SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

 

 

Filed by the Registrant  x☒                            ��Filed by a Party other than the Registrant  ¨☐

Check the appropriate box:

 

¨☐ 

Preliminary Proxy Statement

 

¨☐ 

Confidential, for Use of the Commission Only (as permitted by Rule14a-6(e)(2))

 

x☒ 

Definitive Proxy Statement

 

¨☐ 

Definitive Additional Materials

 

¨☐ 

Soliciting Material Pursuant to §240.14a-12§240.14a-12

ARMSTRONG WORLD INDUSTRIES, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than Registrant)

Payment of Filing Fee (check the appropriate box):

 

x☒ 

No fee required.

 

¨☐ 

Fee computed on table below per Exchange Act Rules14a-6(i)(1) and0-11.

 

 (1)Title of each class of securities to which transaction applies:

 

 

 

 (2)Aggregate number of securities to which transaction applies:

 

 

 

 (3)Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

 (4)Proposed maximum aggregate value of transaction:

 

 

 

 (5)Total fee paid:

 

 

 

¨☐ 

Fee paid previously with preliminary materials.

 

¨☐ 

Check box if any part of the fee is offset as provided by Exchange Act Rule0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 (1)Amount Previously Paid:

 

 

 

 (2)Form, Schedule or Registration Statement No.:

 

 

 

 (3)Filing Party:

 

 

 

 (4)Date Filed:

 

 

 

 

 

LOGO

LOGO

ARMSTRONG WORLD INDUSTRIES, INC.

2500 COLUMBIA AVE., LANCASTER, PA 17603

P.O. BOX 3001, LANCASTER, PA 17604

 

www.armstrong.comwww.armstrongceilings.com

 

April 30, 20152018

 

 

LOGO   

Thomas M. Armstrong    

Founder    1860    

 

20152018 ANNUAL MEETING OF SHAREHOLDERS

ARMSTRONG WORLD INDUSTRIES, INC.

Dear Fellow Shareholders:

We look forward to your attendance virtually via the Internet, in person, or by proxy at the 20152018 Armstrong World Industries, Inc. Annual Shareholders’ Meeting. We will hold the meeting at 8:00 a.m. Eastern Time on Friday,Thursday, July 10, 2015.12, 2018.

In fiscal 2017, we continued to execute on our strategy, driving significant consolidated net sales growth and delivering strong adjusted EBITDA performance, in large part driven by our innovative product portfolio, including our Total Acoustics solutions and our new Sustain family of products.

We also addressed key strategic priorities through an agreement to sell our European, Middle East, African, and Pacific Rim businesses to Knauf International GmbH; the closure of our St. Helens plant; and the acceleration of our business development strategies, which resulted in the acquisition of Tectum, Inc. in early 2017.

As we look ahead to our future as an Americas-focused business, we are well-positioned and poised for growth as we focus on serving our customers, now and in the future, in both our Mineral Fiber and Architectural Specialties segments, with an experienced leadership team, industry-leading innovation and a strong financial position.

At this year’s Annual Shareholders’ Meeting, I will step down as a director and Chairman of the Board. It has been an honor to serve as Chairman since 2010, following my tenure as independent lead director. I have had the great pleasure to closely observe our Company emerge from bankruptcy, separate the flooring business into an independent publicly traded company and transition into an Americas-focused total ceilings and wall solutions provider.

At this year’s Annual Shareholders’ Meeting, we will vote on the election of directors, vote to ratify the selection of KPMG LLP as our independent registered public accounting firm, and vote on anon-binding advisory basis on the compensation of our named executive officers. Please refer to the proxy statement for detailed information on each of the matters to be acted on at the meeting. Your vote is important, and we strongly urge you to cast your vote. For most items, including the election of directors, your shares will not be voted if you do not provide voting instructions via the Internet, by telephone, or by returning a proxy or voting instruction card. We encourage you to vote promptly, even if you plan to attend the meeting.

On behalf of your Board of Directors, thank you for your continued support of Armstrong.Armstrong World Industries and your participation in this year’s Annual Meeting.

Very truly yours,

 

LOGO

James J. O’Connor

Chairman of the Board

LOGO

ARMSTRONG WORLD INDUSTRIES, INC.LOGO

NOTICE OF 20152018 ANNUAL MEETING OF SHAREHOLDERS

 

Time and Date

8:00 a.m. Eastern Time on Friday,Thursday, July 10, 201512, 2018

 

Attendance

Online atwww.virtualshareholdermeeting.com/awi2015awi2018, or in person at 2500 Columbia Avenue, Lancaster, Pennsylvania 17603

 

Record Date

April 13, 201520, 2018

 

Agenda 

Items of Business

  

Board Recommendation

 

1.  Elect as directors the 12nine (9) nominees named in the attached proxy statement

  FOR EACH DIRECTOR NOMINEE
 

2.  Ratify the selection of KPMG LLP as our independent registered public accounting firm for 20152018

FOR

3.  Approve, on an advisory basis, our executive compensation program

  FOR

 

How To Vote

•

 Please act as soon as possible to vote your shares, even if you plan to attend the annual meeting via the Internet or in person.

 

 

•

 

Your broker willnot be able to vote your shares with respect to the election of directors unless you have given your broker specific instructions to do so. We strongly encourage you to vote.

You may vote via the Internet, by telephone, or, if you have received a printed version of these proxy materials, by mail.

 

 

•

You may vote via the Internet, by telephone, or, if you have received a printed version of these proxy materials, by mail.

 

•

See “ADDITIONAL MEETING INFORMATION”“ADDITIONAL MEETING INFORMATION” on page 5257 of this proxy statement for further information.

 

Attending the Meeting

via the Internet:

 

 Instructions on how to attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted atwww.virtualshareholdermeeting.com/awi2015awi2018.

 

 Shareholders may vote and submit questions while attending the meeting on the Internet.

 

 in person:

 

 Proof of Armstrong World Industries, Inc. stock ownership and photo identification will be required to attend the annual meeting.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF

PROXY MATERIALS FOR THE ANNUAL MEETING

TO BE HELD ON JULY 10, 2015:12, 2018:

The Notice of Annual Meeting, this Proxy Statement and

the Company’s 20142017 Annual Report are available at www.proxyvote.com.

TABLE OF CONTENTS

 

ITEM 1 – ELECTION OF DIRECTORS

   1 

Director Nominees

   2 

CORPORATE GOVERNANCE

   109 

Corporate Governance Principles and Other Corporate Governance Documents

   109 

Director Independence

   109 

Board’s Role in Risk Management Oversight

   109 

Board’s Role in Succession Planning

   1110 

Board Leadership Structure

   1110 

Communication with the Board

   1210 

Board Meetings and Committees

   1211 

Audit Committee

11

Finance Committee

   12 

Management Development and Compensation Committee

   1312 

Nominating and Governance Committee

   1312 

Compensation Committee Interlocks and Insider Participation

   13 

Certain Relationships and Related Party Transactions

   13 

Shareholder-Recommended Director Candidates

   14 

COMPENSATION OF DIRECTORSMANAGEMENT

15

Directors and Executive Officers

   15

COMPENSATION OF DIRECTORS

16 

Director Compensation Table

   1617 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS

   1718 

Certain Beneficial Owners

   1718 

Management and Directors

   1819 

Directors – Aggregate Ownership

   1920 

Stock Ownership Guidelines

   20 

ITEM  2 – RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   2122 

AUDIT COMMITTEE REPORT

22

FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   23 

COMPENSATION DISCUSSION AND ANALYSISFEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   24 

ITEM 3 – ADVISORY APPROVAL OF EXECUTIVE COMPENSATION COMMITTEE REPORT

   3825 

SUMMARY COMPENSATION TABLEDISCUSSION AND ANALYSIS

   3926 

GRANTS OF PLAN BASED AWARDSCOMPENSATION COMMITTEE REPORT

   4142 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END2017 SUMMARY COMPENSATION TABLE

   43 

OPTIONS EXERCISED AND STOCK VESTEDGRANTS OF PLAN-BASED AWARDS

44

PENSION BENEFITS

   45 

NONQUALIFIED DEFERRED COMPENSATIONOUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

   46 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROLOPTIONS EXERCISED AND STOCK VESTED

   47 

PENSION BENEFITS

48

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITYNONQUALIFIED DEFERRED COMPENSATION PLANS

50

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

   51 

ADDITIONAL MEETING INFORMATIONSECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

52

OTHER BUSINESS

54

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

54

SUBMISSION OF SHAREHOLDER PROPOSALS

54

ANNUAL REPORT ON FORM 10-K

55

INCORPORATION BY REFERENCE

55

SHAREHOLDER LIST

   56 

ADDITIONAL MEETING INFORMATION

57

OTHER BUSINESS

59

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

60

SUBMISSION OF SHAREHOLDER PROPOSALS

60

ANNUAL REPORT ON FORM10-K

61

INCORPORATION BY REFERENCE

61

SHAREHOLDER LIST

61

ANNEX A

   A-1 
 

LOGOLOGO

PROXY STATEMENT

This proxy statement was prepared under the direction of our Board of Directors (“Board”) to solicit your proxy for use at the 2018 Armstrong World Industries, Inc. annual meeting.meeting of shareholders (the “Annual Meeting”). When we refer to “we,” “our,” “us,” “Armstrong” and the “Company” in this proxy statement, we are referring to Armstrong World Industries, Inc. This proxy statement and the related materials are first being distributed to shareholders on or about May 15, 2015.7, 2018.

On November 20, 2017, we announced the sale of our businesses and operations in Europe, the Middle East, and Africa (including Russia) and the Pacific Rim (the “International Business”), including the corresponding businesses and operations conducted by Worthington Armstrong Venture, a Delaware general partnership (“WAVE”), in which we hold a fifty percent (50%) interest, to Knauf International GmbH (“Knauf”). Following the sale of our International Businesses, which we currently expect to close during the third quarter of 2018, Armstrong will be an Americas-focused ceilings and wall buildings products company, and the leader in the design, innovation and manufacturer of commercial and residential ceiling, wall and suspension solutions.

At the 2017 Annual Meeting of Shareholders (the “2017 Annual Meeting”), which was held on July 13, 2017, our shareholders elected Stan A. Askren, Victor D. Grizzle, Tao Huang, Larry S. McWilliams, James C. Melville, James J. O’Connor, John J. Roberts, Gregory P. Spivy, Roy W. Templin and Cherryl T. Thomas to the Board.

 

ITEM 1 – ELECTION OF DIRECTORS

 

On the recommendation of the Nominating and Governance Committee (“Governance Committee”), our Board has nominated the 12nine directors listed below for election at the annual meeting.Annual Meeting. Mr. James J. O’Connor, who is currently Chairman of the Board, will not stand for reelection at the Annual Meeting. Effective as of Mr. O’Connor’s resignation from the Board at the Annual Meeting, the size of the Board will be decreased from ten to nine members. The nominees include 11eight independent directors, as determined by the Board in accordance with the New York Stock Exchange (“NYSE”) listing standards and our Corporate Governance Principles. The twelfthninth nominee is our President and Chief Executive Officer (“CEO”), Matthew J. Espe.Victor D. Grizzle. Each nominee’s term would, if elected, run from the date of his or her election until our next annual shareholders’ meeting, or until his or her successor, if any, is elected or appointed. We have no reason to believe that any of the nominees will be unwilling or unable to serve if elected.

The Governance Committee performs an assessment of the qualifications and experience needed to properly oversee the interests of the

Company. In doing so, the Governance Committee believes that aligning director qualifications and skill sets with our business and strategy is essential to forming a Boardboard of directors that adds value for shareholders. While theour Board does not have a formal diversity policy with respect to director nominations, it believes that a Boardboard of directors composed of individuals with diverse attributes and backgrounds enhances the quality of theour Board’s deliberations and decisions.

The Our Board has an expansive view of diversity, going beyond the traditional concepts of race, gender and national origin. The Board believes that theorigin, and emphasizing a diversity of viewpoints, educational backgrounds and differences in professional experiences and expertise represented on the Board evidences diversity in many respects. Theexperiences. Our Board believes that this diversity, coupled with thestrong personal and professional ethics, integrity and values, of all of the directors, results in a Boardboard of directors that canis well-qualified to guide the Company with good business judgment.

The Governance Committee expects each of the Company’s directors to have proven leadership, sound judgment, integrity and a commitment to the success of the Company. In evaluating director candidates and considering incumbent directors for

AWI 2018 Proxy Statement    1

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

nomination to the Board, the Governance Committee considers a variety of factors. These include each nominee’s independence, financial literacy, personal and professional accomplishments, and experience in light of the needs of the Company. For incumbent directors,

the factors also include past performance on theour Board and contributions to their respective committees. TheOur Board is also particularly interested in maintaining a mix of skills and qualifications that include the following:

 

 

PublicPublic Company CEO or COO within past 5 years

 

SeniorSenior Executive Leadership

 

ManufacturingManufacturing & Distribution Operations

 

FinancialFinancial Literacy

 

SignificantSignificant International Experience
FinanceFinance and Capital Markets Transactions

 

Technology

 

M&A

 

RiskRisk Management

 

CorporateCorporate Governance/Law
 

LOGO     2015 Proxy Statement    1

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

Each director nominee’s biography in the pages that follow includes notable skills and qualifications that contributed to his or her selection as a nominee. Director skills and qualifications are also featured in the chart immediately following the biographies.

DIRECTOR NOMINEES

 

OUR BOARD RECOMMENDS THAT YOU VOTEFOR THE ELECTION OF THE FOLLOWING NOMINEES:

 

Name  Age*   Director Since  Committee(s)†  Independent^ 

Stan A. Askren

   54    2008  MDCC‡                  ü   

Matthew J. Espe

   56    2010    

James J. Gaffney

   74    2006  NGC‡, MDCC                  ü   

Tao Huang

   52    2010  AC                  ü   

Michael F. Johnston

   67    2010  MDCC                  ü   

Jeffrey Liaw

   38    2012  AC                  ü   

Larry S. McWilliams

   59    2010  AC, MDCC                  ü   

James C. Melville

   63    2012  MDCC, NGC                  ü   

James J. O’Connor (Chair)

   78    2007  NGC                  ü   

John J. Roberts

   70    2006  AC‡, NGC                  ü   

Gregory P. Spivy

   46    2014  MDCC                  ü   

Richard E. Wenz

   65    2010  AC                  ü   
*As of April 30, 2015
Name  Age   Director Since  Committee(s)†  Independent^ 

Stan A. Askren

   57   2008  MDCC‡                   ✓ 

Victor D. Grizzle

   56   2016    

Tao Huang

   55   2010  AC, FC                   ✓ 

Larry S. McWilliams

   62   2010  AC, MDCC                   ✓ 

James C. Melville

   66   2012  FC, MDCC, NGC‡                   ✓ 

John J. Roberts

   73   2006  AC‡, NGC                   ✓ 

Gregory P. Spivy

   49   2014  FC, MDCC                   ✓ 

Roy W. Templin

   57   2016  AC, FC‡, MDCC                   ✓ 

Cherryl T. Thomas

   71   2016  AC, MDCC                   ✓ 
†Committees: AC (Audit); FC (Finance); MDCC (Management Development & Compensation); NGC (Nominating & Governance)
^As defined in NYSE listing standards and our Corporate Governance Principles
‡ 

Denotes Chair of the Committee

 

 
2       LOGO    2015AWI 2018 Proxy Statement 

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

 

All nominees currently serve as directors. Information concerning the nominees is provided below:

 

LOGO          

STAN A. ASKREN

Director since: 2008

Age: 5457

 

Independent

 

Mr. Askren has been chairman and CEO of HNI Corporation (“HNI”), the second largest office furniture manufacturer in the world and the nation’s leading manufacturer and marketer of hearth products, since 2004, and president since 2003. Previously, he was executive vice president of HNI from 2001 to 2003. Mr. Askren has worked at HNI for 2326 years, including as vice president of marketing, vice president of human resources, and as an executive vice president and president of HNI’s hearth products operating segment. Mr. Askren has also worked in several industries and previously held multiple executive management and general management positions with Emerson Electric, Thomson S.A. and HNI Corporation. Mr. Askren previously served on the board of directors of Arctic Cat Inc., a designer, engineer and manufacturer of all-terrain vehicles and snowmobiles, and served as a member of its compensation committee.HNI. Mr. Askren also serves on the boards of directors of Allison Transmission Holdings, Inc., a commercial duty automatic transmission and hybrid propulsion systems manufacturer (since 2015), the Business and Institutional Furniture Manufacturers Association (past chair), and the Iowa Business Council (past chair), and. Mr. Askren formerly served on the board of directors of the Iowa Heritage Foundation. Mr. Askren brings to our Board extensive operating, senior executive leadership, manufacturing, sales and distribution expertise, as well as valuable insights from his experience as a public company chief executive officer.

LOGOLOGO          

MATTHEW J. ESPEVICTOR D. GRIZZLE

Director since: 20102016

Age: 56

 

 

 

Mr. Espe has beenGrizzle was appointed as our President and CEO since he joined the Company in July 2010.Chief Executive Officer on March 30, 2016. Previously, Mr. Espe was chairmanGrizzle served as Executive Vice President and chief executive officerChief Executive Officer of Ricoh AmericasArmstrong Building Products, a business unit of Armstrong, since January 2011. Prior to joining Armstrong, Mr. Grizzle served as Group President of Global Engineered Support Structures Coatings & Tubing and President of International Division for Omaha at Valmont Industries, Inc., an infrastructure and agricultural equipment manufacturer, since January 2006. Prior to Valmont, he served as President of the Commercial Power Division of EaglePicher Corporation, a subsidiary of Ricoh Company, Ltd., a leading provider of document management solutionsmanufacturing and services. Prior toresource extractive company. Before that, role, Mr. Espe was chairman of the board of directors and chief executive officer (2002 to 2008) of IKON Office Solutions, Inc. (“IKON”), an office equipment distributor and services provider, which was acquired by Ricoh in 2008. Mr. Espe was employed byGrizzle spent 16 years at General Electric Corporation, where he served as an American business leader for 22 years, serving as president and chief executive officer of GE Lighting prior to joining IKON in 2002. Mr. Espe previously served on the boards of directors of Unisys Corporation, a worldwide information technology company (2004 to 2014), and Graphic Packaging Holding Company, a provider of packaging solutions for consumer products companies (2009 to 2010).General Electric’s Silicones Division. As our President and CEO,Chief Executive Officer, Mr. EspeGrizzle provides our Board with important insightssignificant insight regarding our operations, strategic planning and senior management personnel matters.operational design. In addition, Mr. Espe’s long tenure as chairman and chief executive officer at Ricoh and IKON, his prior service on other public company boards of directors and their committees and his senior executive experience at General Electric,Grizzle brings management experience,to our Board broad leadership capabilities, financial knowledge and business acumen to our Board.expertise, as well as comprehensive experience in global operations and manufacturing matters.

 

 

 
 LOGO     2015AWI 2018 Proxy Statement       3

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

 

LOGO         

JAMES J. GAFFNEY

Director since: 2006

Age: 74

Independent

From 1997 to 2003, Mr. Gaffney was a consultant to GS Capital Partners, II, LP, a private investment fund affiliated with Water Street Corporate Recovery Fund I, LP and Goldman, Sachs & Co., and other affiliated investment funds. From 1995 to 1997, Mr. Gaffney served as chairman of the board of directors and chief executive officer of General Aquatics, Inc., composed of companies involved in the manufacturing of swimming pool equipment and pool construction. Mr. Gaffney was president and chief executive officer of KDI Corporation, a conglomerate with companies involved in swimming pool construction and manufactured products (1993 to 1995). Mr. Gaffney serves on the boards of directors of the following companies: Pool Corporation, a distributor of swimming pool supplies, equipment and related leisure products and a distributor of irrigation and landscape products (since 1998), and Beacon Roofing Inc., a distributor of residential and non-residential roofing materials (since 2004). Mr. Gaffney previously served on the boards of directors of World Color Press Inc. (f/k/a Quebecor World Inc.) (2009 to 2010), Imperial Sugar Company (2001 to 2012; chairman 2003 to 2012), and C&D Technologies, Inc. (2010 to 2013). Mr. Gaffney brings our Board broad leadership, business and corporate governance expertise, as well as comprehensive experience in operations, manufacturing, financial, and risk management matters.

LOGO          

TAO HUANG

Director since: 2010

Age: 5255

 

Independent

 

Mr. Huang was previously the chief operating officer of Morningstar, Inc., a leading independent provider of investment research, until his retirement in December 2010. Mr. Huang spent almost 20 years with Morningstar, taking on increasing levels of responsibility from his start as an entry level technical programmer. He was named director of technology in 1992 and chief technology officer in 1996; he started Morningstar’s International Operation in 1998, held the position of president of International Division until 2000; he was promoted as the Company’s chief operating officer in October 2000 and served in this position until his retirement. Mr. Huang led Morningstar initiatives enabling significant growth, both organically and through acquisition, and oversaw continuous improvements in the operations of the firm’s core businesses. Mr. Huang is a founder and managing partner of Range Light, LLC, an investment firm (since 2012). Mr. Huang also serves on the board of directors of Equity Lifestyle Properties, Inc., a publicly-traded real estate investment trust (since 2015) and Principal Mutual Funds, an asset management firm (since 2013). Mr. Huang brings to our Board expertise developed from his experience in a data-intense and technology-driven organization managing growth and integration of acquisitions, as well as experience in international operations.

4    LOGO    2015 Proxy Statement

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

LOGO         

MICHAEL F. JOHNSTON

Director since: 2010

Age: 67

Independent

Mr. Johnston was previously with Visteon Corporation, an automotive components supplier, until 2008. At Visteon, he served as chairman of the board of directors, CEO, president, and chief operating officer at various times from 2000 to 2008. Before joining Visteon, Mr. Johnston held various positions in the automotive and building services industry, including serving as president, North America/Asia Pacific for Johnson Controls’ Automotive Systems Group. Mr. Johnston also serves as a member of the boards of directors of the following companies: Whirlpool Corporation, a leading manufacturer and marketer of major home appliances (since 2003), serving as presiding director and a member of its audit committee; and Dover Corporation, a diversified global manufacturer (since February 2013), serving as a member of its audit committee. Mr. Johnston previously served on the board of directors of Flowserve Corporation (2007 to 2013) including as the chairman of its corporate governance and nominating committee and a member of its finance committee. Mr. Johnston’s executive leadership and board of directors experience offers our Board a seasoned corporate governance perspective, and he brings to our Board extensive operational, manufacturing and design, innovation, engineering and financial experience.

LOGO         

JEFFREY LIAW

Director since: 2012

Age: 38

Independent

Mr. Liaw is the chief financial officer of FleetPride, Inc., a nationwide supplier of heavy-duty truck and trailer parts. Prior to joining FleetPride in December 2012, Mr. Liaw was a principal of TPG Capital for seven years and was active in TPG’s energy and industrial investing practice areas. Before joining TPG in 2005, Mr. Liaw was an associate at Bain Capital, a private equity investment firm, in its Industrials practice. Mr. Liaw previously served on the boards of directors of Graphic Packaging Holding Company, a provider of packaging solutions for consumer products companies (2008 to 2013), including as a member of its nominating and corporate governance committee, and Oncor Electric Delivery Company, LLC. Mr. Liaw served as an observer to our Board on TPG’s behalf from 2009 until June 2012, at which time he was elected as a member of our Board. In addition to his financial expertise and experience working with a broad range of manufacturing companies, Mr. Liaw possesses intimate knowledge of the Company that he gained through his role as a Board observer for TPG.

LOGO     2015 Proxy Statement    5

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

LOGO          

LARRY S.
MCWILLIAMS

Director since: 2010

Age: 5962

 

Independent

 

Mr. McWilliams was previously the president and chief executive officer of Keystone Foods, a producer of proteins, from May 2011 to May 2012. From May 2005 to October 2010, he served as a senior vice president at Campbell Soup Company and subsequently became the president of Campbell International, responsible for all of Campbell Soup’s business in Europe, Latin America and Asia Pacific. Mr. McWilliams joined Campbell Soup in March 2001 as senior vice president – sales and chief customer officer, overseeing the company’s relationships with its global retail partners. In April 2003, he assumed the position of president – North America Soup. Mr. McWilliams was named senior vice president and president – Campbell USA in March 2004. Prior to Campbell Soup, Mr. McWilliams held positions at Coca-Cola from 1995 to 2001 and the Pillsbury Company from 1993 to 1995. Mr. McWilliams has also servesserved on the boardsboard of directors of Armstrong Flooring, Inc. (“AFI”) since April 1, 2016. Mr. McWilliams formerly served on the Boards of Directors of Godiva Chocolatiers International, a privately held company, and Bob Evans Farms, a full-service restaurant company, (since 2014) and Godiva Chocolatiers International, a privately held company (since 2012). Mr. McWilliams formerly served on the Board of Governors of St. JosephsJoseph’s University Food Marketing Council and the Grocery Manufacturers’ Association’s Industry Affairs Council. Mr. McWilliams offers our Board senior executive leadership capabilities and experience, as well as extensive knowledge of sales, marketing, customer service relationships, international markets and distribution channels.

4    AWI 2018 Proxy Statement

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

LOGO          

JAMES C. MELVILLE

Director since: 2012

Age: 6366

 

Independent

 

Mr. Melville is a member of the Minneapolis-based law firm of Kaplan, Strangis and Kaplan, P.A., where he has practiced in the corporate, governance, mergers and acquisitions, securities and financial areas since 1994. Prior to joining Kaplan, Strangis and Kaplan, P.A., Mr. Melville practiced with Dorsey and Whitney in their Minneapolis and London, England offices. Mr. Melville previously served as a member of our Board from September 2009 until July 2010.2010 and now also serves on the board of directors of AFI (since April 1, 2016). Mr. Melville is active in numerous local and civic organizations and their boards. Mr. Melville is also a National Association of Corporate Directors Board Leadership Fellow. Mr. Melville served as an observer of our Board on behalf of the Armstrong World Industries, Inc. Asbestos Personal Injury Settlement Trust (the “Trust”) from August 2010 until February 2012. Mr. Melville brings to our Board extensive knowledge of the law, mergers and acquisitions, executive compensation, and corporate governance matters, as well as international experience and financial acumen to our Board.acumen. He has also gained intimate knowledge of the Company through his prior service on theour Board and his prior role as a Boardboard observer for the Trust.

6    LOGO    2015 Proxy Statement

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

LOGO         

JAMES J. O’CONNOR

Director since: 2007

Age: 78

Independent

Mr. O’Connor is a retired chairman of the board of directors and chief executive officer of Unicom Corporation. Mr. O’Connor joined Commonwealth Edison Company in 1963, became president in 1977, a director in 1978 and chairman and chief executive officer in 1980. In 1994, Mr. O’Connor was also named chairman and chief executive officer of Unicom Corporation, which then became the parent company of Commonwealth Edison Company, from which he retired in 1998. Mr. O’Connor previously served on the boards of directors of the following companies: Trizec Properties, Inc. (2003 to 2006); Corning, Inc. (1984 to 2011); Smurfit – Stone Container Corporation (2000 to 2011); and United Continental Holdings, Inc. (1984 to 2012). Mr. O’Connor has a broad business background, having served in several chief and senior executive positions with large companies and on the boards of companies as diverse as a utility company, an industrial manufacturing company and an airline. Mr. O’Connor also offers our Board extensive knowledge and expertise in senior executive leadership, management, and corporate governance and board practices of other major corporations.

LOGO          

JOHN J. ROBERTS

Director since: 2006

Age: 7073

 

Independent

 

Mr. Roberts served as global managing partner for PricewaterhouseCoopers LLP from 1998 until his retirement in June 2002. Mr. Roberts held numerous positions at Coopers & Lybrand LLP from 1967 until its merger with Pricewaterhouse LLP in 1998. From 1994 to 1998, Mr. Roberts served as one of three members of the Office of the chairman of Coopers & Lybrand’s United States operations. Prior to that time, Mr. Roberts held other positions at Coopers & Lybrand, including deputy vice chairman, vice chairman and managing partner. While serving in various executive capacities at PricewaterhouseCoopers, Mr. Roberts performed and supervised audit, tax and business consultative services, and developed extensive expertise in public company audits and financial reporting matters. Mr. Roberts serves on the boards of directors and audit committees of the following companies: Safeguard Scientifics, Inc., a provider of capital as well as strategic, operational and management resources to growth-stage businesses (since 2003; also serves on the compensation committee and nomination and governance committee), the Pennsylvania Real Estate Investment Trust, a business trust with primary investment focus on retail shopping malls (since 2003; also serves on the compensation committee), and Vonage Holdings Corporation, a provider of communications services (since 2004)2004; also serves as lead director). Mr. Roberts previously served on the board of directors of Sicor, Inc. (2002 to 2004) and served as a director of our former holding company, Armstrong Holdings, Inc. (2003 to 2006). Mr. Roberts brings to our Board an extensive public accounting background, financial expertise, experience as an accounting executive and as a board member of businesses in diverse industries, and risk management, strategic planning and corporate governance capabilities to our Board.capabilities.

 

 

 
 LOGO     2015AWI 2018 Proxy Statement       75

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

 

LOGO          

GregoryGREGORY P. SpivySPIVY

Director since: 2014

Age: 4649

 

Independent

 

Mr. Spivy is a Partner of ValueAct Capital. Prior to joining ValueAct Capital in September 2004, Mr. Spivy worked with Gryphon Investors, a private equity fund with $500 million in investments. Previously, Mr. Spivy was a Managing Director at Fremont Partners, (“Fremont”), a private equity firm. Prior to joining Fremont Partners, Mr. Spivy was a Director with The Bridgeford Group, and began his career in the mergers and acquisitions department of Lehman Brothers. Mr. Spivy is the former chairman of Seitel, Inc., a leading provider of seismic data(from 2006 to the oil and gas industry (since 2006). Mr. Spivy is2017), the former chairman of MSD Performance, Inc., and a former director of Allison Transmission Holdings, Inc. (from 2015 to 2017), KAR Auction Services, Inc., MDS, Inc., MSC Software Corp. and PRA International. Mr. Spivy is also the Chair of the Board of Directors of Matriculate, a charitable organization dedicated to sending high-achieving,low-income high school students to college. Mr. Spivy brings to our Board his experience as a director of other public and private corporations, his advisory experience with ValueAct Capital’s portfolio companies, as well as his extensive financial services industry experience generally to our Board.generally.

LOGOLOGO          

RICHARD E. WENZROY W. TEMPLIN

Director since: 20102016

Age: 6557

 

Independent

 

Mr. Wenz is a private investor. From 2002 to 2003, Mr. Wenz was the chief executive officer of Jenny Craig International, a weight loss, weight management, and nutrition company. From 2000 to 2002, Mr. Wenz was an operating affiliate of DB Capital Partners. From 1997 to 2000, Mr. Wenz was president and chief operating officer of Safety 1st, Inc. During 1995 and 1996, Mr. Wenz was the partner in chargeTemplin served as Chairman of the Chicago officeBoard of The Lucas Group,Directors ofCon-Way Incorporated (NYSE:CNW), a business strategy consulting firm.multinational freight transportation and logistics company, from January 2014 until its acquisition by XPO Logistics Inc. in 2015. He previously served as Executive Vice President and Chief Financial Officer of Whirlpool Corporation (NYSE:WHR), a multinational manufacturer and marketer of home appliances, from 2004 to 2012, and as Vice President and Controller of Whirlpool Corporation from 2003 to 2004. Prior, to 1995, Mr. Wenz held senior executive positions with Professional Golf Corporation, Electrolux Corporation, The Regina Companyhe served as Vice President, Finance and Wilson Sporting Goods Company. Mr. Wenz began his career in 1971 with Arthur Young & Co. (predecessorChief Accounting Officer of Ernst & Young LLP) and left the firm as a partner in 1983. Mr. Wenz is a certified public accountant, and heKimball International, Inc. He currently serves on the boardBoard of directorsTrustees of Summer Infant, Inc.,the Goldman Sachs Mutual Funds. Mr. Templin brings to our Board extensive experience as a global designer, marketer, and distributor of branded juvenile health, safety and wellness products (since 2007) and serves as Chair of both the audit committee and compensation committee. Mr. Wenz also serves on the board of directors of Pet Supplies Plus. Mr. Wenz previously served on the boards of directors of Easton-Bell Sports, Inc. (2006 to 2014), Strategic Partners, Inc. (2004 to 2010), Hunter Fan Company (2002 to 2007), and Radica Games, Inc. (2004 to 2006). Mr. Wenz brings extensive senior executive, leadership,public company board service, including audit committee, at companies with diverse businesses, public accounting,member and executive of manufacturing and distribution industries, as well as experience in risk management, strategic planning, finance, and international experience to our Board.mergers and acquisitions.

 

 

 
86       LOGO    2015AWI 2018 Proxy Statement 

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

Skills and Qualifications of Board of Directors

LOGO

 

LOGO         

CHERRYL T. THOMAS

Director since: 2016

Age: 71

Independent

AgreementMs. Thomas is the Chief Strategy Officer and Vice President of The Roderick Group, a Chicago-based civil engineering firm and, prior to The Roderick Group’s merger with Shareholder

AsArdmore Associates, LLC, previously disclosed, we entered into a Nominationserved as President and Shareholder Agreement, dated December 15, 2014 (the “Nomination Agreement”), with ValueAct Capital Master Fund L.P., VA Partners I,Chief Executive Officer of Ardmore Associates, LLC, ValueAct Capital Management, L.P., ValueAct Capital Management, LLC, ValueAct Holdings, L.P., ValueAct Holdings GP, LLCwhere she was responsible for all financial, operational and Gregory P. Spivy (collectively, the “ValueAct Group”). Pursuantmanagement activities since 2003. Prior to the termsfounding Ardmore Associates, Ms. Thomas served as chairman of the Nomination Agreement, we appointed Mr. Spivyboard of the United States Railroad Retirement Board from 1998 until 2003, and as commissioner of the department of buildings of the city of Chicago from 1989 until 1994. Ms. Thomas serves on the boards of numerous local and civic organizations and foundations, including the Lyric Opera of Chicago (since 2007), the Chicago Zoological Society (since 2000), the Polk Bros Foundation (since 2009), the Brach Foundation (since 2015) and the Big Shoulders Foundation (since 2013). Ms. Thomas brings to the Board to serve until the 2015 annual meeting of shareholders, and agreed to nominate Mr. Spivy for election to the Board at the annual meeting, provided, however, that if at any time the ValueAct Group ceases to own at least 7.5% of our common stock, par value $0.01 per share (“Common Shares”), Mr. Spivy will be required to resign from the Board and we will no longer be required to nominate Mr. Spivy for election at the annual meeting. Relative to this annual meeting, the ValueAct Group has agreed that it will: (i) vote in favor of our nominees to the Board at the annual meeting; and (ii) vote in accordance with the Board’s recommendation with respect to any routine matters.

Under the Nomination Agreement, the ValueAct Group is entitled to nominate a mutually acceptable replacement in the event that Mr. Spivy no longer serves as a member of our Board during the term of the Nomination Agreement, so longsignificant senior executive leadership experience, as the ValueAct Group continues to own at least 7.5% of our outstanding Common Shares. In addition, the ValueAct Group agreed (subject to certain exceptions) to certain restrictions on transactions involving us or our securities, including a restriction prohibiting the ValueAct Group from acquiring any beneficial ownership interest of 19.0% or more of our outstanding Common Shares. The Nomination Agreement will remainwell as relevant experience in effect until the earliest of: (i) our material breach of the Nomination Agreement that has not been cured within thirty (30) days after receipt of notice of such breach; (ii) the date immediately following the last day on which a shareholder of the Company may timely give notice of its intent to bring a proposal for consideration at the Company’s 2016 annual meeting; (iii) the date that is ninety (90) days after the date any ValueAct Group designee ceases to be a member of the Board;manufacturing, distribution and (iv) a mutually agreed upon date.risk management.

 

 

 
 LOGO     2015AWI 2018 Proxy Statement       97

ITEM 1 – ELECTION OF DIRECTORS(CONTINUED)

Skills and Qualifications of Board of Directors

LOGO

8    AWI 2018 Proxy Statement

CORPORATE GOVERNANCE

CORPORATE GOVERNANCE PRINCIPLES AND OTHER CORPORATE GOVERNANCE DOCUMENTS

Our Corporate Governance Principles include guidelines regarding the responsibilities, duties, service and qualifications of our Board, the determination of a director’s independence and any conflict of interests, Board access to management and independent advisors, director compensation and stock ownership requirements, Board committees and other matters relating to corporate governance. Our Corporate Governance Principles are available on our website under “Company Information”“About Us” and then “Corporate Governance” http:“Governance” or at https://www.armstrong.com/www.armstrongceilings.com/corporate/corporate-governance.html.governance.html. Also available at the same location on our website are the charters of the Audit Committee, the Finance Committee, the Management Development and Compensation Committee (“Compensation Committee”), and the Governance Committee of the Board, the Armstrong Code of Business Conduct and the Armstrong Code of Ethics for Financial Professionals. Our website is not part of this proxy statement and references to our website address in this proxy statement are intended to be inactive textual references only.

DIRECTOR INDEPENDENCE

It is the policy of the Company that theour Board consist of a majority of directors who are not employees and are independent under all applicable legal and regulatory requirements, including the independence requirements of the NYSE. For purposes of evaluating the independence of directors, in accordance with our Corporate Governance Principles, theour Board will consider all relevant facts and circumstances in making an independence determination, and not merely from the standpoint of the director, but also from that of persons or organizations with which the director has an affiliation. Consistent with our Corporate Governance Principles, to be considered “independent,” the Governance Committee has established qualifications to assist in the determination, which either meet or exceed the independence requirements of the NYSE.

TheOur Board has determined that all of our directors, with the exception of Mr. Espe,Grizzle, our President and CEO, are independent under NYSE listing

standards and our Corporate Governance Principles. In addition, theour Board has further determined that each of the members of the Audit Committee, the Compensation Committee, the

Finance Committee and the Governance Committee are independent within the meaning of the NYSE listing standards, any applicable minimum standards required by the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and enhanced standards required for membership on such committees by our Bylaws, namely that directors serving on such committees meet the independence criteria under both NYSE rules and Rule10A-3(b)(1) under the Exchange Act.

BOARD’S ROLE IN RISK MANAGEMENT OVERSIGHT

TheOur Board oversees the Company’s risk profile and management’smanagement processes for assessing and managing risk, both as a full Board and through its committees, which meet regularly and report to the full Board. Management is charged with managing risk through robust internal policies and controls.

The Company has maintained an enterprise risk management program since 2005. Risk management is an integral part of the Company’s culture. Management’s role is to identify, mitigate, guide and review the efforts of our business units, consider whether the residual risks are acceptable, and approve plans to deal with serious risks. TheOur Board’s role in risk management is to review the performance and functioning of the Company’s overall risk management functionefforts and management’s establishment of appropriate systems for managing risk. Specifically, theour Board reviews management’s:

 

processes to identify matters that create inappropriate risk to achieving our business plans;

 

processes to assess the likelihood and impact of such risks in order to prioritize them;

 

identification of major risks and how we define “major;”

 

identification of primary risk mitigation owners;

 

mitigation of major risks, and our view of the resulting residual risk; and

 

monitoring of major risks.

10    LOGO    2015 Proxy Statement

CORPORATE GOVERNANCE(CONTINUED)

Under the direction of a cross-functional steering committee composed primarily of senior corporate leaders, managementManagement provides its feedback on business unit risks during periodic business reviews and annual strategic planning discussions. The enterprise riskSenior management steering committee periodically meets with designated risk mitigation owners and assesses control

AWI 2018 Proxy Statement    9

CORPORATE GOVERNANCE(CONTINUED)

measures. In addition, the steering committeesenior management regularly reevaluatesreevaluate the appropriateness of risk assessments and priorities. This process includes identifying risks that could prevent achievement of business goals or plans. TheOur internal audit group uses the resulting information as a basis for developing its audit plan.

Annually, theOur Board periodically reviews summary reports that assess the strategic, operational, infrastructure and external risks facing the Company. Each Board committee, consistent with its charter, assists theour Board in overseeing the review of certain risks that are particularly within its purview, including as described in “BOARD MEETINGS AND COMMITTEES” below.

BOARD’S ROLE IN SUCCESSION PLANNING

TheOur Board is actively engaged and involved in talent management. TheOur Board reviews the Company’s “Organization Vitality” initiatives in support of its business strategy at least annually. This includes a detailed discussion of the Company’s global leadership bench and succession plans with a focus on key positions at the senior officer level, including CEO. During 2014, the2017, our Board and the Compensation Committee as well as an ad hoc CEO succession planning committee, met on several occasions in furtherance of these initiatives. In addition, the committees of the Board regularly discuss the talent pipeline for specific critical roles. High potential leaders are given exposure and visibility to Board members through formal presentations and informal events. More broadly, theour Board is regularly updated on key talent indicators for the overall workforce, including diversity, recruiting and development programs.

BOARD LEADERSHIP STRUCTURE

Our Bylaws and Corporate Governance Principles provide theour Board with the flexibility to determine what leadership structure works best for us, including whether the same individual should serve as both our Chairman and our CEO. In February

2010, theour Board determined to split the positions of Chairman and CEO. AtSince that time, Mr. O’Connor, who had been independent Lead Director from February 2008 through February 2010, was namedhas served as Chairman and continueswill continue to serve in that capacity.capacity until he steps down as Chairman at the Annual Meeting. The split of these positions allows Mr. Espe,Grizzle, our President and CEO, to focus on managing the business, while Mr. O’Connor, asour Chairman,

oversees theour Board’s functions. TheOur Board will continue to evaluate its leadership and governance structure within the context of the specific needs of the business, current Board composition, and the best interests of Company shareholders.

Responsibilities of the Chairman include recruiting new Board members, overseeing the evaluation and compensation of the CEO, ensuring an appropriate succession plan, overseeing independent evaluation of risk, coordinating Board meeting schedules and agenda, chairing and leading the discussions at the meetings, and overseeing the annual performance evaluations of the Board, its committees and its individual members. The Chairman ensures information provided by management to the Board is sufficient for the Board to fulfill its duties and communicates with other directors on key issues and concerns outside of regularly scheduled meetings. The Chairman is also responsible for ensuring the effective functioning of the committees through appropriate delegation to, and membership of, the committees. Finally, the Chairman provides effective leadership for our independent directors to facilitate the independent oversight required by our Bylaws and Corporate Governance Principles, including by ensuring that:

 

a majority of our directors are independent;

 

all of the members of the Audit Committee, the Compensation Committee, the Finance Committee and the Governance Committee are independent directors; and

 

the Board meets at regularly scheduled executive sessions, outside of the presence of management and those directors not deemed to be Independent Directors (as defined in our Articles and Bylaws) by the Board. Mr. O’Connor, ourmanagement. Our Chairman presides at these sessions.

In addition, each of the Board’s threefour standing committees regularly meet at similar executive sessions, at which the respective committee Chairschairs preside.

LOGO     2015 Proxy Statement    11

CORPORATE GOVERNANCE(CONTINUED)

COMMUNICATION WITH THE BOARD

Any person who wishes to communicate with the Board, the nonemployee directors as a group, or individual directors, including the Chairman, may direct a written communication to the attention of the Corporate Secretary at the Company’s corporate offices at 2500 Columbia Avenue, Lancaster, Pennsylvania 17603. The Corporate Secretary will forward these communications to the

10    AWI 2018 Proxy Statement

CORPORATE GOVERNANCE(CONTINUED)

intended recipient director(s)., as appropriate. You may also send general messages to directors by email todirectors@armstrong.com. directors@armstrongceilings.com. If you wish to send an email message to the Governance Committee, including a recommendation regarding a prospective director, please send the message to the CorpGovernance@armstrong.com.CorpGovernance@armstrongceilings.com. The Corporate Secretary will forward these messages, as appropriate.

SHAREHOLDER OUTREACH

The Company’s relationships with its shareholders and other stakeholders are a critical part of our corporate governance profile, and the Board recognizes the value of taking their views into account. Among other things, engagement with the Company’s shareholders and other stakeholders helps the Board and management to understand the larger context and impact of the Company’s operations, learn about expectations for our performance, assess emerging issues that may affect our business or other aspects of our operations, and shape policy.

In 2016, we initiated a formal shareholder outreach program to obtain investor perspectives on corporate governance, our executive compensation program, sustainability and other matters. On an annual basis, we intend to continue to solicit feedback from institutional investors, including asset managers, pension funds and social responsibility investors.

BOARD MEETINGS AND COMMITTEES

The Board met eightsix times during 2014, two2017, one of which werewas a special meetings.meeting.

There are threefour standing committees of the Board: the Audit Committee, the Compensation Committee, the Finance Committee and the Governance Committee, each described below.

Each standing committee has a charter and consists solely of ‘independent’ or ‘outside’ directors who meet applicable independence standards required by the NYSE, the U.S. Securities and Exchange Commission (the “SEC”(“SEC”), and the Internal Revenue Service, and under our Articles of Incorporation and Bylaws. Each committee reports to the Board regularly and evaluates the effectiveness of its performance annually. The membership of each committee is determined by the Board on the

recommendation of the Governance Committee. The Company’s Corporate Governance Principles provide that (i) directors who are currently fully employed should not serve on more than two other corporate boards, and (ii) other directors should not serve on more than four other corporate boards. The Board, after considering the circumstances of Mr. Roberts’ service on three other public company audit committees, determined that such service does not impact his ability to effectively serve on the Audit Committee.

All director nominees who served on the Board during 20142017 participated in 100%over 75% of the meetings of

the Board and meetings of the Committees on which they served. Board members are expected to attend annual meetings in person or virtually, via the Internet. All Board members serving at the time attended the annual meeting in 2017.

Audit Committee    The Audit Committee met sixfive times during 2014, one of which was a special meeting.2017. The members of the Audit Committee are John J. Roberts (Chair), Tao Huang, Jeffrey Liaw, Larry S. McWilliams, Roy W. Templin and Richard E. Wenz.Cherryl T. Thomas. Under its charter, the Audit Committee:

 

oversees (i) auditing and accounting matters, including the selection, supervision and compensation of the Company’s independent registered public accounting firm and other independent auditors, (ii) the scope of the annual audits,non-audit services performed by the Company’s independent registered public accounting firm, and (iii) the Company’s accounting practices and internal accounting controls;

 

has sole authority to engage, retain and dismiss the independent registered public accounting firm;

 

reviews and discusses with management and our independent registered public accounting firm the annual audited financial statements and quarterly financial statements included in our SEC filings;

 

assists the Board in monitoring the integrity of the Company’s financial statements and the independent registered public accounting firm’s qualifications, independence and performance;

 

considers risks associated with overall financial reporting, legal compliance and disclosure processes; and

 

supervises and reviews the effectiveness of the Company’s internal audit and legal compliance functions, and compliance by the Company with applicable legal and regulatory requirements.

Each member of the Audit Committee meets the

AWI 2018 Proxy Statement    11

CORPORATE GOVERNANCE(CONTINUED)

NYSE and SEC financial literacy requirements. The Board has determined that each of Mr. Liaw, Mr. Roberts and Mr. Wenz,Templin qualifies as an “Audit Committee Financial Expert” as defined inpursuant to the Exchange Act. The Audit Committee regularly meets independently with the Company’s internal and independent auditors, with the leaders of the Company’s compliance function, and with management.

12    LOGO    2015 Proxy Statement

CORPORATE GOVERNANCEFinance Committee    The Finance Committee, newly formed in 2017, met two times during 2017, one of which was a special meeting. The members of the Finance Committee are Roy W. Templin (Chair), Tao Huang, James C. Melville, and Gregory P. Spivy. Under its charter, the Finance Committee:(CONTINUED)

 

assists the Board in its oversight of the financial management of the Company, including material and strategic financial matters;

reviews the Company’s capital structure, including with respect to its debt and equity securities, financing arrangements and credit facilities;

reviews and considers the Company’s capital expenditures, dividend policy and other forms of distributions on the Company’s stock, and planning strategies; and

reviews financial terms of certain proposed mergers, acquisitions, divestitures, strategic investments and joint ventures.

Management Development and Compensation CommitteeThe Compensation Committee met fivesix times during 2014.2017, one of which was a special meeting. The members of the Compensation Committee are Stan A. Askren (Chair), James J. Gaffney, Michael F. Johnston, Larry S. McWilliams, James C. Melville, and Gregory P. Spivy.Spivy, Roy W. Templin and Cherryl T. Thomas. Under its charter, the Compensation Committee:

 

oversees the design of our executive compensation and benefit programs and employment practices;

 

administers and makes recommendations regarding our incentive and equity compensation plans;

 

reviews and approves corporate goals and individual objectives relevant to the compensation of the CEO and evaluates the CEO’s performance relative to those goals and objectives, and recommends CEO compensation to the independent directors based on the evaluation;

to the independent directors based on the evaluation;

 

oversees the evaluation of the other executive officers and establishes their compensation levels in collaboration with the CEO;

 

reviews incentive compensation to confirm that such compensation does not encourage unnecessary risk-taking; and

 

monitors senior management succession planning.

Nominating and Governance Committee    The Governance Committee met eightfive times during 2014, three of which were special meetings.2017. The members of the Governance Committee are James J. GaffneyC. Melville (Chair), James C. Melville, James J. O’Connor, and John J. Roberts. Mr. O’Connor will not be standing for reelection at the Annual Meeting. Under its charter, the Governance Committee:

 

monitors the independence of nonemployee directors;

 

reviews and evaluates director candidates and makes recommendations to the Board concerning nominees for election as Board members;

 

establishes criteria for the selection of candidates to serve on the Board;

 

recommends directors for appointment to Board committees;

 

makes recommendations to the Board regarding corporate governance matters;

reviews and makes recommendations to the Board regarding the compensation of nonemployee directors;

 

oversees the Company’s director education and orientation programs; and

 

coordinates an annual self-evaluation of the performance of the Board and each committee through assistance from an independent, third-party advisor.

Other CommitteesIn addition to the threefour standing committees described above, members of the Board regularlymay meet on an ad hoc basis to discuss, review and, as appropriate, approve matters through other committees that have been previously established by the Board. SuchThese ad hoc committees may address such matters as refinancing,environmental considerations, succession planning and crisis response. In connection with the Company’s secondary public offering transaction in March 2014, the Board established a pricing committee which met to review and approve the terms of the transaction.

12    AWI 2018 Proxy Statement

CORPORATE GOVERNANCE(CONTINUED)

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee has ever been an officer or employee of the Company or its subsidiaries, or had any relationship with the Company that requires disclosure under applicable SEC regulations.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Any related party transaction that may arise is required to be reviewed and approved by the Governance Committee, who must have no connection with the transaction. Related party transactions would include transactions by the Company or any subsidiary with any director, director nominee, executive officer, shareholders owning more than 5% of the Company’s outstanding shares of common stock, per share par value $0.01 (“Common Shares,Stock”), or immediate family member of any of the foregoing, and transactions with businesses affiliated with any director or director nominee that meet the specifications in Item 404 of RegulationS-K under the Exchange Act. The Chair of the Governance Committee has authority to approve transactions involving sums less than the disclosure threshold set in Item 404. The material details of any such matters are required to be disclosed to the Governance Committee at its next regular meeting.

LOGO     2015 Proxy Statement    13

CORPORATE GOVERNANCE(CONTINUED)

In connection with his appointmentFollowing the expiration of the Nomination Agreement between ValueAct Capital and the Company in 2016, Mr. Spivy was elected to the Board and continues to receive compensation pursuant to the Nomination Agreement, Mr. Spivy, a Partner of ValueAct Capital, is entitled to receive an annual retainer (payable in cash) of $90,000 for his service on the Board, and an annual equity award in the form of restricted stock units (“Director RSUs”) under the 2008 Directors’ Stock Unit Plan, as amended (“Directors Stock Unit Plan”) having an aggregate fair market value of $105,000 (based on the closing price our Common Shares as reported by the NYSE on the date of grant). The annual retainer and Director RSUs award for Mr. Spivy’s service on the Board commencing in December 2014 through this current term were prorated from the date of his appointment to the Board. The Director RSUs are scheduled to vest on December 17, 2015.nonemployee director compensation program. Mr. Spivy has directed that his cash retainers be directly paid to ValueAct Capital Management, L.P., and under an agreement with ValueAct Capital, Mr. Spivy is deemed to hold it for the benefit of ValueAct Capital Master Fund L.P., and indirectly for other members of the ValueAct Group.

POLICY ON MAJORITY VOTING IN THE ELECTION OF DIRECTORS

In February 2017, our Board adopted a Policy on Majority Voting as one of our Corporate Governance Principles. The Policy provides that in an uncontested election of directors, any nominee

who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election will, within 10 business days following the certification of the shareholder vote, tender his or her written resignation to the Board. Such tendered resignation will be considered by the Governance Committee taking into account any factors or other information it considers appropriate and relevant and, within 60 days following the date of the shareholders’ meeting at which the election occurred, will make a recommendation to the Board concerning the acceptance or rejection of such resignation. The Board will take formal action on the Governance Committee’s recommendation no later than 90 days following the date of the shareholders’ meeting at which the election occurred. The Board will consider the information, factors and alternatives considered by the Governance Committee and such additional factors, information and alternatives as the Board deems relevant.

Following the Board’s decision on the Governance Committee’s recommendation, the Company, within four business days after such decision is made, will publicly disclose, in a Form8-K filed with the SEC, the Board’s decision, and, if applicable, the Board’s reasons for rejecting the tendered resignation. A director whose resignation is accepted by the Board may not bere-appointed to fill the vacancy created by his or her resignation.

No director who is required to tender his or her resignation shall participate in the Governance Committee’s deliberations or recommendation, or in the Board’s deliberations or determination, with respect to accepting or rejecting his or her resignation as a director. If a majority of the members of the Governance Committee are required to tender their resignations, then the independent directors who are not required to tender their resignations will appoint an ad hoc Board committee from amongst themselves, consisting of such number of directors as they may determine to be appropriate, solely for the purpose of considering and making a recommendation to the Board with respect to the tendered resignations. If such ad hoc committee would have been created but fewer than three directors would be eligible to serve on it, then the entire Board (other than the director whose resignation is being considered) will make the determination to accept or reject the tendered resignation without any recommendation from the Committee and without the creation of an ad hoc committee.

AWI 2018 Proxy Statement    13

CORPORATE GOVERNANCE(CONTINUED)

CORPORATE ENVIRONMENTAL AND SOCIAL RESPONSIBILITY

As a leading building products manufacturer, we are committed to operating as a strong corporate citizen across all areas of our business. This commitment is reflected in our ongoing initiatives to design and develop sustainable ceiling and wall products and solutions for every space.

Environmental Sustainability     We are committed to environmental sustainability and are committed to invest in products which drive towards healthier buildings and spaces. We were the first to develop a ceiling recycling program and since 1999, we have diverted more than 200 million square feet of used ceiling tiles from landfills. In 2017, we launched the industry’s first collection of high performance ceiling systems, SUSTAIN™, that are free of Red List chemicals per the Living Building Challenge 3.0 (including no added formaldehyde), have Declare labels, contribute to LEED® v4 and meet the most stringent sustainability compliance standards.

Our effort to reduce and eliminate our environmental footprint throughout the world includes:

upcycling industry waste streams into our products so that we use more waste than we generate, and several of our facilities arezero-waste;

an annual energy reduction target that contributes to greenhouse gas reduction;

rainwater harvesting, water recycling and infrastructure improvements so we use less water;

the first LEED EB Platinum-certified building outside California, Energy Star rated buildings; and

being a founding member in the U.S Green Building Council.

Material Transparency    We are actively involved in developing tools and certifications our customers need to be able to fully assess our products including environmental product declarations and

product certifications and declarations, such as Cradle to Cradle, Declare and Global GreenTagCert™ and the most stringent sustainability compliance standards.

Safety    Safety is a core value at Armstrong; our goal is to have an injury free workplace. As a result of our safety programs, which are integrated into our business from top management to our workers in manufacturing plants, our OSHA recordable rate has been at world class levels for over a decade.

Social Impact    Armstrong World Industries created the Armstrong World Industries Foundation as its philanthropic arm in 1985. Since its inception, the foundation has awarded in excess of $50 million to 501(c)(3) organizations in communities where employees live and work, and that contribute to reaching under-served young people.

More information about our corporate and social responsibility efforts is available in the “Sustainability” section of our website at http://www.armstrongceilings.com.

SHAREHOLDER-RECOMMENDED DIRECTOR CANDIDATES

The Governance Committee will consider director candidates nominated by shareholders. The

procedures for recommending candidates are posted at www.armstrong.com/corporatena/article9748.html under “About Armstrong” and “Corporate Governance.”https://www.armstrongceilings.com/corporate/nominating-governance-committee.html. Shareholders who wish to suggest individuals for service on the Board are requested to review Article II, Section 4 of our Bylaws and supply the information required in (a) through (k) of that Section in a written request to the Corporate Secretary at the Company’s corporate offices at 2500 Columbia Avenue, Lancaster, Pennsylvania 17603.

When evaluating the candidacy of nominees proposed by shareholders, the Governance Committee may request additional information as it may consider reasonable to determine the proposed nominee’s qualifications to serve as a member of the Board. The procedure by which shareholders may recommend nominees to the Board described above reflects changes since our 2014 annual meeting. On July 25, 2014, the Board approved amendments to our Bylaws, including amendments to this process, which took effect immediately upon approval by the Board. The changes are more fully described and summarized in the Current Report on Form 8-K filed by the Company with the SEC on July 28, 2014.

 

 

 
14       LOGO    2015AWI 2018 Proxy Statement 

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information regarding individuals who serve as our executive officers as of April 1, 2018.

NameAgePresent Position and Business Experience During the Last Five Years*

Victor D. Grizzle

56

Armstrong World Industries, Inc.

President & CEO; Director since April 2016

Executive Vice President & CEO, Armstrong Building Products (2011 to March 2016)

Valmont Industries

Group President, Global Structures, Coatings and Tubing (2005)

Brian L. MacNeal

51

Armstrong World Industries, Inc.

Chief Financial Officer since April 2016

Vice President, Global Finance and CFO, Armstrong Building Products (2014 to April 2016)

Heartland Energy Solutions

Interim Chief Financial Officer (2013 to 2014)

Campbell Soup Company

Vice President of Finance (2011 to 2013)

David S. Cookson

60

Armstrong World Industries, Inc.

Senior Vice President, Americas since 2008

Charles M. Chiappone**

55

Armstrong World Industries, Inc.

Senior Vice President, Ceilings Solutions since March 2016

Vice President of Global Marketing & Commercial Excellence,

Armstrong Building Products

(January 2012 to March 2016)

Alloy Polymers, Inc.

President & CEO (2008 to 2012)

Mark A. Hershey

48

Armstrong World Industries, Inc.

Senior Vice President, General Counsel since July 2011

Chief Compliance Officer since February 2012

Secretary (July 2011 to June 2014; since April 2016)

Ricoh Americas Corporation

Senior Vice President, General Counsel, Chief Compliance Officer & Secretary (2008)

Stephen F. McNamara

51

Armstrong World Industries, Inc.

Vice President, Controller since July 2008

Ellen R. Romano

57

Armstrong World Industries, Inc.

Senior Vice President, Human Resources since May 2013

Vice President, Human Resources, Armstrong Building Products (2009)

*Information in parentheses regarding previously held positions indicates either the duration the Executive Officer held the position or the year in which service in the position began.

**In connection with the retirement of Mr. Cookson as of July 1, 2018, Mr. Chiappone was appointed as Senior Vice President, Ceiling and Wall Solutions, effective April 1, 2018.

All executive officers are elected by the Board to serve in their respective capacities until their successors are elected or until their earlier resignation or removal by the Board.

AWI 2018 Proxy Statement    15

COMPENSATION OF DIRECTORS

 

In establishing director compensation for our nonemployee directors, including the overall value of compensation and the mix of cash and equity, the Board analyzes competitive market data and any underlying director compensation trends generally, and compares our program to those of similarly sized companies in comparable industries. The Board is compensated through a combination of annual retainers and equity grants in the form of stock units. The Board believes that this level of compensation supports the Company’s ability to attract directors with suitable backgrounds and experiences. A director who is an officer or employee of the Company or its subsidiaries is not compensated for service on the Board or on any committee of the Board.

In April 2013,

On an annual basis, the Governance Committee reviewedreviews the compensation program for nonemployee directors, including the 2008 Directors’ Stock Unit Plan, as amended (the “2008 Directors Stock Unit

Plan. Plan”) and the 2016 Directors’ Stock Unit Plan, as amended (the “2016 Directors Stock Unit Plan”). The review includedincludes an analysis of competitive market data and any underlying director compensation trends with assistance from an independent compensation consultant.consultant, as required. Following that review in 2017, and a recommendation by the Governance Committee, the Board approved an increase of $5,000 to each annual retainer fee (cash and equity) for directors, and a $10,000 increase to each annual retainer fee (cash and equity)Committee Chair Fee for the Chair, allnewly-formed Finance Committee of $10,000, effective June 21, 2013. The Governance Committee conducted a similar review in April 2014 and determined that no changes to the compensation program for nonemployee directors were necessary. On average, the total compensation levels, as well as cash and equity compensation levels, for our nonemployee directors approximate the 75th percentile, on a per director basis.of October 2017.

 

 

The following table describes the elements of the compensation program for nonemployee directors:directors in 2017:

Director Compensation Program

 

Element  Amount  Terms

Annual Retainer (Cash)(Cash)

  

$90,000

$190,000180,000 (Chair)

  paid in quarterly installments, in arrears

Annual Retainer (Equity)(Equity)

  

$105,000

$205,000185,000 (Chair)

  

annual (orpro-rated) grant of Director RSUs

•   2016 Directors Stock Unit Plan

•   2016 and later grants vest at one year anniversary or earlier change in control if serving on such datedate**

•   pre-2011 grants deliverable six months following end of service (except removal for cause)

•   2011 and later grants deliverable on date of end of service (except removal for cause)

•   one share per one unit upon delivery

•   no voting power until delivered

•   dividend equivalent rights

Committee Chair FeesFees*

  

$20,000 (AC; MDCC)

$10,000 (NGC)(FC; NGC)

  paid in quarterly installments, in arrears

Special Assignment Fees

  

$2,500 per diem

($1,250 for less

than four hours)

  

may be paid in connection with:

•   one-on-one meetings with the CEO

•   plant visits

•   othernon-scheduled significant activities approved by the Chair

*Committees: AC (Audit); FC (Finance); MDCC (Management Development & Development); NGC (Nominating & Governance)

**In prior years, the Annual Retainer (Equity) grants were made pursuant to the 2011 Directors Stock Unit Plan, which did not provide for deferral of equity vesting, which would then vest at the one year anniversary or earlier change in control if serving on such date. Grants made under this planpre-2011 grants were deliverable six months following end of service (except removal for cause), while grants made 2011 and later were deliverable on date of end of service (except removal for cause).

16    AWI 2018 Proxy Statement

COMPENSATION OF DIRECTORS(CONTINUED)

 

Annual grants for the equity portion of the retainer are effective as of the first business day following the date of the annual meeting,Annual Meeting, and the amount of

each grant is determined by the NYSE closing price of our shares of Common SharesStock on that date.

 

LOGO     2015 Proxy Statement    15

COMPENSATION OF DIRECTORS(CONTINUED)

Director Compensation Table – 20142017

 

Name

(a)

  

Fees

Earned or

Paid

in Cash ($)

(b)

   

Stock

Awards ($)(1)

(c)

   

Option

Awards

($)(2)

(d)

   

Non-Equity

Incentive

Plan

Compensation

($)

(e)

   

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings

($)(3) (f)

   

All

Other

Compensation

($)(4)

(g)

   

Total ($)

(h)

   Fees
Earned or
Paid
in Cash ($)
(b)		  Stock
Awards ($)(1)
(c)		  Option
Awards
($)(2)
(d)		  

Non-Equity
Incentive

Plan
Compensation
($)

(e)

  Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(3)(f)		  

All

Other
Compensation
($)(g)

  Total ($)
(h)

S. Askren

   110,000     105,000     —       —       —       —       215,000      110,000    105,000    —      —      —      —      215,000

J. Gaffney

   100,000     105,000     —       —       —       —       205,000  

T. Huang

   90,000     105,000     —       —       —       2,300     197,300      90,000    105,000    —      —      —      —      195,000

M. Johnston

   90,000     105,000     —       —       —       —       195,000  

J. Liaw

   90,000     105,000     —       —       —       —       195,000  

L. McWilliams

   90,000     105,000     —       —       —       1,885     196,885      90,000    105,000    —      —      —      —      195,000

J. Melville

   90,000     105,000     —       —       —       22,500     217,500      100,000    105,000    —      —      —      —      205,000

J. O’Connor

   190,000     205,000     —       —       —       17,500     412,500      180,000    185,000    —      —      —      —      365,000

J. Roberts

   110,000     105,000     —       —       —       —       215,000      110,000    105,000    —      —      —      —      215,000

G. Spivy(5)

   3,825     53,560     —       —       —       —       57,385  

R. Wenz

   90,000     105,000     —       —       —       800     195,800  

G. Spivy(4)

    90,000    105,000    —      —      —      —      195,000

R. Templin

    92,500    105,000    —      —      —      —      197,500

C. Thomas

    90,000    105,000    —      —      —      —      195,000
(1)Represents amounts that are in units of our shares of Common Shares.Stock. The amounts reported represent the aggregate grant date fair value for Director RSUs granted during the fiscal year, as calculated under the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718. Under ASC Topic 718, the grant date fair value is calculated using the closing market price of our shares of Common SharesStock on the date of the grant. For the number of Director RSUs credited to each director’s account as of March 31, 2015,2018, see SECURITIESSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS, pages 18 and 19.
(2)The directorsDirectors do not receive stock options as part of their compensation for service on our Board.
(3)There is no plan or arrangement forUnder the 2016 Directors Stock Unit Plan, directors may elect to defer the equity compensation that they receive as part of their compensation for serviceservices on our Board.
(4)Reflects incremental costs incurred by the Company for spouse travel at the February 2014 Board meeting. The amounts for Messrs. Melville and O’Connor also reflect the amounts they received for special assignment fees in connection with certain non-scheduled significant activities and projects.
(5)Mr. Spivy received a pro-rated payment of the fourth quarterly installment of the 2014 annual cash retainer, and a pro-rated grant of Director RSUs as the equity portion of his retainer for Board service, in December 2014 following his appointment to the Board on December 15, 2014. Under an agreement with ValueAct Capital, Mr. Spivy is deemed to receive the cash portion of his retainer for Board service and hold the Director RSUs for the benefit of ValueAct Capital Master Fund, L.P. and indirectly for (i) VA Partners I, LLC as General Partner of ValueAct Capital Master Fund, L.P., (ii) ValueAct Capital Management, L.P. as the manager of ValueAct Capital Master Fund, L.P., (iii) ValueAct Capital Management, LLC as General Partner of ValueAct Capital Management, L.P., (iv) ValueAct Holdings, L.P. as the sole owner of the limited partnership interests of ValueAct Capital Management, L.P. and the membership interests of ValueAct Capital Management, LLC and as the majority owner of the membership interests of VA Partners I, LLC and (v) ValueAct Holdings GP, LLC as General Partner of ValueAct Holdings, L.P.

 

16AWI 2018 Proxy Statement       LOGO    2015 Proxy Statement17

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS

Certain Beneficial Owners

The following table sets forth information regarding persons or groups known to us to be beneficial owners of more than 5% of our outstanding shares of Common SharesStock as of March 31, 20152018 or the date of any applicable reports filed by such persons or groups prior to that date. Beneficial ownership is determined in accordance with applicable rules of the SEC.

 

Name and Address of Beneficial Owner  

Amount and Nature

of Beneficial

Ownership

 

Percent of Class

Outstanding(1)

ValueAct Capital Master Fund, L.P.

One Letterman Drive, Building D,4th Floor

San Francisco, CA 94129

   9,200,0006,852,612(2)  16.613.1%

Armstrong World Industries, Inc.Iridian Asset Management LLC

Asbestos Personal Injury Settlement Trust276 Post Rd. W.

c/o Edward E. SteinerWestport, CT 06880

Keating Muething & Klekamp PLL

One East Fourth Street, Suite 1400

Cincinnati, OH 45202

  6,793,1745,739,634(3)  12.311.0%

Eton Park Fund, L.P.The Vanguard Group

399 Park Ave, 10th Floor100 Vanguard Blvd.

New York, NY 10022Malvern, PA 19355

  4,065,4463,601,807(4)  7.46.9%

T. Rowe Price Associates, Inc.

100 E. Pratt Street

Baltimore, MD 21202

   2,856,0303,198,611(5)  5.26.1%

 

(1)Based on 55,273,12452,198,476 shares of ourthe Company’s Common SharesStock outstanding as of March 31, 2015,2018, as reported to the NYSE (60,330,506(61,374,320 shares reported, less 5,057,3829,175,844 shares held in treasury).
(2)On a Schedule 13D Amendment No. 12 filed with the SEC on December 16, 2014,March 14, 2018, ValueAct Master Fund, L.P. reported shared voting and dispositive power with respect to these shares of Common Shares.Stock. Shares reported as beneficially owned by ValueAct Master Fund are also reported as beneficially owned by (i) ValueAct Management L.P. as the manager of each such investment partnership, (ii) ValueAct Management LLC, as General Partner of ValueAct Management L.P., (iii) ValueAct Holdings, as the sole owner of the limited partnership interests of ValueAct Management L.P. and the membership interests of ValueAct Management LLC and as the majority owner of the membership interests of VA Partners I and (iv) ValueAct Holdings GP, as General Partner of ValueAct Holdings. Shares reported as beneficially owned by ValueAct Master Fund are also reported as beneficially owned by VA Partners I, as General Partner of ValueAct Master Fund. VA Partners I, ValueAct Management L.P., ValueAct Management LLC, ValueAct Holdings and ValueAct Holdings GP also, directly or indirectly, may own interests in one or more than one of the partnerships from time to time. By reason of such relationship ValueAct Master Fund is reported as having shared power to vote or to direct the vote, and shared power to dispose or direct the disposition of, these shares of Common Shares,Stock of the Company, with VA Partners I (only with respect to ValueAct Master Fund), ValueAct Management L.P., ValueAct Management LLC, ValueAct Holdings and ValueAct Holdings GP.
(3)On a Schedule 13G Amendment No. 12 filed with the SEC on February 25, 2015, the Trust6, 2018, Iridian Asset Management LLC, David L. Cohen and Harold L. Levy reported that, as of February 24, 2015, itDecember 31, 2017, they had shared voting and dispositive power with respect to 5,734,634 shares of Common Stock of the Company, and David L. Cohen reported that, as of December 31, 2017, he had sole voting and dispositive power with respect to these5,000 shares of Common Shares.Stock of the Company.
(4)On a Schedule 13G Amendment No. 12 filed on with the SEC on February 17, 2015, Eton Park Fund, L.P.12, 2018, the VanguardGroup—23-1945930 reported, as of December 31, 2014,2017, sole voting power with respect to 26,724 shares of Common Stock of the Company, shared voting andpower with respect to 5,067 shares of Common Stock, sole dispositive power with respect to these3,573,442 shares of Common Shares as follows: Eton Park Master Fund, Ltd. (“EP Master Fund”),Stock of the Company and shares dispositive power with respect to 28,365 shares of Common Stock as follows: Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 23,298 shares or .04% of the shares of Common Shares directly owned by it; Eton Park Associates, L.P. (“EP Associates”), which servesStock outstanding of the Company as the general partnera result of EP Fund, with respect to the Common Shares directly owned by EP Fund; Eton Park Capital Management, L.P. (“EP Management”), which servesits serving as investment manager to EP Master Fund and EP Fund, with respect toof collective trust accounts, Vanguard Investments Australia, Ltd., a wholly owned subsidiary of The Vanguard Group, Inc., is the Common Shares directly owned by eachbeneficial owner of EP Master Fund and EP Fund; and Eric M. Mindich (“Mr. Mindich”), (i) as managing member of Eton Park Associates, L.L.C., the general partner of EP Associates, with respect to the Common Shares directly owned by EP Fund and (ii) as managing member of Eton Park Capital Management, L.L.C., the general partner of EP Management, with respect to the Common Shares directly owned by each of EP Fund and EP Master Fund. Mr. Mindich disclaims beneficial ownership of any8,493 shares or 0.1% of the securities held by EP Fund and EP Master Fund.shares of Common Stock outstanding of the Company as a result of its serving as investment manager of Australian investment offerings.
(5)On a Schedule 13G filed on with the SEC on February 12, 2015,14, 2018, T. Rowe Price Associates, Inc. reported, that, as of December 31, 2014,2017, that it had sole voting power with respect to 437,024 shares of Common Stock of the Company and sole dispositive power with respect to these3,198,611 shares of Common Shares.Stock of the Company, and T. Rowe Price New Horizons Fund, Inc. reported, as of December 31, 2017, that it had sole voting power with respect to 2,749,787 shares of Common Stock outstanding of the Company.

 

LOGO     2015 Proxy Statement18       17AWI 2018 Proxy Statement

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS(CONTINUED)

 

Management and Directors

The following table sets forth, as of March 31, 2015,2018, the amount of shares of Common SharesStock beneficially owned by all directors, the Company’s currently serving named executive officers (“NEOs”) as identified in the “COMPENSATION DISCUSSION AND ANALYSIS” section on page 2426 and all directors and executive officers as a group in accordance with applicable SEC rules.

 

Name  

Number of
Common
Shares

Beneficially
Owned

   

Number of
Shares Subject
to Options(1)
Exercisable or
Which Become
Exercisable

Within 60 Days

 Total
Number of
Shares
Beneficially
Owned(2)		   Restricted
Stock
Units(3) /
Unvested
Options		   Total Common
Shares
Beneficially
Owned Plus
Restricted Stock
Units and
Unvested
Options		   Number of
Common
Shares
Beneficially
Owned		   Number of
Shares Subject
to Options(1)
Exercisable or
Which Become
Exercisable
Within 60 Days		 Total
Number of
Shares
Beneficially
Owned(2)		   Restricted
Stock
Units(3)/
Unvested
Options		   Total Common
Shares Beneficially
Owned Plus
Restricted Stock
Units and
Unvested Options		 

Stan A. Askren

   0     **   0     23,309     23,309     2,612    **   2,612    31,116    33,728 

Matthew J. Espe

   63,484     650,488    713,972     136,371     850,343  

James J. Gaffney

   0     **   0     17,309     17,309  

Charles M. Chiappone

   4,514    11,992   16,506    31,206    47,712 

David S. Cookson

   20,869    27,336   48,205    30,027    78,232 

Victor D. Grizzle

   19,333     93,213    112,546     36,581     149,127     35,990    130,309   166,299    228,233    394,532 

Mark A. Hershey

   5,567     46,278    51,845     25,450     77,295     16,364    69,496   85,860    45,241    131,101 

Tao Huang

   0     **   0     16,627     16,627     —      **   —      26,097    26,097 

Michael F. Johnston

   0     **   0     16,627     16,627  

Jeffrey Liaw

   0     **   0     4,758     4,758  

Donald R. Maier

   15,882     52,778    68,660     37,305     105,965  

Brian L. MacNeal

   2,222    3,740   5,962    42,770    48,732 

Larry S. McWilliams

   0     **   0     16,627     16,627     —      **   —      26,097    26,097 

James C. Melville

   4,229     **   4,229     6,947     11,176     4,229    **   4,229    15,041    19,270 

James J. O’Connor

   7,000     **   7,000     37,250     44,250     7,000    **   7,000    55,484    62,484 

John J. Roberts

   0     **   0     17,309     17,309     2,612    **   2,612    24,263    26,875 

David S. Schulz

   803     15,337    16,140     21,957     38,097  

Gregory P. Spivy(4)

   0     **   0     1,088     1,088  

Richard E. Wenz

   0     **   0     16,627     16,627  

Directors and Executive Officers as a group (18 persons)(5)

   125,261     902,662    1,027,923     449,767     1,477,690  

Gregory P. Spivy(6)

   2,612    **   2,612    5,737    8,349 

Roy W. Templin

   4,816    **   4,816    2,298    7,114 

Cherryl T. Thomas

   —      **   —      5,592    5,592 

Directors and Executive Officers as a group (16 persons)(5)

   118,439    281,041   399,480    610,291    1,009,771 

 

(1)Directors do not receive stock option grants under the 2008 Directors Stock Unit Plan, the 2016 Directors Stock Unit Plan or as part of the compensation program for directors.
(2)No individual director or executive officer other than Mr. Espe beneficially owns 1% of the shares of Common SharesStock outstanding as of March 31, 2015.2018. The directors and executive officers as a group beneficially own approximately 3%1.7% of the shares of Common SharesStock outstanding as of March 31, 2015.2018.
(3)Represents, in the case of NEOs, unvested time-based restricted stock units (“NEO RSUs”) granted to them under the 2006, 2011 and 20112016 Long-Term Incentive Plan, as applicable, and, in the case of nonemployee directors, vested and unvested stock units (Director RSUs) granted to them as part of their annual retainer for Board service that are not acquirable by the director within 60 days of March 31, 20152018 under the terms of the 2008 Directors Stock Unit Plan and the 2016 Directors Stock Unit Plan. See Directors Aggregate Ownership table below for further information. Neither the unvested NEO RSUs nor the Director RSUs have voting power.
(4)Mr. Spivy received a pro-rated grant of Director RSUs asUnder the equity portion of his retainer for Board service in December 2014 following his appointment to the Board on December 15, 2014. Under an agreementNomination Agreement with ValueAct Capital, Mr. Spivy is deemed to hold the Director RSUs for the benefit of ValueAct Capital Master Fund, L.P. and indirectly for (i) VA Partners I, LLC as General Partner of ValueAct Capital Master Fund, L.P., (ii) ValueAct Capital Management, L.P. as the manager of ValueAct Capital Master Fund, L.P., (iii) ValueAct Capital Management, LLC as General Partner of ValueAct Capital Management, L.P., (iv) ValueAct Holdings, L.P. as the sole owner of the limited partnership interests of ValueAct Capital Management, L.P. and the membership interests of ValueAct Capital Management, LLC and as the majority owner of the membership interests of VA Partners I, LLC and (v) ValueAct Holdings GP, LLC as General Partner of ValueAct Holdings, L.P.
(5)Includes amounts for Ellen R. Romano, SVP, Human Resources and Stephen F. McNamara, VP, Controller.

 

18AWI 2018 Proxy Statement       LOGO    2015 Proxy Statement19

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS(CONTINUED)

 

Directors – Aggregate Ownership

The table below sets forth, as of March 31, 2015,2018, additional detail as to each nonemployee director’s ownership and rights to ownership in the Company’s equity.

 

Name  Common
Shares		   Vested
Restricted
Stock  Units(1)		   Unvested
Restricted
Stock
Units(2)		   Phantom
Stock
Units(3)		   Total
Equity		   

Total

Value(4)

   Common
Shares		   Vested
Restricted
Stock  Units(1)		   Unvested
Restricted
Stock
Units(2)		   Phantom
Stock
Units(3)		   Total
Equity		   

Total

Value(4)

 

Stan A. Askren

   0     21,467     1,842     —       23,309    $1,339,568     2,612    28,818    2,298    —      33,728   $1,898,886 

James J. Gaffney

   0     15,467     1,842     10,038     17,309    $1,571,632(5) 

Tao Huang

   0     14,785     1,842     —       16,627    $955,553     —      23,799    2,298    —      26,097   $1,469,261 

Michael F. Johnston

   0     14,785     1,842     —       16,627    $955,553  

Jeffrey Liaw

   0     2,916     1,842     —       4,758    $273,442  

Larry S. McWilliams

   0     14,785     1,842     —       16,627    $955,553     —      23,799    2,298    —      26,097   $1,469,261 

James C. Melville

   4,229     5,105     1,842     —       11,176    $642,284     4,229    12,743    2,298    —      19,270   $1,084,901 

James J. O’Connor

   7,000     33,654     3,596     —       44,250    $2,543,047     7,000    51,435    4,049    —      62,484   $3,517,849 

John J. Roberts

   0     15,467     1,842     10,038     17,309    $1,571,632(5)    2,612    21,965    2,298    11,773    26,875   $2,175,882(5) 

Gregory P. Spivy(6)

   0     0     1,088     —       1,088    $62,527     2,612    3,439    2,298    —      8,349   $470,049 

Richard E. Wenz

   0     14,785     1,842     —       16,627    $955,553  

Roy W. Templin

   4,816    —      2,298    —      7,114   $400,518 

Cherryl T. Thomas

   —      3,294    2,298    —      5,592   $314,830 

Total

   11,229     153,216     21,262     20,076     185,707    $11,826,344     23,881    169,292    22,433    11,773    215,606   $12,801,438 
(1)Under the terms of the 2008 Directors Stock Unit Plan, the Director RSUs granted to each director as part of his or her retainer for Board service are not acquirable by the director until (i) for those Director RSUs granted prior to June 2011, the earlier of thesix-month anniversary of the director’s separation from the Board for any reason other than a removal for cause or the date of a Change in Control Event (as defined in the 2008 Directors Stock Unit Plan); or (ii) for those Director RSUs granted during and after June 2011, on the date of the director’s separation from the Board for any reason other than a removal for cause or the date of a Change in Control Event (as defined in the 2008 Directors Stock Unit Plan). Under the terms of the 2016 Directors Stock Unit Plan, the Director RSUs granted to each director as part of his or her retainer for Board Service shall vest (contingent upon the Director’s continued service as of such date) on the earlier of (i) theone-year anniversary of the grant; (ii) the death or total and permanent disability of the Director; or (iii) the date of any Change in Control Event (as defined in the Plan).
(2)Under the terms of the 2008 Directors Stock Unit Plan, Director RSUs vest on the first anniversary of the grant date. Under the terms of the 2016 Directors Stock Unit Plan, the vested units will be acquirable by the Director, at the election of the Director: (i) at the vesting of the units at theone-year anniversary of the grant or (ii) at the time of the Director’s termination of service. All of the director RSUs listed in this column will vest on June 23, 2015, except for the Director RSUs for Mr. Spivy, which vest on December 17, 2015, the first anniversary of the grant date for such Director RSUs.July 13, 2018.
(3)Phantom Stock Units awarded under the Company’s 2006 Phantom Stock Unit Plan (“Phantom Stock Unit Plan”) become payable (“Phantom Units Payment Date”) in cash on the earlier of thesix-month anniversary of the director’s separation from the Board for any reason other than a removal for cause or the date of a Change in Control Event (as defined in the Phantom Stock Unit Plan). The cash payment amount will be equal to the number of units multiplied by the closing price of the shares of Common SharesStock on the stock exchange on which such shares are traded on the Phantom Units Payment Date.
(4)Represents an amount equal to the sum of the number of shares of Common SharesStock beneficially owned, plus the number of vested and unvested Director RSUs, plus the number of Phantom Stock Units held, as applicable, multiplied by $57.47,$56.30, which was the closing price of the shares of Common SharesStock of the Company on the NYSE on March 31, 2015.29, 2018.
(5)Amount excludes $276,151.32 in accrued dividends (non-interest(non-interest bearing).
(6)Mr. Spivy received a pro-rated grant of Director RSUs asUnder the equity portion of his retainer for Board service in December 2014 following his appointment to the Board on December 15, 2014. Under an agreementNomination Agreement with ValueAct Capital, Mr. Spivy is deemed to hold the Director RSUs for the benefit of ValueAct Capital Master Fund, L.P. and indirectly for (i) VA Partners I, LLC as General Partner of ValueAct Capital Master Fund, L.P., (ii) ValueAct Capital Management, L.P. as the manager of ValueAct Capital Master Fund, L.P., (iii) ValueAct Capital Management, LLC as General Partner of ValueAct Capital Management, L.P., (iv) ValueAct Holdings, L.P. as the sole owner of the limited partnership interests of ValueAct Capital Management, L.P. and the membership interests of ValueAct Capital Management, LLC and as the majority owner of the membership interests of VA Partners I, LLC and (v) ValueAct Holdings GP, LLC as General Partner of ValueAct Holdings, L.P.

 

LOGO     2015 Proxy Statement    19

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS(CONTINUED)

Stock Ownership Guidelines

In accordance with our Corporate Governance Principles, each nonemployeenon-employee director must acquire and then hold until six months following the

end of his or her service, phantom units and/or shares of Common SharesStock equal in value to three times the director’s annual retainer at the time he or she joined the Board. Directors endeavor to reach that level of ownership within five

years of joining the Board. With the exception of Messrs. Liaw and Spivy, all of the current directors have already achieved this ownership requirement. Mr. Espe is an officer of the Company and, therefore, not subject to the stock ownership guidelines for nonemployee directors. Messrs. Liaw and Spivy first became eligible to participate in the nonemployee director compensation program in February 2013 and December 2014, respectively.

 

 

 
20       LOGO    2015AWI 2018 Proxy Statement 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND DIRECTORS(CONTINUED)

the Board. With the exception of Mr. Spivy, Mr. Templin, and Ms. Thomas, all of the current directors have achieved this ownership requirement. As an officer of the Company, Mr. Grizzle is not subject to the stock ownership

guidelines for nonemployee directors. Mr. Spivy, Ms. Thomas and Mr. Templin first became eligible to participate in the nonemployee director compensation program in December 2014, April 2016 and September 2016, respectively.

AWI 2018 Proxy Statement    21

ITEM 2 – RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee selected KPMG LLP to audit our consolidated financial statements and our internal control over financial reporting for 2015.2018. In accordance with past practice, this selection will be presented to the shareholders for ratification at the annual meeting;Annual Meeting; however, consistent with the requirements of the Sarbanes-Oxley Act of 2002, the Audit Committee has ultimate authority in respect of the selection of our independent

registered public accounting firm. The Audit Committee may reconsider its selection if the appointment is not ratified by the shareholders.

A representative of KPMG LLP will be in attendance at the annual meetingAnnual Meeting to respond to appropriate questions and will be afforded the opportunity to make a statement at the meeting, if he or she desires to do so.

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTEFOR THE RATIFICATION OF THE APPOINTMENT OF KPMG LLP.

 

LOGO     2015 Proxy Statement22       21AWI 2018 Proxy Statement

AUDIT COMMITTEE REPORT

The Audit Committee engaged KPMG LLP as the Company’s independent registered public accounting firm for 2014.2018. In making this selection, the Audit Committee considered KPMG LLP’s qualifications, discussed with KPMG LLP its independence, and reviewed the audit andnon-audit services provided by KPMG LLP to the Company.

Management of the Company has primary responsibility for preparing the Company’s financial statements and establishing effective internal control over financial reporting. KPMG LLP is responsible for auditing those financial statements and expressing an opinion on the conformity of the Company’s audited financial statements with accounting principles generally accepted in the United States and on the effectiveness of the Company’s internal control over financial reporting based on the criteria established in 19922013 by the Committee of Sponsoring Organizations of the Treadway Commission. Accordingly, the Audit Committee reviewed and discussed the audited consolidated financial statements for fiscal 20142017 with the Company’s management. The Audit Committee also reviewed and discussed with management the critical accounting policies applied by the Company in the preparation of those financial statements. The Audit Committee also discussed with KPMG LLP the matters required to be discussed by applicable standards of the Public Company Accounting Oversight Board, and had the opportunity to ask KPMG LLP questions relating to such matters. The discussions included the quality, and not just the acceptability, of the accounting principles utilized, the reasonableness of significant accounting judgments, and the clarity of disclosures in the financial statements.

The Audit Committee regularly considers the independence, qualifications and performance of KPMG.KPMG LLP. Such consideration includes reviewing the written disclosures and the letter received from KPMG LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accountants’ communications with the Audit Committee concerning independence, and discussing with KPMG LLP their independence.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in Armstrong’sthe Company’s Annual Report on Form10-K for the year ended December 31, 2014. The Audit Committee has also engaged KPMG as the Company’s independent registered public accounting firm for 2015.2017. The Audit Committee and the Board believe that the continued retention of KPMG LLP to serve as the Company’s independent registered public accounting firm is in the best interests of the Company and its shareholders and have recommended that shareholders ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year 2015.2018.

Submitted by the Audit Committee

John J. Roberts (Chair)

Tao Huang

Jeffrey Liaw

Larry S. McWilliams

Richard E. WenzRoy W. Templin

Cherryl T. Thomas

 

22AWI 2018 Proxy Statement       LOGO    2015 Proxy Statement23

FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The following table presents fees for professional audit services rendered by KPMG LLP for the audit of our annual consolidated financial statements for 20142017 and 2013 and2016, as well as fees billed for other services rendered by KPMG LLP. All fees in 20142017 and 20132016 werepre-approved by the Audit Committee.

 

  (amounts in thousands) 
      2014           2013     
(amounts in thousands)      2017           2016     

Audit Fees(1)

  $4,274    $4,203    $3,444   $2,625 

Audit Related Fees(2)

   246     215     1,823    91 

Audit and Audit Related Fees Subtotal

   4,520     4,418     5,267    2,716 

Tax Fees(3)

   1,630     1,490     983    1,833 

All Other Fees(4)

   —      —   

All Other Fees

   —      —   

Total Fees

  $6,150    $5,908    $6,250   $4,549 

 

(1)Audit Fees are for services rendered in connection with the integrated audit of Armstrong’s consolidated financial statements as of and for the year, for which a portion of the billings occurred the following year. Audit fees were also incurred for reviews of consolidated financial statements included in Armstrong’sthe Company’s quarterly reports on Form10-Q and services normally provided in connection with statutory and regulatory filings,filings. Audit Fees in 2017 also include fees associated with the impact of U.S. tax reform, resegmentation of the business, and services for comfort letters.the adoption of FASB ASC 606.

 

(2)Audit RelatedAudit-Related Fees consisted principally of fees for audits of financial statements of certain employee benefit plans, agreed-upon procedures, accounting research assistance on technical topics and other matters with respect tonon-U.S. statutory financial statements. Audit-Related Fees in 2017 also include fees associated with sell-side due diligence activities in connection with the sale of the Company’s International Business.

 

(3)Tax Fees were primarily for preparation of tax returns innon-U.S. jurisdictions, assistance with tax audits and appeals and other tax consultation and compliance services.

The Audit Committee has considered whether the provision by KPMG LLP of thenon-audit services described above was allowed under Rule2-01(c)(4) of RegulationS-X and was compatible with maintaining auditor independence, and has concluded that KPMG LLP was and is independent of the Company in all respects.

Audit CommitteePre-Approval Policy

The Audit Committee adheres to a policy that requires the Audit Committee’s prior approval of any audit, audit-related andnon-audit services provided by the firm that serves as our independent registered public accounting firm. Pursuant to this policy, management cannot engage the firm for any services without the Audit Committee’spre-approval. The Audit Committee delegates to the Audit Committee Chair the authority to pre-approve non-auditpre-approvenon-audit services not exceeding 5% of the total audit fees for the year for purposes of handling immediate needs, with a report to the full Audit Committee of such approvals at its next meeting. The policy complies with Section 10A(i) of the Exchange Act.

LOGO     2015 Proxy Statement    23

COMPENSATION DISCUSSION AND ANALYSIS

INTRODUCTION

This compensation discussionAuditor Tenure

Through more than 90 years of experience with Armstrong, KPMG LLP has gained institutional knowledge of and analysis (“CD&A”) includes a detailed description of our executive compensation programsdeep expertise regarding Armstrong’s global operations and philosophy, which are generally applicable to all of our management employees. However, this CD&A focuses primarily on the material components of our executive compensation program as they apply to our NEOs. In 2014, our NEOs were(1):

Matthew J. Espe President and CEO

David S. Schulz Senior Vice President and CFO

Victor D. Grizzle Executive Vice President and CEO, Armstrong Building Products (“ABP”)

Donald R. Maier(2) Executive Vice President and CEO, Armstrong Floor Products (“AFP”) and former Senior Vice President Global Operations Excellence

Mark A Hershey Senior Vice President, General Counsel, and Chief Compliance Officer

Thomas B. Mangas(3) Former Executive Vice President and CEO, AFP

(1)We determined the above NEOs for 2014 in accordance with SEC rules, which require that we include: all individuals who served as our principal executive officer (Mr. Espe) and principal financial officer (Mr. Schulz), regardless of compensation level during the year; our three most highly compensated executive officers other than the principal executive officer and principal financial officer who were serving as executive officers at the end of the last completed fiscal year (Messrs. Grizzle, Maier and Hershey); and up to two additional individuals for whom disclosure would have been provided under the applicable rules except for the fact that the individual was not serving as an executive officer at the end of the last completed fiscal year (Mr. Mangas).

(2)Mr. Maier was appointed EVP & CEO, AFP effective September 26, 2014, succeeding Mr. Mangas. This appointment superseded a previous Transition Agreement (filed with the SEC on Form 8-K on April 4, 2014), under which his role was to terminate on December 31, 2014.

(3)Mr. Mangas served as our global AFP leader until September 26, 2014, when he resigned from his position with the Company.

Executive Summary

Our Business

We are a global leader in the design and manufacture of floors and ceilings. As of December 31, 2014, we operated 31 plants in eight countries and had approximately 7,400 employees worldwide.

Executive Compensation Programs

Our executive compensation programs are designed to attract and retain high caliber talent, reward performance, and closely align the interests of our executives with the interests of our shareholders. We execute this philosophy through the payment of base salaries, cash incentive awards under our Management Achievement Plan (“MAP”), and grants of a combination of time-based and performance-based restricted stock units (“RSU” and “PSU”, respectively) and stock options under our 2011 Long-Term Incentive Plan (“LTIP”).

To focus our NEOs on delivering both short- and long-term results, a significant amount of their target total direct compensation (“TDC”, composed of base salary, short-term and long-term incentive compensation) mix is dependent upon achieving specified results and is, therefore, “at risk.” We also employ specificbusinesses, accounting policies and practices, to supplement our compensation philosophy, including:

Stock ownership guidelines to ensure NEOs have exposure to changes in our stock price, thereby aligning NEO and long-term shareholder interests.

Ability to recoup certain stock-based awards in the event of termination of employment for willful, deliberate or gross misconduct or in the event a participant engages in injurious conduct after termination of employment. To the extent the SEC adopts future rules for clawback policies that require changes to our policies, we will revise our policies as appropriate.

internal control over financial reporting. We believe KPMG LLP’s aggregate fees are competitive with peer companies.

 

 
24       LOGO    2015AWI 2018 Proxy Statement 

ITEM 3 – ADVISORY APPROVAL OF EXECUTIVE COMPENSATION

The Company is seeking your advisory vote on our executive compensation program. The Company asks that you support the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis section and the accompanying tables contained in this Proxy Statement. Because your vote is advisory, it will not be binding on the Board or the Company. However, the Board will review the voting results and take them into consideration when making future decisions regarding executive compensation.

The Company has in the past sought approval from shareholders regarding the incentive plans that we use to motivate, retain, and reward our executives. Those incentive plans, including the 2011 Long-Term Incentive Plan and the 2016 Long-Term Incentive Plan, make up a majority of the pay that the Company provides to our executives. Over the years, the Company has made a number of changes to its disclosures concerning executive compensation, as well as to its executive compensation programs, in response to shareholder input, including a number of enhancements mentioned in this proxy statement.

Our executive compensation program has played a material role in our ability to drive strong financial results and attract and retain a highly experienced, successful team to manage our company.

We believe that our executive compensation program, which was modified by our Compensation Committee in connection with the separation, is structured appropriately to support our company and our business objectives, particularly our post-separation structure and strategies.

Our Compensation Committee has developed and maintained a compensation program that is intended to: align executive interests with shareholders’ interest; link pay and performance by placing a significant portion of compensation “at risk” based on performance againstpre-established goals; and provide a competitive level of compensation to enable access to high-quality executives in a competitive way.

As reflected in the total shareholder return components of our new program, if the value we deliver to our shareholders increases, so does the compensation we deliver to our executives.

We maintain strong corporate governance over our executive pay programs. We closely monitor the compensation programs and pay levels of executives from companies of similar size and complexity, so that we may ensure that our compensation programs are within the norm of a range of market practices.

Our Compensation Committee, our Chief Executive Officer, and our head of Human Resources engage in a rigorous talent review process annually to address succession and executive development for our CEO and other key executives.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTEFOR THE COMPANY’S COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THE COMPENSATION DISCUSSION AND ANALYSIS SECTION AND THE ACCOMPANYING COMPENSATION TABLES CONTAINED IN THIS PROXY STATEMENT.

AWI 2018 Proxy Statement    25

COMPENSATION DISCUSSION AND ANALYSIS

In this compensation discussion and analysis (“CD&A”) section, we review the objectives and elements of our executive compensation philosophy, as well as the alignment of our program with the Company’s performance and compensation decisions in 2017 relating to our named executive officers (“NEOs”).

(CONTINUED)EXECUTIVE SUMMARY

Business Overview

 

Insider trading policy prohibiting derivative transactions in our Common Shares, including: trading in puts, calls, covered calls, or other derivative products involving our securities; prohibiting engaging in any hedging or monetization transaction with respect to our securities; and, prohibiting holding company securities inWe are a margin account or pledging our securities as collateral for a loan.

Double trigger vesting of equity grants upon a change in control.

No plans or agreements that provide tax gross-ups to our NEOs under Section 280G of the Internal Revenue Code (“Code”).

2014 Business Highlights

In 2014, we focused on growing our core businesses in established and emerging markets and continued our disciplined effort to create an efficient and productive culture while facing challenging market conditions that included continued contraction of key commercial segmentsglobal leader in the Americasdesign, innovation and Europe.manufacture of commercial and residential ceiling, wall and suspension system solutions. We design, manufacture and sell ceilings and wall systems (primarily mineral fiber, fiberglass wool and metal).

KeyOur fiscal year 2017 key performance highlights included:

 

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)* of $384 million was up $12 million, or 3 percent, from 2013, driven by favorable price and mix, manufacturing productivity and higher earnings from our WAVE joint venture with Worthington Industries.

Consolidated net sales decreased $12 million, or 0.5 percent. The decrease was driven by unfavorable impact of foreign exchange of approximately $19 million. Lower volumes of $100 million were more than offset by $106 million of favorable price and mix.

$64 million of Free Cash Flow, which was lower than 2013, primarily due to changes in working capital, which was unusually favorable in 2013, and increased capital expenditures, which were partially offset by the cash settlement of a Ruble

• 

hedge related to the fundingAdjusted EBITDA:    Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”)* of $317 million on a continuing operations basis, a 7.5% improvement over 2016. The core value drivers of our Russia plant construction project, higher cash earnings, increased dividends from our WAVE joint venturebusiness enabled the improvement, namely increases in sales volume and average unit value (“AUV”) plus lower interest expense.selling, general and administration (“SG&A”) expenses.

•

Consolidated Net Sales:    Consolidated constant currency net sales increased 6.7% over 2016. The increase was driven by higher AUV, in which both mix and like for like pricing were positive, and higher volume.

•

Free Cash Flow (“FCF”):    $147 million of FCF, defined as cash flow from operations minus cash flow used in investing activities, exceeded the high end of our guidance range of $145 million, a 26% improvement over 2016.

•

Adjusted Earnings Per Share (“EPS”):    Adjusted EPS of $3.02, an improvement of 23% over 2016.

•

Investments:    Concluded $100 million of capital investments in manufacturing capabilities to enable production of Total Acoustics and Sustain product lines and our flexible design capabilities.

•

Business Development:    Acquired and integrated Tectum, Inc., an Ohio-based manufacturer of acoustical wall systems and roof decks.

•

Share Repurchase:    We repurchased 1.8 million shares of our Common Stock in 2017 under our ongoing share-repurchase program for a total cost of $80.4 million, or an average price of $43.58 per share.

•

Cost Reduction:    We took actions to optimize our North America manufacturing footprint and overall cost structure, including the November 2017 announced closure of our St. Helens, OR manufacturing plant in order to further enhance service to our West Coast customers through a new distribution center. We also announced plans to restructure our general and administration profile to serve an Americas-focused business.

•

International Business Divesture:    On November 20, 2017, we announced the sale of our businesses and operations in Europe, the Middle East, and Africa (including Russia) and the Pacific Rim (the “International Business”), including the corresponding businesses and operations conducted by Worthington Armstrong Venture, in which we hold a fifty percent (50%) interest, to Knauf International GmbH (“Knauf”).

Please also made significant progress with respect to a variety of strategic, financial and operational initiatives.

On February 19, 2015,see our Board approved a plan to separate our flooring business from our ceilings (building products) business through a tax-free spinoff of the flooring business, which would result in two independent, publicly-traded companies.

Record EBITDACompany’s Consolidated Financial Statements in our ABP business despite a challenged demand environment.

Progressed plant construction projects in Russia (operational and shipping as of February) for ceilings and Lancaster, PA for Luxury Vinyl Tile for flooring. We also executed manufacturing investments in Somerset, KY for wood flooring and in Hilliard, OH for ceilings.

InAnnual Report onForm 10-K filed with the Pacific Rim, we continued to grow our business with our three new plants and had double digit sales growth in China and India. We added metal ceiling capability within our plant in Wujang, China to support continued growth in Architectural Specialties.SEC on February 26, 2018.

We closed flooring plants in Kunshan, China (wood) and Thomastown, Australia (resilient tile) to improve our cost position.

We decided to cease funding and discontinue our unprofitable flooring business in Europe.

 

*Continuing operations basis.basis, excludesnon-cash pension expense. Please refer to Annex A for a reconciliation of Adjusted EBITDA to U.S. GAAP.

2018 Priorities

Fiscal year 2018 key priorities include:

•

Revenue:    Driving revenue growth by leveraging our existing capabilities and focusing on a broader ceilings and wall market opportunity.

•

Adjusted EBITDA:    Achieving EBITDA growth through sales gains, manufacturing productivity and restructuring savings announced in 2017.

•

Capabilities:    Enhancing our manufacturing and commercial capabilities and expanding our commercial sales resources to align with broader market opportunities.

•

International:    Completing the sale of our International Business to Knauf.

26    AWI 2018 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

•

Operational Efficiency:    Continuing to pursue productivity, efficiency and working capital improvements in our manufacturing operations.

•

Capital Allocation:    Allocating capital to high return opportunities while optimizing FCF.

•

Cost Optimization:    Aligning SG&A structure and cost to an Americas-focused company.

2017 Compensation Highlights

During 2017, we redesigned our annual incentive plan as discussed below, and otherwise continued the executive compensation programs established in 2016. As in prior years, our plans are designed to directly link compensation to meaningful improvement in Company performance.

Annual Incentive Plan (“AIP”): Our Compensation Committee redesigned this plan for 2017 to place specific emphasis on revenue and EBITDA as the metrics for global and regional Company results. These measures align to key elements of our operating plan and financial goals, including enhanced revenue, manufacturing productivity and competitive SG&A expense, and are strong indicators of our overall operating performance.

Long-Term Incentive Program (“LTIP”): Our LTIP grants for 2017 were comprised of performance-based restricted stock units (“PSU”), with performance metrics based on absolute total shareholder return (“Absolute TSR”) and cumulative FCF. We did not grant time based restricted stock units to our executive officers in 2017. Our Compensation Committee selected Absolute TSR as a metric in our LTIP because it believes Absolute TSR most directly captures shareholder value creation, while providing senior management with the flexibility and levers needed to drive meaningful performance change. Our Compensation Committee selected FCF as a metric in the LTIP because it believes FCF growth is an indicator of value creating activities over the performance period. The grants, intended to compensate for long term value creation, have a three-year performance period to allow a reasonable timeframe for value creation, challenging targets with substantial payout upside for breakout performance and a payout scale that includes meaningful performance hurdles. These plan features and others described in more detail in the body of this Compensation Discussion and Analysis are all designed to strongly align the interests of management and shareholders, and to provide strong incentives for performance and growth consistent with our strategic plan.

Named Executive Officers

The Company’s named executive officers for the fiscal year ended December 31, 2017 were:

Victor D. Grizzle President and CEO

Brian L. MacNeal Senior Vice President and CFO

Charles Chiappone Senior Vice President, Ceiling Solutions(1)

David S. Cookson Senior Vice President, Americas

Mark A. Hershey Senior Vice President, General Counsel and Chief Compliance Officer

(1)In connection with the retirement of Mr. Cookson as of July 1, 2018, Mr. Chiappone was appointed as Senior Vice President, Ceiling and Wall Solutions, effective April 1, 2018

Shareholder Engagement

In 2017, we again engaged with our shareholders to learn about their perspectives on corporate governance, our executive compensation program, sustainability and other matters. We engaged in outreach dialogues over the course of the year with shareholders representing approximately 27% of our shares outstanding at time of outreach. The

outreach discussions were conducted by Mr. Hershey and Ellen R. Romano, Senior Vice President, Human Resources. A detailed summary of the discussions was shared with the Compensation Committee and our Governance Committee. Overall, the discussions were productive and focused primarily on PSU metrics and Board succession planning. Our 2017 nonbinding advisory vote on our executive

 

 

 
 LOGO     2015AWI 2018 Proxy Statement       2527

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

 

compensation program result of 93% approval reflects shareholder support of our compensation program design.

2014Our Executive Compensation HighlightsPhilosophy, Objectives, Elements and Characteristics

The MAP opportunity for NEOsCompensation Philosophy and Objectives

Our long-term success and growth depend on highly capable leaders with primary responsibilities at the Corporate level is weighted 100%appropriate experience and skills to consolidated results. NEOs with business unit responsibilities are weighted 30% to consolidated results and 70% to the individual business unit. Our 2014 EBITDA performance resulteddeliver our strategy in a 76% MAP payout factor at the consolidated level, 24% below target. NEOs whose MAP was based on consolidated results received payouts at 76% of target,volatile and one NEO whose MAP was based on both consolidatedchallenging market environment. Our executive compensation program is designed to attract, motivate and business unit results received a payout at 85% of target. One NEO received a performance bonus based on an agreement entered into connection with his promotion.

LOGO

Our three-year cumulative Return on Invested Capital (“ROIC”) performance (2012 – 2014 PSU plan) resulted in a 66% payout factor, 34% below target, reflecting actual performance relative to a goal that we did not achieve primarily due to an expectation of market recovery at the time the goal was established.

LOGOretain those high-quality leaders. In

Our Compensation Committee did not make significant changes todeveloping and maintaining our executive compensation philosophy or design but completedprogram, the Compensation Committee focuses on the following key activities:objectives:

 

Conducted a projectAligning executive interests with Towers Watson, the Committee’s independent consultant, focused on value creation to confirm our short- and long-term metrics are appropriate drivers of performance.shareholder interests.

 

Determined EBITDA to be theCreating a strong link between pay and performance metricby placing a significant portion of compensation ‘‘at risk’’ based on performance against which to measure and reward for annual MAP performance in 2014.pre-established goals.

 

ApprovedStructuring sufficiently competitive compensation packages to enable access to high-quality executives in a 2014 EBITDA target of $425 million and established a corresponding payout factor.

Approved 2014 MAP payments in line with below target performance during 2014.

76% (Consolidated)

23% (AFP)

85% (ABP)

Reviewed and revised our peer group.

Conducted an in-depth review of long-term performance metrics under our LTIP and determined ROIC as the metric for the 2014-2016 PSU plan.

Conducted a pay-for-performance analysis of our MAP to test the pay-for-performance linkage and to assure that program outcomes are aligned with the objectives of the plan.

Renewed its engagement with Towers Watson as the Committee’s independent consultant.highly competitive talent environment.

 

 

 
2628       LOGO    2015AWI 2018 Proxy Statement 

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

Compensation Elements

In 2017, we executed our compensation philosophy through a combination of: (a) fixed compensation, including (i) base salaries, (ii) benefits and (iii) limited perquisites; and (b) performance-based compensation, including (i) cash incentive awards under our annual incentive plan, and (ii) grants of PSU under our 2016 Long-Term Incentive Plan, our omnibus equity award plan.

Type

Compensation

Elements

Form and ObjectiveFurther InformationKey 2017 NEO Actions

Fixed

Base Salary

•   Delivered in cash

•   Provides reasonable, market competitive fixed pay delivered to each NEO, and reflects his or her role, responsibility, individual performance and contribution to the Company

•   Generally set at market median

•   Base Salary changes for our NEOs are presented on page 34

•   NEOs received merit increases, effective April 1, 2017

Benefits

•   Standard range of health, welfare, and retirement benefits generally similar to those provided to other salaried employees, except that executives:

•   are eligible to receive enhanced Company-paid long-term disability benefits;

•   are eligible fornon-qualified retirement benefits

Limited Perquisites

•   Very limited perquisites or personal benefits

•   Personal financial counseling at a cost generally less than $4,500 per NEO

•   Executive physicals at a cost generally less than $5,000 per NEO

•   Executive long-term disability at a cost generally less than $5,000 per NEO

Performance-Based

Annual Incentive Plan (“AIP”)

•   Delivered in cash

•   Provides an annual incentive opportunity for achieving financial results based on performance goals tied to our annual operating plan

•   Drives selected target metric performance

•   Awards tied to Company, region and individual performance, including leadership behaviors

•   Target opportunity generally set at market median

•   AIP was based on revenue and EBITDA global Company results and regional results (as described on page 34)

•   NEOs received AIP payments for 2017 performance ranging from 74% to 84% of target

Long-Term Incentive Program (“LTIP”)

•   Delivered in 100% PSUs

•   Drives and promotes long- term value-creation for our shareholders, and fosters retention, by rewarding execution and achievement of goals linked to our longer term strategic initiatives and stock performance

•   Target opportunity generally set at market median

•   In 2017, our Compensation Committee awarded3-year PSUs tied to Absolute TSR and FCF

•   LTI performance goals were based on FCF and Absolute TSR (as described on page 35)

•   NEOs received annual PSU awards with values ranging from 75% to 317% of base.

AWI 2018 Proxy Statement    29

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

Compensation Characteristics

At the direction of our Compensation Committee, we subscribe to a“pay-for-performance” philosophy. Our compensation program maintains the following attributes:

•

Compensation at Risk – A significant amount of each NEO’s target total direct compensation (“TDC”), composed of base salary and short-term and long-term incentive compensation, is dependent upon achieving specific results. This compensation is, therefore, “at risk” with the value of one or more elements of compensation tied to the achievement of financial and/or other measures the Company considers important drivers of shareholder value.

•

Multiple and Appropriate Performance Metrics – We use multiple performance measures to avoid having compensation opportunities overly weighted toward the performance results of a single metric. In 2017, we used FCF and Absolute TSR in our LTIP as performance metrics to maintain a focus on longer-term metrics that help drive shareholder value. We used revenue and EBITDA as our metrics in our AIP. These measures align to key elements of our operating plan and financial goals, including: enhanced revenue, manufacturing productivity and competitive sales, general, and administrative expense and is a strong indicator of our overall operating performance.

•

Emphasis on Long-Term Incentive and Annual Incentive Compensation – Long-term incentive compensation and annual incentive compensation for our NEOs make up a large percentage of their TDC. Incentive compensation helps drive performance and aligns the interests of employees with those of shareholders. By tying a significant portion of TDC to long-term incentives over a three-year period, we promote longer-term perspectives regarding Company performance.

•

Recoupment Policy – We have the ability to recoup certain stock-based awards in the event of termination of employment for willful, deliberate or gross misconduct or in the event a participant engages in injurious conduct after termination of

employment. To the extent the SEC adopts future rules for clawback policies that require changes to our plans or policies, we will revise them, as appropriate.

•

Prohibition on Derivative Transactions – Our insider trading policy prohibits derivative transactions in our shares of Common Stock, including: trading in puts, calls, covered calls, or other derivative products involving our securities; prohibits engaging in any hedging transaction with respect to our securities; and, prohibits holding company securities in a margin account or pledging our securities as collateral for a loan.

•

Stock Ownership Guidelines – Our NEOs are subject to stock ownership guidelines, which help to promote longer-term perspectives and align interests with those of our long-term shareholders. The required ownership multiple is six times annual base pay for our CEO and three times annual base pay for other NEOs.

•

Linear and Capped Incentive Compensation Payouts – The Compensation Committee establishes financial performance goals that are used to plot a linear payout formula for annual and long-term incentive compensation to avoid an over-emphasis on short- term decision making. The maximum payout for the annual incentive compensation is 200% of target. Long-term incentive compensation is capped at 275% of target for Messrs. Grizzle, MacNeal, Chiappone and Cookson and 225% of target for Mr. Hershey.

•

Change in Control Double Trigger – Our CIC agreements include double trigger vesting provisions for equity grants upon a change in control.

•

Lack of TaxGross-Ups – We do not have plans or agreements that provide taxgross-ups to our NEOs under Section 280G or 4999 of the Internal Revenue Code.

•

Holding Requirements – Post-vesting holding requirements apply for amounts payable above target in our 2016 and 2017 performance-based equity grants for Messrs. Grizzle, MacNeal, Chiappone and Cookson.

30    AWI 2018 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

The following table illustrates how our executive compensation elements align with our compensation objectives.

Executive Compensation Element

Attract

Talented

Employees

Align

Management

and

Shareholder

Interests

Pay for

Performance

Motivate and

Retain

Management

Base Salary

✓✓

Annual Incentive Plan (AIP)

✓✓✓✓

Long-Term Incentive Program (LTIP)

✓✓✓✓

HOW WE MAKE COMPENSATION DECISIONS

Our Compensation Committee is responsible for executive compensation program design and the decision-making process relative to NEOs specifically, and broadly, as these programs apply to other senior leaders and participating employees.

The Compensation Committee solicits input from the independent members of the Board, the CEO, other members of management and its independent compensation consultant to assist with its responsibilities. The following summarizes the roles of each of the key participants in the executive compensation decision-making process.

Roles of Key Participants

Compensation Committee

•   Sets the philosophy and principles that guide the executive compensation program;

•   Oversees the design of our executive compensation program in context of our culture, competitive practices, legal and regulatory landscape and governance trends;

•   Reviews and approves short- and long-term incentive compensation design, including performance goals and the reward consequences for delivering above or below target performance;

•   Reviews and approves corporate goals and individual objectives relevant to the compensation of the CEO, evaluates the CEO’s performance relative to those goals and objectives, and recommends CEO compensation to be ratified by the independent directors based on the evaluation; and

•   Oversees the evaluation of the other executive officers and approves their compensation in collaboration with the CEO.

Independent Members of the Board

•   Participate in the performance assessment process for the CEO; and

•   Review decisions regarding CEO compensation, including base salary, AIP and LTIP awards for the CEO.

Committee Consultant – Willis Towers Watson

•   Provides analysis, advice and recommendations with regard to executive compensation;

•   Attends Compensation Committee meetings, as requested, and communicates between meetings with the Compensation Committee Chair and other Committee members;

•   Advises the Compensation Committee on market trends, regulatory issues and developments and how they may impact our executive compensation programs; and

CEO

•   Provides input to the Compensation Committee on senior executive performance and compensation recommendations.

AWI 2018 Proxy Statement    31

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

Independent Compensation Consultant

In July 2017, the Compensation Committee renewed its engagement of Willis Towers Watson as its independent consultant on executive compensation matters.

Willis Towers Watson serves as our Pension Plan Actuary in Canada (an arrangement that has been in place for several years, prior to Willis Towers Watson becoming the Compensation Committee’s consultant). Typical actuary annual fees are $50,000. We also purchase select compensation and HR survey data from the firm. Willis Towers Watson does not perform any other services for the Company. At the request of the Compensation Committee, in addition to providing general executive compensation advice, Willis Towers Watson performed the following services during 2017:

 

Advised on the design considerations with respect to the 2017 short-term and long-term incentive programs to ensure appropriate linkage between short- and long-term performances and pay;

Advised the Compensation Committee on the composition of a revised peer group;

Advised the Compensation Committee on setting the CEO’s compensation; and

Provided an update on current compensation trends, market practices and relevant executive compensation legislation.

The table below summarizes TDC paidCompensation Committee determined the work of Willis Towers Watson did not raise any conflicts of interest in 2017. In making this assessment, the Compensation Committee considered the independence factors enumerated in Rule10C-1(b) under the Exchange Act and corresponding rules of NYSE, including the fact that Willis Towers Watson provides limited other services to us, the level of fees received from us as a percentage of Willis Towers Watson’s total revenue, policies and procedures employed by Willis Towers Watson to prevent conflicts of interest, and whether the individual Willis Towers Watson advisors to the Compensation Committee own any shares of Common Stock or awardedhave any business or personal relationships with members of the Compensation Committee or our executive officers.

After considering all of the factors required by the NYSE rules and all other factors relevant to our NEOs during 2014. This tableWillis

Towers Watson’s independence, the Compensation Committee has determined Willis Towers Watson is not intendedindependent.

Use of Competitive Data

In setting NEO compensation, the Compensation Committee considers independent survey data, peer compensation data, tally sheets, wealth accumulation analyses and related benchmark information.

Annual Compensation Benchmarking

Annually, the Compensation Committee reviews all components of NEO compensation compared to Competitive Market data (defined below).

In general, we target NEO pay to be a substitute forat or near the Summary Compensation Table (‘‘SCT’’)50th percentile of the Competitive Market, but we may deviate from this target based on an individual’s performance or Grantsinternal equity with peers situated at similar levels, or to attract the required level of Plan-Based Awards Table (‘‘GPBAT’’). Base salary reflectsglobal business knowledge and leadership needed to achieve our strategic objectives.

The principal sources of market data include the total salary paid for 2014. 2014 MAP awards and LTIP awards are reflected in the SCT and GPBAT. LTIP awards represent an incentive for future performance, not current cash compensation, and are “at risk” of forfeiture.

2014 NEO TDCfollowing (“Competitive Market”):

 

Name 2014
Salary $		  2014
Final
MAP $		  2014
LTIP $(1)		  TDC $ 

Mr. Espe

  1,002,050    837,720    3,150,000    4,989,770  

Mr. Schulz

  435,367    248,160    520,000    1,203,527  

Mr. Grizzle

  479,848    305,910    832,500    1,618,258  

Mr. Maier

  428,466    188,790    838,000    1,455,256  

Mr. Hershey

  429,450    195,830    588,000    1,213,280  

Mr. Mangas (2)

  393,742    0    1,040,000    1,433,742  

Survey data (all NEOs), including surveys by AonHewitt and Willis Towers Watson

 

(1)Amounts represent the aggregate grant date fair value for long-term incentive equity awards granted in 2014, as calculated under the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718. Under ASC Topic 718, the grant date fair value is calculated using the closing market price of our common stock on the date of the grant.
(2)Mr. Mangas resigned in September 2014. Consistent with plan rules, he did not receive a MAP award for 2014.

Peer Group data (CEO and CFO) (“Peer Group”)

Consideration of Last Year’s2017 Advisory

Shareholder Vote on Executive Compensation

At our 2011 annual meeting,the 2017 Annual Meeting, our shareholders expressed a preference that advisory votes on executive compensation occur every three years.year. In accordance with the results of this vote, the Board determinedintends to implement an advisory vote on executive compensation every three yearsyear until the next required vote on the frequency of shareholder votes on the compensation of executives, whichexecutives. That vote is scheduled to occur at the 20172023 annual meeting. Accordingly, ourOur most recent advisory shareholder vote on executive compensation took place at the 2014 annual meeting.2017 Annual Meeting.

TheOur Board and the Compensation Committee appreciate and value the views of our shareholders.shareholders with respect to our executive compensation program. In considering the results of the 20142017 favorable (97%(93%) advisory vote on executive

32    AWI 2018 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

compensation, the Compensation Committee notedbelieves that our current executive compensation program hasprograms have been

effective in implementing our stated compensation philosophy and objectives.objectives in manner consistent with shareholder preference.

The Compensation Committee recognizes executive pay practices and notions of sound governance principles continue to evolve. While no specific changes were implemented as a result of

the vote, the Compensation Committee intends to continue to pay close attention to ongoing trends and invites our shareholders to communicate any concerns or opinions on executive pay directly to the Compensation Committee or the Board. Please refer to “Communication with the Board”“COMMUNICATION WITH THE BOARD” on page 1210 for further information.

PHILOSOPHY AND OBJECTIVES OF OUR EXECUTIVE COMPENSATION PROGRAM

Our long-term success and growth depend on highly capable global leadersinformation about communication with the experience and skills to deliver our strategy in a volatile and changing market environment. Thus, our executive compensation programs are designed to attract, motivate and retain those high-quality leaders. Generally, the same principles that apply to our NEOs also apply to the compensation of our salaried employees. In developing and maintaining our executive compensation program, the Compensation Committee focuses on the following key objectives:

Align executive interests with shareholders’ interests.

Create a strong link between pay and performance by placing a significant portion of compensation ‘‘at risk’’ based on performance against pre-established goals.

Structure sufficiently competitive compensation packages globally, to enable access to high-quality executives in a highly competitive talent environment.

HOW WE MAKE COMPENSATION DECISIONS

The Compensation Committee is responsible for executive compensation program design and the decision-making process relative to NEOs specifically, and broadly, as these programs apply to other senior leaders and participating employees. The Compensation Committee solicits input from the independent members of the Board the CEO, other members of management, and its independent compensation consultant to assist it with its responsibilities. The following summarizes the roles of each of the key participants in the executive compensation decision-making process..

 

LOGO     2015 Proxy Statement    27

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

Roles of Key Participants

Compensation Committee

• Sets the philosophy and principles that guide the executive compensation program

• Oversees the design of our executive compensation programs in context of our culture, competitive practices, legal and regulatory landscape, and governance trends

• Reviews and approves short- and long-term incentive compensation design, including performance goals and the reward consequences for delivering above or below target performance

• Reviews and approves corporate goals and individual objectives relevant to the compensation of the CEO, evaluates the CEO’s performance relative to those goals and objectives, and recommends CEO compensation to the independent directors based on the evaluation

• Oversees the evaluation of the other executive officers and establishes their compensation levels in collaboration with the CEO

Independent Members of the Board

• Participate in the performance assessment process for the CEO

• Approve CEO compensation decisions, including base salary, MAP, and LTIP awards

Committee Consultant – Towers Watson

• Provides analysis, advice and recommendations with regard to executive compensation

• Attends Compensation Committee meetings, as requested, and communicates between meetings with the Compensation Committee Chair

• Advises the Compensation Committee on market trends, regulatory issues and developments and how they may impact our executive compensation programs

CEO

• Provides input to the Compensation Committee on senior executive performance and compensation recommendations

28    LOGO    2015 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

Independent Compensation Consultant

In July 2014, the Compensation Committee renewed its engagement of Towers Watson as its independent consultant on executive compensation matters.

Towers Watson serves as our Pension Plan Actuary in Canada (an arrangement that has been in place for several years, prior to Towers Watson becoming the Compensation Committee’s consultant) and typical actuary annual fees are $200,000. We also purchase select compensation and HR survey data from the firm. Towers Watson does not perform any other services for Armstrong. At the request of the Compensation Committee, in addition to providing general executive compensation advice outlined above, Towers Watson performed the following services during 2014:

Advised on the design considerations with respect to the 2015 MAP and the 2015 LTIP, to ensure appropriate linkage between short- and long-term performance and pay and performance.

Advised the Compensation Committee on the composition of a revised peer group.

Advised the Compensation Committee on setting the CEO’s compensation.

The Compensation Committee determined the work of Towers Watson did not raise any conflicts of interest in 2014. In making this assessment, the Compensation Committee considered the independence factors enumerated in Rule 10C-1(b) under the Exchange Act and corresponding rules of NYSE, including the fact Towers Watson provides limited other services to us, the level of fees received from us as a percentage of Towers Watson’s total revenue, policies and procedures

employed by Towers Watson to prevent conflicts of interest, and whether the individual Towers Watson advisors to the Compensation Committee own any Common Shares or have any business or personal relationships with members of the Compensation Committee or our executive officers.

After considering all of the factors required by the NYSE rules and all other factors relevant to Towers Watson’s independence from management, the Compensation Committee has determined Towers Watson is independent.

Use of Competitive Data

In setting NEO compensation, the Compensation Committee considers various types of information, including survey data, peer compensation data, tally sheets, wealth accumulation analyses and related benchmark information.

Annual Compensation Benchmarking

Annually, the Compensation Committee reviews all components of NEO compensation versus competitive market data.

In general, we target NEO pay to be at or near the 50th percentile of the competitive market, but we may deviate from this target due to an individual’s performance, internal equity with peers situated at similar levels, and to attract the required level of global business knowledge and leadership needed to achieve our strategic objectives.

The principal sources of market data include (combined “Competitive Market”):

Survey data (all NEOs), including surveys by AonHewitt and Towers Watson (“Market”)

Peer Group data (CEO and CFO) (“Peer Group”)

LOGO     2015 Proxy Statement    29

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

Peer Group

The Compensation Committee uses compensation data compiled from a group of peer companies based on a number ofpre-established criteria, including business model comparability, company size measured by revenues (one halfrevenue (approximatelyone-half to two times Armstrongthe Company’s revenue) and market capitalization, global presence, and competition for executive talent and investor capital.

During 2014, the2016, our Compensation Committee conducted anin-depth review of our Peer Group and the related selection criteria taking into consideration the impact of the separation. The resulting 2016 Peer Group consisted of 20 manufacturing companies. In 2017, our Compensation Committee reviewed the Peer Group and the selection criteria.

The review resulted in the following changesremoved Headwaters Incorporated and Nortek, Inc., both of which were acquired by third parties subsequent to the 2016 Peer Group for 2014:being developed.

Removed The Sherwin-Williams Company, which no longer met the revenue size considerations

Added AO Smith Corporation, Fortune Brands Home & Security, Inc. and The Valspar Corporation

OurFor 2017, our Peer Group consistsconsisted of 18 manufacturing companies, in the building and construction industries and is reflected below:including:

 

   Acuity Brands,Allegion PLCHerman Miller Inc. 

Louisiana-Pacific Corporation

Steelcase, IncorporatedPH Glatfelter Inc.
   AO Smith Corp. 

Martin Marietta Materials

The Valspar Corporation
   Fortune Brands Home & Security,Interface, Inc. 

Masco Corporation

Universal Forest Products, Inc        Ply Gem Holdings, Inc.
   Herman Miller, Incorporated

Mohawk Industries, Inc.

USG Corporation
   Leggett & Platt,Apogee Enterprises, Inc. 

Nortek, Inc.

Vulcan Materials Company
   Lennox InternationalKnoll, Inc. Owens CorningQuanex Building Products Corp
   Ferro Corporation W. R. Grace & CompanyKraton Performance Polymers Inc.Simpson Manufacturing Co., Inc.        
   Gibraltar Industries, Inc.Louisiana-Pacific Corp
   Griffon CorporationMasonite International Corporation
   HB Fuller Co.OMNOVA Solutions Inc.

 

Tally Sheets and Wealth Accumulation Analyses

The Compensation Committee uses tally sheets and wealth accumulation analyses when evaluating compensation-related decisions for each NEO.

 

Tally sheets provide historic information on each executive’s equity andnon-equity compensation, and other compensation such as potential payments upon termination of employment.

 

Wealth accumulation analysis assesses the total Armstrong-specificCompany-specific wealth that could be earned by each NEO given certain stock price assumptions.

Compensation Mix

To facilitate the link between NEO pay and companyCompany performance, a significant amount of TDC is performance-based and “at risk.”

In 2017, 81% of our CEO’s target TDC and 68%59% of the average target TDC of our other NEOs iswas performance-based and “at risk.”

LOGO

30    LOGO    2015 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

ELEMENTS, CHARACTERISTICS & OBJECTIVES OF OUR EXECUTIVE COMPENSATION

Elements, Objectives and Key 2014 NEO Actions

TypeCompensation
Elements		ObjectivesKey 2014 NEO Actions

Performance-Based

Long-Term Incentive (LTIP)

•    Promotes long- term value-creation for our shareholders, and fosters retention, by rewarding execution and achievement of goals linked to our longer term strategic initiatives and cost of capital

•    Incents achievement of ROIC targets over three-year period

•    Target opportunity generally set at Peer Group and/or Market median

•    NEOs received long-term incentive grants with values ranging from 130% to 312% of base salary

•    2012-2014 PSU award paid out at 66% of target

Annual Incentive (MAP)

•    Provides an annual incentive opportunity for achieving financial results based on performance goals tied to our annual operating plan

•    Drives EBITDA performance

•    Awards tied to Company, business unit and individual performance, including leadership behaviors

•    Target opportunity generally set at Peer Group and/or Market median

•    NEOs received MAP payments ranging from 76% to 85% of target

Fixed

Base Salary

•    Provides reasonable and Market competitive fixed pay reflective of an executive’s role, responsibility and individual performance

•    Generally set at Peer Group and/or Market median

•    NEOs received merit increases effective April 1, 2014

•    Mr. Schulz received a mid-year increase to align his base salary closer to Market median

•    Mr. Maier received an increase effective with his move into the AFP CEO role.

Benefits

•    Standard range of health, welfare, and retirement benefits generally similar to those provided to other salaried employees, except that executives:

•    pay approximately 40% more in health care premiums than those paid by most of our salaried employees with comparable coverage;

•    are eligible to receive enhanced Company-paid long-term disability benefits;

•    are eligible for non-qualified retirement savings benefits

Limited Perquisites

•    Very limited perquisites or personal benefits

•    Personal financial counseling at a cost generally less than $4,500 per NEO

•    Executive physicals at a cost typically less than $5,000 per NEO

•    Executive Long-Term Disability at a cost generally less than $5,000 per NEO

LOGO     2015 Proxy Statement    31

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

Alignment of Compensation Elements and Objectives

The following table illustrates how our executivechart shows the 2017 compensation elements align with our compensation objectives:

LOGO

2014 COMPENSATION DESIGN AND OUTCOMES

Base Salary

The Compensation Committee’s decision on 2014 base salaries was largely driven by the competitiveness of each NEO’s base salary compared to the Competitive Market; increases were effective April 1, 2014. The table below represents the base salary rate as of December 31. This information differs from the SCT, which reflects the total base salary received for the year.

Name  2013
Base
Salary ($)		   2014 Base
Salary ($)		   Change in
Base
Salary		 

Mr. Espe(1)

   980,000     1,009,400     3.0%  

Mr. Schulz(2)

   400,000     460,000     15.0%  

Mr. Grizzle(3)

   462,500     485,630     5.0%  

Mr. Maier(4)

   412,000     475,000     15.3%  

Mr. Hershey(3)

   420,000     432,600     3.0%  

Mr. Mangas(3)

   520,000     535,600     3.0%  
(1)Mr. Espe did not receive a merit increase for 2015.
(2)Reflects increase effective April 1, 2014 as well as a mid-year increase effective August 1, 2014 in an attempt to more closely align with competitive pay levels.

(3)Standard merit increase.

(4)Mr. Maier did not receive a merit increase effective April 1, 2014. Upon his promotion into the EVP & CEO, AFP role, his pay was adjusted.

Management Achievement Plan

MAP awards provide an annual incentive opportunity for achieving financial results based on performance goals tied to annual operating plan.

Each NEO’s target MAP opportunity (expressed as a percent of base salary) is based on role responsibility, alignment with similar positions internally, and external Competitive Market. Actual payout will vary with actual business performance relative to performance targets.

MAP awards were determined based on the following formula, measures and weightings. The Compensation Committee approves these factors at the beginning of each fiscal year. Additional details follow below the table.

2014 MAP Design

LOGO

32    LOGO    2015 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

2014 Target MAP Opportunity

2014 Target MAP opportunity (expressed as a percentage of base salary) for NEOs were as set forth in the table below. With the exception of Messrs. Espe and Maier, as described below, there were no changes to these targets when expressed as a percentagemix, consisting of base salary, from 2013.performance-based AIP, and PSUs as the LTI grants.

 

Name  Target MAP %
Opportunity		  Target MAP
$		 

Mr. Espe(1)

  110%   1,102,255  

Mr. Schulz

  75%   326,525  

Mr. Grizzle

  75%   359,886  

Mr. Maier(2)

  50% / 75%   245,270  

Mr. Hershey

  60%   257,670  

Mr. Mangas

  75%   398,775  
(1)After a review of Competitive Market data provided by Towers Watson, the Compensation Committee set Mr. Espe’s 2014 MAP target at 110% of base salary.

LOGO

(2)Mr. Maier’s target increased from 50% to 75% upon his appointment to EVP & CEO, AFP in September 2014. The amount shown above reflects his actual target for 2014 based on the prorated split role. However, in connection with Mr. Maier’s appointment to EVP & CEO, AFP, effective September 26, 2014, and the termination of his existing Transition Agreement (SEC Form 8-K filing on August 22, 2014), the Compensation Committee approved a cash bonus performance award for the 2014 calendar year equal to $257,500

2014 MAP Performance Metrics and Weighting

The Compensation Committee selected EBITDA (for both the consolidated as well as at the business unit level) as the 2014 MAP performance metric. The Compensation Committee determined that EBITDA aligned to key elements of our 2014 operating plan and financial plans and is a good measure of operating performance (pre-financing and pre-tax).

In establishing MAP performance and payout ranges for the Company, AFP and ABP, the Compensation Committee considered a number of factors:

The amount of year over year improvement in EBITDA required to achieve target performance

The degree of difficulty and probability of achieving the various EBITDA performance targets

The percent of incremental EBITDA to be split between participants and shareholders

The MAP opportunity for NEOs with primary responsibilities at the Corporate level is weighted 100% to consolidated results. NEOs with business unit responsibilities are weighted 30% to consolidated results and 70% to the individual business unit.

WeightingConsolidatedBusiness Unit

Mr. Espe

100%

Mr. Schulz

100%

Mr. Grizzle

30%70% (ABP)

Mr. Maier(1)

100%

Mr. Hershey

100%

Mr. Mangas

N/A
(1)Mr. Maier had a cash bonus performance award of $257,500. Mr. Maier received a MAP award based on 100% consolidated results; he received a supplemental payment in excess of the calculated MAP award to equal the $257,500 amount.

Individual Performance

The Board and the Compensation Committee considered individual performance when finalizing MAP awards for the CEO and other NEOs and decided not to make individual performance adjustments in determining the final 2014 MAP awards. For MAP awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code, any individual performance adjustment cannot exceed the maximum level determined by EBITDA performance.

2014 Final Performance and Payout Factors

Our 2014 EBITDA performance resulted in a 76% MAP payout factor at the consolidated level.

Further details are shown in the table below:

Adjusted
EBITDA		  2014
Target
$M		   2014
Actual
$M*		   Performance
%		  Payout
%		 

Consolidated

   425     389    92%   76%  

AFP

   157     115    73%   0%  

ABP

   342     330    96%   89%  
*Please refer to Annex A for a reconciliation of Adjusted EBITDA to U.S. GAAP. We achieved full year adjusted EBITDA of $389 million after giving effect to the specific items that the Compensation Committee pre-determined in February 2014 were eligible for exclusion from the achievement calculation.
 

 

 
 LOGO     2015AWI 2018 Proxy Statement       33

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

2017 COMPENSATION DESIGN AND OUTCOMES

Base Salary

In 2017, the Compensation Committee’s reviewed base salaries of our NEOs after consideration of the competitiveness of each NEO’s base salary compared to the Competitive Market. Pay increases were effective April 1, 2017.

The table below represents the base salary rate as of December 31. This information differs from the Summary Compensation Table (“SCT”), which reflects the total base salary received for the year.

Name  

2016

Salary $

   

2017

Salary $

   Change in
Base
Salary		 

Mr. Grizzle

   700,000    725,000    3.6% 

Mr. MacNeal(1)

   375,000    411,750    9.8% 

Mr. Chiappone

   355,000    370,980    4.5% 

Mr. Cookson

   360,500    371,320    3.0% 

Mr. Hershey(2)

   405,000    405,000    0.0% 
(1)

Mr. MacNeal’s April 1st adjustment was designed to align him closer with competitive pay levels. The merit and

market increase aligns Mr. MacNeal to 90% of market median.
(2)Mr. Hershey received a $13,200 merit lump sum in lieu of a base salary increase. The market data for Mr. Hershey’s role reflected that his base salary level was above market median, resulting in a merit lump sum payment instead of a base salary adjustment.

Annual Incentive Plan Awards

AIP awards provide an annual incentive opportunity for achieving financial results based on performance goals tied to the Company’s annual operating plan.

Each NEO’s target AIP opportunity (expressed as a percent of base salary) is based on role responsibility and alignment with similar positions internally and the external Competitive Market. Actual payout varies based upon actual business performance relative to performance target, as well as individual performance.

For 2017, AIP awards were determined based on the following formula, measures and weightings and were subject to the approval or our Compensation Committee.

2017 AIP Design

Base

Salary $

x

Target AIP        

Opportunity %        

=

Target        

AIP $        

x

Company and        

Regional        

Performance %        

x

Individual        

Performance %        

=

Annual AIP        

Payout $        

2017 Target AIP Opportunity

2017 target AIP opportunities (expressed as a percentage of actual base earnings) for NEOs were as set forth in the table below. There were no changes to these target percentages from 2016.

Name  

Target AIP %

Opportunity

   Target AIP
$		 

Mr. Grizzle

   100%    718,750 

Mr. MacNeal

   60%    241,538 

Mr. Chiappone

   50%    183,493 

Mr. Cookson

   50%    184,308 

Mr. Hershey

   60%    250,920 

2017 AIP Performance Metrics

The Compensation Committee selected revenue and EBITDA at the global and regional level as our 2017 AIP performance metrics. The Compensation Committee determined that revenue and EBITDA

would create strong alignment with shareholders in value creation. Revenue is weighted 25% and EBITDA weighted 75%.

These measures align to key elements of our operating plan and financial goals, including enhanced revenue, manufacturing productivity, and competitive sales, general, and administrative expense, and are a strong indicator of our overall operating performance.

For purposes of the 2017 AIP, the Compensation Committee defined: (i) revenue to be gross salesminus returns, discounts and allowances andminus intercompany sales, and (ii) EBITDA to be operating incomeplus depreciation and amortizationplusnon-cash pension impact, subject to certain exceptions.

34    AWI 2018 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

The 2017 revenue target of $1,345 million and EBITDA target of $363 million were both directly tied to the annual operating plan. The Compensation Committee conducted a detailed analysis that took into account a number of factors, including the Company’s strategic plan, analyst expectations, historic performance of the business,

and consideration of achievability, as well as an analysis of the external market and trends, such as expected Peer Group performance and broader market performance. The Americas revenue target of $933 million and EBITDA target of $345 million were directly tied to the 2017 annual operating plan for Americas.

Our Compensation Committee established the following performance ranges and associated payout ranges for the 2017 AIP. The Company’s global and regional performance were converted to a corresponding payout factor on a straight line basis between Threshold and Target and between Target and Maximum. AIP payout factors are capped at 200%. The Compensation Committee approved AIP design consisting of two leadership tiers. The AIP design for the senior executive tier (Tier I), namely Messrs. Grizzle, MacNeal, Chiappone and Cookson paid 100% for achieving operating targets. Considering the degree of difficulty built into the 2017 operating plan targets, the Compensation Committee established a payout factor of 110% for achieving target performance for Tier II, which includes Mr. Hershey.

  Target $ (in millions)  Performance as % of Target  Payout 
   Threshold  Target  Maximum  Threshold  Target  Maximum  Threshold  Target  Maximum 

Global Revenue (Senior Executive Tier)

  1,254.0   1,318.0   1,412.0   93%   100%   105%   50%   100%*   200% 

Global EBITDA (Senior Executive Tier)

  317.0   363.0   403.0   87%   100%   111%   50%   100%*   200% 

Americas Revenue

  855.0   933.0   964.0   92%   100%   103%   50%   100%   200% 

Americas EBITDA

  298.0   345.0   383.0   86%   100%   111%   50%   100%   200% 
*Equates to a 110% payout for Mr. Hershey

The AIP opportunity for the NEOs with primary responsibilities at the global Company level, namely Messrs. Grizzle, MacNeal, Chiappone and Hershey, were weighted 100% to Global results. The AIP opportunity for Mr. Cookson, who has regional responsibility for our Americas region, was weighted 30% to global results and 70% to the region.

WeightingGlobalRegion

Mr. Grizzle

100%

Mr. MacNeal

100%

Mr. Chiappone

100%

Mr. Cookson

30%70% (Americas)

Mr. Hershey

100%

2017 Individual Performance

The Board and the Compensation Committee considered individual performance when finalizing AIP awards for the CEO and other NEOs and approved an individual performance adjustment for Mr. Hershey of 20%. In 2017, Mr. Hershey led key initiatives to (a) sell the Company’s International Business and (b) obtain insurance recoveries in respect of legacy environmental liabilities. For AIP awards intended to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code, any individual performance adjusted payout cannot exceed the maximum level determined based on achievement of revenue and EBITDA performance prior to adjustment. The adjustment for Mr. Hershey did not exceed the maximum level based on performance. No other NEO had their AIP adjusted due to performance.

AWI 2018 Proxy Statement    35

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

 

20142017 Performance and Payout Factors

Our 2017 global revenue performance was 98% of plan resulting in an 85% payout and our global EBITDA performance represented 94% of plan with a corresponding 76% payout. These results yielded combined payout factor of 79% for the senior executive tier, Tier I. For Tier II, 2017 global revenue performance resulted in a 101% payout and global EBITDA performance resulted in a 79% payout, for a combined payout factor of 84%. Our 2017 Americas revenue performance was 96% of plan resulting in a 75% payout and EBITDA performance represented 92% of plan resulting in a 71% payout. The Compensation Committee approved a final payout factor of 74% for Americas revenue and EBITDA performance.

The Compensation Committee has discretion to adjust AIP payouts to take into account overall Company performance and other factors, subject to the limitation described above for awards that are intended to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code. No discretionary adjustments were made for 2017 results.

Further details are shown in the table below:

Measure 

2017

Target

$M

  

2017

Actual

$M*

  

Performance

%

  

Payout

%

 

Global – Revenue (Senior Executive Tier)

  1,345.0   1,318.0   98%   85% 

Global –EBITDA (Senior Executive Tier)

  363.0   341.0   94%   76% 

Global – Revenue (Tier II)

  1,345.0   1,318.0   98%   101% 

Global – EBITDA (Tier II)

  363.0   341.0   94%   79% 

Americas – Revenue

  933.0   894.0   96%   75% 

Americas – EBITDA

  345.0   318.0   92%   71% 

2017 Final MAPAIP Awards

The Compensation Committee determined the final 2014 MAP2017 AIP payouts by multiplying theeach NEO’s target MAPAIP amount by the final weighted payout factors, as outlined below.

Name  

Target

AIP $

   Payout
Factor		  

2017 Final

AIP

Award $

 

Mr. Grizzle

   718,750    79%   567,820 

Mr. MacNeal

   241,538    79%   190,820 

Mr. Chiappone

   183,493    79%   144,960 

Mr. Hershey(1)

   250,920    84%   210,780 

(1)

Mr. Hershey received a 120% individual performance modifier, which resulted in an increase in payout of $42,160.

For NEOs who were weighted 100% to consolidated results,Mr. Cookson, the Compensation Committee approved a final payout factor of 76%74%, reflecting a weighting of 30% global results (revenue and EBITDA) and 70% for regional results (revenue and EBITDA).

 

Name  Target
MAP $		   Payout
Factor		   2014 Final
MAP
Award $		 

Mr. Espe

   1,102,255     76%     837,720  

Mr. Schulz

   326,525     76%     248,160  

Mr. Maier

   248,391     76%     188,790*  

Mr. Hershey

   257,670     76%     195,830  
*In connection with Mr. Maier’s promotion to EVP & CEO AFP, the Compensation Committee approved a cash bonus performance award for the 2014 calendar year equal to $257,500. Mr. Maier received a supplemental payment in excess of the amount shown above to equal the $257,500 amount. The excess payment was considered a one-time non- performance based payment and reflected in the “Bonus” column of the SCT.

For Mr. Grizzle, who was weighted 30% to consolidated results and 70% to Business Unit results, the Compensation Committee approved a final payout factor of 85%.

Name Target
MAP $		  Weighted
Cons.
Payout
Factor
(wtd. 30%)		  Weighted
Business
Unit
Payout
Factor
(wtd. 70%)		  2014
Final
MAP
Payout
Factor %		  2014
Final
MAP
Award $		 

Mr. Grizzle

  359,886    76%    89%    85%    305,910  

Mr. Mangas resigned in September 2014. Consistent with plan rules, he did not receive a MAP award for 2014.

Name 

Target

AIP $

  Weighted
Global
Payout
Factor
(wtd. 30%)		  Weighted
Regional
Payout
Factor
(wtd. 70%)		  2017
Final
AIP
Payout
Factor %		  

2017

Final

AIP

Award $

 

Mr. Cookson

  184,308   79%   72%   74%   136,390 

Long TermLong-Term Incentive PlanProgram Awards

The goal of theour LTIP is to provide equity-based long-term incentive awards that link management interests to shareholder returns and focus management on our long-term performance.

In determining long-term incentivethe LTIP award opportunity for the CEO and other NEOs, theour Board and the Compensation Committee generally consider a number of factors, including Competitive

Market, internal equity and cost (dilution and accounting cost) and also take into consideration, as well as tally sheet and wealth accumulation analyses.

LTIP awards for a given year are typically made two business days following the release of our financial results for our prior fiscal year’s fourth quarter and full year financial results.year. This allows sufficient time for the market to absorb the announcement of earnings and current year performance guidance.

In 2014,

36    AWI 2018 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

The 2017 LTIP grants consisted of differentiated awards based on two leadership tiers. The Compensation Committee granted PSUs to the most senior executive tier, namely Messrs. Grizzle, MacNeal, Chiappone and Cookson to vest based on achievement of Absolute TSR (75% of the award) and FCF (25% of the award). The Compensation Committee granted PSUs to Mr. Hershey to vest based on achievement of Absolute TSR (25% of the award) and FCF (75% of the award), consistent with Tier II awards. Our Compensation Committee selected Absolute TSR as a metric in our LTIP because we believe it best represents and captures shareholder value creation (particularly as compared to other financial metrics), while providing senior management with the enhanced flexibility and levers needed to drive meaningful performance changes. Our Compensation Committee selected FCF as a metric in our LTIP because it believes FCF will create a strong alignment with performance activities and growth over the performance period.

Messrs. Grizzle, MacNeal, Chiappone and Cookson have post-vesting holding requirements for amounts payable above target in our 2017 performance-based equity grants. If earned, the above target shares must be held for one year following the vesting date.

2017 LTI Performance Metrics and Weighting

The number of shares eligible to vest under the 2017 LTI awards is based on the achievement of applicable performance targets relative to Absolute TSR and FCF during the performance period (January 1, 2017 to December 31, 2019). The grants, intended to compensate for NEOs consistedlong term value creation, have a three-year performance period to allow a reasonable timeframe for value creation, challenging targets with substantial payout upside for breakout performance and a payout scale that defines meaningful performance hurdles. The PSUs for Messrs. Grizzle, MacNeal, Chiappone and Cookson (Tier I) can vest at 0% to 275% of 60% non-qualifiedtarget and the PSUs for Mr. Hershey (Tier II) can vest at 0% to 225% of target.

Absolute TSR tracks the appreciation in share price of the Company’s Common Stock, including dividends, and is annualized for the performance period. The ending share price for Absolute TSR calculation will be based on the volume weighted

average closing price of the Company stock optionsfor the highest consecutive 30 trading days in the 60 trading day period beginning with and 40% performance-based restrictedimmediately following January 2, 2020. The starting price was based on the volume weighted average of the highest consecutive 30 trading days in the subsequent 60 trading day period closing price of the Company stock units (PSU).for the highest 30 trading days immediately following January 3, 2017 – resulting in $45.12 per share.

          Incentive Payout 
Performance
to TSR Target		  

Annualized

TSR

Target

   

Ending

Share

Price

  

Tier I

(75%
weighting)

  

Tier II

(25%
weighting)

 

50%

   6%   $53.74   0%   50% 

75%

   9%   $58.43   25%   75% 

83%

   10%   $60.05   50%   83% 

100%

   12%   $63.39   100%   100% 

167%

   20%    $77.97   200%   200% 

250%

   30%   $99.13   300%   300% 

Cumulative FCF is defined as cash flow from operations less cash used in investing activities.

     Incentive Payout 
Performance
to FCF Target		 FCF $(M)  

Tier I

(25% weighting)

  

Tier II

(75% weighting)

 

80%

 $392   25%   50% 

100%

 $490   100%   100% 

113%

 $553   150%   150% 

118%

 $578   175%   175% 

125%

 $612   200%   200% 

20142017 Target LTIPLTI

The Compensation Committee annually determines LTIPLTI target opportunity (expressed as a percent of base salary) based on role responsibility, alignment with similar positions internally and external Competitive Market, as well as a review of tally sheets and wealth accumulation analyses.

After a review of the Competitive Market data provided by Willis Towers Watson, the Compensation Committee increased Mr. Grizzle’s target LTIP opportunity in 2017 to $2,300,000. This adjustment to Mr. Grizzle’s LTIP value positioned him at 83% of the market median TDC. No other LTIP targets were adjusted in 2017.

AWI 2018 Proxy Statement    37

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

The respective target percentages for annual LTIP grants to our NEO’sNEOs in 20142017 and the resulting Grant Date Fair Value were asare set forth in the table below.

 

Name  2014 LTIP Target
as % of Base
Salary		   2014 LTIP
Grant Date Fair
Value $(1)		 

Mr. Espe

   312%     3,150,000  

Mr. Schulz

   130%     520,000  

Mr. Grizzle

   180%     832,500  

Mr. Maier(2)

   150% / 180%     618,000  

Mr. Hershey

   140%     588,000  

Mr. Mangas

   200%     1,040,000  
Name  

2017 LTIP Target

as % of Base

Salary

   2017 LTI Annual
Target Value  ($)(1)		 

Mr. Grizzle

   317%    2,300,000 

Mr. MacNeal

   100%    375,000 

Mr. Chiappone

   75%    266,300 

Mr. Cookson

   75%    270,400 

Mr. Hershey

   125%    506,300 
(1)Amounts represent the grant date fair value for the long-term incentive equity award granted in February 2014,2017, as calculated under the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718. Under ASC Topic 718, the grant date fair value is calculated using the closing market price of our shares of Common Stock ($46.00) on the date of the grant (February 28, 2017).

2017 Total Direct Compensation

The table below summarizes TDC paid or awarded to our current NEOs during 2017. This table is not intended to be a substitute for the SCT or Grants of Plan-Based Awards Table (‘‘GPBAT’’). Base salary reflects the total salary paid for 2017. AIP awards and LTIP awards for 2017 are reflected in the SCT and GPBAT. LTIP awards represent an incentive for future performance, not current cash compensation, and are “at risk” of forfeiture.

Name  

2017

Salary $

   

2017

Final

AIP $

   

2017

LTIP $(1)

   TDC $ 

Mr. Grizzle

   718,750    567,820    2,300,000    3,586,570 

Mr. MacNeal

   402,563    190,820    375,000    968,383 

Mr. Chiappone

   366,985    144,960    266,300    778,245 

Mr. Cookson

   368,615    136,390    270,400    775,405 

Mr. Hershey

   418,200    252,940    506,300    1,177,440 
(1)Amounts represent the aggregate grant date fair value for LTIP equity awards granted in 2017, as calculated under the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718. Under ASC Topic 718, the grant date fair value is calculated using the closing market price of our Common Shares ($53.87)Stock on the date of the grant (February 25, 2014).grant.

2018 Compensation Program Design

(2)In February 2014, Mr. Maier was granted LTIP with a value of $618,000 (150% of base salary). Upon Mr. Maier’s promotion to EVP & CEO, AFP, the Compensation Committee increased his target LTIP percent to 180% of base salary to be effective at the next regular scheduled annual grant date. The Committee also approved an additional one-time equity grant with an award value of $220,000, comprised of 60% nonqualified stock options and 40% restricted stock units.

On February 20, 2018, Mr. Cookson announced his decision to retire as Senior Vice President, Americas effective July 1, 2018 after 39 years of service. In connection with Mr. Cookson’s

34    LOGO    2015 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

retirement, Mr. Chiappone was named Senior Vice President, Ceiling and Wall Solutions effective April 1, 2018, and will be responsible for leading the Mineral Fiber and Architectural Specialties segments of the Company. Effective April 1, 2018, Mr. Chiappone’s compensation will be:

 

After a reviewBase Salary of the Competitive Market data provided by Towers Watson,$420,000;

Annual Incentive Plan Target at 60% of base salary; and

Long-Term Incentive Plan Target at 100% of base salary.

For 2018, the Compensation Committee set Mr. Espe’s 2015 LTIP award at $3,150,000.

Stock Options

Stock option awards generally have a term of ten years and vest in equal installments on each ofreviewed the first three anniversaries of the date of grant. The exercise price is based on the closing pricedesign of our Common Shares on the NYSE on the date of grant. The number of non-qualified stock options grantedexecutive compensation program and decided to each NEOcontinue our 2017 metrics for our annual grant in February was determined using a Black-Scholes value of $24.90. On the effective date of the grant, the exercise price for the stock options was $53.87. We also made a stock option grant to Mr. Maier in September with an exercise price of $56.52 and a Black-Scholes value of $26.94.

The assumptions used to determine the valuation of our option awards can be found in the footnote section of the GPBAT.

Performance-based Awards

The Compensation Committee established ROIC as the single financial measure for the 2014 – 2016 PSU program. ROIC aligns to our strategicAIP plan, and correlates to stock price performance over a multi-year performance period. ROIC also serves as a measuremaintain the 2017 design and metrics for tracking management’s performance in generating the required return on previously invested capital, and in effectively allocating capital to profitable investments during the three-year performance period.

Three-Year Cumulative ROIC Performance Targets (2014 – 2016)

The actual number of shares earned for the PSUs granted in 2014 will be based on our performance against the internal ROIC target established by the Compensation Committee during the three-year performance period.LTIP.

    

Performance

to Target

  

Payout

Opportunity

 

Threshold

   85%   50% 

Target

   100%   100% 

Maximum

   115%   175% 

ADDITIONAL INFORMATION REGARDING OUR COMPENSATION PROGRAMS

Qualified andNon-qualified Defined Benefit Pension Plans

Our NEOs do not participateMr. Cookson is the only NEO who participates in the Company’s qualified defined benefit pension plan, the Retirement Income Plan (“RIP”), which was closed to newly hired employees after January 1, 2005.

Anon-qualified defined benefit pension plan, the Retirement Benefit Equity Plan (“RBEP”), pays benefits that cannot be paid under the RIP due to statutory limits. Mr. Cookson is the only NEO who met the qualifications to remain in the RBEP.

Qualified Defined Contribution Savings Plan andNon-qualified Deferred Compensation Plan

For salaried employees who do not participate in the RIP, we provide a 401(k) match of 100% on the first 4% of employee contributions and a 50% match on the next 4% of employee contributions, up to a maximum company match of $17,500 for 2014.contributions. All NEOs, are eligible toexcept for Mr. Cookson, participate in this program.

Mr. Cookson is eligible to receive a lower 401(k) match of 50% on 6% of employee contributions because he participates in the RIP and RBEP.

The companyCompany offers an unfunded, nonqualified deferred compensation plan, the Armstrong Nonqualified Deferred Compensation Plan, (“NQDCP”). This plan is to restore Company contributions that would be lost due to Internal Revenue Code limits on

38    AWI 2018 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

compensation that can be taken into account under the Company’stax-qualified 401(k) plan and to allow participants to voluntarily elect to defer some portion of base salary and MAPAIP until a future date.

Participants receive a Company match identical to the 401(k) company match up to a maximum contribution of 6% of eligible earnings. All NEOs, with exception of Mr. Cookson, are eligible to participate in this program.

Bonus Replacement Retirement Plan (“BRRP”)Separation Arrangements

The BRRP was established to allow executives to deferEach NEO has a portion of income (up to $20,000) into a qualified, tax-deferred plan. The Company will make a non-elective contribution toseparation agreement with the executive’s account, and will make a corresponding reduction to the amount of the MAP payment. The executive may choose from the same investment options provided under the 401(k) plan.

Change in Control (“CIC”) Agreements

The Board and Compensation Committee provide individual CICCompany. These agreements to the NEOs to establish a competitive level of financial security in the event of a CIC. In 2010, the Compensation Committee determined the level of CIC benefits for the NEOs based on research conducted by Cook & Co. and an assessment of contemporary market practices.are designed to:

 

LOGO     2015 Proxy Statement    35

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)Assure continuity of executive management during evaluation and execution of any transaction that may result in loss of or material changes to employment;

 

The CICReduce risk to the Company and provide shareholder alignment by keeping executives neutral to job loss when pursuing actions that may result in termination of employment;

Ensure executive management is able to objectively evaluate any transaction and act in the best interests of shareholders during design and execution of any transaction; and

Define transition support and terms in event ofnot-for-cause termination.

Payments upon Termination of Employment

Our separation arrangements provide that the executive will be entitled to receive certain cash severance benefits if the executive’s employment is terminated by the Company without Cause or by the executive for Good Reason (as such terms are defined in the separation agreement). Under the separation agreements that apply in absence of a change in control the severance is equal to (i) 1.5 times (two times in the case of Mr. Grizzle) the executive’s then-current annual base salary plus target annual incentive under the AIP program, payable in a lump sum, and (ii) apro-rated annual incentive bonus based on actual performance for the year of termination, payable at the time that bonuses are subjectpaid to conditions under whichemployees of the Company generally.

Under each executive’s separation agreement, the executive is entitled to receive severance payments upon involuntary termination without Cause or termination for Good Reason within two years

following a change in control (“CIC”), or within six months preceding a CIC would be triggered.if the termination is in connection with a potential CIC. In 2014,a change in control the Compensation Committee determinedseverance is equal to (i) two times (2.5 times in the case of Mr. Grizzle) the executive’s then-current annual base salary plus target annual incentive under the AIP program, payable in a lump sum, and (ii) apro-rated annual incentive bonus based on actual performance for the year of termination, payable at the time that bonuses are paid to employees of the CIC conditions continue to be appropriate given our ownership structure. Company generally.

None of the CICseparation agreements providesprovide for taxgross-ups under Sections 280G and 4999 of the Internal Revenue Code. For more information regarding our NEO CIC agreements,separation arrangements, please refer to “CIC Agreements”the “Potential Payments upon Termination of Change in Control” section on page 50.51.

Stock Ownership Guidelines

The Compensation Committee institutedmaintains stock ownership guidelines for our NEOs in August 2010 in an effort to ensure that our NEOs have significant long-term value creation tied to stock price appreciation. Ownership requirements and progress toward their achievement are reviewed annually as part of the compensation planning process. A significant percentage of each NEO’s compensation is directly linked to our stock price appreciation. The guidelines to require retention of 100% of net shares acquired upon any vesting or exercise of equity awards until the ownership guidelines are met.

The stock ownership guidelines for our NEOs are calculated as a fixed number of shares using a required ownership multiple, the executive’s annualized base salary as of a certain date, and the stock price as of a fixed date. The required ownership multiple for our CEO is six times annual base pay for our CEO and is three times annual base pay for our other NEOs.

Shares may be counted towardFor purposes of the policy’sstock ownership guidelines, we include direct ownership of shares and stock units held in employee plans. Stock options are included to the extent they are“in-the-money”. PSUs are not included in determining whether held directly byan executive has achieved the NEO or owned jointly with a partner, provided shares are vested. Forownership levels.

The stock options, the value must exceed the exercise price (“in-the-money” options). We also include vested, unexercised, but “in-the-money” stock options in the calculation.

Stock ownership guidelines must be met within five years from the date of adoptionrequire achievement of the guidelines for Mr. Espe since he joined the Company prior to the adoption of the guidelines, andownership multiple within five years from date of hire or promotion into the role for Messrs. Schulz, Grizzle, Maier and Hershey.the NEOs.

AWI 2018 Proxy Statement    39

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

The Compensation Committee last reviewed the NEOs’ progress toward meeting the ownership requirements in February 2015.December 2017. As of the date of the review, Messrs. EspeGrizzle, Cookson and GrizzleHershey had met their ownership requirements. Mr. Schulz

Restrictive Covenants

Each NEO separation agreement includes the following restrictive covenants:

for 12 months following a termination the NEO shall not, directly for the NEO or any third party, become engaged in any business or activity which is directly in competition with any services or products sold by, or any business or activity engaged in by, the Company or any of its affiliates;

for 24 months following a termination, the NEO shall not solicit any person who was promoted on November 16, 2013 and Mr. Maier was promoted on September 26, 2014. Mr. Hershey was hired on July 1, 2011. Messrs. Schulz, Maiera customer of the Company or any of its affiliates during the period of the NEO’s employment hereunder, or solicit potential customers who are or were identified through leads developed during the course of employment with the Company, or otherwise divert or attempt to divert any existing business of the Company or any of its affiliates; and

Hershey are expectedthe NEO shall not, directly for the NEO or any third party, solicit, induce, recruit or cause another person in the employment of the Company or any of its affiliates to meet ownership requirements withinterminate such employee���s employment for the requisite five-year period.purposes of joining, associating, or becoming employed with any business or activity which is in competition with any services or products sold, or any business or activity engaged in, by the Company or any of its affiliates.

Recoupment Policy

Our Compensation Committee has the ability to exercise discretion and take action to recoup certain stock-based awards from a plan participant in the event his or her employment is terminated for willful, deliberate or gross misconduct, as, for example, if we were required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws as a result of such participant’s misconduct which led to his or her termination of employment, or if a participant engages in injurious conduct after termination of

employment. To the extent that in the future the SEC adopts additional rules for clawback policies that require changes to our plans or policies, we will revise our policiesthem, as appropriate.

Prohibition on Hedging and Derivative Trading

All members of our Board and senior management, including our NEOs and certain other employees, are required to clear any transaction involving Company securities with our General Counsel’s office prior to entering into such transaction.

By policy, we prohibit derivative transactions in our Company securities, including:

 

Trading in puts, calls, covered calls, or other derivative products involving Company securities.

 

Engaging in any hedging or monetization transaction with respect to Company securities.

 

Holding companyCompany securities in a margin account or pledging Company securities as collateral for a loan.

Beginning in 2011, we permittedWe permit senior management to utilize stock trading plans that comply with Rule10b5-1 of the Exchange Act. All such plans are subject to ourpre-approval, and the ability to enter into such plans remains subject to policy prohibitions on trading while in possession of materialnon-public information.

Assessment and Management of Risk

We monitor the risks associated with our compensation program on an ongoing basis. In addition, we are committed to performing formal assessments on a periodic basis. At the conclusion of the most recent analysis (conducted in 2014)2017) of our compensation programs and

36    LOGO    2015 Proxy Statement

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

associated risks, it was the assessment of the Compensation Committee, with the assistance of Towers Watson and management,that our compensation programs are designedstructured and administeredoperated with an appropriate balance of risk and reward and, by their design, do not encourage executives to take unnecessary, excessive, or inappropriate risks and do not create risks reasonably likely to have a material adverse effect on the Company. In arriving at this determination, the Compensation Committee considered the following with respect to our compensation programs:

Whether the underlying pay philosophy, Peer Group and market positioning to support business objectives were appropriate.

Effective balance in:

Cash and equity mix.

Short- and long-term performance focus, with performance goals tied to profitability and absolute stock price performance.

Use of multiple performance metrics in the annual and long-term incentive plans.

Performance objectives are established using a reasonable probability of achievement.

Long-term incentive plan is tied to operating performance over a multi-year performance period.

The Compensation Committee’s ability to exercise discretion to reduce MAP amounts earned based on subjective evaluation of quality of earnings and individual performance.

The presence of meaningful risk mitigation policies, such as stock ownership guidelines, claw-back provisions, and independent

Compensation Committee oversight; and prohibitions on hedging against and pledging of our Common Shares.

Tax Deductibility of Compensation

TheSection 162(m) of the Internal Revenue Code imposes a $1 million limit on the amount a public company may deduct for compensation paid to the company’s CEO or anycertain of the company’s three other most highly compensated executive officers (other than the CFO) who are employed as of the end of the year.Company’s highest paid officers.

40    AWI 2018 Proxy Statement

This

COMPENSATION DISCUSSION AND ANALYSIS(CONTINUED)

For 2017, this limitation doesdid not apply to compensation that meets the tax codeInternal Revenue Code requirements for “qualifying performance-based” compensation (i.e., compensation paid only if the individual’s performance meetspre-established objective goals based on performance criteria approved by shareowners).

Although our Compensation Committee retains discretionThe Tax Cuts and Jobs Act of 2017 eliminated the exception for “qualifying performance based compensation” and certain other exceptions to determine otherwise, it is generally our policy to structure and administer our annual and long-term incentive compensation plans for the NEOs to maximize the tax deductibility of the payments as “qualifying performance-based compensation”

deduction limit under Section 162(m) of the Code to the extent practicable. . The changes are effective for tax years beginning after 2017, except for certain grandfathered arrangements.

The Compensation Committee considers both tax and accounting treatment in establishing our compensation program. The Compensation Committee retains discretion to authorize compensation arrangements that are not fully tax deductible as for example, may be appropriate to attract and retain global business leaders who can drive financial and strategic growth objectives that maximize long-term shareholder value. In 2014, all incentive compensation, including MAP and LTIP awards, for the NEOs who were affected by Section 162(m) limit was designed to be exempt from the Section 162(m) deduction limit.it deems appropriate.

 

 

 
 LOGO     2015AWI 2018 Proxy Statement       3741

COMPENSATION COMMITTEE REPORT

The Management Development and Compensation Committee of Armstrong’sour Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of RegulationS-K with the Company’sour management. Based on this review and discussion, the Management Development and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Submitted by the Management Development and Compensation Committee

Stan A. Askren, Chair

James J. Gaffney

Michael F. Johnston

Larry S. McWilliams

James C. Melville

Gregory P. Spivy

Roy W. Templin

Cherryl T. Thomas

This report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor incorporated by reference into any future SEC filing under the Securities Act of 1933 or the Exchange Act, except to the extent that Armstrongthe Company specifically incorporates it by reference therein.

 

 
3842       LOGO    2015AWI 2018 Proxy Statement 

20142017 SUMMARY COMPENSATION TABLE

The table below sets forth the total compensation for our NEOs during fiscal 2014. The table also sets forth the information regarding the fiscal 20132017, 2016 and 2012 compensation for Messrs. Espe, Grizzle, Maier and Mangas because they were NEOs in those fiscal years. Fiscal 2013 was the first year Messrs. Schulz and Hershey met the criteria for inclusion as an NEO in the SCT.2015.

 

Name and
Principal Position		 Year  

Salary

($)

  

Bonus(2)

($)

  Stock
Awards(3)
($)		  

Option

Awards(3)

($)

  Non-Equity
Incentive Plan
Compensation(4)
($)		  

Change in
Pension Value

& Nonqualified
Deferred
Compensation
Earnings

($)

  All  Other
Compensation(5)
($)		  

Total

($)

 

Mr. Espe

  2014    1,002,050    —     1,260,000    1,890,000    837,720    —     212,401(6)   5,202,171  

President and Chief

  2013    980,000    —     1,260,000    1,890,000    764,400    —     694,231    5,588,631  

Executive Officer

  2012    980,000    —     1,200,001    1,800,019    627,200    —     738,459    5,345,679  

Mr. Schulz

  2014    435,367    —     208,000    312,000    248,160    —     40,678(6)   1,244,205  

Senior Vice

  2013    262,912    —     51,880    77,820    128,900    —     20,290    541,802  
President and Chief Financial Officer         

Mr. Grizzle

  2014    479,848    —     333,000    499,500    305,910    —     102,028(6)   1,720,286  

Executive Vice

  2013    459,375    —     324,000    486,000    361,800    —     34,207    1,665,382  

President and CEO,

Armstrong Building Products

  2012    450,000    —     324,044    486,018    216,000    —     193,893    1,669,955  

Mr. Maier

  2014    428,466    68,710   335,200    502,800    188,790    —     140,427(6)   1,664,393  

Executive Vice

  2013    409,000    —     240,000    360,000    159,600    —     87,464    1,256,064  
President and CEO Armstrong Flooring Products  2012    400,000    —     —     600,006    128,000    —     187,321    1,315,327  

Mr. Hershey

  2014    429,450    —     235,200    352,800    195,830    —     60,142(6)   1,273,422  
Senior Vice President, General Counsel and Chief Compliance Officer  2013    413,750    —     221,200    331,800    193,700    —     39,356    1,199,806  

Mr. Mangas (1)

  2014    393,742    —      416,000    624,000    —      —      243,095(6)   1,676,838  

Former Executive Vice

  2013    515,000    —      400,000    600,000    301,300    —      203,584    2,019,884  

President and CEO, Armstrong Floor

Products

  2012    500,000    —      400,017    1,600,010    240,000    —      320,866    3,060,893  
Name and
Principal Position		 Year  

Salary

($)

  

Bonus(3)

($)

  

Stock

Awards(1)

($)

  

Option

Awards(1)

($)

  

Non-Equity

Incentive Plan
Compensation(2)

($)

  

Change in

Pension Value

& Nonqualified

Deferred

Compensation

Earnings

($)

  

All Other

Compensation(4)

($)

  

Total

($)

 

Mr. Grizzle

  2017   718,750   —     2,300,000   —     567,820   —     92,921   3,679,491 
President and Chief  2016   650,050   —     5,250,000   —     754,930   —     68,977   6,723,957 

Executive Officer

  2015   496,558   —     874,000   —     424,560   —     88,951   1,884,069 

Mr. MacNeal

  2017   402,563   —     375,000   —     190,820   —     32,642   1,001,025 

Senior Vice

  2016   347,875   —     1,125,000   —     238,400   —     21,339   1,732,614 
President and Chief Financial Officer         

Mr. Chiappone

  2017   366,985   —     266,300   —     144,960   —     23,122   801,367 
Senior Vice President,         
Ceiling Solutions         

Mr. Cookson

  2017   368,615   —     270,400   —     136,390   615,964   9,982   1,401,351 
Senior Vice President  2016   371,315   —     811,200   —     211,650   375,379   9,331   1,778,875 
Americas         

Mr. Hershey

  2017   418,200   —     506,300   —     252,940   —     48,413   1,225,853 
Senior Vice President,  2016   415,675   671,550   1,071,300   —     304,280   —     57,373   2,520,178 
General Counsel and Chief Compliance Officer  2015   443,925   —     605,600   —     388,880   —     69,627   1,508,032 

 

 (1)Mr. Mangas served as the EVP and CEO of AFP until September 26, 2014 when he resigned from his position with the Company.

(2)In connection with Mr. Maier’s promotion to EVP & CEO, AFP, the Compensation Committee approved a cash bonus performance award for the 2014 calendar year equal to $257,500. The amount reflected in this column is the supplemental payment, in excess of the amount shown in the Non-Equity incentive Plan Compensation column, to equal the $257,500 amount. The details of this arrangement were outlined in the SEC form 8-K filing on August 22, 2014.

(3)The amounts reflect the aggregate grant date fair value of stock units and option awards granted in the fiscal year, computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718. The assumptions used to determine the valuation of our option awards are set forth on page 41. The potential maximum fair value of the performance restricted stock unit award atUnder ASC Topic 718, the grant date marketfair value is calculated using the closing price would be $2,205,000of the Company’s shares of Common Stock ($46.00) on the date of grant (February 28, 2017). The 2017 LTIP awards consist of PSUs only. The target and maximum payouts for Mr. Espe, $364,000 for Mr. Schulz, $582,750the PSUs are as follows: target of $2,300,000 and maximum of $6,325,000 for Mr. Grizzle, $586,000target of $375,000 and maximum of $1,031,250 for Mr. Maier,MacNeal, target of $266,300 and $411,600maximum of $732,325 for Mr. Hershey.Chiappone, target of $270,400 and maximum of $743,600 for Mr. Cookson (maximums are 275% of target), target of $506,300 and maximum of $1,139,175 for Mr. Hershey (maximums are 225% of target).

(2)The 2017 amounts disclosed are the awards under the 2017 AIP.

(3)Amounts payable under retention agreements that were entered in 2015 and were contingent on the successful separation of AFI. The retention payments were made upon the successful execution of the separation in April 2016. 

 

 (4)The 2014 amounts disclosed are the awards under the 2014 MAP. As specified under the MAP, award amounts are subject to a mandatory reduction of up to $20,000 to the extent a corresponding contribution can be made to the Bonus Replacement Retirement Plan, which is a qualified, tax-deferred profit sharing plan. For 2014, a $17,000 reduction was made for Messrs. Espe and Grizzle, $20,000 for Mr. Schulz, $17,043 for Mr. Maier, and $17,978 for Mr. Hershey.

(5)The amounts shown in the “All Other Compensation” column include: (i) cash dividends paid; (ii) Company matching contribution to the Savings and Investment 401(k) Plan and to the NQDCP; (iii)(ii) premiums for long-term disability insurance; (iii) termination payments (severance); (iv) relocation expenses,expenses; and (v) personal benefits (“perquisites”) consisting of medical examinations and financial planning expense reimbursements to the extent the total perquisite value is $10,000 or greater per individual. For each person the total value of all such perquisites did not reach $10,000 except for Mr. Grizzle. Mr. Grizzle’s perquisite value was $10,719, the amount is included in the “All Other Compensation” column.$10,000. 

 

 
 LOGO     2015AWI 2018 Proxy Statement       3943

20142017 SUMMARY COMPENSATION TABLE(CONTINUED)

 

 

(6)(5)The following table provides the detail for the amounts reported in the All Other Compensation for 20142017 for each NEO:

 

Name  

Perquisites
and Other
Benefits(a)

($)

   

Cash
Dividends(b)

($)

   

Company
Match
Savings Plan
Contributions

($)

   

Executive
Long-
Term
Disability

($)

   Relocation(c)
($)		   All Other
Compensation
($)		 

Mr. Espe

     141,032     69,023     2,346       212,401  

Mr. Schulz

         5,198     35,480         40,678  

Mr. Grizzle

   10,719       48,444     42,865         102,028  

Mr. Maier

       63,612     40,815       36,000     140,427  

Mr. Hershey

       15,570     39,985     4,588       60,142  

Mr. Mangas

     195,624     43,366     4,105       243,095  
Name  

Perquisites

and Other

Benefits

($)

   

Company

Match

Savings Plan

Contributions

($)

   

Executive

Long-

Term

Disability

($)

   

All Other

Compensation

($)

 

Mr. Grizzle

     92,921    0    92,921 

Mr. MacNeal

     32,642    0    32,642 

Mr. Chiappone

     23,122      23,122 

Mr. Cookson

     8,152    1,830    9,982 

Mr. Hershey

        46,583    1,830    48,413 

CEO Pay Ratio

Our philosophy is to pay our employees competitively with similar positions in the applicable labor market. We follow this approach globally, whether it be an executive level position or hourly job. As such, we typically benchmark by position to the applicable labor market every year, and adjust compensation to match the applicable market. By doing so, we believe we maintain a high-quality, stable workforce. The compensation we paid to the median employee identified below was benchmarked in accordance with this process to verify competitive compensation.

As a result of rules the SEC adopted under the Dodd-Frank Act, we are providing the following disclosure about the ratio of the annual total compensation of our CEO to the annual total compensation of our median employee. For the year ended December 31, 2017:

the annual total compensation of our median employee was reasonably estimated to be $73,970;

the annual total compensation of our CEO was $3,679,491; and

based on this information, the ratio of the annual total compensation of the CEO to that of the median employee is estimated to be 50:1.

We identified our median employee using a multistep process that is permitted under the SEC rules. We first examined the annual taxable earnings paid to each of our employees during 2017, which we gathered from payroll data. Then, we excluded 162 employees in countries outside the U.S. where the headcount is less than approximately 35, as allowed under the deminimis exception to the SEC rules. The total numbers of U.S. employees andnon-U.S. employees were 2,146 and 1,754, respectively, before taking into account such exclusions and for purposes of calculating such exclusions.

Countries and number of employees (162 in total) excluded:

 

(a)Represents annual physical, personal financial planning and travel for spouse to Board meetings. The spouses of Board members and NEOs were invited to attend the Board’s regularly scheduled February 2014 meeting. The incremental costs incurred by the Company for spouse travel and lodging are included.
   Mexico — 3Brazil — 4Australia —38                Hong Kong — 10
   Taiwan — 1Indonesia —2                Malaysia — 1Philippines — 2
   Singapore — 1Thailand — 1Vietnam — 2Czech Republic —35                
   United Arab Emirates — 10Italy — 6Spain — 5Portugal — 1
   Ireland — 2Turkey — 2Netherlands — 35Kazakhstan — 1

 

(b)Cash dividends were paid upon vesting of RSUs and PSUs in 2014.

We annualized the total taxable compensation paid to those employees who commenced work with us during 2017 and therefore did not work for us the entire calendar year. Using this annual taxable compensation data, we identified the employee

(c)Commuting expense assistance of $9,000 for twelve months following his promotion to the global EVP & CEO AFP role on September 26, 2014 details of which are outlined in SEC form 8-K filing on August 22, 2014. The amount shown in this table represents four months of relocation assistance in 2014. The commuting expense is to cover housing, car lease and flight travel.

whose total taxable compensation was closest to the median. We then calculated the total annual compensation of the median employee, in the same way as we calculate total annual compensation for our CEO in the Summary Compensation Table.

 

 
4044       LOGO    2015AWI 2018 Proxy Statement 

GRANTS OF PLAN-BASED AWARDS

The table below shows information on MAPAIP awards stock options and PSUs granted to each NEO in 2014.2017. There is no assurance that the grant date fair value of PSU and optionPSU/RSU awards will be realized by the executive.

 

       

Estimated Future

Payouts Under
Non-Equity Incentive Plan
Awards

  Estimated Future
Payouts Under
Equity Incentive Plan
Awards		  All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)		  All Other
Option
Awards:
Number of
Securities
Under-Lying
Options
(#)		  Exercise or
Base Price
of Option
Awards
($/Sh)		  Grant Date
Fair Value
of Stock
and Option
Awards(4)
($)		 
Name     

Grant

Date

 Threshold
($)		  Target
($)		  Maximum
($)		  Threshold
(#)		  Target
(#)		  Maximum
(#)		     

Mr. Espe

  (1)  N/A  551,178    1,102,255    2,204,510         
  (2)  2/25/2014         75,904    53.87    1,890,000  
  (2)  2/25/2014     11,695    23,390    40,933       1,260,000  

Mr. Schulz

  (1)  N/A  163,263    326,525    653,050         
  (2)  2/25/2014         12,531    53.87    312,000  
  (2)  2/25/2014     1,931    3,862    6,759       208,000  

Mr. Grizzle

  (1)  N/A  179,943    359,886    719,772         
  (2)  2/25/2014         20,061    53.87    499,500  
  (2)  2/25/2014     3,091    6,182    10,819       333,000  

Mr. Maier

  (1)  N/A  124,195    248,391    496,782         
  (2)  2/25/2014         14,892    53.87    370,800  
  (2)  2/25/2014     2,295    4,589    8,031       247,200  
  (3)  9/26/2014         4,900    56.52    132,000  
  (3)  9/26/2014        1,557      88,000  

Mr. Hershey

  (1)  N/A  128,835    257,670    515,340         
  (2)  2/25/2014         14,169    53.87    352,800  
  (2)  2/25/2014     2,184    4,367    7,642       235,200  

Mr. Mangas

  (1)  N/A          
  (2)  2/25/2014         25,061    53.87    624,000  
  (2)  2/25/2014     3,862    7,723    13,515       416,000  
       

 

Estimated Future

Payouts Under

Non-Equity Incentive Plan

Awards

  

 

Estimated Future

Payouts Under

Equity Incentive Plan

Awards

  

All Other

Stock

Awards:

Number of

Shares of

Stock or

Units

(#)

  

All Other

Option

Awards:

Number of

Securities

Under-Lying

Options

(#)

  

Exercise or

Base Price

of Option

Awards

($/Sh)

  

Grant Date

Fair Value

of Stock

and Option

Awards

($)

 
Name    Grant
Date		 

Threshold

($)

  

Target

($)

  

Maximum

($)

  Threshold
(#)		  

Target

(#)

  Maximum
(#)		     

Mr. Grizzle

  (1)  N/A  359,375   718,750   1,437,500                             
  (2)  2/28/2017     12,500   50,000   137,500      2,300,000  

Mr. MacNeal

  (1)  N/A  120,769   241,538   483,075        
  (2)  2/28/2017     2,038   8,153   22,421      375,000  

Mr. Chiappone

  (1)  N/A  91,746   183,493   366,985        
  (2)  2/28/2017     1,448   5,790   15,923      270,400  

Mr. Cookson

  (1)  N/A  92,154   184,308   368,615        
  (2)  2/28/2017     1,470   5,879   16,167      266,300  

Mr. Hershey

  (1)  N/A  125,460   250,920   501,840        
   (2)  2/28/2017              5,504   11,007   24,766               506,300  
 (1)The amounts shown represent the 2014 MAP2017 AIP threshold, target and maximum opportunity for each NEO. Actual payouts are included in theNon-Equity Incentive Plan Compensation column of the SCT. 
 (2)In 2014, our2017, the Company’s LTI program for NEOs consisted of 60% stock options and 40% PSU. The exercise price of the stock options was $53.87. The stock options vest and become exercisable in three equal installments on the first, second and third anniversaries of the effective date of the grant.included PSUs that have a three-year performance period based on ROIC;Absolute TSR and FCF; participants earn 100%up to 275% of the performance restricted sharestarget for Messrs. Grizzle, MacNeal, Chiappone and Cookson and up to 225% of target for Mr. Hershey if the Company achieves 100% of the ROIC target.established performance goals. Any cash dividends declared on shares underlying PSUs will be accrued in anon-interest bearing account and paid when the restrictions on the underlying shares lapse. 
(3)Mr. Maier received an off-cycle grant on September 26, 2014 upon transition to the EVP & CEO AFP role with a grant date value of $220,000. Mr. Maier received 4,900 stock options and 1,557 restricted stock units. The stock options vest and become exercisable in three installments at one, two and three years. The restricted stock units will vest three years from the effective date of grant.
(4)For purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes option pricing model and the assumptions set forth in the table below. The grant date fair value of options granted on February 25, 2014 was $24.90.

2014

Dividend yield

0.0%

Volatility

47.4%

Risk-free interest rate

1.9%

Expected life (years)

6.0

 

 
 LOGO     2015AWI 2018 Proxy Statement       4145

GRANTS OF PLAN-BASED AWARDS(CONTINUED)

The grant date fair value of options granted on September 26, 2014 was $26.94

2014

Dividend yield

0.0%

Volatility

47.84%

Risk-free interest rate

2.1%

Expected life (years)

6.0

42    LOGO    2015 Proxy Statement

OUTSTANDING EQUITY AWARDS AT FISCALYEAR-END

The table below shows the number of shares covered by exercisable and unexercisable stock options, and unvested RSUs and PSUs held by each NEO on December 31, 2014.2017. Market or payout values in the table below are based on the closing price of our shares of Common SharesStock on that date, $51.12.$60.55. Equity awards held by NEOs at the time of the separation were adjusted to reflect the separation, consistent with equity awards held by other Company employees, and the table below includes outstanding adjusted awards as of December 31,2017.

 

    Option Awards Stock Awards 
 

Grant
Date

  Number of
Securities
Underlying
Unexercised
Options		  Number of
Securities
Underlying
Unexercised
Options
(#)		  

Option
Exercise
Price
($)

  

Option
Expiration
Date

  

Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)

  

Market Value
of Shares or
Units of Stock
That Have Not
Vested
($)

  

Equity Incentive

Plans Awards:

Number of
Unearned
Shares, Units
or Other Rights
That Have Not
Vested
(#)

  

Equity Incentive
Plans Awards
Market or
Payout Value
of Unearned
Shares or
Other Rights
That Have Not
Vested
($)

     Option Awards Stock Awards 
    

Grant

Date

  Number of
Securities
Underlying
Unexercised
Options
(#)		 Number of
Securities
Underlying
Unexercised
Options
(#)		 

Option

Exercise

Price

($)

  

Option

Expiration

Date

  

Number of

Shares or

Units of

Stock That
Have Not

Vested

(#)

  

Market Value

of Shares or

Units of Stock

That Have Not

Vested

($)

  

Equity Incentive

Plans Awards:

Number of

Unearned

Shares, Units

or Other Rights

That Have Not

Vested (#)

  

Equity Incentive

Plans Awards

Market or

Payout Value

of Unearned

Shares or

Other Rights

That Have Not

Vested ($)

 
Name Exercisable Unexercisable  Exercisable Unexercisable(1) 

Mr. Espe

  8/10/10    343,835    24.73    08/10/20   
  3/2/11    121,399     35.57    03/02/21      
  2/28/12    67,764    33,883(1)   43.21    02/28/22      
  2/20/13    29,153    58,307(1)   51.76    02/20/23      
  2/25/14     75,904(1)   53.87    02/25/24    �� 
         23,819(3)   1,217,627  
         24,344(3)   1,244,465  
         24,390(3)   1,195,697  

Mr. Schulz

  6/1/11    4,472     40.71    06/01/21      
  2/28/12    2,858    1,429(1)   43.21    02/28/22      
  2/20/13    1,200    2,402(1)   51.76    02/20/23      
  2/25/14     12,531(1)   53.87    02/25/24      
         1,005(3)   51,376  
         1,003(3)   51,273  
         3,862(3)   197,425  

Mr. Grizzle

  1/17/11    16,773     36.58    01/17/21        1/17/2011   19,158   32.03   01/17/21  
  3/2/11    27,315     35.57    03/02/21        3/2/2011   31,200    31.15   03/02/21     
  2/28/12    18,296    9,149(1)   43.21    02/28/22        2/28/2012   31,348    37.83   02/28/22     
  2/20/13    7,496    14,994(1)   51.76    02/20/23        2/20/2013   25,689    45.32   02/20/23     
  2/25/14     20,061(1)   53.87    02/25/24        2/25/2014   22,914    47.17   02/25/24     
      6,432(3)   328,804    2/25/2015       5,983(1)   362,271   
      6,260(3)   320,011    4/11/2016         31,445(3)   475,995 
      6,182(3)   316,024    2/28/2017         12,500(4)   189,219 

Mr. Maier

  3/2/11    8,094     35.57    03/02/21      

Mr. MacNeal

  6/24/2014   3,740    49.96   06/24/24     
  11/1/11    6,026     33.15    11/01/21        2/24/2015       980(1)   59,339   
  2/28/12    11,294    11,294(1)   43.21    02/28/22        4/11/2016         6,738(3)   102,000 
  2/20/13    5,553    11,106(1)   51.76    02/20/23        2/28/2017         2,038(4)   30,854 

Mr. Chiappone

  2/28/2012   2,307    37.83   02/28/22     
  2/20/2013   3,781    45.32   02/20/23     
  2/25/2014   5,904    47.17   02/25/24     
  2/25/2015       1,519(1)   91,975   
  4/11/2016         4,785(3)   72,433 
  2/28/2017         1,448(4)   21,912 

Mr. Cookson

  2/28/2012   12,412    37.83   02/28/22     
  2/25/14     14,892(1)   53.87    02/25/24        2/20/2013   7,218    45.32   02/20/23     
  9/26/14     4,900(1)   56.52    09/26/24        2/25/2014   7,706    47.17   02/25/24     
         4,637(3)   237,043    2/25/2015       1,798(1)   108,869   
         4,589(3)   234,590    4/11/2016         4,859(3)   73,549 
       1,557(2)   79,594      2/28/2017         1,470(4)   22,248 

Mr. Hershey

  7/1/11    13,530     40.30    07/01/21        7/1/2011   15,454    35.29   07/01/21     
  2/28/12    11,859    5,930(1)   43.21    02/28/22        2/28/2012   20,319    37.83   02/28/22     
  2/20/13    5,118    10,237(1)   51.76    02/20/23        2/20/2013   17,539    45.32   02/20/23     
  2/25/14     14,169(1)   53.87    02/25/24        2/25/2014   16,184    47.17   02/25/24     
         4,169(3)   213,119    2/25/2015       4,145(1)   250,980   
         4,274(3)   218,487    4/11/2016       13,537(2)   819,665   
         4,367(3)   223,241    4/11/2016         6,065(3)   183,618 
  2/28/2017   5,504(4)   166,618 
 (1)Grant will vest in three equal installments one, two and three years from the date of grant. 

 

 (2)Grant will vest in three equal installments two, three and four years from the date of grant. 

 

 (3)The number of shares of Common Shares reflected in this columnStock represents the target sharesamount that vests if threshold is achieved for the ROIC goal is achieved.2016 PSU grant (based on Absolute TSR and FCF goals). The awards would vest on December 31, 2014, December 31, 20152018. Participants can earn up to 275% of target for Messrs. Grizzle, MacNeal, Chiappone and December 31, 2016 respectively.Cookson and 225% of target for Mr. Hershey. 

 

(4)The number of shares of Common Stock represents the amount that vests if threshold is achieved for the 2017 PSU grant (based on Absolute TSR and FCF goals). The awards would vest on December 31, 2019. Participants can earn up to 275% of target for Messrs. Grizzle, MacNeal, Chiappone and Cookson and 225% of target for Mr. Hershey

LOGO     2015 Proxy Statement46       43AWI 2018 Proxy Statement

OPTION EXERCISED AND STOCK VESTED

The following table shows the exercise of stock options made by each NEO during 20142017, as well as stock awards held by each NEO that became free of restrictions during 2014.2017.

 

   Option Awards(1)   Stock Awards(2) 
  

 

 

 
Name  

Number

of Shares

Acquired

on Exercise

(#)

   

Value

Realized

on Exercise

($)

   

Number

of Shares

Acquired

on Vesting

(#)

   

Value

Realized

on Vesting

($)

 

Mr. Espe

   —      —      16,495    $980,463  

Mr. Schulz

   —      —      608    36,140 

Mr. Grizzle

   —      —      5,666     340,558  

Mr. Maier

   100,522    2,936,297    7,440     396,611  

Mr. Hershey

   —      —      1,821     108,240  

Mr. Mangas

   234,925     5,061,787     12,166    692,812 
   Option Awards   Restricted Stock
Awards		 
Name  

Number

of Shares

Acquired

on Exercise

(#)

   

Value

Realized

on Exercise

($)

   

Number
of Shares

Acquired

on Vesting

(#)

   

Value

Realized

on Vesting

($)(1)

 

Mr. Grizzle

   —      —      9,511    387,392 

Mr. MacNeal

   —      —      1,551    63,169 

Mr. Chiappone

   —      —      2429    98,950 

Mr. Cookson

   —      —      2,983    121,636 

Mr. Hershey

   —      —      6,638    270,424 

 

(1)Represents the number of stock options exercised in 2014. The value realized upon exercise is computed by determining the difference between the market price at exercise and the exercise price of the options

(2)Represents the number of RSUs andRSUs/ PSUs that vested in 2014.2017. The value realized upon vesting is computed by multiplying the number of units by the value of the underlying shares on the vesting date.

AWI 2018 Proxy Statement    47

PENSION BENEFITS

The following table listsbelow shows the detailspresent value of accumulated benefits payable to each of the PSUNEOs, including the number of years of service credited to each such NEO, under the RIP and RSA/RSU awards that vested in 2014 for the NEOs. The cash dividends associated with these vesting events are represented in the “All Other Compensation” column in the SCT.

Name  Type   Grant
Date		   Payout
Date		   

Number of

Shares Granted

   

Number of

Shares Acquired

on Vesting

   

Value Realized on

Vesting ($)

 

Mr. Espe

   PSU     03/02/11     12/31/14     28,937     16,495    $980,463  

Mr. Schulz

   PSU     06/01/11     12/31/14     1,066     608     36,140  

Mr. Grizzle

   PSU     03/02/11     12/31/14     6,511     3,712     220,641  

Mr. Grizzle

   RSU     01/17/11     01/17/14     1,954     1,954     119,917  

Mr. Maier

   PSU     03/02/11     12/31/14     5,788     3,300     196,152  

Mr. Maier

   RSU     10/31/11     10/31/14     4,140     4,140     200,459  

Mr. Hershey

   PSU     07/01/11     12/31/14     3,193     1,821     108,240  

Mr. Mangas

   PSU     03/02/11     12/31/14     9,646     5,499     326,861  

Mr. Mangas

   RSA     03/02/10     03/02/14     6,667     6,667     365,951  

The performance period for PSUs granted in 2012 ended on December 31, 2014. The final payout was not determinableRBEP as of December 31, 2014.2017. The final payout determinationamounts were determined using the same interest rate and mortality rate assumptions used in the Company’s Consolidated Financial Statements in our Annual Report on Form10-K for the year ended December 31, 2017. Information regarding the RIP and RBEP can be found in Note 16 to the Company’s Consolidated Financial Statements in our Annual Report on Form10-K for the year ended December 31, 2017.

Name  Plan Name  

Number of Years
Credited Service

(#)

   

Present Value of
Accumulated Benefit

($)

   

Payments During
Last Fiscal Year

($)

 

Mr. Grizzle

  Not eligible      

Mr. MacNeal

  Not eligible      

Mr. Chiappone

  Not eligible      
  Retirement Income Plan for Employees of Armstrong World Industries, Inc.   38.5    2,176,702    0 

Mr. Cookson

        
  Retirement Benefit Equity Plan of Armstrong World Industries, Inc.   38.5    1,662,945    0 

Mr. Hershey

  Not eligible               

The RBEP was made in February 2015established to pay any benefit which cannot be paid under the RIP due to Internal Revenue Code compensation or benefits limitations. All pension benefits are paid by the Compensation Committee afterCompany. The pension plans were closed to new salaried participants effective January 1, 2005. Benefits payable under the RIP and RBEP are based on a reviewformula that yields an annual amount payable over the participant’s lifetime beginning at the age where the participant qualifies for an unreduced life annuity benefit.

In addition, Mr. Cookson may qualify for an additional annuity payment under the ESOP Pension Account (the “EPA”) to the extent such benefit can be paid under the qualified pension plan. The EPA was established in 2000 to restore a portion of the Company’s performance.value lost by a broad group of employees who had purchased shares of Company stock and received Company contributions of additional shares which were intended to help fund the cost of their retiree health care coverage. The final 2012 PSUstarting EPA balance was determined by multiplying the number of ESOP shares paid outheld by the participant by $47.75 which was the guaranteed value of the original ESOP convertible preferred shares. The EPA is credited with interest annually using theNovember 30-year Treasury bond rate. Interest is credited up to the date the participant commences regular pension benefits under the RIP.

Participants in the RIP may retire as early as age 55 provided the participant is vested under the plan. Participants become vested after completing five years of continuous employment having worked at least 1,000 hours in each year. Normal retirement date is the first of the month nearest the participant’s 65th birthday. Except as noted below, there is a reduction for early retirement for salaried participants who retire between the ages of 55 and 65. An employee who retires from active employment can receive an unreduced pension benefit commencing on the date of retirement if the employee’s age (minimum age 55) and Total Service totals 90 points (the “Rule of 90”). The unreduced Rule of 90 benefit is limited to the employee’s pension amount accrued to February 28, 2006. Employees receive credit for post-March 1, 2006 age and service for Rule of 90 eligibility.

The normal form of benefit payment is a monthly annuity. Except for payments having a lump sum present value realized in March 2015of $100,000 or less under the qualified plan, no lump sum payments are set forth below. Target unitspermitted. Various forms of annuity payments (including life, joint and year-end valuessurvivor, period certain and level income options) are available under the pension plans. The annuity payments for these options are determined by actuarially adjusting the life annuity pension amount for the PSUs awarded in 2012 are included in the Outstanding Equity Awards table.selected form of

Name  

2012 PSU Final
Payout(a)

(#)

   

PSU Value on
Vesting(b)

($)

   

Cash Dividends
Paid

($)

 

Mr. Espe

   15,721    $847,205    $134,415  

Mr. Schulz

   664     35,783     5,677  

Mr. Grizzle

   4,246     228,817     36,303  

Mr. Hershey

   2,752     148,305     23,530  

(a)Represents 66% of target award achieved.

(b)Valued at $53.89, the closing price of our Common Shares on February 19, 2015, the date of Compensation Committee final payout determination.

 

 
4448       LOGO    2015AWI 2018 Proxy Statement 

PENSION BENEFITS(CONTINUED)

Our NEOs do

payment. The formula for the regular life annuity pension benefit for salaried employees under the RIP is based on the following factors:

the participant’s Average Final Compensation (the “AFC”) which is the average of the three highest years of eligible compensation (base salary plus annual incentive) during the last ten years of employment;

the participant’s number of years of Total Service (credited years of employment with the Company) used to calculate the pension amount; and

the participant’s Adjusted Covered Compensation (the “ACC”), which is a percentage of the average Social Security tax base for the35-year period ending with the year the participant will qualify for an unreduced Social Security pension benefit.

The unreduced annual life annuity pension is the sum of the following four calculations, each of which may not participatebe less than zero:

1.AFC x 0.009 x Total Service to a maximum of 35 years; plus

2.(AFC – ACC) x 0.005 x Total Service to 35 years; plus

3.(AFC – 2 x ACC) x 0.0015 x Total Service to 35 years; plus

4.AFC x 0.012 x Total Service over 35 years.

To the extent the participant is eligible for an EPA pension benefit that can be paid from the RIP, all of

the allowable portion of the calculated EPA annuity will be added to the regular pension amount. EPA annuity amounts that cannot be paid from the qualified plan are forfeited.

Special provisions apply if the qualified pension plan is terminated within five years following an Extraordinary Event, as this term is defined in the Company’s qualified definedRIP. Upon the occurrence of such an event, plan liabilities would first be satisfied, and then remaining plan assets would be applied to increase retirement income to employees. The amount of the increase is based on the assumption that the employee would have continued employment with Armstrong until retirement. The NEOs who are eligible for RIP pension plan, which was closedbenefits would be entitled to newly hired employees after January 1, 2005.this benefit under these circumstances.

The assumptions used to calculate the actuarial present values shown in the table above are as follows:

Discount rated used to value benefit obligations equals 3.6%;

RP 2014 Projected from 2006 with MP2017;

EPA interest rate of 2.86%;

1994 GAR(RR2001-62) Mortality Table for EPA annuity conversion; and

Retirement at age 65 or Rule of 90 eligibility, as specified.

 

 
 LOGO     2015AWI 2018 Proxy Statement       4549

NONQUALIFIED DEFERRED COMPENSATION

The table below shows the executive contributions, earnings and account balances for each NEO who participates in the NQDCPs.NQDCP.

 

Name  

Executive
Contributions

in 2014(1)

($)

   

Registrant

Contributions
in 2014(2)

($)

   

Aggregate

Earnings in
2014

($)

   

Aggregate

Withdrawals /
Distributions

($)

  

Aggregate
Balance at
12/31/14(3)

($)

 

Mr. Espe

   67,097     50,323     19,687    0   440,945  

Mr. Schulz

   26,441     20,731     3,597    0   73,727  

Mr. Grizzle

   32,221     24,166     1,226    0   57,613  

Mr. Maier

   28,173     22,159     10,029    0   241,334  

Mr. Hershey

   30,846     24,264     7,416    0   165,485  

Mr. Mangas

   36,823     27,618     47,094    0   542,355  
Name  

Executive

Contributions

in 2017

($)(1)

   

Registrant

Contributions

in 2017

($)(2)

   

Aggregate

Earnings in

2017

($)

   

Aggregate

Withdrawals/

Distributions

($)

   

Aggregate

Balance at

12/31/17

($)

 

Mr. Grizzle

   99,894    74,921    61,881    —      509,128 

Mr. MacNeal

   33,277    24,958    17,398    —      122,026 

Mr. Chiappone

   6,829    5,122    6,508    —      48,549 

Mr. Cookson

   Not Eligible         

Mr. Hershey

   39,798    29,849    60,644    —      455,483 

 

(1)The amount in this column is also reported as either Salary orNon-Equity Incentive Plan Compensation in the SCT,SCT.
(2)The amount in this column is also reported in the All Other Compensation column of the SCT.
(3)The table below reflects amounts reported in the aggregate balance at last fiscal year end that were previously reported as compensation to the NEO in the SCT for previous years.

 

Name  

Amount

Previously

Reported

($)

 

Mr. EspeGrizzle

   245,702254,818 

Mr. SchulzMacNeal

   6,309

Mr. Maier

145,19232,036 

Mr. Hershey

   46,862

Mr. Mangas

328,728239,736 

 

The Company’sOur defined benefit pension plans were closed to new salaried participants effective January 1, 2005 and to existing salaried participants who did not meet the age and service requirements as of March 1, 2006. None of the NEOs participate’sSince Messrs. Grizzle, MacNeal, Chiappone and Hershey do not participate in the Company’s pension plans. Instead, each NEO isplan, they are eligible to participate in a 401(k) savings plan with an enhanced Company match. Armstrong matchesWe match 100% on the first 4% of employee contributions and 50% on the next 4% of employee contributions in the enhanced plan.

The NQDCP was established to provide benefits similar to the 401(k) plan as it applies to eligible managersemployees whose eligible earnings (base salary plus annual incentive) exceed 12.5 times the Internal Revenue Code 402(g) elective deferral limit in effect for the plan year. For 2014, the eligible earnings limit was $218,750. A participant may elect to defer up to 25% of eligible base salary earnings and up to 25% of eligible annual incentive earnings. The Company matching contribution will be the same as that provided under the qualified 401(k) savings plan with the enhanced Company match. Participants may transfer account balances between any of the plan’sapplicable plans’ available investment options.

ParticipantsUnder the NQDCP, participants become 100% vested in the Company match account after completing three years of continuous employment having worked at least 1,000 hours in each year.

ExceptUnder the NQDCP, except in the case of an unforeseeable emergency or having reached age 70, noin-service distributions are permitted. Participants can elect to receive plan benefits as a single lump sum or in 120 monthly installments commencing after the date of the participant’s termination of employment. All elections must comply with the Internal Revenue Code requirements. If the total account value is less than $10,000, the entire account balance will be paid as a single sum at the time of termination. In the event of a participant’s death, any remaining payments shall be paid to the participant’s designated beneficiary or estate.

TheUnder the NQDCP, the Company reserves the right to cause the participant to forfeit or require repayment of the Company match benefits where the participant is discharged for willful, deliberate or gross misconduct or where the participant has engaged in conduct that is injurious to the Company.

 

 

 
4650       LOGO    2015AWI 2018 Proxy Statement 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The tables below summarize the estimated value of the potential payments and benefits under the Company’s plans and arrangements to which each NEO would be entitled upon termination of employment under the circumstances indicated. Except for the continuation of health and welfare benefits and outplacement support, amounts would be paid as a lump sum at termination. The amounts shown assume that such termination was effective December 31, 2014. Severance benefits for the NEOs were reviewed and modified in February 2015. There is no table for Mr. Mangas whose CIC agreement terminated upon his termination on September 26, 2014.2017.

Each NEO who participates in the Company’s NQDCPs is eligible for the benefits shown in the tables above. The “Change in Control” column assumes that there is no limitation on payments under the “best net” provision in each CIC agreement.agreement relating to tax under Section 4999 of the Internal Revenue Code. Amounts in the “Change in Control” column are “double trigger” payments and are therefore applicable only in the event both a change in control (CIC)(“CIC”) event and either an involuntary (without cause) termination or a Terminationtermination for Good Reason under the CIC agreement occur. The PSUs are valued at target.

 

Mr. Espe                    
Benefit  Resignation $   

Involuntary

for Cause $

   

Involuntary

without

Cause $

   

Termination

for Good

Reason $

   

Change in

Control $

 

Cash Severance

   —       —       2,018,800     2,108,800     5,299,350  

Health & Welfare Benefit Continuation

   —       —       17,862     17,862     100,362  

Outplacement Support

   —       —       25,000     25,000     30,000  

Pro-rated MAP

   —       —       1,110,340     1,110,340     1,110,340  

Accelerated LTIP

          

PSU

   —       —      —       —       2,440,162  

RSU

   —       —       —       —       —    

Stock Options

   —       —       —       —       268,015  

Excise Tax Gross-Up

   —       —       —       —       Not Applicable  
  

 

 

 

Total

   —       —      $3,172,002    $3,172,002    $9,248,229  
Mr. Grizzle                    
   Reason for Termination 
Program Element  Resignation   

Involuntary

for Cause

   Involuntary
without
Cause		   Termination
for Good
Reason		   Change in
Control		 

Cash Severance

   —      —     $2,900,000   $2,900,000   $3,625,000 

Health & Welfare Benefit Continuation

   —      —      —      —      93,383 

Outplacement Support

   —      —      30,000    30,000    30,000 

Pro-rated Bonus

   —      —      725,000    725,000    725,000 

Accelerated Long-Term Incentives

          

Performance Shares

   —      —      —      —      10,643,418 

Restricted Stock

   —      —      —      —      362,271 

Stock Options

   —      —      —      —      —   
  

 

 

 

Total

   —      —     $3,655,000   $3,655,000   $15,479,072 

 

Mr. Schulz                    
Benefit  Resignation $   

Involuntary

for Cause $

   

Involuntary

without

Cause $

   

Termination

for Good

Reason $

   

Change in

Control $

 

Cash Severance

   —       —       230,000     230,000     1,610,000  

Health & Welfare Benefit Continuation

   —       —       —       —       81,548  

Outplacement Support

   —       —       25,000     25,000     30,000  

Pro-rated MAP

   —       —       345,000     345,000     345,000  

Accelerated LTIP

          

PSU

   —       —       —       —       248,699  

RSU

   —       —       —       —       —    

Stock Options

   —       —       —       —       11,303  

Excise Tax Gross-Up

   —       —       —       —       Not Applicable  
  

 

 

 

Total

   —       —      $600,000    $600,000    $2,326,550  

Mr. MacNeal                    
   Reason for Termination 
Program Element  Resignation   

Involuntary

for Cause

   Involuntary
without
Cause		   Termination
for Good
Reason		   Change in
Control		 

Cash Severance

   —      —     $988,200   $988,200   $1,317,600 

Health & Welfare Benefit Continuation

   —      —      —      —      74,903 

Outplacement Support

   —      —      30,000    30,000    30,000 

Pro-rated Bonus

   —      —      247,050    247,050    247,050 

Accelerated Long-Term Incentives

          

Performance Shares

   —      —      —      —      2,125,668 

Restricted Stock

   —      —      —      —      59,339 

Stock Options

   —      —      —      —      —   
  

 

 

 

Total

   —      —     $1,265,250   $1,265,250   $3,854,560 

 

 
 LOGO     2015AWI 2018 Proxy Statement       4751

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL(CONTINUED)

 

 

Mr. Chiappone                    
   Reason for Termination 
Program Element  Resignation   

Involuntary

for Cause

   Involuntary
without
Cause		   Termination
for Good
Reason		   Change in
Control		 

Cash Severance

   —      —     $834,705   $834,705   $1,112,940 

Health & Welfare Benefit Continuation

   —      —      —      —      79,167 

Outplacement Support

   —      —      30,000    30,000    30,000 

Pro-rated Bonus

   —      —      185,490    185,490    185,490 

Accelerated Long-Term Incentives

          

Performance Shares

   —      —      —      —      1,509,512 

Restricted Stock

   —      —      —      —      91,975 

Stock Options

   —      —      —      —      —   
  

 

 

 

Total

   —      —     $1,050,195   $1,050,195   $3,009,084 

 

Mr. Grizzle                    
Benefit  Resignation $   

Involuntary

for Cause $

   

Involuntary

without

Cause $

   

Termination

for Good

Reason $

   

Change in

Control $

 

Cash Severance

   —       —       485,630     485,630     1,699,705  

Health & Welfare Benefit Continuation

   —       —       4,169     4,169     85,237  

Outplacement Support

   —       —       25,000     25,000     30,000  

Pro-rated MAP

   —       —       364,223     364,223     364,223  

Accelerated LTIP

          

PSU

   —       —       —       —       636,035  

RSU

   —       —       —       —       —    

Stock Options

   —       —       —       —       72,369  

Excise Tax Gross-Up

   —       —       —       —       Not Applicable  
  

 

 

 

Total

   —       —      $879,022    $879,022    $2,887,568  
Mr. Cookson                    
   Reason for Termination 
Program Element  Resignation   

Involuntary

for Cause

   

Involuntary

without

Cause

   

Termination

for Good

Reason

   

Change in

Control

 

Cash Severance

   —      —     $835,470   $835,470   $1,113,960 

Health & Welfare Benefit Continuation

   —      —      —      —      70,832 

Outplacement Support

   —      —      30,000    30,000    30,000 

Pro-rated Bonus

   —      —      185,660    185,660    185,660 

Accelerated Long-Term Incentives

          

Performance Shares

   —      —      —      —      1,532,763 

Restricted Stock

   —      —      —      —      108,869 

Stock Options

   —      —      —      —      —   
  

 

 

 

Total

   —      —     $1,051,130   $1,051,130   $3,042,084 

 

Mr. Maier                    
Benefit  Resignation $   

Involuntary

for Cause $

   

Involuntary

without

Cause $

   

Termination

for Good

Reason $

   

Change in

Control $

 

Cash Severance

   —       —       237,500     237,500     1,662,500  

Health & Welfare Benefit Continuation

   —       —       —       —       91,433  

Outplacement Support

   —       —       25,000     25,000     30,000  

Pro-rated MAP

   —       —       356,250     356,250     356,250  

Accelerated LTIP

          

PSU

   —       —       —       —       89,336  

RSU

   —       —       —       —       79,594  

Stock Options

   —       —       —       —       471,633  

Excise Tax Gross-Up

   —       —       —       —       Not Applicable  
  

 

 

 

Total

   —       —      $618,750    $618,750    $2,780,746  
Mr. Hershey                    
   Reason for Termination 
Program Element  Resignation   

Involuntary

for Cause

   Involuntary
without
Cause		   Termination
for Good
Reason		   Change in
Control		 

Cash Severance

   —      —     $972,000   $972,000   $1,296,000 

Health & Welfare Benefit Continuation

   —      —      —      —      71,152 

Outplacement Support

   —      —      30,000    30,000    30,000 

Pro-rated Bonus

   —      —      243,000    243,000    243,000 

Accelerated Long-Term Incentives

          

Performance Shares

   —      —      —      —      1,400,945 

Restricted Stock

   —      —      —      —      1,070,645 

Stock Options

   —      —      —      —      —   
  

 

 

 

Total

   —      —     $1,245,000   $1,245,000   $4,111,742 

 

 
4852       LOGO    2015AWI 2018 Proxy Statement 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL(CONTINUED)

Mr. Hershey                    
Benefit  Resignation $   

Involuntary

for Cause $

   

Involuntary

without

Cause $

   

Termination

for Good

Reason $

   

Change in

Control $

 

Cash Severance

   —      —      432,600     432,600     1,384,320  

Health & Welfare Benefit Continuation

   —      —      3,498    3,498    80,344  

Outplacement Support

   —      —      25,000     25,000     30,000  

Pro-rated MAP

   —      —      259,560     259,560     259,560  

Accelerated LTIP

          

PSU

   —      —      —      —      441,728  

RSU

   —      —      —      —      —   

Stock Options

   —      —      —      —      46,906  

Excise Tax Gross-Up

   —      —      —      —      Not Applicable  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   —      —     $720,658    $720,658    $2,242,858  

 

Resignation or Involuntary Termination for Cause

No incremental benefits are provided to any of the NEOs in the event of a voluntary resignation or an involuntary termination for Cause. Cause is defined as (i) the willful and continued failure by the executive to substantially perform the executive’s duties after a written demand for substantial performance is delivered to the executive by the Board, or (ii) the willful engaging by the executive in conduct which is demonstrably and materially injurious to the Company, or (iii) the executive’s conviction of any felony.

Involuntary Termination without Cause

Under the Company’s severance plan, which applies to the NEOs in the absence of a CIC event and in the absence of an employment agreement, severance benefits for executive participants provide a minimum of 26 weeks and a maximum of 52 weeks of base salary based on years of service, or a separate contractual arrangement. A Severance Pay Committee, composed of members of management, reserves the right to depart from the severance pay schedule where factors justify an upward or downward adjustment in the level of benefits. In no event may the severance payment exceed two times the participant’s annual compensation.

In the event of a qualifying involuntary termination, where severance applies, all salaried employees are eligible for continuation of health care and life insurance benefits at active employee premium contributions for a period of six months unless the employee is eligible for and elects retiree health care coverage. In addition, senior executives, including the NEOs, are

eligible for twelve months of executive outplacement support provided by an outside service provider.

Pursuant to Mr. Espe’s employment agreement, he will be entitled to the following severance payindividual separation agreements, and benefits, conditioned onupon the execution of a release of claims, Messrs. Grizzle, MacNeal, Chiappone, Cookson and his compliance with certain restrictive covenants: (1) payment of 200% of his base salary, (2) welfare benefit continuation for 24 months and (3) a pro rata MAP payment. Mr. Espe will be subjectHershey are entitled to a two-year non-competition and non-solicitation agreement following his termination of employment. Please refer to the 2011 Proxy Statement for a summary of Mr. Espe’s employment agreement. In February 2015, Mr. Espe’s employment agreement was amended to provide severance payment equal to 200% of base salary plus target annual incentive under the Company’s MAP. In addition, the amendment states thatupon a termination of employment underby the Severance Agreement will not resultCompany without cause or Good Reason (as defined below) in accelerated vesting of outstanding equity awards. The amendment was disclosed in our SEC Form 8-K filing on March 8, 2015.

The offer letters for Messrs. Grizzle and Hershey state that minimum of 52 weeks of base salary in severance and health care and life insurance benefits will continue at the active employee contribution levels for 12 months.

Information in the tables above assumes that any termination was effective December 31, 2014 and is based on the program parameters in effect as of December 31, 2014 as outlined above. During a review of our severance practices in February 2015, the Compensation Committee revised severance benefits for Messrs. Schulz, Hershey and Grizzle to more closely align with competitive practices and to

LOGO     2015 Proxy Statement    49

POTENTIAL PAYMENTS UPON  TERMINATION OR CHANGE IN CONTROL (CONTINUED)

create internal equity among participants (disclosed in our SEC Form 8-K filing on March 8, 2015). The severance isan amount equal to one andone-half times the executive’s(two times for Mr. Grizzle) their then current annual base salary plus target annual incentive under the Company’s MAPAIP program, payable in lump sum, and apro-rated annual incentive bonus based on actual performance for the year of termination, payable at the time that bonuses are paid to employees of the Company.

For purposes of the separation agreements, Good Reason is generally defined to mean: (i) a material diminution in authority, duties, or responsibilities or the assignment of duties or responsibilities that are materially inconsistent with those currently in effect; (ii) a 10% reduction of base salary, except foracross-the-board salary reductions similarly affecting all senior executive officers of the Company; (iii) the relocation of principal place of

employment to a location more than 50 miles from his current principal place of employment; (iv) a material breach by the Company of its obligations under the severance agreement; or (v) failure of the Company to obtain assumption and agreement by a successor of the Company to be bound by the severance agreement.

Information in the tables above assumes that any termination was effective December 31, 2017 and is based on the program parameters in effect as of December 31, 2017 as outlined above.

Qualifying Involuntary Termination Following a Change in Control

Under each executive’s separation agreement, the executive is entitled to receive severance payments upon involuntary termination without cause or termination for Good Reason

Under within two years following a CIC, or within six months preceding a CIC if the CIC agreements, an executivetermination is eligible to receive severance pay uponin connection with a Termination for Good Reason following apotential CIC. Termination for Good Reason is defined in each executive’s individual CIC agreement and includes any one of the following events following a CIC:

 

(i)the assignment to the executive of any duties inconsistent with the executive’s status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the executive’s responsibilities;responsibilities, including diminution as a result of the Company no longer being a publicly traded corporation following the CIC;

 

(ii)a reduction by the Company in the executive’s annual base salary;

 

(iii)relocation of the executive’s principal place of employment to a location more than 50 miles from the principal place of employment immediately before the CIC;

(iv)failure by the Company to pay to the executive any portion of the executive’s current compensation; or

 

(iv)(v)failure by the Company to continue in effect any compensation or benefit plan in which the executive participates immediately prior to a CIC which is material to the executive’s total compensation unless an equitable arrangement has been made.
 

 

AWI 2018 Proxy Statement    53

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL(CONTINUED)

CIC AgreementsArrangements – Key Terms

We dowill not provide taxgross-ups under Sections 280G and 4999 of the Internal Revenue Code to any of our NEOs.officers. Set forth below are certain key terms of the CIC agreements for the NEOs:agreements:

 

Term of Agreement

  Fixedone-year term that automatically renews for an additional year unless notice is given at least 90 days prior to the anniversary of intent not to renew; term automatically continues for two years if the CIC occurs during term

Severance Benefits

  2.5 times base salary plus target MAPAIP for Mr. Espe,Grizzle, two times base salary plus target MAPAIP for Messrs. Schulz, Grizzle, Maier,MacNeal, Chiappone, Cookson and Hershey

Pro rata MAPAIP

  Based on actual results achieved under MAPProrated target AIP bonus for year during which theof termination occurs if a change in control termination occurs prior to the completion of the applicable performance period

Accelerated Equity Vesting

  Double-trigger accelerated vesting (requires a CIC and qualifying termination of employment) for stock options, RSUs, PSUs and other equity grants to vest if assumed by the acquirer; the Compensation Committee may cash out equity grants if not assumed by the acquireracquirer.

280G Taxation

  Any amounts paid under the CIC Agreement will be reduced to the maximum amount that can be paid without being excess parachute payments under Internal Revenue Code Section 280G that are subject to the excise tax imposed under Internal Revenue Code Section 280G of the Code,4999, but only if theafter-tax benefit of the reduced amount is higher than theafter-tax benefit of the unreduced amount

The CIC agreements contain a definition

“Change in Control” (CIC) generally means the occurrence of CIC thatone of the Compensation Committee has determined to be appropriate.following events:

(I)any person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates) representing 35% or more of the combined voting power of the Company’s then outstanding securities, excluding any person who becomes such a beneficial owner in connection with a transaction described in clause (i) of paragraph (III) below; or

(II)the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Company’s board of directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Company’s board of directors or nomination for election by the Company’s shareholders was approved or recommended by a vote of at leasttwo-thirds (2/3) of the
directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or;

(III)there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation immediately following which the individuals who comprise the Company’s board of directors immediately prior thereto constitute at least a majority of the board of directors of the Company, the entity surviving such merger or consolidation or, if the Company or the entity surviving such merger is then a subsidiary, the ultimate parent thereof, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its affiliates) representing 35% or more of the combined voting power of the Company’s then outstanding securities; or

 

 
5054       LOGO    2015AWI 2018 Proxy Statement 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL(CONTINUED)

(IV)the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or
substantially all of the Company’s assets immediately following which the individuals who comprise the board of directors of the Company immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed or any parent thereof.

AWI 2018 Proxy Statement    55

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Securities authorized for issuance under equity compensation plans as of December 31, 2014.2017.

 

    

(a) Number of securities to

be issued upon exercise

of outstanding options,

warrants, and rights

  

(b) Weighted-average

exercise price of

outstanding options,

warrants, and rights

  

(c) Number of securities

remaining available for

future Issuance under

equity compensation plans

(excluding securities

reflected in

column (a))

Equity compensation plans
approved by security holders		  2,110,331(1)  $40.33(2)  1,795,453(3)
Equity compensation plans not approved by security holders  0  Not Applicable  0
Totals  2,110,331  $40.33  1,795,453
(a) Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights		(b) Weighted-average
exercise price of
outstanding options,
warrants, and rights		(c) Number of securities
remaining available for
future Issuance under
equity compensation plans
(excluding securities
reflected in column (a))

Equity compensation plans

approved by security holders

2,006,300(1)$34.23(2)2,745,715(3)

Equity compensation plans not

approved by security holders

—  Not Applicable—  
Totals2,006,300(1)$34.23(2)2,745,715(3)
(1)Includes RSUs, PSUs and stock options to purchase Armstrongour shares of Common SharesStock granted under the Company’s 20062016 LTIP and / or 2011 LTIP approved by shareholders on June 24, 2011.2008 and 2016 Directors Stock Unit Plan.
(2)Represents the weighted-average exercise price of the outstanding stock options only; the outstanding RSUs and PSUs are not included in this calculation.
(3)Reflects shares available pursuant to the issuance of stock options, RSUs, PSUs, or other stock-based awards under the 2011 LTIP.2016 LTIP and 2008 and 2016 Director Plan. The aggregate number of shares of Common SharesStock reserved for the grant or settlement of awards under the 20112016 LTIP (Share Limit) is 6,949,000,5,142,138, subject to adjustment as provided therein. This number includes all shares that have been and may be issued under the LTIP since its inception in 2006. With respect to awards granted on or after June 24, 2011, the number of shares of Common SharesStock reserved for award and issuance under this LTIP is reduced on aone-for-one basis for each Common Share subject to a Stock Option or Stock Appreciation Right and is reduced by a fixed ratio of 1.6 shares of Common SharesStock for each Common Share subject to a Restricted Stock Award or Stock Unit granted under the LTIP.LTI.

 

LOGO     2015 Proxy Statement56       51AWI 2018 Proxy Statement

ADDITIONAL MEETING INFORMATION

 

Why did I receive aone-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

This year we have again utilized the SEC rule allowing companies to furnish proxy materials to their shareholders over the Internet. We believe that this approach enables us to provide the materials to shareholders more quickly, while also reducing the impact of our annual meeting on the environment and the costs associated with printing and mailing.

How can I receive printed shareholder and proxy materials?

Please follow the instructions for “How to Access the Proxy Materials” on theone-page notice described above.

Who is soliciting my proxy?

The Board is soliciting your proxy in order to provide you with an opportunity to vote on all matters scheduled to come before the meeting, whether or not you attend the meeting in person.

Who is entitled to vote?

Each holder of record of our shares of Common Shares,Stock, at the close of business on the record date, April 13, 201520, 2018 (“Record Date”), is entitled to one vote for each Common Share owned on each matter to be voted on. As of the Record Date, 55,275,92651,950,675 shares of Common SharesStock were issued and outstanding and entitled to vote at the annual meeting.Annual Meeting.

What must I do to attend the meeting via the Internet?

You may attend and participate in the annual meetingAnnual Meeting via the Internet atwww.virtualshareholdermeeting.com/awi2015awi2018where you will be able to vote and submit questions during the meeting. Shareholders who use the control number that was furnished to them (either with the notice sent to them regarding the availability of these proxy materials or with their copy of these proxy materials) to log on to the meeting will be able to vote and submit questions during the meeting.

What must I do to attend the meeting in person?

If you wish to attend the meeting in person, you must have been a shareholder on the Record Date and you must present an admission ticket and photo identification. To request an admission ticket and get directions, please email or write the Office of the Corporate Secretary atAdmissionTicket@armstrong.comAdmissionTicket@armstrongceilings.com or Attention: A. Parsons,B. Tham, Armstrong World Industries, Inc., P. O. Box 3001, Lancaster, PA 17604-3001. We must receive your request at least ten business days prior to the meeting. If your shares of Common SharesStock are held directly in an account with our transfer agent, American Stock Transfer & Trust Company (“AST”), your name will appear in our Record Date shareholder list. If your shares of Common SharesStock are in the name of a broker, bank or other institution, you must provide evidence of your beneficial stock ownership on the Record Date.

How can I revoke my proxy?

Proxies are voted at the annual meeting.Annual Meeting. You may revoke your proxy at any time before it is voted, and your last vote is the vote that will be counted. If you are a shareholder of record on the Record Date and you returned a paper proxy card, you can write to the Corporate Secretary at our corporate offices, 2500 Columbia Avenue Lancaster, Pennsylvania 17603, stating that you wish to revoke your proxy and that you need another proxy card. If you submitted your proxy by the Internet or by telephone, you can vote again over the Internet or by telephone. If you hold your shares of Common SharesStock through a broker, bank or other nominee, you can revoke your proxy by contacting the broker, bank or other nominee and following its procedure for revocation. If you are a shareholder of record on the Record Date and you attend the annual meeting,Annual Meeting, you must request a revocation of your submitted proxy and vote by ballot to revoke your proxy. Your appearance alone at the annual meetingAnnual Meeting will not of itself constitute a revocation of your proxy.

How many votes can be cast by all shareholders?

55,275,92651,950,675 votes, consisting of one vote for each outstanding Common Share outstanding on the Record Date.

 

 

52AWI 2018 Proxy Statement       LOGO    2014 Proxy Statement57

ADDITIONAL MEETING INFORMATION(CONTINUED)

 

What is the quorum requirement for the annual meeting?Annual Meeting?

A quorum of the holders of the outstanding shares of Common SharesStock must be present for the annual meetingAnnual Meeting to be held. A “quorum” is the presence at the annual meeting,Annual Meeting, in person or represented by proxy, of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast on eacha matter to be acted on at the annual meeting.Annual Meeting. Abstentions and broker “non-votes”“non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A broker “non-vote”“non-vote” occurs when a broker does not vote on a particular proposal because the broker does not have discretionary voting power with respect to the proposal and has not received voting instructions from the beneficial owner.

What if a quorum is not present at the annual meeting?Annual Meeting?

If the annual meetingAnnual Meeting cannot be organized because a quorum is not present, the shareholders present at the annual meetingAnnual Meeting will have the power, except as otherwise provided by statute, to adjourn the annual meetingAnnual Meeting to such time and place as they may determine. Those shareholders who attend or participate atthe second of such adjourned meeting,meetings, even if less than a quorum, shall nevertheless constitute a quorum for the purpose of electing directors.

What vote is required to approve each item?elect directors at the Annual Meeting?

The director nomineesAt the Annual Meeting, in connection with the election of directors, you will be entitled to cast one vote for each share held by you for each nominee. Votes may be cast “for” or “withheld” with respect to each nominee. Directors will be elected by a plurality of the votes cast at the annual meeting.Annual Meeting. A plurality means that the nominees with the largest number of votes are elected as directorscast “for” their election, up to the maximum number ofnine (9) directors to be chosen at the annual meeting. Annual Meeting, will be elected. Votes that are “withheld” will be excluded entirely from the vote and will have no effect, other than for purposes of determining the presence of a quorum. However, the Board has adopted a Policy on Majority Voting, pursuant to which, in an uncontested election, any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election will within 10 business days following certification of the shareholder vote, tender his or her resignation to the Board. See “CORPORATE

GOVERNANCE – Policy on Majority Voting in the Election of Directors.”

What vote is required to approve the other items at the Annual Meeting?

The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 20152018 requires the affirmative vote of a majority of the votes present and entitled to vote at the meeting to be approved. The advisory approval of executive compensation requires the affirmative vote of a majority of the votes present and entitled to vote at the meeting to be approved. Any other matters that may be acted upon at the annual meetingAnnual Meeting will be determined by the affirmative vote of the holders of a majority of our shares of Common SharesStock represented in person, via the Internet, or by proxy at the annual meetingAnnual Meeting and entitled to vote on the matter.

How are votes, abstentions and brokernon-votes counted?

Brokernon-votes will be included in determining whether a quorum is present but will have no effect

on the outcome of the matters to be voted upon at the annual meeting,Annual Meeting, including in connection with the election of directors. Abstentions are not considered a vote cast under Pennsylvania law. Under our Bylaws, however, other than in connection with the election of directors, abstentions will have the effect of a negative vote with respect to matters to be voted upon at the annual meeting.Annual Meeting.

Who will count the votes and how much does it cost the Company?

We have engaged Broadridge Investor Communications Solutions, Inc. to tabulate the proxy votes and any votes cast in person for a fee of approximately $15,000$25,000 plus reasonable expenses.

What does it mean if I receive more than one proxy card or voting instructions?

It means that you have multiple accounts in which you own our shares of Common Shares.Stock. Please vote all proxy cards/voting instructions from the Company to ensure that all your shares of Common SharesStock are voted. However, you may want to contact your broker, bank or the Company’s transfer agent to consolidate as many accounts as possible under

58    AWI 2018 Proxy Statement

ADDITIONAL MEETING INFORMATION(CONTINUED)

a single name and address. Our transfer agent is AST. All communications concerning shares of Common SharesStock you hold in your name, including address changes, name changes, requests to transfer and similar issues, can be handled by contacting AST at American Stock Transfer & Trust Company, LLC, 6201 15th Avenue Brooklyn, NY 11219; or by email to info@amstock.com; or by phone(1-800-937-5449).

What should we do if multiple shareholders reside in our household, and we wish to change the copies of proxy materials that we receive?

Some banks, brokers, broker-dealers and other similar organizations acting as nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that, unless we have received contrary instructions from such bank, broker, broker-dealer or similar organization, only one copy of this proxy statement and the annual report may have been sent to multiple shareholders in your household. If you would prefer to receive separate copies of a proxy statement or annual report for other shareholders in your household, either now or in the future, please contact your bank, broker, broker-dealer or other similar organization serving

LOGO     2015 Proxy Statement    53

ADDITIONAL MEETING INFORMATION(CONTINUED)

as your nominee. Upon written or oral request to

the attention of Investor Relations, 2500 Columbia Avenue Lancaster, Pennsylvania 17603, or via telephone to the Investor Relations department at717-396-6354, we will promptly provide separate copies of the annual report and/or this proxy statement. Shareholders sharing an address who are receiving multiple copies of this proxy statement or annual report and who wish to receive a single copy of such materials in the future will need to contact their bank, broker, broker-dealer or other similar organization serving as their nominee to request that only a single copy of each document be mailed to all shareholders at the shared address in the future.

Who may solicit proxies on the Company’s behalf?

Our directors, officers and employees may solicit proxies from our shareholders. These persons will not receive any additional compensation for these services. We will request that the Notice of Annual Meeting, this proxy statement, the proxy card, and related materials (if any), be forwarded to beneficial owners by banks, brokers and other persons for their reasonableout-of-pocket expenses in handling these materials. We will bear the costs of preparing, assembling and mailing the proxy materials and expect to reimburse themsuch beneficial owners for all such solicitations.

 

 

OTHER BUSINESS

The Board knows of no matters other than the foregoing to come before the meeting. However, if any other matters properly come before the meeting, the persons named in the enclosed proxy will vote in their discretion with respect to such other matters.

 

AWI 2018 Proxy Statement    59

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act and the regulations thereunder require certain of our officers, as well as our directors and persons who own more than 10% of a registered class of our equity securities (collectively, the “reporting persons”) to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of these reports. Based solely on our review

of the copies of these reports within a prescribed period of time and written representations we

received from the reporting persons, we believe that all filings required to be made by the reporting persons during or with respect to the period January 1, 20142017 through December 31, 20142017 were made on a timely basis, except that the Form 4 filed with the SEC on March 6, 2014 to report share tax withholding associated with the vesting of restricted stock awards for Mr. Mangas was not filed on a timely basis.

 

 

SUBMISSION OF SHAREHOLDER PROPOSALS

 

In order to submit shareholder proposals for the 20162019 annual meeting for inclusion in the Company’s 20162019 proxy statement pursuant to SEC Rule14a-8, materials must be received by the Corporate

Secretary at the Company’s corporate offices in Lancaster, Pennsylvania, no later than January 1, 2016.December 31, 2018.

54    LOGO    2015 Proxy Statement

ADDITIONAL MEETING INFORMATION(CONTINUED)

The proposals must comply with all of the requirements of SEC Rule14a-8. Proposals should be addressed to: Corporate Secretary, 2500 Columbia Avenue, Lancaster, Pennsylvania 17603. As the rules of the SEC make clear, simply submitting a proposal does not guarantee its inclusion.

The Bylaws also establish an advance notice procedure with regard to director nominations and shareholder proposals that are not submitted for inclusion in the proxy statement, but that a shareholder instead wishes to present directly at an annual meeting. To be properly brought before the 20162019 annual meeting, a notice of the nomination or the matter the shareholder wishes to present at the meeting must be delivered to the Corporate Secretary at the Company’s corporate offices in

Lancaster (see above), not later than 90 days nor earlier than 120 days prior to the first anniversary of the date of this annual meeting. As a result, any notice given by or on behalf of a shareholder

pursuant to these provisions of the Bylaws (and not pursuant to SEC Rule14a-8) must be received no later than April 10, 2016.13, 2019. All director nominations and shareholder proposals must comply with the requirements of our Bylaws, a copy of which may be obtained at no cost from the Corporate Secretary.

In either case, if the date of our 20162019 annual meeting is more than 30 calendar days before or after the first anniversary of this annual meeting, your proposal must be received by the Corporate Secretary by close of business on the fifteenth day following the day we publicly announce the date of the 20162019 annual meeting.

Any shareholder proposals not received by such applicable dates will be considered untimely and, if presented at the 20162019 annual meeting, the proxy holders will be able to exercise discretionary authority to vote on any such proposal to the extent authorized by SECRule 14a-4(c).

 

 

60    AWI 2018 Proxy Statement

ANNUAL REPORT ON FORM10-K

 

Our Annual Report to Shareholders, including financial statements, is being furnished simultaneously with this proxy statement to all shareholders of record as of the Record Date. A copy of our Annual Report and Form10-K for the year ended December 31, 2014,2017, including financial statements, but excluding the financial statement schedules and most exhibits, will be provided without charge to shareholders upon written request to: Armstrong World Industries, Inc.,

Investor Relations, P.O. Box 3001, Lancaster, PA 17604.

Our Annual Report is also available at www.proxyvote.com, or www.armstrong.comwww.armstrongceilings.com – Company Information – Investor RelationsInvestors – SEC Filings –10-K. The Form10-K will include a list of exhibits to the Form10-K. Copies of exhibits will be furnished to shareholders upon written request and upon our receipt of payment of reproduction and mailing expenses.

 

 

INCORPORATION BY REFERENCE

 

To the extent that this proxy statement has been or will be specifically incorporated by reference into any other filing of Armstrongthe Company under the Securities Act of 1933 or the Exchange Act, as amended, the sections of this proxy statement

entitled “Report of the Audit

Committee” (to the extent permitted by the rules of the SEC) and “Compensation Committee Report” shall not be deemed to be so incorporated, unless specifically provided otherwise in such filing.

 

 

LOGO     2015 Proxy Statement    55

SHAREHOLDER LIST

A list of shareholders entitled to vote at the annual meetingAnnual Meeting will be available for examination by shareholders at the annual meeting.

Annual Meeting.

 

56AWI 2018 Proxy Statement       LOGO    2015 Proxy Statement61

ANNEX A to Armstrong World Industries, Inc. 20152018 Proxy Statement

To supplement its consolidated financial statements presented in accordance with accounting principles generally accepted in the United States (GAAP), the Company provides additional measures of performance adjusted to exclude the impact of foreign exchange, restructuring charges and related costs, impairments, thenon-cash impact of the U.S. pension plan and certain other gains and losses. Adjusted figures are reported in comparable dollars using the budgeted exchange rate for 2014.2018. The Company uses these adjusted performance measures in managing the business, including communications with its Board of Directors and employees, and believes that they provide users of this financial information with meaningful comparisons of operating performance between current results and results in prior periods. The Company believes that thesenon-GAAP financial measures are appropriate to enhance understanding of its past performance, as well as prospects for its future performance. A reconciliation of these adjustments to the most directly comparable GAAP measures is included in this release and on the Company’s website. Thesenon-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures.Non-GAAP financial measures utilized by the Company may not be comparable tonon-GAAP financial measures used by other companies. Dollars are in millions unless otherwise indicated.

 

   2014 

Adjusted EBITDA

  $384  

D&A/Fx*

   (118) 

Operating Income, Adjusted

  $266  

Non-cash impact of U.S. Pension

   1  

Cost reduction initiative expenses

   14  

Impairment

   13  

Foreign exchange impact

   (1) 

Operating Income, Reported

  $239  

BUILDING PRODUCTS

  
   2014 

Adjusted EBITDA

  $330  

D&A/Fx

   (67) 

Operating Income, Adjusted

  $263  

Cost reduction initiative expenses

   1  

Foreign exchange impact

   (3) 

Operating Income, Reported

  $265  

RESILIENT FLOORING

  
   2014 

Adjusted EBITDA

  $93  

D&A/Fx

   (27) 

Operating Income, Adjusted

  $66  

Cost reduction initiative expenses

   4  

Foreign exchange impact

   1  

Operating Income, Reported

  $61  

WOOD FLOORING**

  
   2014 

Adjusted EBITDA

  $21  

D&A/Fx

   (13) 

Operating Income (Loss), Adjusted

  $8  

Cost reduction and other charges

   9  

Impairment

   13  

Foreign exchange impact

   1  

Operating Income (Loss), Reported

  $(15) 
   2017 

Adjusted EBITDA*

  $317 

Depreciation and Amortization

   (67) 

Operating Income, Adjusted

  $250 

U.S. Pension Credit

   (5) 

Net Proforma International Allocations, Other

   8 

Cost Reduction Initiatives

   7 

Net Environmental Recoveries

   (15) 

Operating Income, Reported

  $255 

Mineral Fiber

  
   2017 

Adjusted EBITDA*

  $287 

Depreciation and Amortization

   (58) 

Operating Income, Adjusted

  $229 

Cost Reduction Initiatives

   7 

Net Proforma International Allocations, Other

   5 

Net Environmental Recoveries

   (15) 

Operating Income, Reported

  $232 

Architectural Specialties

  
   2017 

Adjusted EBITDA

  $30 

Depreciation and Amortization

   (2) 

Operating Income, Reported

  $28 

Unallocated Corporate

  
   2017 

Adjusted EBITDA

  $—   

Depreciation and Amortization

   (6) 

Operating Income (Loss), Adjusted

  $(6) 

U.S. Pension Credit

   (5) 

Net Proforma International Allocations, Other

   3 

Operating Income (Loss), Reported

  $(5) 

 

*Excludes accelerated depreciation associated with cost reduction initiatives. Actual D&AAs a result of adopting a US GAAP accounting change for pension and post-retirement benefit plans that was effective January 1, 2018, $2 million of expenses that were recorded in 2017 EBITDA would have been excluded from EBITDA. Therefore, the company will report 2017 EBITDA as reported is: $129.4$319 million for the year ended December 31, 2014.in future periods.
**Includes a $1 million gain that occurred in the second quarter of 2014 related to a refund of previously paid duties on imports of engineered wood flooring.

 

A-1

ARMSTRONG WORLD INDUSTRIES, INC.

CHRIS PARISI

2500 COLUMBIA AVENUE

LANCASTER, PA 17603

VOTE BY INTERNET

Before the meeting: www.proxyvote.com

Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.

During the meeting:

www.virtualshareholdermeeting.com/awi2015

You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS

If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

VOTE BY PHONE - 1-800-690-6903

Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

CASH FLOW

    
   2017      
        Continuing Ops 

Net cash from operations

    $170 

Less: net cash (used for) investing

     (54) 

Add back (subtract): Acquisitions

     31 

Free Cash Flow

    $147 

 

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

A-2

For

All

Withhold

All

For All

Except

To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.

The Board of Directors recommends you vote FOR the following:

1.Election of Directors¨¨¨

Nominees
01  Stan A. Askren02 Matthew J. Espe03 James J. Gaffney04 Tao Huang05 Michael F. Johnston
06  Jeffrey Liaw07 Larry S. McWilliams08 James C. Melville09 James J. O’Connor
10  John J. Roberts11 Gregory P. Spivy12 Richard E. Wenz
The Board of Directors recommends you vote FOR the following proposal:ForAgainstAbstain
2To ratify the selection of KPMG LLP as our independent registered public accounting firm for 2015.¨¨¨
NOTE:Such other business as may properly come before the meeting or any adjournment thereof. In their discretion, the proxy holders are authorized to vote such other business as may properly come before the meeting or any postponement or adjournment thereof.
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
Signature [PLEASE SIGN WITHIN BOX]    Date

Signature (Joint Owners)            Date

LOGO

VOTE BY INTERNET Before The Meeting: www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information ARMSTRONG WORLD INDUSTRIES, INC. up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your MARK A. HERSHEY records and to create an electronic voting instruction form. 2500 COLUMBIA AVENUE During The Meeting: www.virtualshareholdermeeting.com/awi2018 LANCASTER, PA 17603 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E47961-P09256 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY ARMSTRONG WORLD INDUSTRIES, INC. For Withhold For All To withhold authority to vote for any individual All All Except nominee(s), mark “For All Except” and write the The Board of Directors recommends you vote FOR number(s) of the nominee(s) on the line below. the following: 1. Election of Directors ! ! ! Nominees: 01) Stan A. Askren 06) John J. Roberts 02) Victor D. Grizzle 07) Gregory P. Spivy 03) Tao Huang 08) Roy W. Templin 04) Larry S. McWilliams 09) Cherryl T. Thomas 05) James C. Melville The Board of Directors recommends you vote FOR the following proposals: For Against Abstain 2. To ratify the selection of KPMG LLP as our independent registered public accounting firm for 2018. ! ! ! 3. To approve, on an advisory basis, our executive compensation program. ! ! ! NOTE: Such other business as may properly come before the meeting or any adjournment thereof. In their discretion, the proxy holders are authorized to vote on such other business as may properly come before the meeting or any postponement or adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date

LOGO

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report and Notice & Proxy Statement are available at www.proxyvote.com. E47962-P09256 ARMSTRONG WORLD INDUSTRIES, INC. Annual Meeting of Shareholders July 12, 2018 8:00 a.m. This proxy is solicited by the Board of Directors The undersigned hereby appoints Victor D. Grizzle and James C. Melville as proxies, each with full power of substitution, to represent and vote as designated on the reverse side, all of the shares of Common Stock of Armstrong World Industries, Inc. held of record by the undersigned on April 20, 2018, at the Annual Meeting of Shareholders to be held on July 12, 2018 at 8:00 a.m., or any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations. Continued and to be signed on reverse side

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy
Statement is/are available atwww.proxyvote.com.

ARMSTRONG WORLD INDUSTRIES, INC.

Annual Meeting of Shareholders

July 10, 2015 8:00 AM

This proxy is solicited by the Board of Directors

The undersigned hereby appoints Matthew J. Espe and James J. O’Connor as proxies, each with full power of substitution, to represent and vote as designated on the reverse side, all of the common shares of Armstrong World Industries, Inc. held of record by the undersigned on April 13, 2015, at the Annual Meeting of Shareholders to be held on July 10, 2015 at 8:00 a.m., or any adjournment of postponement thereof.

Continued and to be signed on reverse side