ARMSTRONG WORLD INDUSTRIES, INC. - Corporate Solutions

120 Pages·2014·0.71 MB·English

ARMSTRONG WORLD INDUSTRIES, INC.

2013 ANNUAL REPORT

Armstrong World Industries, Inc.
P. O. Box 3001
Lancaster, PA 17604-3001
www.armstrong.com
SHARE PERFORMANCE GRAPH
The following graph shows the cumulative total shareholder return for Armstrong World Industries, Inc. Common
Shares (NYSE: AWI) during the period from December 31,2008 to December 31, 2013. The graph also shows the
cumulative returns of the NYSE Composite Index and a building materials peer group composed of the companies
listed below the chart. The performance shown in the chart should not be considered indicative of future
performance.

COMPARISON OF CUMULATIVE TOTAL RETURN
Armstrong World Industries, Inc. NYSE Composite Index Peer Group Index
$450
$425
$400
$375
$350
$325
$300
$275
$250
$225
$200
$175
$150
$125
$100
$75
$50
$25
$0

ASSUMES $100 INVESTED ON DEC 31, 2008
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING DEC. 31, 2013

FISCAL YEAR ENDING
Company/Market/Peer Group 12/31/2008 12/31/2009 12/31/2010 12/30/2011 12/31/2012 12/31/2013
Armstrong World Industries, Inc. $100.00 $180.06 $265.77 $271.15 $368.52 $418.49
NYSE Composite Index $100.00 $128.95 $146.69 $141.46 $164.44 $207.86
Peer Group Index $100.00 $126.68 $156.95 $152.84 $237.27 $298.92
The client-selected peer group is composed of the following companies:
% of Total Market Cap
American Woodmark Corporation 1%
Interface, Inc. 2%
Masco Corporation 19%
Mohawk Industries, Inc. 15%
Owens-Corning, Inc. 11%
Sherwin-Williams Company 35%
Stanley Black & Decker, Inc. 13%
USG Corporation 4%
100%
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,D.C.20549
FORM 10-K
(MarkOne)
È ANNUALREPORTPURSUANTTO SECTION13OR 15(d)OF THE SECURITIES
EXCHANGEACTOF 1934
ForthefiscalyearendedDecember31,2013
OR
‘ TRANSITIONREPORTPURSUANTTO SECTION13OR15(d)OF THE SECURITIES
EXCHANGEACTOF 1934
Forthetransitionperiodfrom to
CommissionFileNumber1-2116
ARMSTRONG WORLD INDUSTRIES, INC.
(Exactnameofregistrantasspecifiedinitscharter)
Pennsylvania 23-0366390
(Stateorotherjurisdictionof (I.R.S.Employer
incorporationororganization) IdentificationNo.)
2500ColumbiaAvenue,Lancaster,Pennsylvania 17603
(Addressofprincipalexecutiveoffices) (ZipCode)
Registrant’stelephonenumber,includingareacode(717)397-0611
SecuritiesregisteredpursuanttoSection12(b)oftheAct:None
SecuritiesregisteredpursuanttoSection12(g)oftheAct:
Titleofeachclass
CommonStock($0.01parvalue)
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct. Yes È No ‘
IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct. Yes ‘ No È
Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchange
Actof1934duringthepreceding12months,and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days. Yes È No ‘
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyandpostedonitscorporateWebsite,ifany,everyInteractive
DataFilerequiredtobesubmittedandpostedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12
months(orforsuchshortertimeperiodthattheregistrantwasrequiredtosubmitandpostsuchfiles). Yes È No ‘
IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-Kisnotcontainedherein,andwillnotbe
contained,tothebestofregistrant’sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthis
Form10-KoranyamendmenttothisForm10-K. È
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,orasmallerreporting
company.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler”and“smallerreportingcompany”inRule12b-2ofthe
ExchangeAct(Checkone):
Largeacceleratedfiler È Acceleratedfiler ‘
Non-acceleratedfiler ‘ Smallerreportingcompany ‘
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheAct). Yes ‘ No È
TheaggregatemarketvalueoftheCommonStockofArmstrongWorldIndustries,Inc.heldbynon-affiliatesbasedontheclosingprice
($47.79pershare)ontheNewYorkStockExchange(tradingsymbolAWI)onJune28,2013wasapproximately$1,318million.Asof
February18,2014,thenumberofsharesoutstandingofregistrant’sCommonStockwas54,681,907.
DocumentsIncorporatedbyReference
CertainsectionsofArmstrongWorldIndustries,Inc.’sdefinitiveProxyStatementforuseinconnectionwithits2014annualmeetingof
shareholders,tobefilednolaterthanApril30,2014(120daysafterthelastdayofour2013fiscalyear),areincorporatedbyreferenceinto
PartIIIofthisForm10-KReportwhereindicated.
TABLEOFCONTENTS
SECTION PAGES
CautionaryNoteRegardingForward-LookingStatements 3
PARTI
Item1. Business 4
Item1A. RiskFactors 9
Item1B. UnresolvedStaffComments 15
Item2. Properties 16
Item3. LegalProceedings 16
Item4. MineSafetyDisclosures 16
PARTII
Item5. MarketfortheRegistrant’sCommonEquity,RelatedStockholderMattersandIssuer
PurchasesofEquitySecurities 17
Item6. SelectedFinancialData 18
Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 19
Item7A. QuantitativeandQualitativeDisclosuresaboutMarketRisk 37
Item8. FinancialStatementsandSupplementaryData 39
Item9. ChangesinandDisagreementswithAccountantsonAccountingandFinancialDisclosure 100
Item9A. ControlsandProcedures 100
PARTIII
Item10. Directors,ExecutiveOfficersandCorporateGovernance 101
Item11. ExecutiveCompensation 102
Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholder
Matters 102
Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 103
Item14. PrincipalAccountantFeesandServices 103
PARTIV
Item15. ExhibitsandFinancialStatementSchedules 104
Signatures 110
2
CAUTIONARYNOTEREGARDINGFORWARD-LOOKINGSTATEMENTS
CertainstatementsinthisAnnualReportonForm10-Kandthedocumentsincorporatedbyreferencemay
constituteforward-lookingstatementswithinthemeaningofthePrivateSecuritiesLitigationReformActof
1995.Thoseforward-lookingstatementsaresubjecttovariousrisksanduncertaintiesandincludeallstatements
thatarenothistoricalstatementsoffactandthoseregardingourintent,belieforexpectations,including,butnot
limitedto,ourexpectationsconcerningourresidentialandcommercialmarketsandtheireffectonouroperating
results;ourexpectationsregardingthepaymentofdividends,andourabilitytoincreaserevenues,earningsand
EBITDA(assuchtermsaredefinedbydocumentsincorporatedbyreferenceherein).Wordssuchas“anticipate,”
“expect,”“intend,”“plan,”“target,”“project,”“predict,”“believe,”“may,”“will,”“would,”“could,”“should,”
“seek,”“estimate”andsimilarexpressionsareintendedtoidentifysuchforward-lookingstatements.These
statementsarebasedonmanagement’scurrentexpectationsandbeliefsandaresubjecttoanumberoffactors
thatcouldleadtoactualresultsmateriallydifferentfromthosedescribedintheforward-lookingstatements.
Althoughwebelievethattheassumptionsunderlyingtheforward-lookingstatementsarereasonable,wecangive
noassurancethatourexpectationswillbeattained.Factorsthatcouldhaveamaterialadverseeffectonour
financialcondition,liquidity,resultsofoperationsorfutureprospectsorwhichcouldcauseactualresultstodiffer
materiallyfromourexpectationsinclude,butarenotlimitedto:
• globaleconomicconditions;
• constructionactivity;
• availabilityandcostsofrawmaterialsandenergy;
• ourliquidity;
• covenantsinourdebtagreements;
• ourindebtedness;
• competition;
• keycustomers;
• labor;
• plantconstructionprojects;
• ourWAVEjointventure;
• environmentalmatters;
• availabilityofdeferredtaxassets;
• strategictransactions;
• negativetaxconsequences;
• internationaloperations;
• ourintellectualpropertyrights;
• outsourcing;
• costssavingsandproductivityinitiatives;
• claimsandlitigation;
• concentrationofshareownershipandvotingcontrol;
• anti-takeoverprovisions;and
• otherrisksdetailedfromtimetotimeinourfilingswiththeSecuritiesandExchangeCommission(the
“SEC”),pressreleasesandothercommunications,includingthosesetforthunder“RiskFactors”
includedelsewhereinthisAnnualReportonForm10-Kandinthedocumentsincorporatedby
reference.
Suchforward-lookingstatementsspeakonlyasofthedatetheyaremade.Weexpresslydisclaimany
obligationtoreleasepubliclyanyupdatesorrevisionstoanyforward-lookingstatementstoreflectanychangein
ourexpectationswithregardtheretoorchangeinevents,conditionsorcircumstancesonwhichanystatementis
based.
3
PARTI
ITEM1.BUSINESS
ArmstrongWorldIndustries,Inc.(“AWI”orthe“Company”)isaPennsylvaniacorporationincorporatedin
1891.Whenwereferto“we,”“our”and“us”inthisreport,wearereferringtoAWIanditssubsidiaries.Weare
aleadingglobalproducerofflooringproductsandceilingsystemsforuseprimarilyintheconstructionand
renovationofresidential,commercialandinstitutionalbuildings.Wedesign,manufactureandsellflooring
products(primarilyresilientandwood)andceilingsystems(primarilymineralfiber,fiberglassandmetal)around
theworld.
InAugust2009,ArmorTPGHoldingsLLC(“TPG”)andtheAsbestosPersonalInjurySettlementTrust
(“AsbestosPITrust”)enteredintoagreementspursuanttowhichTPGpurchasedfromtheAsbestosPITrust
7,000,000sharesofAWIcommonstockandacquiredaneconomicinterestinanadditional1,039,777shares
pursuanttoaforwardsalescontract.Duringthefourthquarterof2012,theAsbestosPITrustandTPGtogether
sold5,980,000sharesinasecondarypublicoffering.Inthethirdquarterof2013,theAsbestosPITrustandTPG
togethersold12,057,382sharesinanothersecondarypublicoffering.Contemporaneouslywiththissecondary
publicoffering,wepaid$261.4million,includingassociatedfees,tobuyback5,057,382shares,whichwe
currentlyholdintreasury.Thetreasurysharepurchasewasfundedbyexistingcashandborrowingsunderour
creditandsecuritizationfacilities.InNovember2013,theAsbestosPITrustphysicallysettledthe2009forward
salescontractbydeliveringtoTPGthe1,039,777sharesinwhichTPGpreviouslyheldaneconomicinterest.
Additionally,duringthefourthquarterof2013,theAsbestosPITrustandTPGtogethersoldanadditional
6,000,000shares.Wedidnotsellanysharesanddidnotreceiveanyproceedsfromtheseofferings.Asaresultof
thesetransactions,theAsbestosPITrustandTPGtogethernowholdapproximately25%ofAWI’soutstanding
sharesandmaintainashareholders’agreement,pursuanttowhichtheyagreetovotetheirsharestogetheron
certainmatters.
ReportableSegments
Weoperatefourbusinesssegments—BuildingProducts,ResilientFlooring,WoodFlooringandUnallocated
Corporate.SeeNote3totheConsolidatedFinancialStatementsandManagement’sDiscussionandAnalysisof
FinancialConditionandResultsofOperationsinItem7ofthisForm10-Kforadditionalfinancialinformation
onourreportablesegments.
Markets
Wearewellpositionedintheindustrysegmentsandmarketsinwhichweoperate—oftenholdingaleadershipor
significantmarketshareposition.Themajormarketsinwhichwecompeteare:
NorthAmericanResidential.OurBuildingProducts,ResilientFlooringandWoodFlooringsegmentssell
productsforuseinthehome.Ourceilingproductscompeteagainstmineralfiberandfiberglassproductsfrom
othermanufacturers,aswellasdrywall.Homeownerscanchoosefromourvinylandwoodflooringproducts,for
whichweareNorthAmerica’slargestprovider,orfromourlaminateflooringproducts.Wecompetedirectly
withotherdomesticandinternationalsuppliersoftheseproducts.Ourflooringproductsalsocompetewithcarpet
andceramicproducts,whichwedonotoffer.
Ourproductsareusedinnewhomeconstructionandexistinghomerenovationwork.Industryanalystsestimate
thatexistinghomerenovation(alsoknownasreplacement/remodel)workrepresentsapproximatelytwo-thirds
ofthetotalNorthAmericanresidentialmarketopportunity.KeyU.S.statisticsthatindicatemarketopportunity
includeexistinghomesales(akeyindicatorforrenovationopportunity),housingstarts,housingcompletions,
homeprices,interestratesandconsumerconfidence.ForourResilientFlooringandWoodFlooringproducts,we
believethereissomelonger-termcorrelationbetweenthesestatisticsandourrevenueafterreflectingalagperiod
4
betweenchangeinconstructionactivityandouroperatingresultsofseveralmonths.However,webelievethat
consumers’preferencesforproducttype,style,color,availabilityandaffordabilityalsosignificantlyaffectour
revenue.Further,changesininventorylevelsand/orproductfocusatnationalhomecentersandbuilding
materialsdistributorscansignificantlyaffectourrevenue.Salesofourceilingproductsforresidentialuseappear
tofollowthetrendofexistinghomesales,withaseveralmonthlagperiodbetweenthechangeinexistinghome
salesandourrelatedoperatingresults.
NorthAmericanCommercial.Manyofourproducts,primarilyceilingsandresilientflooring,areusedin
commercialandinstitutionalbuildings.Ourrevenueopportunitiescomefromnewconstructionaswellas
renovationofexistingbuildings.Renovationworkisestimatedtorepresentapproximatelytwo-thirdsofthetotal
NorthAmericancommercialmarketopportunity.Mostofourrevenuecomesfromfourmajorsegmentsof
commercialbuilding–office,education,retailandhealthcare.WemonitorU.S.constructionstartsandfollow
projectactivity.Ourrevenuefromnewconstructioncanlagbehindconstructionstartsbyasmuchaseighteen
months.Wealsomonitorofficevacancyrates,grossdomesticproduct(“GDP”)andgeneralemploymentlevels,
whichcanindicatemovementinrenovationandnewconstructionopportunities.Webelievethatthesestatistics,
takingintoaccountthetime-lageffect,provideareasonableindicationofourfuturerevenueopportunityfrom
commercialrenovationandnewconstruction.
OutsideofNorthAmerica.About70%ofourrevenuesgeneratedoutsideofNorthAmericaareinEuropeand
almostallarecommercialinnature.Forthecountriesinwhichwehavesignificantrevenue,wemonitorvarious
nationalstatistics(suchasGDP)aswellasprojectactivity.Revenuescomeprimarilyfromnewconstructionand
renovationwork.
Thefollowingtableprovidesanestimateofoursegments’2013netsales,bymajormarkets.
(Estimated
percentagesof
individual NorthAmerican NorthAmerican OutsideofNorth
segment’ssales) Residential Commercial America
New Renovation New Renovation New Renovation Total
BuildingProducts ........................... — 5% 10% 45% 25% 15% 100%
ResilientFlooring ........................... 5% 30% 5% 30% 15% 15% 100%
WoodFlooring ............................. 35% 65% — — — — 100%
Managementhasusedestimatesincreatingthetableabovebecausetheend-useofourproductsisnoteasily
determinable.
GeographicAreas
SeeNote3totheConsolidatedFinancialStatementsandManagement’sDiscussionandAnalysisofFinancial
ConditionandResultsofOperationsinItem7ofthisForm10-Kforadditionalfinancialinformationby
geographicareas.
Customers
Weuseourreputation,capabilities,serviceandbrandrecognitiontodeveloplong-standingrelationshipswithour
customers.Weprincipallysellproductsthroughbuildingmaterialsdistributors,whore-sellourproductsto
retailers,builders,contractors,installersandothers.Inthecommercialsector,wealsoselltoseveralcontractors
andtosubcontractors’alliances.IntheNorthAmericanretailchannel,whichsellstoend-usersintheresidential
andlightcommercialsegments,wehaveimportantrelationshipswithnationalhomecenterssuchasTheHome
Depot,Inc.andLowe’sCompanies,Inc.IntheNorthAmericanresidentialsector,wehaveimportant
relationshipswithmajorhomebuildersandbuyinggroups.
5
Approximatelytwo-thirdsofourconsolidatednetsalesaretodistributors.Salestolargehomecentersaccount
forapproximately15%ofourconsolidatedsales.Ourremainingsalesaretocontractorsandretailers.
Nocustomeraccountedfor10%ormoreofourtotalconsolidatednetsalesduringthelastthreeyears.
WorkingCapital
Weproducegoodsforinventoryandselloncredittoourcustomers.Generally,ourdistributorscarryinventory
asneededtomeetlocalorrapiddeliveryrequirements.Wesellthevastmajorityofourproductstoselect,pre-
approvedcustomersusingcustomarytradetermsthatallowforpaymentinthefuture.Thesepracticesaretypical
withintheindustry.
Competition
Wefacestrongcompetitioninallofourbusinesses.Principalattributesofcompetitionincludeproduct
performance,productstyling,serviceandprice.CompetitioninNorthAmericacomesfrombothdomesticand
internationalmanufacturers.Additionally,someofourproductscompetewithalternativeproductsorfinishing
solutions.Ourresilient,laminateandwoodflooringproductscompetewithcarpetandceramicproducts,andour
ceilingproductscompetewithdrywallandexposedstructure(alsoknownasopenplenum).Thereisexcess
industrycapacityforcertainproductsinsomegeographies,whichtendstoincreasepricecompetition.The
followingcompaniesareourprimarycompetitors:
BuildingProducts–CertainTeedCorporation(asubsidiaryofSaint-Gobain),ChicagoMetallicCorporation
(ownedbyRockwoolInternational),Georgia-PacificCorporation,KnaufAMFGmbH&Co.KG,LafargeSA,
OdenwaldFaserplattenwerkGmbH,RockfonA/S(ownedbyRockwoolInternational),Saint-GobainandUSG
Corporation.
Flooringsegments–BeaulieuInternationalGroup,N.V.,Boa-Franc,Inc.,CongoleumCorporation,Forbo
HoldingAG,GerflorGroup,Interface,Inc.,IVCGroup,KronoHoldingAG,LGFloors,ManningtonMills,Inc.,
MetroflorCorporation,MohawkIndustries,Inc.,MullicanFlooring,L.P.,NoraSystemsGmbH,PfleidererAG,
ShawIndustries,Inc.,SomersetHardwoodFlooring,andTarkettAG.
RawMaterials
Wepurchaserawmaterialsfromnumeroussuppliersworldwideintheordinarycourseofbusiness.Theprincipal
rawmaterialsusedineachbusinessincludethefollowing:
Business PrincipalRawMaterials
BuildingProducts Mineralfiber,fiberglass,perlite,wastepaper,pigments,clays,starchesandsteel,
whichisusedintheproductionofmetalceilingsandbyWAVE,ajointventurethat
manufacturesceilinggrid
ResilientFlooring Polyvinylchloride(“PVC”)resinsandfilms,plasticizers,backings,limestone,
pigments,linseedoil,inksandstabilizers
WoodFlooring Hardwoodlumber,veneer,coatingsandstains
Wealsopurchasesignificantamountsofpackagingmaterialsandconsumesubstantialamountsofenergy,such
aselectricityandnaturalgas,andwater.
Ingeneral,adequatesuppliesofrawmaterialsareavailabletoallofourbusinesses.However,availabilitycan
changeforanumberofreasons,includingenvironmentalconditions,lawsandregulations,shiftsindemandby
6
otherindustriescompetingforthesamematerials,transportationdisruptionsand/orbusinessdecisionsmadeby,
oreventsthataffect,oursuppliers.Thereisnoassurancethattheserawmaterialswillremaininadequatesupply
tous.
Pricesforcertainhighusagerawmaterialscanfluctuatedramatically.Costincreasesforthesematerialscanhave
asignificantadverseimpactonourmanufacturingcosts.Giventhecompetitivenessofourmarkets,wemaynot
beabletorecovertheincreasedmanufacturingcoststhroughincreasingsellingpricestoourcustomers.
SourcedProducts
Someoftheproductsthatwesellaresourcedfromthirdparties.Ourprimarysourcedproductsincludevarious
flooringproducts(laminate,wood,vinylsheetandtile),specialtyceilingproductsandinstallation-related
products,aswellasaccessoriesforsomeofourmanufacturedproducts.Wepurchasesomeofoursourced
productsfromsuppliersthatarelocatedoutsideoftheU.S.,primarilyfromAsiaandEurope.Salesofsourced
productsrepresentedapproximately15%ofourtotalconsolidatedrevenueineachof2013,2012,and2011.
Ingeneral,webelievewehaveadequatesuppliesofsourcedproducts.However,wecannotguaranteethatthe
supplywillremainadequate.
Seasonality
Generally,oursalestendtobestrongerinthesecondandthirdquartersofourfiscalyearfollowingthetimingof
renovation,homesalesandnewconstruction.
PatentandIntellectualPropertyRights
Patentprotectionisimportanttoourbusiness.OurcompetitivepositionhasbeenenhancedbyU.S.andforeign
patentsonproductsandprocessesdevelopedorperfectedwithinAWIorobtainedthroughacquisitionsand
licenses.Inaddition,webenefitfromourtradesecretsforcertainproductsandprocesses.
Patentprotectionextendsforvaryingperiodsaccordingtothedateofpatentfilingorgrantandthelegaltermofa
patentinthevariouscountrieswherepatentprotectionisobtained.Theactualprotectionaffordedbyapatent,
whichcanvaryfromcountrytocountry,dependsuponthetypeofpatent,thescopeofitscoverageandthe
availabilityoflegalremedies.Althoughweconsiderthat,intheaggregate,ourpatents,licensesandtradesecrets
constituteavaluableassetofmaterialimportancetoourbusiness,wedonotregardanyofourbusinessesas
beingmateriallydependentuponanysinglepatentortradesecret,oranygroupofrelatedpatentsortradesecrets.
Certainofourtrademarks,includingwithoutlimitation, ®,Armstrong®,Alterna™,American
Scrape™,BBT®,BioBasedTile®,Bruce®,Cirrus®,Cortega®,Dundee™,DLW®,Dune™,Excelon®,Fine
Fissured™,FireGuard™,Imperial®,Initiator™,Laurel™,Lock&Fold®,LuxePlank®,Manchester®,
Marmorette™,Medintech®,Medintone®,Memories™,MetalWorks™,NaturalCreations®,NaturCote™,
Optima®,Plano™,Scala®,Stonetex®,StationSquare™,StrataMax®,Timberline®,ToughGuard®,Ultima®,and
WoodWorks®,areimportanttoourbusinessbecauseoftheirsignificantbrandnamerecognition.Trademark
protectioncontinuesinsomecountriesaslongasthemarkisused,andcontinuesinothercountriesaslongasthe
markisregistered.Registrationsaregenerallyforfixed,butrenewable,terms.
Wereviewthecarryingvalueoftrademarksannuallyforpotentialimpairment.Seethe“CriticalAccounting
Estimates”sectionofManagement’sDiscussionandAnalysisofFinancialConditionandResultsofOperations
inItem7ofthisForm10-Kforfurtherinformation.
7
Employees
AsofDecember31,2013,wehadapproximately8,700full-timeandpart-timeemployeesworldwide.
Approximately55%ofour3,700productionandmaintenanceemployeesintheU.S.arerepresentedbylabor
unions.OutsidetheU.S.,mostofourproductionemployeesarecoveredbyeitherindustry-sponsoredand/or
state-sponsoredcollectivebargainingmechanisms.Webelievethatourrelationswithouremployeesare
satisfactory.
Research&Development
Researchanddevelopment(“R&D”)activitiesareimportantandnecessaryinhelpingusimproveourproducts’
competitiveness.PrincipalR&Dfunctionsincludethedevelopmentandimprovementofproductsand
manufacturingprocesses.Wespent$32.8millionin2013,$30.3millionin2012and$29.2millionin2011on
R&Dactivitiesworldwide.
SustainabilityandEnvironmentalMatters
TheadoptionofenvironmentallyresponsiblebuildingcodesandstandardssuchastheLeadershipinEnergyand
EnvironmentalDesign,orLEED,ratingsystemestablishedbytheU.S.GreenBuildingCouncil,hasthepotential
toincreasedemandforproducts,systemsandservicesthatcontributetobuildingsustainablespaces.Manyofour
productsmeettherequirementsfortheawardofLEEDcredits,andwearecontinuingtodevelopnewproducts,
systemsandservicestoaddressmarketdemandforproductsthatenableconstructionofbuildingsthatrequire
fewernaturalresourcestobuild,operateandmaintain.Ourcompetitorsalsohavedevelopedandintroducedto
themarketmoreenvironmentallyresponsibleproducts.
Weexpectthattherewillbeincreaseddemandovertimeforproducts,systemsandservicesthatmeetevolving
regulatoryandcustomersustainabilitystandardsandpreferencesanddecreaseddemandforproductsthat
producesignificantgreenhousegasemissions.Wealsobelievethatourabilitytocontinuetoprovidethese
products,systemsandservicestoourcustomerswillbenecessarytomaintainourcompetitivepositioninthe
marketplace.
Wearecommittedtocomplyingwithallenvironmentallawsandregulationsthatareapplicabletoour
operations.Regulatoryactivitiesofparticularimportancetoouroperationsincludeproceedingsunderthe
ComprehensiveEnvironmentalResponse,CompensationandLiabilityAct(“CERCLA”),andstateor
internationalSuperfundandsimilartypeenvironmentallawsgoverningseveraldomestically-andinternationally-
owned,formerlyownedandnon-ownedlocationsallegedlyresultingfrompastindustrialactivity.Inafewcases,
weareoneofseveralpotentiallyresponsibleparties(“PRPs”)andhaveagreedtojointlyfundtherequired
investigationandremediation,whilepreservingourdefensestotheliability.Wemayalsohaverightsof
contributionorreimbursementfromotherpartiesorcoverageunderapplicableinsurancepolicies.Mostofour
manufacturingandcertainofourresearchfacilitiesareaffectedbyvariousfederal,stateandlocalenvironmental
requirementsrelatingtothedischargeofmaterialsortheprotectionoftheenvironment.Wemakeexpenditures
necessaryforcompliancewithapplicableenvironmentalrequirementsateachofouroperatingfacilities.
Wehavenotexperiencedamaterialadverseeffectuponourcapitalexpendituresorcompetitivepositionasa
resultofenvironmentalcontrollegislationandregulations.Liabilitiesof$8.3millionand$10.7millionat
December31,2013andDecember31,2012,respectively,wererecordedforpotentialenvironmentalliabilities,
onaglobalbasis,thatweconsiderprobableandforwhichareasonableestimateoftheprobableliabilitycouldbe
made.SeeNote30totheConsolidatedFinancialStatementsandRiskFactorsinItem1AofthisForm10-K,for
informationregardingthepossibleeffectsthatcompliancewithenvironmentallawsandregulationsmayhaveon
ourbusinessesandoperatingresults.
8