East Lampeter Township-based Armstrong Flooring Inc. on Thursday asked a Delaware bankruptcy court to allow it to reject current union contracts and stop paying retiree health and life insurance benefits.
Under the proposals, contracts with the United Steelworkers and International Association of Machinists and Aerospace Workers would cease when a sale is consummated, when Armstrong Flooring stops operating a plant, or its financing ends, whichever comes first.
The retiree benefits would end at the conclusion of the sale process if no buyer wanted to assume them. The unions and a nonunion retiree committee, once its formed, would maintain rights to argue the matter in court.
An attorney for the unions could not be reached for comment but the unions have until June 15 to file objections to ending the contract.
Armstrong Flooring requested a June 22 hearing on the union contracts and retiree health and life insurance benefits. That falls on the same day as a hearing about the sale of its North American assets, including its Lancaster plant and distribution center. Bids are due June 14 and an auction, if needed, is set for June 16. Bids for the company’s assets in Australia and China are due June 23.
The motions are not a surprise because the company indicated it would seek to end retiree benefits when it filed for Chapter 11 bankruptcy protection in May. In Thursday’s court filing, Armstrong Flooring outlined its ongoing discussions with the unions, including allowing digital access to finance documents that bidders were given.
Armstrong Flooring owes an estimated $318 million, including $160 million in long-term debt, and sought protection from lenders through bankruptcy. It received court approval to sell off its assets it values at $517 million.
Armstrong Flooring is seeking to sell its North American, Chinese and Australian assets as going concerns, and bidders for each include going concern purchasers. A going concern means the company would continue to operate. The company acknowledged that there could be bidders who seek to liquidate its assets.
Armstrong Flooring operates seven manufacturing plants in three countries. Two plants are in Pennsylvania, one in Lancaster city and one in Beech Creek Township, Clinton County. There are plants in Illinois, Mississippi, Oklahoma and one plant each in China and Australia. The plants in China and Australia are not part of the bankruptcy but are part of the sale.
Discussions with potential bidders
Armstrong Flooring, at the urging of the unions, has required any bidder that planned to continue operating to outline the impact of its bid on workers and jobs.
In its motion Thursday, Armstrong Flooring said most potential bidders were looking to liquidate the company.
Since May 8, when Armstrong Flooring filed for bankruptcy, it has executed nondisclosure agreements with 28 new parties and has received four preliminary proposals, two of which encompass its North American assets.
Armstrong Flooring said based on discussions with potential bidders it was optimistic “regarding the terms of certain prospective bids with respect to certain facilities covered by the Debtors’ Collective Bargaining Agreements.” It did not say which facilities it was optimistic about.
The company cautioned that the expressions of interest it has received thus far, though encouraging, may not translate into actual qualified bids.
“Indeed, several parties that remain active in the Sale process are not pursuing a going-concern Bid,” Armstrong Flooring said in its court filing. A going concern means to continue operating the company.
It said none of the potential bidders indicated they would take on the union contracts or retiree health and life insurance benefits.
If it didn’t reject the contracts, any sale could be in jeopardy and send the company into liquidation without changing the outcome for the union employees, Armstrong Flooring argued.
Three union contracts
Armstrong Flooring is party to three union contracts covering approximately 277 of its 1,216 employees: a contract with United Steelworkers at its Jackson, Mississippi, plant; one with the International Association of Machinists and Aerospace Workers at the Lancaster plant; and one with United Steelworkers at its Lancaster facility.
The three-year contract with IAM at the Lancaster facility expires Oct. 8, 2023. The contract with USW employees in Lancaster was ratified March 22 and expires Feb. 8 2025. The agreement regarding the Jackson plant was ratified on April 11, and is effective through Oct. 3, 2025.
Armstrong Flooring notified 606 workers in Pennsylvania, including its entire Lancaster County workforce, that they may face permanent layoff as soon as June 17 as the company works through bankruptcy and anticipates finding a buyer.
Armstrong Flooring said its negotiations with the unions over the last several years prior to bankruptcy have generally resulted in a reduction in the company’s monetary obligations to employees, including the elimination of nearly every legacy benefit in the collective bargaining agreement.
“These negotiations have been consistent with the recent trend towards reducing the economic burden of costly employee benefits,” Armstrong Flooring said in its court filing. “During this period, these negotiations with the Unions have resulted in, among other things, the elimination of eligible retirees’ opportunity to participate in the company group health care plans and the closing of Company’s pension plans to all participants and freezing of benefits.”
Armstrong Flooring’s Retiree Health program allows eligible participants younger than 65 years old to enroll in the company’s self-funded retiree health care plan and, for union retirees only, subsidizes the cost of coverage. Under that program, the company pays a portion of submitted medical, prescription drug, and dental claims of covered retirees and administration fees. The Debtors pay such claims on a weekly basis. There are 41 total participants in that program, including three nonunion retirees.
Another program entitles retirees 65 and older who receive Medicare to reimbursement they can use to purchase Medicare supplemental insurance at about $1,400 per family, per year. There are approximately 1,529 participants, including approximately 596 nonunion retirees and their beneficiaries.
About 2,043 retirees receive life insurance benefits.