Armstrong World has a market cap of $2.9 billion; its shares were traded at around $49.63 with a P/E ratio of 22.77 and P/S ratio of 1.05.
Highlight of Business Operations:The discount rate is used to determine retirement plan liabilities and to determine the interest cost component of net periodic pension and postretirement cost. Management utilizes the Aon Hewitt AA only above median yield curve, which is a hypothetical AA yield curve comprised of a series of annualized individual discount rates, as the primary basis for determining the discount rate. As of December 31, 2011 and 2010, we assumed discount rates of 4.85% and 5.10%, respectively, for the U.S. defined benefit pension plans. As of December 31, 2011, we assumed a discount rate of 4.75% compared with a discount rate of 4.90% as of December 31, 2010 for the U.S. postretirement plans. The effects of the change in discount rate will be amortized into earnings as described below. Absent any other changes, a one-quarter percentage point decrease in the discount rates for the U.S. pension and postretirement plans would decrease 2012 operating income by $4.9 million and a one-quarter percentage point increase in the discount rates would increase 2012 operating income by $4.8 million.
component is added for the expected return from active management based both on the plans experience and on historical information obtained from the plans investment consultants. These forecasted gross returns are reduced by estimated management fees and expenses, yielding a long-term rate of return of 6.50% per annum for 2012. The expected asset return assumption is based upon a long-term view; therefore, we do not expect to see frequent changes from year to year based on positive or negative actual performance in a single year. Over the 10 year period ended December 31, 2011, the annualized return was approximately 7.5% compared to an average expected return of 8.0%. The actual return on plan assets achieved for 2011 was 6.4%. The difference between the actual and expected rate of return on plan assets will be amortized into earnings as described below.
SG&A expenses in 2011 were $478.3 million, or 16.7% of net sales, compared to $531.3 million, or 19.2% of net sales, in 2010. The decreases were due to reductions in core SG&A expenses. In addition, 2010 was impacted by $14.7 million of CEO transition costs, a $6.1 million asset impairment charge related to the termination of our flight operations, a loss of $5.8 million related to the sale of our European
Operating activities for 2011 provided $212.2 million of cash, an increase of $21.8 million compared to the $190.4 million of cash provided in 2010. The increase was primarily due to higher earnings partially offset by lower cash generated by changes in working capital.
Operating income declined as the margin impact of lower sales, significant raw hardwood lumber material inflation and the related inventory valuation impact of this inflation, offset reduced manufacturing and SG&A expenses. Operating income in 2010 was negatively impacted by approximately $16 million of fixed asset write downs and restructuring charges related to the closure of two manufacturing facilities. Non-cash impairment charges of $22.4 and $18.0 million related to our Wood Flooring trademarks also negatively impacted operating income in 2010 and 2009, respectively.
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