Dollars in millions) | 2020 | | 2019 | | $ | | % | | Price | | Volume | | Mix | | Currency |
| $ | 156.6 | | | $ | 165.6 | | | $ | (9.0) | | | (5.4) | % | | 0.4 | % | | (5.3) | % | | 0.3 | % | | (0.8) | % |
Net sales for the three months ended JuneSeptember 30, 2020 decreased compared to the three months ended JuneSeptember 30, 2019 primarily attributable to lower sales volumes 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 three months ended September 30, 2020 was 82.4% of net sales compared to 92.9% of net sales in the three months ended September 30, 2019. For the three months ended September 30, 2020, costs of goods sold decreased compared to the three months ended September 30, 2019. The decrease was primarily attributable to lower sales volume due to COVID-19 pandemic related business disruptions and a prior year $13.6 million inventory write-down adjustment related to a multi-year inventory optimization that did not repeat during 2020.
Selling, general & administrative expenses
Selling, general and administrative expenses for the three months ended September 30, 2020 decreased compared to the three months ended September 30, 2019 due to cost reduction measures implemented in response to the impact of COVID-19, lower executive transition costs and lower advertising and promotion; partially offset by the net impact of income from a transition services agreement and a $6.0 million write-off of merchandising materials in three months ended September 30, 2019 that did not repeat during 2020.
Interest expense
For the three months ended September 30, 2020, interest expense increased compared to the three months ended September 30, 2019 due to higher interest rates on debt outstanding resulting from the Company's June 2020 refinancing.
Income tax
We recorded income tax expense of $0.3 million for the three months ended September 30, 2020 compared to no income tax expense for the three months ended September 30, 2019. The current year income tax expense consists of U.S. income tax benefit offset by a foreign income tax expense from various jurisdictions. The U.S. income tax benefit relates to a reduction in the Company’s valuation allowance due to the tax impact of the gains in other comprehensive income.
Discontinued operations
For the three months ended September 30, 2019, a $1.7 million loss on disposal of discontinued operations was primarily related to the working capital adjustment.
Nine months ended September 30, 2020 compared to September 30, 2019
Net sales
Net sales by percentage point change are shown in the table below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30 | | Change | | Percentage Point Change Due to |
|
(Dollars in millions) | 2020 | | 2019 | | $ | | % | | Price | | Volume | | Mix | | Currency |
| $ | 440.9 | | | $ | 485.0 | | | $ | (44.1) | | | (9.1) | % | | (1.6) | % | | (8.0) | % | | 0.9 | % | | (0.4) | % |
Net sales for the nine months ended September 30, 2020 decreased compared to the nine months ended September 30, 2019 primarily attributable to lower sales volumes due to the COVID-19 pandemic and shelter-in-place related business disruptions, including the temporary closing of many independent customer retail locations and the postponement of certain commercial projects, partially offset by increased activity with home centers.centers and other residential channels.
Cost of goods sold
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cost of goods sold for the threenine months ended JuneSeptember 30, 2020 was 83.0%82.9% of net sales compared to 79.6%85.5% of net sales in the threenine months ended JuneSeptember 30, 2019. For the nine months ended September 30, 2020, costs of goods sold decreased compared to the nine months ended September 30, 2019. The changedecrease was primarily due to lower sales volumevolumes and a prior year $13.6 million inventory write-down adjustment related reduction in production capacity, which led to accelerated recognition of period expenses in cost of sales.a multi-year inventory optimization that did not repeat during 2020.
.
Selling, general & administrative expenses
Selling, general and administrative expenses for the threenine months ended JuneSeptember 30, 2020 decreased compared to the threenine months ended JuneSeptember 30, 2019 due to cost reduction measures implemented in response to the impact of COVID-19 and lower executive transition costs, partially offset by $4.7 millionthe net impact of income from a transition service agreement, and a $2.5 million benefit from an early lease termination fee and a $6.0 million write-off of merchandising materials in 2019.the nine months ended September 30, 2019, none of which repeated in the current period.
Interest expense
For the nine months ended September 30, 2020, interest expense increased compared to the nine months ended September 30, 2019 due to higher interest rates on debt outstanding resulting from the Company's June 2020 refinancing.
Income tax benefit
There was noNo income tax benefit was recorded for the threenine months ended JuneSeptember 30, 2020 compared to income tax benefit of $2.7$3.0 million for the threenine months ended JuneSeptember 30, 2019. The prior yeareffective tax benefit was duerate for the nine months ended September 30, 2020 is 0.3% compared to a reductionthe rate of 6.8% for the same period of 2019. The change in our U.S. valuation allowance due toeffective rates is primarily driven by the tax impact of the gain on disposal of discontinued operations resultinggains from athe resolution of our antidumping case.case reported as discontinued operations in 2019.
Discontinued operations
For the threenine months ended JuneSeptember 30, 2019, a $9.4$7.6 million gain on disposal of discontinued operations was realized, primarily due to the resolution of an antidumping case.
Six months ended June 30, 2020 compared to June 30, 2019
Net sales
Net sales by percentage point change are shown in the table below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change | | Percentage Point Change Due to |
|
(Dollars in millions) | 2020 | | 2019 | | $ | | % | | Price | | Volume | | Mix | | Currency |
| $ | 284.3 |
| | $ | 319.4 |
| | $ | (35.1 | ) | | (11.0 | )% | | (2.2 | ) | | (9.3 | ) | | 1.1 |
| | (0.6 | ) |
Net sales for the six months ended June 30, 2020 decreased compared to the six months ended June 30, 2019 primarily attributable to lower volumes due to the COVID-19 pandemic and shelter-in-place related business disruptions, including the temporary closing of many independent customer retail locations and the postponement of certain commercial projects, partially offset by increased activity with home centers.
Cost of goods sold
Cost of goods sold for the six months ended June 30, 2020 was 83.1% of net sales compared to 81.7% of net sales in the six months ended June 30, 2019. The change was primarily due to lower sales volume and related reduction in production capacity, which led to accelerated recognition of period expenses in cost of sales.
Selling, general & administrative expenses
Selling, general and administrative expenses for the six months ended June 30, 2020 decreased compared to the six months ended June 30, 2019 due to cost reduction measures implemented in response to the impact of COVID-19 and lower executive transition costs, partially offset by $9.3 million of income from a transition service agreement and a $2.5 million benefit from an early lease termination fee in 2019.
Income tax benefit
Income tax benefit was $0.3 million for the six months ended June 30, 2020 compared to income tax benefit of $3.0 million for the six months ended June 30, 2019. The effective tax rate for the six months ended June 30, 2020 of 1.5%
Management’s Discussion and Analysis of Financial Condition and Results of Operations
compared to the rate of 21.0% for the same period of 2019. The change in effective rates is primarily driven by the mix of income among tax jurisdictions and the effects of unbenefitted losses.
Discontinued operations
For the six months ended June 30, 2019, a $9.3 million gain on disposal of discontinued operations was realized, primarily due to the resolution of an antidumping case.
Liquidity and Capital Resources
Our primary sources of liquidity are, and we anticipate that they will continue to be, proceeds from asset sales and borrowings under our credit facilities. We believe these sources are sufficient to fund our capital needs and planned capital expenditures, and to meet our interest and other contractual obligations in the near term. Our liquidity needs for operations vary throughout the year with the majority of our cash flows typically generated in
During the second and third quarters.
Cash and cash equivalents totaled $34.1 million asquarter of June 30, 2020, of which $17.2 million was held in the U.S.
Cash Flows
The table below shows our cash (used for) provided by operating, investing and financing activities:
|
| | | | | | | |
(Dollars in millions) | Six Months Ended June 30, |
2020 | | 2019 |
Cash (used for) operating activities | $ | (6.9 | ) | | $ | (33.8 | ) |
Cash (used for) investing activities | (10.9 | ) | | (15.5 | ) |
Cash provided by (used for) financing activities | 25.0 |
| | (79.1 | ) |
Operating activities
Operating activities for the six months ended June 30, 2020 used $6.9 million. Cash was used primarily by net changes in working capital, primarily inventories and receivables, partially offset by accounts payable and accrued expenses and net non-cash expenses, primarily depreciation and amortization. Operating activities for the six months ended June 30, 2019 used $33.8 million of cash, primarily due to a reduction in accounts payable and accrued expenses and an increase in receivables, partially offset by net non-cash expenses, primarily depreciation and amortization.
Investing activities
Net cash used for investing activities of $10.9 million and $15.5 million for the six months ended June 30, 2020 and 2019, respectively, reflected purchases of property, plant and equipment.
Financing activities
Net cash provided by financing activities for the six months ended June 30, 2020 was $25.0 million. Cash provided primarily reflected the borrowings under our Term Loan Agreement and ABL Credit Facility, partially offset by payments to our ABL Credit Facility. Net cash used in the six months ended June 30, 2019 was $79.1 million, and primarily reflected purchases of treasury stock and repayments of our revolving credit facility.
Debt
On June 23, 2020 weCompany entered into a Third Amendment to the ABL Credit Facility (the "Amendment""Amended ABL Credit Facility"), and entered into a new term loan facility with Pathlight Capital LP as the administrative agent ("Term Loan Agreement) which provides us with a secured term loan credit facility of $70 million (the “Term Loan Facility”). We used the proceeds of the Term Loan Facility to pay down the Amended ABL Credit Facility.
All obligations under the Amended ABL Credit Facility and Term Loan Facility 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 Amended ABL Credit Facility and Term Loan Facility, 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 Amended ABL Credit Facility, Term Loan Facility and other security and collateral documents.
Amended ABL Credit Facility
On June 23, 2020 we entered into the Amendment, which reduces commitments from $100 million to $90 million, amends the interest rates applicable to the loans, modifies certain financial maintenance and other covenants, and permits indebtedness under the Term Loan Agreement defined below.Agreement. The Amended ABL Credit Facility provides for a borrowing base that is derived from our accounts receivable and inventory, collectively, with the equity interests in the guarantors, the Amended ABL Priority Collateral, subject to certain reserves and other limitations. The Amended ABL Credit Facility matures in December 2023.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The Amendment permits us to grant a first priority security interest in real estate, machinery and equipment and intellectual property collateral to the Term Loan Agent (collectively, the “Term Loan Priority Collateral”). Bank of America, N.A., as administrative agent and collateral agent (in such capacities, the “ABL Agent”) will not have a security interest in the real property securing the Term Loan Agreement (as defined below) but will have a second priority security interest in machinery and equipment and intellectual property constituting Term Loan Priority Collateral.
Borrowings under the Amended ABL Credit Facility will bear interest at a rate per annum equal to, at our option, a base rate or a Eurodollar rate equal to the London interbank offered rate (“LIBOR”) for the relevant interest period, plus, in each case, an applicable margin determined in accordance with the provisions of the Amendment. 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 Amendment) and will range from 1.75% to 3.00% with respect to base rate borrowings and 2.75% to 4.00% 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.Ratio (as defined in the Amendment).
In addition, the Amendment also amendsmodifies certain financial covenants. The Amended ABL Credit Facility requires, among other things, that we maintain a minimum Consolidated Cash Flow (as defined in the Amendment) for the three-fiscal quarter period ending September 30, 2020 and for any four-fiscal quarter period ending thereafter, have minimum Availability (as defined in the Amended ABL Credit Facility) of $30 million and, during a Financial Covenant Trigger Period (as defined in the Amendment), maintain a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Amendment) of at least 1.00 to 1.00 (such covenants, the “Financial Covenants”).
Term Loan Facility
On June 23, 2020 we also entered into a new term loan facility with Pathlight Capital LP as the administrative agent ("Term Loan Agreement"). The Term Loan Agreement provides us with a secured term loan credit facility of $70 million (the “Term Loan Facility”).Agreement. The borrowing base is derived from the Company’s machinery and equipment, intellectual property and real property, subject to certain reserves and other limitations. The Term Loan Facility is scheduled to mature on June 23, 2025. The principal balance of the Term Loan Facility is payable in quarterly installments beginning in June 2021. We used the proceeds of the Term Loan Facility to pay down the Amended ABL Credit Facility.
Borrowings under the Term Loan Facility will bear interest at a rate per annum equal to LIBOR for a three-month interest period, plus an applicable margin of 12.00%.
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 Term Loan Facility, subject to specified exceptions, including the prepayment requirements with respect to the Amended ABL Credit Facility. Prepayments of loans under the Term Loan Facility prior to the third anniversary of the closing date are subject to certain premiums.
All obligations under the 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.
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.
In addition, the Term Loan Agreement requires us to comply with the Amended ABL Credit Facility Financial Covenants.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The 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 Term Loan Facility and require repayment of all obligations thereunder.
Cash Flow Summary
The table below shows our cash (used for) provided by operating, investing and financing activities:
| | | | | | | | | | | |
(Dollars in millions) | Nine Months Ended September 30 |
2020 | | 2019 |
Cash (used for) operating activities | $ | (16.3) | | | $ | (1.8) | |
Cash (used for) investing activities | (15.1) | | | (24.8) | |
Cash provided by (used for) financing activities | 26.3 | | | (80.1) | |
Operating Activities - Net cash used for operating activities for the nine months ended September 30, 2020 was $16.3 million, an increase of $14.5 million from the nine months ended September 30, 2019. The increase was primarily related to lower net cash income and changes in working capital, primarily inventory, other asset and liabilities and receivables, partially offset by accounts payable and accrued expenses.
Investing Activities - Net cash used for investing activities for the nine months ended September 30, 2020 was $15.1 million , a decrease of $9.7 million from the nine months ended September 30, 2019. The decrease is primarily due to decreased capital spending during 2020.
Financing Activities - Net cash provided by financing activities for the nine months ended September 30, 2020 was $26.3 million, an increase of $106.4 million from net cash used by financing activities for the nine months ended September 30, 2019. The increase was the result of higher cash borrowings resulting from the Company's debt refinancing during the second quarter of 2020 as well as treasury stock repurchases in the prior year that did not repeat during 2020.
Sources and Uses of Cash
Our primary sources of liquidity are, and we anticipate that they will continue to be, cash provided by operations, proceeds from asset sales and borrowings under our credit facilities. We believe these sources are sufficient to fund our capital needs and planned capital expenditures, and to meet our interest and other contractual obligations in the near term. Our liquidity needs for operations vary throughout the year with the majority of our cash flows typically generated in the second and third quarters.
As of JuneSeptember 30, 2020, there were no borrowings outstanding under our Amended ABL Credit Facility, while outstanding letters of credit were $3.9 million. Total net availability under the Amended ABL Credit Facility and Term Loan Facility as of JuneSeptember 30, 2020 was $82.3$83.4 million. During the fourth quarter of 2020 there will be a reduction in available liquidity of $30 million until such time as the Company is able to sell the South Gate, CA facility.
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 JuneSeptember 30, 2020. 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 2.375%4.125% as of JuneSeptember 30, 2020.
All obligations under the Amended ABL Credit Facility and Term Loan Facility 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 Amended ABL Credit Facility and Term Loan Facility, 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 Amended ABL Credit Facility, Term Loan Facility and other security and collateral documents.
Due to its stated five-year maturity, this obligation is presented as a long-term obligation in our Condensed Consolidated Balance Sheet. However, we may repay this obligation at any time, without penalty.
Our foreign subsidiaries had available lines of credit totaling $8.5 million;$8.8 million and there were $4.2was $4.3 million of borrowings under these lines of credit as of JuneSeptember 30, 2020.
Debt Covenants
The Amendment also amends certain financial covenants. The Amended ABL Credit Facility and the Term Loan Facility require, among other things, that we maintain a minimum Consolidated Cash Flow (as defined in the Amendment) for the three-fiscal quarter period ending September 30, 2020 and for any four-fiscal quarter period ending thereafter, have minimum Availability (as defined in the Amended ABL Credit Facility) of $30 million and, during a Financial Covenant Trigger Period (as defined in the Amendment), maintain a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Amendment) of at least 1.00 to 1.00 (such covenants, the “Financial Covenants”).
As of JuneSeptember 30, 2020, the minimum Consolidated Cash Flow and the Fixed Charge Coverage Ratio covenants were not applicable. As of JuneSeptember 30, 2020, we were in compliance with the minimum availability requirement of $30 million.
See Note 1113 to the Condensed Consolidated Financial Statements for additional information related to the ABL Amendment and Term Loan Facility.
Off-Balance Sheet ArrangementsThe 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.
We do not have any off-balance sheet arrangements.
At September 30, 2020, the Company's Cash and cash equivalents totaled $22.2 million, of which $8.3 million was held in the U.S. and $13.9 million held by non-U.S. subsidiaries. At September 30, 2020 none of the Company's consolidated cash and cash equivalents had regulatory restrictions that would preclude the transfer of funds with and among subsidiaries. While the Company's 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 the Company's non-U.S. operations.
Contractual Obligations
On June 26, 2020, we entered into new Headquarters (HQ)("HQ") and Technical Center lease agreements with High Properties. The term of the HQ lease will be ten years and four months, with an anticipated commencement date of June 1, 2021. Under the terms of the HQ lease, we will lease an aggregate of approximately 58,500 square feet in two existing adjacent buildings located in Lancaster, Pennsylvania. During the first sixteen months of the HQ lease term, we will pay an initial monthly rental rate of $26.75 per square foot, plus operating expenses and real estate taxes, subject to a rent abatement period, with a gradual rate increase for each twelve month period thereafter, culminating with a monthly rental rate of $31.97 per square foot, plus operating expenses and real estate taxes, during the final twelve months of the HQ lease term. The term of the Technical Center lease will be ten years and seven months, with an anticipated commencement date
Management’s Discussion and Analysis of Financial Condition and Results of Operations
of March 1, 2021. Under the terms of the Technical Center lease, we will lease approximately 32,143 square feet of an existing building also in Lancaster, Pennsylvania. During the first sixteen months of the Technical Center lease, we will pay an initial monthly rental rate of $11.71 per square foot, plus operating expenses and real estate taxes, subject to a rent abatement period, with a gradual rate increase for each twelve month period thereafter, culminating with a monthly rental rate of $13.30 per square foot, plus operating expenses and real estate taxes, during the final twelve months of the Technical Center lease. Both leases will be recorded as operating leases.
Recent Accounting Pronouncements
See Note 1 to the Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements, including accounting pronouncements that are effective in future periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding our exposure to certain marketMarket risks see "Quantitativehave not changed significantly from those disclosed in “Quantitative and Qualitative Disclosures About Market Risk"Risk” and included in the Management'sPart II, Item 7, Management’s Discussion andof Analysis of Financial Condition and Results of Operations section of our 2019the Company’s Annual Report on Form 10-K.10-K for the fiscal year ended December 31, 2019.
Item 4. 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"), 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.
During the evaluation of disclosure controls and procedures and our internal control over financial reporting as of December 31, 2019 conducted during the preparation of our financial statements, which were included in our Annual Report on Form 10-K for the year ended December 31, 2019, our management identified a material weakness in internal control over financial reporting relating to the design and implementation of information technology general controls (ITGCs)("ITGCs") over two information technology (IT)("IT") systems that support our processing of certain sales incentives, which are recorded as a reduction of net sales and accounts receivable. As a result, business process automated and manual controls that are dependent on the affected ITGCs were ineffective because they could have been adversely impacted. These control deficiencies were a result of: risk-assessment processes inadequate to identify and evaluate responses to risks in the financial reporting process; and failure to implement monitoring control activities when involving a third party service provider. This control deficiency did not result in any identified misstatements to the consolidated financial statements as of and for the year ended December 31, 2019 and there were no changes to previously released financial results. However, the control deficiency createcreated a reasonable possibility that a material misstatement to our consolidated financial statements willwould not be prevented or detected on a timely basis and, therefore, we concluded that as of December 31, 2019, our internal control over financial reporting was not effective.
As of JuneSeptember 30, 2020, the material weakness was not yet remediated. As a result, our Chief Executive Officer and Interim Chief Financial Officer, together with management, concluded that, as of JuneSeptember 30, 2020, our disclosure controls and procedures were not effective. We have implemented and continue to implement measures designed to ensure that the deficient ITGCs for the two IT systems that support our processing of certain sales incentives are remediated. We have been active in documenting and assessing the design of ITGCs for the two IT systems that support our processing of certain sales incentives, as well as the business process automated and manual controls that are dependent on the affected ITGCs. We have also updated our risk-assessment process to better identify risks in the financial reporting process and have implemented monitoring control activities when using a third party service provider. As
When fully implemented and operational, we continue to implement these measures,believe the controls we may determine that additional steps may be necessary tohave designed will remediate the deficiencies that led to the material weakness. The material weaknessweaknesses and strengthen our internal controls over financial reporting. We expect that final design and implementation of controls will not be considered remediated, however, untilcompleted prior to the end of 2020. Management will conclude on the remediation when the applicable controls are designed, implemented and operatehave operated 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 2020.
Change in Internal Controls over Financial Reporting
On June 26,July 28, 2020, our Board of Directors and Douglas B. Bingham mutually agreed that Mr. Bingham would step downTracy L. Marines resigned from hisher position as Senior Vice President CFO and Treasurer and principalController effective August 28, 2020 at which time Gregory D. Waina, the Company's Interim Chief Financial Officer (principal financial officer. Theofficer) assumed the role and responsibilities of principal financialaccounting officer of the Company previously held by Mr. Bingham wereCompany. On and effective as of September 14, 2020, Phillip J. Gaudreau was appointed to the position of Vice President and Controller at which time he assumed bythe role and responsibilities of principal accounting officer.
Amy P. Trojanowski was appointed to the position and responsibilities of Senior Vice President and Chief Financial Officer and assumed the role and responsibilities of principal finance officer effective October 19, 2020. In connection with this appointment, and also effective as of October 19, 2020, Gregory D. Waina resigned from his position as the Company’s Interim Chief Financial Officer.
Officer (and principal financial officer), but will remain with the Company in a consulting capacity to ensure a smooth transition.
Except for the material weakness described above, no changes in our internal control over financial reporting occurred during the fiscal quarter ended JuneSeptember 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
See Note 1516 to the Condensed Consolidated Financial Statements included elsewhere in this report, which is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes in the Company's risk factors discussed in Part I, Item 1A, Risk Factors during the current quarter.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer Purchases of Equity Securities
The following table includes information about ourthe Company's stock repurchases from AprilJuly 1, 2020 to JuneSeptember 30, 2020:
|
| | | | | | | | | | | | |
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 |
April 1 - 30, 2020 | 2,495 |
| | $ | 1.57 |
| | — |
| | — |
|
May 1 - 31, 2020 | — |
| | $ | — |
| | — |
| | — |
|
June 1 - 30, 2020 | — |
| | $ | — |
| | — |
| | — |
|
Total | 2,495 |
| | | | — |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
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 |
July 1 - 31, 2020 | 278 | | | $ | 3.07 | | | — | | | — | |
August 1 - 31, 2020 | 1,666 | | | $ | 3.20 | | | — | | | — | |
September 1 - 30, 2020 | 129 | | | $ | 4.03 | | | — | | | — | |
Total | 2,073 | | | | | — | | | — | |
_____________
1 Shares reacquired through the withholding of shares to pay employee tax obligations upon the exercise of options or vesting of restricted units granted under ourthe Company's long-term incentive plans and those previously granted under Armstrong World Industries' long-term incentive plans, which were converted to AFIArmstrong Flooring, Inc. units on April 1, 2016.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
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Exhibit Number
| | Description |
3.1 | | |
3.2 | | |
3.2 | | |
| | |
10.1 | | |
| | |
| | |
| | |
| | |
| | |
| | |
10.1 | | Third Amendment to Credit Agreement, dated as of June 23, 2020, by and amongthe 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 Nonqualified Deferred Compensation Plan, effective October 1, 2020.† (incorporated by reference to Exhibit 10.1 to the Company’s Current Report of Form 8-K, as filed with the U.S. Securities and Exchange Commission on June 24, 2020).
|
| | |
10.2 | | 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 of Form 8-K, as filed with the U.S. Securities and Exchange Commission on June 24, 2020). |
31.1 | | |
10.3 | |
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| | |
10.4 | | |
| | |
31.1 | | |
31.2 | | |
31.2 | | |
32.1 | | |
32.1 | | |
32.2 | | |
32.2 | | |
101.INS | | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.† |
101.SCH | | |
101.SCH | | XBRL Taxonomy Extension Schema Document† |
101.CAL | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document† |
101.DEF | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document† |
101.LAB | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document† |
101.PRE | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document† |
† | Filed herewith. |
* | Furnished herewith. |
|
| | |
| | |
† | Filed herewith. |
| | |
* | Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | | |
Armstrong Flooring, Inc. |
(Registrant) |
| |
Date: | July 31,October 30, 2020 |
| |
By: | /s/ Gregory D. WainaAmy P. Trojanowski |
| |
| Gregory D. WainaAmy P. Trojanowski |
| InterimSenior Vice President and Chief Financial Officer |
| (As Duly Authorized Officer and Principal Financial Officer) |
| |
Date: | July 31,October 30, 2020 |
| |
By: | /s/ Tracy L. MarinesPhillip J. Gaudreau |
| |
| Tracy L. MarinesPhillip J. Gaudreau |
| Vice President and Controller |
| (As Duly Authorized Officer and Principal Accounting Officer) |