ARMSTRONG WORLD INDUSTRIES INC Fair Value Disclosure
NOTE 18. FINANCIAL INSTRUMENTS AND CONTINGENT CONSIDERATION
We do not hold or issue financial instruments for trading purposes. The estimated fair values of our financial instruments and contingent consideration are as follows:
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December 31, 2025 |
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December 31, 2024 |
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Carrying |
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Estimated |
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Carrying |
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Estimated |
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Liabilities, net |
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Total long-term debt, including current portion |
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$ |
(406.7 |
) |
|
$ |
(406.7 |
) |
|
$ |
(525.1 |
) |
|
$ |
(525.1 |
) |
Interest rate swap contracts |
|
|
(3.4 |
) |
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|
(3.4 |
) |
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|
(1.5 |
) |
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|
(1.5 |
) |
Acquisition-related contingent consideration |
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|
(3.4 |
) |
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|
(3.4 |
) |
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|
(3.2 |
) |
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|
(3.2 |
) |
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value because of the short-term maturity of these instruments. The fair value estimates of long-term debt were based on data for our Term Loan A debt provided by a major financial institution. The fair value estimates for interest rate swap contracts were estimated with the assistance of an independent, third-party valuation expert and verified by obtaining quotes from major financial institutions. The fair value estimates for acquisition-related contingent consideration liabilities that are payable based on future performance were measured primarily through the use of a Monte Carlo simulation by an independent, third-party valuation specialist.
As of December 31, 2025, acquisition-related contingent consideration liabilities represented additional cash consideration payable related to the September 2025 acquisition of Geometrik, the October 2023 acquisition of Insolcorp and the July 2023 acquisition of BOK that will be paid upon the final achievement of certain financial and performance milestones. As of December 31, 2024, acquisition-related contingent consideration liabilities represented additional cash consideration payable related to the acquisition of Insolcorp and the acquisition of BOK based upon the final achievement of certain financial and performance milestones.
The classification of acquisition-related contingent consideration liabilities on our Consolidated Balance Sheets is summarized below:
Balance Sheet Location |
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December 31, 2025 |
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December 31, 2024 |
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Accounts payable and accrued expenses (1) |
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$ |
1.5 |
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$ |
1.5 |
|
Other long-term liabilities (2) |
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1.9 |
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|
1.7 |
|
The fair value measurement of assets and liabilities measured at fair value on a recurring basis and reported on the Consolidated Balance Sheets is summarized below:
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December 31, 2025 |
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December 31, 2024 |
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Fair value based on |
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Fair value based on |
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Other |
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Other |
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Other |
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Other |
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Level 2 |
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Level 3 |
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Level 2 |
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Level 3 |
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Liabilities, net: |
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Interest rate swap contracts |
|
$ |
(3.4 |
) |
|
$ |
- |
|
|
$ |
(1.5 |
) |
|
$ |
- |
|
Acquisition-related contingent consideration |
|
|
- |
|
|
|
(1.9 |
) |
|
|
- |
|
|
|
(1.7 |
) |
Acquisition-related contingent consideration of $1.9 million and $1.7 million as of December 31, 2025 and 2024, respectively, was measured with the use of significant unobservable inputs, which included financial projections over the earn-out period, the volatility of the underlying financial metrics and estimated discount rates. Acquisition-related contingent consideration liabilities of $1.5 million related to the BOK acquisition as of December 31, 2025 and 2024 have been excluded from the table above as these liabilities were not measured based on Level 3 inputs as performance milestone achievements were known.
The following table summarizes the weighted average of the significant unobservable inputs as of December 31, 2025:
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Geometrik |
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Insolcorp |
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Unobservable input |
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Volatility |
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23.4 |
% |
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|
25.9 |
% |
Discount rates |
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|
3.6 |
% |
|
|
3.6 |
% |
The changes in fair value of the acquisition-related contingent consideration liabilities for the years ended December 31, 2025, 2024 and 2023 were as follows:
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Fair Value of Contingent Consideration |
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Balance as of December 31, 2022 |
|
$ |
15.2 |
|
Cash consideration paid |
|
|
(15.2 |
) |
Acquisition date fair value of BOK contingent consideration |
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|
0.8 |
|
Acquisition date fair value of Insolcorp contingent consideration |
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|
0.7 |
|
|
|
0.1 |
|
|
Balance as of December 31, 2023 |
|
$ |
1.6 |
|
|
|
1.6 |
|
|
Balance as of December 31, 2024 |
|
$ |
3.2 |
|
Cash consideration paid |
|
|
(1.5 |
) |
Acquisition date fair value of Geometrik contingent consideration |
|
|
0.3 |
|
|
|
1.4 |
|
|
Balance as of December 31, 2025 |
|
$ |
3.4 |
|
During 2025, 2024 and 2023, the changes in fair value were primarily due to changes in financial projections over each entity’s earn-out periods and changes in valuation inputs.
During 2025, we paid $1.5 million of additional cash consideration, which represented the achievement of certain financial and performance milestones through December 31, 2024 for the BOK acquisition. During 2023, we paid $15.2 million of additional cash consideration for the acquisition of Turf Design, Inc., which represented the final achievement of certain financial and performance milestones through December 31, 2022.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.