- What is Armstrong Flooring, Inc. (NYSE:AFI) and why did Armstrong World Industries (NYSE:AWI) separate AFI’s business and distribute AFI stock?
On February 23, 2015, AWI announced that its board of directors had unanimously approved a plan to separate AWI’s Resilient Flooring and Wood Flooring segments from its Building Products (Ceilings) segment. The separation was effected by allocating the assets and liabilities related primarily to the Resilient Flooring and Wood Flooring segments to AFI and then distributing the common stock of AFI to AWI’s shareholders. The separation and distribution resulted in AWI and AFI becoming two independent, publicly traded companies, with AFI owning and operating the Resilient Flooring and Wood Flooring segments and AWI continuing to own and operate the Building Products (Ceilings) segment. The separation of AFI from AWI and the distribution of AFI common stock were intended to provide shareholders with equity ownership in two separate, publicly traded companies to focus exclusively on each of their respective businesses. AWI and AFI expect that the separation will result in enhanced long-term performance of each business.
- Who are these FAQs intended for?
AFI has provided these FAQs for legacy holders of AWI common shares. Holder of AWI common shares as of the close of business on March 21, 2016, the record date of the distribution, were entitled to receive one share of AFI common stock for every two AWI common shares held at the close of business on such date. This FAQ document will help you understand how the separation and distribution will affect your post-separation ownership in AFI and AWI, respectively.
- How did the separation of AFI from AWI work?
To accomplish the separation, AWI engaged in a division under Pennsylvania law (the “division”), in which the assets and liabilities of AWI related primarily to AWI’s Resilient Flooring and Wood Flooring segments were allocated to a newly-formed Pennsylvania corporation that resulted from the division (the “Resulting PA Corporation”). After the division became effective, the Resulting PA Corporation merged with and into AFI (the “second step merger”), with AFI surviving the second step merger as a Delaware corporation and the successor to the Resulting PA Corporation. In addition to the division and the second step merger, any assets and liabilities of AWI’s retained subsidiaries that were related primarily to AWI’s Resilient Flooring and Wood Flooring segments were assigned, assumed or transferred to AFI or one of its subsidiaries.
After the completion of the division, the second step merger, and any related assignment, assumption or transfer of additional assets and liabilities, AWI distributed all of the outstanding shares of AFI common stock to AWI shareholders on a pro rata basis as a distribution intended to be generally tax-free for U.S. federal income tax purposes.
- Why was the separation of AFI structured as a distribution?
AWI believes that a generally tax-free distribution of shares in the United States of AFI common stock to the AWI shareholders was an efficient way to separate its Resilient Flooring and Wood Flooring segments in a manner that will create long-term value for AFI, AWI and their respective shareholders.
- What was the record date for the distribution?
The record date for the distribution was March 21, 2016.
- When did the distribution occur?
Shares of AFI common stock were distributed by AWI at 11:59 p.m., Eastern time, on April 1, 2016 to holders of record of AWI common shares at the close of business on March 21, 2016, the record date for the distribution.
- How are shares of AFI common stock issued?
Shares of AFI common stock were received through the same channels currently used to hold or trade AWI common shares, whether through a brokerage account, 401(k) plan or other channel. Receipt of AFI shares were documented in the same manner typically used to receive shareholder updates, such as monthly broker statements and 401(k) statements.
If you owned AWI common shares as of the close of business on the record date for the distribution, including shares owned in certificated form, AWI, with the assistance of American Stock Transfer & Trust Company, LLC (“AST”), the distribution agent, electronically distributed shares of AFI common stock to you or to your brokerage firm on your behalf in book-entry form.
- How many shares of AFI common stock did a shareholder receive in the distribution?
AWI distributed one share of AFI common stock for every two shares of AWI held as of the close of business on the record date for the distribution. Based on approximately 55,477,557 AWI common shares outstanding as of March 9, 2016, a total of approximately 27,738,778 shares of AFI common stock was distributed.
- Did AFI issue fractional shares of its common stock in the distribution?
No. AFI did not issue fractional shares of its common stock in the distribution. Fractional shares that AWI shareholders would otherwise have been entitled to receive were aggregated and sold in the public market. The aggregate net cash proceeds of these sales were distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those shareholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares are not entitled to any interest on the amounts of payment made in lieu of fractional shares.
- What was the date of completion of the separation and distribution?
The separation and distribution was completed on April 1, 2016., when the shares of AFI common stock were be distributed by AWI at 11:59 p.m., Eastern time, on such date, to the holders of record of AWI common shares at the close of business on March 21, 2016, the record date for the distribution.
- Where are shares of AFI common stock traded?
AFI common stock currently trades on the New York Stock Exchange under the symbol “AFI.”
- What happened to the listing of AWI common shares?
AWI common shares continued to trade on the New York Stock Exchange after the distribution under the symbol “AWI.”
- Did the number of AWI common shares owned by shareholders change as a result of the distribution?
No. The number of AWI common shares owned did not change as a result of the distribution.
- Did the distribution affect the market price of my AWI common shares?
Yes. As a result of the distribution, AWI’s trading price of AWI common shares immediately following the distribution was lower than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price no longer reflected the value of the Resilient Flooring and Wood Flooring segments. There can be no assurance that the aggregate market value of the AWI common shares and the AFI common stock following the separation will be higher or lower than the market value of AWI common shares before the separation. This means, for example, that the combined trading prices of two AWI common shares and one share of AFI common stock after the distribution may be equal to, greater than or less than the trading price of two AWI common shares before the distribution.
- What are the U.S. federal income tax consequences of the separation and the distribution?
The distribution was conditioned upon, among other things, AWI’s receipt of an opinion of outside counsel, in form and substance satisfactory to AWI, regarding the qualification of the separation and distribution as a transaction that generally is tax-free to AWI and, except to the extent of cash received in lieu of fractional shares, AWI’s shareholders, for U.S. federal income tax purposes, under Sections 355 and 368(a)(1)(D) of the Code. As a result, AWI shareholders generally should not be required, for U.S. federal income tax purposes, to recognize any gain or loss or to include any amount in their income upon their receipt of AFI common stock in the distribution except with respect to cash received in lieu of a fractional share of AFI common stock.
- How is the tax basis determined in the AFI shares received in the distribution?
For U.S. federal income tax purposes, a shareholder’s aggregate basis in the common shares that held in AWI and the new AFI common stock received in the distribution (including any fractional share interest in AFI common stock for which cash was received) equaled the aggregate basis in the AWI common shares held immediately before the distribution, allocated between AWI common shares and the AFI common stock (including any fractional share interest in AFI common stock for which cash is received) received in the distribution in proportion to the relative fair market value of each on the distribution date. You should consult your tax advisor about the particular consequences of the separation and distribution to you, including the application of the tax basis allocation rules and the application of state, local and non-U.S. tax laws.
- What is AFI’s relationship with AWI following the separation?
AFI entered into a separation and distribution agreement with AWI to effect the separation and provide a framework for AFI’s relationship with AWI after the separation and entered into certain other agreements, such as a transition services agreement, a tax matters agreement, an employee matters agreement, a campus lease agreement and trademark license agreements. These agreements, together with a plan of division that adopted by AWI’s board of directors, provided for the separation and allocation between AFI and AWI of the assets, employees, liabilities and obligations of AWI and its subsidiaries attributable to periods prior to, at and after AFI’s separation from AWI and govern the relationship between AFI and AWI subsequent to the completion of the separation and distribution.
- Are there risks associated with owning AFI common stock?
Yes. Ownership of AFI common stock is subject to both general and specific risks relating to AFI’s business, the industry in which it operates, its ongoing contractual relationships with AWI and its status as a separate, publicly traded company. Ownership of AFI common stock is also subject to risks relating to the separation. These risks are described in the “Risk Factors” section of our Form 10, which is accessible on the SEC’s website at www.sec.gov.
- Does AFI plan to pay dividends?
AFI currently does not intend to pay a regular cash dividend. The decision to pay cash dividends on the common stock will be subject to the sole discretion of AFI’s board of directors and will depend upon many factors.
- Did AFI incur any indebtedness prior to or at the time of the distribution?
Yes. AFI launched as a new publicly traded company with approximately $100.0 million of indebtedness upon completion of the separation. AFI distributed approximately $50.0 million of the funds that it borrowed before the separation to AWI.
- Who is the distribution agent, transfer agent, registrar and information agent for the AFI common stock?
The distribution agent, transfer agent and registrar for the AFI common stock is AST. For questions relating to the mechanics of the distribution or matters relating to the subsequent transfer of AFI common stock, you should call AST shareholder services at (877) 248-6417. If your shares are held by a bank, broker or other nominee, you should contact your bank or broker.
- Where can additional information be found regarding the separation and distribution of common stock?
Additional information regarding the separation and distribution agreement and other transaction agreements, can be found in AFI’s filings on the SEC’s website at www.sec.gov.