-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M4L/hHFhlgl5/zpMtgDuwnQzpUSVEW4gNRBrSjod4dRSranbiSENoViBYhJridDb niVFipbNfwT7nL6bySmW3g== 0000950109-96-002890.txt : 19960513 0000950109-96-002890.hdr.sgml : 19960513 ACCESSION NUMBER: 0000950109-96-002890 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARMSTRONG WORLD INDUSTRIES INC CENTRAL INDEX KEY: 0000007431 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 230366390 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02116 FILM NUMBER: 96559493 BUSINESS ADDRESS: STREET 1: P O BOX 3001 STREET 2: 313 W LIBERTY ST CITY: LANCASTER STATE: PA ZIP: 17604 BUSINESS PHONE: 7173970611 MAIL ADDRESS: STREET 1: P.O. BOX 3001 CITY: LANCASTER STATE: PA ZIP: 17604 FORMER COMPANY: FORMER CONFORMED NAME: ARMSTRONG CORK CO DATE OF NAME CHANGE: 19800611 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 ----------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- ----------------------- Commission file number 1-2116 ------------------------------------------------------- Armstrong World Industries, Inc. ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-0366390 ----------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P. O. Box 3001, Lancaster, Pennsylvania 17604 - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (717) 397-0611 -------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ________ ------- Number of shares of registrant's common stock outstanding as of April 26, 1996 - 36,888,090 Part I - Financial Information ------------------------------ Item 1. Financial Statements - ------ -------------------- Operating results for the first quarter of 1996, compared with the corresponding period of 1995 included in this report, are unaudited. In the opinion of the Company, all adjustments of a normal recurring nature have been included to provide a fair statement of the results for the reporting periods presented. Three months' results are not necessarily indicative of annual earnings. Armstrong World Industries, Inc., and Subsidiaries Consolidated Statements of Earnings ----------------------------------- (amounts in millions except for per-share data) Unaudited
Three Months Ended March 31 ------------------- 1996 1995(a) ---- ---- NET SALES $ 501.2 $ 502.2 Cost of goods sold 344.5 335.5 ------ ------ Gross profit 156.7 166.7 Selling, general & administrative expenses 101.7 105.1 Equity (earnings) from affiliates (2.7) (3.7) Restructuring charges -- 15.6 ------ ------ Operating income 57.7 49.7 Interest expense 6.3 8.0 Other expense (income), net (3.1) .4 ------ ------ Earnings from continuing businesses before income taxes(b) 54.5 41.3 Income taxes 18.2 14.8 ------ ------ EARNINGS FROM CONTINUING BUSINESSES (c) $ 36.3 $ 26.5 Earnings from discontinued business, net of income taxes -- 7.9 ------ ------ NET EARNINGS $ 36.3 $ 34.4 ====== ====== Net earnings per share of common stock: Primary:(d) Earnings from continuing businesses $ .88 $ .61 Earnings from discontinued business -- .21 Net earnings $ .88 $ .82 Fully Diluted:(d) Earnings from continuing businesses $ .81 $ .57 Earnings from discontinued business -- .18 Net earnings $ .81 $ .75 Dividends paid per common share $ .36 $ .32 Average number of common shares outstanding: Primary 37.5 37.5 Fully Diluted 42.8 43.1
See page 3 for explanation of (a), (b), (c) and (d). Also see accompanying footnotes to the financial statements beginning on page 8. 2 (a) Prior year was restated for the effects of the discontinued furniture business and the formation of the ceramic tile business combination. (b) Depreciation and amortization charged against earnings from continuing businesses before income taxes amounted to $30.8 million in the three months ended March 31, 1996, and $29.5 million in the three months ended March 31, 1995. (c) Earnings from continuing businesses for the three months ended March 31, 1995, include $10.1 million, or 24 cents per share on a fully diluted basis, of restructuring charges resulting from plans to close a plant in Braintree, Massachusetts. (d) Primary earnings per share for "net earnings" are determined by dividing the earnings, after deducting preferred dividends (net of tax benefit on unallocated shares), by the average number of common shares outstanding and shares issuable under stock options, if dilutive. Fully diluted earnings per share include the shares of common stock outstanding, as calculated above, and the adjustments to common shares and earnings required to portray the convertible preferred shares on an "if converted" basis unless the effect is antidilutive. 3 Armstrong World Industries, Inc., and Subsidiaries Consolidated Balance Sheets --------------------------- (amounts in millions)
Unaudited Assets March 31, 1996 December 31, 1995 ------ --------------- ------------------ Current assets: Cash and cash equivalents $ 118.5 $ 256.9 Accounts receivable less allowance 255.2 217.9 Inventories: Finished goods $ 117.9 $ 119.9 Work in process 27.1 24.0 Raw materials and supplies 41.6 51.6 -------- -------- Total inventories 186.6 195.5 Income tax benefits 29.5 26.9 Other current assets 29.7 25.5 -------- -------- Total current assets 619.5 722.7 Property, plant, and equipment 1,885.2 1,854.1 Less accumulated depreciation and amortization 992.5 975.9 -------- -------- Net property, plant, and equipment 892.7 878.2 Insurance for asbestos-related liabilities(a) 151.0 166.0 Investment in affiliates 164.8 162.1 Other noncurrent assets 249.4 220.8 -------- -------- Total assets $2,077.4 $2,149.8 ======== ======== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Short-term debt $ 24.6 $ 22.0 Current installments of long-term debt 5.1 40.1 Accounts payable and accrued expenses 266.7 297.4 Income taxes 26.5 16.4 -------- -------- Total current liabilities 322.9 375.9 Long-term debt 188.4 188.3 ESOP loan guarantee 234.7 234.7 Postretirement and postemployment benefits 244.0 242.8 Asbestos-related liabilities (a) 151.0 166.0 Other long-term liabilities 145.8 140.6 Deferred income taxes 14.5 16.5 Minority interest in subsidiaries 10.1 10.0 -------- -------- Total noncurrent liabilities 988.5 998.9 Shareholders' equity: Convertible preferred stock at redemption value $ 244.2 $ 258.9 Common stock 51.9 51.9 Capital in excess of par value 51.0 49.3 Reduction for ESOP loan guarantee (224.1) (225.1) Retained earnings 1,156.8 1,133.8 Foreign currency translation (b) 13.7 18.0 Treasury stock (527.5) (511.8) -------- -------- Total shareholders' equity 766.0 775.0 -------- -------- Total liabilities and shareholders' equity $2,077.4 $2,149.8 ======== ========
See page 5 for explanation of references (a) and (b). Also see accompanying footnotes to the financial statements beginning on page 8. 4 (a) The asbestos-related liability in the amount of $151.0 million represents the estimated liability and defense cost to resolve approximately 56,000 personal injury claims pending against the Company as of the end of the first quarter 1996. The insurance asset in the amount of $151.0 million reflects the Company's belief in the availability of insurance in an amount covering the liability. See footnote No. 2 beginning on page 8 for additional details. (b) Foreign currency translation, reported as a separate component of shareholders' equity, is detailed as follows:
1996 ---- (millions) Balance at beginning of year $18.0 Three months' translation adjustments and hedging of foreign investments (4.3) Allocated income taxes -- ----- Balance at March 31, 1996 $13.7 =====
5 Armstrong World Industries, Inc., and Subsidiaries Consolidated Statements of Cash Flows ------------------------------------- (amounts in millions) Unaudited
Three Months Ended March 31 1996 1995(a) --------- --------- Cash flows from operating activities: Net earnings $ 36.3 $ 34.4 Adjustments to reconcile net earnings to net cash (used for) provided by operating activities: Depreciation and amortization, excluding furniture and ceramic tile 29.7 26.2 Depreciation and amortization for furniture and ceramic tile 1.1 6.6 Deferred income taxes 1.0 (0.5) Loss from restructuring activities -- 15.6 Restructuring payments (9.5) (3.0) (Increase) in net assets of discontinued business -- (2.8) Changes in operating assets and liabilities net of effect of discontinued business, restructuring and dispositions: (Increase) in receivables (33.1) (37.0) (Increase) decrease in inventories 7.4 (16.5) (Increase) in other current assets (7.7) (2.0) (Increase) decrease in investment in affiliates (3.8) 1.7 (Increase) in other noncurrent assets (25.5) (11.1) (Decrease) in accounts payable and accrued expenses (14.2) (27.4) Increase in income taxes payable 11.3 10.8 Increase in other long-term liabilities 8.3 6.4 Other, net (3.8) 5.0 ------- ------ Net cash (used for) provided by operating activities (2.5) 6.4 ------- ------ Cash flows from investing activities: Purchases of property, plant, and equipment (48.4) (31.5) Purchases of property, plant and equipment for furniture and ceramic tile -- (4.6) Other, net (1.7) (1.6) Acquisitions -- (14.0) ------- ------ Net cash used for investing activities (50.1) (51.7) ------- ------ Cash flows from financing activities: Increase in short-term debt 3.0 97.0 Reduction of long-term debt (35.0) (34.4) Cash dividends paid (13.4) (11.9) Preferred stock redemption (18.4) (1.2) Purchase of common stock for the treasury (18.3) (11.0) Proceeds from exercised stock options 1.8 3.1 Other, net (5.2) (3.6) ------- ------ Net cash (used for) provided by financing activities (85.5) 38.0 Effect of exchange rate changes on cash and cash equivalents (.3) .3 ------- ------ Net (decrease) in cash and cash equivalents $(138.4) $ (7.0) ======= ====== Cash and cash equivalents at beginning of period $ 256.9 $ 12.0 ======= ====== Cash and cash equivalents at end of period $ 118.5 $ 5.0 ======= ====== - ------------------------------------------------------------------------------------------ Supplemental Cash Flow Information: Interest paid $ 1.7 $ 1.1 Income taxes paid $ 10.9 $ 9.6 - ------------------------------------------------------------------------------------------
(a) Prior year restated for the effects of the discontinued furniture business and the formation of the ceramic tile business combination. See accompanying footnotes to the financial statements beginning on page 8. 6 Armstrong World Industries, Inc., and Subsidiaries Industry Segment Financial Data ------------------------------- (amounts in millions) Unaudited
Three Months Ended March 31 ---------------- 1996 1995(a) ---- ------- Net trade sales: - --------------- Floor coverings $240.0 $241.7 Building products 175.1 171.1 Industry products 86.1 89.4 ------ ------ Total net sales $501.2 $502.2 ====== ====== Operating income (loss): - ----------------------- Floor coverings $ 26.7 $ 32.4 Building products 25.8 26.1 Industry products(b) 10.0 (1.7) Ceramic Tile(c) 0.9 2.2 Unallocated corporate expense (5.7) (9.3) ------ ------ Total operating income $ 57.7 $ 49.7 ====== ======
(a) Prior year restated for the effects of the discontinued furniture business and the formation of the ceramic tile business combination. (b) For the three months ended March 31, 1995, operating income includes restructuring charges of $15.6 million. (c) Ceramic tile segment results represent the Company's 37 percent after-tax share of the operating income of the Dal-Tile business combination and the amortization of the excess of the Company's investment in Dal-Tile over the underlying equity in net assets. Prior year's results reflect the before- tax operating income of the Ceramic Tile Operations. 7 Note 1. The accompanying consolidated financial statements have been - ------ reviewed by the Company's independent public accountants, KPMG Peat Marwick LLP, in accordance with the established professional standards and procedures for such limited review. Note 2. - ------ OVERVIEW OF ASBESTOS-RELATED LEGAL PROCEEDINGS The full report on the Asbestos-Related Litigation immediately follows this summary. The Company is involved, as of March 31, 1996, in approximately 56,000 pending personal injury asbestos claims and lawsuits, and 29 pending claims and lawsuits involving asbestos-containing products in buildings. The Company's insurance carriers provide coverage for both types of claims. The personal injury claims (but not property damage claims) are handled by the Center for Claims Resolution (the "Center"). Personal injury claims in the federal courts have been transferred by the Judicial Panel for Multidistrict Litigation to the Eastern District of Pennsylvania for pretrial purposes. State court cases have not been directly affected by the transfer. A settlement class action that includes essentially all future personal injury claims against Center members, including the Company, was filed on January 15, 1993, in the Eastern District of Pennsylvania. The court has tentatively approved the settlement, although it will not become final until certain issues, including insurance coverage for class members' claims, are resolved, and appeals are exhausted, which could take several years. An Agreement Concerning Asbestos-Related Claims (the "Wellington Agreement") provides for settlement of insurance coverage for personal injury claims with certain primary carriers and excess carriers. Settlement agreements that complement the Wellington Agreement have been signed with one primary carrier and certain excess carriers. Litigation that was undertaken by the Company in California for insurance coverage for asbestos-related personal injury and property damage lawsuits and claims is now on appeal from favorable final decisions of the trial court and the California Court of Appeal. The case was returned to the Court of Appeal by the California Supreme Court for additional review in light of a favorable Supreme Court decision in another case. The Court of Appeal has again ruled in favor of the Company. This litigation did not encompass coverage for nonproducts claims that is included in the Company's primary policies and certain excess policies. This additional coverage is substantial. The Company is pursuing the nonproducts coverage through alternative dispute resolution proceedings involving the primary and certain excess carriers pursuant to the Wellington Agreement. The Company believes that an estimated $151 million in liability and defense costs recorded on its balance sheet will be incurred to resolve approximately 56,000 asbestos-related personal injury claims against the Company as of March 31, 1996. An insurance asset in the amount of $151 million recorded on the balance sheet reflects the Company's belief in the availability of insurance in this amount to cover the liability for these pending claims. The Company also projects the maximum cost in the settlement class action as a reasonably possible additional liability of $245 million for a ten-year period; a portion of such additional projected liability may not be covered by the Company's ultimately applicable insurance recovery. Although subject to uncertainties and limitations, the Company also believes it is probable that substantially all of the expenses and liability payments associated with the asbestos-related property damage claims will be covered by insurance. Even though uncertainties still remain as to the potential number of unasserted claims, liability resulting therefrom, and the ultimate scope of its insurance coverage, after consideration of the factors involved, including the Wellington Agreement, the settlements with other insurance carriers, the results of the trial phase and the intermediate appellate stage of the California insurance coverage litigation, the remaining reserve, the establishment of the Center, the proposed settlement class action, and its experience, the Company believes the asbestos-related lawsuits and claims against the Company would not be material either to the financial condition of the Company or to its liquidity, although the net effect of any future liabilities recorded in excess of insurance assets could be material to earnings in a future period. 8 The full report on the asbestos-related litigation is set forth below: Asbestos-Related Litigation The Company is one of many defendants in pending lawsuits and claims involving, as of March 31, 1996, approximately 56,000 individuals alleging personal injury from exposure to asbestos. Included in the above number are approximately 14,200 lawsuits and claims from the approximately 87,000 individuals who have opted out of the settlement class action referred to below. About 15,600 claims from purported settlement class members were received as of March 31, 1996. Of those claims, many do not qualify at this time for payment. (In late 1993, the Company revised its claims handling procedures to provide for individual claim information to be supplied by the Center for Claims Resolution (the "Center"), referred to below. It is expected that this process will provide more current tracking of outstanding claims. The reconciliation between the two systems continues. Claim numbers in this note have been received from the Center and its consultants.) Nearly all the personal injury suits and claims, except those claims covered by the settlement class action, seek general and punitive damages arising from alleged exposures, during various times, from World War II onward, to asbestos- containing insulation products used, manufactured or sold by the companies involved in the asbestos-related litigation. These claims against the Company generally involve allegations of negligence, strict liability, breach of warranty and conspiracy. The Company discontinued the sale of all asbestos- containing insulation products in 1969. The claims generally allege that injury may be determined many years (up to 40 years) after alleged exposure to asbestos or asbestos-containing products. Nearly all suits name many defendants (including both members of the Center and other companies), and over 100 different companies are reportedly involved. The Company believes that many current plaintiffs are unimpaired. A few state and federal judges have consolidated numbers of asbestos-related personal injury cases for trial, which the Company has generally opposed as unfair. A large number of suits and claims have either been put on inactive lists, settled, dismissed or otherwise resolved, and the Company is generally involved in all stages of claims resolution and litigation, including trials, and appeals. While the number of pending cases reflects a decrease during the past years, neither the rate of future dispositions nor the number of future potential unasserted claims can be reasonably predicted at this time. Attention has been given by various parties to securing a comprehensive resolution of pending as well as potential future asbestos-related personal injury claims. The Judicial Panel for Multidistrict Litigation ordered the transfer of all pending federal cases to a single court, the Eastern District of Pennsylvania in Philadelphia, for pretrial purposes. The Company has supported such action. Some of these cases are periodically released for trial, although the issue of punitive damages is retained by the Eastern District Court. State court cases have not been directly affected by the transfer. The Court in the Eastern District has been instrumental in having the parties resolve large numbers of cases in various jurisdictions and has been receptive to different approaches to the resolution of asbestos-related personal injury claims. Settlement Class Action A settlement class action that includes essentially all future asbestos-related personal injury claims against members of the Center was filed in the Eastern District of Pennsylvania, on January 15, 1993. The settlement class action is designed to establish a non-litigation system for the resolution of essentially all future asbestos-related personal injury claims against the Center members including the Company. Other companies that are not Center members may be able to join the class action later. The class action proposes a voluntary settlement that offers a method for prompt compensation to claimants who were occupationally exposed to asbestos if they meet certain exposure and medical criteria. Compensation amounts are derived from historical settlement data. Under limited circumstances and in limited numbers, qualifying claimants may choose to arbitrate or litigate certain claims after their claims are processed within the system. No punitive damages will be paid under the proposed settlement. The settlement is designed to minimize transactional costs, including attorneys fees, and to relieve the courts of the burden of handling future claims. Each member of 9 the Center has an obligation for its own fixed share in this proposed settlement. The District Court has ruled that claimants who neither filed a lawsuit against the members of the Center nor filed an exclusion request form are subject to the class action. The class action does not include claims deemed otherwise not covered by the class action settlement, or claims for property damage. Annual case flow caps and compensation ranges for each compensable medical category, including amounts paid even more promptly under the simplified payment procedures, have been established for an initial period of ten years. Case flow caps may be increased if they were substantially exceeded during the previous five-year period. The case flow figures and annual compensation levels are subject to renegotiation after the initial ten-year period. On August 16, 1994, the Court tentatively approved the settlement, and notification has been provided to class members. Approximately 87,000 individuals have opted out. The opt outs are not claims as such but rather are reservations of rights to possibly bring claims in the future. The settlement will become final only after certain issues, including issues related to insurance coverage, are resolved and appeals are exhausted. This process could take several years. The Center members have stated their intention to resolve over a five-year period the personal injury claims that were pending when the settlement class action was filed. A significant number of claims have been finally or tentatively settled or are currently the subject of negotiations. The Company is seeking agreement from its insurance carriers or a binding judgment against them that the class action will not jeopardize existing insurance coverage; the class action is contingent upon such an agreement or judgment. With respect to carriers that do not agree, this matter will be resolved either by alternative dispute resolution, in the case of carriers that subscribed to the Wellington Agreement, or else by litigation. The Company believes that the future claimants settlement class action will receive final approval. However, the potential exists that an appellate court will reject or modify the settlement class action or that the above-referenced companion insurance action will not be successful. Insurance Carriers/Wellington Agreement The Company's insurance carriers provide defense and indemnity coverage for asbestos-related personal injury claims. All of the Company's primary insurers are paying for the defense of property damage claims. Three of the four carriers are paying for the defense under an Interim Agreement pending the final resolution of the coverage issues for property damage claims in the California insurance litigation. The remaining carrier entered into a separate agreement with the Company resolving coverage issues for both personal injury and property damage claims. Various insurance carriers provide products and nonproducts coverage for the Company's asbestos-related personal injury claims and product coverage for property damage claims. Certain policies providing products coverage for personal injury claims have been exhausted. A list of the insurance carriers that currently provide coverage or whose policies have made available or provide personal injury, nonproducts or property damage coverages is as follows: Reliance Insurance Company; Aetna Casualty and Surety Company; Liberty Mutual Insurance Companies; Travelers Insurance Company; Fireman's Fund Insurance Company; Insurance Company of North America; Lloyds of London; various London market companies; Fidelity and Casualty Insurance Company; First State Insurance Company; U.S. Fire Insurance Company; Home Insurance Company; Great American Insurance Company; American Home Assurance Company and National Union Fire Insurance Company (known as the AIG Companies); Central National Insurance Company; Interstate Insurance Company; Puritan Insurance Company; and Commercial Union Insurance Company. Midland Insurance Company, an excess carrier, that insured the Company for $25 million of bodily injury products coverage, is insolvent; the Company is pursuing claims with the state guaranty associations. The gap in coverage created by the Midland Insurance Company insolvency will be covered by other insurance. Certain companies in the London block of coverage and certain carriers providing coverage at the excess level for property damage claims only have also become insolvent. In addition, certain insurance carriers that were not in the Company's California insurance litigation also provide insurance for asbestos-related property damage claims. 10 The Company along with 52 other companies (defendants in the asbestos-related litigation and certain of their insurers) signed the 1985 Agreement Concerning Asbestos-Related Claims (the "Wellington Agreement"). This Agreement provided for a final settlement of nearly all disputes concerning insurance for asbestos- related personal injury claims between the Company and three of its primary insurers and seven of its excess insurers that subscribed to the Wellington Agreement. The one primary insurer that did not sign the Wellington Agreement had earlier entered into the Interim Agreement with the Company and had paid into the Wellington Asbestos Claims Facility (the "Facility"). The Wellington Agreement provides for those insurers to indemnify the Company up to the policy limits for claims that trigger policies in the insurance coverage period, and nearly all claims against the Company fall within the coverage period; both defense and indemnity are paid under the policies and there are no deductibles under the applicable Company policies. The Wellington Agreement addresses both products and non-products insurance coverage. One of the Company's larger excess insurance carriers entered into a settlement agreement in 1986 with the Company under which payments also were made through the Facility and are now being paid through the Center. Coverage for asbestos-related property damage claims was not included in the settlement, and the agreement provides that either party may reinstitute a lawsuit in the event the coverage issues for property damage claims are not amicably resolved. The Wellington Agreement also provided for the establishment of the Facility to evaluate, settle, pay and defend all personal injury claims against member companies. The insurance coverage designated by the Company for coverage in the Facility consisted of all relevant insurance policies issued to the Company from 1942 through 1976. Liability payments and allocated expenses were allocated by formula to each member, including the Company. The Facility, now dissolved, was negatively impacted by concerns of certain members about their share of liability payments and allocated expenses and by certain insurer concerns about defense costs and Facility operating expenses. Center for Claims Resolution A new asbestos-related personal injury claims handling organization known as the Center for Claims Resolution was created in October 1988 by Armstrong and 20 other companies, all of which were former members of the Facility. Insurance carriers did not become members of the Center, although a number of carriers signed an agreement to provide approximately 70% of the financial support for the Center's operational costs during its first year of operation; they also are represented ex officio on the Center's governing board. The Center adopted many of the conceptual features of the Facility, and the members' insurers generally provide coverage under the Wellington Agreement terms. The Center has operated under a revised formula for shares of liability payments and defense costs and has defended the members' interests and addressed the claims in a manner consistent with the prompt, fair resolution of meritorious claims. In late 1991, the Center sharing formula was revised to provide that members will pay only on claims in which the member is a named defendant. This change caused a slight increase in the Company's share and subsequent share adjustments also resulted in an increased liability share for the Company in certain areas. In the settlement class action, each member will pay its own fixed share of every claim. A large share member earlier withdrew from the Center, and the allocated shares of liability payments and defense costs of the Center were recalculated, resulting in the remaining members' shares being increased. Under the class action settlement resolution, if a member withdraws, the shares of remaining members will not be increased. The Center members have reached an agreement annually with the insurers relating to the continuing operation of the Center and expect that the insurers will provide funding for the Center's operating expenses for its eighth year of operation. The Center will continue to process pending claims as well as future claims in the settlement class action. An increase in the utilization of the Company's insurance also has occurred as a result of the class action settlement and the commitment at the time to attempt to resolve pending claims within five years. Aside from the class action settlement, no forecast can be made for future years regarding either the rate of claims, the rate of pending and future claims resolution by the Center, or the rate of utilization of Company insurance. If the settlement 11 class action is finalized and all appeals are exhausted, projections of the rate of disposition of future cases may be made. Property Damage Litigation The Company is also one of many defendants in a total of 29 pending lawsuits and claims, including one class action, as of March 31, 1996, brought by public and private building owners. These lawsuits and claims include allegations of damage to buildings caused by asbestos-containing products and generally claim compensatory and punitive damages and equitable relief, including reimbursement of expenditures, for removal and replacement of such products. They appear to be aimed at friable (easily crumbled) asbestos-containing products, although allegations in some suits encompass all asbestos-containing products, including allegations with respect to previously installed asbestos-containing resilient flooring. Among the lawsuits that have been resolved are four class actions that had been certified, each involving a distinct class of building owner: public and private schools; Michigan state public and private schools; colleges and universities, and private property owners who leased facilities to the federal government. In three of these class actions, the courts have given final approval and dismissed the actions with prejudice. In the college and universities class action, a settlement has been reached with the class representative and is subject to a fairness hearing. The Company vigorously denies the validity of the allegations against it contained in these suits and claims. Increasing defense costs, paid by the Company's insurance carriers either under reservation or settlement arrangement, will be incurred. As a consequence of the California insurance litigation discussed elsewhere in this note, the Company believes that it is probable that costs of the property damage litigation that are being paid by the Company's insurance carriers under reservation of rights will not be subject to recoupment. These suits and claims were not handled by the former Facility nor are they being handled by the Center. Certain co-defendant companies in the asbestos-related litigation have filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. As a consequence, litigation against them (with several exceptions) has been stayed or restricted. Due to the uncertainties involved, the long-term effect of these proceedings on the litigation cannot be predicted. California Insurance Coverage Lawsuit The California trial court issued final decisions in various phases in the insurance lawsuit including a decision that the trigger of coverage for personal injury claims was continuous from exposure through death or filing of a claim. The court also found that a triggered insurance policy should respond with full indemnification up to exhaustion of the policy limits. The court concluded that any defense obligation ceases upon exhaustion of policy limits. Although not as comprehensive, another important decision in the trial established a favorable defense and indemnity coverage result for asbestos-related property damage claims; the final decision holds that, in the event the Company is held liable for an underlying property damage claim, the Company would have coverage under policies in effect during the period of installation and during any subsequent period in which a release of fibers occurred. The California Court of Appeal substantially upheld the trial court, and the insurance carriers petitioned the California Supreme Court for review of various coverage issues. The California Supreme Court referred the case back to the Court of Appeal to reconsider its opinion in light of a recent Supreme Court decision in another case. In a subsequent second opinion the Court of Appeal also ruled in the Company's favor. The insurance carriers may petition the California Supreme Court for further review. Based upon the trial court's favorable final decisions, the favorable decision by the California Court of Appeal, and a review of the coverage issues by its trial counsel, the Company believes that it has a substantial legal basis for sustaining its right to defense and indemnification. After concluding the last phase of the trial against one of its primary carriers, which is also an excess carrier, the Company and the carrier reached a settlement agreement on March 31, 1989. Under the terms of the settlement agreement, coverage is provided for asbestos-related bodily injury and property damage claims generally consistent with the interim rulings of the California trial court and complementary to the Wellington Agreement. The parties also agreed that a 12 certain minimum and maximum percentage of indemnity and allocated expenses incurred with respect to asbestos-related personal injury claims would be deemed allocable to non-products claims coverage and that the percentage amount would be negotiated or otherwise decided between the Company and the insurance carrier. The Company also settled both asbestos-related personal injury and property damage coverage issues with a small excess carrier and in 1991 settled those same issues with a larger excess carrier. In these settlements, the Company and the insurers agreed to abide by the final judgment of the trial court in the California insurance litigation with respect to coverage for asbestos-related claims. In 1994, the Company also settled coverage issues for asbestos-related claims with a significant excess carrier. Non-Products Insurance Coverage Non-products insurance coverage is included in the Company's primary insurance policies and certain excess policies for non-products claims. The settlement agreement referenced above with one primary carrier included an amount for non- products claims. Non-products claims include claims that may have arisen out of exposure during installation of asbestos materials or before control of such materials has been relinquished. Negotiations have been undertaken with the Company's primary insurance carriers to categorize the percentage of previously resolved and yet to be resolved asbestos-related personal injury claims as non- products claims and to establish the entitlement to such coverage. The additional coverage potentially available to pay claims categorized as non- products is substantial, and at the primary level, includes defense costs in addition to limits. No agreement has been reached with the primary carriers on the amount of non-products coverage attributable to claims that have been disposed of or the type of claims that should be covered by non-products insurance. One primary carrier alleges that it is no longer bound by the Wellington Agreement, and one primary carrier seemingly takes the view that the Company verbally waived certain rights regarding non-products coverage against that carrier at the time the Wellington Agreement was signed. All the carriers presumably raise various reasons why they should not pay their coverage obligations. Accordingly, the Company is initiating alternative dispute resolution proceedings against the primary and certain excess carriers to resolve the non-products coverage issues. ACandS, Inc., a former subsidiary of the Company, has coverage rights under some of the Company's insurance policies for certain insurance periods, and has accessed such coverage on the same basis as the Company. It was a subscriber to the Wellington Agreement, but is not a member of the Center. The Company and ACandS, Inc., have negotiated a settlement agreement which reserves for ACandS, Inc. a certain amount of insurance from the joint policies solely for its own use for asbestos-related claims. Conclusions Based upon the Company's experience with this litigation and the disputes with its insurance carriers, a reserve was recorded in June 1983 to cover estimated potential liability and settlement costs and legal and administrative costs not covered under the Interim Agreement, cost of litigation against the Company's insurance carriers, and other factors involved in the litigation that are referred to herein about which uncertainties exist. As a result of the Wellington Agreement, the reserve was earlier reduced for that portion associated with pending personal injury suits and claims. As a result of the March 31, 1989, settlement referenced above, the Company received $11.0 million, of which approximately $4.4 million was credited to income with nearly all of the balance being recorded as an increase to its reserve for potential liabilities and other costs and uncertainties associated with the asbestos- related litigation. Future costs of litigation against the Company's insurance carriers and other legal costs indirectly related to the litigation will be expensed outside the reserve. The Company does not know how many claims will be filed against it in the future, nor the details thereof or of pending suits not fully reviewed, nor the expense and any liability that may ultimately result therefrom, nor does the Company know whether the settlement class action will ultimately succeed, the number of individuals who ultimately will be deemed to have opted out or who could file claims outside the settlement class action, nor the annual 13 claims flow caps to be negotiated after the initial ten-year period for the settlement class action or the compensation levels to be negotiated for such claims or the scope of its non-products coverage ultimately deemed available or the ultimate conclusion of the California insurance coverage litigation. Subject to the uncertainties and limitations referred to in this note and based upon its experience and other factors also referred to in this note, the Company believes that the estimated $151 million in liability and defense costs recorded on the balance sheet will be incurred to resolve an estimated 56,000 asbestos- related personal injury claims pending against the Company as of March 31, 1996. These claims include those that were filed for the period from January 1, 1994, to January 24, 1994, and which were previously treated as potentially included within the settlement class action, and those claims filed by claimants who have been identified as having filed exclusion request forms to opt out of the settlement class action. A ruling from the Court established January 24, 1994, as the date after which asbestos-related personal injury claims are subject to the settlement class action. In addition to the currently estimated pending claims and claims filed by those who have opted out of the settlement class action, claims otherwise determined not to be subject to the settlement class action will be resolved outside the settlement class action. The Company does not know how many such claims ultimately may be filed by claimants who have opted out of the class action or by claimants determined not to be subject to the settlement class action. An insurance asset in the amount of $151 million recorded on the balance sheet reflects the Company's belief in the availability of insurance in this amount to cover the liability in like amount referred to above. Such insurance has either been agreed upon or is probable of recovery through negotiation, alternative dispute resolution or litigation. The Company also notes that, based on maximum mathematical projections covering a ten-year period from 1994 to 2004, its estimated cost in the settlement class action reflects a reasonably possible additional liability of $245 million. A portion of such additional liability may not be covered by the Company's ultimately applicable insurance recovery. However, the Company believes that any after-tax impact on the difference between the aggregate of the estimated liability for pending cases and the estimated cost for the ten-year maximum mathematical projection, and the probable insurance recovery, would not be material either to the financial condition of the Company or to its liquidity, although it could be material to earnings if it is determined in a future period to be appropriate to record a reserve for this difference. The period in which such a reserve may be recorded and the amount of any reserve that may be appropriate cannot be determined at this time. Subject to the uncertainties and limitations referred to elsewhere in this note and based upon its experience and other factors referred to above, the Company believes it is probable that substantially all of the expenses and any liability payments associated with the asbestos-related property damage claims will be paid under an existing interim agreement, by insurance coverage settlement agreements and through additional coverage reasonably anticipated from the outcome of the insurance litigation. Even though uncertainties still remain as to the potential number of unasserted claims, liability resulting therefrom, and the ultimate scope of its insurance coverage, after consideration of the factors involved, including the Wellington Agreement, the referenced settlements with other insurance carriers, the results of the trial phase and the intermediate appellate stage of the California insurance coverage litigation, the remaining reserve, the establishment of the Center, the proposed settlement class action, and its experience, the Company believes the asbestos-related lawsuits and claims against the Company would not be material either to the financial condition of the Company or to its liquidity, although as stated above, the net effect of any future liabilities recorded in excess of insurance assets could be material to earnings in such future period. _____________________________ TINS Litigation In 1984, suit was filed against the Company in the U. S. District Court for the District of New Jersey (the "Court") by The Industry Network System, Inc. (TINS), a producer of video magazines in cassette form, and Elliot Fineman, a consultant (Fineman and The Industry Network System, Inc. v. Armstrong World ---------------------------------------------------------------- 14 Industries, Inc., C.A. No. 84-3837 JWB). At trial, TINS claimed, among other - ---------------- things, that the Company had improperly interfered with a tentative contract which TINS had with an independent distributor of the Company's flooring products and further claimed that the Company used its alleged monopoly power in resilient floor coverings to obtain a monopoly in the video magazine market for floor covering retailers in violation of federal antitrust laws. The Company denied all allegations. On April 19, 1991, the jury rendered a verdict in the case, which as entered by the court in its order of judgment, awarded the plaintiffs the alternative, after all post-trial motions and appeals were completed, of either their total tort claim damages (including punitive damages), certain pre-judgment interest, and post-judgment interest or their trebled antitrust claim damages, post-judgment interest and attorneys fees. The higher amount awarded to the plaintiffs as a result of these actions totaled $224 million in tort claim damages and pre-judgment interest, including $200 million in punitive damages. On June 20, 1991, the Court granted judgment for the Company notwithstanding the jury's verdict, thereby overturning the jury's award of damages and dismissing the plaintiffs' claims with prejudice. Furthermore, on June 25, 1991, the Court ruled that, in the event of a successful appeal restoring the jury's verdict in the case, the Company would be entitled to a new trial on the matter. On October 28, 1992, the United States Court of Appeals for the Third Circuit issued an opinion in Fineman v. Armstrong World Industries, Inc. (No. 91-5613). ------------------------------------------- The appeal was taken to the Court of Appeals from the two June 1991 orders of the United States District Court in the case. In its decision on the plaintiff's appeal of these rulings, the Court of Appeals sustained the U. S. District Court's decision granting the Company a new trial, but overturned in certain respects the District Court's grant of judgment for the Company notwithstanding the jury's verdict. The Court of Appeals affirmed the trial judge's order granting Armstrong a new trial on all claims of plaintiffs remaining after the appeal; affirmed the trial judge's order granting judgment in favor of Armstrong on the alleged actual monopolization claim; affirmed the trial judge's order granting judgment in favor of Armstrong on the alleged attempt to monopolize claim; did not disturb the District Court's order dismissing the alleged conspiracy to monopolize claim; affirmed the trial judge's order dismissing all of Fineman's personal claims, both tort and antitrust; and affirmed the trial judge's ruling that plaintiffs could not recover the aggregate amount of all damages awarded by the jury and instead must elect damages awarded on one legal theory. However, the Third Circuit, contrary to Armstrong's arguments, reversed the trial judge's judgment for Armstrong on TINS' claim for an alleged violation of Section 1 of the Sherman Act; reversed the trial judge's judgment in favor of Armstrong on TINS' claim for tortious interference; reversed the trial judge's judgment in favor of Armstrong on TINS' claim for punitive damages; and reversed the trial judge's ruling that had dismissed TINS' alleged breach of contract claim. The Court of Appeals, in affirming the trial court's new trial order, agreed that the trial court did not abuse its discretion in determining that the jury's verdict was "clearly against the weight of the evidence" and that a new trial was required due to the misconduct of plaintiffs' counsel. The foregoing summary of the Third Circuit's opinion is qualified in its entirety by reference thereto. The Court of Appeals granted the Company's motion to stay return of the case to the District Court pending the Company's Petition for Certiorari to the Supreme Court appealing certain antitrust rulings of the Court of Appeals. The Company was informed on February 22, 1993, that the Supreme Court denied its Petition. After the case was remanded by the Third Circuit Court of Appeals in Philadelphia to the U.S. District Court in Newark, New Jersey, a new trial commenced on April 26, 1994. TINS claimed damages in the form of lost profits ranging from approximately $19 million to approximately $56 million. Plaintiff also claimed punitive damages in conjunction with its request for tort damages. Other damages sought included reimbursement of attorneys' fees and interest, including prejudgment interest. 15 On August 19, 1994, the jury returned a verdict in favor of the Company finding that the Company had not caused damages to TINS. The court subsequently entered judgment in the Company's favor based upon the verdict. TINS motion for a new trial based upon alleged inaccurate jury instructions and alleged improper evidentiary rulings during the trial, was denied and TINS filed an appeal with the U.S. Court of Appeals for the Third Circuit. On October 11, 1995, the case was argued before a panel of the U.S. Court of Appeals for the Third Circuit, and on October 20, 1995, the court issued a Judgment Order affirming the 1994 district court verdict in favor of the Company. On November 2, 1995, TINS filed a Petition for Rehearing by the same panel which was denied on December 5, 1995. On January 24, 1996, TINS filed a motion seeking further appellate review by the Circuit Court; that motion has been denied. Also denied was a motion by TINS before the District Court to rescind an earlier 1984 agreement of settlement. Item 2. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations --------------------- Financial Condition - ------------------- As shown on the Consolidated Statements of Cash Flows (see page 6), net cash required by changes in operating assets and liabilities was $2.5 million more than the net cash provided by operating activities. Cash totaling $135.6 million was used for purchases of property, plant and equipment, payment of cash dividends, purchase of preferred and common stock and reduction of long-term debt. This total cash requirement of $138.1 million was provided by using part of the $256.9 million cash balance available at the beginning of the year which included the proceeds from the sale of Thomasville Furniture Industries, Inc., in December 1995. Working capital was $296.6 million as of March 31, 1996, $50.2 million lower than the $346.8 million recorded at year-end 1995. The reduction in working capital resulted primarily from the $138.4 million decrease in cash and short- term investments with an additional $19.0 million due to increases in income taxes payable and decreases in inventories. Partially offsetting the decreases in working capital were a $44.1 million for higher levels of accounts receivable and other assets, a $32.4 million reduction of short-term debt and current installments of long-term debt, and a $30.7 million decrease in accounts payable and accrued expenses. The increase in receivables of $37.3 million was due to higher sales late in the quarter. The decrease in accounts payable and accrued expense was largely attributable to the payment of the 1995 incentive bonus. The ratio of current assets to current liabilities was 1.92 to 1 as of March 31, 1996, and remained unchanged from December 31, 1995. Long-term debt of $188.4 million, excluding the company's guarantee of the ESOP loan, remained about the same as December 31, 1995. At March 31, 1996, long- term debt represented 15.5 percent of total capital compared with 14.9 percent at the end of 1995. The March 31, 1996 and 1995 year-end ratios of total debt (including the Company's financing of the ESOP loan) as a percent of total capital were 37.2 percent and 38.5 percent, respectively. Under the ongoing 2.5 million common share repurchase plan, the Company repurchased approximately 1,341,000 shares through March 31, 1996, including 289,000 repurchased in the first quarter of this year. The ESOP Trustee converted 307,000 shares of ESOP preferred stock into common stock for employees of Thomasville Furniture Industries, Inc. which the Company then repurchased at market price. Total cash used for these first-quarter purchases was $36.7 million. A corporate organizational effectiveness study to improve decision-making and efficiency has been completed which will eliminate non-value added corporate activities and reduce organizational levels. Implementation of the new corporate organizational structure will result in the elimination of approximately 150 corporate staff positions. However, due to attrition, transfers and open positions that were left unfilled, fewer than 100 employees will be affected. In addition, the Company is integrating the separate installation products businesses at W. W. Henry and the Floor Division. As a result of these actions, a restructuring charge will be recorded in the second quarter of 1996. While the charges for these restructuring actions cannot be determined at this time, they are not expected to have a material adverse effect on the financial condition or liquidity of the Company; however, they could be material to the second quarter results. As previously announced, the Company continues to discuss with potential buyers the sale of the textile products operation. 16 The Company is involved in significant asbestos-related litigation which is described more fully in Item 1, Note 2 to the financial statements on pages 8 through 15 and which should be read in connection with this discussion and analysis. The Company does not know how many claims will be filed against it in the future, nor the details thereof or of pending suits not fully reviewed, nor the expense and any liability that may ultimately result therefrom, nor does the Company know whether the settlement class action will ultimately succeed, the number of individuals who will ultimately be deemed to have opted out or who could file claims outside the settlement class action, nor the annual claims caps to be negotiated after the initial 10-year period for the settlement class action or the compensation levels to be negotiated for such claims, nor the scope of its nonproducts coverage ultimately deemed available or the ultimate conclusion of the California insurance coverage litigation. Subject to the foregoing and based upon its experience and other factors also referred to above, the Company believes that the estimated $151 million in liability and defense costs recorded on the March 31, 1996, balance sheet will be incurred to resolve an estimated 56,000 asbestos-related personal injury claims pending against the Company as of March 31, 1996. These claims include those that were filed for the period from January 1, 1994, to January 24, 1994, and which were previously treated as potentially included within the settlement class action, and those claims filed by claimants who have been identified as having filed exclusion request forms to opt out of the settlement class action. A ruling from the Court established January 24, 1994, as the date after which any asbestos-related personal injury claims filed by non-opt-out claimants against the Company or other members of the Center for Claims Resolution are subject to the settlement class action. In addition to the currently estimated pending claims and any claims filed by individuals deemed to have opted out of the settlement class action, any claims otherwise determined not to be subject to the settlement class action will be resolved outside the settlement class action. The Company does not know how many such claims ultimately may be filed by claimants deemed to have opted out of the class action or by claimants otherwise determined not to be subject to the settlement class action. An insurance asset in the amount of $151 million recorded on the March 31, 1996, balance sheet reflects the Company's belief in the availability of insurance in this amount to cover the liability in like amount referred to above. Such insurance has either been agreed upon or is probable of recovery through negotiation, alternative dispute resolution or litigation. The Company also notes that, based on maximum mathematical projections covering a 10-year period from 1994 to 2004, its estimated cost in the settlement class action reflects a reasonably possible additional liability of $245 million. A portion of such additional liability may not be covered by the Company's ultimately applicable insurance recovery. However, the Company believes that any after-tax impact on the difference between the aggregate of the estimated liability for pending cases and the estimated cost for the 10-year maximum mathematical projection, and the probable insurance recovery, would not be material either to the financial condition of the Company or to its liquidity, although it could be material to earnings if it is determined in a future period to be appropriate to record a reserve for this difference. The period in which such a reserve may be recorded and the amount of any reserve that may be appropriate cannot be determined at this time. Subject to the uncertainties and limitations referred to above and based upon its experience and other factors, the Company believes it is probable that substantially all of the expenses and any liability payments associated with the asbestos-related property damage claims will be paid under an existing interim agreement, by insurance coverage settlement agreements and through additional coverage reasonably anticipated from the outcome of the insurance litigation. Even though uncertainties still remain as to the potential number of unasserted claims, liability resulting therefrom and the ultimate scope of its insurance coverage, after consideration of the factors involved, including the Wellington Agreement, the referenced settlements with other insurance carriers, the results of the trial phase and the intermediate appellate stage of the California insurance coverage litigation, the remaining reserve, the establishment of the Center, the proposed settlement class action and its experience, the Company believes the asbestos-related lawsuits and claims against the Company would not be material either to the financial condition of the Company or to its liquidity, although as stated above, the net effect of any future liabilities recorded in excess of insurance assets could be material to earnings in such future period. 17 Reference is made to the litigation involving The Industry Network System, Inc. (TINS), discussed on pages 15 and 16. In April 1996, the Company increased the five-year revolving line of credit from $200 million to $300 million which now includes 11 banks. The line of credit is for general corporate purposes, including as a backstop for commercial paper notes. Should a need develop for additional financing, it is management's opinion that the company has sufficient financial strength to warrant the required support from lending institutions and financial markets. Consolidated Results - -------------------- First-quarter net sales of $501.2 million were about level with the $502.2 million of a year ago. Sales for the first 10 weeks of the year were negatively affected by the weakness in North American residential sheet flooring and by the winter weather impact on the building and industry products segments. Higher sales to home center customers and higher sales in European flooring and Asian building products offset most of the previously mentioned decreases. First-quarter earnings from continuing businesses were $36.3 million compared with $26.5 million recorded last year. 1995 first-quarter results included a $10.1 million after-tax restructuring charge. This year's earnings were impacted by several first-quarter events, primarily the adverse weather effects on energy costs, production and shipping as well as plant startup costs. Earnings per share from continuing businesses were 88 cents per share on a primary basis and 81 cents on a fully diluted basis compared with 61 cents on a primary basis and 57 cents on a fully diluted basis for the first quarter of 1995 which included restructuring charges of 27 cents on a primary basis and 24 cents on a fully diluted basis. Net earnings for the first-quarter 1996 were $36.3 million compared with $34.4 million for the same period in 1995. First-quarter 1995 net earnings included $7.9 million of after-tax earnings from the discontinued operations of Thomasville Furniture Industries, Inc. Net earnings per share of common stock were 88 cents per share on a primary basis and 81 cents on a fully diluted basis compared with 82 cents on a primary basis and 75 cents on a fully diluted basis for the first quarter of 1995. In the first quarter of 1996, the effective tax rate was 33.3 percent, a decrease from the 35.9 percent of the first quarter of 1995. The primary reasons for the rate decline were a tax benefit on foreign-source income and the difference in the reporting for this year's ceramic tile operating income that was reported on an equity accounting basis (after-tax) versus last year's ceramic tile operating income that was reported on a before tax basis. Industry Segment Results - ------------------------ First-quarter sales in the Company's worldwide segments were slightly lower than a year ago with decreases in the floor coverings and industry products segments and an increase in the building products segment. The U.S. residential end-use market segment remained weak in the first quarter while sales to the home center and commercial market segments were solid. From a geographic perspective, sales were higher in the Pacific area, about level in North America, and lower in Europe. In the floor coverings segment, sales were 0.7 percent lower than 1995's first quarter and operating income was down 17.4 percent. While sales in Europe and to U.S. home centers serviced through the Corporate Retail Accounts Division were well above 1995's first quarter and sales of commercial products continued strong, they were more than offset by a decline in sales of U.S. residential sheet flooring products. This decline and the resulting adverse mix effect on margins were the primary causes of the lower profits. In addition, the segment incurred increased promotional costs and a charge of $1.5 million related to the bankruptcy of a customer. On the positive side, raw material costs continued to be lower than a year ago, following the trend started in the second half of 1995. Other positive factors were improved productivity and lower manufacturing period and non-manufacturing expenses. 18 The building products segment recorded an increase in sales of 2.3 percent when compared with 1995's first quarter with small increases in North America and Europe and significant increases in the Pacific Area. In Europe, some late- quarter softness was seen, notably in France and Germany. In North America, sales were affected by energy curtailments which decreased production levels. However order rates increased over prior levels. Operating income decreased 1.3 percent from the first quarter of 1995, significantly impacted by higher energy costs, production slowdowns from energy curtailments and other weather-related interruptions at North American plants. In addition, there were startup costs of about $1 million for the new European metal ceilings venture. Industry products sales, which decreased 3.7 percent when compared with 1995's first quarter, continued to be impacted by a weaker European market. Operating income in the first quarter of 1996 was $10.0 million compared with an operating loss of $1.7 million in the first quarter of 1995, which included a $15.6 million restructuring charge. Insulation products recorded lower profits, affected by adverse weather conditions, a softer economy, notably in Germany, and heavy price competition. Sales for the gasket and specialty paper business increased while operating income was lower because of higher energy prices and a weaker automotive market. Textile products showed a sales decline from the first quarter of 1995 and continued to show a small operating loss. As previously announced, the Company intends to sell the textile business. The first-quarter 1996 results for the ceramic segment represent Armstrong's 37 percent after-tax share of the operating income of the Dal-Tile business combination while 1995 results reflect the before-tax operating income of the ceramic tile operations. The synergies from this business combination appear to be on track with expectations. 19 Independent Accountants' Report ------------------------------- The Board of Directors Armstrong World Industries, Inc.: We have reviewed the condensed consolidated balance sheet of Armstrong World Industries, Inc. and subsidiaries as of March 31, 1996, and the related condensed consolidated statements of earnings and cash flows for the three-month periods ended March 31, 1996 and 1995. These condensed financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is an expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Armstrong World Industries, Inc. and subsidiaries as of December 31, 1995, and the related consolidated statements of earnings, cash flows and shareholders' equity for the year then ended (not presented herein); and our report dated February 16, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1995, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania May 6, 1996 20 Part II - Other Information --------------------------- Item 1. Legal Proceedings - ------ ----------------- Information required by this item is presented in Note 2 of the notes to the Company's consolidated financial statements included in Part I, Item 1 hereof, and is incorporated herein by reference. Item 5. Other Information - ------- ----------------- The Company held its annual meeting of shareholders on April 29, 1996. The vote on each matter presented to shareholders was as follows: 1. Election of Directors:
For Withheld H. Jesse Arnelle 28,006,661 5,597,939 Donald C. Clark 27,576,254 5,597,939 George A. Lorch 27,998,525 5,597,939
In addition, each of the following directors continued in office after the meeting: Van C. Campbell, E. Allen Deaver, Ursula F. Fairbairn, James E. Marley, J. Phillip Samper, and Jerre L. Stead. 2. Shareholder Proposal for Confidential Voting For Against Abstain Broker Non-Votes 12,155,464 19,535,179 449,701 1,318,075 The Shareholder Proposal for Confidential Voting was not approved because it failed to receive the requisite majority of votes present in person or by proxy at the meeting. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) The following exhibits are filed as a part of the Quarterly Report on Form 10-Q: Exhibits -------- No. 10(i)(a)Stock Purchase Agreement dated as of December 21, 1995, by and among Dal-Tile International Inc., Armstrong Enterprises, Inc., Armstrong Cork Finance Corporation and Armstrong World Industries, Inc., is incorporated by reference herein from registrant's Current Report on Form 8-K filed January 16, 1996, wherein it appears as Exhibit 2.01. No. 10(i)(b)Stock Purchase Agreement dated as of November 18, 1995, by and among Armstrong World Industries, Inc., Armstrong Enterprises, Inc. and INTERCO INCORPORATED, is incorporated by reference herein from registrant's Current Report on Form 8-K filed on January 16, 1996, wherein it appears as Exhibit 2.01. No. 10(i)(c)Shareholders Agreement dated December 29, 1995, by and among Dal-Tile International Inc., AEA Investors, Inc., Armstrong World Industries, Inc., Armstrong Enterprises, Inc. and Armstrong Cork Finance Corporation is incorporated by reference herein from Dal-Tile International Inc.'s Annual Report on Form 10-K for the year-ended December 31, 1995, wherein it appears as Exhibit 10.6. No. 11(a) Computation of Primary Earnings Per Share No. 11(b) Computation of Fully Diluted Earnings Per Share No. 15 Letter re Unaudited Interim Financial Information No. 27 Financial Data Schedule (b) The following reports on Form 8-K were filed during the quarter for which this report is filed: On January 16, 1996, the registrant filed a Current Report on Form 21 8-K to report the disposition of its furniture business on December 29, 1995. On January 16, 1996, the registrant filed a second Current Report on Form 8-K, which was amended by Form 8-K/A filed March 13, 1996, to report the combination of its ceramic tile business with Dal- Tile International Inc. on December 29, 1995, in exchange for a 37% interest in Dal-Tile. 22 Signatures ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Armstrong World Industries, Inc. By /s/L. A. Pulkrabek ----------------------------------- L. A. Pulkrabek, Senior Vice President, Secretary and General Counsel By /s/Bruce A. Leech, Jr. ------------------------------------ Bruce A. Leech, Jr., Controller (Principal Accounting Officer) Date: May 10, 1996 23 Exhibit Index ------------- Exhibit No. - ----------- No. 10(i)(a)Stock Purchase Agreement dated as of December 21, 1995, by and among Dal-Tile International Inc., Armstrong Enterprises, Inc., Armstrong Cork Finance Corporation and Armstrong World Industries, Inc., is incorporated by reference herein from registrant's Current Report on Form 8-K filed January 16, 1996, wherein it appears as Exhibit 2.01. No. 10(i)(b)Stock Purchase Agreement dated as of November 18, 1995, by and among Armstrong World Industries, Inc., Armstrong Enterprises, Inc. and INTERCO INCORPORATED, is incorporated by reference herein from registrant's Current Report on Form 8-K filed on January 16, 1996, wherein it appears as Exhibit 2.01. No. 10(i)(c)Copy of Amendment No. 1 to Credit Agreement dated as of April 9, 1996, providing for an increased credit facility of $300,000,000 and certain other amendments to Credit Agreement between the registrant, certain banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent, dated as of February 7, 1995, which appeared in Registrant's 1994 Annual Report on Form 10-K as Exhibit 10(i)(c). No. 11(a) Computation for Primary Earnings Per Share No. 11(b) Computation for Fully Diluted Earnings Per Share No. 15 Letter re Unaudited Interim Financial Information No. 27 Financial Data Schedule 24 EX-10.I.C 2 ADMENDMENT TO NO. 1 TO CREDIT AGREEMENT [CONFORMED COPY] AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT dated as of April 9, 1996 among ARMSTRONG WORLD INDUSTRIES, INC. (the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H : WHEREAS, the parties hereto have heretofore entered into a Credit Agreement dated as of February 7, 1995 (the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement to modify the rates of interest payable thereunder, to extend the term thereof, to add the New Banks (as defined below) as parties to the Agreement as amended hereby and to provide for changes in the total and respective Commitments of the Banks; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically ----------------------- defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. The term "Notes" defined in the Agreement shall include from and after the date hereof the New Notes (as defined below). SECTION 2. Amendment of Section 1.01 of the Agreement. (a) Each of ------------------------------------------ the following definitions in Section 1.01 of the Agreement are amended to read in full as follows: "Pricing Schedule" means the Schedule attached to Amendment No. 1 to the Credit Agreement identified as such. "Termination Date" means April 9, 2001, or if such day is not a Euro- Dollar Business Day, the next preceding Euro-Dollar Business Day. (b) The definition of "Consolidated Net Worth" is amended by replacing the amount "$50,000,000" with "$100,000,000" and by replacing the words "write offs" with the words "special charges." SECTION 3. Amendment of Section 5.07 of the Agreement. Section 5.07 ------------------------------------------ is amended by replacing the amount "$470,000,000" with "$500,000,000." SECTION 4. Amendment of Section 9.07(a) of the Agreement. Section --------------------------------------------- 9.07(a) is amended by replacing the amount "$300,000,000" with "$500,000,000." SECTION 5. New Banks; Changes in Commitments. With effect from and --------------------------------- including the date this Amendment becomes effective in accordance with Section 8 hereof, (i) each Person listed on the signature pages hereof which is not a party to the Agreement (a "New Bank") shall become a Bank party to the Agreement and (ii) the Commitment of each Bank shall be the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Section 2.09 of the Agreement. Any Bank whose Commitment is changed to zero shall upon such effectiveness cease to be a Bank party to the Agreement, and all accrued fees and other amounts payable under the Agreement for the account of such Bank shall be due and payable on such date; provided that the provisions of Section 9.03 of the Agreement shall continue to inure to the benefit of each such Bank. SECTION 6. Representations and Warranties. The Borrower hereby ------------------------------ represents and warrants that as of the date hereof and after giving effect hereto: (a) no Default under the Agreement has occurred and is continuing; and (b) each representation and warranty of the Borrower set forth in the Agreement is true and correct as though made on and as of this date. SECTION 7. Governing Law. This Amendment shall be governed by and ------------- construed in accordance with the laws of the State of New York. 2 SECTION 8. Counterparts; Conditions to Effectiveness. This Amendment ----------------------------------------- may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof when the Agent shall have received: (a) duly executed counterparts hereof signed by the Borrower and the Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (b) a duly executed Note for each New Bank (a "New Note"), dated on or before the date of effectiveness hereof and otherwise in compliance with Section 2.05 of the Agreement; (c) an opinion of counsel for the Borrower, addressed to the Banks and the Agent, substantially in the form of Exhibit A hereto (which the Borrower hereby expressly instructs such counsel to prepare and deliver); (d) a certificate signed by the Chief Financial Officer of the Borrower, dated the date hereof, to the effect that no Default shall have occurred and be continuing and that the representations and warranties of the Borrower contained in the Agreement, as amended hereby, shall be true and correct as of the date of effectiveness hereof; and (e) all documents that the Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and validity of this Amendment and the New Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Agent. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. ARMSTRONG WORLD INDUSTRIES,INC. By: /s/ Frank A. Riddick, III ------------------------------- Title: Senior Vice President and C.F.O. By: /s/ Stephen C. Hendrix ------------------------------- Title: Treasurer 313 West Liberty Street Lancaster, PA 17603 Facsimile number: 717-396-2408 4 Commitments - ----------- $38,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Laura E. Reim -------------------------------- Title: Vice President $29,000,000 ABN AMRO BANK N.V. By: ABN AMRO NORTH AMERICA, INC., as Agent By /s/ James M. Janovsky -------------------------------- Title: Group V.P. and Director By /s/ Dennis F. Lennon -------------------------------- Title: V.P. and Director $29,000,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ Dale Robert Mason -------------------------------- Title: Vice President $29,000,000 CHEMICAL BANK By /s/ Peter C. Eckstein -------------------------------- Title: Vice President $29,000,000 MELLON BANK, N.A. By /s/ Gilbert B. Mateer -------------------------------- Title: Vice President 5 $29,000,000 SOCIETE GENERALE By /s/ Bruce Drossman ------------------------------ Title: Vice President $29,000,000 UNION BANK OF SWITZERLAND By /s/ Peter B. Yearley ------------------------------ Title: Managing Director By /s/ James P. Kelleher ------------------------------ Title: Assistant Vice President $29,000,000 WACHOVIA BANK OF GEORGIA, N.A. By /s/ Adam T. Ogburn ------------------------------ Title: Vice President $29,000,000 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK AND CAYMAN ISLANDS BRANCHES By /s/ Franz J. Vohn ----------------------------- Title: Vice President By /s/ Karen Hoplock ----------------------------- Title: Vice President 6 $15,000,000 BARCLAYS BANK PLC By /s/ Terance Bullock ------------------- Title: Associate Director $15,000,000 STANDARD CHARTERED BANK By /s/ Marianne R. Murray ---------------------- Title: Vice President $-0- CITIBANK, N.A. By /s/ William G. Martens III -------------------------- Title: Attorney-In-Fact Total Commitments $300,000,000 ================= MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By /s/ Laura E. Reim ----------------- Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: Laura E. Reim Telex number: 177615 Facsimile number: (212) 648-5336 7 PRICING SCHEDULE The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day:
Level Level Level Level Level Level Level Level Level Level Level Status I II III IV V VI VII VIII IX X XI Euro- Dollar 0.1225% 0.1300% 0.1500% 0.1675% 0.1850% 0.2050% 0.2500% 0.2550% 0.2750% 0.3000% 0.5000% Margin CD Margin 0.2475% 0.2550% 0.2750% 0.2925% 0.3100% 0.3300% 0.3750% 0.3800% 0.4000% 0.4250% 0.6250% Facility Fee Rate 0.0650% 0.0700% 0.0750% 0.0825% 0.0900% 0.0950% 0.1000% 0.1200% 0.1250% 0.1750% 0.2500% ================================================================================================================
For purposes of this Schedule, the following terms have the following meanings: "Moody's" means Moody's Investors Service, Inc. "S&P" means Standard & Poor's Rating Service. "Status" refers to the determination of which of Level I through XI exists at any date, based on the credit ratings in effect on such date and the table below. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower without third-party redit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. 2 Pricing Levels --------------
Moody's S&P Level - --------- ---- ----- Aa3 AA- I A1 AA- I A2 AA- II A3 AA- II Baa1 AA- III Baa2 AA- III Baa3 AA- IV Ba1 AA- IV Aa3 A+ I A1 A+ II A2 A+ III A3 A+ III Baa1 A+ III Baa2 A+ IV Baa3 A+ IV Ba1 A+ VI Aa3 A II A1 A III A2 A III A3 A III Baa1 A IV Baa2 A IV Baa3 A VI Ba1 A VI Aa3 A- II A1 A- III A2 A- III A3 A- IV Baa1 A- V Baa2 A- VI Baa3 A- VI Ba1 A- VIII Aa3 BBB+ III A1 BBB+ IV A2 BBB+ IV A3 BBB+ V Baa1 BBB+ VI Baa2 BBB+ VII Baa3 BBB+ VIII Ba1 BBB+ VIII Aa3 BBB III A1 BBB IV A2 BBB IV
3 A3 BBB VI Baa1 BBB VII Baa2 BBB VIII Baa3 BBB IX Ba1 BBB X Aa3 BBB- IV A1 BBB- IV A2 BBB- VI A3 BBB- VI Baa1 BBB- VIII Baa2 BBB- IX Baa3 BBB- X Ba1 BBB- XI Aa3 BB+ IV A1 BB+ VI A2 BB+ VI A3 BB+ VIII Baa1 BB+ VIII Baa2 BB+ X Baa3 BB+ XI Ba1 BB+ XI
Note: A rating of Aa3 (Moody's) or AA- (S&P) includes any higher rating. A - ---- rating of Ba1 (Moody's) or BB+ (S&P) includes any lower rating (or the absence of a rating). 4 EXHIBIT A --------- OPINION OF COUNSEL FOR THE BORROWER ------------------------ April __, 1996 To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: I have acted as counsel for Armstrong World Industries, Inc. (the "Borrower") in connection with the Credit Agreement dated as of February 7, 1995, as amended by Amendment No. 1 dated as of April 9, 1996 (the "Agreement") among the Borrower, the banks listed on the signature pages of Amendment No. 1 and Morgan Guaranty Trust Company of New York, as Agent. Terms defined in the Agreement are used herein as therein defined. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. I am licensed to practice law in the Commonwealth of Pennsylvania. The law covered by this opinion is limited to the laws of the Commonwealth of Pennsylvania and the Federal laws of the United States. I have assumed for the purposes of this opinion that the substantive law of the State of New York is identical in all material respects to the substantive law of the Commonwealth of Pennsylvania. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of Pennsylvania, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2. The execution, delivery and performance by the Borrower of the Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. 3. The Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. 4. Except as disclosed in the Borrower's 199_ Form 10-K or in the Borrower's Latest Form 10-Q, there is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, financial position, operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole, or the ability of the Borrower to perform its obligations under the Agreement and the Notes, or which in any manner draws into question the validity of the Agreement or the Notes. 5. Each of the Borrower's Significant Subsidiaries is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. 2 Very truly yours, 3 EX-11.A 3 COMPUTATION FOR PRIMARY EARNINGS PER SHARE Exhibit No. 11(a) Computation for Primary Earnings Per Share For the Three Months Ended March 31, 1996 and 1995 (amounts in millions except for per-share data) Unaudited
Three Months Ended March 31 ------------------ 1996 1995 ----- ----- Common Stock and Common Stock Equivalents - ----------------------------------------- Average number of common shares outstanding including shares issuable under stock options 37.5 37.5 ===== ===== Earnings Per Share from Continuing - ---------------------------------- Businesses ---------- Earnings from continuing businesses $36.3 $26.5 Less: Dividend requirement on Series A convertible preferred stock 4.4 4.7 Plus: Tax benefit on dividends paid on unallocated preferred shares 1.0 1.1 ------ ------ Earnings from continuing businesses $32.9 $22.9 ====== ====== Earnings from continuing businesses per share of common stock $ .88 $ .61 ====== ====== Net Earnings Per Share - ---------------------- Net earnings $36.3 $34.4 Less: Dividend requirement on Series A convertible preferred stock 4.4 4.7 Plus: Tax benefit on dividends applicable to unallocated preferred shares 1.0 1.1 ------ ------ Net earnings applicable to common stock $32.9 $30.8 ====== ====== Net earnings per share of common stock $ .88 $ .82 ====== ======
25 EX-11.B 4 COMPUTATION FOR FULLY DILUTED EARNINGS PER SHARE Exhibit No. 11(b) Computation for Fully Diluted Earnings Per Share For the Three Months Ended March 31, 1996 and 1995 (amounts in millions except for per-share data) Unaudited
Three Months Ended March 31 ------------------ 1996 1995 ----- ----- Common Stock and Common Stock Equivalents - ----------------------------------------- Average number of common shares outstanding including shares issuable under stock options 37.5 37.5 Average number of common shares issuable under the Employee Stock Ownership Plan 5.3 5.6 ----- ----- Average number of common and common equivalent shares outstanding 42.8 43.1 ===== ===== Pro Forma Adjustment to Earnings from - ------------------------------------- Continuing Businesses --------------------- Earnings from continuing businesses before pro forma adjustments $ 36.3 $ 26.5 Less: Increased contribution to the Employee Stock Ownership Plan assuming conversion of preferred shares to common 1.5 1.8 Net reduction in tax benefits assuming conversion of the Employee Stock Ownership Plan preferred shares to common .3 .3 ----- ----- Pro forma earnings from continuing businesses $ 34.5 $ 24.4 ===== ===== Fully diluted earnings per share from continuing businesses $ .81 $ .57 ===== ===== Pro Forma Adjustment to Net Earnings - ------------------------------------ Net earnings as reported $ 36.3 $ 34.4 Less: Increased contribution to the Employee Stock Ownership Plan assuming conversion of preferred shares to common 1.5 1.8 Net reduction in tax benefits assuming conversion of the Employee Stock Ownership Plan preferred shares to common .3 .3 ----- ----- Pro forma net earnings $ 34.5 $ 32.3 ===== ===== Fully diluted net earnings per share $ .81 $ .75 ===== =====
26 EX-15 5 INDEPENDENT ACCOUNTANTS REPORT Exhibit No. 15 Armstrong World Industries, Inc. Lancaster, Pennsylvania Gentlemen: RE: Registration Statement Nos. 2-50942; 2-77936; 2-91890; 33-18996; 33-18997; 33-18998; 33-29768; 33-38837; 33-60070 With respect to the subject Registration Statements, we acknowledge our awareness of the incorporation by reference therein of our report dated May 6, 1996, related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act, such report is not considered a part of a Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. Very truly yours, KPMG PEAT MARWICK LLP Philadelphia, Pennsylvania May 6, 1996 27 EX-27 6 ARTICLE 5 FINANCIAL DATA SHEET
5 This schedule contains summary financial information extracted from the Registrant's Unaudited Consolidated Financial Statements as of and for March 31, 1996, and is qualified in its entirety by reference to such financial statements. 1,000,000 3-MOS DEC-31-1995 MAR-31-1996 119 0 285 30 187 620 1,885 993 2,077 323 188 0 244 103 419 2,077 501 501 345 345 96 0 6 54 18 36 0 0 0 36 .88 .81
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