FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
------------------------------------------------------1995
---------------------------------------------------
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
--------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock ($1 par value) New York Stock Exchange, Inc.
Preferred Stock Purchase Rights Pacific Stock Exchange, Inc. (a)
9-3/4% Debentures Due 2008 Philadelphia Stock Exchange, Inc. (a)
(a) Common Stock and Preferred
Stock Purchase Rights only
Securities registered pursuant to Section 12(g) of the Act:
None
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
------- ---------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock of registrant held by non-
affiliates of the registrant based on the closing price ($56.62560.25 per share) on
the New York Stock Exchange on January 28, 1994,February 9, 1996, was approximately $1.8$1.9 billion.
For the purposes of determining this amount only, registrant has defined
affiliates as including (a) the executive officers named in Item 10 of this 10-K
Report, (b) all directors of registrant, and (c) each shareholder that has
informed registrant by February 14, 1994,1996, as having sole or shared voting power
over 5% or more of the outstanding Common Stock of registrant as of December 31,
1993.1995.
This amount does not include the 5,527,6925,421,998 shares of Series A ESOP Convertible
Preferred Stock as of December 31, 1993,1995, which vote with the Common Stock as if
converted and have an aggregate liquidation preference of $263,947,293,$258,900,404, held by
Mellon Bank, N.A., as Trustee of the Company's Employee Stock Ownership Plan.
As of January 28, 1994,February 9, 1996, the number of shares outstanding of registrant's Common
Stock was 37,252,580.37,108,552.
Documents Incorporated by Reference
Portions of the Proxy Statement dated March 14, 1994,18, 1996, relative to the
April 25,
1994,29, 1996, annual meeting of the shareholders of registrant (the "Company's
19941996 Proxy Statement") have been incorporated by reference into Part III of this
Form 10-K Report.
- 2 --2-
PART I
------
Item 1. Business
- -----------------
Armstrong World Industries, Inc. is a Pennsylvania corporation incorporated in
1891. The Company is a manufacturer of interior furnishings, including floor
coverings, and building products and furniture, which are sold primarily for use in the
furnishing, refurbishing, repair, modernization and construction of residential,
commercial and institutional buildings. It also manufactures various industrial
and other products. In late 1989, most of1995, Armstrong sold its furniture business and
combined its ceramic tile business with Dal-Tile International Inc. ("Dal-
Tile"), retaining a minority equity interest in the assets
(primarily inventory and plant, property and equipment) of the Company's carpet
operations and the Company's subsidiary, Applied Color Systems, Inc., were
divested.combined company. Unless
the context indicates otherwise, the term "Company" means Armstrong World
Industries, Inc. and its consolidated subsidiaries.
Industry Segments
The company operates worldwide incompany's businesses include four reportable segments: floor coverings,
building products, furniture,industry products and industry products. Floor coverings sales
include resilient floors, ceramic tile, and accessories.tile.
Industry segments
at December 31 (millions) 1995 1994 1993
1992 1991
=========================================================================- ------------------------------------------------------------------------------
Net trade sales:
=========================================================================
Floor coverings $1,191.3 $1,134.9 $1,058.0
- -------------------------------------------------------------------------$1,053.9 $1,063.5 $ 980.6
Building products 682.2 630.0 586.7 656.7 676.3
- -------------------------------------------------------------------------
Furniture 449.7 438.4 417.9
- -------------------------------------------------------------------------
Industry products 348.8 312.2 297.7
319.8 287.1
=========================================================================- ------------------------------------------------------------------------------
Total net sales $2,525.4 $2,549.8 $2,439.3
=========================================================================$2,084.9 $2,005.7 $1,865.0
- ------------------------------------------------==============================
Operating profitincome (loss): (Note 2):
=========================================================================1)
Floor coverings $ 129.8145.0 $ 30.2189.6 $ 84.6
- -------------------------------------------------------------------------156.6
Building products 30.5 (7.3) 46.7
- -------------------------------------------------------------------------
Furniture 26.6 10.3 18.2
- -------------------------------------------------------------------------92.2 86.8 18.8
Industry products 32.8 35.4 43.1
=========================================================================9.3 41.2 27.2
Ceramic tile (Note 2) (168.4) 0.8 (44.3)
Unallocated corporate expense (34.0) (23.8) (59.8)
- ------------------------------------------------------------------------------
Total operating profitincome $ 219.744.1 $ 68.6294.6 $ 192.6
=========================================================================98.5
- ------------------------------------------------==============================
Depreciation and amortization:
=========================================================================
Floor coverings $ 61.047.9 $ 65.549.2 $ 67.0
- -------------------------------------------------------------------------48.2
Building products 33.1 37.1 35.1
- -------------------------------------------------------------------------
Furniture 12.9 13.5 13.6
- -------------------------------------------------------------------------36.8 34.5 34.1
Industry products 13.1 11.6 11.419.3 17.6 14.6
Corporate 5.6 5.6 5.2
- -------------------------------------------------------------------------
Corporate $ 9.9 9.2 8.2
=========================================================================------------------------------------------------------------------------------
Total depreciation
and amortization $ 130.0109.6 $ 136.9106.9 $ 135.3
=========================================================================
- 3 -
102.1
- ------------------------------------------------==============================
Capital additions (See Note 1 on
page 8):
=========================================================================additions: (Note 3)
Floor coverings $ 59.177.3 $ 48.756.7 $ 61.0
- -------------------------------------------------------------------------39.7
Building products 23.8 25.4 39.1
- -------------------------------------------------------------------------
Furniture 10.0 8.3 6.7
- -------------------------------------------------------------------------49.2 31.5 24.2
Industry products 20.7 29.3 21.645.0 22.6 22.1
Corporate 6.3 3.0 1.8
- -------------------------------------------------------------------------
Corporate 4.0 4.1 5.3
=========================================================================------------------------------------------------------------------------------
Total capital additions $ 117.6177.8 $ 115.8113.8 $ 133.7
=========================================================================87.8
- ------------------------------------------------==============================
Identifiable assets (See Note 1 on
page 8):
=========================================================================assets:
Floor coverings $ 808.0583.2 $ 835.6575.7 $ 915.1
- -------------------------------------------------------------------------541.2
Building products 475.2 491.6 556.0
- -------------------------------------------------------------------------
Furniture 234.6 238.7 239.7
- -------------------------------------------------------------------------513.5 478.1 483.0
Industry products 203.8 192.9 188.6301.8 234.8 207.9
Ceramic tile 135.8 270.5 251.9
Discontinued business -- 182.1 175.4
Corporate 615.5 398.2 185.4
- -------------------------------------------------------------------------
Corporate 207.7 251.0 250.5
=========================================================================------------------------------------------------------------------------------
Total assets $1,929.3 $2,009.8 $2,149.9
Note 2:
$2,149.8 $2,139.4 $1,844.8
- ------------------------------------------------==============================
Note 1:
- ------------------------------------------------------------------------------
Restructuring charges in
operating profitincome (millions) 1995 1994 1993
1992 1991
=========================================================================- ------------------------------------------------------------------------------
Floor coverings $27.7 $ 80.825.0 -- $ 3.0
- -------------------------------------------------------------------------8.4
Building products 6.3 -- 13.7 35.0 4.3
- -------------------------------------------------------------------------
Furniture .6 4.8 .3
- -------------------------------------------------------------------------
Industry products 31.4 -- 12.9
12.5 2.2
=========================================================================Ceramic tile -- -- 19.3
- ------------------------------------------------------------------------------
Unallocated corporate expense 9.1 -- 35.0
- ------------------------------------------------------------------------------
Total restructuring charges
in operating profit $54.9 $133.1income $ 9.8
=========================================================================71.8 -- $ 89.3
- ------------------------------------------------==============================
Note 2: 1995 operating income includes a $177.2 million loss due to the ceramic
tile business combination.
Note 3: 1995 capital additions for industry segments include property, plant and
equipment from acquisitions of $15.6 million.
DISCONTINUED OPERATIONS
On December 29, 1995, the company sold the stock of its furniture subsidiary,
Thomasville Furniture Industries, Inc., to INTERCO Incorporated for $331.2
million. INTERCO assumed $8.0 million of Thomasville interest-bearing debt. The
company recorded a gain of $83.9 million after tax on the sale. Certain
liabilities related to terminated benefit plans of approximately $11.3 million
were retained by the company. Thomasville and its subsidiaries recorded sales of
approximately $550.2 million in 1995, $526.8 million in 1994 and $449.7 million
in 1993.
Operating statement categories, except where otherwise indicated, have been
restated to exclude the effects of this discontinued business.
EQUITY EARNINGS FROM AFFILIATES
On December 29, 1995, the company entered into a business combination with Dal-
Tile International Inc. The transaction was accounted for at fair value and
involved the exchange of $27.6 million and the stock of the ceramic tile
operations, consisting primarily of American Olean Tile Company, a wholly-owned
subsidiary, for ownership of 37% of the shares of Dal-Tile. The company's
investment in Dal-Tile exceeds the underlying equity in net assets by $123.9
million which will be amortized over a period of 30 years. The after-tax loss on
the transaction was $116.8 million.
Results from ceramic tile operations, which were previously reported on a
consolidated basis, were restated and included in "Equity Earnings from
Affiliates." Going forward, Armstrong's 37% ownership of the combined Dal-Tile
will be accounted for under the equity method. The summarized financial
information for ceramic tile operations is presented below.
- ------------------------------------------------------------------------------
(millions) 1995 1994 1993
- ------------------------------------------------------------------------------
Net sales $240.0 $220.2 $210.7
Operating income (loss)/1/ 8.8 .8 (44.3)
Assets/2/ 269.8 290.1 276.3
Liabilities/2/ 17.3 19.6 24.4
- ------------------------------------------------------------------------------
Note 1: Excludes 1995 loss of $177.2 million due to ceramic tile business
combination.
Note 2: 1995 balances were as of December 29, 1995, immediately prior to the
ceramic tile business combination.
Also included in equity earnings from affiliates are earnings from the 50%
interest in the WAVE joint venture with Worthington Industries. Previously these
earnings had been included in selling, general and administrative expenses.
-3-
Narrative Description of Business
The Company manufactures and sells interior furnishings, including floor
coverings (resilient flooring and all ceramic tile), building products, and
furniture, and makes and markets a variety of specialty
products for the building, automotive, textile, and other industries. The
Company's activities extend worldwide.
Floor Coverings
The Company is a prominent manufacturer of floor coverings for the interiors of
homes and commercial and institutional buildings, with a broad range of
resilient flooring ceramic tile for floors, walls and countertops, together with adhesives, installation and maintenance
materials and accessories. Resilient flooring, in both sheet and tile form, is
made in a wide variety of types, designs, and colors. Included are types of
flooring that offer such features as ease of installation, reduced maintenance
(no-wax), and cushioning for greater underfoot comfort. Ceramic products include glazed wall and floor
tile and marble (a portion of which is imported) and glazed and unglazed ceramic
mosaic tile, all featuring a range of designs and colors, as well as quarry
tile, natural stone and related installation products. Floor covering products
are sold to the commercial and residential market segments through wholesalers,
retailers, and contractors, and to the hotel/motel and manufactured homes
industries. Ceramic products also are sold through sales service centers
operated by American Olean Tile Company, Inc. ("American Olean"), a wholly-owned
subsidiary which manufactures and markets ceramic tile.
Building Products
A major producer of ceiling materials in the United States and abroad, the
Company markets both residential and architectural ceiling systems. Ceiling
materials for the home are offered in a variety of types and designs; most
provide noise reduction and incorporate Company-designed features intended to
permit ease of installation. These residential ceiling products are sold
through wholesalers and retailers. Architectural ceiling systems, designed for
use in shopping centers, offices, schools, hospitals, and other commercial and
institutional structures, are available in numerous colors, performance
characteristics and designs and offer characteristics such as acoustical
control, rated fire protection, and aesthetic appeal. Architectural ceiling
- 4 -
materials and accessories, along with acoustical wall panels, are sold by the
Company to ceiling systems contractors and to resale distributors. Furniture
A wholly-owned subsidiary, Thomasville Furniture Industries, Inc.,Grid
products are manufactured and its
subsidiaries manufacture and market traditional and contemporary wood and
upholstered furniture for use in dining rooms, bedrooms, living rooms,
hotels/motels and other residential and commercial interior areas. Thomasville
furniture is sold to retailers, contract accounts and government agencies.
Thomasville also manufactures both assembled and ready-to-assemble furniture
which is sold to retailers, wholesalers and contract accounts under the
Armstrong name. In addition, it sellsthrough a line of imported furniture made by other
producers.joint venture with Worthington
Industries.
Industry Products
The Company, including a number of its subsidiaries, makes and sells a variety
of specialty products for the building, automotive, textile and other
industries. These products include flexible pipe insulation sold for use in
construction and in original equipment manufacture; gasket materials for new
equipment and replacement use in the automotive, farm equipment, appliance, and
other industries; textile mill supplies including cots and aprons sold to
equipment manufacturers and textile mills; adhesives;mills and certain cork products.adhesives. Industry products are
sold, depending on type and ultimate use, to original equipment manufacturers,
contractors, wholesalers, fabricators and end users. -----------------------------------In 1995, the Company
announced its intention to discuss with potential buyers the possible sale of
its textile products operation.
Ceramic Tile
Ceramic tile for floors, walls and countertops, together with adhesives,
installation and maintenance materials and accessories are sold through home
centers and sales and service centers operated by Dal-Tile following a business
combination of the Company's ceramic tile operations with Dal-Tile in late 1995.
___________________________________
-4-
The principal raw materials used in the manufacture of the Company's products
are synthetic resins, lumber, plasticizers, latex, mineral fibers and fillers, clays,
starches, perlite, and pigments and inks. In addition, the Company uses a wide
variety of other raw materials. Most raw materials are purchased from sources
outside of the Company. The Company also purchases significant amounts of
packaging materials for the containment and shipment of its various products.
During 1993,1995, despite raw material cost increases, especially for plasticizers,
resins, and paper, adequate supplies of raw materials were available to all of
the Company's industry segments.
Customers' orders for the Company's products are mostly for immediate shipment.
Thus, in each industry segment, the Company has implemented inventory systems,
including its "just in time" inventory system, pursuant to which orders are
promptly filled out of inventory on hand or the product is manufactured to meet
the delivery date specified in the order. As a result, there historically has
been no material backlog in any industry segment.
The competitive position of the Company has been enhanced by patents on
products and processes developed or perfected within the Company or obtained
through acquisition. Although the Company considers that, in the aggregate, its
patents constitute a valuable asset, it does not regard any industry segment as
being materially dependent upon any single patent or any group of related
patents.
There is significant competition in all the industry segments in which the
Company does business. Competition in each industry segment includes numerous
active companies (domestic and foreign), with emphasis on price, product
performance and service. In addition, with the exception of industrial and
other products and services, product styling is a significant method of
competition in the Company's industry segments. Increasing domestic competition
from foreign producers is apparent in certain industry segments and actions
continue to be taken to meet this competition.
- 5 -
The Company invested $117.6$162.2 million in 1993, $115.81995, $113.8 million in 1992,1994, and $133.8$87.8
million in 19911993 for additions to its property, plant and equipment.
Research and development activities are important and necessary in assisting the
Company to carry on and improve its business. Principal research and
development functions include the development of new products and processes and
the improvement of existing products and processes.
Research and development
activities are conducted principally at the Company's Innovation Center in
Lancaster, Pennsylvania.
The Company spent $59.5$56.2 million in 1993, $60.31995, $51.4 million in 1992,1994, and $55.6$56.1
million in 19911993 on research and development activities worldwide for the
continuing businesses.
The Company will incur capital expenditures in order to meetENVIRONMENTAL MATTERS
In 1995, the new
requirements of the Clean Air Act of 1990 and is awaiting the final promulgation
of implementing regulations by various state agencies to determine the magnitude
of additional costs and the time period over which they will be incurred. In
1993, the Companycompany incurred capital expenditures of approximately $2.6$1.9 million
for environmental compliance and control facilities and anticipates comparable
annual expenditures for those purposes for the years 19941996 and 1995.1997. The company
does not anticipate that it will incur significant capital expenditures in order
to meet the new requirements of the Clean Air Act of 1990 and the final
implementing regulations promulgated by various state agencies.
As with many industrial companies, the CompanyArmstrong is involved in proceedings under
the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund"), and similar state laws at approximately 2116 sites. In most cases,
the CompanyArmstrong is one of many potentially responsible parties ("PRPs") who have
voluntarily agreed to jointly fund the required investigation and remediation of
each site. With regard to some sites, however, Armstrong disputes the Company disputes either
liability,
the proposed remedy or the proposed cost allocation. Sites where the CompanyArmstrong is alleged to
have contributed a significant volume of waste material includeat a former municipal
landfill site in Volney, New York;York. There, Armstrong, along with the county and
other PRPs at the site, have voluntarily performed a supplemental study to
evaluate the USEPA's proposed remedy at the site. Discussions with the USEPA are
continuing regarding the appropriate remedy to be implemented. A former county
landfill site in Buckingham County, Virginia, which is also alleged to have received
material from a former subsidiary, Thomasville Furniture Industries, Inc.
("Thomasville"). In September 1995, the USEPA ordered Thomasville to implement
the remedy identified in the September 1994, Record of Decision ("ROD"), the
cost of which has been estimated by Thomasville to be approximately $2.2
million. Pursuant to the terms of the company's December 29, 1995, sale of
Thomasville to INTERCO Incorporated, Armstrong has provided to the USEPA a
guarantee of the performance by Thomasville of the required remedial work and
has also entered into a cost-sharing agreement with INTERCO for future costs
relating to the site. Armstrong may also have rights of contribution or
reimbursement from other parties or coverage under applicable insurance
policies. The Companycompany is also remediating environmental contamination resulting
from past industrial activity at certain of its current plant sites.
Estimates of future liability are based on an evaluation of currently available
facts regarding each individual site and consider factors including existing
technology, presently enacted laws and regulations and prior Companycompany experience
in remediation of contaminated sites. Although current law imposes joint and
several liability on all parties at any Superfund site, the Company'sArmstrong's contribution
to the remediation of these sites is expected to be limited by the number of
other companies which have also been identified as potentially liable for site costs. As a
result, the Company'scompany's estimated liability reflects only the Company'scompany's expected
share. In determining the probability of contribution, the Companycompany considers the
solvency of the parties, whether responsibility is being disputed, the terms of
any existing agreements and experience regarding similar matters. The estimated
liabilities do not take into account any claims for recoveries from insurance or
third parties, unlessparties.
Reserves at December 31, 1995, were for potential environmental liabilities that
the company considers probable and for which a coverage commitmentreasonable estimate of the
potential liability could be made. Where existing data is sufficient to estimate
the amount of the liability, that estimate has been provided byused; where only a range of
probable liability is available and no amount within that range is more likely
than any other, the insurer.
Becauselower end of uncertainties associated with remediation activities and
technologies, regulatory interpretations, and the allocation of those costs
among various other parties,range has been used. As a result, the
Companycompany has accrued, $4.9before agreed-to insurance coverage, $8.0 million to
reflect its estimated undiscounted liability for environmental remediation. As
assessments and remediation activities progress at each individual site, these
liabilities are reviewed to reflect additional information as it becomes
available.
- 6 -
Actual costs to be incurred at identified sites in the future may vary from the
estimates, given the inherent uncertainties in evaluating environmental
liabilities. Subject to the imprecision in estimating environmental remediation
costs, the Companycompany believes that any sum it may have to pay in connection with
environmental matters in excess of the amounts noted above would not have a
materiallymaterial adverse effect on its financial condition, liquidity or results of
operations.
-5-
As of December 31, 1993,1995, the Company had approximately 21,00010,820 active employees,
of whom approximately 4,1503,615 are located outside the United States. Year-end
employment in 19931995 was below the level at the end of 1992.1994 primarily as the
result of the sale of the furniture business, the ceramic tile business
combination and various restructuring activities. About 38%65% of the Company's
approximately 11,950 hourly-paid4,380 hourly or salaried production and maintenance employees in
the United States are represented by labor unions.
Geographic Areas-6-
GEOGRAPHIC AREAS
- -----------------------------------------------------------------------------
Geographic areas
at December 31 (millions) 1995 1994 1993
- -----------------------------------------------------------------------------
Net trade sales:
United States $1,346.3 $1,343.7 $1,250.3
Europe 558.7 483.4 456.6
Other foreign 179.9 178.6 158.1
- -----------------------------------------------------------------------------
Interarea transfers:
United States 101.1 94.7 75.8
Europe 13.8 8.7 6.0
Other foreign 32.1 26.1 21.9
Eliminations (147.0) (129.5) (103.7)
- -----------------------------------------------------------------------------
Total net sales $2,084.9 $2,005.7 $1,865.0
- -----------------------------------------------==============================
Operating income:
United States $ 7.7 $ 235.5 $ 116.6
(See Note 2 on page 3)
Europe 62.6 75.3 31.7
Other foreign 7.8 7.6 10.0
Unallocated corporate expense (34.0) (23.8) (59.8)
- -----------------------------------------------------------------------------
Total operating income $ 44.1 $ 294.6 $ 98.5
- -----------------------------------------------==============================
Identifiable assets:
United States $1,044.5 $1,110.5 $1,074.1
Europe 406.7 376.5 347.0
Other foreign 83.4 72.6 63.2
Discontinued business -- 182.1 175.4
Corporate 615.5 398.2 185.4
Eliminations (0.3) (0.5) (0.3)
- -----------------------------------------------------------------------------
Total assets $2,149.8 $2,139.4 $1,844.8
- -----------------------------------------------==============================
United States net trade sales include export sales to non-affiliated customers
of $27.0$30.8 million in 1993, $24.41995, $24.9 million in 1992,1994 and $29.3$19.8 million in 1991.1993.
"Europe" includes operations located primarily in England, France, Germany,
Italy, the Netherlands, Poland, Spain and Switzerland. Operations in Australia,
Canada, The People's Republic of China, Hong Kong, Indonesia, Japan, Korea,
Singapore and Thailand are in "Other foreign."
Transfers between geographic areas and commissions paid to affiliates marketing
exported products are accounted for by methods that approximate arm's-length
transactions, after considering the costs incurred by the selling company and
the return on assets employed of both the selling unit and the purchasing unit.
Operating profitsincome of a geographic area include profitsincludes income accruing from sales to
affiliates.
Geographic areas
at December 31 (millions) 1993 1992 1991
=========================================================================
Net trade sales:
=========================================================================
United States $1,910.7 $1,841.5 $1,761.7
- -------------------------------------------------------------------------
Europe 456.6 544.5 508.5
- -------------------------------------------------------------------------
Other foreign 158.1 163.8 169.1
- -------------------------------------------------------------------------
Total foreign 614.7 708.3 677.6
=========================================================================
Inter-area transfers:
=========================================================================
United States 76.1 69.9 65.5
- -------------------------------------------------------------------------
Europe 6.0 4.0 3.9
- -------------------------------------------------------------------------
Other foreign 21.9 18.5 9.9
- -------------------------------------------------------------------------
Eliminations (104.0) (92.4) (79.3)
=========================================================================
Total net sales $2,525.4 $2,549.8 $2,439.3
=========================================================================
Operating profit:
=========================================================================
United States $ 178.0 $ 50.7 $ 131.5
- -------------------------------------------------------------------------
Europe 31.7 22.5 51.8
- -------------------------------------------------------------------------
Other foreign 10.0 (4.6) 9.3
- -------------------------------------------------------------------------
Total foreign 41.7 17.9 61.1
=========================================================================
Total operating profit $ 219.7 $ 68.6 $ 192.6
=========================================================================
Identifiable assets (Note 1):
=========================================================================
United States $1,311.7 $1,338.0 $1,435.5
- -------------------------------------------------------------------------
Europe 347.0 362.5 398.5
- -------------------------------------------------------------------------
Other foreign 63.2 64.9 74.9
- -------------------------------------------------------------------------
Corporate 207.7 251.0 250.5
- -------------------------------------------------------------------------
Eliminations (.3) (6.6) (9.5)
=========================================================================
Total assets $1,929.3 $2,009.8 $2,149.9
- 7 --7-
Reconciliation (millions) 1993 1992 1991
=========================================================================
Operating profit $219.7 $ 68.6 $ 192.6
- -------------------------------------------------------------------------
Corporate expense, net (91.0) (87.4) (46.5)
- -------------------------------------------------------------------------
Interest expense (38.0) (41.6) (45.8)
=========================================================================
Earnings (loss) from
continuing businesses
before income taxes $ 90.7 $(60.4) $ 100.3
Note 1: Identifiable assets for geographic areas and industry segments
exclude cash, marketable securities, and assets of a corporate nature.
Capital additions for industry segments include property, plant, and equipment
from acquisitions.
The Company's foreign operations are subject to foreign government legislation
involving restrictions on investments (including transfers thereof), tariff
restrictions, personnel administration, and other actions by foreign
governments. In addition, consolidated earnings are subject to both U.S. and
foreign tax laws with respect to earnings of foreign subsidiaries, and to the
effects of currency fluctuations.
Item 2. Properties
- -------------------
The Company produces and markets its products and services throughout the world,
operating 7348 manufacturing plants in 11 countries, 5612 countries; 25 of whichthese plants are
located throughout the United States. Additionally, affiliates operate eight
plants in fourthree countries.
Floor covering products and adhesives are produced at 2318 plants with principal
manufacturing facilities located in Lancaster, Pennsylvania, and Lansdale, Pennsylvania. American Olean owns
or leases various quarries throughout the United States for the supply of clays
and shale. Under a long-term lease, a quarry in Newfoundland, Canada, also
supplies a raw material important to American Olean's manufacture of glazed tile
at a proven reserve level of approximately 50 years at current production
levels.Stillwater,
Oklahoma. Building products are produced at 1314 plants with principal facilities
in Macon, Georgia, the Florida-Alabama Gulf Coast area and Marietta,
Pennsylvania. Furniture is manufactured at 27 plants, 14 of which are located
at Thomasville, North Carolina. Insulating materials, textile mill supplies, fiber gasket
materials adhesivesand specialty papers and other products for industry are manufactured
at 1416 plants with principal manufacturing facilities at Munster, Germany, Braintree, Massachusetts and
Fulton, New York.
Numerous sales offices are leased worldwide, and leased facilities are utilized
for American Olean's distribution centers and
to supplement the Company's owned warehousing facilities.
Productive capacity and extent of utilization of the Company's facilities are
difficult to quantify with certainty because in any one facility maximum
capacity and utilization varies periodically depending upon the product that is
being manufactured and individual facilities manufacture more than one type of
product. In this context, the Company estimates that the production facilities
in each of its industry segments were effectively utilized during 19931995 at 80% to
90% of overall productive capacity in meeting market conditions. Remaining
productive capacity is sufficient to meet expected customer demands.
- 8 -
The Company believes its various facilities are adequate and suitable.
Additional incremental investments in plant facilities are being made as
appropriate to balance capacity with anticipated demand, improve quality and
service, and reduce costs.
Item 3. Legal Proceedings
- --------------------------
OVERVIEW OF ASBESTOS-RELATED LEGAL PROCEEDINGS - The full report on the
Asbestos-Related Litigation immediately follows this summary.
The Company is namedinvolved, as of December 31, 1995, in approximately 59,000
pending personal injury asbestos claims and lawsuits, and 32 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
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.
-8-
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 has
been returned to the Court of Appeal by the California Supreme Court for
additional review in light of a recent favorable Supreme Court decision in
another case. This litigation did not encompass coverage for non-products
claims that is included in the Company's primary policies and certain excess
policies. This additional coverage is substantial and negotiations are underway
with several primary carriers. If non-products coverage issues are not resolved
through negotiation, the Company can pursue alternative dispute resolution
proceedings against the primary and certain excess carriers pursuant to the
Wellington Agreement.
The Company believes that an estimated $166 million in liability and defense
costs recorded on its balance sheet will be incurred to resolve approximately
59,000 asbestos-related personal injury claims against the Company as of
December 31, 1995. An insurance asset in the amount of $166 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.
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 February 28, 1994,December 31, 1995, approximately 72,12559,000 individuals alleging personal
injury from exposure to asbestos or asbestos-containing products.asbestos. Included in the above number are
approximately 12,800 lawsuits and claims from the approximately 87,000
individuals who have opted out of the settlement class action referred to below.
About 14,300 claims from purported settlement class members were received as of
December 31, 1995. 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 claimreconciliation
between the two systems continues. Claim numbers in this note have been
received from the Center. A
reconciliation is underway to match the Company claims with the Center'sCenter and the
reconciliation will continue until completion. Since the reported data will be
more current under the revised claims handling procedure, the data reflects a
decrease from the past year in the number of outstanding claims.its consultants.)
A total of
about 24,036 lawsuits and claims were received by the Company in 1993, compared
with 28,997 in 1992.-9-
Nearly all the personal injury suits and claims, allegeexcept those claims covered by
the settlement class action, seek general and punitive damages arising from
alleged exposures, during a period of
years, commencing duringvarious times, from World War II onward, into the 1970s, to asbestos-
containing insulation products used, manufactured or sold by the companies
involved in the asbestos-related litigation. ClaimsThese claims against the Company
generally involve allegations of negligence, strict liability, breach of
warranty and conspiracy with other defendants in connection with alleged
exposure generally to asbestos-containing insulation products; theconspiracy. The Company discontinued the sale of all suchasbestos-
containing insulation products in 1969. The first asbestos-related
lawsuit was filed against the Company in 1970, and such lawsuits and claims
continue to be filed against the Company. 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 include a number ofname many defendants
(including both members of the Center and other companies), and well
over 100
different companies are reportedly involved as defendants in the
litigation. A significant number of suits in which the Company does not believe
it should be involved have been filed by persons engaged in vehicle tire
production, aspects of the construction industry, and the steel industry.involved. The Company believes that a large numbermany
current plaintiffs are unimpaired. A few state and federal judges have
consolidated numbers of asbestos-related personal injury cases for trial, which
the plaintiffs filing suit are
unimpaired individuals. Although aCompany 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, and whileappeals. While the number of
pending cases reflects a decrease during the past year, 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 judges both individually and collectivelyparties to findingsecuring a comprehensive
solution to the large numberresolution of pending as well as potential future asbestos-related personal
injury claims. Discussions have been
undertaken by attorneys for plaintiffs and defendants to devise methods or
procedures for the comprehensive treatment of asbestos-related personal injury
suits and claims. The Judicial Panel for Multi-districtMultidistrict Litigation ordered the
transfer of all pending federal cases not in trial to a single court, the Eastern District Court 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 to whichin the
cases have been
assignedEastern District has been instrumental in having the parties settleresolve large
numbers of cases in various jurisdictions and has been receptive to different
approaches to the resolution of asbestos-related personal injury claims.
A national class
action was filed in the Eastern District of Texas; it was not certified and the
cases involved were also transferred to the Eastern District Court of
Pennsylvania for pretrial purposes. Periodically, this Court returns certain
cases for trial to the courts from which the cases were originally transferred,
although the issue of punitive damages is retained by the Eastern District
Court.Settlement Class Action
A settlement class action whichthat includes essentially all future asbestos-related
personal injury claims against members of the Center for Claims Resolution was filed in Philadelphia, in the Federal
- 9 -
District Court for the Eastern
District of Pennsylvania, on January 15, 1993.
The proposed settlement class action was negotiated by the Center and two
leading plaintiffs' law firms. 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 thisthe Company. Other defendant companies whichthat 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 are impaired by such exposure.
Claimants must meet certain exposure and medical
criteria to receive
compensation which iscriteria. 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 in court or through alternative dispute resolution,
rather than accept an offered settlement amount, 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 asbestos-related personal injury claims. Each member of the Center has an obligation for its own fixed
share in this proposed settlement. The settlementDistrict 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 asbestos-related personal injury
claims which were filed before January 15, 1993,deemed otherwise not covered by the class action settlement,
or asbestos-relatedclaims for property damage claims. Agreed upon annualdamage. Annual case flow caps and agreed upon 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
-10-
exceeded during the second
five-year period depending upon case flow during the firstprevious five-year period. The case flow figures and annual
compensation levels are subject to renegotiation after the initial 10-yearten-year
period. TheOn August 16, 1994, the Court has preliminarilytentatively approved the settlement, and
notification has been provided to potential class members who were offered the opportunity to opt out by January 24, 1994. The
Center had reserved the right to withdraw from the program if an excessive
number ofmembers. Approximately 87,000
individuals have opted out. The Center has determined that there is not
an excessive number of opt outs and will proceed with the settlement class
action. The opt outs are not asbestos-related claims as such but rather are
reservations of rights to possibly bring court actionsclaims in the future. The opt outs are
currently the subject of a motion before the Court which questions the
validity of most of the opt outs and seeks a further notice process to
determine whether or not they wish to remain in the class action. Therefore,
the total number of effective opt outs cannot be determined at this time. The
Court is holding a final fairness hearing which began on February 22, 1994. The settlement
will become final only after it has been approved by the
Federal District Courtcertain issues, including issues related to
insurance coverage, are resolved and the federal appellate courts.appeals are exhausted. This process could
take several years. The Center members have stated their intention to resolve
over a five-year period the asbestos-
related personal injury claims that were pending prior to the datewhen the
settlement class action was filed. A significant number of these pending claims have been
finally or tentatively settled with a number of plaintiffs' counsel and a number of these claimsor are currently the subject of settlement negotiations, in both instances, based
upon historical averages.negotiations.
The Company is seeking agreement from its insurance carriers or a ruling from the Courtbinding
judgment against them that the settlement class action will not jeopardize existing
insurance coverage. Certain unresolved insurance coverage issues involving certain Center
members' insurancecoverage; the class action is contingent upon such an agreement or
judgment. With respect to carriers acceptance of the proposed settlementthat do not agree, this matter will be
resolved either by alternative dispute resolution, procedures in the case of the
insurance carriers whichthat
subscribed to the Wellington Agreement, referred to
below, or else by litigation against those carriers which did not subscribe to the
Wellington Agreement.litigation.
The Company believes that the future claimants settlement class action will
be
approved.receive final approval. However, the potential exists that either the Federal District Court
or an appellate court
will reject or modify the settlement class action andor that the above-referenced
companion insurance action will not be successful.
A few state judges and federal judges have undertaken to consolidate numbers of
asbestos-related personal injury cases for trial.Insurance Carriers/Wellington Agreement
The Company has generally
opposed as unfair the consolidation of numerous cases for trial. In 1992 in
Baltimore, Maryland, the Center for Claims Resolution referred to herein settled
during trial on behalf of the Company and other Center members certain asbestos-
related personal injury claims. In most of the approximately 8,500 cases
consolidated for trial, Armstrong was a named defendant. The multiphase
Baltimore trial dealt with various issues including the individual claims of six
plaintiffs, as well as product defect and negligence, and whether and on what
basis punitive damages should be awarded. The Center for Claims Resolution is
periodically drawing upon the Company's insurance assets to pay the settled
individual claims.
In 1983, three of the Company's four primary insurers entered into an Interim
Agreement with the Company tocarriers provide defense and indemnity coverage on an
interim basis for
asbestos-related personal injury claims andclaims. All of the Company's primary insurers
are paying for the defense of asbestos-related property damage claims whichclaims. Three of the four
carriers are described below. One
- 10 -
primary insurer did not enter intopaying for the defense under an Interim Agreement but did subscribe topending the Wellington Agreement as noted below. The Interim Agreement was superseded
by the Wellington Agreement with respect tofinal
resolution of the coverage issues for asbestos-
related personal injury claims.property damage claims in the California
insurance litigation. The one primary insurer of the four primary
carriers that did not subscribe to the Wellington Agreement subsequentlyremaining carrier entered into a separate agreement
with the Company resolving coverage issues for asbestos-relatedboth personal injury and property
damage claimsclaims.
Various insurance carriers provide products and nonproducts coverage for the
Company's asbestos-related personal injury claims which complements the Wellington Agreement. Alland product coverage for
property damage claims. Certain policies providing products coverage for
personal injury claims have been exhausted. A list of the Company's primary
insurers are paying for the defense of asbestos-relatedinsurance carriers
that currently provide coverage or whose policies have made available or provide
personal injury, nonproducts or property damage claims
in accordance with the provisions of the Interim Agreement pending the final
resolution on appeal of the coverage issues for asbestos-related property damage
claims in the California insurance litigation referenced later in this note.
The Company's insurance carriers providing coverage for asbestos-related claims
arecoverages is as follows:
Reliance Insurance Company; Aetna InsuranceCasualty and Surety Company; Liberty Mutual
Insurance Companies are primary insurers that have subscribed to the Wellington
Agreement.Companies; Travelers Insurance Company is a primary insurer that entered into
a settlement agreement which complements Wellington. The excess insurers which
subscribed to Wellington are Aetna Insurance Company,Company; Fireman's Fund Insurance
Company,Company; Insurance Company of North America,America; Lloyds of London; various London
market companies; Fidelity and Casualty Insurance Company,Company; First State Insurance
Company andCompany; U.S. Fire Insurance Company.Company; Home Insurance Company and Travelers Insurance Company are
excess insurers which entered into settlement agreements for coverage of
personal injury claims which complement Wellington, andCompany; Great American
is an
excess insurer which also entered into a settlement agreement with the Company.
The Company also entered into a settlement agreement withInsurance Company; American Home Assurance Company and National Union Fire
Insurance Company (known as the AIG Companies) which complements the Wellington Agreement. Other excess insurers
against whom the Company has received a favorable trial and appellate court
decision in the California insurance litigation described below are:; Central National Insurance
Company,Company; Interstate Insurance Company,Company; Puritan Insurance Company, CNA Insurance CompanyCompany; and Commercial
Union Insurance Company. Midland Insurance Company, an excess carrier, whichthat
insured the Company withfor $25 million of bodily injury products coverage, became insolvent duringis
insolvent; the trial. The Company is pursuing claims with the state guaranty associations on account of the Midland insolvency and is
currently exploring howassociations.
The gap in coverage created by the Midland Insurance Company insolvency gaps canwill be
otherwise addressedcovered by payments from the Company's other insurance carriers.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, to the aforementioned insurance carriers, certain insurance carriers
whichthat were not included in the Company's California insurance litigation described later herein also provide
insurance for asbestos-related property damage claims.
-11-
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 which also 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 for Claims
- 11 -
Resolution referenced below in this note.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.
In 1987, an excess
insurer also made, under reservation of rights, certain payments which were
processed through the Facility. These payments were made under reservation
because no settlement of the outstanding coverage issues has been effected with
that carrier.
The Wellington Agreement also provided for the establishment of the Facility to
evaluate, settle, pay and defend all pending and future asbestos-related
personal injury claims against those companies which subscribed to the
Agreement.member
companies. The insurance coverage designated by the Company for coverage in the
Facility consistsconsisted of all relevant insurance policies issued to the Company from
1942 through 1976. Liability payments and allocated expenses with respectwere allocated by
formula to each claim filed against Wellington Agreement subscribers who were defendants in
the underlying asbestos-related personal injury litigation were allocated on a
formula percentage basis to each such defendant,member, including the Company. The Facility, which hasnow dissolved, over time was
negatively impacted by concerns raised byof certain subscribers relating tomembers about their share of
liability payments and allocated expenses and by certain insurer concerns with respect toabout
defense costs and Facility operating expenses.
As a result of seven subscribing companies
giving notice that they wished to withdraw their cases from the Facility, a
majority of the insurers and the company subscribing members agreed to dissolve
the ongoing operation of the Facility as of October 3, 1988 and the Facility has
now been fully dissolved. ExceptCenter for eliminating the future availability of an
insurer-paid special defense fund benefit linked to the existence of the
Facility, a benefit not deemed material to the Company, the dissolution of the
Facility essentially did not affect the Company's overall Wellington Agreement
insurance settlement, which stood on its own separate from the Facility. The
relinquishment of the insurer-paid special defense fund benefit was a condition
of insurer support for the creation of the Center and its expected benefits.Claims Resolution
A new asbestos-related personal injury claims handling organization known as the
Center for Claims Resolution (the "Center") was created in October 1988 by Armstrong and 20
other companies, all of which were former members of the Facility. Insurance
carriers aredid not become members of the Center, although certaina number of the insurance carriers for those members that joined the Center
signed an agreement to provide approximately 70% of the financial support for
the Center's operational costs during its first year of existence;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 concept of allocatedformula for shares of liability payments and defense costs
for its members based primarily on historical experience 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 has caused a
slight increase in the Company's share but has enhancedand subsequent share adjustments also
resulted in an increased liability share for the Company's case
management focus. Future claim payments byCompany in certain areas. In
the Center pursuant to the proposed settlement class action, will require each member towill pay its own fixed share.share of every
claim.
A large share member earlier withdrew from the Center. Accordingly,Center, and the allocated shares
of liability payments and defense costs of the Center were recalculated,
withresulting in the remaining members' shares being increased. Under the class
action settlement resolution, if a member withdraws, from the Center or the
settlement, the shares of those remaining
members wouldwill not be increased. It is
expected that theThe Center members will reachhave reached an agreement
annually with the insurers relating to the continuing operation of the Center
and expect that the insurers'insurers will fundprovide funding for the Center's operating
expenses for its sixtheighth year of operation. With the
filing of the settlement class action, theThe Center
-12-
will continue to process pending claims and will handle the program for processingas well as future claims ifin the
settlement class action is approved by the courts.
- 12 -
Consistent with the Center's objective of prompt resolution of meritorious
claims, and to establish the Center's credibility after the cessation of the
Facility and for other strategic reasons, a planned increase in claims
resolution by the Center was implemented during the first two years. This
increased the rate of utilization of Company insurance for claims resolution,
offset in part by savings in defense costs. During the first three years, the
rate of claims resolution had about trebled from the prior two years of
experience.action.
An increase in the utilization of the Company's insurance also will
occurhas occurred as a
result of the class action settlement due toand the commitment at the time to attempt
to resolve pending claims within five years. Aside from the commitments
under the class action
settlement, no forecast can be made for future years regarding either the rate
of claims, or the rate of pending and future claims resolution by the Center, or
the rate of utilization of Company insurance. If the settlement class action is
finally approved,finalized and all appeals are exhausted, projections of the rate of disposition
of future cases may be made and the rate of insurance usage will
be accelerated as an effort is made to resolve both outstanding cases and
address future claims.made.
Property Damage Litigation
The Company is also one of many defendants in a total of 7332 pending lawsuits and
claims, including one class actions,action, as of February 28, 1994,December 31, 1995, brought by public and
private entities, including public school districts and 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
floor covering
materials. Class actionsflooring. Among the lawsuits that have been resolved are four class actions
that had been certified, each involving foura distinct classesclass of building owners: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. Subject to fairness hearings, resolutionIn 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
representatives for the national publicrepresentative and private schools class action as well as with the class representatives for the
private property owners who leased facilitiesis subject to the federal government.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, this litigation with respect to these co-defendantsagainst them (with several exceptions) has been stayed
or otherwise impacted by the restrictions placed on
proceeding against these co-defendants.restricted. Due to the uncertainties involved, the long-term effect of these
Chapter 11 proceedings on the litigation cannot be predicted.
The Company concluded in early 1989 the trial phase of a coordinated lawsuit in
a California state court to resolve a dispute concerning certain of its
insurance carriers' obligations with respect to insurance coverage for alleged
- 13 -
personal injury and property damage asbestos-related lawsuits and claims.Insurance Coverage Lawsuit
The
trial court issued favorable final decisions in important phases of the trial
relating to coverage for personal injury and property damage lawsuits and
claims. The Company earlier dismissed from the asbestos-related personal injury
coverage portion of the litigation those insurance carriers which had subscribed
to the Wellington Agreement, and the excess carriers which entered into a
settlement agreement with the Company which complements Wellington also have
been dismissed.
As indicated above, the California trial court issued final decisions in various phases in the
insurance lawsuit. Onelawsuit including a decision concluded that the trigger of insurance coverage for asbestos-related 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
-13-
occurred. Appeals were filed from the trial
court's final decision by those carriers still in the litigation and theThe California Court of Appeal has substantially upheld the trial
court's final
decisions.court. The insurance carriers have petitioned the California Supreme Court to hear
the various asbestos-related personal injury and property damage coverage
issues. The California Supreme Court recently accepted review pending its review of
related issues in another California case. It ruled in favor of the insured company in
that case, and then referred the Company's case back to the Court of Appeal for
further review in light of that decision. Based upon the trial court's
favorable final decisions, in important phases of the trial relating to
coverage for asbestos-related personal injury and property damage lawsuits and
claims, including 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 complements the coverage framework established
bycomplementary to the Wellington
Agreement. The parties also agreed that a 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
between the Company and the insurance carrier. These negotiations continue.
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 claimsinsurance coverage is included in the Company's primary insurance
is available under the Wellington
Agreement (and the previously-referencedpolicies and certain excess policies for non-products claims. The settlement
agreement referenced above with one primary carrier)carrier included an amount for suchnon-
products claims. Certain excess policies also provide non-products
coverage. 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 and are currently underway with several of
them 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 - 14 -
coverage. The additional coverage potentially available
to pay claims categorized as non-products at both the primary and excess levels, 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 of
the primary carrierscarrier 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 othervarious reasons why
they should not pay their coverage obligations. The Company is entitled to
pursue alternative dispute resolution proceedings against the primary and
certain excess carriers to resolve the non-
productsnon-products coverage issues.
ACandS, Inc., a former subsidiary of the Company, which for certain insurance
periods 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,Company. It was a subscriber to
the Wellington Agreement, but wasis not a subscriber tomember of the Center. The Company and
ACandS, Inc. had filed, have negotiated a lawsuit against the Company to partition certain insurance policies andsettlement agreement which
-14-
reserves for an
accounting. It sought to haveACandS, Inc. a certain amount of insurance from the joint policies
reserved solely for its own use in the payment of defense and indemnity
costs for asbestos-related claims.
The two companies have negotiated a
settlement of their dispute and have signed a settlement agreement.Conclusions
Based upon the Company's experience with this litigation and itsthe 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 whichthat 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 claims
flow caps to be negotiated after the initial 10-yearten-year period for the settlement
class action or the then compensation levels to be negotiated for such claims or the
successscope of its non-products coverage ultimately deemed available or the Company may have in
addressingultimate
conclusion of the Midland Insurance Company insolvency with its other insurers.California insurance coverage litigation.
Subject to the foregoinguncertainties 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 $166 million in liability and defense costs recorded
on the balance sheet will be incurred to resolve an estimated 59,000 asbestos-
related personal injury claims pending against the Company as of December 31,
1995. 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 $166 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
-15-
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 elsewhere in this note,above, the Company believes that it is probable that substantially all of
the expenses and any liability payments associated therewith withinwith the framework of the class action settlement and the initial
ten-year period thereofasbestos-related
property damage claims will be paid--in the case of the personal injury claims,
by agreed-to coverage under the Wellington Agreement and by payments by
nonsubscribing insurers that entered into settlement agreements with the Company
and additional insurance coverage reasonably anticipated from the outcome of the
insurance litigation and from the Company's claims for non-products coverage
both under certain insurance policies covered by the Wellington Agreement and
under certain insurance policies not covered by the Wellington Agreement which
claims have yet to be accepted by the carriers--and in the case of the asbestos-
related property damage claims,paid under an existing interim agreement, by
insurance coverage settlement agreements and through additional coverage
reasonably anticipated from the outcome of the insurance litigation.
Accordingly, the Company believes that it is probable that charges to expense
associated with such suits and claims should not be significant.
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 first levelintermediate appellate stage
- 15 -
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 willwould not
have abe material adverseeither to the financial condition of the Company or to its
liquidity, although as stated above, the net effect on itsof any future liabilities
recorded in excess of insurance assets could be material to earnings or
financial position.
-------------------------------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
----------------------------------------------------------------
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 and continues to do so.allegations. On April 19, 1991, after a three-month
trial, 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-
trialpost-trial motions and appeals were
completed, of either their total tort claim damages (including punitive
damages), certain pre-judgment interest, and post-
judgmentpost-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-
judgmentpre-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)91-
-------------------------------------------
-16-
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:arguments, reversed the trial judge's
judgment for Armstrong on TINS'sTINS' claim for an alleged violation of Section 1 of
the Sherman Act; reversed the trial judge's judgment in favor of Armstrong on
TINS'sTINS' claim for tortious interference; reversed the trial judge's judgment in
favor of Armstrong on TINS'sTINS' claim for punitive damages; and reversed the trial
judge's ruling that had dismissed TINS'sTINS' alleged breach of contract claim.
- 16 -
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.
TheAfter the case has beenwas remanded by the Third Circuit Court of Appeals in
Philadelphia to the U. S.U.S. District Court in Newark, New Jersey, and a new trial
has been set for
latecommenced on April 26, 1994. It is unknown what damage claims TINS will be permitted upon
retrialclaimed damages in the form of the case. But during the first trial, claims for actual damages of
at least $17.5lost profits
ranging from approximately $17 million were asserted by plaintiffs' expert and even greater
amounts were asserted by Mr. Fineman. Under the antitrust laws, proven damages
are trebled. In addition, plaintiff would likely ask forto approximately $56 million. Plaintiff
also claimed punitive damages companion toin conjunction with its request for tort damages.
Other damages which would likely be
sought includeincluded reimbursement of attorneys' fees and interest,
including prejudgment interest.
The Company denies allOn August 19, 1994, the jury returned a verdict in favor of TINS's claims and accordingly is vigorously defending
the matter. In the event that a jury finds against the Company suchfinding
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 could entail unknown amounts which, if sustained, could havein favor of the Company. On November 2, 1995, TINS filed
a material
adverse effect on its earnings and financial position.
--------------------
As previously discussed on pages 6 and 7, with regard to a former county
landfill in Buckingham County, Virginia, Thomasville Furniture Industries, Inc.,
and seven other parties have been identifiedPetition for Rehearing by the U.S. Environmental
Protection Agency ("USEPA") as potentially responsible parties ("PRPs") to fundsame panel which was denied on December 5, 1995.
On January 24, 1996, TINS filed a motion seeking further appellate review by the
cost of remediating environmental conditions at this federal Superfund site.
After review of investigative studies to determine the nature and extent of
contamination and identify various remediation alternatives, USEPA issued its
Proposed Remedial Action Plan in May 1993 proposing a $21 million clean-up cost.
In November 1993, however, USEPA issued a revised plan which recommended a
reduced $3.5 million alternative, subject to additional costs depending on test
results. The PRPs believeCircuit Court; that other alternatives are appropriate and
discussions with USEPA and Virginia State officials continue.
Spent finishing materials from Thomasville's Virginia furniture plants at
Appomattox and Brookneal allegedly comprise a significant portion of the waste
presently believed to havemotion has been taken to the site by a now defunct disposal firm
in the late 1970s. Accordingly, Thomasville could be called upon to fund a
significant portion of the eventual remedial costs.
- 17 -denied.
_____________________________
-17-
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
Executive Officers of the Registrant
- -------------------------------------
The information appearing in Item 10 hereof under the caption "Executive
Officers of the Registrant" is incorporated by reference herein.
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Security Holder
- -----------------------------------------------------------------------------
Matters
-------
The Company's Common Stock is traded on the New York Stock Exchange, Inc., the
Philadelphia Stock Exchange, Inc., and the Pacific Stock Exchange, Inc. As of
January 28, 1994,February 9, 1996, there were approximately 7,8767,120 holders of record of the
Company's Common Stock.
TotalQuarterly financial information (millions except for per-share data) First Second Third Fourth Year
===========================================================================================================
1993
===========================================================================================================Total year
- ----------------------------------------------------------------------------------------------------------------------------------
1995* Net sales $502.2 $536.0 $549.0 $497.7 $2,084.9
Gross profit 166.7 177.9 184.6 146.0 675.2
Earnings (loss) from continuing businesses 26.5 47.4 14.4 (74.7) 13.6
Net earnings 34.4 52.7 19.4 16.8 123.3
Per share of common stock:**
Primary: Earnings (loss) from continuing businesses 0.61 1.17 0.29 (2.09) (0.02)
Net earnings 0.82 1.31 0.42 0.35 2.90
Fully diluted: Earnings (loss) from continuing businesses 0.57 1.05 0.28 (2.09) (0.02)
Net earnings 0.75 1.18 0.40 0.34 2.67
Dividends per share of common stock .30 .30 .30 .30 1.20
- -----------------------------------------------------------------------------------------------------------0.32 0.36 0.36 0.36 1.40
Price range of common stock -- low 2838 3/8 43 50 1/4 52 7/8 2938 3/8 30 1/4 40 1/4 28 7/8
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- high 3348 1/2 52 60 1/2 64 1/8 34 3/4 4264 1/2 55 1/4 55 1/4
===========================================================================================================
1992
===========================================================================================================
8
- ----------------------------------------------------------------------------------------------------------------------------------
1994* Net sales $461.1 $508.6 $525.6 $510.4 $2,005.7
Gross profit 153.9 180.6 190.9 154.8 680.2
Earnings from continuing businesses 42.5 48.7 56.6 39.4 187.2
Net earnings 48.0 53.3 61.6 47.5 210.4
Per share of common stock:**
Primary: Earnings from continuing businesses 1.03 1.19 1.41 0.93 4.60
Net earnings 1.17 1.31 1.54 1.17 5.22
Fully diluted: Earnings from continuing businesses 0.93 1.07 1.25 0.85 4.10
Net earnings 1.06 1.18 1.37 1.04 4.64
Dividends per share of common stock .30 .30 .30 .30 1.20
- -----------------------------------------------------------------------------------------------------------0.30 0.32 0.32 0.32 1.26
Price range of common stock -- low 26 29 5/49 3/8 27 1/2 24 1/2 24 1/2
- -----------------------------------------------------------------------------------------------------------43 3/8 43 36 36
Price range of common stock -- high 3357 1/2 57 1/4 53 7/8 3746 5/8 57 1/2
32 3/8 32 3/4 37 1/2
===========================================================================================================- ----------------------------------------------------------------------------------------------------------------------------------
- 18 -* 1994 and the first, second and third quarters of 1995 have been restated for
the results of the discontinued business and formation of the ceramic tile
business combination.
**The sum of the quarterly earnings per-share data does not always equal the
total year amounts due to changes in the average shares outstanding and, for
fully diluted data, the exclusion of the antidilutive effect in certain
quarters.
-18-
Item 6. Selected Financial Data
- ---------------------------------
- --------------------------------------------------------------------------------
EIGHT - YEAR SUMMARY
- --------------------------------------------------------------------------------
For Year ($- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions except for per-share data)
For year 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
==================================================================================================================================- -----------------------------------------------------------------------------------------------------------------------------------
Net sales 2,525.4 2,549.8 2,439.3 2,518.8 2,488.7 2,261.2 1,969.6 1,602.3
- ----------------------------------------------------------------------------------------------------------------------------------2,084.9 2,005.7 1,865.0 1,912.0 1,828.7 1,865.3 1,832.7 1,790.7 1,608.7 1,295.0
Cost of goods sold 1,802.3 1,888.7 1,801.1 1,816.6 1,764.0 1,611.0 1,383.6 1,117.5
- ----------------------------------------------------------------------------------------------------------------------------------
Selling1,409.7 1,325.5 1,286.5 1,378.4 1,316.6 1,315.5 1,273.3 1,253.7 1,112.0 889.2
Total selling, general and
administrative expense 505.0 511.6 468.3 462.6 436.6 392.0 339.0 286.2
- ----------------------------------------------------------------------------------------------------------------------------------expenses 397.1 388.1 347.8 296.9 341.1 340.6 303.8 309.0 288.8 240.3
Equity (earnings) loss
from affiliates (15.0) (2.5) 42.9 107.8 38.4 0.6 9.1 3.5 -- --
Restructuring charges 71.8 -- 89.3 160.8 12.5 6.8 5.9 -- -- --
Loss from ceramic tile
business formation/(gain)
from sales of woodlands 177.2 -- -- -- -- (60.4) (9.5) (1.9) -- --
Operating income (loss) 44.1 294.6 98.5 (31.9) 120.1 262.2 250.1 226.4 207.9 165.5
Interest expense 34.0 28.3 38.0 41.6 45.8 37.5 40.5 25.8 11.5 5.4
- ----------------------------------------------------------------------------------------------------------------------------------
Restructuring charges (89.9) (165.5) (12.8) (6.8) (5.9) -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Gain from sales of woodlands -- -- -- 60.4 9.5Other expense (income), net 1.9 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous income (expense) 0.5 (2.8) (11.0) (32.6) (7.6) 11.7 3.0 1.6
- ----------------------------------------------------------------------------------------------------------------------------------(6.1) (7.2) (8.5) 19.7 (5.7) (13.1) (4.3) (3.1)
Earnings (loss) from
continuing businesses
before tax 90.7 (60.4) 100.3 223.1 243.6 246.0 238.5 194.8
- ----------------------------------------------------------------------------------------------------------------------------------income taxes 8.2 265.8 66.6 (66.3) 82.8 205.0 215.3 213.7 200.7 163.2
Income taxes 27.2 (0.5) 39.7 76.7 85.9 92.4 97.4 82.6
- ----------------------------------------------------------------------------------------------------------------------------------(5.4) 78.6 17.6 (2.9) 32.7 69.5 74.6 79.4 82.2 70.0
Earnings (loss) from
continuing businesses 63.5 (59.9) 60.6 146.4 157.7 153.6 141.1 112.2
- ----------------------------------------------------------------------------------------------------------------------------------13.6 187.2 49.0 (63.4) 50.1 135.5 140.7 134.3 118.5 93.2
As a percentage of sales 2.5% (2.3)% 2.5% 5.8% 6.3% 6.8%0.7% 9.3% 2.6% -3.3% 2.7% 7.3% 7.7% 7.5% 7.4% 7.2% 7.0%
- ----------------------------------------------------------------------------------------------------------------------------------
As a percentage of average
monthly assets 3.2% (2.8)% 2.9% 7.1% 8.3% 10.2% 11.6%(a) .9% 12.7% 3.4% -4.1% 3.3% 9.4% 11.1% 11.2% 11.3% - ----------------------------------------------------------------------------------------------------------------------------------10.8%
Earnings (loss) from
continuing businesses
applicable to common stock (a) 49.6 (73.7) 41.2 126.9 148.0 153.2 140.7 111.8
- ----------------------------------------------------------------------------------------------------------------------------------(b) (0.7) 173.1 35.1 (77.2) 30.7 116.0 131.0 133.9 118.0 92.8
Per common share--primary 1.32 (1.98) 1.11 3.26 3.26 3.31share -- primary (0.02) 4.60 0.93 (2.07) 0.83 2.98 2.33
- ----------------------------------------------------------------------------------------------------------------------------------2.88 2.90 2.50 1.93
Per common share--fullyshare --
fully diluted (b) 1.26 (1.98) 1.11 2.99 3.11 3.31 2.98 2.33
- ----------------------------------------------------------------------------------------------------------------------------------(c) (0.02) 4.10 0.92 (2.07) 0.83 2.74 2.76 2.90 2.50 1.93
Net earnings (loss) 123.3 210.4 63.5 (227.7) 48.2 141.0 187.6 162.7 150.4 122.4
- ----------------------------------------------------------------------------------------------------------------------------------
As a percentage of sales 2.5% (8.9)% 2.0% 5.6% 7.5% 7.2%5.9% 10.5% 3.4% -11.9% 2.6% 7.6% 7.6%
- ----------------------------------------------------------------------------------------------------------------------------------10.2% 9.1% 9.3% 9.4%
Net earnings (loss)
applicable to common
stock (a)(b) 109.0 196.3 49.6 (241.5) 28.8 121.5 177.9 162.3 150.0 122.0
- ----------------------------------------------------------------------------------------------------------------------------------
As a percentage of average
shareholders' equity 15.0% 31.3% 9.0% (33.9)%-33.9% 3.3% 13.0% 17.9% 17.0% 17.6% 16.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Per common share--primaryshare -- primary 2.90 5.22 1.32 (6.49) .770.77 3.12 3.92 3.51 3.18 2.54
- ----------------------------------------------------------------------------------------------------------------------------------
Per common share--fullyshare --
fully diluted (b)(c) 2.67 4.64 1.26 (6.49) .770.77 2.86 3.72 3.51 3.18 2.54
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends declared per
share of common stock 1.40 1.26 1.20 1.20 1.19 1.135 1.045 .975 .885 .7325
- ----------------------------------------------------------------------------------------------------------------------------------0.975 0.885 0.7325
Purchases of property,
plant and equipment 117.6 115.8 133.8 195.1 231.0 198.7 183.0 139.8
- ----------------------------------------------------------------------------------------------------------------------------------162.2 113.8 87.8 98.6 116.9 160.2 200.9 163.2 156.7 119.1
Aggregate cost of acquisitions 20.7 -- -- 4.2 -- 16.1 -- 355.8 71.5 53.1
- ----------------------------------------------------------------------------------------------------------------------------------
Total depreciation and
amortization 130.0 136.9 135.7 130.1 134.0 109.2 91.4 74.3
- ----------------------------------------------------------------------------------------------------------------------------------109.6 106.9 102.1 106.4 103.9 100.3 102.0 94.8 83.6 67.6
Average number of
employees--employees -- continuing
businesses 21,682 23,500 24,066 25,014 25,349 22,801 21,020 18,916
- ----------------------------------------------------------------------------------------------------------------------------------11,365 11,612 12,413 13,448 13,714 14,017 14,056 14,224 14,036 12,953
Average number of common
shares outstanding 37.1 37.5 37.2 37.1 37.1 38.8 45.4 46.2 47.2 48.1
==================================================================================================================================
- 19 -
YEAR-END POSITION
==================================================================================================================================- -----------------------------------------------------------------------------------------------------------------------------------
Year-end position
Working capital 204.1 167.1 238.9 181.8 323.5 139.0 255.3 327.7
- ----------------------------------------------------------------------------------------------------------------------------------capital--
continuing businesses 346.8 304.8 213.2 171.6 277.3 218.6 364.6 178.0 345.3 401.5
Net property, plant and equipment 1,039.1 1,072.0 1,152.9 1,147.4 1,059.2 1,040.2 760.7 603.0
- ----------------------------------------------------------------------------------------------------------------------------------equipment--
continuing businesses 878.2 807.9 786.0 810.0 855.2 837.2 760.3 743.3 674.1 534.7
Total assets 1,929.3 2,009.8 2,149.9 2,146.3 2,033.0 2,097.7 1,602.5 1,298.2
- ----------------------------------------------------------------------------------------------------------------------------------2,149.8 2,139.4 1,844.8 1,922.3 2,109.4 2,105.4 1,992.3 2,057.8 1,574.9 1,277.5
Long-term debt 188.3 237.2 256.8 266.6 301.4 233.2 181.3 185.9 67.7 58.8
- ----------------------------------------------------------------------------------------------------------------------------------
Total debt as a percentage
of total capital (c)(d) 38.5% 41.4% 52.2% 57.2% 46.9% 45.7% 36.1% 35.9% 22.8% 16.9%
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 775.0 735.1 569.5 569.2 885.5 899.2 976.5 1,021.8 913.8 813.0
- ----------------------------------------------------------------------------------------------------------------------------------
Book value per share of
common stock 19.83 18.97 14.71 14.87 23.55 24.07 23.04 21.86 19.53 16.85
- ----------------------------------------------------------------------------------------------------------------------------------
Number of shareholders (d)(e) 7,962(f) 7,084 7,473 7,963 8,611 8,896 9,110 9,322 10,355 9,418 9,621
- ----------------------------------------------------------------------------------------------------------------------------------
Common shares outstanding 37.4 37.5 37.2 37.1 37.1 37.1 42.3 46.3 46.2 47.5
- ----------------------------------------------------------------------------------------------------------------------------------
Market value per common share 62 38 1/2 53 1/4 31 7/8 29 1/4 25 37 1/4 35 32 1/4 29 7/8
=====================================================================================================================================================================================================================================================================
Notes:
(a) Assets exclude insurance for asbestos-related liabilities.
(b) After deducting preferred dividend requirements and adding the tax benefits
for unallocated shares.
(b)(c) See italicized definition of fully diluted earnings per share on page 38.
(c)20.
(d) Total debt includes short-term debt, current installments of long-term
debt, long-term debt and ESOP loan guarantee. Total capital includes total
debt and total shareholders' equity.
(d)(e) Includes one trustee who is the shareholder of record on behalf of
approximately 4,300 employees in 1993, 4,500 employees in 1992, 4,600
employees in 1991, 4,500 employees in 1990,4,200 to 4,700 employees in 1989, and
4,400 employees infor years 1988 who have beneficial ownership through the company's
retirement savings plans.
(e)1995.
(f) Includes, for 1987 and 1986, a trustee who was the shareholder of record on
behalf of approximately 11,000 employees who obtained beneficial ownership
through the
Armstrong Stock Ownership Plan, which was terminated at the end of 1987.
- 20 -Certain selected financial data above has been restated for the effects of the
discontinued business and formation of the ceramic tile business combination.
-19-
Item 7. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------------------------------------------------------------------------------
Results of Operations
---------------------
1993 compared with 1992
Financial condition- --------------------------------------------------------------------------------
1995 COMPARED WITH 1994
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
As shown on the Consolidated Statements of Cash Flows (see page 21), net cash
provided by operating activities in 1993 was $291.2 million which was more than sufficient to cover investmentspayment of dividends
and the investment in plant, property plant, and equipment and dividends.equipment. The excessremaining cash,
pluscombined with increases in short-term debt, cash proceeds from the exercised
stock options and sale of assets, andwas used to cover the decreaserepurchase of shares of
the company's common stock for the treasury, the increase in cash and cash
equivalents, was used to reduceacquisitions, reduction of long-term debt by $124.1 million.
For 1993,and purchase of computer
software. Acquisitions in 1995 included a gasket materials and specialty paper
manufacturing facility in New York and a metal ceilings production plant in
England.
In December, the company completed two major transactions. First, the company
sold its interests in Thomasville Furniture Industries, Inc., a wholly-owned
subsidiary, to INTERCO International Inc. The purchase price of $331.2 million
included INTERCO's assumption of approximately $8 million of Thomasville debt.
An after-tax gain of $83.9 million, or $1.96 per share on a fully diluted basis,
was recorded an $89.9on the sale.
Second, the company entered into a business combination with Dal-Tile
International Inc. Armstrong exchanged $27.6 million charge beforeand the stock of its
ceramic tile operations, consisting primarily of American Olean Tile Company, a
wholly-owned subsidiary, for 37% ownership of the combined company. The after-
tax ($60.0loss on the transaction was $116.8 million, after tax) for restructuring resultingor $2.73 per share on a fully
diluted basis.
During the third quarter, the company sold the champagne cork business in Spain
and announced its intention to discuss with potential buyers the possible sale
of the textile products operation. The divestiture of the champagne cork
business does not have a significant impact on financial results.
These actions show the company's commitment to focus its efforts in its core
businesses and to divest businesses that do not earn in excess of their cost of
capital. The company will use the net proceeds from 1993 decisions associated
with major process improvements and significant organizational changes
recommended by the teams of project PATH (a company initiative announced in
August 1993these transactions to expand
its core businesses internally (with capital expenditures to strengthen the
businesses) and externally (with acquisitions to expand their size and scope),
and to continue with its global competitiveness). Approximately 80%program of repurchasing shares of common stock.
In November 1994, the Board of Directors authorized the company to repurchase up
to 2.5 million shares of its common stock, either in the open market or in
negotiated transactions. During 1995, the company repurchased 782,110 shares
with a cash outlay of $40.6 million. Since the inception of the before-tax losses were related to charges for severance and special retirement
incentives associated with the elimination of employee positions, and
approximately one-third of the before-tax loss represented future cash outlays.
Most of the cash outlays are expected to occur in 1994 and to be offset by
operating savings. The operating cash savings, resulting from restructuring
actions taken during 1993 and 1992, more than offset the 1993 cash outlays of
$39.3 million for restructuring.
During the fourth quarter of 1993,program, the
company terminated, prior to maturity,
interest rate swaps totaling $100 million, and currency swaps totaling $37.2
million.
Working capital was $204.1has repurchased 1,052,110 shares with a total cash outlay of $51.1
million as of December 31, 1993--$37.01995.
Working capital was $346.8 million as of December 31, 1995, $42.0 million higher
than the $167.1$304.8 million recorded at year-end 1992.1994. The primary reason for the increase in working
capital results primarily from the increase in cash resulting from the sale of
Thomasville and the increase in inventory levels. Partially offsetting the
working capital increase were higher levels of accrued expenses, primarily as a
result of accruals for restructuring actions and higher current installments on
long-term debt. The $30.9 million increase in inventories was the repaymentresult of short-term debt. Accounts
receivablethe
building of finished stock for anticipated service level requirements. Included
in these increases were approximately $8.0 million due to translation of foreign
currency receivables and inventories declined $19.1 million and $33.2 million,
respectively, both reflecting reductions in most business units with half of the
reductions attributed to the European building products business.
A financing arrangement of a foreign subsidiary's principal pension plan,
whereby the subsidiary became self-insured for its pension obligations, resulted
in recording a noncurrent asset and long-term liability of $37.7 million (see
page 42).U.S. dollars at higher exchange rates.
The company's 19931995 year-end ratio of current assets to current liabilities was 1.47of 1.92 to 1 as
of December 31, 1995, remained unchanged when compared with 1.31 to 1 ratio reportedlast year.
Long-term debt, excluding the company's guarantee of the ESOP loan, was reduced
by $48.9 million in 1992.1995. At December 31, 1995, long-term debt of $188.3 million
represented 14.9% of total capital compared with 18.9% at the end of 1994. The
19931995 and 19921994 year-end ratio of total debt to(including the company's guarantee of
the ESOP loan) as a percent of total capital was 52.2%38.5% and 57.2%41.4%, respectively.
In February 1995, Armstrong arranged a $200 million, five-year revolving line of
credit with 10 banks. The line of credit is for general corporate purposes,
including use as a backstop for commercial paper notes. This replaced $245
million of short-term bilateral lines of credit with eight banks.
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 capital markets.
The company is involved in significant asbestos-related litigation which is
described more fully under "Litigation" on pages 60-6421 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 flow caps to be negotiated after the initial 10-year period for the
settlement class action or the then compensatorycompensation levels to be negotiated for such
claims, nor the scope of its nonproducts coverage ultimately deemed available or
the successultimate conclusion of the company may have in addressing the Midland Insurance Company
insolvency with its other insurers.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 $166 million in liability and
defense costs recorded on the 1995 balance sheet will be incurred to resolve an
estimated 59,000 asbestos-related personal injury claims pending against the
company as of December 31, 1995. 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 $166 million recorded on the 1995 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 therewith will be paid--in the case of the personal injury claims, by agreed-to
coverage under the Wellington Agreement and supplemented by payments by non-
subscribing insurers that entered into settlement agreements with the
company
and additional insurance coverage reasonably anticipated from the outcome of the
insurance litigation and from the company's claims for non-products coverage
both under certain insurance policies covered by the Wellington Agreement and
under certain insurance policies not covered by the Wellington Agreement which
claims have yet to be accepted by the carriers--and in the case of the asbestos-
relatedasbestos-related property damage claims will be paid under
- 21 -
an existing interim
agreement, by insurance coverage settlement agreements and through additional
coverage reasonably anticipated from the outcome of the insurance litigation.
To the extent that costs of the property damage litigation
are being paid by the company's insurance carriers under reservation of rights,
the company believes that it is probable that such payments will not be
subjected to recoupment. Thus, the company has not recorded any liability for
any defense costs or indemnity relating to these lawsuits other than a reserve
in "Other long-term liabilities" for the estimated potential liability
associated with claims pending and intended to cover potential liability and
settlement costs, legal and administrative costs not covered under the
agreements, and certain other factors which have been involved in the litigation
about which uncertainties exist. Even though uncertainties still remain as to the potential number of unasserted
claims, the 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 first levelintermediate appellate stage of the California
insurance coverage litigation, the remaining reserve, the establishment of the
Center, for Claims Resolution,and the proposed settlement class action and its experience, the company
believes that this litigation willthe asbestos-related lawsuits and claims against the company would not
have abe material adverseeither to the financial condition of the company or to its
liquidity, although as stated above, the net effect on itsof any future liabilities
recorded in excess of insurance assets could be material to earnings liquidity, or financial
position.
The accounting treatment for the Company's asbestos-related personal injury
litigation will be affected by changes in accounting practices required by the
Financial Accounting Standards Board Interpretation Number 39 (FIN 39) and the
Securities and Exchange Commission Staff Accounting Bulletin No. 92 (SAB 92).
FIN 39, which is effective beginning in 1994, does not permit offsetting unless
a right of set off exists. Historically, the Company has been following the
practice of offsetting the liability for asserted claims with expected insurance
coverage. The Company intends to reflect the required changes in its first
quarter 1994 Form 10-Q and, therefore, will record a liability for
asbestos-related personal injury claims and an asset for insurance coverage
deemed probable.such
future period.
Reference is made to the litigation involving The Industry Network System, Inc.
(TINS), discussed on pages 64-65. The company denies all of TINS' claims
and accordingly is vigorously defendingpage 21. In 1994, the matter. In the eventjury returned a verdict finding that a jury
finds against
the company such jury verdict could entail unknown amountshad not caused damages to TINS, and the court subsequently entered
judgment in the company's favor. TINS' motion for a new trial was denied. TINS
filed an appeal with the U.S. Court of Appeals for the Third Circuit which
if sustained, could haveissued a material adverse effect on its earnings and
financial position.judgment in favor of the company. TINS' Petition for Rehearing by the
same panel was denied in December 1995. On January 24, 1996, TINS filed a motion
seeking further appellate review by the Circuit Court.
Reference is also made to environmental issuesmatters as discussed on pages 51, 52,
and 61.page 21. The
company believes any sum it may have to pay in connection with environmental
matters in excess of amounts accrued would not have a material adverse effectaffect on
its financial condition, liquidity or results of operations.
CONSOLIDATED RESULTS
Net sales of $2.08 billion on a continuing business basis were once again an
all-time sales record for any year in the company's history. These results were
4% higher than the $2.01 billion recorded in 1994. The growth was largely due to
increased sales in both the global, particularly European, non-residential and
U.S. home center market segments. In keeping with one of the company's four key
strategies, 1995 saw the introduction of new products. The resilient flooring
business announced new floor products, primarily for the residential segment, at
its convention in December. Building Products Operations introduced a new high
style, high performance ceiling line, called Ultima, targeted to the
nonresidential segment. New glazed wall and floor tile products were introduced
by the ceramic tile operations.
Earnings from continuing businesses before income taxes were $8.2 million, a
decrease from the $265.8 million in 1994. The earnings decline was attributable
to restructuring charges of $71.8 million and the loss of $177.2 million related
to the business combination of Armstrong's ceramic tile operations with Dal-Tile
International Inc.
Net earnings for the year were $123.3 million, compared with $210.4 million in
1994. Net earnings per share of common stock for 1995 were $2.90 on a primary
basis and $2.67 on a fully diluted basis. In 1994, net earnings per share of
common stock were $5.22 on a primary basis and $4.64 on a fully diluted basis.
1995's net earnings included $25.8 million of after-tax earnings from the
discontinued operations of Thomasville Furniture Industries, Inc., and $83.9
million of the after-tax gain from its sale. 1994's net earnings included $18.6
million in after-tax gains resulting from the resolution of tax audits, the sale
of its majority interest in a subsidiary and the reduction of the company's
estimated health care liability.
The company's level of performance in Economic Value Added (EVA) as measured by
return on capital was 14% in 1995, exceeding the company's 12% cost of capital.
Cost of goods sold in 1995 was 67.6% of sales, slightly higher than the 66.1%
recorded in 1994. This increase largely reflects start-up costs in the new
insulation products facility in Mebane, North Carolina, and the impact of
unfavorable sales mixes in residential flooring sales in North America. Included
in the 1994 cost of goods sold was a one-time gain of $12.2 million reflecting a
reduction in the company's estimated health care liability for employees on
long-term disability.
Selling, general and administrative (SG&A) costs in 1995 were 2.3% higher than
1994. The increased costs resulted from the translation of foreign currency
expenses to U.S. dollars at higher exchange rates. Excluding these adjustments,
expenses would have decreased by 1%.
Results for 1995 included restructuring charges of $71.8 million before tax or
$46.4 million after tax, or $1.09 per share on a fully diluted basis. In the
first quarter of 1995, the company announced plans to close a plant in
Braintree, Massachusetts. The before-tax restructuring charge of $15.6 million
includes costs accrued for the elimination of about 223 salaried and hourly
employee positions, for the obsolescence of equipment and for other costs to be
incurred after operations cease. Cash outlays will be about one-third of the
total charges with the majority of the cash outlay occurring in early 1996. The
plant ceased operations on February 1, 1996.
In the third quarter, the company recorded a restructuring charge of $56.2
million before tax or $36.5 million after tax related to the company's ongoing
efforts to streamline the organization and enable the businesses to be the best-
cost suppliers in their markets. The restructuring charges primarily relate to
severance and early retirement incentives for approximately 670 employees, half
of whom are hourly and the other half are salaried. Nearly 40% of the $56.2
million charge was related to the North American resilient flooring business,
while another 40% was related to the European Operations, primarily in its
industry products and building products segments. The balance was related to
corporate and other operating segments. The charges are estimated to be evenly
split between cash payments throughout 1996 and noncash charges, primarily to
cover retirement-related expenses. It is anticipated that ongoing cost
reductions and productivity improvements should permit recovery of these charges
in less than two years.
The company's interest expense increased due to higher debt levels during the
year and charges related to deferred compensation plans.
Armstrong's effective tax rate for 1995, excluding the tax benefit on the loss
related to the ceramic tile business combination, was 30.6% compared with a
29.6% rate in 1994.
GEOGRAPHIC AREA RESULTS
UNITED STATES
Sales increased slightly while operating income decreased when compared with
1994. Higher sales levels were generated through the national home center and
mass merchandiser channels, but lower levels were returned by the professionally
installed resilient flooring segment. Sales price increases occurred in most of
the U.S. businesses; however, operating income was impacted by the loss on the
ceramic tile business combination, restructuring charges, higher raw material
prices and start-up costs of the North Carolina insulation products facility.
1994 operating income included a one-time gain through the reduction in the
company's estimated health care liability for employees on long-term disability.
Export sales of Armstrong products to trade customers increased $5.9 million, or
23.7%, compared with 1994.
An organizational effectiveness study to review the company's staff support
activities will be completed in first-quarter 1996 and implemented by late 1996.
EUROPE
During 1995, economic conditions continued to improve and helped Armstrong's
end-use markets. For the year, sales increased 15.6%. All the company's European
businesses recorded year-to-year sales increases with the building products
segment being the most significant. Operating income decreased by nearly 17%,
impacted by restructuring charges. Partially offsetting these charges was
improved productivity -- much of it related to restructuring actions taken in
1993. The results in the European insulation products business continued to be
adversely affected by competitive pricing. An organizational effectiveness study
was completed in 1995 to align the staff with the global business units.
OTHER FOREIGN
Sales in 1995 increased slightly when compared with 1994, assisted by an
increase in building products sales in China. Operating income also increased
slightly, but reflected continued competitive pricing and higher expenses needed
to expand to China and other Far East markets. The company continues to extend
its investments in the Pacific area with the start of construction of a building
products manufacturing facility in Shanghai, China, to take advantage of this
area's market opportunity.
INDUSTRY SEGMENT RESULTS
FLOOR COVERINGS
The floor coverings segment sales decreased less than 1% from 1994. Higher home
center and nonresidental sales volume was offset by lower sales in U.S.
professionally installed residential sheet flooring. Operating income decreased
23.5% compared with 1994. Operating income included a restructuring charge of
$25.0 million, 90% of which related to elimination of employee positions in
North America. Operating income was favorably impacted by expense reductions and
higher selling prices, introduced early in 1995, that partially offset higher,
but downward trending, raw material prices. European sales growth and
profitability remained strong in this segment, with both hitting record levels.
Capital expenditures in this segment increased by $20.6 million and were
directed toward modernization of equipment, manufacturing capacity and operating
efficiencies.
Outlook
The company expects sales throughout the home center channels to remain strong
despite the current overall weakness in the retail market segments. In this
channel, The Home Depot, Lowes and Menard Inc. are important customers of our
resilient floor products. Lower or stabilized raw material prices and operating
efficiencies gained through restructuring activities should be positive factors
on operating income. Floor Products Operations has introduced a new brand
strategy targeted at three distinct market opportunities. The Armstrong and
Solarian brands will be used for sheet and tile floors at the "good" and
"better" price points while the new VIOS brand is an innovative line of upscale
sheet flooring products in the "best" category. Also recently introduced is the
Quest Program, offering independent flooring specialty retailers incentives to
strengthen their relationship with Armstrong. The second part of this program is
a unique display and merchandising system designed especially for that market.
Early results from these programs have shown order rates beyond initial high
expectations. In late 1995, the company announced that it was entering a
strategic alliance with the F. Egger Company of Austria to manufacture and
market laminate flooring products. Laminate flooring is made of decorative
melamine laminate compressed with a wood-based product and kraft paper for
balance. The European area has an aggressive sales plan for Eastern Europe and
Russia while Western and Central Europe will be target opportunities for growth
in sales of commercial sheet flooring. The W.W. Henry Company, a wholly-owned
subsidiary, has also focused its efforts on customer service through the
updating of its installation and adhesives products and packaging.
BUILDING PRODUCTS
The announcement in October that Building Products Operations was the first
building materials manufacturer and marketer to win a Malcolm Baldrige National
Quality Award demonstrates Building Products commitment to business excellence.
All geographic areas in the building products segment contributed to the 8%
sales increase with about one-third of the increase due to the translation of
foreign currencies to a weaker U.S. dollar. The European and Pacific areas
continued to show the strongest growth. Sales were assisted by the worldwide
introduction of Ultima, a high performance, high style ceiling.
Operating income of $92.2 million included a restructuring charge of $6.3
million mainly related to administrative functions in the European operations.
Sales growth, primarily in the worldwide commercial markets, higher selling
prices and continuing cost reduction efforts were positive factors on operating
income. WAVE, the grid system joint venture with Worthington Industries, has
been highly successful in both North America and Europe and is delivering an
excellent rate of return. Capital expenditures in this segment, which increased
by $17.7 million, are directed at increasing capacity through productivity
improvements.
Outlook
This segment continues to expect sales increases in the Pacific area and is
investing in the area with the construction of a building products manufacturing
facility in the People's Republic of China with plant completion scheduled in
late 1996. The company expects that the introduction of additional RH90 ceiling
products in early 1996 will continue to build the momentum in Europe and Asia.
The company has entered the European metal ceilings business with the
acquisition, in late 1995, of the metal ceiling production and marketing
business from Cape PLC of England.
INDUSTRY PRODUCTS
The industry products segment's sales grew by almost 12%, but the weaker U.S.
dollar accounted for two-thirds of the increase. Operating income, which
decreased significantly, includes a $31.4 million restructuring charge related
to the closing of the Braintree, Massachusetts, plant and elimination of
employee positions in Europe. Operating income for insulation products, the
largest business in this segment, was essentially flat year-on-year with gains
on translations of foreign currencies to U.S. dollars offset by the
restructuring charges. Also adversely affecting operating income was the need to
meet competitive European pricing and the start-up costs of $6.1 million for the
new Mebane, North Carolina, insulation products plant. In 1995, the Gasket and
Specialty Paper Operations became the first U.S. producer of soft gasket
material to obtain an ISO 9001 registration. Gasket and specialty paper products
sales increased from 1994 because of the acquisition in March of a gasket and
specialty paper manufacturing facility in Beaver Falls, New York. However,
operating income was impacted by lower automotive and diesel market sales and
higher raw material costs. Effective in 1996, this business will be a wholly-
owned subsidiary company, Armstrong Industrial Specialties, Inc. In the third
quarter, the company divested the champagne cork business in Spain. The textile
products business is still generating a modest operating loss, but lower than
the amount recorded in 1994.
Outlook
This business segment is using its technical advantage and attractive pricing to
enhance its market position. In early 1996, the Mebane insulation products plant
will begin operations. This plant provides a lower cost structure and logistical
advancements over the Braintree facility. These improvements, along with the
introduction of new products, are part of management's strategy for the
expansion of this business's global markets. Sales in Europe, the largest
geographic area in terms of sales, have been increasing during 1995 and the
trend is expected to continue. Early in 1996, Armstrong Industrial Specialties,
Inc., will distribute gasket materials through a new tiered system to service
customers of all sizes. In the third quarter of 1995, the company announced its
decision to discuss with potential buyers the possible sale of the textile
products operation.
CERAMIC TILE
In December 1995, the company entered into a business combination with Dal-Tile
International Inc. to strengthen its position in the worldwide market. The
before-tax loss from this business combination was $177.2 million.
Excluding this loss, the ceramic tile segment's operating income improved
significantly over 1994 aided by new product offerings including glazed floor
and wall tile products targeted at opening price points.
Outlook
Armstrong retains a 37% interest in the new Dal-Tile International Inc. entity.
The company expects this business combination to result in improved levels of
customer service through the more efficient use of the manufacturing and
distribution resources of both companies. The synergies of the combination
should improve profitability in this segment. However, the amount and timing of
these synergies are dependent on the integration of the two businesses.
- --------------------------------------------------------------------------------
1994 COMPARED WITH 1993
- --------------------------------------------------------------------------------
Results for 1994 and 1993 have been restated to reflect changes due to the
discontinued business and ceramic tile business combination.
FINANCIAL CONDITION
As shown on the Consolidated Statement of Cash Flows (see page 21), net cash
provided by operating activities in 1994 was $305.2 million, which was more than
sufficient to cover working capital requirements; payment of dividends; the
payment for restructuring activities and the investment in property, plant and
equipment. The remaining cash, including proceeds from stock options exercised
and the cash proceeds from the sale of assets and the company's majority
investment in BEGA/US, Inc., was used to reduce debt by $95.3 million and to
repurchase shares of the company's common stock for the treasury.
Working capital was $304.8 million as of December 31, 1994, $91.6 million higher
than the $213.2 million at year-end 1993. The primary reasons for the increase
in working capital were the $73.8 million repayment of short-term debt and the
$24.3 million increase in accounts receivable resulting from higher sales
levels. Modest increases in other assets including inventories and lower levels
of income taxes payable also increased working capital by $21.2 million.
Partially offsetting the increase were higher levels of accounts payable and
accrued expenses totaling $27.7 million.
The company's 1994 year-end ratio of current assets to current liabilities was
1.92 to 1 compared with a ratio of 1.55 to 1 reported in 1993. The major reason
for the ratio increase was the $73.8 million reduction of short-term debt.
Long-term debt, excluding the company's guarantee of the ESOP loan, was reduced
by $9.8$19.6 million in 1993.1994. At year-end 1993,1994, long-term debt of $237.2 million
represented 45%18.9% of shareholders' equitytotal capital compared with 47%21.6% at the end of 1992.
Should1993. The
1994 and 1993 year-end ratio of total debt as a need develop for additional financing, it is management's opinion
thatpercent of total capital was
41.4% and 52.2%, respectively.
During the first quarter of 1994, the company has sufficient financial strengthterminated, prior to warrantmaturity, a
notional amount $25 million interest rate swap and, in the required
support from lending institutionssecond quarter of
1994, a notional amount $15 million interest rate swap matured. During the
fourth quarter of 1993, the company terminated, prior to maturity, two notional
amount $50 million interest rate swaps and financial markets.
- 22 -
Consolidated results
Net salesforeign currency swaps of French
francs 182.4 million and Belgian francs 270 million. The company's management of
foreign currency and interest rate exposures resulted in a loss of $1.7 million
in 1994 compared with a gain in 1993 of $2.53$1.9 million. As of December 31, 1994,
the company had no outstanding interest rate or currency swaps.
CONSOLIDATED RESULTS
Record net sales in 1994 of $2.01 billion decreased 1.0% compared with 1992were 8% higher than the 1993 sales of
$2.55$1.87 billion. The weaker European exchange rates were a key factor in the sales
decline. Translating foreign currency sales toArmstrong's U.S. dollars at 1992 exchange
rates would have resulted in a year-to-year sales increase of 1.9%. Armstrong's residential markets were very positivereflected continued strength
in 1994, while European area economic conditions improved in 1994 causing a
rebound in sales opportunity. On a worldwide basis, the U.S., but the weakness in the
European economiescommercial and
the lackluster commercial markets worldwide reduced the
overallinstitutional end-use market segments also improved, favorably affecting sales
opportunity. WhileArmstrong took advantage of this opportunity and increased sales in
nearly every one of its businesses. The introduction of new products, primarily
for the first two quarters of 1993 were lower
than the comparable 1992 quarters, third and fourth quarterresidential market segments, also helped to increase sales did exceed
those of the prior year.
Netin 1994.
Record net earnings were $63.5$210.4 million compared with a net lossearnings of $63.5
million in 19921993. The 1993 earnings included restructuring charges of $227.7
million.$53.6
million after tax. Net earnings per common share were $1.32$5.22 on a primary basis
and $1.26$4.64 on a fully diluted basis. The net loss per sharebasis compared with $1.32 and $1.26, respectively,
for 1993.
Armstrong's measure of common stockreturn on average monthly assets was $6.49 on
both a primary and fully diluted basis12.7% for 1992.1994
compared with 3.4% for 1993. Average monthly assets exclude the insurance for
asbestos-related liabilities. The return on common shareholders' equity in 19931994
was 9.0%31.3% compared with 9.0% in 1993.
Cost of goods sold as a negative 33.9%percent of sales was 66.1% for the year, the lowest
level for more than a quarter of a century, which compares favorably to 1993's
cost of goods sold of 69.0%. The continuing reduction in 1992.cost of goods sold
reflects the positive influence of the prior two years' restructuring programs,
productivity improvement in all our businesses, sales price increases in a
number of our businesses, some product mix improvement and the introduction of
new products, primarily in our residential businesses. During 1994, $12.2
million of the $14.6 million before-tax gain from a reduction in Armstrong's
health care liability for employees on long-term disability also lowered the
cost of goods sold. The 1992 loss reflects chargesreduction resulted from actions taken by the company to
qualify these employees for primary coverage under Medicare.
Selling, general and administrative expenses represent 19.3% of $167.8 million after tax related tosales, up from
the 18.6% reported for 1993 with overall expenses increasing 4.8% when comparing
1994 with those of 1993. Higher costs for the use of consultants in improving
the company's adoption, retroactiveglobal competitiveness and for special incentive awards to
January 1, 1992,motivate superior performance were partially offset by the previously mentioned
gain from the reduction in the health care liability and a gain from the sale of
SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions;"Armstrong's majority interest in BEGA/US, Inc.
No restructuring charges were recorded in 1994. However, 1993 results included
$89.3 million before tax of restructuring charges associated with Armstrong
initiatives to enhance its global competitiveness. These costs were primarily
associated with eliminating approximately 950 employee positions in the U.S. and
SFAS 112,
"Employers' Accounting for Postemployment Benefits." The computationEurope. More than half of SFAS 112the amounts accrued at the end of 1993 were used with
much of the remaining accrual to be utilized in 1995.
Interest expense was refined duringsignificantly reduced in 1994 compared with 1993 withand was
the net loss in 1992 being reduced and restated by
$6.5 million or 18 cents per share. The restated 1992 net loss from continuing
businesses totaled $59.9 million, or a $1.98 loss per shareresult of common stock.lower debt levels.
The effective tax rate for 1994 was 30.9% compared with 30.0% in 1993. The
current year tax rate was helped by a gain from the reversal of previously
accrued tax expense following resolution of the company's 1988, 1989 and 1990
tax audits, the positive effect of tax benefits related to taxes on foreign
income and state income taxes through the realization of previously unrecognized
deferred tax assets and lower withholding taxes on foreign dividends. In
addition, the company utilized excess foreign tax credits during 1994. The 1993
was 30.0%. This reflectstax rate reflected the company's higher use of foreign tax credits, reductions
of deferred taxes becauseresulting from some foreign
countries reducedlowering their statutory tax
rates and lower foreign tax rates, which more than offset the 1% increase in the
U.S. statutory tax rate.
The net loss
from 1992 included an effective tax benefit rate of only 1.0%, primarily because
some of the restructuring charges did not provide tax benefits. The company also
adopted SFAS 109, "Accounting for Income Taxes," resulting in tax benefits of
$5.5 million for 1992 being credited directly to retained earnings rather than
to income taxes on the consolidated statement of earnings.
Restructuring charges for 1993, totaling $89.9 million before tax, were
included in the earnings from continuing businesses and were associated with
Armstrong initiatives to enhance its global competitiveness. These costs are
primarily associated with the elimination of employee positions in the U.S. and
Europe. For the full year 1992, restructuring charges totaled $165.5 million
before tax and related to the closing of four major manufacturing plants; the
scaling back of operations in certain other plants in the U. S. and abroad;
accruals for costs associated with the elimination of positions throughout the
rest of the company; as well as write-downs of the value of land, buildings,
equipment, and intangible assets of the company. Cash outlays for the 1993
restructuring charges will occur primarily throughout 1994 and should be fully
recovered within two to three years.
- 23 -
The cost of goods sold for 1993, when expressed as a percent of sales, was
71.4%--the lowest level for the last four years--and compares favorably with
1992's cost of goods sold of 74.1%. These lower costs reflect the positive
effects of the 1992 restructuring activities, productivity gains, some pricing
increases, and product mix enhancements.
Interest expense was favorably affected by lower debt levels and lower
interest accruals for tax obligations. Miscellaneous income and expense in 1993
included the positive effects of lower amortization of acquired intangibles as a
result of the 1992 restructuring, profits resulting from the closing out of some
interest rate swaps in anticipation of interest rate increases, and gain on sale
of assets. Partially offsetting these positive effects were some increased
environmental expenses and a small foreign exchange loss in 1993 compared with a
small foreign exchange gain in 1992.
Geographic area results (see pages 7 and 8)
United States--SalesGEOGRAPHIC AREA RESULTS
UNITED STATES
Sales increased by nearly 4% from 1992 levels. The 1992 net
sales included five months of the building products segment's grid sales that
were made prior to the formation of the Armstrong and Worthington Industries
joint venture (WAVE) effective June 1, 1992. Removing these sales from 1992
would result in an additional 1% increase in the year-to-year sales comparison.
Operating profits jumped 251% when comparing 1993 with those of 1992. The
continuing economic recovery provided increased opportunity in our end-use
markets. During 1993, single family housing starts increased 6% and the sale of
existing single family homes rose nearly 8%. Nonresidential new construction
appeared to be close to the bottom of its cycle.
A major source of higher sales in 1993more than 7% while operating income was the significant increase in
business channeled through national home centers and mass merchandisers. These
sales, coupled with the stronger resilient flooring business, were major factors
in generating significantly higher operating profits. The furniture and ceramic
tile businesses also generated higher sales, while sales in the building
products and textile products businesses were lower. The operating profit
improvements were also driven by the 1992 restructuring activities that resulted
in lower manufacturing costs in most domestic businesses, by some higher sales
levels, and by continuing productivity improvements.
Operating profits for both years included significant restructuring charges.
The 1993 and 1992 restructuring charges total about $37 million and $98 million,
respectively. The 1993 restructuring charges were primarily attributable to
position eliminations. The 1992 restructuring charges included closing two
plants, the write-down of fixed assets, and the elimination of employee
positions.
Export sales of Armstrong products from the U.S. to trade customers increased
nearly $3 million, or 11%, compared with 1992.
Europe--The 1993 European economic environment continued to be weak in both
the commercial and residential markets; however, the British market offered some
improvement for Armstrong products. Net sales decreased 16%, but two-thirds of
the decline reflected the weakening of European currencies. Excluding the impact
of the strong U.S. dollar, insulation products was the only business in Europe
that recorded a year-to-year sales increase. The European building products
business relies entirely on commercial construction and had the largest decline,
nearly 12%. Even with lower sales, operating profits for Europe improved 41%.
This improvement was primarily the result of lower costs caused by restructuring
actions taken in the latter part of 1992, including the closing of the Ghlin,
Belgium, ceilings manufacturing facility.
Other foreign--Sales in 1993 declined nearly 4% from those of 1992. Operating
profits were recorded for 1993 compared with an operating loss in 1992. The 1992
operating loss resulted from restructuring charges associated with the closing
of the Gatineau, Canada, ceilings manufacturing plant. The overall sales decline
was a result of lower sales of resilient flooring in Japan and Southeast Asia
that were partially offset by higher sales of flooring in Australia and Canada
and of building products in the Pacific Rim. Excluding the impact of the
restructuring charges in 1992, operating profit for 1993 increased in the year-
to-year comparison.
Industry segment results (see pages 3 and 4)
Floor coverings--Worldwide sales were 5% higher in 1993more than in 1992, with
operating profits increasing threefold from 1992 levels. The operating profit
included restructuring charges in 1993 of almost $28 million compared with
nearly $81 million in 1992. Almost three-fourths of the 1993 restructuring
charges were related to ceramic tile with the remainder recorded in resilient
flooring. Nearly all of the 1992 restructuring charges related to ceramic tile.
Sales in the resilient flooring portion increased in North America but were
lower in the European and Pacific areas. The North American increase was driven
by sales in the U.S. market with strong growth through national account home
centers and mass merchandisers as well as modest growth through wholesalers. The
U.S. resilient flooring business was also helped by higher sales of existing
homes and new housing construction. Ceramic tile recorded a modest sales
increase primarily because of its residential business. The commercial
institutional market for ceramic tile continued to be weak, providing little
sales growth in 1993 compared with 1992.
- 24 -
Operating profits, excluding the effects of restructuring charges, increased
42%. Resilient flooring operating profits improved because of the higher sales
levels and because of significantly lower manufacturing costs that were achieved
by process improvement and productivity gains. Ceramic tile continued to record
a loss in 1993 as it did in 1992, but the losses were less in each of the 1993
quartersdoubled
when compared with 1992. The ceramic tile business was adversely
affected by very competitive pricing and a shift in product mix to lower margin
products.
Capital investments for 1993 were higher than those of 1992 with continued
concentration of these expenditures in improving and maintaining the current
manufacturing processes and in generating additional capacity from existing
equipment.
Building products--On a worldwide basis, market conditions did not improve in
the commercial construction markets in 1993. The North American sales
comparison reflects a decline because the first five months of 1992 included
grid that was sold prior to the formation of the WAVE joint venture. The
European markets, with the exception of the United Kingdom, were weaker in 1993.
European sales declined by nearly 22%, ofprimary end-use market segments -- residential,
which half was caused by weaker
European currencies.
The 1993 operating profit included restructuring charges of nearly $14
million, while the 1992 operating loss included $35 million of restructuring
charges. This segment lowered its cost structure significantly as a result of
restructuring actions taken in 1992 that included the closing of two
manufacturing facilities and productivity improvements that were attained in
1993. Even with lower sales and competitive pricing early in 1993, the lower
cost structure that was put in place, coupled with some higher sales prices in
the second half of 1993, permitted this segment to increase operating profits.
Capital investments in 1993 were about the same as 1992, but both years'
expenditures were lower than depreciation levels.
Furniture--Operating results for this segment were positive--1993 sales
nearly 3% higher than those of 1992 and operating profits more than 150% higher
than last year. Both years contained restructuring charges that were less than
$1 million in 1993 and nearly $5 million in 1992. Exclusive of restructuring
charges, this segment recorded operating profits that were 80% higher than last
year.
With the U.S. consumer household durable goods spending increasing in 1993,
modest sales increases were recorded in the Thomasville wood and upholstery
business that more than offset declines in the Armstrong retail, ready-to-
assemble furniture, and the contract business.
The operating profit improvement was driven by higher sales volume, lower
costs resultingreflected continued strength from the 1992 restructuring program,prior year, and improved productivity.
Higher lumber costscommercial/
institutional which became stronger during 1994 -- had a negative impactpositive effect on 1992 operating results and
continued to increase throughout much of 1993 but were offset by increased sales
prices. Capital expenditures in 1993 increased modestly over those of 1992.
Industry products--Almost three-quarters of the sales of this
segment
generally occur in European markets, which in 1993 remained in recession,
limiting growth opportunities. Worldwide sales declined nearly 7%, with the
stronger U.S. dollar accounting for 95% of the decline. Operating profits
declined by slightly more than 7%, with restructuring charges of almost $13
million in each year.
The insulation business remains the most significant portion of this segment.
Excluding the negative effect of currency translation, sales grew modestly while
operating profits recorded a small decline. The German market remained
relatively strong for this business while markets in the other European
countries were adversely affected by weak economies. Sales in North America and
the Pacific Rim recorded a small increase in 1993. While the insulation business
restructuring programs did lower costs, they were not able to offset the impact
of the lower sales and competitive pricing pressures.
The textile mill supplies business recorded significantly lower sales that
were driven by the worldwide recession in the textile industry. This business,
while lowering its cost structure, was unable to offset the impact of the
significantly lower sales worldwide. The gasket materials business recorded
slightly lower sales, with a small decline in operating profit from 1992 levels.
Capital expenditures were reduced by about one-third from 1992 levels, but
were almost 40% greater than annual depreciation levels. The capital investments
continue generally to support future growth of this segment.
- 25 -
1992 compared with 1991
Financial condition
As shown on the Consolidated Statements of Cash Flows, net cash provided by
operating activities in 1992 was $186.8 million, more than sufficient to cover
investments in property, plant, and equipment, and dividends, and an investment
in a new joint venture. The balance of cash, including cash proceeds from sale
of assets, was used to reduce debt and increase cash and cash equivalents.
During the first quarter of 1992, the company redeemed, for $8.8 million, all
outstanding 8% sinking-fund debentures due in 1996 at face value plus accrued
interest to the date of redemption.
For 1992, the company recorded a $165.5 million charge before tax ($123.8
million after tax) in connection with a restructuring plan designed to
increase the overall profitability of the company by closing four major
plants; scaling back of certain operations; elimination of positions
throughout the company; and write-downs of land, buildings, equipment and
intangible assets. Approximately two-thirds of the before-tax losses were
noncash charges related to the write-down of assets. Cash outlays for
restructuring charges in 1992 were approximately $9.4 million. Most of the
cash outlays are expected to occur in 1993 and to be offset by operating
savings resulting from the restructuring.
During the fourth quarter of 1992, the company adopted three new financial
accounting statements: SFAS 106, SFAS 109 and SFAS 112. Adoption of these
financial accounting statements had no current cash flow impact on the company.
Receivables declined $2.7 million and inventories declined $17.0 million.
Each reflects the translation of foreign currency receivables or inventories to
U.S. dollars at lower exchange rates. Higher sales volume late in the fourth
quarter increased receivables and helped lower inventories. Current income tax
benefits increased $8.1 million, principally because of deferred tax benefits
related to restructuring charges. Other noncurrent assets decreased $53.1
million because of a $30.0 million write-off of intangible assets and a $30.0
million reduction of prepaid pension costs, both attributable to restructuring
activities. Partially offsetting the decreases in noncurrent assets were
investments in the WAVE grid joint venture.
- 26 -
The company's year-end ratio of current assets to current liabilities
declined to approximately 1.3 to 1 from the 1.5 to 1 ratio reported in 1991. The
major cause of the decline is the $47.9 million of accrued expenses associated
with restructuring activities.
The company is involved in significant litigation, which is described more
fully under "Litigation" on pages 60-65 and which should be read in connection
with this discussion and analysis.
Although 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, based
upon its experience and other factors, the company believes that it is probable
that nearly all of the expenses and any liability payments associated therewith
will be paid--in the case of the personal injury claims, by agreed-to coverage
under the Wellington Agreement and supplemented by payments by nonsubscribing
insurers that entered into settlement agreements with the company and additional
insurance coverage reasonably anticipated from the outcome of the insurance
litigation and from the company's claims for non-products coverage, both under
certain insurance policies covered by the Wellington Agreement and under certain
insurance policies not covered by the Wellington Agreement which claims have yet
to be accepted by the carriers--and in the case of the property damage claims,
under an existing interim agreement, by insurance coverage settlement agreements
and through additional coverage reasonably anticipated from the outcome of the
insurance litigation. To the extent that costs of the property damage litigation
are being paid by the company's insurance carriers under reservation of rights,
the company believes that it is probable that such payments will not be
subjected to recoupment. Thus, the company has not recorded any liability for
any defense costs or indemnity relating to these lawsuits other than a reserve
in "Other long-term liabilities" for the estimated potential liability
associated with claims pending intended to cover potential liability and
settlement costs, legal and administrative costs not covered under the
agreements, and certain other factors which have been involved in the litigation
about which uncertainties exist.area. Even though uncertainties still remain as to
the potential number of unasserted claims, the 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 remaining reserve, the establishment of the Center for
Claims Resolution, the proposed settlement class action, and its experience, the
company believes that this litigation will not have a material adverseinterest rates were raised six times during 1994, they had
very little effect on its earnings, liquidity, or financial position.
Reference is made to the litigation involving The Industry Network System,
Inc. (TINS), discussed on pages 64-65. The company denies all of TINS'
claims and accordingly is vigorously defending the matter. In the event that a
jury finds against the company, such jury verdict could entail unknown amounts
which, if sustained, could have a material adverse effect on its earnings and
financial position.
Long-term debt, excluding the company's guarantee of the ESOP loan, was
reduced by $34.8 million in 1992. At year-end 1992, long-term debt represented
47% of shareholders' equity compared with 34% at the end of 1991. The increase
is the result of shareholder equity reductions caused primarily by the
cumulative-effect charges from adoption of accounting statements and
restructuring charges previously discussed.
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. In June 1992, the
company's registration statement for $250 million of debt securities was
declared effective.
Consolidated results
Record net sales in 1992 of $2.55 billion increased 4.5% from $2.44 billion
in 1991. Increased sales opportunity was provided by the residential, do-it-
yourself, and industrial markets, while for the fifth consecutive year,
commercial markets remained depressed. European economies continued
- 27 -
to reflect a recessionary environment, which resulted in reduced demands for the
company's products. Sales in each of the 1992 quarters were above those of 1991.
The rate of growth was highest in the first quarter, but was lower during the
last three quarters of the year.
Net losses in 1992 were $227.7 million, compared with net earnings of $48.2
million in 1991. Net losses per share of common stock for 1992 were $6.49 on1994's results. During 1994, both a primary and fully diluted basis compared with 1991 net earnings of 77
cents per share.
The return on common shareholders' equity in 1992 was a negative 33.9%
compared with a positive return of 3.3% in 1991.
The 1992 losses reflect charges of $167.8 million after tax related to the
company's adoption, retroactive to January 1, 1992, of SFAS 106 and SFAS 112.
The 1991 net earnings included a $12.4 million after-tax provision related to
discontinued businesses.
Losses from continuing businesses in 1992 totaled $59.9 million, compared
with earnings from continuing businesses of $60.6 million in 1991. The loss per
share of common stock from continuing businesses was $1.98 on both a primary and
fully diluted basis compared with 1991 earnings per share of $1.11.
The net loss for 1992 included an effective tax benefit rate of 1.0% compared
with 1991's effective tax rate of 39.6%. The reduced 1992 tax benefit rate is
generally because some of the restructuring charges do not provide tax benefits.
In addition, a lower share of foreign countries' earnings resulted in lower tax
rates. The company also adopted SFAS 109 resulting in tax benefits of $5.5
million for 1992 being credited directly to retained earnings rather than to
income taxes on the consolidated statement of earnings. The 1991 effective tax
rate included an increased share of the company's earnings coming from foreign
countries with higher tax rates and a $3.7 million deferred income tax charge
reflecting increases in state income tax rates.
The loss from continuing businesses before income taxes was $60.4 million,
compared to earnings from continuing businesses before income taxes in 1991 of
$100.3 million.
Included in the loss from continuing businesses for the full year 1992 were
restructuring charges of $165.5 million before tax. These restructuring charges
related to the closing of four major manufacturing plants--two in the U.S., one
in Canada, one in Belgium--and to the scaling back of operations in certain
other plants in the U.S. and abroad. Also included were accruals for costs
associated with elimination of positions throughout the company, as well as
write-downs of the value of land, buildings, equipment, and intangible assets of
the company. The cash outlays for the restructuring charges will occur primarily
in 1993 and are expected to be recovered by the savings resulting from the
restructuring. Restructuring charges for 1991 amounted to $8.4 million after
tax.
Lower short-term interest rates favorably affected interest expense.
Miscellaneous income and expense in 1992 included the positive effects of an
insurance reimbursement for certain costs associated with the 1990 takeover
threat, foreign exchange gains, lower amortization of intangibles, and a gain
from the early retirement of certain debt; the 1991 results included foreign
exchange gains of $5.9 million.
The cost of goods sold for 1992, when expressed as a percent of sales, was
74.1% compared with 1991's 73.8%. This higher cost relationship is the result of
the previously mentioned expense accruals required by SFAS 106 and SFAS 112.
Operating results were affected by competitive pricing pressures and higher
fixed costs concurrent with slow sales growth.
- 28 -
Geographic area results (see pages 7 and 8)
United States--Sales increased more than 4% while operating profits declined
61% when compared with 1991. Residential end-use markets improved significantly
in 1992 when compared with 1991. Single family housing starts increased at a
double digit rate while the sales of existing single family homes provided a
more modest increase. New construction put in place for private nonresidential
buildings was significantly lower in 1992 than in 1991.
The 1992 net sales included only five months of the building products
segment's grid sales compared with a full year's sales in 1991 as a result of
the grid joint venture with Worthington Industries effective June 1, 1992.
Results after that date have been recorded on an equity-accounting basis. The
major contributor to increased sales in 1992 was the resilient flooring business
which benefited from significant new product introductions and year-to-year
improvements in the previously mentioned single family housing
starts and sales of existing homes. Most domestic businessessingle family homes rose close to 5%.
Nonresidential new construction grew at a rate of over 8% in 1994. The long-term
effect of higher interest rates may slow future sales growth in these market
segments.
Higher sales occurred primarily in the floor coverings segment. As in past
years, higher sales levels continued through the national home centers and mass
merchandisers channel. New product introductions for the residential end-use
markets also provided additional sales.
While the higher sales levels were affected by competitive and
promotional pricing and less favorable product mix. Costs associated witha key factor, the expansionsignificant restructuring
actions of the residentialpast two years also played a major part in increasing operating
income mainly in the building products segment and the ceramic tile program adversely impacted profit
performance.
The largest declinesegment.
Sales price increases occurred in operating profit is attributable to the major
restructuring charges recorded during 1992, including the closingmost of the Pleasant Garden, N.C., furniture plant, the closing of the Quakertown, Pa.,
quarry-tile ceramic plant,U.S. businesses and related accruals for the write-downs of land,
buildings, and equipment, as well as elimination of employee positions.had a positive
effect on operating income.
Export sales of Armstrong products from the U.S. to trade customers declined
$5increased $5.1 million, or
17% during 1992 whenover 25%, compared with 1991.
Europe--The1993.
EUROPE
During mid-1994, economic conditions began to improve and helped Armstrong's
end-use markets. For the year, sales increased nearly 6% and operating income
improved by 138%. All the company's European businesses recorded year-to-year
sales increases. Operating income was helped significantly by improved
productivity -- much of it related to restructuring actions taken in 1992 economic environmentand
1993. The results in Europethe European insulation products business were adversely
affected by increased competitive pricing and higher than usual obsolescence of
equipment.
OTHER FOREIGN
Sales in 1994 reversed a four-year declining trend and increased by 13% compared
with 1993. Operating income declined by $2.4 million, or 24%, reflecting the
competitive pricing and higher expenses needed to penetrate the Chinese and
other Far East markets and a shift in product mix towards lower margin commodity
products.
INDUSTRY SEGMENT RESULTS
FLOOR COVERINGS
Worldwide sales were 8% higher in 1994, with operating income increasing by 21%
from 1993 levels. The 1993 operating income included $8.4 million of
restructuring charges.
The resilient flooring portion of the segment recorded strong sales growth in
both North America and Europe. The U.S. resilient flooring business continued to
weakenbenefit in 1994 from higher sales of existing homes, new residential
construction and continued strength in the commercial construction and
remodeling market segments. This was accomplished even in light of the numerous
interest rate increases throughout 1994. Successful new product introductions in
the second half of 1994 helped to improve sales.
The major restructuring actions of the past two years, primarily in
manufacturing, some sales price increases, some unit volume increases and the
continued development of the residential business were key factors for this
turnaround. In the resilient flooring portion of the segment, operating income
improvement was the result of higher sales volume, some sales price increases
and manufacturing productivity improvements. Offsetting some of the effects of
these positive items were higher raw material costs that became more notable in
the second half of the year. Sales prices were increased as of January 1995 to
offset the rise in raw material prices.
Capital expenditures increased 43% over those of 1993. The expenditures continue
to be concentrated on improving manufacturing productivity, increasing capacity
and developing business systems.
BUILDING PRODUCTS
During 1994, commercial and institutional end-use market segments continued to
provide more opportunity. Sales grew more than 7% with North American sales
growing faster than those of the European area. The Pacific area recorded the
highest percentage growth with new business in China being a factor.
Operating income, excluding the effects of restructuring charges in 1993,
recorded the fastest growth of any segment -- up 167% over 1993. While higher
sales levels and sales price increases had a positive impact on operating
income, the prior two years' restructuring actions dramatically reduced
manufacturing costs and had the most significant impact on results.
Capital expenditures were increased about one-third over those of the past two
years and were directed at higher productivity levels and improving capacity.
1994 expenditures were about the same as depreciation levels.
INDUSTRY PRODUCTS
Sales increased by 5% while operating income improved only 3% when the 1993
restructuring charges of nearly $13 million are excluded. This segment is highly
influenced by its European orientation and the rebound in that area's economies
that started in the second half of 1994.
The insulation business, the largest portion of this segment, recorded sales
growth of about 5% while operating income was slightly higher than 1993. During
1994, this business lowered sales prices to meet intense European competition,
recorded higher than usual obsolescence of equipment and incurred some start-up
costs for its new manufacturing facility in Panyu, China.
The gasket materials business grew sales by 18% and pushed operating income 32%
higher. This business was favorably affected by the strong automotive markets in
1994.
The textile mill supply business saw its 1994 sales decline by 4% due to soft
end-use markets worldwide and strong competitive pressures. A small operating
loss was recorded for 1994 as this business continues to reengineer its
operations.
Capital expenditures were slightly higher in 1994 than 1993, but continue to
exceed depreciation. A significant portion of the expenditures were in the
insulation products business.
CERAMIC TILE
The ceramic tile segment recorded sales increases in both the commercial and
residential markets. Net sales increased 7%, but more than
halfparts of the increase was the result of translating foreign currency sales to
- 29 -
U.S. dollars at higher exchange rates. Operating profits declined 56%. Nearly
60% of this decline was due to restructuring charges related to the closing of
the Ghlin, Belgium, plant and to accruals for the elimination of employee
positions. The European insulation business continued its sales and operating
profit improvement, primarily as a result of a strong German insulation market.
This business's operating profit was reduced by start-up costs related to new
facilities in Spain and Germany during 1992. The European ceilings business was
affected by the depressed commercial markets coupled with competitive pricing
and a less favorable product mix.
Other foreign--Sales in 1992 declined 3% from those of 1991 while an
operating loss was recorded for the year. The operating loss included
restructuring charges associated with the closing ofresidential part reflecting the
Gatineau, Canada,
ceilings manufacturing plant. Sales improvement was recorded in the Southeast
Asian area, but operating profits declined in this area as a result of increased
costs that are designed to obtain futurehighest growth.
Industry segment results (see pages 3 and 4)
Floor coverings--Sales were 7% higher in 1992 than in 1991, with operating
profits declining by 64%. Operating profits include restructuring charges in
1992 of nearly $81 million compared with $3 million in 1991. Nearly all of the
restructuring charges relate to ceramic tile.
Sales in the resilient flooring portion increased significantly, paced by
sales in North America, where a new annual sales record was set with the help of
the introduction of the largest-ever assortment of new flooring products during
the second quarter of 1992.
Ceramic tile recorded a small increase in sales
primarily because of the developments in the residential ceramic tile markets
through American Olean and Armstrong distribution channels. The ceramic tile
portion continues to be adversely affected by the depressed commercial
institutional market and recorded losses in both 1992 and 1991.
Operating profits during 1992, while positively affected by the sales growth,
were adversely affected by competitive pricing, movement towards a lower margin
sales mix, small increases in raw material costs in the second half of the year,
and continuing costs related to the new residential ceramic tile businesses.
Capital investments for 1992 were lower than 1991 but continued to be
directed toward product development, cycle-time reduction, and manufacturing
process improvements.
Building products--On a worldwide basis, market conditions remained depressed
in the commercial construction markets, resulting in lower opportunity and
declining product prices. Sales declined nearly 3% year to year while recording
ansignificant operating loss in 1993 that included restructuring chargeswas reversed in
1994 with a small operating income primarily generated through reduction of
$35 million in 1992
compared with $4.3 million in 1991.
The year-to-year sales decline was caused by the transfer of grid sales for
the last seven months of 1992 to the WAVE joint venture.
The continued decline of nonresidential construction in the U.S. and abroad
significantly affected the operating results. Worldwide competitive pricing
pressures and lack of sales growth eroded operating profit faster than the
company's ability to lowerproduction costs.
- 30 -
Capital investments in 1992 were reduced significantly from prior year levels
and were directed towards manufacturing process improvement and consolidations.
During 1992, the company closed its Gatineau, Canada, and Ghlin, Belgium,
ceilings plants and scaled back other operations. In 1991, Armstrong exited
certain wall businesses and its Forms + Surfaces architectural products
business.
Furniture--The 1992 sales increased 5%, while operating profits declined 43%,
including restructuring charges of $4.8 million.
The contract furniture, ready-to-assemble furniture, and upholstered
furniture businesses reflected sales increases that were partially offset by
lower sales in the Thomasville wood business. Operating results were adversely
affected by promotional pricing efforts, higher lumber costs, and increased
costs for employee medical benefits.
Actions were taken in 1992 to monitor customer satisfaction, increase square
footage of the Thomasville Home Furnishings Stores, reengineer upholstery
operations to improve service, and develop a computerized order service system
for expediting shipments. Investments in these areas increased capital
expenditures modestly for 1992 compared with 1991. Restructuring actions
included closing the Pleasant Garden manufacturing facility and elimination of
salaried employee positions.
Industry products--Worldwide sales increased 11% while operating profits
declined $7.7 million, or 18%. Restructuring charges were $12.5 million in 1992
and $2.2 million in 1991.
The insulation business remained strong in 1992 because of the European
markets, particularly in Germany. New product introductions and improved
technical values through new formulations aided the success of this business.
Profitability was slowed somewhat by start-up costs for new facilities in Spain
and Germany that increased capacity. The gasket materials business recorded
strong sales and operating profit increases when compared with 1991. The textile
mill supplies business recorded small sales increases, but operating results
declined because of cost and pricing pressures.
- 31 --20-
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
FINANCIAL STATEMENTS AND REVIEW CONSOLIDATED STATEMENTS OF EARNINGS
The Financial Review, pages 38-65, is an integral part of these statements.
CONSOLIDATED STATEMENTS OF EARNINGS
- ----------------------------------------------------------------------------------------------------------------------
Millions except for per-share data Years ended December 31 (millions except for per-share data) 1993 1992 1991
===========================================================================================================================1995 1994* 1993*
- ----------------------------------------------------------------------------------------------------------------------
Current earnings
- ---------------------------------------------------------------------------------------------------------------------------
Net sales $2,525.4 $2,549.8 $2,439.3
- ---------------------------------------------------------------------------------------------------------------------------$2,084.9 $2,005.7 $1,865.0
Cost of goods sold 1,802.3 1,888.7 1,801.11,409.7 1,325.5 1,286.5
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Gross profit 723.1 661.1 638.2
- ---------------------------------------------------------------------------------------------------------------------------675.2 680.2 578.5
Selling, general and administrative expense 505.0 511.6 468.3expenses 397.1 388.1 347.8
Equity (earnings) loss from affiliates (15.0) (2.5) 42.9
Restructuring charges 71.8 -- 89.3
Loss from ceramic tile business combination 177.2 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Earnings from continuing businesses before other
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Operating income (expense) and income taxes 218.1 149.5 169.9
- ---------------------------------------------------------------------------------------------------------------------------
Other income (expense):
- ---------------------------------------------------------------------------------------------------------------------------44.1 294.6 98.5
Interest expense (38.0) (41.6) (45.8)34.0 28.3 38.0
Other expense (income), net 1.9 0.5 (6.1)
- ---------------------------------------------------------------------------------------------------------------------------
Restructuring charges (89.9) (165.5) (12.8)
- ---------------------------------------------------------------------------------------------------------------------------
Miscellaneous income (expense) 0.5 (2.8) (11.0)
- ---------------------------------------------------------------------------------------------------------------------------
(127.4) (209.9) (69.6)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses before income taxes 90.7 (60.4) 100.3
- ---------------------------------------------------------------------------------------------------------------------------8.2 265.8 66.6
Income taxes 27.2 (0.5) 39.7(5.4) 78.6 17.6
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses 63.5 (59.9) 60.613.6 187.2 49.0
- ---------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Discontinued businesses:
- ---------------------------------------------------------------------------------------------------------------------------
Loss, netbusiness:
Earnings from operations of Thomasville Furniture Industries, Inc.
(less income tax benefittaxes of $1.9$13.9 in 1995, $15.5 in 1994, $9.6 in 1993) 25.8 23.2 14.5
Gain on disposal of discontinued business
(less income taxes of $53.4) 83.9 -- --
(3.8)
- ---------------------------------------------------------------------------------------------------------------------------
Provision for loss on disposition of discontinued businesses,
- ---------------------------------------------------------------------------------------------------------------------------
net of income tax benefit of $4.6 -- -- (8.6)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting for:
- ---------------------------------------------------------------------------------------------------------------------------
Postretirement benefits, net of income tax benefit of $84.9 -- (135.4) --
- ---------------------------------------------------------------------------------------------------------------------------
Postemployment benefits, net of income tax benefit of $20.9 -- (32.4) --
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss)$ 123.3 $ 210.4 $ 63.5
$ (227.7) $ 48.2
===========================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------=======================================
Dividends paid on Series A convertible preferred stock 18.8 19.0 19.2 19.3 19.4
- ---------------------------------------------------------------------------------------------------------------------------
Tax benefit on dividends paid on unallocated preferred shares 4.5 4.9 5.3
5.5 --
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common stock $ 109.0 $ 196.3 $ 49.6
$ (241.5) $ 28.8
===========================================================================================================================
- 32 -
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------=======================================
Per share of common stock:
- ---------------------------------------------------------------------------------------------------------------------------
Primary:
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses (See note on page 21.) $ (0.02) $ 4.60 $ 0.93
Earnings from discontinued business 0.68 0.62 0.39
Gain on sale of discontinued business 2.24 -- --
- ----------------------------------------------------------------------------------------------------------------------
Net earnings $ 2.90 $ 5.22 $ 1.32
$ (1.98) $ 1.11
- ---------------------------------------------------------------------------------------------------------------------------
Loss from discontinued businesses -- -- (.11)
- ---------------------------------------------------------------------------------------------------------------------------
Provision for loss on disposition of discontinued businesses -- -- (.23)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting for:
- ---------------------------------------------------------------------------------------------------------------------------
Postretirement benefits -- (3.64) --
- ---------------------------------------------------------------------------------------------------------------------------
Postemployment benefits -- (.87) --
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1.32 $ (6.49) $ .77
===========================================================================================================================-------------------------------------------------------------------------------=======================================
Fully diluted:
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses (See note on page 21.) $ (0.02) $ 4.10 $ 0.92
Earnings from discontinued business 0.60 0.54 0.34
Gain on sale of discontinued business 1.96 -- --
- ----------------------------------------------------------------------------------------------------------------------
Net earnings $ 2.67 $ 4.64 $ 1.26
$ (1.98) $ 1.11
- ---------------------------------------------------------------------------------------------------------------------------
Loss from discontinued businesses -- -- (.11)
- ---------------------------------------------------------------------------------------------------------------------------
Provision for loss on disposition of discontinued businesses -- -- (.23)
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting for:
- ---------------------------------------------------------------------------------------------------------------------------
Postretirement benefits -- (3.64) --
- ---------------------------------------------------------------------------------------------------------------------------
Postemployment benefits -- (.87) --
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1.26 $ (6.49) $ .77
===========================================================================================================================-------------------------------------------------------------------------------=======================================
- 33 -
FINANCIAL STATEMENTS AND REVIEW CONSOLIDATED BALANCE SHEETS*Restated for the effects of the discontinued business and formation of the
ceramic tile business combination.
The Notes to Consolidated Financial Review, pages 38-65,Statements, page 21 is an integral
part of these statements.
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------
As of December 31 (millionsMillions except for numbers of shares and per-share data) 1993 1992
===========================================================================================================================data As of December 31 1995 1994*
- -------------------------------------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------------------------------------------
Current assets:
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 9.1256.9 $ 15.2
- ---------------------------------------------------------------------------------------------------------------------------12.0
Accounts and notes receivable
- ---------------------------------------------------------------------------------------------------------------------------
(less allowance for discounts and losses: 1993--1995--$37.5; 1992--29.0; 1994--$32.2) 283.5 302.6
- ---------------------------------------------------------------------------------------------------------------------------27.0) 217.9 218.9
Inventories 286.2 319.4
- ---------------------------------------------------------------------------------------------------------------------------195.5 164.6
Income tax benefits 36.8 43.2
- ---------------------------------------------------------------------------------------------------------------------------26.9 35.9
Net assets of discontinued business -- 182.1
Other current assets 24.8 32.325.5 21.6
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total current assets 640.4 712.7722.7 635.1
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment
- ---------------------------------------------------------------------------------------------------------------------------
(less accumulated depreciation and amortization: 1993--1995--$1,006.7; 1992--975.9; 1994--$936.3) 1,039.1 1,072.0
- ---------------------------------------------------------------------------------------------------------------------------902.4) 878.2 807.9
Insurance for asbestos-related liabilities 166.0 198.0
Investment in affiliates 162.1 293.9
Other noncurrent assets 249.8 225.1220.8 204.5
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total assets $1,929.3 $2,009.8
===========================================================================================================================$2,149.8 $2,139.4
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------=======================
Liabilities and shareholders' equity
- ---------------------------------------------------------------------------------------------------------------------------
Current liabilities:
- ---------------------------------------------------------------------------------------------------------------------------
Short-term debt $ 105.4 $ 223.7
- ---------------------------------------------------------------------------------------------------------------------------22.0 17.9
Current installments of long-term debt 5.8 9.4
- ---------------------------------------------------------------------------------------------------------------------------40.1 19.5
Accounts payable and accrued expenses 293.3 290.2
- ---------------------------------------------------------------------------------------------------------------------------297.4 270.4
Income taxes 31.8 22.316.4 22.5
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 436.3 545.6375.9 330.3
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Long-term debt 256.8 266.6
- ---------------------------------------------------------------------------------------------------------------------------188.3 237.2
Employee Stock Ownership Plan (ESOP) loan guarantee 253.9 260.2
- ---------------------------------------------------------------------------------------------------------------------------234.7 245.5
Deferred income taxes 18.8 25.5
- ---------------------------------------------------------------------------------------------------------------------------16.5 32.1
Postretirement and postemployment benefit liability 283.7 279.5
- ---------------------------------------------------------------------------------------------------------------------------liabilities 242.8 242.5
Asbestos-related liabilities 166.0 198.0
Other long-term liabilities 99.6 52.9
- ---------------------------------------------------------------------------------------------------------------------------140.6 110.1
Minority interest in subsidiaries 10.7 10.310.0 8.6
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 923.5 895.0998.9 1,074.0
- ---------------------------------------------------------------------------------------------------------------------------
- 34 -
-------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
- ---------------------------------------------------------------------------------------------------------------------------
Class A preferred stock. Authorized 20 million shares;
- ---------------------------------------------------------------------------------------------------------------------------
issued 5,654,450 shares of Series A convertible preferred
stock; - ---------------------------------------------------------------------------------------------------------------------------
outstanding: 1993--5,527,6921995--5,421,998 shares; 1992--5,578,2651994--5,478,416 shares;
- ---------------------------------------------------------------------------------------------------------------------------
retired: 1993--126,7581995--232,452 shares; 1992--76,1851994--176,034 shares 263.9 266.4
- ---------------------------------------------------------------------------------------------------------------------------258.9 261.6
Common stock, $1 par value per share.
- ---------------------------------------------------------------------------------------------------------------------------
Authorized 200 million shares; issued 51,878,910 shares 51.9 51.9
- ---------------------------------------------------------------------------------------------------------------------------
Capital in excess of par value 29.7 26.1
- ---------------------------------------------------------------------------------------------------------------------------49.3 39.3
Reduction for ESOP loan guarantee (241.8) (249.2)
- ---------------------------------------------------------------------------------------------------------------------------(225.1) (233.9)
Retained earnings 927.7 922.7
- ---------------------------------------------------------------------------------------------------------------------------1,133.8 1,076.8
Foreign currency translation (3.4) 8.618.0 8.3
- ---------------------------------------------------------------------------------------------------------------------------
1,028.0 1,026.5-------------------------------------------------------------------------------------------------------------------
1,286.8 1,204.0
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Less common stock in treasury, at cost:
1993--14,656,4881995--15,014,098 shares; 1994--14,602,132 shares 511.8 468.9
- ---------------------------------------------------------------------------------------------------------------------------
1992--14,750,597 shares 458.5 457.3
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 569.5 569.2775.0 735.1
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,929.3 $2,009.8
===========================================================================================================================$2,149.8 $2,139.4
- --------------------------------------------------------------------------------------------=======================
- 35 -
FINANCIAL STATEMENTS AND REVIEW CONSOLIDATED STATEMENTS OF CASH FLOWS*Restated for the effects of the discontinued business and formation of the
ceramic tile business combination.
The Notes to Consolidated Financial Review, pages 38-65,Statements, page 21 is an integral
part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------
Millions Years ended December 31 (millions) 1993 1992 1991
===========================================================================================================================1995 1994* 1993*
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss)$ 123.3 $ 210.4 $ 63.5 $ (227.7) $ 48.2
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings (loss) to net cash
- ---------------------------------------------------------------------------------------------------------------------------
provided by operating activities:
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 130.0 136.9 135.7
- ---------------------------------------------------------------------------------------------------------------------------excluding furniture and ceramic tile 109.6 106.9 102.1
Depreciation and amortization for furniture and ceramic tile 26.5 26.5 27.9
Deferred income taxes (8.7) 14.6 (1.3)
(36.6) (1.6)
- ---------------------------------------------------------------------------------------------------------------------------
Loss from restructuring activities, net of paid costs 50.6 156.1 --
- ---------------------------------------------------------------------------------------------------------------------------
Loss from cumulative effect of changes in accounting -- 167.8 --
- ---------------------------------------------------------------------------------------------------------------------------
LossGain on sale of discontinued businesses (83.9) -- --
8.6
- ---------------------------------------------------------------------------------------------------------------------------Loss on ceramic tile business combination net of taxes 116.8 -- --
Loss from restructuring activities 71.8 -- 89.3
Restructuring payments (18.3) (20.2) (38.7)
(Increase) decrease in net assets of discontinued business 2.3 (4.4) (4.4)
Changes in operating assets and liabilities net of
- ---------------------------------------------------------------------------------------------------------------------------
effect of accounting changes,discontinued business, restructuring and dispositions:
- ---------------------------------------------------------------------------------------------------------------------------
(Increase) decrease in receivables 18.3 (11.9) (3.9)
- ---------------------------------------------------------------------------------------------------------------------------4.9 (20.3) 18.1
(Increase) decrease in inventories 28.4 (1.3) 7.9
- ---------------------------------------------------------------------------------------------------------------------------(26.3) 1.8 23.4
(Increase) decrease in other current assets 10.8 10.2 (17.1)
- ---------------------------------------------------------------------------------------------------------------------------9.1 (2.2) 13.1
(Increase) in investment in affiliates (5.1) (11.9) (2.0)
(Increase) in other noncurrent assets (45.3) (27.0) (23.2)
- ---------------------------------------------------------------------------------------------------------------------------(31.9) (21.2) (36.1)
Increase (decrease) in accounts payable and accrued expenses 18.0 7.9 (25.8)
- ---------------------------------------------------------------------------------------------------------------------------(35.9) 37.1 16.3
Increase (decrease) in income taxes payable (8.2) (10.1) 11.3
1.4 (4.4)
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in other long-term liabilities 15.5 16.5 15.1
- ---------------------------------------------------------------------------------------------------------------------------21.1 (5.5) 20.2
Other, net 2.9 3.7 (8.6)
(5.5) 10.9
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 291.2 186.8 150.4270.0 305.2 294.1
- ---------------------------------------------------------------------------------------------------------------------------
- 36 -
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
- ---------------------------------------------------------------------------------------------------------------------------
Purchases of property, plant and equipment (117.6) (115.8) (133.4)
- ---------------------------------------------------------------------------------------------------------------------------excluding furniture and
ceramic tile (162.2) (113.8) (87.8)
Purchases of property, plant and equipment for furniture and ceramic tile (23.9) (34.5) (29.8)
Investment in computer software (10.9) (4.3) (2.9)
Proceeds from sale of land, facilities and facilitiesdiscontinued businesses 342.6 12.8 10.3
5.5 3.0
- ---------------------------------------------------------------------------------------------------------------------------Acquisitions (20.7) -- --
Investment in joint venturesceramic tile business combination (27.6) -- (4.2) --
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net cash used forprovided by (used for) investing activities (107.3) (114.5) (130.4)97.3 (139.8) (110.2)
- ---------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in short-term debt 3.2 (89.6) (114.9) 25.5 (47.6)
- ---------------------------------------------------------------------------------------------------------------------------
Issuance of long-term debt -- -- 83.2
- ---------------------------------------------------------------------------------------------------------------------------
Reduction of long-term debt (20.1) (5.7) (9.2) (30.6) (5.2)
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends paid (70.8) (66.2) (63.8)
(63.8) (63.6)
- ---------------------------------------------------------------------------------------------------------------------------Purchase of common stock for the treasury (41.3) (10.6) (0.1)
Proceeds from exercised stock options 7.0 8.4 4.9
Other, net (2.8) 6.5 (3.7)(0.6) (0.8) (7.6)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (122.6) (164.5) (190.7)
(62.4) (36.9)
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents .7 (2.9) .50.2 2.0 0.7
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents $ 244.9 $ 2.9 $ (6.1)
$ 7.0 $ (16.4)
===========================================================================================================================- -------------------------------------------------------------------------------=======================================
Cash and cash equivalents at beginning of year $ 12.0 $ 9.1 $ 15.2
$ 8.2 $ 24.6
===========================================================================================================================- -------------------------------------------------------------------------------=======================================
Cash and cash equivalents at end of year $ 256.9 $ 12.0 $ 9.1
$ 15.2 $ 8.2
===========================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------=======================================
Supplemental cash flow information
- ---------------------------------------------------------------------------------------------------------------------------
Interest paid $ 33.829.6 $ 39.931.9 $ 45.0
- ---------------------------------------------------------------------------------------------------------------------------33.8
Income taxes paid $ 76.9 $ 62.0 $ 15.8
- -------------------------------------------------------------------------------=======================================
*Restated for the effects of the discontinued business and formation of the
ceramic tile business combination.
The Notes to Consolidated Financial Statements, page 21 is an integral
part of these statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
- ----------------------------------------------------------------------------------------------------------------------
Millions except for per-share data Years ended December 31 1995 1994* 1993*
- ----------------------------------------------------------------------------------------------------------------------
Series A convertible preferred stock:
Balance at beginning of year $ 31.0261.6 $ 53.5263.9 $ 266.4
Shares retired 2.7 2.3 2.5
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 258.9 $ 261.6 $ 263.9
- ----------------------------------------------------------------------------------------------------------------------
Common stock, $1 par value:
Balance at beginning and end of year $ 51.9 $ 51.9 $ 51.9
- ----------------------------------------------------------------------------------------------------------------------
Capital in excess of par value:
Balance at beginning of year $ 39.3 $ 29.7 $ 26.1
Stock issuances 10.0 9.6 3.6
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 49.3 $ 39.3 $ 29.7
- ----------------------------------------------------------------------------------------------------------------------
Reduction for ESOP loan guarantee:
Balance at beginning of year $ (233.9) $ (241.8) $ (249.2)
Principal paid 10.7 8.4 6.3
Accrued compensation (1.9) (.5) 1.1
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ (225.1) $ (233.9) $ (241.8)
- ----------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year $1,076.8 $ 927.7 $ 922.7
Net earnings for year 123.3 210.4 63.5
Tax benefit on dividends paid on unallocated preferred shares 4.5 4.9 5.3
- ----------------------------------------------------------------------------------------------------------------------
Total $1,204.6 $1,143.0 $ 991.5
- ----------------------------------------------------------------------------------------------------------------------
Less dividends:
Preferred stock
$3.462 per share $ 18.8 $ 19.0 $ 19.2
Common stock
$1.40 per share in 1995; 52.0
$1.26 per share in 1994; 47.2
$1.20 per share in 1993; 44.6
Total dividends $ 70.8 $ 66.2 $ 63.8
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of year $1,133.8 $1,076.8 $ 927.7
- ----------------------------------------------------------------------------------------------------------------------
Foreign currency translation:
Balance at beginning of year $ 8.3 $ (3.4) $ 8.6
Translation adjustments and hedging activities 10.9 11.7 (12.5)
Allocated income taxes (1.2) -- .5
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 18.0 $ 8.3 $ (3.4)
- ----------------------------------------------------------------------------------------------------------------------
Less treasury stock at cost:
Balance at beginning of year $ 468.9 $ 458.5 $ 457.3
Stock purchases 41.3 10.6 .1
Stock issuance activity, net 1.6 (.2) 1.1
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 511.8 $ 468.9 $ 458.5
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 775.0 $ 735.1 $ 569.5
- -------------------------------------------------------------------------------=======================================
The Notes to Consolidated Financial Statements, page 21 is an integral
part of these statements.
- 37--------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
-
FINANCIAL REVIEW--------------------------------------------------------------------------------
The consolidated financial statements and the accompanying data in this report
include the accounts of the parent Armstrong World Industries, Inc., and its
domestic and foreign subsidiaries. These financial statements are prepared in
accordance with generally accepted accounting principles and include management
estimates and judgments, where appropriate. Actual results may differ from these
estimates. All significant intercompany transactions have been eliminated from
the consolidated statements. Prior years have been restated to reflect changes
due to the discontinued business and ceramic tile business combination as
described on page 21.
To assist in understanding this financial review, the accounting policies and
principles used are printed in italics.
- --------------------------------------------------------------------------------
Nature of Operations
- --------------------------------------------------------------------------------
The floor coverings segment includes resilient flooring, adhesives, installation
and maintenance materials and accessories sold to U.S. commercial and
residential segments through wholesalers, retailers and contractors. The
Corporate Retail Accounts division provides marketing services to home centers
which have become an important part of the company's business. To improve
logistical cost-effectiveness, 15 independent regional distribution centers are
being established to service these customers. To reduce interchannel conflict,
segmented resilient flooring products have been introduced to allow exclusive
sales in these different markets. Raw materials, especially plasticizers and
resins, are a significant cost of resilient flooring products. The company has
no influence on and is subject to cost changes in the worldwide market of these
materials.
The building products segment manufactures both residential and architectural
ceiling systems. Grid products, manufactured and sold through the joint venture
with Worthington Industries (WAVE), have become a more important part of this
business worldwide. Earnings from this joint venture are included in this
segment's operating income. The major sales activity in this segment is in
architectural ceiling systems for commercial and institutional structures which
are sold to contractors and resale distributors worldwide, with European sales
having a significant impact. Ceiling systems for the residential home segment
are sold through wholesalers and retailers, mainly in the United States. During
1995, the business experienced raw material price increases which recently have
shown signs of softening.
The industry products segment makes a variety of specialty products for the
building, automotive, textile and other industries worldwide. The majority of
sales in this segment are flexible pipe insulation used in construction and in
original equipment manufacturers. These sales are primarily in Europe, with
Germany having the largest concentration due to its regulatory requirements. The
major product costs for insulation are raw materials and labor. Strong
competition exists in insulation since there are minimal barriers to entry into
this market. Gasket materials are sold for new and replacement use in the
automotive, construction and farm equipment, appliance, small engine and
compressor industries. The automotive and diesel build rates are the most
sensitive market drivers for these products. This business also supplies backing
for Armstrong's resilient flooring products. Other products in the industry
products segment are textile mill supplies, including cots and aprons sold to
equipment manufacturers and textile mills, and adhesives. In 1995, the company
announced its intentions to discuss with potential buyers the possible sale of
the textile products operation.
The ceramic tile products segment, reported in previous years with the floor
coverings segment, includes ceramic tile sold through home centers and sales
service centers. Ceramic tile products face significant competition from foreign
suppliers. This segment's results are reported as "Equity Earnings from
Affiliates" (see page 21) and are included in operating income.
INDUSTRY SEGMENTS
- ------------------------------------------------------------------------------
Industry segments
at December 31 (millions) 1995 1994 1993
- ------------------------------------------------------------------------------
Net trade sales:
Floor coverings $1,053.9 $1,063.5 $ 980.6
Building products 682.2 630.0 586.7
Industry products 348.8 312.2 297.7
- ------------------------------------------------------------------------------
Total net sales $2,084.9 $2,005.7 $1,865.0
- ------------------------------------------------==============================
Operating income (loss): (Note 1)
Floor coverings $ 145.0 $ 189.6 $ 156.6
Building products 92.2 86.8 18.8
Industry products 9.3 41.2 27.2
Ceramic tile (Note 2) (168.4) 0.8 (44.3)
Unallocated corporate expense (34.0) (23.8) (59.8)
- ------------------------------------------------------------------------------
Total operating income $ 44.1 $ 294.6 $ 98.5
- ------------------------------------------------==============================
Depreciation and amortization:
Floor coverings $ 47.9 $ 49.2 $ 48.2
Building products 36.8 34.5 34.1
Industry products 19.3 17.6 14.6
Corporate 5.6 5.6 5.2
- ------------------------------------------------------------------------------
Total depreciation
and amortization $ 109.6 $ 106.9 $ 102.1
- ------------------------------------------------==============================
Capital additions: (Note 3)
Floor coverings $ 77.3 $ 56.7 $ 39.7
Building products 49.2 31.5 24.2
Industry products 45.0 22.6 22.1
Corporate 6.3 3.0 1.8
- ------------------------------------------------------------------------------
Total capital additions $ 177.8 $ 113.8 $ 87.8
- ------------------------------------------------==============================
Identifiable assets:
Floor coverings $ 583.2 $ 575.7 $ 541.2
Building products 513.5 478.1 483.0
Industry products 301.8 234.8 207.9
Ceramic tile 135.8 270.5 251.9
Discontinued business -- 182.1 175.4
Corporate 615.5 398.2 185.4
- ------------------------------------------------------------------------------
Total assets $2,149.8 $2,139.4 $1,844.8
- ------------------------------------------------==============================
Note 1:
- ------------------------------------------------------------------------------
Restructuring charges in
operating income (millions) 1995 1994 1993
- ------------------------------------------------------------------------------
Floor coverings $ 25.0 -- $ 8.4
Building products 6.3 -- 13.7
Industry products 31.4 -- 12.9
Ceramic tile -- -- 19.3
- ------------------------------------------------------------------------------
Unallocated corporate expense 9.1 -- 35.0
- ------------------------------------------------------------------------------
Total restructuring charges
in operating income $ 71.8 -- $ 89.3
- ------------------------------------------------==============================
Note 2: 1995 operating income includes a $177.2 million loss due to the ceramic
tile business combination.
Note 3: 1995 capital additions for industry segments include property, plant and
equipment from acquisitions of $15.6 million.
GEOGRAPHIC AREAS
- -----------------------------------------------------------------------------
Geographic areas
at December 31 (millions) 1995 1994 1993
- -----------------------------------------------------------------------------
Net trade sales:
United States $1,346.3 $1,343.7 $1,250.3
Europe 558.7 483.4 456.6
Other foreign 179.9 178.6 158.1
- -----------------------------------------------------------------------------
Interarea transfers:
United States 101.1 94.7 75.8
Europe 13.8 8.7 6.0
Other foreign 32.1 26.1 21.9
Eliminations (147.0) (129.5) (103.7)
- -----------------------------------------------------------------------------
Total net sales $2,084.9 $2,005.7 $1,865.0
- -----------------------------------------------==============================
Operating income:
United States $ 7.7 $ 235.5 $ 116.6
(See Note 2 on page 21)
Europe 62.6 75.3 31.7
Other foreign 7.8 7.6 10.0
Unallocated corporate expense (34.0) (23.8) (59.8)
- -----------------------------------------------------------------------------
Total operating income $ 44.1 $ 294.6 $ 98.5
- -----------------------------------------------==============================
Identifiable assets:
United States $1,044.5 $1,110.5 $1,074.1
Europe 406.7 376.5 347.0
Other foreign 83.4 72.6 63.2
Discontinued business -- 182.1 175.4
Corporate 615.5 398.2 185.4
Eliminations (0.3) (0.5) (0.3)
- -----------------------------------------------------------------------------
Total assets $2,149.8 $2,139.4 $1,844.8
- -----------------------------------------------==============================
United States net trade sales include export sales to non-affiliated customers
of $30.8 million in 1995, $24.9 million in 1994 and $19.8 million in 1993.
"Europe" includes operations located primarily in England, France, Germany,
Italy, the Netherlands, Poland, Spain and Switzerland. Operations in Australia,
Canada, The People's Republic of China, Hong Kong, Indonesia, Japan, Korea,
Singapore and Thailand are in "Other foreign."
Transfers between geographic areas and commissions paid to affiliates marketing
exported products are accounted for by methods that approximate arm's-length
transactions, after considering the costs incurred by the selling company and
the return on assets employed of both the selling unit and the purchasing unit.
Operating income of a geographic area includes income accruing from sales to
affiliates.
- -------------------------------------------------------------------------------
OPERATING STATEMENT ITEMS
- -------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
On December 29, 1995, the company sold the stock of its furniture subsidiary,
Thomasville Furniture Industries, Inc., to INTERCO Incorporated for $331.2
million. INTERCO assumed $8.0 million of Thomasville interest-bearing debt. The
company recorded a gain of $83.9 million after tax on the sale. Certain
liabilities related to terminated benefit plans of approximately $11.3 million
were retained by the company. Thomasville and its subsidiaries recorded sales of
approximately $550.2 million in 1995, $526.8 million in 1994 and $449.7 million
in 1993.
Operating statement categories, except where otherwise indicated, have been
restated to exclude the effects of this discontinued business.
EQUITY EARNINGS FROM AFFILIATES
On December, 29, 1995, the company entered into a business combination with Dal-
Tile International Inc. The transaction was accounted for at fair value and
involved the exchange of $27.6 million and the stock of the ceramic tile
operations, consisting primarily of American Olean Tile Company, a wholly-owned
subsidiary, for ownership of 37% of the shares of Dal-Tile. The company's
investment in Dal-Tile exceeds the underlying equity in net assets by $123.9
million which will be amortized over a period of 30 years. The after-tax loss on
the transaction was $116.8 million.
Results from ceramic tile operations, which were previously reported on a
consolidated basis, were restated and included in "Equity Earnings from
Affiliates." Going forward, Armstrong's 37% ownership of the combined Dal-Tile
will be accounted for under the equity method. The summarized financial
information for ceramic tile operations is presented below.
- ------------------------------------------------------------------------------
(millions) 1995 1994 1993
- ------------------------------------------------------------------------------
Net sales $240.0 $220.2 $210.7
Operating income (loss)/1/ 8.8 .8 (44.3)
Assets/2/ 269.8 290.1 276.3
Liabilities/2/ 17.3 19.6 24.4
- ------------------------------------------------------------------------------
Note 1: Excludes 1995 loss of $177.2 million due to ceramic tile business
combination.
Note 2: 1995 balances were as of December 29, 1995, immediately prior to the
ceramic tile business combination.
Also included in equity earnings from affiliates are earnings from the 50%
interest in the WAVE joint venture with Worthington Industries. Previously these
earnings had been included in selling, general and administrative expenses.
NET SALES
Net sales in 1995 totaled $2,084.9 million, 3.9% above the 1994 total of
$2,005.7 million. 1994 sales were 7.5% above the 1993 total $2,525.4 million, 1.0% below the 1992 total of $2,549.8 million. 1992 sales were 4.5% above the 1991 total of $2,439.3$1,865.0 million.
The amounts reported as net sales are the total sales billed during the year
less the sales value of goods returned, trade discounts and customers'
allowances and freight costs incurred in delivering products to customers.
Net earnings of $63.5EARNINGS FROM CONTINUED BUSINESSES
Earnings from continuing businesses were $13.6 million for 1993in 1995 compared with
a net$187.2 million in 1994 and $49.0 million in 1993. 1995 earnings included the
$116.8 million after-tax loss for 1992 of
$227.7 million and earnings of $48.2 million for 1991.the ceramic tile business combination
mentioned above. Included in the earnings for 1995 and 1993 were after-tax
restructuring charges of $60.0 million after tax. For years 1992
and 1991, after-tax restructuring charges were $123.8$46.4 million and $8.4$59.6 million, respectively.
The 1992 loss also included a $167.8NET EARNINGS
Net earnings were $123.3 million after-tax charge for the cumulative effect1995 compared with earnings of changes in accounting related to the adoption of
Statement of Financial Accounting Standards (SFAS) 106, "Employers' Accounting$210.4
million and $63.5 million for Postretirement Benefits Other Than Pensions,"years 1994 and SFAS 112, "Employers'
Accounting for Postemployment Benefits."1993 respectively.
EARNINGS PER COMMON SHARE
Earnings (loss) per common share are presented on the Consolidated Statements of
Earnings on page 32.20.
Primary earnings (loss) per share for "Earnings (loss) from continuing
businesses" and for "Net earnings (loss),"earnings" are determined by dividing the earnings
(loss), after deducting preferred dividends (net of tax benefits on unallocated
shares), by the average number of common shares outstanding and shares issuable
under stock options, if dilutive.
Fully diluted earnings (loss) per share include the shares of common stock
outstanding and the adjustments to common shares and earnings (loss) required to
portray the convertible preferred shares on an "if converted" basis unless the
effect is antidilutive.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs were $59.5$56.2 million in 1993, $60.31995, $51.4 million in 1992,1994
and $55.6$56.1 million in 1991.1993.
ADVERTISING COSTS
Advertising costs were $37.8$20.2 million in 1993, $42.41995, $23.5 million in 1992,1994 and $42.9$25.1
million in 1991.1993.
The company's practice is to expense the costs of advertising as they are
incurred.
MAINTENANCE AND REPAIR COSTS
Maintenance and repair costs were $126.1$106.5 million in 1993, $137.21995, $104.3 million in 1992,1994
and $138.1$102.9 million in 1991.1993.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization amounted to $130.0$109.6 million in 1993, $136.91995, $106.9 million
in 1992,1994 and $135.3$102.1 million in 1991.1993.
These amounts include amortization of intangible assets
of $10.0$6.4 million in 1993, $16.21995, $5.8 million in 1992,1994 and $18.0$5.8 million in 1991.
- 38 -
1993.
Depreciation charges for financial reporting purposes are determined generally
on the straight-line basis at rates calculated to provide for the retirement of
assets at the end of their useful lives. Accelerated depreciation is generally
used for tax purposes. When assets are disposed of or retired, their costs and
related depreciation are removed from the books, and any resulting gains or
losses are reflected in "Miscellaneous income (expense)."Selling, general and administrative expenses."
Intangibles are amortized over periods ranging from three2 to 40 years.
RESTRUCTURING CHARGES
Restructuring charges amounted to $89.9$71.8 million in 1993 compared with similar
charges of $165.51995 and $89.3 million in
19921993.
In the first quarter of 1995, the company announced a planned closing of an
Industry Products manufacturing plant located in Braintree, Massachusetts. This
plant phased out operations in early 1996. Accordingly, there was a nonrecurring
charge to the first-quarter 1995 financial results of $15.6 million before tax.
The charge was primarily related to severance pay and $12.8pension costs accrued for
the elimination of about 223 salaried and hourly employee positions. Cash
outlays will be about one third of the total charges with the majority of the
cash outlay occurring in early 1996.
In the third quarter of 1995, the company recorded a $56.2 million charge before
tax for restructuring resulting from the company's ongoing efforts to streamline
the organization and enhance operating efficiencies. The restructuring charges
primarily relate to severance and early retirement incentives for approximately
670 employees, half of whom are hourly and half are salaried. Nearly 40% of the
charge was related to the North American resilient flooring business, while
another 40% was related to European Operations. The balance was related to
corporate and other operating segments. The charges are estimated to be evenly
split between cash payments throughout 1996 and noncash charges, primarily to
cover retirement-related expenses. It is anticipated that ongoing cost
reductions and productivity improvements should permit recovery of these charges
in 1991.less than two years.
Actual severance payments charged against the restructuring reserves for 1995
totaled $15.5 million. These charges relate to the elimination of approximately
300 positions during 1995. Also, an additional 300 positions were eliminated
during 1995 through special retirement incentives.
The 1993 charges were primarily the result of accruals for severance payments and special
retirement incentives associated with the elimination of employee positions. The 1992 charges relateAt
the end of 1995, $15.6 million related to the company's closing of four major manufacturing
facilities--twothis liability remained in the
U.S., one in Canada, one in Belgium--and to the scaling
back of operations in certain other plants in the U.S. and abroad. The provision
also includes accruals for costs associated with the elimination of positions
throughout the company, as well as write-downs of the value of land, buildings,
equipment and intangible assets of the company.reserve.
Details of miscellaneous
income (expense)OTHER EXPENSE (INCOME), NET
- ------------------------------------------------------------------
(millions) 1995 1994 1993
1992 1991
====================================================================- ------------------------------------------------------------------
Interest and dividend income $ 7.5 $ 4.5 $ 5.3
- --------------------------------------------------------------------$(3.3) $(3.7) $(7.5)
Foreign exchange, net gain (loss) (.7) 1.4 5.9loss 2.6 2.6 .5
Postretirement liability
transition obligation 1.6 -- --
Minority interest 0.6 1.8 2.1
Other 0.4 (0.2) (1.2)
- --------------------------------------------------------------------
Amortization of intangibles and
other, net (loss) (4.2) (6.8) (20.1)
====================================================================
Subtotal 2.6 (.9) (8.9)
====================================================================
Less minority interest 2.1 1.9 2.1
====================================================================------------------------------------------------------------------
Total $ .5 $(2.8) $(11.0)1.9 $ 0.5 $(6.1)
- ---------------------------------------===========================
EMPLOYEE COMPENSATION
Employee compensation isand average number of employees are presented in the table
below and excludes
restructuringbelow. Restructuring charges for severance costs and early retirement incentives.incentives
and all data related to furniture and ceramic tile segments have been excluded.
- ------------------------------------------------------------------
Employee compensation
cost summary (millions) 1995 1994 1993
1992 1991
====================================================================- ------------------------------------------------------------------
Wages and salaries $709.8 $741.5 $699.4
- --------------------------------------------------------------------$519.4 $516.5 $488.6
Payroll taxes 68.2 74.3 69.6
- --------------------------------------------------------------------55.5 48.5 49.5
Pension credits (3.5) (.7) (.9)
- --------------------------------------------------------------------(11.3) (13.2) (6.9)
Insurance and other benefit costs 78.0 87.2 62.7
====================================================================51.0 37.4 54.2
- ------------------------------------------------------------------
Total $852.5 $902.3 $830.8$614.6 $589.2 $585.4
- ---------------------------------------===========================
Average number of employees 11,365 11,612 12,413
- ------------------------------------------------------------------
Average total employment of 21,682 in 1993 compares with 23,500 in 1992 and
24,066 in 1991.
- 39 -
Pension costsPENSION COSTS
The company and a number of its subsidiaries have pension plans covering
substantially all employees. Benefits from the principal plan are based on the
employee's compensation and years of service.
Generally, the company's practice is to fund the actuarially determined current
service costs and the amounts necessary to amortize prior service obligations
over periods ranging up to 30 years, but not in excess of the full funding
limitation.
Funding requirements, in accordance with provisions of the Internal Revenue
Code, are determined independently of expense using an expected long-term rate
of return on assets of 8.67%. The company's principal plan iswas subject to the
full funding limitation in 1993, 1992,1995, 1994 and 1991,1993, and the company made no
contribution to that plan in any of these years. Contributions of $.8$0.8 million
in 1993 $.6 million in 1992, and $.3 million in
1991 were made to defined-benefit plans of company subsidiaries. No
contributions were made in 1995 and 1994.
The total pension cost or credit from all plans areis presented in the table below.
- -------------------------------------------------------------------------------
Total pension
(credit) cost (millions) 1995 1994 1993
1992 1991
====================================================================- -------------------------------------------------------------------------------
U.S. defined-benefit plans:
- --------------------------------------------------------------------
Net pension credit $(17.4) $(16.2) $(13.0)
====================================================================$ (26.5) $ (29.1) $ (19.2)
Early retirement incentives 28.7 -- 38.0
30.0 4.5Net curtailment gain (1.2) -- --
- ---------------------------------------------------------------------------------------------------------------------------------------------------
Defined contribution plans 6.0 5.9 5.34.2 4.3 4.4
- --------------------------------------------------------------------
Non-U.S. defined-benefit plans:
- ---------------------------------------------------------------------------------------------------------------------------------------------------
Net pension cost of non-U.S.
defined-benefit plans 8.1 8.6 6.1
6.1 4.0
- --------------------------------------------------------------------
Early retirement incentives -- 1.3 --
- ---------------------------------------------------------------------------------------------------------------------------------------------------
Other funded and unfunded
pension costs 4.1 3.0 1.8
2.2 2.8
====================================================================- -------------------------------------------------------------------------------
Total pension (credit) cost $ 34.517.4 $ 29.3(13.2) $ 3.631.1
- ---------------------------------------------------============================
In 1995, the company recognized a $1.6 million curtailment gain from the sale of
its furniture subsidiary and a $0.4 million curtailment loss from the ceramic
tile business combination.
The net credit for U.S. defined-benefit pension plans is presented in the table
below.
- -------------------------------------------------------------------------------
Net credit for U.S. defined-benefit
pension plans (millions) 1995 1994 1993
1992 1991
====================================================================- -------------------------------------------------------------------------------
ActualAssumptions:
Discount rate 8.00% 7.00% 7.25%
Rate of increase in future
compensation levels 5.25% 4.75% 4.75%
Expected long-term rate of
return on assets $(236.9) $(94.8) $(210.6)8.75% 8.25% 8.25%
- ---------------------------------------------------------------------------------------------------------------------------------------------------
Actual (return) loss on assets $(406.7) $ 93.6 $(230.1)
Less amount deferred 155.9 17.8 140.2
====================================================================313.0 (182.5) 152.3
- -------------------------------------------------------------------------------
Expected return on assets (81.0) (77.0) (70.4)
- --------------------------------------------------------------------$ (93.7) $ (88.9) $ (77.8)
Net amortization and other (6.9) (6.3) (4.5)
- --------------------------------------------------------------------(9.3) (9.5) (7.0)
Service cost--benefitscost -- benefits earned
during the year 19.1 18.7 16.2
- --------------------------------------------------------------------16.7 17.9 17.3
Interest on the projected benefit
obligation 59.8 51.4 48.4 45.7
====================================================================48.3
- -------------------------------------------------------------------------------
Net pension credit $ (17.4) $(16.2)(26.5) $ (13.0)(29.1) $ (19.2)
- ---------------------------------------------------============================
- 40 -
Accruals for the cost of early retirement incentives were $38.0 million in
1993 compared with $30.0 million in 1992. The cost of these incentives is
included as a part of the restructuring charges discussed on page 39.
The company has defined-contribution pension plans for eligible employees at
certain of its U.S. subsidiaries, such as the Employee Stock Ownership Plan
(ESOP) described on page 44. Company contributions and accrued compensation
expense related to the ESOP are included with other plans' contributions and
costs, based on the compensation of each eligible employee.21. The costs of all such plans totaled $6.0$4.2
million in 1993, $5.91995, $4.3 million in 1992,1994 and $5.3$4.4 million in 1991.1993.
The funded status of the company's U.S. defined-benefit pension plans is
presented in the following table.
- ------------------------------------------------------------------------------
Funded status of U.S. defined-benefit
pension plans (millions) 1993 1992
=====================================================================1995 1994
- ------------------------------------------------------------------------------
Assumptions:
Discount rate 7.00% 8.00%
Compensation rate 4.25% 5.25%
- ------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ (704.0)(726.7) $ (585.4)
=====================================================================(657.7)
- ------------------------------------------------------------------------------
Accumulated benefit obligation $ (743.1)(802.4) $ (620.5)
=====================================================================(700.6)
- -------------------------------------------------------------------------------
Projected benefit obligation for
services rendered to date $ (797.2)(901.2) $ (712.1)
=====================================================================(774.8)
- ------------------------------------------------------------------------------
Plan assets at fair value 1,248.2 1,059.4
=====================================================================$1,446.6 $1,099.1
- ------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 451.0 347.3
- --------------------------------------------------------------------$ 545.4 $ 324.3
Unrecognized transition asset (53.0) (59.3)
- --------------------------------------------------------------------(40.3) (46.6)
Unrecognized prior service cost 114.2 84.9
- --------------------------------------------------------------------81.8 102.8
Unrecognized net gain--experiencegain -- experience
different from assumptions (428.3) (285.7)
- --------------------------------------------------------------------(491.8) (285.4)
Provision for restructuring charges (27.1) (10.6)
=====================================================================(9.9) (8.9)
- ------------------------------------------------------------------------------
Prepaid pension cost $ 56.885.2 $ 76.686.2
- ------------------------------------------------------========================
The plan assets, stated at eachestimated fair value as of December 31, are based on measurements from October
31 to December 31. Stated at fair value, they are primarily
listed stocks, bonds and investments with a major insurance company.
Note: Rates used in determining the actuarial present value of the projected
benefit obligation at the end of 1993 and 1992 are: (1) the discount rate or the
assumed rate at which the pension benefits could be effectively settled, 7.00%
in 1993 and 7.25% in 1992; and (2) the compensation rate or the long-term rate
at which compensation is expected to increase as a result of inflation,
promotions, seniority, and other factors, 4.75% in both 1993 and 1992. The
expected long-term rate of return on assets was 8.25% in both 1993 and 1992.
The company has pension plans covering employees in a number of foreign
countries whichthat utilize assumptions that are consistent with, but not identical
withto, those of the U.S. plans.
- --------------------------------------------------------------------------------
Net cost for non-U.S. defined-benefit
pension plans (millions) 1995 1994 1993
1992 1991
====================================================================- --------------------------------------------------------------------------------
Actual return(return) loss on assets $ (11.2) $ 1.8 $(14.3) $(9.1) $(8.7)
- --------------------------------------------------------------------
Less amount deferred 5.9 (6.1) 8.0
2.6 2.4
====================================================================- --------------------------------------------------------------------------------
Expected return on assets $ (5.3) $ (4.3) $ (6.3) (6.5) (6.3)
- --------------------------------------------------------------------
Net amortization and other .4 .6 .5
.5 .1
- --------------------------------------------------------------------
Service cost--benefitscost -- benefits earned
during the year 4.9 5.2 5.3 4.4
- --------------------------------------------------------------------5.2
Interest on the projected benefit
obligation 8.1 7.1 6.7
6.8 5.8
====================================================================- --------------------------------------------------------------------------------
Net pension cost $ 6.18.1 $ 8.6 $ 6.1
$ 4.0- ----------------------------------------------------============================
The following table presents the funded status of the non-U.S. defined-
benefitdefined-benefit
pension plans at December 31.
- 41 -
- --------------------------------------------------------------------------------
Funded status of non-U.S. defined-benefit
pension plans (millions) 1993 1992
====================================================================1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(83.1) $(69.6)
====================================================================$(103.0) $(87.1)
- --------------------------------------------------------------------------------
Accumulated benefit obligation $(88.7) $(73.8)
====================================================================$(107.6) $(91.5)
- --------------------------------------------------------------------------------
Projected benefit obligation for services
rendered to date $(95.9) $(84.8)
====================================================================$(115.8) $(99.5)
- --------------------------------------------------------------------------------
Plan assets at fair value 58.3 78.5
====================================================================71.4 58.0
- --------------------------------------------------------------------------------
Projected benefit obligation greater than
plan assets (37.6) (6.3)
- --------------------------------------------------------------------$ (44.4) $(41.5)
Unrecognized transition obligation 2.9 3.6
- --------------------------------------------------------------------3.3 3.2
Unrecognized prior service cost 2.8 3.0
- --------------------------------------------------------------------3.4 3.5
Unrecognized net gain--experiencegain -- experience
different from assumptions (4.9) (5.4)
- --------------------------------------------------------------------(13.4) (9.5)
Adjustment required to recognize
minimum liability (5.3) (.8)
====================================================================(.4) (.4)
- --------------------------------------------------------------------------------
Accrued pension cost $(42.1) $ (5.9)(51.5) $(44.7)
- --------------------------------------------------------------==================
In 1993, a foreign subsidiary reorganized the financing arrangement of its
principal pension plan and became self-insured. As a result, the subsidiary
recorded, as of December 31, 1993, plan-related liabilities of $37.7 million and
assets of equal value. Prior to 1993, the asset value had been reported as an
asset of the pension plan.
Postretirement benefits other than pensions
and postemployment benefitsPOSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND POSTEMPLOYMENT BENEFITS
The company has plans that provide for medical and life insurance benefits to
certain eligible employees, worldwide, when they retire from active service. The
company funds these benefit costs primarily on a pay-as-you-go basis, with the
retiree paying a portion of the cost for health-carehealth care benefits through
deductibles and contributions.
In 1992, the company adopted SFAS 106, which recognizes the estimated future
cost of providing health-care and other postretirement benefits on an accrual
basis over the active service life of the employee. Prior to 1992,
postretirement benefit expenses were recognized as claims were incurred.
Armstrong elected to immediately recognize the cumulative effect of the
change in accounting for postretirement benefits of $220.3 million ($135.4
million after taxes) which represented the unfunded accumulated postretirement
benefit obligation (APBO) as of January 1, 1992. Under the new standard, total
retiree health-care and life insurance expense was $21.2 million in 1993 and
$22.3 million in 1992. These costs were $12.7 million in 1991.
The company announced in 1989-901989 - 90 a 15-year phaseout of its cost of health-carehealth care
benefits for certain future retirees. These future retirees include parent
company nonunion employees and some union employees. Shares of ESOP convertible
preferred stock (see page 44) are scheduled to be allocated to these employees, based on
employee age and years to expected retirement. In addition, they may enroll in a
voluntary portion of the ESOP to purchase additional shares.
- 42 -
Total retiree health care and life insurance expense was $19.1 million in 1995,
$18.7 million in 1994 and $18.5 million in 1993.
- --------------------------------------------------------------------------------
Periodic postretirement
benefit costs (millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Assumptions:
Discount rate 8.25% 7.75% 8.25%
Rate of increase in future
compensation levels 5.25% 4.75% 4.75%
- --------------------------------------------------------------------------------
Service cost of benefits earned
during the year $ 2.8 $ 3.0 $ 3.0
- --------------------------------------------------------------------------------
Interest cost on accumulated
postretirement benefit obligation 17.1 16.5 16.3
- --------------------------------------------------------------------------------
Amortization of prior service credit (.8) (.8) (.8)
- --------------------------------------------------------------------------------
Periodic postretirement benefit cost $ 19.1 $ 18.7 $ 18.5
- ------------------------------------------------------==========================
The following tables settable sets forth the funded status of the company's postretirement
benefit plans at December 31 and the periodic postretirement
benefit costs.31.
Funded status- ------------------------------------------------------------------------
Status of postretirement
benefit plans (millions) 1993 1992
====================================================================1995 1994
- ------------------------------------------------------------------------
Assumptions:
Discount rate 7.00% 8.25%
Compensation rate 4.25% 5.25%
- ------------------------------------------------------------------------
Retirees $143.3 $116.5
- --------------------------------------------------------------------$161.5 $141.2
Fully eligible active plan participants 39.9 39.0
- --------------------------------------------------------------------17.2 27.8
Other active plan participants 64.7 71.4
====================================================================67.9 39.5
- ------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation $247.9 $226.9
====================================================================(APBO) $246.6 $208.5
- ------------------------------------------------------------------------
Unrecognized prior service credit 8.8 --
====================================================================7.3 8.1
Unrecognized net gain (loss) (24.1) 1.0
====================================================================loss (40.7) (6.9)
- ------------------------------------------------------------------------
Accrued postretirement benefit cost $232.6 $227.9
Periodic postretirement
benefit costs (millions) 1993 1992
====================================================================
Service cost of benefits earned during the year $ 3.9 $ 4.7$213.2 $209.7
- --------------------------------------------------------------------
Interest cost on accumulated postretirement
benefit obligation 18.1 17.6
====================================================================
Amortization of prior service credit (.8) --
====================================================================
Periodic postretirement benefit cost $ 21.2 $ 22.3------------------------------------------------------==================
The assumed health-carehealth care cost trend rate used to measure the APBO was 14%12% in
1992,1994, decreasing 1% per year to an ultimate rate of 6% by the year 2000. The
health-carehealth care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, if the health-carehealth care cost trend rate assumptions were
increased by 1%, the APBO as of December 31, 1993,1995, would be increased by $22.5$22.9
million. The effect of this change on the total of service and interest costs
for 19931995 would be an increase of $2.3 million.
The APBO at December 31, 1993,
was determined utilizing a discount rate of 7.75% and a compensation rate of
4.75%. The discount and compensation rates used in determining the APBO at
December 31, 1992, were 8.25% and 4.75%, respectively.
The company provides certain postemployment benefits to eligible parent
company and subsidiary employees. These benefits are provided to former or inactive
employees and their dependents during the time period following employment but before
retirement.
Prior to 1992, postemployment benefit expenses were recognized on a pay-as-
you-go basis. In 1992,1995, the company adopted SFAS 112, which recognizes the
estimated future cost of providing postemployment benefits on an accrual basis
over the active service life of the employee. Armstrong elected to immediately
recognize the cumulative effect of the change in accounting for postemployment
benefits of $53.3 million ($32.4 million after tax), which represented the
unfunded accumulated postemployment benefit obligation (APBO) as of January 1,
1992. A refinement of the computation in 1993 resulted in restatements of the
1992 financial statements. The effect of the restatements was to reduce the
previously reported loss from continuing businesses by $1.7 million or 5 cents
per share and to
- 43 -
reduce the previously reported net loss by $6.5 million or 18 cents per share.
Totalrecorded a postemployment benefit expense was $4.6of $3.2 million,
which included a $4.1 million credit from the transfer of the payment
responsibility for certain disability benefits to the company's defined-benefit
pension plan. In 1994, the company recorded a postemployment benefit credit of
$12.2 million, which included a $14.6 million gain related to the qualification
in 1993 and $6.31994 of long-term disabled employees for primary medical coverage under
Medicare. The company recorded $4.0 million of postemployment benefit expense in
1992.
Employee Stock Ownership Plan1993.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
In 1989, Armstrong established an ESOP that borrowed $270 million from banks and
insurance companies, repayable over 15 years and guaranteed by the company. The
ESOP used the proceeds to purchase 5,654,450 shares of a new series of
convertible preferred stock issued by the company. The number of preferred
shares released for allocation to participant accounts is based on the
proportion of principal and interest paid to the total amount of debt service
remaining to be paid over the life of the borrowings. Through December 31, 1993,1995,
the ESOP allocated to participants 1,276,3501,940,004 shares and retired 126,758232,452 shares.
The preferred stock has a minimum conversion value of $47.75 per share with an
annual dividend of $3.462.
The ESOP currently covers parent company nonunion employees, some union
employees and those employees of major domestic subsidiaries who wish to
participate in the voluntary contribution portion of the plan.
Armstrong used the proceeds from the 1989 sale of preferred stock to
repurchase common stock in 1989 and 1990 for the company treasury.subsidiaries.
The company's guarantee of the ESOP loan has been recorded as a long-term
obligation and as a reduction of shareholders' equity on its consolidated
balance sheet.
- -----------------------------------------------------------
Details of ESOP debt service
payments (millions) 1995 1994 1993
1992 1991
====================================================================- -----------------------------------------------------------
Preferred dividends paid $18.8 $19.0 $19.2 $19.3 $19.4
- --------------------------------------------------------------------
Employee contributions 6.7 6.2 5.9 5.9 6.0
- --------------------------------------------------------------------
Company contributions 6.2 4.9 3.5
2.2 .7
====================================================================- -----------------------------------------------------------
Debt service payments made
by ESOP trustee $31.7 $30.1 $28.6
$27.4 $26.1- --------------------------------===========================
The company recorded costs for the ESOP, utilizing the 80% of the shares
allocated method, of $4.5$3.5 million in 1993, $4.4 million in 1992, and1995, $3.6 million in 1991, consisting primarily of accrued compensation expenses plus
company contributions.1994 and $3.7 million
in 1993. Costs for all years continue to be offset by savings from changes to
company-sponsored health-carehealth care benefits and elimination of a contribution-matchingcontribution-
matching feature in the company-sponsored voluntary retirement savings plan.
- 44 -
TAXES
Taxes totaled $113.6$71.7 million in 1993, $92.41995, $150.4 million in 1992,1994 and $126.4$89.6 million in
1991.
Details of taxes (millions) 1993 1992 1991
=========================================================================
Earnings (loss) from continuing
businesses before income taxes:
Domestic $ 85.7 $(59.2) $100.5
- ------------------------------------------------------------------------
Foreign 29.3 8.0 58.7
- ------------------------------------------------------------------------
Eliminations (24.3) (9.2) (58.9)
=========================================================================
Total $ 90.7 $(60.4) $100.3
=========================================================================
Income taxes:
Payable:
Federal $ 28.4 $ 20.4 $ 13.0
- ------------------------------------------------------------------------
Foreign 10.6 16.2 27.8
- ------------------------------------------------------------------------
State 3.7 3.2 .1
=========================================================================
42.7 39.8 40.9
=========================================================================
Deferred:
Federal (14.3) (37.9) (5.7)
- ------------------------------------------------------------------------
Foreign (1.2) (2.4) .9
- ------------------------------------------------------------------------
State -- -- 3.6
=========================================================================
(15.5) (40.3) (1.2)
=========================================================================
Total income taxes 27.2 (.5) 39.7
- ------------------------------------------------------------------------
Payroll taxes 68.2 74.3 69.6
- ------------------------------------------------------------------------
Property, franchise, and capital
stock taxes 18.2 18.6 17.1
=========================================================================
Total taxes $113.6 $ 92.4 $126.4
=========================================================================
Components of deferred tax (benefit) expense:
Restructuring benefit $(25.4) $(39.7) $ (.7)
- ------------------------------------------------------------------------
Difference between book and tax
depreciation (3.0) 3.7 12.5
- ------------------------------------------------------------------------
Purchased tax benefits (2.4) (2.2) (2.5)
- ------------------------------------------------------------------------
Pension plan 5.0 3.2 5.4
- ------------------------------------------------------------------------
Alternative minimum tax 5.0 (5.2) (10.6)
- ------------------------------------------------------------------------
Other items 5.3 (.1) (5.3)
=========================================================================
Total deferred tax (benefit) expense $(15.5) $(40.3) $ (1.2)
In 1992, the company adopted SFAS 109, "Accounting for Income Taxes," which
supersedes SFAS 96. Under SFAS 109, deferred1993.
Deferred tax assets and liabilities are recognized using enacted tax rates for
the expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Generally, SFAS 96 prohibited consideration of any future events in calculating
deferred taxes.
SFAS 109 also requires recognition in shareholders' equity of theThe tax benefit for dividends paid on
unallocated shares of stock held by the ESOP which
amounted to $5.3 million in 1993 and $5.5 million in 1992. Under SFAS 96, this
benefit wasis recognized in the statement of earnings and amounted to $6.0 million
in 1991. The tax benefit for dividends paid on allocated shares held by an ESOP
are recognized in the statements of earnings under the provisions of both SFAS
109 and SFAS 96.
- 45 -
shareholders'
equity (see page 21).
- --------------------------------------------------------------------------------
Details of taxes (millions) 1995 1994 1993
- --------------------------------------------------------------------------------
Earnings (loss) from continuing businesses before income taxes:
Domestic $(28.7) $262.7 $ 61.6
Foreign 68.0 52.1 29.3
Eliminations (31.1) (49.0) (24.3)
- --------------------------------------------------------------------------------
Total $ 8.2 $265.8 $ 66.6
- --------------------------------------------------------------------------------
Income tax provision (benefit):
Current:
Federal $(19.7) $ 12.8 $ 15.5
Foreign 23.4 25.9 10.6
State (0.2) 5.0 3.7
- --------------------------------------------------------------------------------
Total current 3.5 43.7 29.8
- --------------------------------------------------------------------------------
Deferred:
Federal (6.2) 41.4 (11.0)
Foreign (2.7) (2.2) (1.2)
State -- (4.3) --
- --------------------------------------------------------------------------------
Total deferred (8.9) 34.9 (12.2)
- --------------------------------------------------------------------------------
Total income taxes (5.4) 78.6 17.6
Payroll taxes 61.5 54.8 55.8
Property, franchise and capital
stock taxes 15.6 17.0 16.2
- --------------------------------------------------------------------------------
Total taxes $ 71.7 $150.4 $ 89.6
- ------------------------------------------------------==========================
At December 31, 1993,1995, unremitted earnings of subsidiaries outside the United
States were $93.1$135.6 million (at current balance sheet exchange rates) on which no
U.S. taxes have been provided. If such earnings were to be remitted without
offsetting tax credits in the United States, withholding taxes would be $11.5$12.5
million. The company's intention, however, is to permanently reinvest those
earnings or to repatriate them only when it is tax effective to do so.
- ----------------------------------------------------------------------
Reconciliation to
U.S. statutory tax rate (millions) 1995 1994 1993
1992 1991
====================================================================- ----------------------------------------------------------------------
Statutory tax (benefit)Tax expense at statutory rate 35.0% (34.0)% 34.0%
- --------------------------------------------------------------------$ 2.9 $93.0 $23.3
State income taxes 2.6 3.5 2.4
- ---------------------------------------------------------------------- (1.5) 1.2
(Benefit) on ESOP dividend (1.5)(2.1) (1.7) (6.6)
- --------------------------------------------------------------------(1.4)
(Benefit) taxes on foreign and
foreign-source income (8.8) 3.7 7.3
====================================================================(7.7) (1.4) (8.0)
Utilization of excess foreign
tax credit -- (5.4) --
Reversal of prior year provisions -- (6.5) --
Other items .9 3.5 2.5
- --------------------------------------------------------------------0.1 2.1 0.9
Restructuring charges 1.8 24.0(0.2) -- ====================================================================
Effective tax1.6
Loss from ceramic tile business
combination 1.6 -- --
- ----------------------------------------------------------------------
Tax (benefit) rates 30.0% (1.0)% 39.6%expense at effective rate $(5.4) $78.6 $17.6
- -------------------------------------------===========================
- ----------------------------------------------------------------------
BALANCE SHEET ITEMS
- ----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents decreasedincreased to $9.1$256.9 million at the end of 19931995 from
$15.2$12.0 million at the end of 1992.1994. Operating and other factors associated with
the decreaseincrease in cash and cash equivalents are detailed in the Consolidated
Statements of Cash Flows on page 36.21.
Short-term investments, substantially all of which have maturities of three
months or less when purchased, are considered to be cash equivalents and are
carried at cost or less, generally approximating market value.
RECEIVABLES
Receivables declined $19.1decreased $1.0 million in 1993, with most of the decrease
related to the collection of customer notes and miscellaneous receivables, and
a $5.3 million reserve increase for discounts and losses. Customers'
receivables declined $2.0 million even though1995. Lower sales increased by 4% in the fourth quarter.last quarter of
1995, when compared with 1994, more than offset the $4.9 million effect of
translating foreign currency receivables to U.S. dollars at higher exchange
rates.
- ------------------------------------------------------------
Accounts and notes
receivable (millions) 1993 1992
====================================================================1995 1994
- ------------------------------------------------------------
Customers' receivables $287.0 $289.0
- --------------------------------------------------------------------$213.4 $216.3
Customers' notes 22.3 29.6
- --------------------------------------------------------------------21.3 19.3
Miscellaneous receivables 11.7 16.2
====================================================================
321.0 334.8
====================================================================12.2 10.3
- ------------------------------------------------------------
246.9 245.9
- ------------------------------------------------------------
Less allowance for discounts and losses 37.5 32.2
====================================================================29.0 27.0
- ------------------------------------------------------------
Net $283.5 $302.6$217.9 $218.9
- -------------------------------------------=================
- 46 -
Generally, the company sells its products to select, preapproved groups of
customers that include:which include flooring and building material distributors, ceiling
systems contractors, regional and national mass merchandisers, and home centers and
original equipment manufacturers, and large furniture retailers.manufacturers. The businesses of these customers are directly
affected by changes in economic and market conditions. The company considers
these factors and the financial condition of each customer when establishing its
allowance for losses from doubtful accounts.
The carrying amount of the receivables approximates fair value because of the
short maturity of these items.
Trade receivables are recorded in gross billed amounts as of date of shipment.
Provision is made for estimated applicable discounts and losses.
INVENTORIES
Inventories were $33.2$30.9 million lowerhigher at the end of 1993, a 10 percent decline
from1995. The higher inventory
levels were primarily due to increasing inventory levels for insulation products
in order to ensure customer service while starting up new production facilities
at Mebane, North Carolina, and the 1992 year-end position.softening of sales in the floor industry
segment. The decrease was primarily a result of the
successful ongoing process changes that reduced cycle time and improved
inventory turnover from 8.0 to 8.8 turns on sales. Approximately half of the
inventory reduction occurred in Europe with about $4.0 million of the reduction
related to the translation of foreign currency inventories to U.S. dollars at
lowerhigher exchange rates.rates increased inventories by $3.1 million.
Approximately 51% in 19931995 and 48%49% in 19921994 of the company's total inventory iswas
valued on a LIFO (last-in, first-out) basis. Such inventory values were lower
than would have been reported on a total FIFO (first-in, first-out) basis, by
$109.7$62.4 million at the end of 19931995 and $108.3$55.5 million at year-end 1992.1994.
- -----------------------------------------------------------
Inventories (millions) 1993 1992
====================================================================1995 1994
- -----------------------------------------------------------
Finished goods $176.8 $203.4
- --------------------------------------------------------------------$119.9 $103.1
Goods in process 34.5 34.3
- --------------------------------------------------------------------24.0 22.9
Raw materials and supplies 74.9 81.7
====================================================================51.6 38.6
- -----------------------------------------------------------
Total $286.2 $319.4$195.5 $164.6
- ----------------------------------------===================
Inventories are valued at the lower of cost or market. Approximately two-
thirds90 percent
of 1993's1995's domestic inventories are valued using the LIFO method. Other
inventories are generally determined on a FIFO method.
INCOME TAX BENEFITS
Income tax benefits were $36.8$26.9 million in 19931995 and $43.2$35.9 million in 1992.1994. Of
these amounts, deferred tax benefits were $34.1$26.4 million in 19931995 and $39.9$31.7
million in 1992.1994.
OTHER CURRENT ASSETS
Other current assets were $24.8$25.5 million in 1993, a decrease1995, an increase of $7.5$3.9 million
from the $32.3$21.6 million in 1992. The decrease primarily reflects a reduction in
prepaid costs.1994.
- ------------------------------------------------------------------
Property, plant and equipment
- ------------------------------------------------------------------
(millions) 1993 1992
=====================================================================1995 1994
- ------------------------------------------------------------------
Land $ 32.225.6 $ 36.5
- --------------------------------------------------------------------20.5
Buildings 505.1 490.8
- --------------------------------------------------------------------390.6 375.5
Machinery and equipment 1,446.5 1,420.2
- --------------------------------------------------------------------1,313.7 1,238.1
Construction in progress 62.0 60.8
=====================================================================
Gross book value 2,045.8 2,008.3
=====================================================================124.2 76.2
- ------------------------------------------------------------------
1,854.1 1,710.3
- ------------------------------------------------------------------
Less accumulated depreciation
and amortization 1,006.7 936.3
=====================================================================975.9 902.4
- ------------------------------------------------------------------
Net book value $1,039.1 $1,072.0$ 878.2 $ 807.9
- --------------------------------------------======================
The $37.5$143.8 million increase in gross book value to $2,045.8$1,854.1 million at the end
of 1993 includes $117.61995 included $177.8 million for capital additions; a $12.5 million
write-down for restructuring;additions and acquisitions and a
$42.6$61.2 million reduction from sales, retirements, dispositions and other changes.
Also, because of translating foreign currency property, plant and equipment into
U.S. dollars at lowerhigher exchange rates, 19931995 gross book value was reducedhigher by $25.0$27.2
million and net book value decreasedincreased by $11.8$12.9 million.
The unexpended cost of approved capital appropriations amounted to $69.8$169.5
million at December 31, 1993,year-end 1995, substantially all of which is scheduled to be expended
during 1994.1996.
Property, plant and equipment values are stated at acquisition cost, with
accumulated depreciation and amortization deducted to arrive at net book value.
- 47 -
The Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," is
effective for fiscal years beginning after December 15, 1995. The adoption of
this standard will not have a material impact on the company.
INSURANCE FOR ASBESTOS-RELATED LIABILITIES
Insurance for asbestos-related liabilities was $166.0 million reflecting the
company's belief in the ultimate availability of insurance in an amount to cover
the estimated potential liability of a like amount (see page 21). Such insurance
has either been agreed upon or is probable of recovery through negotiation,
alternative dispute resolution or litigation. See discussion on page 21.
Other noncurrent assets
- -------------------------------------------------------
(millions) 1993 1992
====================================================================1995 1994
- --------------------------------------------------------
Goodwill and other intangibles $ 68.150.2 $ 82.6
- --------------------------------------------------------------------43.4
Pension-related assets 76.0 98.1108.4 106.7
Other 62.2 54.4
- --------------------------------------------------------------------
Other 105.7 44.4
====================================================================--------------------------------------------------------
Total $249.8 $225.1$220.8 $204.5
- ---------------------------------------=================
Significant items includedOther noncurrent assets increased $16.3 million in 1995. Goodwill and other
intangibles increased $6.8 million reflecting higher spending levels in computer
software systems and acquired intangibles from acquisitions. The $7.8 million
increase in the $24.7 million increase were a $37.7 million
addition of paid up"Other" category was primarily attributed to higher paid-up
insurance policy assets that were previously part of a
foreign subsidiary pension plan's assets (see page 42) and a deferred income tax
benefit of $13.5 million. Partially offsetting these increases were a net charge
of $19.8 million to the prepaid pension asset and a $6.4 million write-off of
certain intangible assets.values.
Noncurrent assets are carried at cost or less or under the equity method of
accounting.
INVESTMENTS IN AFFILIATES
Investments in affiliates were $162.1 million in 1995, a decrease of $131.8
million, reflecting the ceramic tile business combination with Dal-Tile
International Inc. whereby the company acquired a 37% interest in Dal-Tile in
exchange for the stock of the company's ceramic tile operations and $27.6
million in cash. Also included in investments in affiliates is the 50% interest
in the WAVE joint venture.
Accounts payable and
accrued expensesACCOUNTS PAYABLE AND ACCRUED EXPENSES
- -----------------------------------------------------
(millions) 1993 1992
====================================================================1995 1994
- -----------------------------------------------------
Trade payables $ 90.8 $ 94.0
- --------------------------------------------------------------------
Other payables 54.5Payables, trade and other $168.3 $147.0
Employment costs 51.2 - --------------------------------------------------------------------
Payroll and related taxes 37.3 42.6
- --------------------------------------------------------------------68.7
Restructuring costs 41.7 47.940.1 18.7
Other 37.8 36.0
- --------------------------------------------------------------------
Other 69.0 54.5
====================================================================-----------------------------------------------------
Total $293.3 $290.2$297.4 $270.4
- ------------------------------------=================
The carrying amount of accounts payable and accrued expenses approximates fair
value because of the short maturity of these items.
Income taxesINCOME TAXES
- ------------------------------------------
(millions) 1993 1992
====================================================================1995 1994
- ------------------------------------------
Payable--current $ 31.7 $ 20.2$15.0 $21.4
Deferred--current 1.4 1.1
- --------------------------------------------------------------------
Deferred--current 0.1 2.1
====================================================================------------------------------------------
Total $ 31.8 $ 22.3
- 48 -
Deferred income taxes (millions) 1993 1992
============================================================================
Postretirement and postemployment
benefits $ (99.6) $ (95.4)$16.4 $22.5
- ----------------------------------------------------------------------------
Restructuring benefits (31.0) (39.7)
- ----------------------------------------------------------------------------
Alternative minimum tax credit (20.3) (25.4)
- ----------------------------------------------------------------------------
Excess foreign tax credit carryforward (6.9) --
- ----------------------------------------------------------------------------
Other (69.6) (55.4)
============================================================================
Total gross deferred tax assets $(227.4) $(215.9)
============================================================================
Less valuation allowance 6.9 --
============================================================================
Net deferred assets $(220.5) $(215.9)
============================================================================
Accumulated depreciation $ 96.2 $ 115.3
- ----------------------------------------------------------------------------
Pension costs 29.4 35.0
- ----------------------------------------------------------------------------
Other 66.1 53.3
============================================================================
Total deferred income tax liabilities $ 191.7 $ 203.6
============================================================================
Net deferred income tax liabilities (assets) $ (28.8) $ (12.3)
============================================================================
Less net income tax (benefits)--current (34.1) (37.8)
- ----------------------------------------------------------------------------
Less net income tax (benefits)--noncurrent (13.5) --
============================================================================
Deferred income taxes--long term $ 18.8 $ 25.5--------------------------================
The tax effects of principal temporary differences between the carrying amounts
of assets and liabilities and their tax bases are summarized in the precedingfollowing
table.
Under current law, the alternative minimum tax credits have an unlimited
carryforward life for U.S. tax purposes. A valuation allowance was not
established for these benefits because management believes the company will
earn sufficient taxable income to utilize the benefits.
The tax audit reviews have been completed for years 1988 through 1990, and the
company believes that there will be no adverse effect on the company's financial
condition.
- --------------------------------------------------------------------------------
Deferred income taxes (millions) 1995 1994
- --------------------------------------------------------------------------------
Postretirement and postemployment benefits $ (82.6) $ (95.0)
Restructuring benefits (13.4) (14.7)
Asbestos-related liabilities (58.1) (69.3)
Alternative minimum tax credit -- (5.3)
Other (64.6) (77.8)
- --------------------------------------------------------------------------------
Net deferred assets $(218.7) $(262.1)
- --------------------------------------------------------------------------------
Accumulated depreciation $ 90.7 $ 106.5
Pension costs 35.8 33.1
Insurance for asbestos-related liabilities 58.1 69.3
Other 25.6 54.7
- --------------------------------------------------------------------------------
Total deferred income tax liabilities $ 210.2 $263.6
- --------------------------------------------------------------------------------
Net deferred income tax liabilities (assets) $ (8.5) $ 1.5
- --------------------------------------------------------------------------------
Less net income tax (benefits)--current (25.0) (30.6)
Less net income tax (benefits)--noncurrent -- --
Deferred income taxes -- long term $ 16.5 $ 32.1
- -------------------------------------------------------------===================
DEBT
- --------------------------------------------------------------------------------
Average Average
year-end year-end
interest interest
Debt (millions) 19931995 rate 19921994 rate
======================================================================- --------------------------------------------------------------------------------
Short-term debt:
Commercial paper $ -- -- $ 3.2 6.00%
Foreign banks $ 29.9 6.81% $ 60.4 9.53%22.0 7.27% 14.7 7.20%
- ----------------------------------------------------------------------
Commercial paper 75.5 3.36% 163.3 3.66%
======================================================================--------------------------------------------------------------------------------
Total short-term debt $105.4 -- $223.7 --
======================================================================$ 22.0 7.27% $ 17.9 6.99%
- --------------------------------------------------------------------------------
Long-term debt:
9 3/93/4% debentures
due 2008 $125.0 9.75% $125.0 9.75%
- ----------------------------------------------------------------------
Medium-term notes
116.8 8.71% 125.0 8.68%8.5 - ----------------------------------------------------------------------9% due
1996 - 2001 92.8 8.74% 111.8 8.75%
Industrial
development bonds 17.9 3.08% 18.3 3.34%bond 8.5 5.35% 17.7 5.66%
Other 2.1 12.29% 2.2 12.25%
- ----------------------------------------------------------------------
Mortgages, notes
and other 2.9 11.25% 7.7 10.69%
======================================================================--------------------------------------------------------------------------------
Total long-term debt 262.6 -- 276.0 --
======================================================================$228.4 9.20% $256.7 9.05%
- --------------------------------------------------------------------------------
Less current installments 5.8 -- 9.4 --
======================================================================40.1 8.50% 19.5 8.80%
- --------------------------------------------------------------------------------
Net long-term debt $256.8 8.85% $266.6 8.85%$188.3 9.35% $237.2 9.07%
- -----------------------------------------=======================================
- --------------------------------------------------------------------------------
Scheduled amortization of long-term debt (millions)
- --------------------------------------------------------------------------------
1997 $13.7 2000 $18.1
1998 13.5 2001 7.5
1999 --
- --------------------------------------------------------------------------------
- 49 -
The December 31, 1993,1995, carrying amounts of short-term debt ($105.4 million)
and current
installments of long-term debt ($5.8 million) approximate fair value because of the short
maturity of these items.
The December 31, 1993, carrying amountestimated fair value of net long-term debt was $256.8$234.9 million compared with a fair value estimate of $301.3 million.and $247.2
million at December 31, 1995 and 1994, respectively. The fair value estimates of
long-term debt were based upon quotes from major financial institutions, taking
into consideration current rates offered to the company for debt of the same
remaining maturities.
The medium-term notes were issued at rates from 8% to 9% with maturities
ranging from 1994 to 2001.
The 9 3/93/4% debentures and the medium-term notes are not redeemable by the
company until maturity
and there arehave no sinking-fund requirements.
Scheduled amortization of long-term debt (millions)
====================================================================
1995 $19.8 1998 $13.5
- --------------------------------------------------------------------
1996 40.1 1999 --
- --------------------------------------------------------------------
1997 13.7
In 1983, the company issuedThe industrial development bond matures in 2004 with a $37.2 million noninterest-bearing installment
note and has made the first of two required payments. The second installment
payment ofvariable interest rate
that is reset weekly.
Other debt includes an $18.6 million iszero-coupon note due in 2013. The $1.5 million present2013 that had a
carrying value of this payment is recorded in other long-term debt. The estimated fair value$1.9 million at December 31, 1993, was $4.4 million.1995.
In February 1995, Armstrong currently has unused domestic short-term linesarranged a $200 million five-year revolving line of
credit of
approximately $245 million from eight banks.with 10 banks for general corporate purposes. In addition, the company's
foreign subsidiaries have approximately $144$154.0 million of unused short-term
lines of credit available from banks. Most of theThe domestic credit lines are extended on
a fee basis.subject to
an annual commitment fee.
The company can borrow from its banks generally at rates approximating the
lowest available to commercial borrowers and can issue short-term commercial
paper notes supported by the lines of credit.
Financial instruments with off-balance sheet risksFINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS
The company selectively uses forward contracts, foreign currency options,forward and interestoption contracts to
offset the effects of exchange rate changes on cash flow exposures denominated
in foreign currencies. These exposures include firm or currency swapsanticipated intercompany
trade accounts, royalties, service fees, dividends, intercompany loans and third
party sales or payments. The primary exposures are denominated in European
currencies and the Canadian dollar. The company normally hedges cash flow
exposures up to selectively hedgeone year. The company's foreign currency cash flow exposures,
net hedge and interest rate
risk exposures.unhedged exposures at December 31, 1995, were as follows:
- --------------------------------------------------------------------------------
Foreign currency
exposure (millions)/1/ Gross Net hedge Unhedged
- --------------------------------------------------------------------------------
Canadian dollar $ 30.0 $15.3 $14.7
Italian lira to French franc 23.0 10.2 12.8
French franc 22.4 22.4 --
German mark 15.0 7.9 7.1
Irish pound to British pound 8.9 -- 8.9
Spanish peseta to French franc 8.0 4.0 4.0
Other 24.0 2.5 21.5
- --------------------------------------------------------------------------------
Total $131.3 $62.3 $69.0
- -----------------------------------------------------===========================
Note 1: The currencies shown are in relation to the U.S. dollar, except as
indicated.
Realized and unrealized gains and losses on contracts that hedge expected futureare used to offset
the effects of exchange rate changes on foreign currency cash flows are normally
marked to market and recognized in otherstatements of operations. The foreign
currency options consist primarily of purchased options that are designated as
effective hedges and are deferred and included in income and expense.as part of the
underlying transactions.
Realized and unrealized gains and losses on foreign currency contracts thatused to
hedge netintercompany transactions of a long-term investment nature are included in
the foreign subsidiaries are recognized incurrency translation component of shareholders' equity.
At December 31, 1993, forward contracts andThe company's foreign currency options hedging
anticipated transactions totaled approximately U.S. $142.6 millionforward and were
primarily denominated in European currencies. The forwardoption contracts and options
mature within one year.
The estimated market value of the forward contracts and foreignby currency
options at
December 31, 1993, was $.8 million1995, were as follows. All of the contracts mature within 11
months.
- --------------------------------------------------------------------------------
Foreign currency
contracts (millions)/1/ Forward contracts Option contracts
- --------------------------------------------------------------------------------
Sold Bought Sold Bought
- --------------------------------------------------------------------------------
Canadian dollar $ 8.2 $ -- -- $ 7.1
Italian lira to French franc 10.2 -- -- --
French franc 10.4 -- -- 12.0
German mark 29.1 21.2 -- --
Spanish peseta to
French franc -- -- -- 4.0
Other 9.3 6.8 -- --
- --------------------------------------------------------------------------------
Total $67.2 $28.0 -- $23.1
- --------------------------------------==========================================
Note 1: The currencies shown are in relation to the U.S. dollar, except as
indicated, and was included in "Other
current assets." These values were obtained from dealer quotesare converted at year-end market exchange rates.
The company selectively enters into interest rate swap agreements to reduce the
impact of interest rate changes on its debt. The interest rate swap agreements
involve exchanges of fixed or floating rate interest payments without the
exchange of the underlying notional amounts. The notional amounts of such
agreements are used to measure the interest to be paid or received and published
foreign currency market rates.do not
represent the amount of exposure to loss.
In 1987, the company entered into a seven-year notional $15 million interest
rate swap agreement. The swap expires in 1994 and provides forwhereby the company to paypaid interest at the 30-day U.S. commercial paper
rate and received interest at a fixed rate of 10.22%. The swap matured in 1994.
In 1987, the company entered into one 5-year and two 7-year currency interest
rate swaps whereby the company exchanged a total of U.S. $86.3 million for
German marks 90 million, French francs 182.4 million and Belgian francs 270
million to receivehedge net investment in foreign subsidiaries. The agreements provided
for the company to make fixed interest rate payments of 5.37% for the German
mark swap, 8.88% for the French franc swap and 7.8% for the Belgian franc swap
while receiving interest at the 30-day U.S. commercial paper rate. The swaps
hedged net investment in foreign subsidiaries until 1992, at which time they
were redesignated to hedge foreign currency cash flow exposures. Upon
redesignation, the swaps were marked to market through income. The German mark
swap matured in 1992. The two remaining swaps were terminated prior to maturity
in 1993 due to the appreciation of the foreign currencies and a pretax loss of
$0.7 million was recognized in other income and expense.
In 1992, the company entered into two 3-year notional amount $50 million
interest rate swaps, whereby the company paid interest at the six-month London
Interbank Offered Rate (LIBOR) in arrears and received interest at an average
fixed annual rate of 10.22%6.6%. In 1993, the companyThe swaps were terminated prior to expirationmaturity in 1993 due to
rising interest rate swaps
totaling $100rates and a pretax gain of $2.5 million and currency swaps totaling $37.2 million. Also,was recognized in
income.
In 1993, the company entered into a five-year notional amount $25 million
interest rate swap, agreement. The swap
expires in 1998 and provides forwhereby the company to paypaid interest at the six-month London interbank offered rate,LIBOR and
to receivereceived interest at a fixed rate of 5.575%. The carrying valuesswap was terminated in 1994 due
to rising interest rates and a pretax loss of the$0.1 million was recognized in
income.
The company had no interest rate agreements represent a net asset of
$.6 million, compared with a net asset of $1.0 million at fair value, based on
quotes from major financial institutions. The fair values represent the
estimated amount the company would have received by terminating thesehedging agreements on December 31, 1995.
The foreign currency hedges and the swap agreements are straightforward "plain
vanilla" contracts that have no imbedded options or other terms that involve a
higher level of complexity or risk. The company does not hold or issue financial
instruments for trading purposes.
The realized and unrealized gains and losses relating to the company's
management of foreign currency and interest rate exposures are shown below on a
disaggregated basis for the years ended December 31, 1995, 1994 and 1993.
- 50 -
- --------------------------------------------------------------------------
Foreign currency
--------------------------------- Interest
Exposure Net rate
Gain (loss) (millions) effect Contracts/1/ effect/2/ swaps
- --------------------------------------------------------------------------
Year 1995
- --------------------------------------------------------------------------
Income statement:
Realized $(1.1) $(2.4) $(3.5) $ --
Unrealized 0.2 0.3 0.5 --
On balance sheet:
Realized 4.4 (4.2) 0.2 --
Unrealized (0.1) 0.2 0.1 --
Off balance sheet -- -- -- --
Total $ 3.4 $(6.1) $(2.7) $ --
- --------------------------------==========================================
Year 1994
- --------------------------------------------------------------------------
Income statement:
Realized $ (.7) $(2.5) $(3.2) $ .2
Unrealized -- .4 .4 --
On balance sheet:
Realized 2.1 (5.8) (3.7) --
Unrealized 4.8 (.2) 4.6 --
Off balance sheet -- -- -- --
Total $ 6.2 $(8.1) $(1.9) $ .2
- --------------------------------==========================================
Year 1993
- --------------------------------------------------------------------------
Income statement:
Realized $ (.8) $(2.8) $(3.6) $7.0
Unrealized -- (.9) (.9) --
On balance sheet:
Realized -- -- -- --
Unrealized (1.2) .2 (1.0) --
Off balance sheet -- -- -- .4
Total $(2.0) $(3.5) $(5.5) $7.4
- --------------------------------==========================================
Note 1: The company borrows centrally and enters into foreign currency
intercompany transactions of a long-term investment nature with foreign
subsidiaries. These are fully hedged. Accordingly, gains and losses on these
transactions are fully offset by losses and gains from the related foreign
exchange contracts.
Note 2: Excludes the offsetting effect of interest rate differentials on
underlying intercompany transactions being hedged of $0.1 million in 1995, $0.6
million in 1994 and $0.5 million in 1993.
The company continually monitors the market risk of its foreign currency and
interest rate contracts by marking the positions to market. The counterparties
to these instruments are major international financial institutions and exposure
to any one counterparty is limited. The company uses commercial rating agencies
to evaluate the company continually monitors its positioncredit quality of the counterparties, and the credit
ratings of the counterparties. The company does not
anticipate a loss resulting from any credit risk of these institutions.
For reporting purposes, the assets and liabilities of the forward contracts,
foreign currency options, and interest rate swaps are offset because the
agreements provide for a right of offset.
As of December 31, 1993,1995, the company had provided $62$150.8 million in standby
letters of credit and financial guarantees. The company's policycompany does not normally
requireprovide collateral or other security to support these instruments.
OTHER LONG-TERM LIABILITIES
Other long-term liabilities were $99.6$140.6 million in 1993 and $52.91995, an increase of $30.5
million from $110.1 million in 1992. The significant item1994. Increases of $10.0 million for pension-
related liabilities, $9.4 million for deferred compensation and $7.8 million for
idle leases (resulting from 1995 restructuring actions) were the primary causes
for the increase. Also included in the $46.7 million increase is the $37.7
million of pension liabilities assumed by the company as a result of becoming
self-insured for the pension obligations in a foreign subsidiary (see page 42).
Otherother long-term liabilities includewere amounts for pensions, deferred
compensation,
workers' compensation, vacation accrual, a reserve for estimated environmental-
remediation liabilities (see "Environmental Matters" on this page) and a reserve
for the estimated potential liability primarily associated with claims pending
in the company's asbestos-related litigation.
Based upon the company's experience with thisthe asbestos-related litigation--as
well as the Wellington Agreement, other settlement agreements with certain of
the company's insurance carriers and an earlier interim agreement with several
primary carriers--thiscarriers--a residual reserve amount of $4.7 million is intended to
cover potential liability and settlement costs that are not covered by
insurance, legal and administrative costs not covered under the agreements and
certain other factors whichthat have been involved in the litigation about which
uncertainties exist. Future costs of litigation against the company's insurance
carriers and other legal costs indirectly related to the litigation, expected to
be modest, will be expensed outside the reserve. Amounts, primarily insurance
litigation costs, estimated to be payable within one year are included under
current liabilities.
The companyThis reserve does not know how many claims will be filed against itaddress any unanticipated reduction in expected insurance
coverage that might result in the future related to pending lawsuits and claims
nor the details thereof or of pendingany potential shortfall in such coverage for claims and suits not fully
reviewed, nor the expense and any liability that may ultimately result
therefrom, nor does the company know the annual claims flow capsare subject to be
negotiated after the initial 10-year period for the
settlement class action or
the then compensation levels to be negotiated for such claims or the success the
company may have in addressing the Midland Insurance Company insolvency with its
other insurers. Subject to the foregoing and based upon its experience and other
factors referred to under "Litigation" on pages 60-64, the company believes
that it is probable that such charges to expense associated with the suits and
claims should not be significant.21.
The fair value of other long-term liabilities was estimated to be $87.2$128.9 million
at December 31, 1993,1995, and $104.4 million at December 31, 1994, using a
discounted cash flow approach.
Environmentalapproach at discount rates of 5.8% in 1995 and 7.9%
in 1994.
ASBESTOS-RELATED LIABILITIES
Asbestos-related liabilities of $166.0 million represent the estimated potential
liability and defense cost to resolve approximately 59,000 personal injury
claims pending against the company as of December 31, 1995. The company will incur capital expenditureshas
recorded an insurance asset (see page 21) in order to meet the new
requirementsamount of the Clean Air Act$166.0 million for
coverage of 1990 and is awaiting the final
promulgation of implementing regulations by various state agencies to
determine the magnitude of additional costs and the time period over which
they will be incurred.these claims. See discussion on page 21.
ENVIRONMENTAL MATTERS
In 1993,1995, the company incurred capital - 51 -
expenditures of approximately $2.6$1.9 million
for environmental compliance and control facilities and anticipates comparable
annual expenditures for those purposes for the years 19941996 and 1995.1997. The company
does not anticipate that it will incur significant capital expenditures in order
to meet the new requirements of the Clean Air Act of 1990 and the final
implementing regulations promulgated by various state agencies.
As with many industrial companies, Armstrong is involved in proceedings under
the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund"), and similar state laws at approximately 2116 sites. In most cases,
Armstrong is one of many potentially responsible parties ("PRPs") who have
voluntarily agreed to jointly fund the required investigation and remediation of
each site. With regard to some sites, however, Armstrong disputes eitherthe liability,
the proposed remedy or the proposed cost allocation. Sites where Armstrong is alleged to
have contributed a significant volume of waste material includeat a former municipal
landfill site in Volney, New York,York. There, Armstrong, along with the county and
other PRPs at the site, have voluntarily performed a supplemental study to
evaluate the USEPA's proposed remedy at the site. Discussions with the USEPA are
continuing regarding the appropriate remedy to be implemented. A former county
landfill site in Buckingham County, Virginia, which is also alleged to have received
material from a former subsidiary, Thomasville Furniture Industries, Inc.
(see
page 65)("Thomasville"). In September 1995, the USEPA ordered Thomasville to implement
the remedy identified in the September 1994, Record of Decision ("ROD"), the
cost of which has been estimated by Thomasville to be approximately $2.2
million. Pursuant to the terms of the company's December 29, 1995, sale of
Thomasville to INTERCO Incorporated, Armstrong has provided to the USEPA a
guarantee of the performance by Thomasville of the required remedial work and
has also entered into a cost-sharing agreement with INTERCO for future costs
relating to the site. Armstrong may also have rights of contribution or
reimbursement from other parties or coverage under applicable insurance
policies. The company is also remediating environmental contamination resulting
from past industrial activity at certain of its current plant sites.
Estimates of future liability are based on an evaluation of currently available
facts regarding each individual site and consider factors including existing
technology, presently enacted laws and regulations and prior company experience
in remediation of contaminated sites. Although current law imposes joint and
several liability on all parties at any Superfund site, Armstrong's contribution
to the remediation of these sites is expected to be limited by the number of
other companies also identified as potentially liable for site costs. As a
result, the company's estimated liability reflects only the company's expected
share. In determining the probability of contribution, the company considers the
solvency of the parties, whether responsibility is being disputed, the terms of
any existing agreements and experience regarding similar matters. The estimated
liabilities do not take into account any claims for recoveries from insurance or
third parties, unlessparties.
Reserves at December 31, 1995, were for potential environmental liabilities that
the company considers probable and for which a coverage commitmentreasonable estimate of the
potential liability could be made. Where existing data is sufficient to estimate
the amount of the liability, that estimate has been provided byused; where only a range of
probable liability is available and no amount within that range is more likely
than any other, the insurer.
Becauselower end of uncertainties associated with remediation activities and
technologies, regulatory interpretations, and the allocation of those costs
among various other parties,range has been used. As a result, the
company has accrued, $4.9before agreed-to insurance coverage, $8.0 million to
reflect its estimated undiscounted liability for environmental remediation. As
assessments and remediation activities progress at each individual site, these
liabilities are reviewed to reflect additional information as it becomes
available.
Actual costs to be incurred at identified sites in the future may vary from the
estimates, given the inherent uncertainties in evaluating environmental
liabilities. Subject to the imprecision in estimating environmental remediation
costs, the company believes that any sum it may have to pay in connection with
environmental matters in excess of the amounts noted above would not have a
material adverse effect on its financial condition, liquidity or results of
operations.
- 52 -
Geographic Areas
United States net trade sales include export sales to non-affiliated customers
of $27.0 million in 1993, $24.4 million in 1992, and $29.3 million in 1991.
"Europe" includes operations located primarily in England, France, Germany,
Italy, the Netherlands, Spain, and Switzerland. Operations in Australia,
Canada, China, Hong Kong, Indonesia, Japan, Korea, Singapore, and Thailand are
in "Other foreign."
Transfers between geographic areas and commissions paid to affiliates
marketing exported products are accounted for by methods that approximate
arm's-length transactions, after considering the costs incurred by the selling
company and the return on assets employed of both the selling unit and the
purchasing unit. Operating profits of a geographic area include profits
accruing from sales to affiliates.
Geographic areas
at December 31 (millions) 1993 1992 1991
=========================================================================
Net trade sales:
=========================================================================
United States $1,910.7 $1,841.5 $1,761.7
- -------------------------------------------------------------------------
Europe 456.6 544.5 508.5
- -------------------------------------------------------------------------
Other foreign 158.1 163.8 169.1
- -------------------------------------------------------------------------
Total foreign 614.7 708.3 677.6
=========================================================================
Inter-area transfers:
=========================================================================
United States 76.1 69.9 65.5
- -------------------------------------------------------------------------
Europe 6.0 4.0 3.9
- -------------------------------------------------------------------------
Other foreign 21.9 18.5 9.9
- -------------------------------------------------------------------------
Eliminations (104.0) (92.4) (79.3)
=========================================================================
Total net sales $2,525.4 $2,549.8 $2,439.3
=========================================================================
Operating profit:
=========================================================================
United States $ 178.0 $ 50.7 $ 131.5
- -------------------------------------------------------------------------
Europe 31.7 22.5 51.8
- -------------------------------------------------------------------------
Other foreign 10.0 (4.6) 9.3
- -------------------------------------------------------------------------
Total foreign 41.7 17.9 61.1
=========================================================================
Total operating profit $ 219.7 $ 68.6 $ 192.6
=========================================================================
Identifiable assets (Note 1):
=========================================================================
United States $1,311.7 $1,338.0 $1,435.5
- -------------------------------------------------------------------------
Europe 347.0 362.5 398.5
- -------------------------------------------------------------------------
Other foreign 63.2 64.9 74.9
- -------------------------------------------------------------------------
Corporate 207.7 251.0 250.5
- -------------------------------------------------------------------------
Eliminations (.3) (6.6) (9.5)
=========================================================================
Total assets $1,929.3 $2,009.8 $2,149.9
- 53 -
Reconciliation (millions) 1993 1992 1991
=========================================================================
Operating profit $219.7 $ 68.6 $ 192.6
- -------------------------------------------------------------------------
Corporate expense, net (91.0) (87.4) (46.5)
- -------------------------------------------------------------------------
Interest expense (38.0) (41.6) (45.8)
=========================================================================
Earnings (loss) from
continuing businesses
before income taxes $ 90.7 $(60.4) $ 100.3
Note 1: Identifiable assets for geographic areas and industry segments
exclude cash, marketable securities, and assets of a corporate nature.
Capital additions for industry segments include property, plant, and equipment
from acquisitions.STOCK OPTIONS
The Company's foreign operations are subject to foreign government legislation
involving restrictions on investments (including transfers thereof), tariff
restrictions, personnel administration, and other actions by foreign
governments. In addition, consolidated earnings are subject to both U.S. and
foreign tax laws with respect to earnings of foreign subsidiaries, and to the
effects of currency fluctuations.
- 54 -
Industry Segments
The company operates worldwide in four reportable segments: floor coverings,
building products, furniture, and industry products. Floor coverings sales
include resilient floors, ceramic tile, and accessories.
Industry segments
at December 31 (millions) 1993 1992 1991
=========================================================================
Net trade sales:
=========================================================================
Floor coverings $1,191.3 $1,134.9 $1,058.0
- -------------------------------------------------------------------------
Building products 586.7 656.7 676.3
- -------------------------------------------------------------------------
Furniture 449.7 438.4 417.9
- -------------------------------------------------------------------------
Industry products 297.7 319.8 287.1
=========================================================================
Total net sales $2,525.4 $2,549.8 $2,439.3
=========================================================================
Operating profit (Note 2):
=========================================================================
Floor coverings $ 129.8 $ 30.2 $ 84.6
- -------------------------------------------------------------------------
Building products 30.5 (7.3) 46.7
- -------------------------------------------------------------------------
Furniture 26.6 10.3 18.2
- -------------------------------------------------------------------------
Industry products 32.8 35.4 43.1
=========================================================================
Total operating profit $ 219.7 $ 68.6 $ 192.6
=========================================================================
Depreciation and
amortization:
=========================================================================
Floor coverings $ 61.0 $ 65.5 $ 67.0
- -------------------------------------------------------------------------
Building products 33.1 37.1 35.1
- -------------------------------------------------------------------------
Furniture 12.9 13.5 13.6
- -------------------------------------------------------------------------
Industry products 13.1 11.6 11.4
- -------------------------------------------------------------------------
Corporate $ 9.9 9.2 8.2
=========================================================================
Total depreciation
and amortization $ 130.0 $ 136.9 $ 135.3
=========================================================================
- 55 -
Capital additions (See Note 1 on
page 54):
=========================================================================
Floor coverings $ 59.1 $ 48.7 $ 61.0
- -------------------------------------------------------------------------
Building products 23.8 25.4 39.1
- -------------------------------------------------------------------------
Furniture 10.0 8.3 6.7
- -------------------------------------------------------------------------
Industry products 20.7 29.3 21.6
- -------------------------------------------------------------------------
Corporate 4.0 4.1 5.3
=========================================================================
Total capital additions $ 117.6 $ 115.8 $ 133.7
=========================================================================
Identifiable assets (See Note 1 on
page 8):
=========================================================================
Floor coverings $ 808.0 $ 835.6 $ 915.1
- -------------------------------------------------------------------------
Building products 475.2 491.6 556.0
- -------------------------------------------------------------------------
Furniture 234.6 238.7 239.7
- -------------------------------------------------------------------------
Industry products 203.8 192.9 188.6
- -------------------------------------------------------------------------
Corporate 207.7 251.0 250.5
=========================================================================
Total assets $1,929.3 $2,009.8 $2,149.9
Note 2:
Restructuring charges
in operating profit (millions) 1993 1992 1991
=========================================================================
Floor coverings $27.7 $ 80.8 $ 3.0
- -------------------------------------------------------------------------
Building products 13.7 35.0 4.3
- -------------------------------------------------------------------------
Furniture .6 4.8 .3
- -------------------------------------------------------------------------
Industry products 12.9 12.5 2.2
=========================================================================
Total restructuring charges
in operating profit $54.9 $133.1 $ 9.8
=========================================================================
- 56 -
Stock options
No further options may be granted under the 1984 Long-Term Stock Option Plan
for Key Employees since the 1993 Long-Term Stock Incentive Plan, approved by the shareholders in April
1993, replacedreplaces the 1984 Long-Term Stock Option Plan for purposes of
granting additional options.Key Employees. No
further options will be issued under the 1984 Plan.
Awards under the 1993 Long-Term Stock Incentive Plan may be in the form of stock
options, stock appreciation rights in conjunction with stock options,
performance restricted shares and restricted stock awards. No more than
4,300,000 shares of common stock may be issued under the Plan, and no more than
430,000 shares of common stock may be awarded in the form of restricted stock
awards. The Plan extends to April 25, 2003. Pre-1993 grants made under
predecessor plans will be governed under the provisions of those plans. At
December 31, 1993,1995, there were 3,987,2952,838,862 shares available for grant under the
1993 Plan.
Options are granted to purchase shares at prices not less than the closing
market price of the shares on the dates the options were granted and expire 10
years from the date of grant. The average share price of all options exercised
was $33.48 in 1995, $31.20 in 1994 and $27.41 in 1993, $12.34 in 1992, and $13.20 in 1991.1993.
- ------------------------------------------------------------------------
Changes in option shares outstanding
(thousands except for share price) 1995 1994 1993
1992 1991
===============================================================================- ------------------------------------------------------------------------
Option shares at beginning of year 1,612.1 1,708.4 1,730.7 1,458.5 1,179.8
- -------------------------------------------------------------------------------
Options granted 642.8 247.1 245.1
383.9 311.8
===============================================================================- ------------------------------------------------------------------------
2,254.9 1,955.5 1,975.8
1,842.4 1,491.6
===============================================================================- ------------------------------------------------------------------------
Less: Option shares exercised 390.9 323.1 182.2 27.4 10.9
- -------------------------------------------------------------------------------
Stock appreciation rights
exercised 11.5 8.5 14.0 9.1 .6
- -------------------------------------------------------------------------------
Options canceled 10.9 11.8 71.2
75.2 21.6
===============================================================================- ------------------------------------------------------------------------
413.3 343.4 267.4
111.7 33.1
===============================================================================- ------------------------------------------------------------------------
Option shares at end of year 1,841.6 1,612.1 1,708.4
1,730.7 1,458.5
===============================================================================- ---------------------------------------=================================
Average share price of options $ 33.2043.00 $ 32.8836.82 $ 33.21
===============================================================================33.20
Option shares exercisable
at end of year 1,196.7 1,367.1 1,464.2
1,349.1 1,150.7- ------------------------------------------------------------------------
The Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," is effective beginning in 1996. Under SFAS No. 123,
employers are encouraged to recognize compensation expense based on the
estimated fair value of employee stock options and other equity instruments at
the date the instruments are granted. However, the statement allows companies to
continue to use the intrinsic value based method under APB Opinion 25, which in
most cases, does not result in a charge to earnings. For 1995, the fair value
based method would have resulted in a charge to earnings of approximately $2
million. The company plans to adopt the additional detailed disclosure
requirements of SFAS No. 123 in 1996.
PERFORMANCE RESTRICTED SHARES
Performance restricted shares is a feature ofissuable under the 1993 Long-Term Stock Incentive
Plan which entitlesentitle certain key executive employees to earn shares of Armstrong's
common stock, only if the companytotal return of Armstrong stock meets certain
predetermined performance measures during a three-year performance period. At
the end of the performance period, common stock awarded will generally carry an
additional four-year restriction period whereby the shares will be held in
custody by the company until the expiration or termination of the restriction.
Compensation expense will be charged to earnings over the period in which the
restrictions lapse. At the end of 1993,1995, there were 68,505156,510 performance
restricted shares outstanding, with associated potential9,111 accumulated dividend equivalent shares
outstanding. Potential future common stock awards fallingwill fall in the range of
zero210,835 to 205,515491,863 shares of Armstrong common stock. - 57 -
Common stock awards issued
in February 1996, based on the performance period ended December 1995, were
210,835 shares.
RESTRICTED STOCK AWARDS
Restricted stock awards can be used for the purposes of recruitment, special
recognition and retention of key employees. There were noAwards for 76,400 shares of
restricted stock awardswere granted during 1993.
Shareholders' equity changes for 1993, 1992, and 1991 are summarized below:
Years ended December 31
(millions except for per-share data) 1993 1992 1991
========================================================================
Series A convertible preferred stock:
========================================================================
Balance at beginning of year $ 266.4 $ 267.7 $ 268.3
- ------------------------------------------------------------------------
Shares redeemed 2.5 1.3 .6
- ------------------------------------------------------------------------
Balance at end of year $ 263.9 $ 266.4 $ 267.7
========================================================================
Common stock, $1 par value:
========================================================================
Balance at beginning and end
of year $ 51.9 $ 51.9 $ 51.9
========================================================================
Capital in excess of par value:
========================================================================
Balance at beginning of year $ 26.1 $ 25.8 $ 25.7
- ------------------------------------------------------------------------
Stock issuances 3.6 .3 .1
- ------------------------------------------------------------------------
Balance at end of year $ 29.7 $ 26.1 $ 25.8
========================================================================
Reduction for ESOP loan guarantee:
========================================================================
Balance at beginning of year $(249.2) $ (256.0) $ (261.8)
- ------------------------------------------------------------------------
Principal paid 6.3 4.5 2.9
- ------------------------------------------------------------------------
Accrued compensation 1.1 2.3 2.9
- ------------------------------------------------------------------------
Balance at end of year $(241.8) $ (249.2) $ (256.0)
========================================================================
Retained earnings:
========================================================================
Balance at beginning of year $ 922.7 $1,208.7 $1,224.1
- ------------------------------------------------------------------------
Net earnings (loss) for year 63.5 (227.7) 48.2
- ------------------------------------------------------------------------
Tax benefit on dividends
paid on unallocated
preferred shares 5.3 5.5 --
- ------------------------------------------------------------------------
Total $ 991.5 $ 986.5 $1,272.3
- ------------------------------------------------------------------------
Less dividends:
- ------------------------------------------------------------------------
Preferred stock
$3.462 per share $ 19.2 $ 19.3 $ 19.4
- ------------------------------------------------------------------------
Common stock
$1.20 per share in 1993; 44.6
$1.20 per share in 1992; 44.5
$1.19 per share in 1991 44.2
- ------------------------------------------------------------------------
Total dividends $ 63.8 $ 63.8 $ 63.6
- ------------------------------------------------------------------------
Balance at end of year $ 927.7 $ 922.7 $1,208.7
========================================================================
- 58 -
Foreign currency translation:
========================================================================
Balance at beginning of year $ 8.6 $ 44.7 $ 48.3
- ------------------------------------------------------------------------
Translation adjustments and
hedging activities (12.5) (37.0) (2.4)
- ------------------------------------------------------------------------
Allocated income taxes .5 .9 (1.2)
- ------------------------------------------------------------------------
Balance at end of year $ (3.4) $ 8.6 $ 44.7
========================================================================
Less treasury stock at cost:
========================================================================
Balance at beginning of year $ 457.3 $ 457.3 $ 457.3
- ------------------------------------------------------------------------
Stock purchases .1 -- --
- ------------------------------------------------------------------------
Stock issuance activity, net 1.1 -- --
========================================================================
Balance at end of year $ 458.5 $ 457.3 $ 457.3
========================================================================
Total shareholders' equity $ 569.5 $ 569.2 $ 885.5
1995. At the end of 1995, there were
168,351 restricted shares of common stock outstanding with 2,646 accumulated
dividend equivalent shares.
TREASURY SHARES
Treasury shares changes for 1993, 1992,1995, 1994 and 19911993 are as follows:
- ------------------------------------------------------------------
Years ended
December 31 (thousands) 1995 1994 1993
1992 1991
========================================================================- ------------------------------------------------------------------
Common shares
========================================================================
Balance at beginning of year 14,602.1 14,656.5 14,750.6
14,776.3 14,787.0
- ------------------------------------------------------------------------
Stock purchasespurchases/(1)/ 795.7 272.4 2.4 .6 .1
- ------------------------------------------------------------------------
Stock issuance activity, net (383.7) (326.8) (96.5)
(26.3) (10.8)
========================================================================- ------------------------------------------------------------------
Balance at end of year 15,014.1 14,602.1 14,656.5
14,750.6 14,776.3- ----------------------------------================================
Preferred/(1)/Includes small unsolicited buybacks of shares, shares received under share
tax withholding transactions and open market block purchases of stock purchase rights planthrough
brokers.
In November 1994, the Board of Directors authorized the company to repurchase up
to 2.5 million shares of its common stock, either in the open market or in
negotiated transactions. During 1995, the company repurchased 782,110 shares
under this program with a cash outlay of $40.6 million. Since the inception of
the program, the company has repurchased 1,052,110 shares with a total cash
outlay of $51.1 million as of December 31, 1995.
PREFERRED STOCK PURCHASE RIGHTS PLAN
In 1986, the Board of Directors declared a distribution of one right for each
share of the company's common stock outstanding on and after March 21, 1986.
Following the two-for-one stock split later in 1986, one-half of one right
attaches to each share of common stock outstanding. In general, the rights
become exercisable at $175 per right for a fractional share of a new series of
Class A preferred stock (which will differ from the Series A Convertible
Preferred Stock issued to the Employee Stock Ownership Plan described on page
44)21) 10 days after a person or group either acquires beneficial ownership of
shares representing 20% or more of the voting power of the company or announces
a tender or exchange offer that could result in such person or group
beneficially owning shares representing 28% or more of the voting power of the
company. If thereafter any person or group becomes the beneficial owner of 28%
or more of the voting power of the company or if the company is the surviving
company in a merger with a person or group that owns 20% or more of the voting
power of the company, then each owner of a right (other than such 20%
stockholder) would be entitled to purchase shares of common stock having a value
equal to twice the exercise price of the right. Should the company be acquired
in a merger or other business combination, or sell 50% or more of its assets or
earnings power, each right would entitle the holder to purchase, at the exercise
price, common shares of the acquirer having a value of twice the exercise price
of the right. The exercise price was determined on the basis of the Board's view
of the long-term value of the company's common stock. The rights have no voting
power nor do they entitle a holder to receive dividends. At the company's
option, the rights are redeemable prior to becoming exercisable at five cents
per right. The rights expire on March 21, 1996. - 59 -
LitigationThe Preferred Stock Purchase
Rights Plan has been renewed for a further 10-year period with essentially the
same terms and at an exercise price of $300 per right.
LITIGATION AND RELATED MATTERS
ASBESTOS-RELATED LITIGATION
The company is one of many defendants in pending lawsuits and claims involving,
as of December 31, 1993,1995, approximately 78,43759,000 individuals alleging personal
injury from exposure to asbestos-containing products. A total of
about 24,036Included in the above
number are approximately 12,800 lawsuits and claims werefrom the approximately
87,000 individuals who have opted out of the settlement class action referred to
below. About 14,300 claims from purported class members have been received by the company in 1993,
compared with 28,997 in 1992.as of
December 31, 1995. Nearly all the pending personal injury suits and claims seek
compensatory damages and except for those claims covered by the settlement class
action, seek punitive damages arising from alleged exposureexposures to asbestos-containingasbestos-
containing insulation products used, manufactured or sold by the company. The
company discontinued the sale of all asbestos-containing insulation products in
1969. A significant number of suits in which the
company believes it should not be involved were filed in 1993 by persons
engaged in vehicle tire production, aspects of the construction industry and
the steel industry. Although a large number of suits and claims pending in prior years have
been resolved, neither the rate of future dispositions nor the number of future
potential unasserted claims can be reasonably predicted.
Attention continues to be given by various judges to finding a comprehensive
solution to the large number of pending as well as potential future asbestos-
related personal injury claims, and theThe Judicial Panel for Multi-districtMultidistrict Litigation ordered the transfer of all
pending federal cases not in trial to the Eastern District Court in Philadelphia for pretrial
purposes. Periodically some of those cases are released for trial. Pending state
court cases have not been directly affected by the transfer. A few state judges
have consolidated numbers of asbestos-related personal injury cases for trial, a
process the company generally opposes as being unfair.
SETTLEMENT CLASS ACTION
A settlement class action which includes essentially all future asbestos-
relatedasbestos-related
personal injury claims against members of the Center for Claims Resolution
("Center") referred to below was filed in Philadelphia on January 15, 1993, in
Federal District Court for the Eastern District of Pennsylvania. The proposed
class action settlement was negotiated by the Center and two leading
plaintiffs' law firms. The settlement class action is designed to
establish a nonlitigation system for the resolution of essentially all future
asbestos-
relatedasbestos-related personal injury claims against the Center members including
this company. Other defendant companies whichthat 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 are impaired by such exposure.
Claimants must meet certain exposure and medical criteria to receive
compensation which iscriteria.
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 in court or through alternative dispute resolution,
rather than choose an offered settlement amount, 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 asbestos-relatedasbestos-
related personal injury claims. Each member of the Center has an obligation for
its own fixed share in this proposed settlement. The settlementCourt has ruled that
claimants who neither filed a lawsuit against Center members nor filed an
exclusion request form are subject to the class action. The class action does
not include asbestos-related personal injury
claims which were filed before January 15, 1993,deemed otherwise not covered by the class action settlement
or asbestos-relatedclaims for property damage claims. Agreed upon annualdamage. Annual case flow caps and agreed upon compensation levelsranges for
each compensable medical category including amounts paid even more promptly
under the simplified payment procedures have been established for an initial
period of ten10 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-year10-year
period. TheOn August 16, 1994, the Court has preliminarilytentatively approved the settlement, and notification has been
provided to potential class members which were offered an opportunity tosettlement. The
opt out by January 24, 1994. The Court will hold a final fairness hearing on
February 22, 1994. If a significant number of future claimants choose to opt
out, the Center members also reserve the right to withdrawouts from the program.settlement class action are not claims as such but rather are
reservation of rights to possibly bring claims in the future. The settlement
will become final only after it has been approved by the
courts.certain issues, including issues related to
insurance coverage, are resolved and appeals are exhausted. This process could
take up to several years. The Center members also have stated their intention to
resolve over a five-year period the asbestos personal injury claims that were pending
prior to the datewhen the settlement class action was filed. A significant number of these
pending claims have been finally or tentatively settled with a number of the
plaintiffs' counsel.
- 60 -
The company is seeking agreement from its insurance carriers or a ruling from
the Courtbinding
judgment against them that the settlement class action will not jeopardize existing
insurance coverage. Certain unresolved insurance coverage issues involving
certain Center members' insurancecoverage; and the class action is contingent upon such an agreement or
judgment. With respect to carriers acceptance of the proposed settlementthat do not agree, this matter will be
resolved either by alternative dispute resolution, in the case of the insurance
carriers whichthat subscribed to the Wellington Agreement referred to below, or else
by litigation
against those carriers which did not subscribe to the Wellington Agreement.
A few state judges have been undertaking to consolidate numbers of asbestos
personal injury cases for trial. The company generally opposes these actions as
being unfair. Approximately 8,500 cases were consolidated in 1992 in a
multiphase trial in Baltimore, Maryland. The multiphase trial dealt with various
issues and a settlement was effected during the trial of those claims in which
the company was a named defendant.litigation.
INSURANCE SETTLEMENTS
The pending personal injury lawsuits and claims against the company are being
paid by insurance proceeds under the 1985 Agreement Concerning Asbestos-Related
Claims the(the "Wellington Agreement."Agreement") and by insurance proceeds from other
insurance settlements noted below. A new claims handling organization, known as
the Center for Claims Resolution, was created in October 1988 by Armstrong and
20 other companies to replace the Wellington Asbestos Claims Facility (the
"Facility"), which has since been dissolved. Except for eliminating the future availability of an insurer-
paid special defense fund linked to the existence of the Facility,Generally, the dissolution of the
Facility does not essentially affect the company's overall Wellington Agreement
insurance settlement. That settlement which providesprovided for a final settlementresolution of nearly
all disputes concerning insurance for asbestos-related personal injury claims as
between the company and three of its primary insurers and eight of its excess
insurers. The one primary carrier that did not sign the Wellington Agreement
paid into the Wellington Facility and settled with the company in March 1989
nearly all outstanding issues relating to insurance coverage for asbestos-relatedasbestos-
related personal injury and property damage claims. In addition, one of the
company's large excess-insurance carriers entered into a settlement agreement in
1986 with the company under which payments for personal injury claims were made
through the Wellington Facility, and this carrier continues to make payments for
such claims through the Center for Claims Resolution. Other excess-insurance
carriers also have entered into settlement agreements with the company which
- 61 -
Litigation (continued)
complement Wellington.Wellington including a settlement in 1994 that was entered into with
a significant excess carrier. ACandS, Inc., a former subsidiary of the company,
which for certain insurance periods has coverage rights under some company
insurance policies, subscribed to the Wellington Agreement but did not become a
member of the Center for Claims Resolution.
One excess carrier (providing $25 million of insurance coverage) and certain
companies in an excess carrier's block of coverage (involving several million
dollars of coverage) have become insolvent. Certain carriers providing excess
level coverage solely for property damage claims also have become insolvent. However, itThe
several million dollars of coverage referred to has been paid by company
reserves. The $25 million insolvency gap is not expected that the insolvency of these carriers will affect
the company's ability to havebeing covered by other available
insurance available to pay asbestos-related
claims.coverage. The company and ACandS, Inc., had filedhave negotiated a lawsuit against the company to havesettlement
agreement which reserves for ACandS, Inc., a certain amount of insurance from
the joint policies reserved solely for its use in the payment of the costs associated with the
asbestos-related personal injury and property damage claims.
The two companies have negotiated a
settlement of their dispute and have signed a settlement agreement.CENTER FOR CLAIMS RESOLUTION
The Center for Claims Resolution operates under a concept of allocated shares of liability payments
and defense costs for its members based primarily on historical experience, and
it defends the members' interestinterests and addresses pending and future 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. ThisAt that time, this
change has caused a slight increase in the company's share. Subsequent share
butadjustments by the Center have resulted in an increased liability share for the
company in certain areas. As to future claims resolved under the settlement
class action, the company has enhanced the company's case management focus.agreed to a percentage of each resolution payment.
Although the Center members and their participating insurers were not obligated
beyond one year, the insurance companies are expected to commit to the
continuous operation of the Center for a sixthan eighth year and to the funding of the
Center's operating expenses. With the filing of the settlement class action, the
Center will continue to process pending claims and will handle the program for
processing future asbestos-related personal injury claims if the class action
settlement is finally approved by the courts. No forecast can be made for future
years regarding either the rate of pending and future claims resolution by the
Center or the rate of utilization of company insurance, although it is
expected if the settlement class action is approved that the rate of insurance
usage will be accelerated.insurance.
PROPERTY DAMAGE LITIGATION
The company is also one of many defendants in a total of 7332 pending lawsuits and
claims, including class actions, as of December 31, 1993,1995, brought by
public and private entities, including public school districts, and public and
private building owners. These lawsuits and claims include allegations of
property damage
to buildings caused by asbestos-containing products and generally claim
compensatory and punitive damages and equitable relief, including reimbursement
of expenditures, orfor removal and replacement of such products. These suits and
claims appear to be aimed at friable (easily crumbled) asbestos-containing
products although allegations in some suits encompass other asbestos-containing
products, including allegations with respect to asbestos-containingpreviously installed asbestos-
containing resilient floor tile.flooring. 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. These suits and claims are not
encompassed within the Wellington Agreement nor are they being handled by the
Center for Claims Resolution.
- 62 -
INSURANCE COVERAGE SUIT
In 1989, Armstrong concluded the trial phase of a lawsuit in California state
court to resolve disputes concerning certain of its insurance carriers'
obligations with respect to personal injury and property damage liability
coverage, including defense costs, for alleged personal injury and property
damage asbestos-related lawsuits and claims. As indicated earlier, the company
reached a settlement agreement after the conclusion of the trial phase with one
of its primary carriers which is also an excess carrier. The Court issued final decisions
generally in the company's favor, and the carriers appealed. The California
Court of Appeal has substantially upheld the trial court's final decisions, and the
insurance carriers have petitioned the California Supreme Court to hear the asbestos-
related personal injury and property damage coverage issues. The California
Supreme Court recently accepted review pending its review of related issues in another
California case. The California Supreme Court ruled favorably to the insured
company on the issues in that other case and recently referred the company's
case to the Court of Appeal for further review. Since the company's 1994
settlement with a significant excess carrier, only one excess carrier providing
products coverage for personal injury claims remains in the personal injury
coverage litigation. Based upon the trial court's favorable final decisions in
important phases of the trial relating to coverage for asbestos-related personal
injury and property damage lawsuits and claims, including the favorable decision
by the California Court of Appeal, and a review of the coverage issues by its
counsel, the company believes it has a substantial legal basis for sustaining
its right to defense and indemnification. For the same reasons, the company also
believes that it is probable that claims by the several primary carriers for
recoupment of defense expenses in the property damage litigation, which the
carriers also appealed, will ultimately not be successful.
The companyNONPRODUCTS INSURANCE COVERAGE
Nonproducts insurance coverage is currently negotiating withincluded in the company's primary insurance
carriers to categorize the percentage of previously resolvedpolicies and to be resolved
asbestos-related personal injury claims as non-products claims and to establish
the entitlement to such coverage. Such non-product claims coverage insurance is
available under the Wellington Agreement and the settlement agreement with one
of its primary carriers referred to abovecertain excess policies for suchnonproducts claims. Non-productsNonproducts claims
include claims that may have arisen out of exposure during installation of
asbestos materials or before control of such materials has been relinquished.
Certain excess policies also provide non-productsNegotiations are currently underway with several of the company's primary
carriers to resolve the nonproducts coverage issues and to establish entitlement
to and the amount of such coverage. The additional coverage potentially
available to pay claims categorized as non-products, at
both the primary and excess levelsnonproducts is substantial and, at the
primary level, includes defense costs in addition to indemnity limits. The
company is entitled to pursue alternative dispute resolution proceedings against
the primary and certain excess carriers to resolve the non-productsnonproducts coverage
issues.
CONCLUSIONS
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 claims flow
caps to be negotiated after the initial ten-
year10-year period for the settlement class
action or the then compensation levels to be negotiated for such claims, nor the
scope of its nonproducts coverage ultimately deemed available or the successultimate
conclusion of the company may have in addressing
the Midland Insurance Company insolvency with its other insurers.California insurance coverage litigation. Subject
- 63 -
Litigation (continued) to the
foregoing and based upon its experience and other factors also referred to
above, the company believes that the estimated $166 million in liability and
defense costs recorded on the 1995 balance sheet will be incurred to resolve an
estimated 59,000 asbestos-related personal injury claims pending against the
company as of December 31, 1995. These claims include claims 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 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 $166 million recorded on the 1995 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 therewith will be paid--in the
case of the personal injury claims, by agreed-to coverage under the Wellington
Agreement and supplemented by payments by nonsubscribing insurers that entered
into settlement agreements with the company and additional insurance coverage
reasonably anticipated from the outcome of the insurance litigation and from the
company's claims for non-products coverage both under certain insurance policies
covered by the Wellington Agreement and under certain insurance policies not
covered by the Wellington Agreement which claims have yet to be accepted by the
carriers--and in the case of 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.
Thus, the company has not recorded any liability for any
defense costs or indemnity relating to these lawsuits other than as described in
the "Other long-term liabilities" section regarding the reserve on page 51.
Even though uncertainties still remain as to the potential number of unasserted
claims, the 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 first levelintermediate appellate stage of the California
insurance coverage litigation, the remaining reserve, the establishment of the
Center, for Claims Resolution, the proposed settlement class action, and its experience, the company believes
thatthe 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.
Additional details concerning this litigation will not have a material adverse effect on its earnings, liquidity, or
financial position.
- --------------------------------------------------------------------------------are set forth in the company's
Form 10K available to any shareholder upon request.
TINS LITIGATION
In October 1992, the U.S. Court of Appeals for the Third Circuit issued its
decision in a lawsuit brought by The Industry Network System, Inc. (TINS), and
its founder, Elliot Fineman. The plaintiffs alleged that in 1984 Armstrong had
engaged in antitrust and tort law violations and breach of contract which
damaged TINS' ability to do business. The Court of Appeals sustained the U.S.
District Court's decision that the April 1991 jury verdict against Armstrong in
the amount of $224 million including $200 million in punitive damages should be
vacated, and that there should be a new trial on all claims remaining after the
appeal. The Court of Appeals sustained the District Court ruling that the jury's
verdict had reflected prejudice and passion due to the improper conduct of
plaintiffs' counsel and was clearly contrary to the weight of the evidence. The
Court of Appeals affirmed or did not disturb the trial court's order dismissing
all of TINS' claims under Section 2 of the Sherman Act for alleged conspiracy,
monopolization and attempt to monopolize and dismissing all of Mr. Fineman's
personal claims. These claims willwere not be the subject of a new trial. However, the
Court of Appeals reversed the trial court's directed verdict for Armstrong on
TINS' claim under Section 1 of the Sherman Act, reversed the summary judgment in
Armstrong's favor on TINS' claim for breach of contract based on a 1984
settlement agreement, and reversed the judgment n.o.v. for Armstrong on TINS'
tortious interference and related punitive damage claims. These claims will bewere the
subject of a new trial.
- 64 -
TheA second trial of the TINS' litigation began on April 26, 1994, in the Newark,
New Jersey, District Court. TINS asked for damages in a range of $17 to $56
million. A jury found that Armstrong had breached its contract with TINS and had
interfered with TINS' contractual business relationship with an Armstrong
wholesaler but that Armstrong's conduct did not damage TINS and awarded no
compensatory or nominal money damages. Following oral argument on November 14,
1994, TINS' motion for a partial or complete new trial was denied by the
District Court and TINS filed an appeal with the U.S. Court of Appeals grantedfor the
company's motion to stay returnThird Circuit. On October 11, 1995, the case was argued before a panel of the
case
to the District Court pending the company's Petition for Certiorari to the
Supreme Court appealing certain antitrust rulings of theU.S. Court of Appeals. The
company was informed on February 22, 1993, that the Supreme Court denied its
Petition. The case has been remanded byAppeals for the Third Circuit, and on October 20, 1995, the Court
issued a Judgment Order affirming the 1994 District Court verdict in favor of
Appealsthe 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.
Quarterly financial information (millions except for per-share data) First Second Third Fourth Total year
- ----------------------------------------------------------------------------------------------------------------------------------
1995* Net sales $502.2 $536.0 $549.0 $497.7 $2,084.9
Gross profit 166.7 177.9 184.6 146.0 675.2
Earnings (loss) from continuing businesses 26.5 47.4 14.4 (74.7) 13.6
Net earnings 34.4 52.7 19.4 16.8 123.3
Per share of common stock:**
Primary: Earnings (loss) from continuing businesses 0.61 1.17 0.29 (2.09) (0.02)
Net earnings 0.82 1.31 0.42 0.35 2.90
Fully diluted: Earnings (loss) from continuing businesses 0.57 1.05 0.28 (2.09) (0.02)
Net earnings 0.75 1.18 0.40 0.34 2.67
Dividends per share of common stock 0.32 0.36 0.36 0.36 1.40
Price range of common stock--low 38 3/8 43 50 1/4 52 7/8 38 3/8
Price range of common stock--high 48 1/2 52 60 1/2 64 1/8 64 1/8
- ----------------------------------------------------------------------------------------------------------------------------------
1994* Net sales $461.1 $508.6 $525.6 $510.4 $2,005.7
Gross profit 153.9 180.6 190.9 154.8 680.2
Earnings from continuing businesses 42.5 48.7 56.6 39.4 187.2
Net earnings 48.0 53.3 61.6 47.5 210.4
Per share of common stock:**
Primary: Earnings from continuing businesses 1.03 1.19 1.41 0.93 4.60
Net earnings 1.17 1.31 1.54 1.17 5.22
Fully diluted: Earnings from continuing businesses 0.93 1.07 1.25 0.85 4.10
Net earnings 1.06 1.18 1.37 1.04 4.64
Dividends per share of common stock 0.30 0.32 0.32 0.32 1.26
Price range of common stock--low 49 3/8 43 3/8 43 36 36
Price range of common stock--high 57 1/2 57 1/4 53 7/8 46 5/8 57 1/2
- ----------------------------------------------------------------------------------------------------------------------------------
* 1994 and the first, second and third quarters of 1995 have been restated for
the results of the discontinued business and formation of the ceramic tile
business combination.
**The sum of the quarterly earnings per-share data does not always equal the
total year amounts due to changes in Philadelphiathe average shares outstanding and, for
fully diluted data, the exclusion of the antidilutive effect in certain
quarters.
FOURTH QUARTER 1995 COMPARED WITH FOURTH QUARTER 1994
Sales from continuing businesses of $497.7 million decreased 2.5% from the
$510.4 million recorded in 1994 primarily due to the continued weakness in U.S.
District Courtresidential end-use markets. Sales within North America decreased by 2.6%. The
European area continued its growth with a sales increase of 3.3%, about three
fifths of which was due to the translation of foreign currencies to weaker U.S.
dollar.
The loss from continuing businesses was $74.7 million, or $2.09 per share on
both a primary and fully diluted basis, compared with net earnings of $39.4
million in Newark, New Jersey,fourth quarter 1994. Fourth-quarter 1994 earnings per share from
continuing businesses were $0.93 on a primary basis and $0.85 on a new trial
has been set for early April 1994. Itfully diluted
basis.
Included in the 1995 loss from continuing businesses is unknown what damage claims TINS will
allege upon retrialan after-tax loss
of $116.8 million ($2.73 per share on a fully diluted basis) related to the
combination of Armstrong's ceramic tile business with Dal-Tile International
Inc. Armstrong received 37% of the case. But duringcombined Dal-Tile stock in exchange for its
ceramic tile operations and $27.6 million in cash.
The loss from continuing businesses resulted from the first trial, claimsloss on the business com-
bination, decreased sales volume and higher cost of goods sold. Cost of goods
sold, when expressed as a percent of sales, increased to 70.6% from the 69.7% of
1994's fourth quarter. This increase reflects the start-up costs for actual
damages of at least $17.5the new
insulation products plant in Mebane, North Carolina, and unfavorable mixes in
U.S. residential flooring sales. Also impacting operating income was lower
unallocated corporate expense due to decreased incentive pay and consulting
expenses.
Operating income decreased in all segments except building products. Operating
income in the floor coverings segment was $35.1 million were asserted by plaintiffs' expert and even
greater amounts were asserted by Mr. Fineman. Under the antitrust laws, proven
damages are trebled. In addition, plaintiff would likely ask for punitive
damages, companion to its request for tort damages. Other damages which would
likely be sought include reimbursement of attorneys' fees and interest,
including prejudgment interest.
The company denies all of TINS' claims and accordingly is vigorously defending
the matter.compared with $41.1
million in 1994. In the eventresilient flooring part of this segment, operating
income was lower mainly due to decreased sales levels in higher margin,
professionally installed residential sheet products. Worldwide building products
fourth-quarter operating income was $19.8 million compared with 1994 fourth-
quarter income of $16.9 million. This increase was aided by higher sales in
Europe which more than offset the North American activity which flattened with
general economic weakness. Industry products operating income of $5.7 million
declined when compared with the $8.3 million for the similar period in 1994. The
1995 fourth-quarter results were impacted by plant start-up costs and the need
to meet competitive selling prices.
The 1995 fourth-quarter effective tax rate on the loss was 40.1% compared with
23.1% on last year's fourth-quarter earnings. Excluding the tax benefit on the
loss related to the ceramic tile business combination, the 1995 effective tax
rate was 29.7%. Last year's low effective tax rate included tax benefits
related to foreign and state income tax expense that were reduced as a jury finds againstresult of
realization of previously unrecognized deferred tax assets and lower withholding
taxes on foreign dividends.
In December 1995, the company such jury
verdict could entail unknown amounts which, if sustained, could have a material
adverse effect on its earnings and financial position.
- --------------------------------------------------------------------------------
As previously discussed on pages 51 and 52 under "Environmental" with regard
to a former county landfill in Buckingham County, Virginia,sold the stock of Thomasville Furniture
Industries, Inc. and seven other parties have been identified by the
U.S. Environmental Protection Agency ("USEPA") as Potentially Responsible
Parties ("PRPs"), to fund the cost of remediating environmental conditions at
this federal Superfund site. After review of investigative studies to determine
the nature and extent of contamination and identify various remediation
alternatives, USEPA issued its Proposed Remedial Action Plan in May 1993
proposingINTERCO Incorporated. As a $21 million clean-up cost. In November 1993, however, USEPA issued a
revised plan which recommended a reduced $3.5 million alternative, subject to
additional costs depending on test results. The PRPs believe that other
alternatives are appropriate and discussions with USEPA and Virginia State
officials continue.
Spent finishing materials from Thomasville's Virginia furniture plants at
Appomattox and Brookneal allegedly comprise a significant portionresult of the waste
presently believed to have been taken to the site bysale, an after-tax
gain of $83.9 million, or $2.24 per share on primary basis and $1.96 on a now defunct disposal firmfully
diluted basis, was recorded. The fourth-quarter earnings from this discontinued
business were $7.5 million in 1995, or $0.20 per share on a primary basis and
$0.18 on a fully diluted basis. 1994 fourth-quarter Thomasville earnings were
$8.1 million, or $0.22 per share on primary basis and $0.19 on a fully diluted
basis.
Net earnings were $16.8 million in 1995 compared with $47.5 million in 1994. Net
earnings per common share were $0.35 on a primary basis and $0.34 on a fully
diluted basis in the late 1970s. Accordingly, Thomasville could be called upon to fund1995 quarter, compared with 1994's $1.17 on a significant portion of the eventual remedial costs.
- 65 -primary
basis and $1.04 on a fully diluted basis.
-21-
Independent Auditors' Reportauditors' report
The Board of Directors and Shareholders,
Armstrong World Industries, Inc.:
We have audited the consolidated financial statements of Armstrong World
Industries, Inc. and its subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the related supplementary information on depreciation rates and
schedulesschedule listed in the accompanying index. These consolidated financial
statements and supplementary information and schedulesschedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and supplementary information and schedulesschedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Armstrong
World Industries, Inc., and subsidiaries at December 31, 19931995 and 1992,1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993,1995, in conformity with generally accepted
accounting principles. Also, in our opinion the related supplementary
information and schedules,schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects, the
information set forth therein.
As discussed under litigation in the Financial Review section, the Company is
involved in antitrust litigation, the outcome of which cannot presently be
determined. Accordingly, no provision for any liability that may result has
been made in the accompanying consolidated financial statements. Also, as
discussed in the Financial Review section, effective January 1, 1992, the
Company changed its methods of accounting to adopt the provisions of the
Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income
Taxes," SFAS 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions" and SFAS 112, "Employers' Accounting for Postemployment
Benefits."
KPMG PEAT MARWICK LLP
Philadelphia, Pa.PA
February 14, 1994
- 66 -16, 1996
-22-
Quarterly financial information Total
(millions except for per-share data) First Second Third Fourth Year
===========================================================================================================
1993
===========================================================================================================
Net sales $611.9 $629.0 $660.1 $624.4 $2,525.4
- -----------------------------------------------------------------------------------------------------------
Gross profit 159.1 183.9 197.9 182.2 723.1
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses 11.3 31.9 42.3 (22.0) 63.5
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) 11.3 31.9 42.3 (22.0) 63.5
- -----------------------------------------------------------------------------------------------------------
Per share of common stock:*
- -----------------------------------------------------------------------------------------------------------
Primary:
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses .21 .76 1.04 (.68) 1.32
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) .21 .76 1.04 (.68) 1.32
- -----------------------------------------------------------------------------------------------------------
Fully diluted:
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses .21 .68 .93 (.68) 1.26
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) .21 .68 .93 (.68) 1.26
- -----------------------------------------------------------------------------------------------------------
Dividends per share of common stock .30 .30 .30 .30 1.20
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- low 28 7/8 29 3/8 30 1/4 40 1/4 28 7/8
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- high 33 1/8 34 3/4 42 1/2 55 1/4 55 1/4
===========================================================================================================
1992
===========================================================================================================
Net sales $638.4 $651.7 $659.6 $600.1 $2,549.8
- -----------------------------------------------------------------------------------------------------------
Gross profit 169.4 176.5 174.8 140.4 661.1
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing business 15.9 20.1 (80.3) (15.6) (59.9)
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) (151.9) 20.1 (80.3) (15.6) (227.7)
- -----------------------------------------------------------------------------------------------------------
Per share of common stock:*
- -----------------------------------------------------------------------------------------------------------
Primary:
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses .33 .45 (2.25) (.51) (1.98)
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) (4.18) .45 (2.25) (.51) (6.49)
- -----------------------------------------------------------------------------------------------------------
Fully diluted:
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing businesses .32 .41 (2.25) (.51) (1.98)
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) (4.18) .41 (2.25) (.51) (6.49)
- -----------------------------------------------------------------------------------------------------------
Dividends per share of common stock .30 .30 .30 .30 1.20
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- low 26 29 5/8 27 1/2 24 1/2 24 1/2
- -----------------------------------------------------------------------------------------------------------
Price range of common stock -- high 33 7/8 37 1/2 32 3/8 32 3/4 37 1/2
===========================================================================================================
* Quarterly earnings (loss) per-share data do not always equal the total year
amounts due to changes in the average shares outstanding and, for fully
diluted data, the exclusion of the antidilutive effect in certain quarters and
for the total year.
- 67 -
Fourth quarter 1993 compared with fourth quarter 1992
Fourth quarter sales from continuing businesses rose to record levels at
$624.4 million, an increase of 4% from the $600.1 million from last year.
The net loss for the fourth quarter was $22.0 million, or 68 cents per
share of common stock. This loss included $60.0 million after tax of
restructuring charges primarily related to the elimination of employee positions
in the U.S. and Europe.
The fourth quarter 1992 net loss was $15.6 million, or 51 cents per share
of common stock. Also included in this reporting were restructuring charges of
$24.3 million after tax related to the closing of a ceiling materials plant in
Ghlin, Belgium, and provisions for charges related to the elimination of
employee positions on a worldwide basis.
Despite the negative impact of restructuring charges in the fourth quarter
of 1993, the company benefitted from higher sales levels in most businesses,
some sales price increases, and from lower manufacturing costs, resulting from
the 1992 restructuring actions and from improved productivity. This resulted in
the company's cost of goods sold as a percent of sales declining to 70.8%
compared with 76.6% last year. Nonmanufacturing costs were comparable to 1992.
Armstrong also experienced lower interest costs during the quarter from lower
debt levels and tax obligations. The 1992 fourth quarter results also included a
$5.5 million after-tax gain from foreign exchange compared with only $.8 million
after-tax gain this year.
The 1993 effective tax benefit rate was 39.9% compared with only 7.1% last
year. Armstrong's current year fourth quarter reflected recovery of deferred
taxes resulting from some reduced foreign statutory tax rates, and most of the
restructuring charges provided tax benefits. The 1992 effective tax benefit rate
was much lower because some of the restructuring charges did not provide tax
benefits.
Of Armstrong's four industry segments, floor coverings and furniture
showed sales increases in the fourth quarter
compared with year-ago levels, while sales in the building products and industry
products segments were below those of 1992. Operating results were higher in the
building products and furniture segments, while floor coverings and industry
products declined. Excluding restructuring charges, all four segments recorded
improved operating profits. The floor coverings operating profit of $12.9
million in 1993 and $13.4 million in 1992 includes restructuring charges of
$27.7 million and $7.6 million, respectively. Exclusive of these charges, the
improved profit levels were driven by higher U.S. resilient flooring sales, a
modest increase in ceramic sales, and lower manufacturing costs. The building
products' fourth quarter 1993 operating loss of $2.4 million includes a
restructuring charge of $13.7 million compared with a 1992 operating loss of
$14.9 million that included an $11.9 restructuring charge. Despite lower sales
in building products, this segment's operating results improved because of
extensive restructuring programs, lower operating costs, and some pricing
actions in Europe and North America. The furniture segment's sales and operating
profits improved from those of last year. Higher sales, along with lower costs,
aided the profit improvement as did inventory valuation reserve adjustments. The
industry products segment was adversely affected by unfavorable European
exchange rates and the continuing lack of growth in the European economies.
Operating profits were lowered by competitive pricing pressures, while
restructuring charges of $12.9 million and $1.2 million were recorded for 1993
and 1992, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------------------------------------------------------------------------------
Financial Disclosure
-----------------------------------------
Not applicable.
- 68 -
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Directors of the Registrant
- ---------------------------
The information appearing in the tabulation in the section captioned "Election
of Directors" on pages 1-5 of the Company's 19941996 Proxy Statement is incorporated
by reference herein.
Executive Officers of the Registrant
- -------------------------------------
William W. Adams*------------------------------------
George A. Lorch* -- Age 59;54; Chairman of the Board since September 7, 1993;
Chairman of the BoardApril 25, 1994; and President (Chief Executive Officer) 1988-1993; .
E. Allen Deaver* -- Age 58; Executive Vice-President since March 1, 1988.
George A. Lorch* -- Age 52;
President (Chief Executive Officer) since September 7, 1993; Executive Vice-PresidentVice
President 1988-1993.
E. Allen Deaver* -- Age 60; Executive Vice President since March 1, 1988.
Henry A. Bradshaw -- Age 58; Group Vice-President,60; President, Worldwide Building Products Operations
since February 1, 1993;November 22, 1994; Group Vice-President,Vice President, Worldwide Building Products
Operations, 1990-1993; General Manager Manufacturing,1993-1994; Group Vice President, Building Products Operations, 1985-1990.
Dennis M. Draeger1990-
1993.
Stephen E. Stockwell -- Age 53; Group Vice-President, Worldwide50; President, Corporate Retail Accounts Division
since November 22, 1994; Vice President, Corporate Retail Accounts July 1, 1994,
through November 22, 1994; General Manager, Residential Sales, Floor Division
January 26, 1994 through July 1, 1994; Field Sales Manager, Floor Division,
1988-1994.
Ulrich J. Weimer -- Age 51; President, Armstrong Insulation Products
Operations since
February 1, 1993; Group Vice-President Floor1996; Geschaftsfuhrer, Armstrong World Industries G.m.b.H. since
December 11, 1995; General Manager, Worldwide Insulation Products Operations
1988-1993.
William W. Locke -- Age 58; Group Vice-President, Worldwide Industry Products
and Pacific Operations since February 1, 1993 through June 1, 1995; General Manager, Worldwide Insulation,
Armstrong Europe Services, August 1, 1991 through January 31, 1993; Group Vice-President,
International andGeneral
Manager, Industry Products Operations, 1990-1993; Group Vice-President,
International Operations, 1983-1990.
Robert J. Shannon, Jr.Armstrong Europe Services, January 1,
1991 through July 31, 1991.
Douglas L. Boles -- Age 45;38; Senior Vice President, American Olean Tile Company, Inc.Human Resources since March
1, 1992;1996; and the following positions with Armstrong World
Industries, Inc.PepsiCo (Consumer Products): General Manager, Worldwide Gasket Products,Vice
President of Human Resources, Pepsi Foods International and
Industry Product Operations, 1991-1992; Manager, Fiber Products, Industry
ProductsEurope Group (U.K.) June
1995-February 1996; Vice President of Human Resources, Walkers Snack Foods
(U.K.) March 1994-June 1995; Vice President of Human Resources, Snack Ventures
Europe (Netherlands) September 1992-March 1994; Vice President of Human
Resources, PepsiCola International, Latin America Division 1989-1991; Marketing Manager, Adhesives and Coatings,
Corporate Markets Division, 1986-1989.
Frederick B. Starr -- Age 61; President, Thomasville Furniture Industries, Inc.
since 1982.(Brazil) October
1989-September 1992.
Larry A. Pulkrabek -- Age 54;56; Senior Vice-President,Vice President, Secretary and General
Counsel since February 1, 1990; Vice-President, Secretary and General Counsel,
1977-1990.
William J. Wimer1990.
Frank A. Riddick, III -- Age 59;39; Senior Vice-President, Finance since January 25,
1993; Senior Vice-President,Vice President, Finance and Chief
Financial Officer since April 1995; and the following positions with FMC
Corporation, Chicago, IL (chemicals, machinery): Controller May 1993-March
1995; Treasurer 1990-1993; Vice-PresidentDecember 1990-May 1993.
David J. Feight -- Age 53; Vice President and Controller, 1978-1990.Director of Business Development
since May 1, 1994; Team Leader PATH process 1993-1994; General Manager Sales and
Marketing, Building Products Operations 1988-1993.
-23-
Stephen C. Hendrix -- Age 53;55; Treasurer since January 25, 1993; and the
following positions with SmithKline Beecham Corporation (Pharmaceuticals,
Consumer Products): Vice-PresidentVice President and Treasurer, 1989-1991; Vice-President and
Assistant Treasurer, International, 1987-1989.1989-1991.
Bruce A. Leech, Jr. -- Age 51;53; Controller since February 1, 1990; Controller,
International Operations, 1983-1990.
- 69 -
1990.
All information presented above is current as of March 1, 1994.1996. The term of
office for each Executive Officer in his present capacity is one year, and each
such Executive Officer will serve until reelected or until a successor is
elected at the annual meeting of directors which follows the annual
shareholders' meeting. Each Executive Officer has been employed by the Company
in excess of five continuous years with the exception of Mr. Hendrix.Messrs. Boles, Hendrix
and Riddick. Members of the Executive Committee of the Board of Directors as of
March 1, 1994,1996, are designated by an asterisk(*) following each of their names.
The Executive Committee consists of those Executive Officers who serve as
Directors.
Item 11. Executive Compensation
- --------------------------------
The information appearing in the sections captioned "Directors' Compensation" on
pages 5-6 and "Compensation Committee Interlocks and Insider Participation,"
"Executive Officers' Compensation," (other than the information contained under
the subcaption "Performance Graph") and "Retirement Income Plan Benefits," on
pages 11-1711-16 of the Company's 19941996 Proxy Statement is incorporated by reference
herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information appearing in the sections captioned "Stock Ownership of Certain
Beneficial Owners" on page 1817 and "Directors' and Executive Officers' Security
Ownership" on page 7 of the Company's 19941996 Proxy Statement is incorporated by
reference herein.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Not applicable.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
The financial statements and schedules filed as a part of this Annual Report on
Form 10-K are listed in the "Index to Financial Statements and Schedules" on
page 75.
- 70 -29.
-24-
a. The following exhibits are filed as a part of this Annual Report on
Form 10-K:
Exhibits
- --------
No. 3(a) Registrant's By-laws, as amended, are incorporated by
reference herein from the registrant's 1992 Annual Report on
Form 10-K wherein they appearedExhibits
- --------
No. 3(a) Registrant's By-laws, as amended effective February 27,
1995, are incorporated by reference herein from registrant's
1994 Annual Report on Form 10-K wherein they appear as
Exhibit 3(a).
No. 3(b) Registrant's restated Articles of Incorporation, as amended
are incorporated by reference herein from the registrant's
1990 Annual Report on Form 10-K wherein they appeared as
Exhibit 3(b).
No. 4(a) Rights Agreement dated as of March 21, 1986, between the
registrant and Morgan Guaranty Trust Company of New York, as
Rights Agent, (as to which First Chicago Trust Company of
New York has succeeded as Rights Agent,) relating to the
registrant's Preferred Stock Purchase Rights is incorporated
by reference herein from the Company's 1990 Annual Report on
Form 10-K wherein it appeared as Exhibit 4(a).
No. 3(b) Registrant's restated Articles of Incorporation, as amended,
are incorporated by reference herein from registrant's 1994
Annual Report on Form 10-K wherein they appear as Exhibit
3(b).
No. 4(a) Registrant's Rights Agreement effective as of March 21,
1996, between the registrant and Chemical Mellon Shareholder
Services, L.L.C., as Rights Agent, relating to the
registrant's Preferred Stock Purchase Rights is incorporated
by reference herein from registrant's registration statement
on Form 8-A/A wherein it appeared as Exhibit 1.
No. 4(b) Registrant's Employee Stock Ownership Plan ("Share In
Success Plan") as amended, is incorporated by reference
herein from the registrant's 1992 Annual Report on Form 10-K
wherein it appears as Exhibit 4(b).
No. 4(c) Copy of Indenture, dated as of March 15, 1988, between the
registrant and Morgan Guaranty Trust Company of New York, as
Trustee, as to which The First National Bank of Chicago is
successor trustee.
No. 4(d) Registrant's Supplemental Indenture dated as of October 19,
1990, between the registrant and The First National Bank of
Chicago, as Trustee, is incorporated by reference herein
from registrant's 1994 Annual Report on Form 10-K wherein it
appears as Exhibit 4(d).
No. 10(i)(a) Agreement Concerning Asbestos-Related Claims dated June 19,
1985, (the "Wellington Agreement") among the registrant and
other companies is incorporated by reference herein from the
registrant's 1993 Annual Report on Form 10-K wherein it
appears as Exhibit 4(b).
No. 4(c) Indenture, dated as of March 15, 1988, between the
registrant and Morgan Guaranty Trust Company of New York, as
Trustee, as to which The First National Bank of Chicago is
successor trustee, is incorporated herein by reference from
the registrant's Form 8-K dated February 1, 1991, wherein it
appeared as Exhibit 4.1.
No. 4(d) Supplemental Indenture dated as of October 19, 1990, between
the registrant and The First National Bank of Chicago, as
Trustee, is incorporated herein by reference from the
registrant's Form 8-K dated October 31, 1990, wherein it
appeared as Exhibit 4.1.
No. 10(i)(a) Copy of Agreement Concerning Asbestos-Related Claims dated
June 19, 1985, (the "Wellington Agreement") among the
registrant and other companies.
No. 10(i)(b) Producer Agreement concerning Center for Claims Resolution
dated September 23, 1988, among the registrant and other
companies as amended, is incorporated herein by reference
from the registrant's 1992 Annual Report on Form 10-K
wherein it appeared as Exhibit 10(i)(b).
No. 10(iii)(a) Registrant's Long-Term Stock Option Plan for Key Employees,
as amended, is incorporated by reference herein from the
Company's 1991 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)(a).
- 71 -No. 10(i)(b) Producer Agreement concerning Center for Claims Resolution
dated September 23, 1988, among the registrant and other
companies as amended, is incorporated herein by reference
from the registrant's 1992 Annual Report on Form 10-K
wherein it appears as Exhibit 10(i)(b).
No. 10(i)(c) 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, providing for
a $200,000,000 credit facility, is incorporated by reference
herein from registrant's 1994 Annual Report on Form 10-K
wherein it appears as Exhibit 10(i)(c).
-25-
No. 10(iii)(b) Registrant's Deferred Compensation Plan for Nonemployee
Directors, as amended, is incorporated by reference herein
from the Company's 1990 Annual Report on Form 10-K wherein
it appeared as Exhibit 10(iii)(c).
No. 10(iii)(c) Registrant's Directors' Retirement Income Plan, as amended,
is incorporated by reference herein from the registrant's
1992 Annual Report on Form 10-K wherein it appears as
Exhibit 10(iii)(d).
No. 10(iii)(d) Registrant's Management Achievement Plan for Key Executives,
as amended, is incorporated by reference herein from the
Company's 1991 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)(e).
No. 10(iii)(e) Registrant's Retirement Benefit Equity Plan (formerly known
as the Excess Benefit Plan), as amended, is incorporated by
reference herein from the registrant's 1992 Annual Report on
Form 10-K wherein it appears as Exhibit 10(iii)(f).
No. 10(iii)(f) Armstrong Deferred Compensation Plan, as amended, is
incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(g).
No. 10(iii)(g) Registrant's Employment Protection Plan for Salaried
Employees of Armstrong World Industries, Inc., as amended,
is incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(h).
No. 10(iii)(h) Registrant's Restricted Stock Plan For Nonemployee Directors
is incorporated by reference herein from the Company's 1991
Proxy Statement wherein it appeared as Exhibit A.
No. 10(iii)(i) Registrant's Severance Pay Plan for Salaried Employees is
incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(j).
No. 10(iii)(j) Copy of Thomasville Value Plan of Thomasville Furniture
Industries, Inc.
No. 10(iii)(k) Copy of Thomasville Achievement Plan of Thomasville
Furniture Industries, Inc.
No. 11 A statement regarding computation of per share earnings on
both primary and fully diluted bases is set forth in the
Financial Statement Schedules on pages 25 and 26 of this
Annual Report on Form 10-K.
No. 22No. 10(iii)(a) Copy of registrant's Long-Term Stock Option Plan for Key
Employees, as amended. *
No. 10(iii)(b) Registrant's Deferred Compensation Plan for Nonemployee
Directors, as amended, is incorporated by reference herein
from registrant's 1994 Annual Report on Form 10-K wherein it
appears as Exhibit 10(iii)(b). *
No. 10(iii)(c) Registrant's Directors' Retirement Income Plan, as amended,
is incorporated by reference herein from the registrant's
1992 Annual Report on Form 10-K wherein it appears as
Exhibit 10(iii)(d). *
No. 10(iii)(d) Registrant's Management Achievement Plan for Key Executives,
as amended, is incorporated by reference herein from
registrant's 1994 Annual Report on Form 10-K wherein it
appears as Exhibit 10(iii)(d). *
No. 10(iii)(e) Registrant's Retirement Benefit Equity Plan (formerly known
as the Excess Benefit Plan), as amended, is incorporated by
reference herein from the registrant's 1992 Annual Report on
Form 10-K wherein it appears as Exhibit 10(iii)(f). *
No. 10(iii)(f) Armstrong Deferred Compensation Plan, as amended, is
incorporated by reference herein from registrant's 1994
Annual Report on Form 10-K wherein it appears as Exhibit
10(iii)(f). *
No. 10(iii)(g) Registrant's Employment Protection Plan for Salaried
Employees of Armstrong World Industries, Inc., as amended,
is incorporated by reference herein from registrant's 1994
Annual Report on Form 10-K wherein it appears as Exhibit
10(iii)(g). *
No. 10(iii)(h) Registrant's Restricted Stock Plan For Nonemployee Directors
is incorporated by reference herein from the Company's 1995
Proxy Statement wherein it appears as Exhibit A. *
No. 10(iii)(i) Registrant's Severance Pay Plan for Salaried Employees, is
incorporated by reference herein from registrant's 1994
Annual Report on Form 10-K wherein it appears as Exhibit
10(iii)(i). *
No. 10(iii)(j) Registrant's 1993 Long-Term Stock Incentive Plan is
incorporated by reference herein from the registrant's 1993
Proxy Statement wherein it appears as Exhibit A.*
No. 11 A statement regarding computation of per share earnings on
both primary and fully diluted bases is set forth in the
Financial Statement Schedules on pages 30 of this Annual
Report on Form 10-K.
No. 21 List of the registrant's domestic and foreign subsidiaries.
No. 24 Consent of Independent Auditors.
No. 25 Powers of Attorney and authorizing resolutions.
- 72 --26-
No. 28(ii)(a) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993,No. 27 Financial Data Statement
No. 28(ii)(a) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1995, for the Retirement Savings Plan For
Salaried Employees of Armstrong World Industries, Inc. is
herewith filed with the Commission.
No. 28(ii)(b) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993, for the Retirement Savings Plan For
Hourly-Paid Employees of Armstrong World Industries, Inc. is
herewith filed with the Commission.
No. 28(ii)(c) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993, for the Retirement Savings Plan For
Hourly-Paid Employees of Thomasville Furniture, Inc. is
herewith filed with the Commission.
No. 28(ii)(d) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993, for the Armstrong World Industries, Inc.
Employee Stock Ownership Plan ("Share In Success Plan") is
herewith filed with the Commission.
No. 28(ii)(e) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Production & Maintenance Employees for the
fiscal year ended September 30, 1993, is herewith filed with
the Commission.
No. 28(ii)(f) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Salaried Employees for the fiscal year
ended September 30, 1993, is
herewith filed with the Commission.
- 73 -No. 28(ii)(b) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1995, for the Retirement Savings Plan For
Hourly-Paid Employees of Armstrong World Industries, Inc. is
herewith filed with the Commission.
No. 28(ii)(c) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1995, for the Retirement Savings Plan For
Hourly-Paid Employees of Thomasville Furniture, Inc. is
herewith filed with the Commission.
No. 28(ii)(d) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1995, for the Armstrong World Industries, Inc.
Employee Stock Ownership Plan ("Share In Success Plan") is
herewith filed with the Commission.
No. 28(ii)(e) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Production & Maintenance Employees for the
fiscal year ended September 30, 1995, is herewith filed with
the Commission.
No. 28(ii)(f) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Salaried Employees for the fiscal year
ended September 30, 1995, is herewith filed with the
Commission.
* Compensatory Plan
-27-
b. During the last quarter of 1993,1995, no reports on Form 8K8-K were filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
--------------------------------
(Registrant)
By /s/ George A. Lorch
-----------------------------
PresidentChairman
Date March 28, 199425, 1996
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Directors and Principal Officers of the registrant:
George A. Lorch President (Principal Executive Officer)
William J. Wimer Senior Vice-President, Finance
(Principal Financial Officer)
Bruce A. Leech, Jr. Controller
(Principal Accounting Officer)
Wm. Wallace AbbottGeorge A. Lorch Chairman and President (Principal Executive
Officer)
Frank A. Riddick, III Senior Vice President, Finance
(Principal Financial Officer)
Bruce A. Leech, Jr. Controller
(Principal Accounting Officer)
H. Jesse Arnelle Director
William W. Adams Chairman of the Board
Van C. Campbell Director By /s/ George A. Lorch
E. Allen Deaver Director
Ursula F. Fairbairn Director By /s/George A. Lorch
Michael C. Jensen Director ----------------------
Ursula F. Fairbairn Director (George A. Lorch as
Michael C. Jensen Director attorney-in-fact and
James E. Marley Director (George A. Lorch as
Robert F. Patton Director attorney-in-fact and
J. Phillip Samper Director on his own behalf)
Robert F. Patton Director
J. Phillip Samper Director As of March 28, 1994
Jerre L. Stead Director
- 74 -As of March 25, 1996
-28-
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
Index to Financial Statements and Schedules
The following consolidated financial statements and Financial Review are filed
as a part of this Annual Report on Form 10-K:
Consolidated Balance Sheets as of December 31, 19931995 and 19921994
Consolidated Statements of Earnings for the Years Ended December 31,
1993,
19921995, 1994, and 19911993
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994, and 1993
1992,Consolidated Statements of Shareholders Equity for the Years Ended December
31, 1995, 1994, and 19911993
The following additional financial data should be read in conjunction with the
financial statements. Schedules not included with this additional data have
been omitted because they are not applicable or the required information is
presented in the financial statements or the financial review.
Additional Financial Data Page No.
------------------------- --------
For Year ended or
at December 31,
-----------------
Supplementary information to financial
review
Computation for Primary Earnings 1993, 1992 and 1991 76
per Share
Computation for Fully Diluted 1993, 1992 and 1991 77
Earnings per Share
Depreciation Rates 1993, 1992 and 1991 78
Schedules submitted:
V - Property, Plant, and Equipment 1993, 1992 and 1991 79-81
VI - Accumulated Depreciation and
Amortization of Property,
Plant, and Equipment 1993, 1992 and 1991 82-84
VIII - Valuation and Qualifying Reserves 1993, 1992 and 1991 85
IX - Short-Term Borrowings 1993, 1992 and 1991 86-87
Additional Financial Data Page No.
------------------------- --------
Supplementary information to financial
review
Computation for Primary Earnings 30
per Share
Computation for Fully Diluted 31
Earnings per Share
Depreciation Rates 32
Schedule II - 75 -Valuation and Qualifying Reserves 33
-29-
Computation for Primary Earnings Per Share
for Years ended December 31
(Amounts in millions except for per-share data)(a)
1995 1994 1993 1992(b) 1991
---- ---- ----
Common Stock and Common Stock Equivalents
- -----------------------------------------
Average number of common shares outstanding
including shares issuable under stock options 37.6 37.6 37.7 37.2 37.2
==== ==== ====
Earnings Per Share from Continuing
- ----------------------------------
Businesses
- -------------------------------------------------------
Earnings (loss) from continuing businesses $ 63.5 $(59.9)13.6 $187.2 $ 60.649.0
Less:
Dividend requirement on Series A convertible
preferred stock 18.8 19.0 19.2 19.3 19.4
Plus:
Tax benefit on dividends paid on unallocated
preferred shares 4.5 4.9 5.3
5.5 --
------- -------- ------------- ------ ------
Earnings (loss) from continuing businesses applicable to common stock $ 49.6 $(73.7)(.7) $173.1 $ 41.235.1
====== ====== ======
Earnings (loss) from continuing businesses
per share of common stock $ 1.32(.02) $ (1.98)4.60 $ 1.11
======= ======== =======.93
====== ====== ======
Net Earnings (Loss) Per Share
- ---------------------------------------------------
Net earnings (loss)$123.3 $210.4 $ 63.5 $(227.7) $ 48.2
Less:
Dividend requirement on Series A convertible
preferred stock 18.8 19.0 19.2 19.3 19.4
Plus:
Tax benefit on dividends paid onapplicable to
unallocated preferred shares 4.5 4.9 5.3
5.5 --
------- -------- ------------- ------ ------
Net earnings (loss) applicableapplication to common stock $109.0 $196.3 $ 49.6
$(241.5) $ 28.8====== ====== ======
Net earnings (loss) per share of common stock $ 2.90 $ 5.22 $ 1.32
$ (6.49) $ 0.77
======= ======== ============= ====== ======
(a) In 1992 the Company adopted Statement of Financial Accounting Standards
(SFAS) 109 "Accounting for Income Taxes." SFAS 109 requires recognition in
shareholders' equity of the tax benefit for dividends paid on unallocated
shares of stock held by an Employee Stock Ownership Plan which amounted to
$5.3 million in 1993 and $5.5 million in 1992. Under SFAS 96, this benefit
was recognized in the statement of earnings and amounted to $6.0 million in
1991.
(b) In 1992 the Company adopted SFAS 112 "Employer's Accounting for
Postemployment Benefits." A refinement of the computation in 1993 resulted
in restatements of the 1992 earnings. The effect of the restatements was
to reduce the previously reported loss from continuing businesses by $1.7
million or 5 cents per share and to reduce the previously reported net loss
by $6.5 million or 18 cents per share.
- 76 --30-
Computation for Fully Diluted Earnings Per Share
for Years ended December 31
(Amounts in millions except for per-share data)
1995 1994 1993
1992(a) 1991(a)
---- ---- ---------- ------ ------
Common Stock and Common Stock Equivalents
- -----------------------------------------
Average number of common shares outstanding
including shares issuable under stock options 37.6 37.6 37.7 37.2 37.2
Average number of common shares issuable under
the Employee Stock Ownership Plan 5.4 5.8 5.6
5.9 5.9
---- ---- ---------- ------ ------
Average number of common and common equivalent
shares outstanding 43.0 43.4 43.3
43.1 43.1
==== ==== ========== ====== ======
Pro Forma Adjustment to Earnings (Loss)from
- ---------------------------------------
from-------------------------------------
Continuing Businesses
-----------------------------------------------
Earnings (loss) from continuing businesses as reportedbefore
pro forma adjustments $ 63.5 $ (59.9) $ 60.613.6 $187.2 $49.0
Less:
Increased contribution to the Employee Stock
Ownership Plan assuming conversion of
preferred shares to common 7.3 7.9 8.2 8.3 12.9
Net reduction in tax benefits assuming
conversion of the Employee Stock Ownership
Plan preferred shares to common 1.2 1.0 0.9
0.7 --
------- -------- ------------- ------ ------
Pro forma earnings (loss) from continuing businesses $ 54.45.1 $178.3 $ (68.9) $ 47.739.9
====== ====== ======
Fully diluted earnings (loss) per share
from continuing businesses (a)$ 1.26(.02) $ (1.98)4.10 $ 1.11
======= ======== =======0.92
====== ====== ======
Pro Forma Adjustment to Net Earnings
(Loss)
- -------------------------------------------------------------------------------
Net earnings (loss) as reported $123.3 $210.4 $ 63.5 $(227.7) $ 48.2
Less:
Increased contribution to the Employee Stock
Ownership Plan assuming conversion of
preferred shares to common 7.3 7.9 8.2 8.3 12.9
Net reduction in tax benefits assuming conversion
of the Employee Stock Ownership Plan
preferred shares to common 1.2 1.0 0.9
0.7 --
------- -------- ------------- ------ ------
Pro forma net earnings (loss)$114.8 $201.5 $ 54.4
$(236.7) $ 35.3====== ====== ======
Fully diluted net earnings (loss) per share $ 2.67 $ 4.64 $ 1.26
$ (6.49) $ 0.77
======= ======== ============= ====== ======
(a) Fully diluted earnings (loss) per share from continuing businesses for years 1992 and 1991 were1995
was antidilutive.
- 77 --31-
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
Supplementary Information to Financial Review
Depreciation
- ------------DEPRECIATION RATES
For Years Ended December 31
The approximate average effective rates of depreciation are as follows:
Year ended December 31,
-----------------------1995 1994 1993 1992 1991
---- ---- ----
% % %
Domestic companies:
Buildings 3.2 3.2 3.13.3 3.3 3.3
Machinery and Equipment 6.8 6.8 6.86.2 6.3 6.6
Foreign companies:
Buildings 3.8 3.3 3.2 3.0 3.0
Machinery and Equipment 8.5 9.5 8.0 8.2 8.9
- 78 --32-
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Property, Plant,SCHEDULE II
-----------
Valuation and Equipment
------------------------------
YearQualifying Reserves of Accounts Receivable
--------------------------------------------------------
For Years Ended December 31
1993
----------------------------
(millions)
SCHEDULE V
-----------
Page 1 of 3---------------------------
(amounts in millions)
Foreign
Balance at Retire- currency Other changes(b) Balance
beginning Additions ments translation ------------- at end
of year at cost or sales Debit (Credit) Debit Credit of year
---------- --------- -------- -------------- ----- ------ -------
(a)Provision for Losses 1995 1994 1993
- -------------------- ---- ---- ----
Land $ 36.5 $ .2 $ (1.3) $ (.6) $ --- $ (2.6) $ 32.2
Buildings 490.8 13.8 (3.4) (5.3) 11.2 (2.0) 505.1
Machinery and Equipment 1,420.2 85.8 (60.0) (18.0) 33.5 (15.0) 1,446.5
Construction in Progress 60.8 17.8 (.3) (1.1) --- (15.2) 62.0
-------- ------ ------ ------ ----- ------ --------
$2,008.3 $117.6 $(65.0) $(25.0) $44.7 $(34.8) $2,045.8
======== ====== ====== ====== ===== ====== ========
(a) includes writedowns relating to restructuring activities of:
Land 2.4
Buildings 1.6
Machinery and Equipment 7.8
Construction in Progress .7
----
Total 12.5
(b) transferred to/from other accounts and miscellaneous adjustments
- 79 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Property, Plant, and Equipment
------------------------------
Year Ended December 31, 1992
----------------------------
(millions)
SCHEDULE V
----------
Page 2 of 3
Foreign
Balance at Retire- currency Other changes(c) Balance
beginningBeginning of Year $ 9.7 $11.1 $ 8.6
Additions ments translation ------------- at end
of year at cost or sales Debit (Credit) Debit Credit of year
---------- --------- -------- -------------- ----- ------ -------
(a)(b)
LandCharged to Earnings $ 34.92.9 $ 2.54.0 $ (.2)8.4
Deductions $ (.7)3.9 $ ---5.4 $ --- $ 36.5
Buildings 498.5 12.6 (2.1) (8.1) .3 (10.4) 490.8
Machinery and Equipment 1,432.1 95.3 (38.1) (38.5) 8.2 (38.8) 1,420.2
Construction in Progress 69.0 5.4 (.5) (2.1) --- (11.0) 60.8
-------- ------ ------ ------ ----- ------ --------
$2,034.5 $115.8 $(40.9) $(49.4) $ 8.5 $(60.2) $2,008.3
======== ====== ====== ====== ===== ====== ========
(a) includes writedowns relating to restructuring activities of:
Buildings 10.4
Machinery and Equipment 32.3
----
Total 42.7
(b) includes contribution of $6.8 million of Machinery and Equipment
and $1.7 million of Construction in Progress to the Worthington
Armstrong Venture
(c) transferred to/from other accounts and miscellaneous adjustments
- 80 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Property, Plant, and Equipment
------------------------------
Year Ended December 31, 1991
----------------------------
(millions)
SCHEDULE V
----------
Page 3 of 3
Foreign5.9
Balance at Retire- currency Other changes(a) Balance
beginning Additions ments translation ------------- at endEnd of year at cost(a) or sales Debit (Credit) Debit Credit of year
---------- ---------- -------- -------------- ----- ------ -------
LandYear $ 36.18.7 $ .1 $ (1.2) $ (.1) $ .1 $ --- $ 34.9
Buildings 472.6 26.8 (2.5) (.9) 2.5 --- 498.5
Machinery and Equipment 1,360.2 135.6 (52.7) (3.7) .1 (7.4) 1,432.1
Construction in Progress 98.9 (28.7) --- (1.2) --- --- 69.0
-------- ------ ------ ------ ----- ------ --------
$1,967.8 $133.8 $(56.5) $(5.9) $2.7 $(7.4) $2,034.5
======== ====== ====== ====== ===== ====== ========
(a) transferred to/from other accounts, and miscellaneous adjustments
- 81 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Accumulated Depreciation and Amortization of
Property, Plant, and Equipment
--------------------------------------------
Year Ended December 31, 1993
----------------------------
(millions)
SCHEDULE VI
-----------
Page 1 of 3
Foreign9.7 $11.1
- -----------------------------------------------------------------------------
Provision for Discounts
- -----------------------
Balance at Beginning of Year $17.3 $14.0 $13.9
Additions Retirements, currency Other changes(a) Balance
beginning chargedCharged to renewals and translation ------------- at end
of year earnings replacements (Debit) Credit Debit Credit of year
---------- ---------- ------------ -------------- ----- ------ -------
Buildings $184.8 $ 15.9 $ (2.5) $ (2.2) $(.2) $2.7 $198.5
Machinery and Equipment 751.5 104.1 (40.3) (11.0) (2.4) 6.3 808.2
------ ------ ------ ------ ----- ---- --------
$936.3 $120.0 $(42.8) $(13.2) $(2.6) $9.0 $1,006.7
====== ====== ====== ====== ===== ==== ========
(a) transferred to/from other accounts and miscellaneous adjustments
- 82 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Accumulated Depreciation and Amortization of
Property, Plant, and Equipment
--------------------------------------------
Year Ended December 31, 1992
----------------------------
(millions)
SCHEDULE VI
-----------
Page 2 of 3
ForeignEarnings $82.2 $77.7 $69.6
Deductions $79.2 $74.4 $69.5
Balance at Additions Retirements, currency Other changes(a) Balance
beginning charged to renewalsEnd of Year $20.3 $17.3 $14.0
- -----------------------------------------------------------------------------
Provision for Discounts and translation ------------- at end
of year earnings replacements (Debit) Credit Debit Credit of year
---------- ---------- ------------ -------------- ----- ------ -------
Buildings $174.3 $ 15.9 $ (1.9) $ (3.2) $ (2.8) $2.5 $184.8
Machinery and Equipment 707.3 104.9 (34.3) (23.4) (8.8) 5.8 751.5
------ ------ ------ ------ ------ ---- ------
$881.6 $120.8 $(36.2) $(26.6) $(11.6) $8.3 $936.3
====== ====== ====== ====== ====== ==== ======
(a) transferred to/from other accounts and miscellaneous adjustments
- 83 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Accumulated Depreciation and Amortization of
Property, Plant, and Equipment
--------------------------------------------
Year Ended December 31, 1991
----------------------------
(millions)
SCHEDULE VI
-----------
Page 3 of 3
ForeignLosses
- ----------------------------------
Balance at Beginning of Year $27.0 $25.1 $22.5
Additions Retirements, currency Other changes(a) Balance
beginning chargedCharged to renewals and translation ------------- at end
of year earnings replacements (Debit) Credit Debit Credit of year
---------- ---------- ------------ -------------- ----- ------ -------
Buildings $158.3 $ 15.1 $ (2.6) $ (.2) $ -- $3.7 $174.3
Machinery and Equipment 662.1 102.4 (49.7) (2.1) (5.5) .1 707.3
------ ------ ------ ------ ------ ---- ------
$820.4 $117.5 $(52.3) $ (2.3) $ (5.5) $3.8 $881.6
====== ====== ====== ====== ====== ==== ======
(a) transferred to/from other accounts and miscellaneous adjustments
- 84 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
Valuation and Qualifying Reserves
---------------------------------
Years Ended December 31, 1993, 1992 and 1991
--------------------------------------------
(millions)
SCHEDULE VIII
--------------
AdditionsEarnings $85.1 $81.7 $78.0
Deductions $83.1 $79.8 $75.4
Balance at charged Balance
beginning (credited) at endEnd of year to earnings Deductions(a) of year
---------- ---------------- ------------- --------
Assets:
Provision for discounts
and losses - 1993 $32.2 $89.3 $84.0 $37.5
===== ===== ===== =====
Provision for discounts
and losses - 1992 $30.1 $93.2 $91.1 $32.2
===== ===== ===== =====
Provision for discounts
and losses - 1991 $32.8 $80.5 $83.2 $30.1
===== ===== ===== =====Year $29.0 $27.0 $25.1
(a) includes discounts granted and uncollectible receivables, less recoveries
and valuation reserves related to discontinued businesses that have been
classified as other assets
- 85 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
SCHEDULE IX
-----------
Short-Term Borrowings(a)
---------------------
(millions)
Page 1 of 2
Maximum Average Weighted
Category of Average amount amount average
aggregate Balance Year-End outstanding outstanding interest
short-term at end of interest during the during the rate during
borrowings period rate period period the period(b)
------------- --------- -------- ----------- ----------- -------------
Year ended December 31, 1993
- ----------------------------
Commercial paper $ 75.5 3.36% $163.3 $122.8(c) 3.21%
Bank debt 29.9 6.81% 106.5 67.7(d) 9.07%
------ ------
$105.4 $190.5
====== ======
Year ended December 31, 1992
- ----------------------------
Commercial paper $163.3 3.66% $215.1 $171.2(c) 3.78%
Bank debt 60.4 9.53% 65.8 35.7(d) 9.47%
------ ------
$223.7 $206.9
====== ======
(a) the terms and conditions of the various categories of short-term borrowings
were those typically offered by lenders to companies with excellent credit
ratings
(b) based on total periods' interest expense (related to short-term borrowings)
divided by the average amount outstanding during the period
(c) based on daily balances divided by 365 days
(d) based on daily balances divided by 365 days and, in some instances, based on
total of 12 month-end balances divided by 12
- 86 -
ARMSTRONG WORLD INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------------------
SCHEDULE IX
-----------
Short-Term Borrowings(a)
---------------------
(millions)
Page 2 of 2
Maximum Average Weighted
Category of Average amount amount average
aggregate Balance Year-End outstanding outstanding interest
short-term at end of interest during the during the rate during
borrowings period rate period period the period(b)
------------- --------- -------- ----------- ----------- -------------
Year ended December 31, 1991
- ----------------------------
Commercial paper $176.6 5.02% $247.3 $169.9(c) 6.10%
Bank debt 27.6 9.16% 88.0 40.9(d) 8.82%
------ ------
$204.2 $210.8
====== ======
(a) the terms and conditions of the various categories of short-term borrowings
were those typically offered by lenders to companies with excellent credit
ratings
(b) based on total periods' interest expense (related to short-term borrowings)
divided by the average amount outstanding during the period
(c) based on daily balances divided by 365 days
(d) based on daily balances divided by 365 days and, in some instances, based
on total of 12 month-end balances divided by 12
- 87 --33-
EXHIBIT INDEX
Exhibits
- --------
No. 3(a) Registrant's By-laws, as amended, are incorporated by
reference herein from the registrant's 1992 Annual Report on
Form 10-K wherein they appearedExhibits
- --------
No. 3(a) Registrant's By-laws, as amended effective February 27,
1995, are incorporated by reference herein from registrant's
1994 Annual Report on Form 10-K wherein they appear as
Exhibit 3(a).
No. 3(b) Registrant's restated Articles of Incorporation, as amended
are incorporated by reference herein from the registrant's
1990 Annual Report on Form 10-K wherein they appeared as
Exhibit 3(b).
No. 4(a) Rights Agreement dated as of March 21, 1986, between the
registrant and Morgan Guaranty Trust Company of New York, as
Rights Agent, (as to which First Chicago Trust Company of
New York has succeeded as Rights Agent,) relating to the
registrant's Preferred Stock Purchase Rights is incorporated
by reference herein from the Company's 1990 Annual Report on
Form 10-K wherein it appeared as Exhibit 4(a).
No. 3(b) Registrant's restated Articles of Incorporation, as amended,
are incorporated by reference herein from registrant's 1994
Annual Report on Form 10-K wherein they appear as Exhibit
3(b).
No. 4(a) Registrant's Rights Agreement effective as of March 21,
1996, between the registrant and Chemical Mellon Shareholder
Services, L.L.C., as Rights Agent, relating to the
registrant's Preferred Stock Purchase Rights is incorporated
by reference herein from registrant's registration statement
on Form 8-A/A where it appeared as Exhibit 1.
No. 4(b) Registrant's Employee Stock Ownership Plan ("Share In
Success Plan") as amended, is incorporated by reference
herein from the registrant's 1992 Annual Report on Form 10-K
wherein it appears as Exhibit 4(b).
No. 4(c) Copy of Indenture, dated as of March 15, 1988, between the
registrant and Morgan Guaranty Trust Company of New York, as
Trustee, as to which The First National Bank of Chicago is
successor trustee.
No. 4(d) Registrant's Supplemental Indenture dated as of October 19,
1990, between the registrant and The First National Bank of
Chicago, as Trustee, is incorporated by reference herein
from registrant's 1994 Annual Report on Form 10-K wherein it
appears as Exhibit 4(d).
No. 10(i)(a) Agreement Concerning Asbestos-Related Claims dated June 19,
1985, (the "Wellington Agreement") among the registrant and
other companies is incorporated by reference herein from the
registrant's 1993 Annual Report on Form 10-K wherein it
appears as Exhibit 4(b).
No. 4(c) Indenture, dated as of March 15, 1988, between the
registrant and Morgan Guaranty Trust Company of New York, as
Trustee, as to which The First National Bank of Chicago is
successor trustee, is incorporated herein by reference from
the registrant's Form 8-K dated February 1, 1991, wherein it
appeared as Exhibit 4.1.
No. 4(d) Supplemental Indenture dated as of October 19, 1990, between
the registrant and The First National Bank of Chicago, as
Trustee, is incorporated herein by reference from the
registrant's Form 8-K dated October 31, 1990, wherein it
appeared as Exhibit 4.1.
No. 10(i)(a) Copy of Agreement Concerning Asbestos-Related Claims dated
June 19, 1985, (the "Wellington Agreement") among the
registrant and other companies.
No. 10(i)(b) Producer Agreement concerning Center for Claims Resolution
dated September 23, 1988, among the registrant and other
companies as amended is incorporated herein by reference
from the registrant's 1992 Annual Report on Form 10-K
wherein it appeared as Exhibit 10(i)(b).
No. 10(iii)(a) Registrant's Long-Term Stock Option Plan for Key Employees,
as amended, is incorporated by reference herein from the
Company's 1991 Annual Report on Form 10-K wherein it
appeared as Exhibit 10 (iii)(a).
- 88 -No. 10(i)(b) Producer Agreement concerning Center for Claims Resolution
dated September 23, 1988, among the registrant and other
companies as amended, is incorporated herein by reference
from the registrant's 1992 Annual Report on Form 10-K
wherein it appears as Exhibit 10(i)(b).
No. 10(i)(c) 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, providing for
a $200,000,000 credit facility, is incorporated by reference
herein from registrant's 1994 Annual Report on Form 10-K
wherein it appears as Exhibit 10(i)(c).
-34-
No. 10(iii)(b) Registrant's Deferred Compensation Plan for Nonemployee
Directors, as amended, is incorporated by reference herein
from the Company's 1990 Annual Report on Form 10-K wherein
it appeared as Exhibit 10(iii)(c).
No. 10(iii)(c) Registrant's Directors' Retirement Income Plan, as amended
is incorporated by reference herein from the registrant's
1992 Annual Report on Form 10-K wherein it appeared as
Exhibit 10(iii)(d).
No. 10(iii)(d) Registrant's Management Achievement Plan for Key Executives,
as amended, is incorporated by reference herein from the
Company's 1991 Annual Report on Form 10-K wherein it
appeared as Exhibit 10(iii)e.
No. 10(iii)(e) Registrant's Retirement Benefit Equity Plan (formerly known
as the Excess Benefit Plan), as amended, is incorporated by
reference herein from the registrant's 1992 Annual Report on
Form 10-K wherein it appeared as Exhibit 10(iii)(f).
No. 10(iii)(f) Armstrong Deferred Compensation Plan, as amended, is
incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(g).
No. 10(iii)(g) Registrant's Employment Protection Plan for Salaried
Employees of Armstrong World Industries, Inc., as amended,
is incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(h).
No. 10(iii)(h) Registrant's Restricted Stock Plan For Nonemployee Directors
is incorporated by reference herein from the Company's 1991
Proxy Statement wherein it appeared as Exhibit A.
No. 10(iii)(i) Registrant's Severance Pay Plan for Salaried Employees is
incorporated by reference herein from the Company's 1990
Annual Report on Form 10-K wherein it appeared as Exhibit
10(iii)(j).
No. 10(iii)(j) Copy of Thomasville Value Plan of Thomasville Furniture
Industries, Inc.
No. 10(iii)(k) Copy of Thomasville Achievement Plan of Thomasville
Furniture Industries, Inc.
No. 11 A statement regarding computation of per share earnings on
both primary and fully diluted bases is set forth in the
Financial Statement Schedules on pages 25 and 26 of this
Annual Report on Form 10-K.
No. 22No. 10(iii)(a) Copy of registrant's Long-Term Stock Option Plan for Key
Employees, as amended. *
No. 10(iii)(b) Registrant's Deferred Compensation Plan for Nonemployee
Directors, as amended, is incorporated by reference herein
from registrant's 1994 Annual Report on Form 10-K wherein it
appears as Exhibit 10(iii)(b). *
No. 10(iii)(c) Registrant's Directors' Retirement Income Plan, as amended,
is incorporated by reference herein from the registrant's
1992 Annual Report on Form 10-K wherein it appears as
Exhibit 10(iii)(d). *
No. 10(iii)(d) Registrant's Management Achievement Plan for Key Executives,
as amended, is incorporated by reference herein from
registrant's 1994 Annual Report on Form 10-K wherein it
appears as Exhibit 10(iii)(d). *
No. 10(iii)(e) Registrant's Retirement Benefit Equity Plan (formerly known
as the Excess Benefit Plan), as amended, is incorporated by
reference herein from the registrant's 1992 Annual Report on
Form 10-K wherein it appears as Exhibit 10(iii)(f). *
No. 10(iii)(f) Armstrong Deferred Compensation Plan, as amended, is
incorporated by reference herein from registrant's 1994
Annual Report on Form 10-K wherein it appears as Exhibit
10(iii)(f). *
No. 10(iii)(g) Registrant's Employment Protection Plan for Salaried
Employees of Armstrong World Industries, Inc., as amended,
is incorporated by reference herein from registrant's 1994
Annual Report on Form 10-K wherein it appears as Exhibit
10(iii)(g). *
No. 10(iii)(h) Registrant's Restricted Stock Plan For Nonemployee Directors
is incorporated by reference herein from the Company's 1995
Proxy Statement wherein it appears as Exhibit A. *
No. 10(iii)(i) Registrant's Severance Pay Plan for Salaried Employees, is
incorporated by reference herein from registrant's 1994
Annual Report on Form 10-K wherein it appears as Exhibit
10(iii)(i). *
No. 10(iii)(j) Registrant's 1993 Long-Term Stock Incentive Plan is
incorporated by reference herein from the registrant's 1993
Proxy Statement wherein it appears as Exhibit A.*
No. 11 A statement regarding computation of per share earnings on
both primary and fully diluted bases is set forth in the
Financial Statement Schedules on page 30 of this Annual
Report on Form 10-K.
No. 21 List of the registrant's domestic and foreign subsidiaries.
No. 24 Consent of Independent Auditors.
No. 25 Powers of Attorney and authorizing resolutions.
- 89 --35-
No. 28(ii)(a) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993No. 27 Financial Data Statement
No. 28(ii)(a) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1995, for the Retirement Savings Plan For
Salaried Employees of Armstrong World Industries, Inc. is
herewith filed with the Commission.
No. 28(ii)(b) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993 for the Retirement Savings Plan For
Hourly-Paid Employees of Armstrong World Industries, Inc. is
herewith filed with the Commission.
No. 28(ii)(c) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993 for the Retirement Savings Plan For
Hourly-Paid Employees of Thomasville Furniture, Inc. is
herewith filed with the Commission.
No. 28(ii)(d) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1993 for the Armstrong World Industries, Inc.
Employee Stock Ownership Plan ("Share In Success Plan") is
herewith filed with the Commission.
No. 28(ii)(e) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Production & Maintenance Employees for the
fiscal year ended September 30, 1993, is herewith filed with
the Commission.
No. 28(ii)(f) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Salaried Employees for the fiscal year
ended September 30, 1993, is
herewith filed with the Commission.
- 90 -
No. 28(ii)(b) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1995, for the Retirement Savings Plan For
Hourly-Paid Employees of Armstrong World Industries, Inc. is
herewith filed with the Commission.
No. 28(ii)(c) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1995, for the Retirement Savings Plan For
Hourly-Paid Employees of Thomasville Furniture, Inc. is
herewith filed with the Commission.
No. 28(ii)(d) Copy of Annual Report on Form 11-K for the fiscal year ended
September 30, 1995, for the Armstrong World Industries, Inc.
Employee Stock Ownership Plan ("Share In Success Plan") is
herewith filed with the Commission.
No. 28(ii)(e) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Production & Maintenance Employees for the
fiscal year ended September 30, 1995, is herewith filed with
the Commission.
No. 28(ii)(f) Copy of Annual Report on American Olean Tile Company, Inc.
Savings Plan for Salaried Employees for the fiscal year
ended September 30, 1995, is herewith filed with the
Commission.
* Compensatory Plan
-36-