Annual report pursuant to Section 13 and 15(d)

Discontinued Operations

v3.10.0.1
Discontinued Operations
12 Months Ended
Dec. 31, 2018
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
DISCONTINUED OPERATIONS
In November 2018, we entered into a definitive agreement to sell our wood business to TZI, an affiliate of AIP. The sale was completed in December 2018. The proceeds from the sale were $90.2 million, net of closing costs, transaction fees and taxes. The transaction is subject to a customary post-closing working capital adjustment process, which is expected to be completed in the first quarter of 2019.
On December 31, 2018, in connection with the sale of our wood business, TZI and AFI entered into agreements related to transition services, intellectual property, and subleases.
Pursuant to the transition service agreement AFI will provide transitional services in areas including human resources, customer service, operations, finance and IT. In consideration for the services, TZI will pay AFI monthly fees that vary based on the scope of services provided, plus a $3.0 million administrative fee. TZI will reimburse AFI for AFI’s out-of-pocket costs and expenses in connection with providing the services.
Pursuant to the intellectual property agreement, AFI provided TZI a non-exclusive, royalty-free, non-sublicensable, non-assignable license in and to certain trademarks.
Under the subleases agreement TZI will lease certain premises located at the AFI campus through March 30, 2021 with the option to terminate the sublease any time after six months from the effective date of the sublease with 30-days’ prior notice. Upon such termination, TZI will pay a termination fee of $2.5 million.
As a part of the transition service agreement, we are facilitating sales into Canada through our Canadian subsidiary.
The financial results of the wood business have been reclassified as discontinued operations for all periods presented. The Consolidated Statements of Cash Flows does not separately report the cash flows of the discontinued operation.

The following is a summary of the operating results of the wood business, which are included in discontinued operations.
 
Year Ended December 31,
 
2018
 
2017
 
2016
Net Sales
$
387.0

 
$
429.6

 
$
483.1

Cost of goods sold
330.7

 
407.5

 
407.6

Gross profit
56.3

 
22.1

 
75.5

Selling, general and administrative expenses
36.6

 
39.4

 
42.3

Intangible asset impairment

 
12.5

 

Operating earnings (loss)
19.7

 
(29.8
)
 
33.2

Interest expense

 
0.1

 

Other expense, net

 
1.0

 
0.7

Earnings (loss) before income tax
19.7

 
(30.9
)
 
32.5

Income tax expense (benefit)
9.8

 
(6.2
)
 
8.8

Net earnings (loss) from discontinued operations
$
9.9

 
$
(24.7
)
 
$
23.7

 
Year Ended December 31,
 
2018
 
2017
 
2016
Depreciation and Amortization
$
10.3

 
$
40.0

 
$
14.1

Capital Expenditures
(8.0
)
 
(12.3
)
 
(11.9
)

The following is a summary of the results related to the net loss on disposal of wood business which is included in discontinued operations:
 
Year Ended December 31, 2018
(Loss) on disposal of discontinued operations before income tax
$
(153.8
)
Income tax (benefit)

Net (loss) on disposal of discontinued operations
$
(153.8
)

The following is a summary of the assets and liabilities of the discontinued operations as of December 31, 2017.
 
Year Ended December 31, 2017
Cash
$
(1.1
)
Accounts and notes receivable, net
27.1

Inventories, net
119.0

Other assets
4.5

Current assets of discontinued operations
$
149.5

 
Year Ended December 31, 2017
Property plant and equipment, net
$
107.5

Intangible assets, net
21.8

Other noncurrent assets
1.0

Noncurrent assets of discontinued operations
$
130.3

 
Year Ended December 31, 2017
Accounts payable and accrued expenses
$
26.1

Current liabilities of discontinued operations
$
26.1

 
Year Ended December 31, 2017
Long-term debt
$
1.0

Postretirement benefit liabilities
2.9

Pension benefit liabilities
3.4

Deferred income taxes
13.1

Other liabilities
2.3

Noncurrent liabilities of discontinued operations
$
22.7


European Resilient Flooring
On December 4, 2014, AWI's Board of Directors approved the cessation of funding to its DLW subsidiary, which at the time was our European flooring business. As a result, DLW management filed for insolvency in Germany on December 11, 2014.
The DLW insolvency filing in 2014 resulted in presenting DLW for all historical periods prior to the Spin-off as a discontinued operation. The insolvency filing did not meet the U.S. tax criteria to be considered disposed of until the first quarter of 2015. In determining the U.S. tax impact of the disposition, the liabilities, including an unfunded pension liability of approximately $115.0 million, were considered proceeds. Accordingly, a non-cash income tax benefit of $43.4 million was recorded in 2015 within discontinued operations for the tax benefit of the future pension deductions. As AWI is solely responsible for any shortfall, and the beneficiary of any excess, at the closure of the DLW insolvency proceedings, DLW is excluded from our financial position, results of operations and cash flows after the Spin-off.
The following is a summary of the operating results of DLW, which are reflected in these Consolidated Financial Statements for periods prior to the Spin-off.
 
Year Ended December 31, 2016
(Loss) on disposal of discontinued operations before income tax
$
(0.1
)
Income tax benefit
1.8

Gain on disposal of discontinued operations, net of tax
$
1.7